Tuesday, December 30, 2014

2015 prospects for Jamaica

        Agriculture has a critical role to play in our development.

AS we come to the end of 2014, it is traditional for us to think about what will happen in the New Year. Apart from tradition, however, the end of a year is always used as a mark to measure progress and look towards the future.

2014 has been a year of mixed fortunes, and indeed a transformative year. This is reflected in the progress made under the economic programme, as well as the many transitions in the legislative framework, and society. For example, we saw the following:

* Economy -- fiscal improvements. The foreign exchange market went from volatility to stability and further end-of-year movements; the stock market seems to have levelled off as expected; significant improvement in the Doing Business Report; and businesses experienced mixed fortunes and a new normal in the competitive market emerged.

* Legislative framework -- much change was made in the legislative landscape and we saw many proposed legislative amendments being made, based on public feedback. Overall, however, my own view is that much progress was made.

* Society -- improvement in policing methods and lowering of crime statistics; more vibrant civil society, resulting in greater input in policy actions (eg response to Mario Deane incident); reduced unemployment and also reduced real wages; and, I think, greater effort by authorities to come to grips with some of the societal challenges, although much remains to be done and enforcement is still not where it should be.

My biggest disappointment is that we were not able to make more progress in the public sector reform and bureaucracy issues, because although some movement has been made, this still remains a major stumbling block to businesses.

I think, as we go into 2015, however, we could see further improvements in our economic and social development. But this is going to depend to a great degree on how leadership deals with the issues that will face us.

In other words, we are going to need strong leadership, which must be equitable and come down on the side of justice and fairness, as this will be the only way to balance the competing interests in the society for the benefit of the entire country.

On the economic front, I believe that we stand a good chance of a more vibrant economy as we have dealt with many of the structural issues facing the fiscal and macroeconomic environment. Although there are some significant targets remaining under the economic programme, it is my view that the significant legislative and other reforms made have laid a foundation for us to move forward positively. But this is going to depend on how we handle the advantages we have gained. These include:

1) Fiscal -- I think that the Government has made significant strides in laying a foundation to continue fiscal discipline, and we have seen the benefits in our accounts. However, we must now realise that fiscal discipline alone cannot carry us much further, as all this does is control expenditures while what is needed now is growth. So it is going to be important that we implement policies and legislation that encourage businesses to grow, and particularly SMEs. Much of the infrastructure is still not conducive to a supportive business environment, and unless we are able to change these positively, then we will come to a standstill. This is going to require continued collaboration between the public and private sectors, as one hand can't clap.

2) Governance -- There have been some stormy discussions over governance in 2014, and we must continue the dialogue to address this, as governance is going to be key to building trust, which is the basis of economic and social progress. Governance, however, is much more than at the national level and includes things like enforcing simple laws such as those dealing with road usage, night noises, and littering. It also includes ensuring that public sector bodies follow proper board and reporting governance.

3) Energy -- Over the past few months we have seen oil prices falling significantly, approximately 50 per cent, but there is a concern that consumers have not seen the full benefit. This is important to take advantage of, as falling oil prices create an excellent avenue for providing economic stimulus as it will mean more disposable income in the hands of consumers for the local economy.

4) Macro economy -- The Bank of Jamaica has a critical role to play here, as with the adjustments happening in the economy it will have to know how to tweak money supply; for example, to balance the fear of a moving exchange rate and the need for adequate liquidity. Any miscalculation could put a spoke in the wheel of the economy's development.

5) Agriculture -- I think agriculture has a critical role to play in our development, as many new enterprises can emerge from this, particularly export-led ones. The problem with our agriculture is that it has been highly disorganised and is based more on subsistence farming than large-scale farms. This is unsustainable in a competitive market, and so the agro-parks are a critical component of a future industry. What is going to be important is that we ensure that the proper management is in place to ensure that agro-parks deliver on their potential. If we are able to maximise this area, then there is also a large potential to supply local produce in place of much of the US$1-billion food imports.

6) Tourism -- This is another area of significant potential. However, our inability to enforce environmental laws, deal with squatting, tourist harassment, and littering, and develop our infrastructure is not allowing us to maximise our competitive advantage. With the opening up of Cuba to the US market, it is even more critical to have a well-planned approach to deal with this. This, of course, includes crime, which is a scourge on not only tourism but also business in general.

These are some of the issues we will face in 2015, and whether we are successful or not will depend on what leadership is provided. We have certainly shown that we have the capacity to confront issues, as we have done with the economic programme, and must now ensure this infects other areas.

As we go into 2015, however, as citizens we must also reflect on our individual responsibility to ensure we are compliant with proper law and order and do our part to move the country forward.

Happy holidays and much prosperity in 2015.

Friday, December 12, 2014

Great need to transform Jamaica's labour force

JAMAICA seems set to pass the sixth International Monetary Fund (IMF) test, underlining the fact that we have, no doubt, been making progress in establishing the framework on which development must take place.

I say this against the background that the legislative and fiscal initiatives put in place have been successful in ensuring some amount of stability and confidence in the economy. We see that there is more acceptance of Jamaican debt, and businesses are expressing the view that goods have become more competitive with the depreciation of the exchange rate.

This has also culminated in an improvement of 27 places in the Doing Business Report 2015, which is a reversal of the movement in ranking that we have been seeing in the past few years. This positive change in ranking, however, is as a result of the improvement in the legislative framework in particular. However, it has not translated itself into meaningful improvement on the ground, and this is where the challenge lies for us.

The fact is that businesses still see bureaucracy as a major stumbling block, and people are seeing a real decrease in their disposable incomes. We also note that even though there are improvements in the macroeconomic numbers, and in particular the balance of payments, the fact is that this has come as a result of contraction and specifically a decline in both imports and exports.

The challenge facing the country then, is this: How can we achieve the real GDP growth needed, which will not only ensure greater levels of income but also bring sustained stability in the economic and social framework?

At the heart of this problem is productivity, and specifically the low levels of labour productivity we have been experiencing. This speaks to the unpreparedness of our labour force to adequately compete in a global environment. We face a daunting challenge: How do we transform the labour force from low productivity to one of high productivity?

This is the only formula that leads to sustained economic and social transformation, which should be our ultimate goal. It is also this transformation that will give us the real GDP growth needed to turn around our economic fortunes.

My own experience is that while we may have greater educational opportunities available, our labour force is neither innovative nor sufficiently focused on problem solving to effectively compete globally. And if you think about it, labour is the driving force behind every product or service that is produced.

So if labour is not competitive, in terms of innovation and value-added thought processes, then the resulting product or service will not have the desired competitiveness in a global market.

So how do we transform the labour force?

The first thing we must do is understand what role we want labour to play in a highly competitive economy and society. This also means establishing some societal goals such as income levels and standard of living.

We have never really, from a policy perspective, established what is labour's role in a competitive economy, and therefore there has never really been any link between economic planning and education planning. In other words, we have failed to put our people at the centre of our development.

Second, if you want labour to be competitive, then you must create the environment for productivity, thought, and innovation to thrive. Everyone who is involved in managing people knows that if you don't have a conducive environment to encourage productivity, then people are not going to produce at maximum.

The truth is that as a country we have not created that environment over the years, and this stems mainly from distrust between the citizens and the security forces, Government, the public sector and other stakeholders.

One of my pet peeves has always been that the way we set up our laws, and rules governing public sector workers, for example, assumes that no one is to be trusted. So we have procurement rules and tax compliance certificate regulations, which seem to assume, first, that everyone is dishonest and then they have to prove honesty.

Or we have an environment where the security forces over the years have failed to win the confidence of citizens. So how can we expect a productive labour force if we don't facilitate an environment to encourage it?

Third, it is important that we create a culture of pay for performance. And I speak specifically of the public sector, where reward is more based on seniority and connections in many respects. There is a lot of talent in that sector, which will not be maximised unless we adopt the model of rewarding performance.

Fourth, we need to incorporate education plans into our economic objectives. So the monies lent through the Students' Loan Bureau, for example, should be tied to what skills we will need to move the economy forward. Government should also offer scholarships in those skill sets, instead of using our scarce resources to fund skills that are highly unlikely to get a good job, given Jamaica's comparative advantage.

The last thing I will mention, but which is very important, is that we need to create an environment of discipline and rules. One of the major challenges with labour is that people have grown up with a lack of proper values and are generally undisciplined.

This has resulted, in large part, from the fact that we do not enforce laws, which may be as simple as night noise, littering, child abuse/protection, or the indiscipline on the roads. If we do not address this indiscipline, then we are teaching our children -- our future work force -- that it is acceptable to deviate.

And so it is important for us to understand that as we move into a critical phase of the economic programme, that economic and social transformation are necessary in order to create real sustainable growth. But this is only possible if we transform our labour force into a highly productive one, which means taking the necessary steps to do so.

Friday, December 05, 2014

Overcoming the challenge of poverty

Jonah Johnson shows the kitchen where he cooks for his family. (FILE PHOTO)

ACCORDING to the recently released 2012 Survey of Living Conditions (SLC), Jamaica has recorded an increase in poverty levels between 2009 and 2012.

"The all-Jamaica individual poverty prevalence increased by 2.3 percentage points relative to 2010 to reach 19.9 per cent," the survey stated. This was not totally unexpected, as the global recession hit us in 2008, and capital markets were closed to us amidst a stalled International Monetary Fund (IMF) agreement up to 2013. So it was unlikely that, without global capital market support, Jamaica would have seen any improvement in poverty levels.

One of the primary reasons for this is that , since the 1970s, Jamaica has managed to see improvements in poverty levels only as a result of increased borrowing rather than productivity improvement. That, however, was not sustainable as it was not based on earnings.

So, at the heart of our poverty challenge is the fact that since the 1970s, productivity levels, and labour productivity in particular, have been on a downward trend. As a result, Jamaican-produced goods and services have become less competitive globally, and this has contributed to the increased levels of poverty that we continue to experience.

The only way for us to overcome this poverty challenge is to increase productivity, and in particular labour productivity. For us to do this we have a lot of catching up to do. In developed countries robots are now being used instead of humans in warehousing, agricultural production, and many other industries.

In the meantime, we are grappling with an unemployment rate, hovering around 12 per cent, and relatively low literacy levels. Add to that equation the indiscipline of our labour force and the need for labour reform, and you see the challenge we have with labour and labour productivity.

It is important that we understand this, as the only way for us to sustainably reduce poverty, and even more if we are to improve per capita GDP to the levels of comparable countries, is if we are to significantly increase labour productivity. This is because earnings are a function of productivity, and therefore average wage levels will not increase (without debt) if we do not see first an increase in labour productivity.

The way we have chosen in the past to reduce poverty and increase earnings is primarily through the welfare influence of the State. What we have done is borrowed money (resulting in a $2-trillion debt today) and distribute it through government activity and programmes, with no relation to what the most productive use of that debt is. The result being that we are not able to pay back the debt, culminating in a debt burden that is fiscal, economic, and social.

Now that we have finally chosen the path to reduce our debt burden, and bring about the necessary fiscal reform, it was always going to be inevitable that we would see an increase in poverty levels. This is especially so during the period of the SLC, where we had no international capital support (debt) and there was an economic recession.

From 2012 to now, we have seen where the economy has made fiscal and monetary improvements, after the IMF agreement got back on track. The result has been improvements in the macroeconomic and trade indicators. But this improvement has not been as a result of economic expansion, but rather contraction. This, of course, was not unexpected, as there were so many inefficiencies in the system that it was inevitable that the economy had to contract before it started to expand, and particularly since much of the economy depended on debt, from which we are trying to wean ourselves, just like a drug addict going through withdrawal symptoms.

This, however, is not a sustainable path either, as we could contract to a point where it becomes difficult to start growing again. We are definitely not yet at that point, but you don't wait until you are weakest to try and regain your strength.

I believe the necessary legislative and fiscal reforms are being made, but the major challenge that we will face centres around labour productivity in both the public and private sectors.

The greatest challenge we will face to the turnaround of our economic fortunes is the labour force, and how we improve labour productivity. We must find a way to maximise the productivity of labour, especially in a world where menial tasks are being automated. This is also the only way to reduce poverty, as reducing unemployment by providing low-paying jobs does not reduce poverty, but institutionalises it instead.

So one of the first challenges we have is improving not just the literacy rate, but more importantly training our labour force to become problem-solvers and innovators. This must be one of the primary focuses of learning institutions.

Secondly, we need to use our scarce resources to focus education around the skill sets that we will require to expand our economy. It makes no sense using scarce government resources to educate people in a field where there will be very little or no demand for the skills.

Finally, as a general comment, we must quickly implement the labour market reform called for in the economic programme/IMF agreement.

There are many other initiatives I can think of that would contribute to improved labour productivity, but these are some main initiatives to focus on. What is important for us to understand, though, is that the only way to reduce poverty sustainably is to focus on improving the labour factor productivity to globally competitive levels.