Friday, September 28, 2012

Cheap energy, low crime key to growth

Over recent months, there have been a significant amount of discussions about the need for an IMF agreement, and what will be our fate with and without one in place.

While I agree that, because of our present circumstances, an IMF agreement is essential if we want to maintain some amount of macroeconomic stability and confidence, the fact is that as a country we really didn't need to have an agreement if we had addressed certain structural issues.

Improving law and order is a critical structural issue that needs to be addressed for there to be growth in Jamaica.

I believe that an agreement was necessary at the time of the 2008 global crisis, simply because the fact that markets were closed meant that an IMF agreement would instill confidence in our financial partners. However, if you look at what needs to be done to solve our balance of payments problem, and our growth challenge, and resultant fiscal issues, it will become obvious that if certain structural issues are resolved, then an IMF agreement becomes redundant.

I am not going to go into any detail on this, as I have done so on many occasions. But suffice to say that oil and food account for 45 per cent of imports, or just about US$3.5 billion. If certain structural issues were addressed, that results in a 30 per cent reduction in the cost of these items, then we will be speaking about an annual reduction in FX outflow of US$1.05 billion. You would also be looking at eliminating your trade deficit in four years, and local economic activity would expand.

Two of these structural issues I want to look at today are energy and crime, as I believe that these two are the most pressing issues we face. Certainly not the IMF agreement. And until we realise this fact, and solve it, then we will have a very long marriage with the IMF.

The issue of energy I have always maintained is the largest financial crisis we face, as the cost is a major deterrent to doing business in Jamaica. It is a primary reason why most businesses are formed in services, rather than production. Recently, however, there was an announcement that the government is going to change its role in the LNG project.

I see no problem with that, as long as no one electricity production company controls the supply of LNG. This could lead to monopolistic practices, which would put us back in the situation that Paulwell is trying to rid us of. I have also always maintained that I do not see any significant savings from LNG. The truth is that I don't care if someone wants to invest their money in it, as long as the minister continues to push for liberalisation of the production and distribution of multiple sources of energy.

The other critical structural issue that needs to be addressed — if we want to see growth in this country — is law and order. This includes crime, and particularly the brutal crimes we have seen over the last two weeks. I say law and order because if we are to solve the incidents of murders and rapes, which we all are so sensitive to, then even though legislation changes, such as DNA, and better investigation training is necessary, it is far from sufficient.

When I hear people talk about the need for tougher legislation and greater crime-fighting resources, I wonder if we are really serious about solving crime. Or more importantly, if we really understand what is necessary to fight crime. Recently, five brutal rapes were committed. I hope that the response is not like when we had a spate of missing children, including young Ananda at the time, where everyone responds with disgust and then it is forgotten until another outrageous incident occurs.

Because if we are really serious about solving crime, and at the same time fixing the economy, then we cannot be speaking about measures to deal with criminals, after the crime is committed. We will need to address the problem of lack of law and order, that is what leads to crime. We must deal with the indiscipline on the roads, the violation of the night noise act, the violation of the zoning laws, and, very importantly, the very slow process of the court system.

What we need is a society ruled by law and order. Not one where we are concerned about the murders and rapes when they occur, but as citizens still continue to practise the indiscipline on the roads and ignore our neighbours' right to peace and quiet.

There is a very strong link between law and order and economic growth and investment. People, and companies, don't reside in a country just because murders and rapes are low, which of course is necessary. But they reside in a country because there are opportunities and the society is a disciplined one, where people's rights are respected and enforced quickly.

So while we continue to comment on the IMF agreement, we must remember that, while it is necessary given our predicament, that it will not by itself solve our problems with prosperity and growth. If we get an IMF agreement without addressing the structural challenges, then we will still continue to face balance of payments, fiscal and economic issues.

24 comments:

Unknown said...

is cheap energy really possible in jamaica without proper regulation of the sector... i mean every energy company compete world wide with the same pricing structure..oil price is the same all around the world..yet they are able to deliver energy at cost to the end consumer that are 1/7th of what jamaica pay.. how is this> i will tell you.. our poor track at regulating monopolies... they are more obsessed with ensuring that jps maintians an attractive rate of return of capital that they are not spending in jamaica... thats the main source of the problem... regulate like elsewhere and we will see rates drop by at least 70... to hell with guaranteed rates of return for investors who are risking no capital and reaping massive returns while all of jamaica suffers

miami said...

Good idea of IMF agreement!
Miami Dodge

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