Saturday, January 02, 2016

2016 must be a year for growth



As was expected, 2015 was a turning point for the economy and the fiscal accounts.

In 2015 the Jamaican economy started to see the benefits of the economic reform programme (ERP) and ended the year in a very strong position, with third-quarter growth of 1.5 per cent, the fastest-growing stock market in the world, multi-year lows in both interest and inflation rates, and improved business and consumer confidence.

All of this resulted from the perseverance of policies to maintain fiscal discipline and create the legislative framework that would bring greater competitiveness to the market. As a result Jamaica saw our debt to GDP ratio fall to 126 per cent (from 150 per cent in 2012), improving fiscal balances, and the first balance of payments surplus in 10 years, which by itself is a game changer and a significant achievement.

This performance was strengthened by the fortune of lower oil prices, the PetroCaribe debt buyback, and — up until recently — near zero US interest rates.

Without these occurrences, we would still have seen improvement in the economy — but at a much slower pace.

Also, from a regional perspective, Jamaica is poised to regain its place as the “Powerhouse of the Caribbean”, with the Trinidad and Barbados economies now in free fall, as low oil prices and policies against offshore financial havens take a toll on both economies.

Trinidad in particular is in for a rough ride, as oil prices are projected to remain low until maybe 2020, and by that time it could be further impacted by new sources of energy.

Micro level challenges

With all these macro achievements, however, Jamaica’s economy is still in a very vulnerable state, as there are still challenges at the micro level to address.

These risks include (i) an inadequately trained labour force (which resulted from periods where approximately 70 per cent of secondary school leavers left without passing one subject); (ii) crime and indiscipline, which is a major inhibitor to maximising our productivity; (iii) a still struggling SME sector, which, although conditions have improved, still struggles with capacity issues and bureaucracy in doing business; and (iv) an uncompetitive tax structure.

The fact is that unless we address these four major issues — which account for the majority of the most problematic factors in the Global Competitiveness Report — we will not successfully maximise our growth potential. This means that the benefits of growth for the economy, fiscal accounts and general standard of living will take longer to be realised.

This is important because even though we have been seeing the benefits at the macro level and specifically the fiscal and trade accounts, the fact is that the widespread micro effect has not been felt as yet. This is expected in any economic recovery. However, a failure to have widespread benefits in a timely manner will mean that economic activity and spending could be inhibited and lead to a loss of confidence.

In effect, therefore, we have done a very good job as it relates to the ERP, and the effect on the fiscal accounts and other macroeconomic indicators. Much commendation is due to those who have been charged with implementing and overseeing the ERP. However, similar to when a company is being restructured, expenditure management can only have short-term benefits. For the recovery to be sustained, you have to work on the revenue side.

As it relates to the country this means that we must now turn our focus to higher levels of GDP growth in 2016, as 1.5 or 2.0 per cent is insufficient to see the much needed impact on the middle and lower income classes.

In order for this to happen, it is going to be very important to focus on deliberate policy actions to address the issues of inefficient public sector bureaucracy, crime and indiscipline, more efficient justice system, more competitive tax rates and tax compliance, and — very important for me — labour market reform and workforce productivity.

Labour market reform and workforce productivity will be a critical success factor in 2016 if economic growth is to be above the low levels we are used to. It also is going to be a very important factor to increase the value added and compensation to labour. In other words, unless we are able to improve the productivity of the labour force, the standard of living generally will not significantly improve.

Therefore deliberate policy action geared towards education and productivity is going to be essential.

This for me will be the most critical factor for fundamental benefits of growth. That is to ensure that the average man on the street benefits from growth, as to do so they must be able to participate at the highest value added.

Some of the actions that can be taken include (i) vocational training programmes at HEART; (ii) focusing loans from the Students’ Loans Bureau on professions that will be in demand; and (iii) labour market reform.

If we are able to successfully address this and the other issues mentioned, then I have no doubt that we can achieve growth in excess of 3.0 to 4.0 per cent and Jamaica will once again be the envy of the Caribbean.

Honesty is very much alive

An incident occurred which gave me hope in our young people. Recently a friend of mine lost his phone at an event and gave up hope that it would be recovered only to receive a text from a young lady to say that she had found the phone and wanted to return it. She arranged to meet him and return it and refused to take any compensation and said she only wanted to return the phone because it was the right thing to do.

This single action certainly has bolstered my faith in the youth, and I want to say,’Well done, Lindesia’. She is a Political Science student at UWI.

1 comment:

Tyrone Richards said...

The questions that worry me are which area of our economy will the growth come from and how will the growth be realized in the current conditions without a mindset change?

Labour market reform, vocational training needs and the related cost, public sector inefficiencies, crime and indiscipline, government revenue model and law and order issues that beset Jamaica are all big macro picture items that need addressing. But there are some metadata behind these items that really does count in the grand scheme of things but most times only a few of us count those things.

I was at a gas station yesterday and a young man drove up and stop in the drive way of the pump rendering two available pumps inaccessible to others. He alighted the car and was heading into the store to buy phone card as he explained when told not to park there. Nice car, well breached out skin and "girl inna car". I intervened and instructed him to remove the car and park it where he should and he conformed. What drove him to believe he could do that and get away with it? Most of the problem we as a people have been having for the recent decades of our development are the things we've doing that we have been getting away with without sanction or action to restore order and rule of law or some other social good for the benefit all.

We copy things out of mimicking our environment, so if disorder is the order of the day then disorder is what we will copy and that will in essence spiral until there is a crisis of sort or we are just of control and there is breakdown instead of breakthrough. Globalization is a form of copying, in that, we see what works at other places/spaces/environment and we follow that model with a view of getting the same result and maybe with a little tweaking a little different result better or worse.

What can we learn from China in globalization? What can we learn from Israel in the face of innovation? What can learn India in the field of technology? What can we learn from Singapore in the area of law and order or better yet, social conformity?

If we want economic growth we have to look around at other global partners and mimic what they do in the area we want those similar benefits. This may require some investigation and investment, but while is it not easy it is not impossible and is just merely hard. Who is gonna do it?

The government will not do it because it lack the ability and the private sector needs a blueprint or some form of copy cat machine sold somewhere in a bar and country club somewhere. Jamaicans experiment with ideas, but we don't scale to the rest of the world and that is part of the reason we are have not grown like we would want to see. The Israel lesson for me is population growth despite the ever continuous threatening presence of terrorism. Their population have grown from 1.3 million in 1950 to 8.2 million in 2014. My point here is that Jamaica is not growing it's population fast enough to see the expected 5-8% growth rate it is expecting. Our population growth does not have to be organic, Singapore's population growth was not organic, it is one of those great fusion of societies like the USA. With fusion of nations you get greater spending and a spreading of the native culture to other regions of the world.

We have a liberal immigration policy, but who is exploiting this option? The Chinese of course. They come here and is slowing taking over the entire retail market and remitting the profits outside of Jamaica. It would be interesting to know the foreign exchange outflow from Jamaica annually as oppose to remittance coming in.

People come with skills and different mindset and can pollinate locals and germinate ideas locally for export abroad.

I will stop here for now.