Friday, October 26, 2012

Sandy reveals our vulnerabilities

HURRICANE Sandy has, based on media reports, had a devastating impact on Jamaica. From media reports we will be left with a bill of billions, something we can ill afford now. It will no doubt change the IMF negotiations flavour and result in having more relaxed targets. Any other approach could prove suicidal to our economy.

There are reports of widespread flooding, damaged infrastructure, at least one life lost, and downed trees. This comes when the world is going through their own economic challenges, and in particular Europe (including the UK) and the US, which are our largest donor countries. This implies that the economic aid we have become used to, after disasters, will not be what we are used to, which has never been enough.

Let us remember that this was only a category one hurricane, and we must give thanks for that, else we could have been seeing much more significant damage to our very fragile economy and infrastructure. I deliberately did not say “natural disaster”, as my friend Leachim Semaj would remind me that there are no natural disasters, there are only disasters caused by man’s actions. This is true of the situation Jamaica faces after Sandy.

The fact is, the reason we have so much damage and displacement is because of poor leadership and governance since Independence. It is due to poor governance why we find ourselves in the situation where we still court the IMF in an on-off relationship, since the 1970; why our real per capita GDP is what it was in the early 1970s; why the Jamaican dollar was more valuable than the United States (US) dollar in 1969 to where one US dollar now buys in excess of 91 Jamaican dollars; why law and order generally, murders, in particular, has got so bad that Jamaica is known just as much for reggae music and athletics , as its criminals. I could go on.

So when I hear of persons being flooded out, damaged infrastructure, persons at shelters asking for pampers, or of Jamaicans risking their lives to pick up fallen fruits off downed trees so they can eat dinner; I know it results from poor governance.

Because if we had any idea of what vision we wanted for this country after we received political independence then we would not be where we are today.

I don’t know if anyone else sees it, but we are rapidly getting closer to Haiti than to other countries. What we must understand is that these situations do not happen overnight, but with continued neglect and degradation over time. If we do not start seeing reality, instead of ignoring the signs by saying we should look at positives only, then we will be there soon.

The blame of where we are today, however, is not of our leaders only, but all of us. We were the ones who continuously elected our leaders, even though they neglected us during the five years between elections, and won our affection back with a plate of curry goat, a beer and a rental car. This is the majority electorate, but there were some also who sold their souls to the politician for a waiver or favour. This culture is so chronic that the hotel I wrote about last week was willing to offer only me, of all the dissatisfied Jamaicans, some redress because I threatened to write about the experience.

I know we are not serious about development because we have failed to recognise what will really solve our problem. Unless we see that our fundamental problem is productivity and the balance of payments, then we will always be courting the IMF. I have on many occasions pointed out that addressing our energy crisis and law and order are the only things that will solve our economic, social and fiscal challenges. Anything else is fiddling while Rome, I mean Jamaica burns.

The irony is that addressing these challenges will mean less economic and social pain for Jamaica, than the fiscal approach the IMF has only three years after espousing austerity indicated it was an incorrect approach, and is now supporting stimulus along with responsible fiscal spending. As far as I am concerned, responsible fiscal or personal spending should be in place even in good times. In good times you should save and invest to ensure that in bad times you can spend. The simple logic of Keynesian economics.

I cannot understand why we have not been able to address the energy crisis. Let me first say I agree with the Government’s decision to reduce their involvement in the LNG project. Apart from the fact that Government should rightly, as Paulwell always says, not have any role in determining the energy choice, my view from the start has always been that coal is a much better option for Jamaica, from a cost and supply perspective, for industrial use.

For retail use I am very much in favour of renewable energy. I have personal experience to show. My last light bill was $2,663, and I was able to have electricity when JPS went down during Sandy and the batteries powered my refridgerator, lights, phone batteries, and the radio throughout the night. While I have electricity, my Internet provider’s service went down, which is the frustrating part. This from a system I started three years ago, and added to it as able to, and I am now almost off the grid, which I don’t want to be as the wise financial decision is to use the cheaply provided first 100 KWH from JPS.

Imagine if we had kept the GCT on electricity and used it to create a fund that could provide a credit to persons who install renewable energy at home. The benefits would have been (i) permanent energy use reduction in the short run; (ii) increased disposable incomes; (iii) increased productivity; and (iv) reduction of approximately US$300 million ($27 billion) to US$400 million in imports. Combine that with providing JUTC another $1 billion per year to roll out a much more comprehensive service, reducing the need for personal transportation. This could reduce our import bill by another US$300 to US$400 million. And then if we improve law and order, and add another $50 billion (conservative) to the economy. We would solve our fiscal, economic, and some social issues all at once, and it could be done within six to twelve months.

Instead we have created a situation where our people risk lives to pick up fruits off fallen trees during a hurricane, after 50 years of self-governance. Indeed, Sandy has revealed our vulnerabilities, which in my mind is more in the way we have governed ourselves. Indeed Leachim, there are no natural disasters, only disasters created as a result of man.

Friday, October 19, 2012

Cycling: A lesson for Jamaica’s development

LAST Saturday, I was among a group of men and women, who cycled from Kingston to Negril, as a part of an annual charity ride. Respect is due to these men and women who pay to ride, and support charity each year, enduring 158 miles and approximately 11 hours of pain.

We started the journey in two groups, at 4:30 am and 5:15 am, setting out on the route over Mount Rosser via Fern Gully to Montego Bay and on to Negril. There was an immense amount of planning before, as preparations had to be made for the riders with refreshment and one lunch stop, appropriate support vehicles, police escorts, and ambulance support.

Much like with cycling over long distances, economic development requires planning and preparation for challenges. (Photo: GeS)

This is one of the first areas Jamaica fell down in. We never really determined the route we were going to take to development, and therefore never really prepared and laid out milestones. The result is that we have taken many paths but never seeming to reach because we have never known our destination. We were certain we wanted political independence, but then what.

As we set out, the first real hill we tackled was Mount Rosser. A very important lesson was learned here. Those of us who have ridden that hill before know that you need to manage your energy going up the hill and approach it between seven and nine miles per hour (mph). There were overseas cyclists who went up the hill with a burst, and were soon seen walking with their bicycles up the hill. We completed the hill at our moderate pace.

In similar fashion, Jamaica has never really planned for challenges, and always seem to be reacting. Two examples come to mind. The first is that every year we seem to be caught off guard by nature — rains or hurricanes — simply because our system of parish governance never seems to truly keep the country in a state of readiness. We know that heavy rains come every year, but we do not keep drains cleaned or have heavy sanctions for people who litter. We continue to allow people to build in vulnerable areas after they have been flooded. Or we fail to apply proper town planning and allow businesses to invade residential areas, eventually turning them into slums.

Secondly, in 2008 when it was apparent that the world was going into recession, we never looked perturbed, and acted as if it was going to pass us by. When we started to prepare was when the worst had passed globally, and even today we still do not seem to have come to grips with it. In other words, we knew that the hill was coming but still continued to ride at 20 mph.

The next challenge was going down Fern Gully in the pouring rain, and even more, getting to the end of Fern Gully and meeting the everlasting road works. We were fully aware of the dangers of Fern Gully when it is dry, and when wet it is more dangerous, as you have little brakes. However, if you are aware of the danger, then you ride a certain way — slowly and what we cyclists say as in your drops (holding on to the lower part of the handlebar). Failure to do so will result in what happened to some persons — you fall and suffer serious pain.

What was most discomforting though was the man-made challenge of the road work at the end of fern gully, which is illustrative of the disregard we have for taxpayers in this country. How can we be doing that sort of work in a tourist town (forget about the insignificant citizens for a while) and have the road in that state, and even so for such a long period. We must show our people respect. But I guess they love it as I have heard no complaints.

After a few more hours of riding we made it to Montego Bay, where we stopped to have lunch. We were feeling the pressure of the ride, and wanted to finish, but knew that if we didn’t stop to eat lunch the probability was high that, even though we may finish, we could have done so with much more suffering.

This is a lesson for the world, not Jamaica alone. In perilous economic times, stimulus is necessary. You may be able to make it through but what is the sense of doing so if you are going to make your suffering worse in the process.

With 10 miles to go I was riding behind some cyclists who allowed a gap to open between the group in front. After 148 miles I had little energy to catch up with the group and hit a mental block. Two cyclists (Richie Bowen and Chris Foster) rode up at 25 mph — I was down to 19 mph — and gave me their wheel, which means ride behind them and be protected from the wind to build back my momentum. However, I was not ready to respond until a minute later when Chris Bicknell came at the same speed and gave me his wheel and I went with him. After a few minutes we were tiring and slowing to 21 mph, Billy Perkins went in front and carried us up back to 26 mph.

There are two lessons for Jamaica. We can only develop if we stop the tribalistic approach to politics and come together as a nation, and we can’t join organisations, and expect to benefit, without first being ready ourselves. The EPA, Caricom, and the CCJ come to mind. These are good for us, but only if we prepare ourselves to take advantage of them.

Even with all the pain of the ride, it was fun and for a good cause. The worst part was when I got to Ocho Rios, and after nine hours and 23 minutes in the saddle (total ride time), I, along with other guests, spent two hours trying to check in at Riu, even though we made reservations before. The other experiences at the hotel were very good, but to get to them was a problem.

What really irked me though was when I expressed my disgust and said I was going to write about it, at that time I was asked what could be done to make it better for me. There was no such gesture before to the other guests. I flatly refused the offer as it would have meant that I would have compromised my principles. How could I accept an offer selfishly, when all the other Jamaicans were suffering also? I was insulted that they would think I would have done such a thing, but maybe others have before, and could be the reason why we continue to receive such service in this country.

Tuesday, October 16, 2012

Growth options for Jamaica

STATIN'S final estimate of the 2012 second quarter growth, shows that the economy declined by 0.2 per cent, when compared to the similar 2011 period. This was as a result of declines in the Goods Producing and Services sectors of 0.2 and 0.1 per cent, respectively, and was the second consecutive quarter of decline being registered.

The truth is that this decline was always expected, given the fiscal consolidation measures, the resulting decline in employment, and the fact that the transport projects have not yet come on stream fully. This is also in light of the fact that the global market has weakened, and the IMF has even downgraded its projection for global growth, which forecast has been impacted by the continuing Euro zone crisis and the impending "fiscal cliff" in the US. If the latter is not resolved soon, then we could be looking at even further declines in the global market.

Increasing production of crops, such as Irish potato, will help to reduce Jamaica’s massive food import bill.

What do these scenarios hold for Jamaica's immediate future? This is especially in light of the pending IMF agreement. The reality is that the IMF agreement, whenever it comes, is really just a band-aid solution on a really bad cut. All it will do is slow down the haemorrhaging, but cannot solve the challenges we face. In order to get on to a path of sustainable development, we must deal with our structural issues. My own view, is that it is because of these fundamental structural issues, coupled with the global slow down, why the IMF has recently downgraded the growth forecast estimates from one per cent to negative 0.5 per cent.

My opinion, however, is that Jamaica, even now, has the capacity to grow even beyond the initial one per cent projection if we were to aggressively adopt the correct fiscal policy options. If we will do it depends on execution, which we have not been accustomed to in Jamaica as far as I can remember.

The first thing we must do is realise that our long-standing focus on the fiscal, to the detriment of the trade, side of the equation is a primary problem we face. The reason for this is that the country's economic challenges come primarily from the fact that we have had a continuous balance of payments deficit, which has resulted in the following:

* Exchange rate depreciation

* Increased debt

* Relatively high interest rates

* Relatively high unemployment rate

* Relatively high inflation rates

* Continued fiscal deficits

These in turn result from crime, low productivity, bureaucracy, and relatively inefficient taxation systems.

Therefore it would seem obvious that if we do not apply policies that fix the challenges of productivity, crime and bureaucracy, then we will not be able to increase the needed competitiveness of our production in order to reverse our BOP fortunes. Without fixing these issues then it is only a temporary solution to get another IMF agreement. We have been flirting with the IMF since the 1970s, and our economic performance has been much less than adequate.

It would seem to me therefore that the policies that we have pursued over the decades have not supported sustainable economic development. The only way for us to deal with this situation is to earn more than we do externally. The logical approach therefore is to resolve the issues of productivity, law and order, bureaucracy, and our tax system. The latter is being dealt with through tax reform but will not be meaningful unless the other structural weaknesses are addressed to a significant measure. This of course if we want to see true economic development take place.

My own view therefore is that the forecast of negative 0.5 per cent is only realistic if we do not address the structural issues. If, however, we take steps to address the structural problems then growth of above one per cent is very probable.

The straightforward BOP areas that can give us those benefits are energy and food. These account for 45 per cent of imports, and therefore it would seem logical that driving policies, within the context of scarce resources, must focus on dealing with these BOP areas. The question therefore is what is causing these imports to be so high. How can we reduce our energy cost and food import bill? This is the question we need to address.

I have on many occasions gone through the strategies we need to adopt to reduce the energy and food import bill, and so will not address here again. Suffice it to say if we reduce these costs by 30 per cent then it would eliminate the trade deficit and solve our fiscal and macroeconomic challenges. The fact also is that this is a path of lesser resistance than trying to deal with challenging external competitiveness head on, as this requires for us to deal with our internal competitiveness, which is necessary before we can even start to think seriously about external competition.

My own computations indicate that if we are to effectively address these structural issues, then you could see an effect of approximately $100-billion improvement in the GDP. The big question, however, is will we seriously challenge these structural issues, having not done so effectively before.

The need for this is even more evident, given the study of debt by the IMF recently that concluded that fiscal consolidation without policies to drive growth will only result in economic stagnation.

So my view continues to be that Jamaica can see growth in excess of the previously projected one per cent, but only if we approach fiscal policy from the angle of addressing certain structural deficiencies.