Friday, February 04, 2011

A SWOT analysis of Jamaica's economy Part 2

THE article last week generated quite a bit of interest from persons in and outside of Jamaica, with many wanting a deeper breakdown of the SWOT analysis. While I am not able to provide a complete analysis because of space constraints, although needed, it was always my intention to go into more specifics.

A SWOT analysis is nothing more than a snapshot that tells at a point in time what the various areas of the analysis are. This would be the same approach one takes to a business plan, and is a very logical and objective way of properly assessing the current situation of a company or country. My own view is that fixing the economy and society is not a difficult task. What we have always lacked is the will to place the interest of the country above that of the party. I will try to outline below some of the initiatives that can have the greatest positive impact on the country's development.

In looking at what was produced by the SWOT analysis, what you want to do is strengthen (or maintain) the strengths, fix the weaknesses, develop the opportunities, and minimise (or eliminate) the threats. If you can successfully do this, within the context of your agreed objectives, then it will lead to greater development.

But you will never have enough resources to do all the things that need to be done. So a government, for example, has a limited amount of funds available to it but has a multitude of challenges to address and calls for help to answer. How do you then decide which one to address, and when? The when is important because timing is of course critical. The way to do this is to determine what the most efficient use of your resources are.

As an example, if you have $1,000 and can either pay off debt that costs 20 per cent per annum, or put away the money at 10 per cent per annum, then it seems more prudent to pay off the debt, and save 10 per cent of $1,000. On the other hand, you may be running a business and therefore may need cash resources of $200 to ensure that the business will not be threatened. You may therefore choose to pay off $800 in debt and maintain $200 in debt and $200 in cash. The direct cost of that decision is $200 times 10 per cent but there may be an opportunity benefit, as if you were cashless the cost to the business might have been much more.

Similarly, as a country we should do the things that add the greatest value in the shortest possible time. That is if a decision adds value of $1,000 in five years, it may not be as valuable as one that adds $300 in one year. This is the sort of analysis that needs to take place if we are to maximise our resources.

What then are some of the major initiatives that I think will add the greatest benefit to Jamaica? If our objective is economic and social development, and in particular, the best improvement in per capita income and social interaction, then we must focus on those things that cause these to happen. This for me means improving the quality and standard of living. The way to improve the quality and standard of living is to ensure (i) a basic respect for the human rights of every Jamaican citizen; (ii) universal access to a minimum standard of education and health care; (iii) increased opportunity for greater income levels; (iv) structure and discipline in the society, so that everyone can enjoy quiet and civility when interacting with others, for example when driving; and (v) a prosperous private sector, which in turn can create jobs. I do not, and never will, believe in the government trying to pick winners or providing massive amount of welfare for communities. This merely discourages an efficient market, undermines productivity, and in the end causes corruption and disorder in society. Another spin-off, which we know all too well, is that this results in significant debt.

Therefore we need to focus on the things that will increase private sector productivity and competitiveness; and also improve the quality of life of people. The latter is necessary, as even if you are wealthy and live in a society with high levels of indiscipline, your quality of life is still substandard.

So for me therefore, it is a no-brainer. I want to improve my strengths but realise that that does not necessarily mean focusing on the strengths. If I were to focus on the weaknesses then that would serve the purpose of removing the weaknesses and improving the strengths. So the first order of business for me would be to deal with the culture of indiscipline. In doing this I would strengthen tourism, improve productivity and production, and improve tax compliance. The other positive of focusing on this is that it does not require any resources really, what it needs is greater accountability. So if the police and public sector were held more accountable, then they would implement the regulations already on the books. So just imagine the police did the simple job of strictly enforcing discipline on the road and the Noise Abatement Act. Just imagine if the KSAC enforced the zoning laws. Just imagine, if instead of a bureaucratic public transformation process we put accountable people in charge of public bodies, and schools, and give them the authority and held them accountable when they failed to meet agreed objectives. These things don't take any additional resources but have far-reaching effects in strengthening the quality of life, improving productivity, and reducing crime.

Secondly, I would break up the JPS monopoly and encourage persons to invest in renewable energy and put a few billion dollars into the JUTC to create an efficient and secure public transportation system. These two initiatives could result in approximately US$600 million per year in import savings, and eliminate the trade deficit in four years.

My third focus would be to reform the tax system to encourage private sector development, and export in particular, rather than the narrow focus on the fiscal that we have practiced for decades. This would include moving away from direct towards indirect taxation, and removing the incentives from industries to rewarding foreign currency earnings. The government has recognised the need for reform, and the $6-billion investment is welcome. What we must ensure is that the reform is not just about collecting more for government but more importantly will focus on tax reform to encourage private sector development and exports.

If these three areas are focused on then it will take care of most of the items identified on the SWOT. So, contrary to the content of some of the responses I received, it does not matter if the list of weaknesses is longer than the strengths, as the value added from focusing on just a few of the weaknesses will significantly reduce the list of weaknesses and threats.

The result of focusing on these three areas will definitely mean development, and real growth for Jamaica. So I don’t consider it difficult, but it must be a deliberate strategy with specific and measurable objectives. The real solution would be to introduce the separation of powers, but that may be a lot more difficult to achieve in the current environment.

Much more analysis is needed on this, but again space does not permit.


Anonymous said...

It is always amazing to hear policy makers speak about issues that they have done little or no research on.You say you would breakup the JPS and encourage investments in renewable energy, well you seemed to have noticed that Wigton has been selling electricity generated by wind - a renewable source - to JPS for over 15 years now. Which also means that JPS no longer has a monopoly on the generation of electricity. They however own the distribution network, which they would happily sell to you or anyone who wishes to purchase it!!

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