Friday, April 01, 2016

Why should we buy Jamaican?



As we pursue our eternal search for economic development, one focus has been on the need for us to purchase local goods and services in preference to imports. The reasoning behind this seems logical, as it should mean that the balance of payments should improve, and this should mean a stable exchange rate and employment for more Jamaicans.

As a result, there have been many calls for us to ‘Buy Jamaican’. Former senator Norman Grant has been at the helm of this initiative, which, in my view, has reaped much success. Even with this successful campaign, however, we have continued to see currency depreciation, high inflation and interest rates, and increased unemployment over the period. So the question is, why wouldn’t things improve if we had such a successful ‘Buy Jamaican’ campaign?

There are a few reasons for this, and it underlines the fact that simply saying we should ‘Buy Jamaican’ will not improve our economic fortunes.

So while the campaign was very good and necessary, the truth is that we never really supported it with policies that would sustain a move towards consuming more Jamaican-made products and services. In addition to lack of policy stimulus, many local producers have not improved the service and product quality to properly compete with imported products.

The first thing to note is that it is a futile exercise to be pushing a ‘Buy Jamaican’ campaign when we are unable to significantly increase the production of Jamaican goods and services. So what we have failed to do as a country is ensure that appropriate policies address this failing. To do so all we had to do was ask the question – what is it that prevents capital from making long-term investments in locally produced goods and services? In other words, does capital feel comfortable investing for the very long term in sustainable production, and – importantly – locating their facilities in Jamaica?

The answer to this is that government policy has never effectively addressed the issue of being more attractive to capital than our competitors. Sure we have done it by creating special incentives for industries such as tourism, bauxite, free zones, etc. But the fact is that government’s attitude to capital generally has been very wanting.

As an example, tax policy in Jamaica has always pinpointed increasing fiscal revenue as its primary purpose. Never mind that it ends up killing incentives for capital and businesses generally. In contrast, countries like Panama have a direct policy of focusing on attracting capital, and as a result they have consistently grown at 6.0 per cent to 8.0 per cent per annum.

Government policy in Jamaica has always created a hostile environment to capital, and then created special carve-outs for foreign direct investments. Small wonder then that local investors are reluctant to risk their savings and pensions in business ideas.

The fact is that if government policy was focused on addressing the four most problematic factors in the 2016 Doing Business Report: inefficient government bureaucracy, crime and theft, tax rates, and corruption — then not only would we solve 54 per cent of our business challenges, but we would also see increased capital inflows and employment. Instead we have struggled for years to implement a computerised tracking system for development approvals, and then we wonder why growth remains anaemic.

Secondly, many of the Jamaican products and services produced are not able to compete in terms of quality and price.

Price in many instances is again affected by government policy, which seeks to extract as much revenue as possible without much concern for the survival of businesses and their ability to compete. But there are also quality issues with some of the goods and services produced. As an example, last year I took my daughter to the Easter Funfest at Hope Gardens, and it was a great event for children. I got there very early and she was almost alone on the rides so it was good.

This year I went early with her, only to be greeted by blaring music, with speaker boxes lining the route to the rides. The music was so loud that my daughter started crying and wanted to leave, and it was equally unbearable for me and some of the staff. Later I got a video of them having a stage show there with children dancing on the stage to a large audience of cheering adults.

A significant deterioration over last year.

This is a similar story for many Jamaican products and services. They start out well and end up being uncompetitive. This is okay in a competitive market, but the problem is that this mediocrity is supported somewhat by government policy, which in many respects creates significant barriers to entry. The result is that the invisible hand of a competitive market does not get to work properly. For example, something as simple as not enforcing zoning laws allows some businesses protection by allowing them an unfair advantage from a cost point of view. The result is mediocrity.

Other inhibitors are lack of information and inability to move goods effectively. Just look at the deplorable state of most farm roads.

The point is that we should not ‘Buy Jamaican’ just because it is a Jamaican product or service. But rather we should ‘Buy Jamaican’ because it is just as good or better than the imported products.

It is only when we can produce competitively that we will see improved growth and employment. This is because buying an inferior product actually does have economic costs: (i) higher cost of living, (ii) lower productivity and hence lower wages, and (iii) decreased potential for foreign exchange earnings.

At best then, producing inferior products and services will produce a more closed economy which becomes more uncompetitive and produces lower income levels, as happens in Cuba.

If we are to grow the economy at acceptable levels, then we must increase the number of Jamaican products and services. This, however, must be done competitively if we are to benefit.

1 comment:

Tyrone Richards said...

I believe you so correct about how the government's policy focus is formulated i.e. on revenue first instead of long term growth of the economy. They need the money now and in the long term we all die...lol.Jamaica's economic strategy direction is not forward thinking for long term projection, but instead is geared at responding to our annual crisis whereever they crop up eg. Water shortage, budget debt, hurricane, exchange rate pressure, interest rate movements, crime -murder spike.

An old economy model thinking cannot fix these problems. We sit and wait for what is next rather than make what will be the next thing. What is our national policy around water with an aging population that is growing although slowly? Population size in 1962 was 1.2 million now up to 2.7 in 2016, what will be in 2050, 3.8 million with the same water system?

Are we going to have a budget surplus anytime soon. As I see it, right now we are trying to balance our budget that is debt burdened coupled with IMF conditionalies contrictions and a parliament that is shy to pursue exploratory endeavors far removed from the opportunities for corruption hovering over something that well intended but destine to ultimate have unintended consequences. In the end, the tax payer gets the stick for the bill for an exuberance of some kind beit youthful or otherwise.

Natural disasters are just that and when they come, be prepared. I believe hurricane Gilbert has taught alot of lessons and we now are better able to deal with this kind of crisis because of that hurricane experience. In this area our people have shown resilience. But what I would say otherwise is, apart from resilience, the Jamaican people are great mobilizers and that is also an area of strength for us.

The exchange rate pressure is something we have to have the courage to fix. We are similar to Japan with the same issues around currency and debt only that we have not gone to the zero rate interest rate zone (my zrirz). Which takes me to interest rate movements, a competitive rate of interest in Jamaica is in the twelve percent range (12%), but BOJ must get treasury rates down to three and four percent and impose contionalities on reseve ratio requirement to control monetary policy in to prevent inflation and exchange rate pressure. BOJ have to sit down over this pot of economic stew and actively manage it, it can't be left to the finance ministry only. The ministries alone cant be the only people in this economic party. We all must join up, and I mean like really jooinup Jamaican style, just mek sure seh it no look like crop toe when wi done. With that said, let me move to the matter of crime.

We are suffering from a low productivity crisis in our society and it is about to enslave us. We must address low productivity everywhere in government and in the private sector too. Mi tired now. Next time mi write some more.