Friday, June 02, 2017

Jamaica needs a strategic plan for sustainable economic growth

In my view, the last two weeks represent one of the worst periods for economic news in recent times for Jamaica. We saw the report coming out from the PIOJ about the effects of the $1.5-million tax package, which showed the regressive nature of the tax package and the effect on those at the lowest income levels; the non-trial of the Cash Plus/Carlos Hill case after nine years - which once again shows the ineffectiveness and inefficiency of the justice system; the slowdown and slight reversal of the business and consumer confidence survey findings; and the flat first quarter GDP numbers for 2017.

All these made for a very bad period of news for Jamaica, which was only outdone by the self-inflicted nuclear-like effect caused by Donald Trump's tweets.

The truth is that I can't say that any of this is surprising though, and that really is the sad part.
If we look at them individually, we can assess them as follows:

o¨ Cash Plus “non-trial” is really just a continuation of the poor justice system we have, as over the years we have seen many instances of stalled trials, and the truth is that most of the successes we have had are really from “imported justice”, and I guess since we import everything else, why not?

o¨ Effect of the $1.5-million tax package is exactly what we at the PSOJ had indicated would happen, at the time when Mahfood was President, and in fact is exactly the thing that the 2012 Private Sector Tax Working Group report had seen happening and had recommended ways to address.

o¨ Business and consumer confidence downturn is somewhat expected, as coming off the expected euphoria of the tax package, then naturally expectations would decline. However, an even greater long-term concern is two trends I noticed as I charted the indices since 2014. First, the trend since 2014 is that the Current Business Conditions index is always higher than the Expected Business Conditions index, and the one time when they were almost the same was in 2015 when the Current index fell to meet the Expected index. This implies that businesses always have a less favourable view of the future than the current situation. Secondly, for the first time since 2014, the consumer expectation index is lower than the current condition index. Both these indices also have not considered the recent tax package. My understanding is that it features heavily in the research being conducted in the second quarter confidence findings.

o¨ The flat GDP outturn for Q1 2017, while somewhat unexpected, is not a huge surprise, as the drought conditions at the start of the year were expected to impact. The fact also is that whenever agriculture is negatively impacted, the risk to growth is always on the downside.

The challenge we face is that the second quarter may actually be worse than the first - or so it feels.

I say that for a few reasons. The tax package would have been implemented during that period, and we know the outcry surrounding the property tax. The rate of depreciation of the Jamaican dollar had increased, and although not anything to be alarmed about, the psychological impact of $130 could play here. Also I am not sure what effect the continued negative image of US politics is having (such as we see with reduced remittance flows reported in the confidence survey), and finally the costs associated with the recent flood rains, which should continue the negative effect on agriculture in addition to GDP losses.

What we must not do though - as we have done in the past — is dwell too much on our misfortune, but use this as an opportunity to refocus and redouble our efforts.

What we also must not do is excuse the performance with explanations, and not accept the fact that it is our reality.

What we must do this time is keep our eyes fixed on the ambitious target of five per cent growth by 2020, and determine what must be done to achieve this.

What I can further say is that achieving five per cent growth in three years means that we cannot do the same things we have always been doing and expect different results. It also means identifying all, and more precisely, the main impediments to achieve this target, and we must be in a hurry to fix them.

In other words, we cannot work within the same bureaucratic processes and expect to achieve the target of five per cent growth in 2020. In fact, it is this same bureaucratic process that is ranked as the number two problem to business in Jamaica, and so we cannot expect to work within that same system and achieve anything different.

Saying that, we also must realise that just following the IMF initiatives will also not give us the five per cent target. If the IMF model is based on a maximum three per cent growth, then logically it means that we must first ensure we maintain the baseline growth of the 1.5 per cent, ensure the IMF deliverables that will give us three per cent, and also we will have to implement additional initiatives to get us to five per cent.

For me this means saying to the PIOJ, put six per cent growth in 2020 in your model and tell me what I must do to achieve it, and then we have to focus on the major impact and low-hanging items to get to that five per cent. It is only by visioning this target (through the PIOJ model), establishing initiatives and timelines to get there, assigning accountabilities, and going against the system that has stymied our growth, that we will get to the target we desire.

It also means not only seriously taking steps to tackle the obvious GDP robbers of crime (approximately four per cent of GDP) and bureaucracy (maybe another two per cent of GDP), but also doing so in a hurry, which for me means not continuing to allow the procurement system, for example, to continue to keep us underperforming. But at the same time we must hold people accountable for breaches. Very importantly, it also means quickly bringing efficiency and confidence to our justice system.

The fact is that the only logical and realistic path to getting to sustainable economic growth is to chart a strategic plan, after creating a vision of that growth, and realising that to get there we must of necessity do things differently.

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