Last week 'Butch' Stewart made a commitment to invest US$100 million in a Portland hotel, but cited the lack of proper infrastructure and the need for the reopening of the Ken Jones aerodrome. Dennis Morrison stated that the Ken Jones aerodrome was not suitable for development, and that the needed J$2 billion would not be spent as the development of the highway would solve the access problem. My own view is that even with the highway an airport may be necessary if we want to go for the high-end tourists.
I had to take a drive down to Portland and was appalled at the poor road infrastructure. Even with the prevalent potholes the parish is still the most beautiful part of the island and the neglect is representative of the way in which we have ignored the development of the country. It seems as if Jamaica is not open for development. Even though we love to blame the government, a part of the problem is that very few members of the private sector are committed to real development instead of paper returns.
Bureaucracy
A big problem is the high levels of bureaucracy to get a project under way. It is said that in New Zealand, for example, one can set up a company in half an hour. In Jamaica it takes days going into weeks. Even after that, try to get a tax compliance certificate (TCC) or a licence. The TCC process is a symbol of the mindset of bureaucracy, as it treats everyone as a criminal, and fosters corruption. I mean, wouldn't a business-friendly environment be one that uses negative assurance in the process rather than requiring that everyone have a TCC? It would be better to blacklist those out of favour with the tax laws instead of requiring a TCC from everyone. Instead everyone is treated as suspicious, and the process creates inefficiencies and costs for legitimate businesses.
Looking at Portland I have to wonder if we are really serious about development. This, the most beautiful parish, is languishing for need of adequate infrastructure. From Kingston it took over three hours to get to Portland, avoiding the sea of potholes. This is a country that has its most productive foreign exchange earnings coming from tourism. I say productive because remittances are not productive earnings. If we are serious about developing tourism and jobs, why have we for so long neglected the most beautiful parish and left the youngsters to languish and a possible investment in the lurch?
Last week a government official called me to advise that 'Butch' Stewart receives the same tax benefits as overseas hotel investors, and what I wrote last week could be misconstrued as saying the contrary. I am happy to know this because incentives for local entrepreneurs must be applauded. These concessions will never be enough, though, if the infrastructural support is not present, as at the end of the day it is not concessions that drive investment decisions but returns.
It may have been better to spend Air Jamaica's annual J$10-billion loss on Portland so that the economy can develop and foster prosperity. Isn't it better to spend the money where greater value can be created? I really would love to know about the country's development plan. If I were spending the funds the first question I would ask is, which projects can I underwrite that will create long-term developmental value and which ones are easiest to attack? I doubt that Air Jamaica would be in the top 10, but I stand to be corrected.
We must spend our scarce funds so that the country's long-term viability is not sacrificed. And it is not only the economy that is threatened but our unique culture and environment also. These two are integral to the tourism product and we continue to deplete them. Increasingly we chip away at the uniqueness of the Jamaican tourism product until shortly we will lose the competitive advantage.
Vote Jamaica
Last weekend someone said to me that this election we should not vote JLP or PNP but for Jamaica. In other words, we should not be voting based on charisma, polls, who gives bun and cheese, free health or education, but rather on what are the best developmental policies being offered. It was within this context that I was heartened by the live broadcast of the JLP rally last Monday, where I thought Bruce Golding spoke to the real issues to be addressed. But what I found most heartening was his commitment to constitutional reform of a system that places so much power in one set of hands. I am happy to see that he will once again make the separation of powers a focal point. It is important that we hold him to this, as this is the primary reason why in the year 2007 we are still killing each other over politics. The US campaigning continues in earnest but at the same time the capital markets show record highs. In Jamaica while we await the election date everything comes to a standstill. Golding properly addressed the failing of our institutions, such as the public health and judicial systems. I hope that all politicians will start to discuss the issues and stop disrespecting the intelligence of Jamaicans.
Wesley Hughes stated recently that the lack of talent is the main crisis Jamaica faces. If we are moving towards developed country status then we need talent and properly functioning institutions. Democracy, protection of human rights and development cannot happen without these. Until we develop proper institutions and hold on to our most talented, then it makes no sense talking about development. If we really want to create jobs then we must start by developing our country rather than bringing one-time projects. One-time projects only provide temporary jobs, not development. We have to bring out the value in the assets that give us our competitive advantage. We have to develop areas such as Portland that have the greatest tourism potential. We have to reorganise our agriculture away from small farm plots to one where economies of scale can be realised. We have to protect the rights of the citizens and give them opportunities for education to the highest level. We have to improve our public transportation systems such as roads.
These are things that need to be done if we are to develop. We shouldn't feel happy growing at just over two per cent per year, which will most certainly be reduced this year.
So if I were a foreign businessman looking at Jamaica for long-term investment I would say that this country is not serious about development and find another country to put my money. Not just because of government bureaucracy, but because the focus of the private sector has been mostly about paper and not real investments.
JPS
Speaking about development, Mirant has really given us a bad deal. After all the "hoopla" when they came on the scene and what they were going to do, here we are a few years later.
Mirant has made hundreds of millions of dollars on the backs of poor Jamaicans. The island wide power cuts over the past few days really demonstrate that nothing has been done to improve the electricity infrastructure. It couldn't be that they are sabotaging the government in favour of the JLP.
In all seriousness, though, in a country that is paying billions daily to service debts, and has a problem with productivity, we should never tolerate this sort of situation from JPS, which has nothing more to offer than PR cover-ups. It's time for the authorities to pull a power cut on them.
Friday, July 06, 2007
Friday, June 29, 2007
Allocating priorities
Last Wednesday, I attended a forum put on by the Taking Responsibility group on 'Jamaica's Foreign Policy: The Economic Development Link', where a report was presented that discussed foreign policy in Jamaica since independence and sought to make a link with economic development. When the group first came on the scene and presented its paper on 'The Jamaican Economy Since Independence', I thought that this was just another academic group, that would produce mountains of paper to add to the growing pile of studies and reports we have amassed over the years. Well, after reading the report, and listening to the discussion, I no longer have a doubt, and I'm convinced that they will produce nothing more than academic information for students and to attain professorships.
One of the main problems we have had in this country is that we are brilliant at studying and saying what the issues are, but never seem to get to the point of implementing. There are many eye-opening studies (and commissions) that have been done, correctly outlining the challenges we face as a country but which are never implemented. We have even had citizens of the calibre of Douglas Orane and Peter Moses contributing their time in leading studies and making some solid recommendations. But they have never been implemented. Soon we will call for a study to determine why the studies were never implemented.
Nine-day wonder
Someone once said to me that the purpose of the various studies and commissions is never to seek solutions for implementation but to give the impression that something is being done. And in our true 'Nine-Day Wonder' style, after the reports are published and discussed for a few days in the media, then we forget about them. So we hear statements from politicians such as it's time for us to forget about the Trafigura affair, as it has been discussed enough, or that we need to stop talking about the wasted funds on the Trelawny monument to elephants, and start thinking about how we can now make money from it. Never mind the fact that billions of dollars have been wasted and the trust in public institutions has diminished considerably, as accountability is never important.
So back to the academic report from Taking Responsibility. Both reports mentioned above do not come with any concrete steps for moving forward and ensuring economic development in Jamaica. Instead, the reports outline generally what they believe got us to this point and, even more generally, what needs to be done, but propose no specific tasks and timeline needed for action.
Coincidentally, the same morning I was discussing with Ronnie Thwaites and Ralston Hyman, the ascendancy of Gordon Brown as the UK's prime minister, and what the implications for the UK were. During that discussion, Ronnie asked a question, which I think was most important, what are the implications for Jamaica? In other words, how can our foreign policy take advantage of the evident changes that will be ushered in with Gordon Brown?
The answer of course is a question I asked the forum, without getting an answer. How did we arrive at studying Jamaica's foreign policy without first addressing the real issues here at home? In other words, why do we seek to put the cart before the horse, as we do with many other things? It seems to me that before we get to studying Jamaica's foreign policy that there are some more fundamental issues to look at. After all, Jamaica's foreign policy has been nothing more than seeking debt, aid, and foreign investments. The problem, of course, is that the foreign policy is only supporting what the domestic policies are.
Economic development
Therefore, it would seem logical to me that the approach should be to first address the challenges with domestic policy, ensuring that they are properly aligned with economic development.
The truth is that our domestic policies are not geared towards economic development, but rather at keeping the status quo afloat to hold onto state power. This is the way that we have operated since independence, irrespective of who is in power. The objective of governments has never been economic development, but political power. So when we fought for, and gained independence in 1962, we were more interested in political rather than economic independence. And this objective is supported by the way our constitution was crafted. The only thing that changed for us was who was placed in the Great House, not the abolition of it.
So because of our domestic policies, our foreign policy is supporting the wrong path. Is it any wonder then that we have not achieved anything more from foreign policy than signing new debt agreements and getting some foreign investors, after giving up tax revenues? My question would be, after all the money that we have spent on the numerous embassies around the world, and trips here and there, what have we achieved? The only thing we seem to have done is sunk this country into greater debt and poverty. Wouldn't it have been better to rationalise the embassies, as recommended by Douglas Orane, and use that money for education, health, and crime? And then we ask ourselves where can we get money from to fund education and health services?
The report by this group makes five main recommendations that, from a 56- page report, take up one page. The other 55 pages are dedicated to describing the problem. Now if that is not an academic report then I don't know what is. What we need is not only the identification of issues, but specific steps to achieve these recommendations with the agreement of course, of all the stakeholders. Some of the issues described in the report also I think are not true. One such is that Jamaica, as a small state is a price taker. That may have been true decades ago but not so in an age of globalisation where information is accessed at lightening speed. Many companies and countries have demonstrated this. As a matter of fact, small means that one can be more nimble.
In a market the truth is that all players are price takers, and this is determined by product/service quality, supply and demand. We have products such as our coffee and ginger that we do not have to compete with in a strict price range because of the quality. Our tourism potential is so great that if we were to take care of it we could be demanding higher prices. We just have to look at what 'Butch' Stewart has done so successfully with Sandals. Instead of giving a tax break to local entrepreneurs such as Butch Stewart to develop the tourism product, we would much rather give tax breaks to overseas investors.
Our priority, of course, is not about economic development, so we go for the quick money from foreign investments rather than the stable money of organic growth. So business persons such as 'Butch' Stewart will have to succeed against the bureaucracy and the investigations into scandals such as Whitehouse, which will turn out to be a grand waste of time as nothing will come from it.
But such is our culture. We are great at studying and reporting, and this is the sensationalism that our citizens demand. We are more concerned with what politicians say than what they do. I bet if the question were asked of the Observer, which is the most read page daily, they would say page two. The one that shows the parties and images of well-being.
One of the main problems we have had in this country is that we are brilliant at studying and saying what the issues are, but never seem to get to the point of implementing. There are many eye-opening studies (and commissions) that have been done, correctly outlining the challenges we face as a country but which are never implemented. We have even had citizens of the calibre of Douglas Orane and Peter Moses contributing their time in leading studies and making some solid recommendations. But they have never been implemented. Soon we will call for a study to determine why the studies were never implemented.
Nine-day wonder
Someone once said to me that the purpose of the various studies and commissions is never to seek solutions for implementation but to give the impression that something is being done. And in our true 'Nine-Day Wonder' style, after the reports are published and discussed for a few days in the media, then we forget about them. So we hear statements from politicians such as it's time for us to forget about the Trafigura affair, as it has been discussed enough, or that we need to stop talking about the wasted funds on the Trelawny monument to elephants, and start thinking about how we can now make money from it. Never mind the fact that billions of dollars have been wasted and the trust in public institutions has diminished considerably, as accountability is never important.
So back to the academic report from Taking Responsibility. Both reports mentioned above do not come with any concrete steps for moving forward and ensuring economic development in Jamaica. Instead, the reports outline generally what they believe got us to this point and, even more generally, what needs to be done, but propose no specific tasks and timeline needed for action.
Coincidentally, the same morning I was discussing with Ronnie Thwaites and Ralston Hyman, the ascendancy of Gordon Brown as the UK's prime minister, and what the implications for the UK were. During that discussion, Ronnie asked a question, which I think was most important, what are the implications for Jamaica? In other words, how can our foreign policy take advantage of the evident changes that will be ushered in with Gordon Brown?
The answer of course is a question I asked the forum, without getting an answer. How did we arrive at studying Jamaica's foreign policy without first addressing the real issues here at home? In other words, why do we seek to put the cart before the horse, as we do with many other things? It seems to me that before we get to studying Jamaica's foreign policy that there are some more fundamental issues to look at. After all, Jamaica's foreign policy has been nothing more than seeking debt, aid, and foreign investments. The problem, of course, is that the foreign policy is only supporting what the domestic policies are.
Economic development
Therefore, it would seem logical to me that the approach should be to first address the challenges with domestic policy, ensuring that they are properly aligned with economic development.
The truth is that our domestic policies are not geared towards economic development, but rather at keeping the status quo afloat to hold onto state power. This is the way that we have operated since independence, irrespective of who is in power. The objective of governments has never been economic development, but political power. So when we fought for, and gained independence in 1962, we were more interested in political rather than economic independence. And this objective is supported by the way our constitution was crafted. The only thing that changed for us was who was placed in the Great House, not the abolition of it.
So because of our domestic policies, our foreign policy is supporting the wrong path. Is it any wonder then that we have not achieved anything more from foreign policy than signing new debt agreements and getting some foreign investors, after giving up tax revenues? My question would be, after all the money that we have spent on the numerous embassies around the world, and trips here and there, what have we achieved? The only thing we seem to have done is sunk this country into greater debt and poverty. Wouldn't it have been better to rationalise the embassies, as recommended by Douglas Orane, and use that money for education, health, and crime? And then we ask ourselves where can we get money from to fund education and health services?
The report by this group makes five main recommendations that, from a 56- page report, take up one page. The other 55 pages are dedicated to describing the problem. Now if that is not an academic report then I don't know what is. What we need is not only the identification of issues, but specific steps to achieve these recommendations with the agreement of course, of all the stakeholders. Some of the issues described in the report also I think are not true. One such is that Jamaica, as a small state is a price taker. That may have been true decades ago but not so in an age of globalisation where information is accessed at lightening speed. Many companies and countries have demonstrated this. As a matter of fact, small means that one can be more nimble.
In a market the truth is that all players are price takers, and this is determined by product/service quality, supply and demand. We have products such as our coffee and ginger that we do not have to compete with in a strict price range because of the quality. Our tourism potential is so great that if we were to take care of it we could be demanding higher prices. We just have to look at what 'Butch' Stewart has done so successfully with Sandals. Instead of giving a tax break to local entrepreneurs such as Butch Stewart to develop the tourism product, we would much rather give tax breaks to overseas investors.
Our priority, of course, is not about economic development, so we go for the quick money from foreign investments rather than the stable money of organic growth. So business persons such as 'Butch' Stewart will have to succeed against the bureaucracy and the investigations into scandals such as Whitehouse, which will turn out to be a grand waste of time as nothing will come from it.
But such is our culture. We are great at studying and reporting, and this is the sensationalism that our citizens demand. We are more concerned with what politicians say than what they do. I bet if the question were asked of the Observer, which is the most read page daily, they would say page two. The one that shows the parties and images of well-being.
Friday, June 22, 2007
Tis the season to be silly
So I was watching the nightly news three nights ago when a thought came to me that politicians have got the media to support the silliness of the election season. This is obvious because of the nightly reports of political rallies aired in the name of giving equal air time to all. I mean I understand the concept but should we continue to air every bit of nonsense that comes from the mouth of our politicians. When I watch the news and hear the blatant promises of gifts being belted out by our politicians, and the resounding response by the crowd, I am saddened that after 45 years of independence this is the best that we can do.
After 45 years our politicians are still promising us the same deliverance from poverty they did in 1962. So nothing has changed. They still make the same promises and we still believe them. Who is more stupid, the fool or the one who continues to follow the fool? After all this time the media continues to present this display to the Jamaican people, who unashamedly show delight at every word shouted by our politicians. The media is indeed behaving like a drug addict that needs to have its daily fix of political crack. My opinion is that we need to cease the glorification of this “Paris Hilton” type of political discourse and start contributing to the building of our nation by focusing on the real issues that will move us forward.
US political campaign
When I look at the US political campaign and compare it to ours I understand why we are a developing country and they are developed. When I listen to the media coverage in the US and compare it to ours I understand why we celebrate underachievement and mediocrity. I do accept that even the US politicians have flashes of “soap opera” type performances but in the main the focus is on policies that will contribute to development. Commentary in the US surrounds foreign policy (Iraq e.g.), tax policies, health care, and immigration issues. In Jamaica of course our focus is on who said what, when, and where; who went on peace marches and who did not; who will supply piped water, fix roads, or build community centres; which poll was not published; who gave out bun and cheese; and the list goes on and on of promises to give a fish rather than teaching people to fish.
Of course the people gobble up the promises because our politicians have managed to successfully keep them illiterate in the most part, where over 80 percent of children leaving school do so without one subject. And the media, which should include educated persons, supports the propaganda by focusing on petty issues rather than the important determinants of our success. It is as if we have all forgotten that (1) while the region is growing at an average of 5 percent, we are growing at under 2.5 percent, and an average of only 1 percent per year; (2) we have official debt of almost $1 trillion; (3) we have a sugar industry and airline that is hemorrhaging $ billions per year; (4) we have a police force that is not only under equipped to fight crime but is also unable to solve murder cases effectively; (5) we have a literacy rate of 80 percent while competing countries are at close to 100 percent; (6) government bureaucracy is stifling the private sector; (7) we face challenges in a global environment, such as competition from China and global warming; and (8) how we do we plan to control our expanding energy bill and ensure consistent power supply. The list of real issues is too long for this column but we do not hear of any solution in the coverage of the rallies.
I have to conclude that our politicians do not consider us sufficiently intelligent to understand the real issues and confine us to promises of roads, water, security, and a few nights of curry goat and beer, as if we are at the nine-night preceding the burial of our country. The irony is that it seems as if this is what we enjoy. I guess it is human nature, as even internationally many people would rather watch coverage of Anna Nicole’s promiscuity and Paris Hilton’s childish fits than understand what is happening with economic development. It’s just that we seem to have a lot more of those people than everyone else. So each night the media continues to air the latest “Jerry Springer” episode of the campaign rallies.
Economic development
One of the issues I would have thought we would have focused on is how we can ensure that Jamaica continues to grow at comparable rates to the international community. Because while we continue to lose ourselves in the euphoria of promises the ship of global economic progress continues to sail past us. The region is again projected to grow at around four to five percent for this year, and we are on target to grow at two percent or less by my projections.
The PIOJ, for example, is involved in the very important task of putting together a national development plan. While this has been publicized there is no discourse from our politicians on what this should include. Is it that they don’t understand it or they do not think that those attending political rallies, or watching the nightly news, will understand it? Or maybe it’s a combination of both, because based on some of the commentary I hear coming from the mouths of those on the campaign trail I have to wonder if they really appreciate what is needed for moving their communities forward.
We need more people like Andrew Holness and Peter Bunting in representational politics, that is young and more importantly understand the issues that need to be addressed. But then again representational politics can be such a slimy issue that one’s stomach can easily turn at its produce. So if I did wear a hat I would certainly lift it to these gentlemen, who not only have the courage to represent the people, but have demonstrated to me that they understand what needs to be done to move Jamaica forward. And there are maybe a few more such persons, but the great majority fails to qualify.
Our politicians, however, are nothing more than salespersons who are trying to get state power and will tell us anything that will secure our votes. It is therefore the responsibility of all of us to demand real discussion of the issues. Let them tell us how they plan to bring sustained economic development to Jamaica. What are the policies they will embrace to move this country forward? We could possibly have election in July, and we have not yet seen any manifesto. But based on the media’s preferred coverage of the “tracings” by candidates of their opponents I wonder if this would even get adequate coverage.
In many constituencies it does not matter who the candidate is as we do not vote for candidates but for a political party, and which ever leader makes us feel best. Even if a cockroach is put to run it would not make a difference.
So I am appealing to Jamaicans, and in particular the media, not to focus on the curry goat politics that has led us to our present economic situation after 45 years of independence, but rather focus on understanding what politicians have to offer in terms of developing Jamaica and hold them to it. This is a big concern not only for me but the many responses I get to my columns and blog, from Jamaica and around the world, but it seems as if we are in the minority.
After 45 years our politicians are still promising us the same deliverance from poverty they did in 1962. So nothing has changed. They still make the same promises and we still believe them. Who is more stupid, the fool or the one who continues to follow the fool? After all this time the media continues to present this display to the Jamaican people, who unashamedly show delight at every word shouted by our politicians. The media is indeed behaving like a drug addict that needs to have its daily fix of political crack. My opinion is that we need to cease the glorification of this “Paris Hilton” type of political discourse and start contributing to the building of our nation by focusing on the real issues that will move us forward.
US political campaign
When I look at the US political campaign and compare it to ours I understand why we are a developing country and they are developed. When I listen to the media coverage in the US and compare it to ours I understand why we celebrate underachievement and mediocrity. I do accept that even the US politicians have flashes of “soap opera” type performances but in the main the focus is on policies that will contribute to development. Commentary in the US surrounds foreign policy (Iraq e.g.), tax policies, health care, and immigration issues. In Jamaica of course our focus is on who said what, when, and where; who went on peace marches and who did not; who will supply piped water, fix roads, or build community centres; which poll was not published; who gave out bun and cheese; and the list goes on and on of promises to give a fish rather than teaching people to fish.
Of course the people gobble up the promises because our politicians have managed to successfully keep them illiterate in the most part, where over 80 percent of children leaving school do so without one subject. And the media, which should include educated persons, supports the propaganda by focusing on petty issues rather than the important determinants of our success. It is as if we have all forgotten that (1) while the region is growing at an average of 5 percent, we are growing at under 2.5 percent, and an average of only 1 percent per year; (2) we have official debt of almost $1 trillion; (3) we have a sugar industry and airline that is hemorrhaging $ billions per year; (4) we have a police force that is not only under equipped to fight crime but is also unable to solve murder cases effectively; (5) we have a literacy rate of 80 percent while competing countries are at close to 100 percent; (6) government bureaucracy is stifling the private sector; (7) we face challenges in a global environment, such as competition from China and global warming; and (8) how we do we plan to control our expanding energy bill and ensure consistent power supply. The list of real issues is too long for this column but we do not hear of any solution in the coverage of the rallies.
I have to conclude that our politicians do not consider us sufficiently intelligent to understand the real issues and confine us to promises of roads, water, security, and a few nights of curry goat and beer, as if we are at the nine-night preceding the burial of our country. The irony is that it seems as if this is what we enjoy. I guess it is human nature, as even internationally many people would rather watch coverage of Anna Nicole’s promiscuity and Paris Hilton’s childish fits than understand what is happening with economic development. It’s just that we seem to have a lot more of those people than everyone else. So each night the media continues to air the latest “Jerry Springer” episode of the campaign rallies.
Economic development
One of the issues I would have thought we would have focused on is how we can ensure that Jamaica continues to grow at comparable rates to the international community. Because while we continue to lose ourselves in the euphoria of promises the ship of global economic progress continues to sail past us. The region is again projected to grow at around four to five percent for this year, and we are on target to grow at two percent or less by my projections.
The PIOJ, for example, is involved in the very important task of putting together a national development plan. While this has been publicized there is no discourse from our politicians on what this should include. Is it that they don’t understand it or they do not think that those attending political rallies, or watching the nightly news, will understand it? Or maybe it’s a combination of both, because based on some of the commentary I hear coming from the mouths of those on the campaign trail I have to wonder if they really appreciate what is needed for moving their communities forward.
We need more people like Andrew Holness and Peter Bunting in representational politics, that is young and more importantly understand the issues that need to be addressed. But then again representational politics can be such a slimy issue that one’s stomach can easily turn at its produce. So if I did wear a hat I would certainly lift it to these gentlemen, who not only have the courage to represent the people, but have demonstrated to me that they understand what needs to be done to move Jamaica forward. And there are maybe a few more such persons, but the great majority fails to qualify.
Our politicians, however, are nothing more than salespersons who are trying to get state power and will tell us anything that will secure our votes. It is therefore the responsibility of all of us to demand real discussion of the issues. Let them tell us how they plan to bring sustained economic development to Jamaica. What are the policies they will embrace to move this country forward? We could possibly have election in July, and we have not yet seen any manifesto. But based on the media’s preferred coverage of the “tracings” by candidates of their opponents I wonder if this would even get adequate coverage.
In many constituencies it does not matter who the candidate is as we do not vote for candidates but for a political party, and which ever leader makes us feel best. Even if a cockroach is put to run it would not make a difference.
So I am appealing to Jamaicans, and in particular the media, not to focus on the curry goat politics that has led us to our present economic situation after 45 years of independence, but rather focus on understanding what politicians have to offer in terms of developing Jamaica and hold them to it. This is a big concern not only for me but the many responses I get to my columns and blog, from Jamaica and around the world, but it seems as if we are in the minority.
Traveling with Air Jamaica
The Bob Woolmer mess up by the Jamaican authorities has captured most of the news headlines recently. This is not surprising, as it is possibly the most internationally embarrassing moment that I can recall for Jamaica. And while Jamaica’s image suffers it seems as if the main preoccupation is to deflect blame and not seek to suppress the really bad publicity, and possible law suits, that could arise from this. But such is the culture of Jamaica, and even imported persons will soon fall into this Jamaican trait.
One other thing about the “Bob Woolmer Foul Up” is that it could possibly be as costly to us as Air Jamaica, in terms of lost revenue. With Air Jamaica we can actually see the money leaving the bank, as if the victim of some massive Nigerian scam. The airline has not been without its fair share of media attention with the sale of the London route to Virgin Atlantic. This has culminated in a battle royal between the political parties, with the opposition JLP, supported by the JHTA, charging that the 5.1 million pounds sterling deal was not the best we could have received, and the PNP defending the shots in true West Indian batsman style.
The real deal
But what is the real deal with Air Jamaica. Let’s examine the facts we know, even without the full knowledge of the business plan. We know the following:
- it is costing us J$10 billion per annum, which could build four “world cup opening ceremony stadiums”;
- It is suggested that the London route was one of our biggest routes;
Virgin will not be increasing the number of flights to Montego Bay, to compensate for the abandoned Air Jamaica flights;
- Air Jamaica will soon begin replacing the Air Bus aircraft with older Boeing planes;
- Accumulated loss is over US$1 billion, and an additional US$125 million was recently raised and US$72 million is loaned to the airline from the PetroCaribe fund; and
- Paul Pennicooke has recently stated that the losses are decreasing, and some benefits are being noticed.
So the airline continues to cost us immensely, and if it is not profitable could see write offs well in excess of US$1 billion (J$69 billion) that could be used to fund education, health, equip our security forces, fund small business development, and build a few stadiums of course. The first four mentioned would have significant positive development for Jamaica, by creating an environment where businesses can compete and tourists will come free of harassment.
But even while St. Lucia is opting out of LIAT, and relying on free market forces to service their hotel industry, we have decided that Air Jamaica will be profitable come 2009. This is of course in the face of mounting challenges being faced by much larger airlines internationally, and rising fuel costs, which are projected to go even higher. So if by 2009 we are not profitable then it would have cost Jamaica what we cannot afford, and once again the poor people of Jamaica will be set back by maybe about J$100 billion, which they will have no choice but to will to their children and grandchildren.
Based on this risk, it is therefore very important that the powers that be do everything to ensure that the 2009 plan is not only viable but highly probable. Because after all the losses have been racked up, those responsible for taking the decisions will leave the debt for Jamaicans to bear. And so Mr. Golding is right in indicating that Air Jamaica’s future must be given much consideration. One fundamental rule of investing is that the reward must be considerably greater than the cost of the risk. If for example the cost of the risk is $100 and you only stand to gain $50 from the transaction then it is not a good investment decision. If the reward-risk amounts are reversed however then it is a good gamble, after of course considering all the technical and fundamental information.
Decision time
So the decision that must be made re Air Jamaica is, is the projected profitability more likely to occur than further losses? If the probability of the airline being profitable is 70% and the probability of losses is 35%, then it may be worth the risk. Consideration of course will have to be given to projected fuel price increases, competition expectations, any competitive advantage, and the cost to our tourism sector of no Air Jamaica. The decision cannot be based on an emotional reason such as, we need a national airline, or mistakenly trying to recoup past losses because of pride.
So my stance on Air Jamaica is that I am going to trust those in authority that the sale of the London route was the best financial decision for Jamaica, and that this is a part of the process to take us to sustained profitability in 2009. I am going to trust those in authority that pumping billions into Air Jamaica is the best use of our funds for Jamaica’s long term development. I trust these decisions simply because I do not have access to the intricacies of the business and development plans of Air Jamaica, and as the Minister states this could create a disadvantage if leaked to the competition.
While I trust the authorities to do so, and understand that the business plan cannot be revealed in detail, I also would like to understand what decision will be taken if we get to 2009 and the airline is still not profitable. I also would like to know what the accountability is in that situation. At some point in time we have to put in place what traders call “stop loss”, which is put a stop on the losses so that you can walk away with something.
At some point in time we have to stop throwing borrowed billions at projects that serve no more purpose than to sink us deeper into debt and poverty. We are fast approaching J$1 trillion in official debt. For example, included in the PetroCaribe disbursements are flood repairs and toll road routes ($3.72B); Lift Up Jamaica ($0.43B); Air Jamaica ($4.82B); SCJ ($3.72B); and JUTC ($0.20B). There are other disbursements, which I am assuming have some benefit as they mostly address debt refinancing and may be to replace higher cost debt. But these amounts must certainly be questioned as to what benefits are expected that will make Jamaica a more prosperous country.
As Ronnie Thwaites has been saying publicly for years, given the situation we are in, we must ensure that we get added value for every dollar that we spend. And this can only happen through proper financial analysis and due diligence.
One other thing about the “Bob Woolmer Foul Up” is that it could possibly be as costly to us as Air Jamaica, in terms of lost revenue. With Air Jamaica we can actually see the money leaving the bank, as if the victim of some massive Nigerian scam. The airline has not been without its fair share of media attention with the sale of the London route to Virgin Atlantic. This has culminated in a battle royal between the political parties, with the opposition JLP, supported by the JHTA, charging that the 5.1 million pounds sterling deal was not the best we could have received, and the PNP defending the shots in true West Indian batsman style.
The real deal
But what is the real deal with Air Jamaica. Let’s examine the facts we know, even without the full knowledge of the business plan. We know the following:
- it is costing us J$10 billion per annum, which could build four “world cup opening ceremony stadiums”;
- It is suggested that the London route was one of our biggest routes;
Virgin will not be increasing the number of flights to Montego Bay, to compensate for the abandoned Air Jamaica flights;
- Air Jamaica will soon begin replacing the Air Bus aircraft with older Boeing planes;
- Accumulated loss is over US$1 billion, and an additional US$125 million was recently raised and US$72 million is loaned to the airline from the PetroCaribe fund; and
- Paul Pennicooke has recently stated that the losses are decreasing, and some benefits are being noticed.
So the airline continues to cost us immensely, and if it is not profitable could see write offs well in excess of US$1 billion (J$69 billion) that could be used to fund education, health, equip our security forces, fund small business development, and build a few stadiums of course. The first four mentioned would have significant positive development for Jamaica, by creating an environment where businesses can compete and tourists will come free of harassment.
But even while St. Lucia is opting out of LIAT, and relying on free market forces to service their hotel industry, we have decided that Air Jamaica will be profitable come 2009. This is of course in the face of mounting challenges being faced by much larger airlines internationally, and rising fuel costs, which are projected to go even higher. So if by 2009 we are not profitable then it would have cost Jamaica what we cannot afford, and once again the poor people of Jamaica will be set back by maybe about J$100 billion, which they will have no choice but to will to their children and grandchildren.
Based on this risk, it is therefore very important that the powers that be do everything to ensure that the 2009 plan is not only viable but highly probable. Because after all the losses have been racked up, those responsible for taking the decisions will leave the debt for Jamaicans to bear. And so Mr. Golding is right in indicating that Air Jamaica’s future must be given much consideration. One fundamental rule of investing is that the reward must be considerably greater than the cost of the risk. If for example the cost of the risk is $100 and you only stand to gain $50 from the transaction then it is not a good investment decision. If the reward-risk amounts are reversed however then it is a good gamble, after of course considering all the technical and fundamental information.
Decision time
So the decision that must be made re Air Jamaica is, is the projected profitability more likely to occur than further losses? If the probability of the airline being profitable is 70% and the probability of losses is 35%, then it may be worth the risk. Consideration of course will have to be given to projected fuel price increases, competition expectations, any competitive advantage, and the cost to our tourism sector of no Air Jamaica. The decision cannot be based on an emotional reason such as, we need a national airline, or mistakenly trying to recoup past losses because of pride.
So my stance on Air Jamaica is that I am going to trust those in authority that the sale of the London route was the best financial decision for Jamaica, and that this is a part of the process to take us to sustained profitability in 2009. I am going to trust those in authority that pumping billions into Air Jamaica is the best use of our funds for Jamaica’s long term development. I trust these decisions simply because I do not have access to the intricacies of the business and development plans of Air Jamaica, and as the Minister states this could create a disadvantage if leaked to the competition.
While I trust the authorities to do so, and understand that the business plan cannot be revealed in detail, I also would like to understand what decision will be taken if we get to 2009 and the airline is still not profitable. I also would like to know what the accountability is in that situation. At some point in time we have to put in place what traders call “stop loss”, which is put a stop on the losses so that you can walk away with something.
At some point in time we have to stop throwing borrowed billions at projects that serve no more purpose than to sink us deeper into debt and poverty. We are fast approaching J$1 trillion in official debt. For example, included in the PetroCaribe disbursements are flood repairs and toll road routes ($3.72B); Lift Up Jamaica ($0.43B); Air Jamaica ($4.82B); SCJ ($3.72B); and JUTC ($0.20B). There are other disbursements, which I am assuming have some benefit as they mostly address debt refinancing and may be to replace higher cost debt. But these amounts must certainly be questioned as to what benefits are expected that will make Jamaica a more prosperous country.
As Ronnie Thwaites has been saying publicly for years, given the situation we are in, we must ensure that we get added value for every dollar that we spend. And this can only happen through proper financial analysis and due diligence.
Can the debt be capped?
Probably the most problematic part of the budget is the amount of money that we have to pay in servicing the debt. In 2007/08 we are projected to pay out 42 percent of revenues in interest payments, down from 59 percent in 2003/04. While this reduction is good, it has not come because we have managed to reduce the absolute amount of interest being paid, but rather because of increased revenues. Since 2003/04 interest payments have risen from $88 billion to the projected $101 billion in 2007/08.
It is good that we have managed to reduce the percentage of revenues paid out in interest costs, but 42 percent is still too high if we are to have any meaningful impact on social programmes. The focus therefore must be on looking at ways that we can reduce the amount of money paid for debt servicing. A big part of the problem of course, is that between 2003/04 and 2006/07, we have borrowed a net of $92 billion more than projected, primarily because we have not been able to meet budgeted revenue targets.
The argument has been forwarded that we must place a constitutional limit on the debt, not necessarily an absolute amount, but a percentage of GDP. But the question must remain, is it possible to actually cap the debt when we seem to depend so much on the borrowing flexibility to meet our budgetary requirements? Debt to GDP has actually been projected to increase this year because of the increased fiscal deficit projected. The size of the fiscal deficit, that is the excess of expenditure over revenues, is what determines how much debt is needed. So unless we can reduce the fiscal deficit then the debt will keep growing. The way we have been reducing the debt to GDP ratio, is not by reducing the debt servicing cost, but by trying to increase GDP value.
Debt to Equity
Despite this inability to properly manage our deficit, however, could we actually cap the debt? If we were to do so then what would be the negative effects on the country? I think that this is really the question that we need to ask. In the case of a company, for example, one of the ratios that you want to manage carefully is the debt to equity. The debt to equity ratio is derived by dividing the total debt by total equity. So if debt equal $200 and equity equal $200, then the debt to equity ratio is equal to 1. This is similar to our debt to GDP ratio, where GDP can be seen to represent the equity of the country. The debt to GDP ratio for Jamaica is 133 percent, or 1.33.
The reason why the debt to equity ratio is important is because it tells you how highly leveraged a company is, and the more highly leveraged a company is then (1) the more of the company has been pledged to creditors, who can move in and call the loan or take the security; and (2) the more expensive is the capital base of the company, which means that it may have lower returns on capital than a similar company with a lower debt to Equity ratio. The reason for (2) is that debt is always more expensive than equity.
This is one of the reasons why Jamaica has a problem with our fiscal accounts. The high level of debt to GDP ratio is playing havoc with our fiscal accounts, and ability to fund social programmes and critical sectors such as education, health, and security. What has happened is that we have managed to borrow so much debt as a percentage of GDP, that whatever we produce (GDP) is mainly being used to pay for the interest cost and principal payments of the debt. This is the same situation that a company faces, when they borrow money and have to pay it back. Say they borrow $100 at an annual interest of $10 per year and annual principal payment (paying back the amount borrowed) of $20. If they make a profit of $20 for the year, before interest, then they have to pay back $10 out of the profit leaving only $10 in profit after interest. If another company had the same profit with no debt (had only equity) then they would still have the entire $20 to put back in the business. From a cash point of view they would have to use $30 of the cash (interest plus principal) to pay back the loan, therefore, having $30 less cash to invest in working capital or research and development, putting them at a disadvantage to a competitor company with no debt.
This is what happens in the case of the country. Because we have this massive debt that we have to service then we have much less of our monies available (58 percent of revenues after interest) to spend on the country. So for each $100 collected, we have to spend $42 paying interest leaving only $58 to spend on running the country, and the poor people that we have made poor by mismanagement, which is a paradox I cannot understand. I mean if we love poor people so much then why have we, on gaining independence, mismanaged their affairs so badly that we have made them poorer so that we can make “saviour type” announcements, like free health and education, coming up to election. Shouldn’t we have managed the country in such a way that we can provide those things as a matter of course like developed countries do?
Proper management options
A proper management option I think is to put a cap on the debt, as responsible management would do in a company. We need to do so to ensure that in 2007 we do not give away anymore of our independence that we earned in 1962. We may have political independence but still have multilateral agencies and creditors dictating what we are to do. They might not do so directly, but when they issue credit ratings on our bonds, and sell off our bonds when they are uncomfortable, then they are indirectly influencing our behaviour. When the IMF issues reports on Jamaica, although we have stopped borrowing from them, it can affect the way our creditors see us, and so we better make sure that we continue to please them with our performance.
The question may be asked then, if we cap our debt then what will happen to the programmes that we usually use the debt to undertake? How are we going to expand the programmes that we use debt for and will this not affect the less fortunate amongst us? Of course this will be much more beneficial for us in the long run, as it will ensure that we do not use more than a certain percentage of revenues to pay back debt. But what of the short term thinking cycle we are always preoccupied with.
The answer to that of course is that many of the projects that we borrow money for is not geared towards national development anyway. If we were forced to use our resources more efficiently then would we be spending $10 billion each year on Air Jamaica, or hundreds of millions on the Sugar Company? Would we be spending $2.5 billion on the most expensive cow pasture in the world, the Trelawny stadium? In the case of Air Jamaica, it seems as if the argument that the benefit to Jamaica is far greater than the direct cost of carrying the tourists to Jamaica is no longer valid, after so many years of losses, as that does not seem to have been a consideration in selling the London route. And since it is a private airline being funded with public money, then we are not entitled to any further clarification on the sale amount and the process behind the sale.
So can we afford to cap the debt? Although it should not be necessary, as what is needed is prudent management of our affairs, then if we have to cap the debt to control the impulses of our politicians then we must do so. In the long run it will be better for us to do so, although we may not be able to afford things such as a national airline and propping up a dying sugar industry, when other countries have taken the decision to leave sugar. But at least the people of Jamaica may be saved from greater impoverishment so that they won’t have to wait until every five years to be considered by our politicians.
It is good that we have managed to reduce the percentage of revenues paid out in interest costs, but 42 percent is still too high if we are to have any meaningful impact on social programmes. The focus therefore must be on looking at ways that we can reduce the amount of money paid for debt servicing. A big part of the problem of course, is that between 2003/04 and 2006/07, we have borrowed a net of $92 billion more than projected, primarily because we have not been able to meet budgeted revenue targets.
The argument has been forwarded that we must place a constitutional limit on the debt, not necessarily an absolute amount, but a percentage of GDP. But the question must remain, is it possible to actually cap the debt when we seem to depend so much on the borrowing flexibility to meet our budgetary requirements? Debt to GDP has actually been projected to increase this year because of the increased fiscal deficit projected. The size of the fiscal deficit, that is the excess of expenditure over revenues, is what determines how much debt is needed. So unless we can reduce the fiscal deficit then the debt will keep growing. The way we have been reducing the debt to GDP ratio, is not by reducing the debt servicing cost, but by trying to increase GDP value.
Debt to Equity
Despite this inability to properly manage our deficit, however, could we actually cap the debt? If we were to do so then what would be the negative effects on the country? I think that this is really the question that we need to ask. In the case of a company, for example, one of the ratios that you want to manage carefully is the debt to equity. The debt to equity ratio is derived by dividing the total debt by total equity. So if debt equal $200 and equity equal $200, then the debt to equity ratio is equal to 1. This is similar to our debt to GDP ratio, where GDP can be seen to represent the equity of the country. The debt to GDP ratio for Jamaica is 133 percent, or 1.33.
The reason why the debt to equity ratio is important is because it tells you how highly leveraged a company is, and the more highly leveraged a company is then (1) the more of the company has been pledged to creditors, who can move in and call the loan or take the security; and (2) the more expensive is the capital base of the company, which means that it may have lower returns on capital than a similar company with a lower debt to Equity ratio. The reason for (2) is that debt is always more expensive than equity.
This is one of the reasons why Jamaica has a problem with our fiscal accounts. The high level of debt to GDP ratio is playing havoc with our fiscal accounts, and ability to fund social programmes and critical sectors such as education, health, and security. What has happened is that we have managed to borrow so much debt as a percentage of GDP, that whatever we produce (GDP) is mainly being used to pay for the interest cost and principal payments of the debt. This is the same situation that a company faces, when they borrow money and have to pay it back. Say they borrow $100 at an annual interest of $10 per year and annual principal payment (paying back the amount borrowed) of $20. If they make a profit of $20 for the year, before interest, then they have to pay back $10 out of the profit leaving only $10 in profit after interest. If another company had the same profit with no debt (had only equity) then they would still have the entire $20 to put back in the business. From a cash point of view they would have to use $30 of the cash (interest plus principal) to pay back the loan, therefore, having $30 less cash to invest in working capital or research and development, putting them at a disadvantage to a competitor company with no debt.
This is what happens in the case of the country. Because we have this massive debt that we have to service then we have much less of our monies available (58 percent of revenues after interest) to spend on the country. So for each $100 collected, we have to spend $42 paying interest leaving only $58 to spend on running the country, and the poor people that we have made poor by mismanagement, which is a paradox I cannot understand. I mean if we love poor people so much then why have we, on gaining independence, mismanaged their affairs so badly that we have made them poorer so that we can make “saviour type” announcements, like free health and education, coming up to election. Shouldn’t we have managed the country in such a way that we can provide those things as a matter of course like developed countries do?
Proper management options
A proper management option I think is to put a cap on the debt, as responsible management would do in a company. We need to do so to ensure that in 2007 we do not give away anymore of our independence that we earned in 1962. We may have political independence but still have multilateral agencies and creditors dictating what we are to do. They might not do so directly, but when they issue credit ratings on our bonds, and sell off our bonds when they are uncomfortable, then they are indirectly influencing our behaviour. When the IMF issues reports on Jamaica, although we have stopped borrowing from them, it can affect the way our creditors see us, and so we better make sure that we continue to please them with our performance.
The question may be asked then, if we cap our debt then what will happen to the programmes that we usually use the debt to undertake? How are we going to expand the programmes that we use debt for and will this not affect the less fortunate amongst us? Of course this will be much more beneficial for us in the long run, as it will ensure that we do not use more than a certain percentage of revenues to pay back debt. But what of the short term thinking cycle we are always preoccupied with.
The answer to that of course is that many of the projects that we borrow money for is not geared towards national development anyway. If we were forced to use our resources more efficiently then would we be spending $10 billion each year on Air Jamaica, or hundreds of millions on the Sugar Company? Would we be spending $2.5 billion on the most expensive cow pasture in the world, the Trelawny stadium? In the case of Air Jamaica, it seems as if the argument that the benefit to Jamaica is far greater than the direct cost of carrying the tourists to Jamaica is no longer valid, after so many years of losses, as that does not seem to have been a consideration in selling the London route. And since it is a private airline being funded with public money, then we are not entitled to any further clarification on the sale amount and the process behind the sale.
So can we afford to cap the debt? Although it should not be necessary, as what is needed is prudent management of our affairs, then if we have to cap the debt to control the impulses of our politicians then we must do so. In the long run it will be better for us to do so, although we may not be able to afford things such as a national airline and propping up a dying sugar industry, when other countries have taken the decision to leave sugar. But at least the people of Jamaica may be saved from greater impoverishment so that they won’t have to wait until every five years to be considered by our politicians.
2007/08 growth projection
I have commented that I do not expect the Jamaican economy to grow at the projected 3 percent this fiscal year. While I really do hope that I am wrong, an examination of the numbers, and what is happening in the economy, does not support a 3 percent target. Last year the projection was for 3 to 4 percent and we came in at 2.5 percent. And this is amidst (1) no hurricanes; (2) record levels of confidence; (3) world cup cricket preparations; (4) highway 2000 road construction work; (5) construction of the Spanish hotels; and (6) strong regional and global growth.
In addition to the fact that many of these factors will not be present, or will slow down this year, the period January to March 2007 (Q107) came out at just 2 percent. This is not to be included in the current fiscal year numbers but was a period in which we had high confidence levels reported and a lot of work due to world cup. Going forward the factors will not be as favourable as in Q107.
Inhibiting factors
The following will affect growth going forward:
1) The hurricane season is predicted to be even more active than last year’s prediction. The quiet season last year was because of the emergence of El Niño, which is not expected this year. We are expecting 13 to 17 hurricanes this season, with 3 to 5 major hurricanes, and all we need to have a disaster is a little rain or wind as we have so neglected our environment;
2) Crime has significantly increased from the downturn at the end of last calendar year, and therefore I expect that this would have negatively affected confidence;
3) This is an election year and the predictions of violence will no doubt lead to a wait and see attitude until after election, and from all indications the date is being dragged out, which is not good for the economy. Many persons are also waiting on the announcement of the date to book airline tickets. We must start having a fixed date for elections;
4) There is no more preparations for world cup, so we will find a slow down in capital expenditures;
5) Not much work is left to be done on the Montego Bay leg of Highway 2000, and I can bet that the next leg will slow down given the tight funds situation;
6) Most of the Spanish hotels have been completed and Harmony Cove construction activity may not have any significant impact on the fiscal year;
7) The regional and global economy is projected to grow at a slower rate than last year, and China’s undervalued Yuan has seen the USA buying more from China, which could negatively affect us. In addition there is a possibility that China’s equity market could see a significant correction this year that could affect global markets; and
8) The companies on the stock market will not see any significant growth in profitability overall. Most of the listed companies are financial institutions and I expect that the securities dealers especially will continue to under perform the previous year. We also see companies like Jamaica Producers showing worst results, which I expect will continue for another one or two quarters. Companies like Cement Company and Hardware and Lumber, although showing improved performance, is doing so against the background of the cement crisis last year. There is one or two companies that I expect will do better but I will keep that to myself until I have had enough time to do the analysis and buy them.
PIOJ growth numbers
When one looks also at the numbers presented by the PIOJ, it supports the argument that growth will be closer to 2 percent for 2007/08. Growth in the Q107 was driven by 2.5 and 1.5 percent growth in the goods producing and services sectors respectively. The main contributor to growth in the goods sector is agriculture. In 2006/07 fiscal year the agriculture sector was the fastest growing. But this was because it was recovering from the effects of the hurricane in the two previous years. The sector therefore stabilized in 2006/07 and growth is expected to be moderated in 2007/08, as evidenced by Q107 when growth in this sector came in at 4 percent compared to 22.9 percent the previous year.
The main contributor to growth in the services sector is Tourism, in the Miscellaneous Services category. In Q107 this sector declined by 0.8% compared to a growth of 9.2 percent the previous year. Tourism was down in the quarter even in the March when an improvement was expected as a result of world cup cricket. I believe that at best Tourism will be flat for the fiscal year, and therefore growth of the services sector will be affected. In addition, the financial services sector is not expected to see any significant growth based on the expected company performances, and government services should remain flat given the tightening in the budget expenditures.
Therefore the two main sectors that provided exceptional growth last year, when we only came in at 2.5 percent, will see a slow down. Construction may see some growth, but with no world cup activities and a slow down in the highway project, we will not see enough upswing here to make up for the slow down in these sectors. Overall the services sector, which accounts for 70 percent of the economy, grew by only 1.5 percent. So although the goods sector grew by 2.8 percent, this only represents 30 percent of the total economy. I expect that the services sector will continue to lag behind the goods sector for the reason mentioned above. For us to see 3 percent growth in the economy then we will have to see over 3 percent growth in the services sector.
As this is also election year, I don’t expect that much new investment activity will take place. It is important that the election be called earlier rather than later so that we can get on with the development of the country. Everyone seems to be in a wait and see attitude. One may argue that in an election year we should see more spending, as government and the opposition throws money around. This time it is different though, as evidenced by the no growth expenditure budget. In real terms expenditure is the same as the 2006/07 fiscal year. In fact a significant part of the capital expenditure budget relates to expenditures already undertaken, which would have been counted in the growth numbers in 2006/07.
When we are projecting numbers, we cannot put something down on paper just because it sounds like a good number but must have proper assumptions to support it. I wouldn’t mind if someone was to explain what the projects, and growth areas, are expected to be that will provide us with 3 percent growth in a year which seems like it will have less new activities than in 2006/07. Importantly also the tourism projections had to be recast because of the lackluster performance during world cup.
This is my simple logic as to why I do not think that the economy will grow at 3 percent this year. I would love for someone to disprove my logic, as I really would like to see us growing at 5 percent this year, but until then I see nothing to convince me that 3 percent growth will happen. I have a bet riding on it, and if I am right then you can catch me at Christopher’s enjoying my winnings.
In addition to the fact that many of these factors will not be present, or will slow down this year, the period January to March 2007 (Q107) came out at just 2 percent. This is not to be included in the current fiscal year numbers but was a period in which we had high confidence levels reported and a lot of work due to world cup. Going forward the factors will not be as favourable as in Q107.
Inhibiting factors
The following will affect growth going forward:
1) The hurricane season is predicted to be even more active than last year’s prediction. The quiet season last year was because of the emergence of El Niño, which is not expected this year. We are expecting 13 to 17 hurricanes this season, with 3 to 5 major hurricanes, and all we need to have a disaster is a little rain or wind as we have so neglected our environment;
2) Crime has significantly increased from the downturn at the end of last calendar year, and therefore I expect that this would have negatively affected confidence;
3) This is an election year and the predictions of violence will no doubt lead to a wait and see attitude until after election, and from all indications the date is being dragged out, which is not good for the economy. Many persons are also waiting on the announcement of the date to book airline tickets. We must start having a fixed date for elections;
4) There is no more preparations for world cup, so we will find a slow down in capital expenditures;
5) Not much work is left to be done on the Montego Bay leg of Highway 2000, and I can bet that the next leg will slow down given the tight funds situation;
6) Most of the Spanish hotels have been completed and Harmony Cove construction activity may not have any significant impact on the fiscal year;
7) The regional and global economy is projected to grow at a slower rate than last year, and China’s undervalued Yuan has seen the USA buying more from China, which could negatively affect us. In addition there is a possibility that China’s equity market could see a significant correction this year that could affect global markets; and
8) The companies on the stock market will not see any significant growth in profitability overall. Most of the listed companies are financial institutions and I expect that the securities dealers especially will continue to under perform the previous year. We also see companies like Jamaica Producers showing worst results, which I expect will continue for another one or two quarters. Companies like Cement Company and Hardware and Lumber, although showing improved performance, is doing so against the background of the cement crisis last year. There is one or two companies that I expect will do better but I will keep that to myself until I have had enough time to do the analysis and buy them.
PIOJ growth numbers
When one looks also at the numbers presented by the PIOJ, it supports the argument that growth will be closer to 2 percent for 2007/08. Growth in the Q107 was driven by 2.5 and 1.5 percent growth in the goods producing and services sectors respectively. The main contributor to growth in the goods sector is agriculture. In 2006/07 fiscal year the agriculture sector was the fastest growing. But this was because it was recovering from the effects of the hurricane in the two previous years. The sector therefore stabilized in 2006/07 and growth is expected to be moderated in 2007/08, as evidenced by Q107 when growth in this sector came in at 4 percent compared to 22.9 percent the previous year.
The main contributor to growth in the services sector is Tourism, in the Miscellaneous Services category. In Q107 this sector declined by 0.8% compared to a growth of 9.2 percent the previous year. Tourism was down in the quarter even in the March when an improvement was expected as a result of world cup cricket. I believe that at best Tourism will be flat for the fiscal year, and therefore growth of the services sector will be affected. In addition, the financial services sector is not expected to see any significant growth based on the expected company performances, and government services should remain flat given the tightening in the budget expenditures.
Therefore the two main sectors that provided exceptional growth last year, when we only came in at 2.5 percent, will see a slow down. Construction may see some growth, but with no world cup activities and a slow down in the highway project, we will not see enough upswing here to make up for the slow down in these sectors. Overall the services sector, which accounts for 70 percent of the economy, grew by only 1.5 percent. So although the goods sector grew by 2.8 percent, this only represents 30 percent of the total economy. I expect that the services sector will continue to lag behind the goods sector for the reason mentioned above. For us to see 3 percent growth in the economy then we will have to see over 3 percent growth in the services sector.
As this is also election year, I don’t expect that much new investment activity will take place. It is important that the election be called earlier rather than later so that we can get on with the development of the country. Everyone seems to be in a wait and see attitude. One may argue that in an election year we should see more spending, as government and the opposition throws money around. This time it is different though, as evidenced by the no growth expenditure budget. In real terms expenditure is the same as the 2006/07 fiscal year. In fact a significant part of the capital expenditure budget relates to expenditures already undertaken, which would have been counted in the growth numbers in 2006/07.
When we are projecting numbers, we cannot put something down on paper just because it sounds like a good number but must have proper assumptions to support it. I wouldn’t mind if someone was to explain what the projects, and growth areas, are expected to be that will provide us with 3 percent growth in a year which seems like it will have less new activities than in 2006/07. Importantly also the tourism projections had to be recast because of the lackluster performance during world cup.
This is my simple logic as to why I do not think that the economy will grow at 3 percent this year. I would love for someone to disprove my logic, as I really would like to see us growing at 5 percent this year, but until then I see nothing to convince me that 3 percent growth will happen. I have a bet riding on it, and if I am right then you can catch me at Christopher’s enjoying my winnings.
Friday, May 18, 2007
Those annoying Jamaicans
I was going to write about the recent economic growth numbers and explain why I do not think Jamaica will grow at the projected 3 percent this year. But my mind was changed by an observation, which is a fundamental reason why we celebrate 2 percent growth when the rest of the world is at 5 percent.
In today’s world the most important unit of production is the individual. It is the individual that drives productivity in a global knowledge-based world. It is the ability of the individual to deliver the best service and create the best product that determines the success of companies and countries. One of the main problems with Jamaica is that perhaps the only thing that has been devalued more than the Jamaican dollar is the Jamaican people. Our politicians since independence have created a system of governance that discounts the primacy of Jamaicans, unless you are of course a politician.
So while the ordinary Jamaican can suffer, like Christ carrying the cross, in our efforts to reach that hilltop we aspire to, the privileged few have established a system where everything is convenient for them, and their close friends and relatives of course. In fact, when we arrive at the hilltop we find that it is used as a place to hoist the cross where we are crucified.
The Promised Land
This image came to my mind as I stopped at the US embassy, in Liguanea, to pick up something from someone who unfortunately had to be in the line. Unfortunate not because they were going to get a US visa but because of the manner that Jamaicans are treated in the process. I stood there for a while observing and felt sorry for the Jamaicans that had to be standing there for hours in the face of the rising sun, awaiting the chance to go to the Promised Land. The impression one gets of course is that us Jamaicans are lesser world citizens. There is no way that Americans would be allowed to go through such an ordeal of course, but I wonder what system is in place in other countries. Even the garden along the wall seems to have greater importance than the poor Jamaicans, as it is well kept and away from the road where damage can occur. The Jamaicans, however, are left to deal with the sun and possible damage from any reckless driver, who may have a few unpaid tickets but whom the police have been unable to apprehend.
But maybe if I were the Americans I would treat us Jamaicans with the same apparent level of disdain. The way the entrance is situated it seems as if it were deliberately designed that way so that persons in line would have to deal with the rising sun and possibly be discouraged from applying for US visas. But of course even this inconvenience is minor compared to the daily ordeal we have to go through based on the society that our politicians have so carefully crafted to ensure that Jamaicans face the same tribulation that all Christians know that Christ went through. So we could assume that the difficulties created by our governments may indeed be a willful intention to bring us closer to our God, as this suffering is indeed Christ-like.
So the Americans may think that if their government can treat them like that then why do we have to build a covering on the side of the road to protect them from the ravages of the sun? Why would we have to build a place where they can sit comfortably in while waiting to be processed? Why should we treat these persons like human beings when they come to our country where they run drugs, commit murders, and steal our jobs? Let us do as their governments do and process them like cattle, while at the same time collecting their visa application fees, which can contribute to reducing the large trade deficit we have created. As a Jamaican, I have to admit that the Americans may have some justification for saying this.
The patronizing way in which other countries view Jamaicans is of course the fault of our leaders. They are the ones that by their neglect perpetuate the indiscipline in society, which leads to the high crime rate, low literacy rate, poor economic performance, and low per capita income. This in turn forces Jamaicans to seek opportunities overseas but because of the low levels of literacy and indiscipline, they find that the best way to survive is by running drugs, and in the process killing a few people. That is why within the Caribbean, and in countries like little Cayman, we are seen as nuisances, because all we do apart from exporting crime is constantly go begging for assistance.
Encouraging corruption
The system put in place by the US embassy for visa applications is far less than adequate. First of all you apply for an appointment and a time is given to you. But the policeman on the outside shouts out to the Jamaican “cattle” that the time given to you does not mean anything, as even if you have a 7:30 AM appointment you can still go up to 11 AM. The most important thing is that you get inside before they close off for the day. So we have the right ingredients for creating a corrupt system, which may be a perk for the police appointed to the US embassy.
These ingredients are:
1. The police monitor the traffic and can make a determination of who goes to the front of the line. In fact while there I observed a lady pull up in a SUV and speak to a policeman there, in a very jovial manner of course. A healthy looking lady alighted from the car and was ushered to the front of the long line. Someone in the line mentioned that the driver was from a particular Ministry and carried persons there all the time. I asked a policewoman about this and she said that as long as I did not see any money passing then it was okay. Note: I did not bring up the subject of money. She went on to state that if she sees her family or friends she will carry them to the head of the line. Further, the police have the discretion of determining if someone has a valid complaint, such as time constraint, in order to elevate them to the front.
2. People are significantly inconvenienced and it may be cheaper for them to pay some money to go to the head of the line rather than lose 2 to 3 hours of productivity.
3. Appointment times are irrelevant thus creating a chaotic system.
This mix creates an environment where corruption can occur. I am not saying there is corruption but as Jamaicans say if you “rub butter on puss mouth” then what do you expect. Speaking to a policewoman there that someone should report this, her comment was that TVJ has come and other persons have written to the US embassy and their superiors about the problem and nothing has come out of it so she is indifferent about whether anyone wants to complain about it or not as nothing will change. This is the police so is it any wonder that we have a crime problem.
The disregard that politicians have had for Jamaicans is of course a fundamental reason why we are in the current economic situation. Until we realize that the individual is the most important ingredient for growth then we will always be a developing country, and treated as such by others. I am sure that politicians are aware of this type of situation Jamaicans face but is anyone making representation on behalf of Jamaicans. However, in true Third World style we will not vote based on these issues, but rather charisma, curry goat, and a box of beer.
In today’s world the most important unit of production is the individual. It is the individual that drives productivity in a global knowledge-based world. It is the ability of the individual to deliver the best service and create the best product that determines the success of companies and countries. One of the main problems with Jamaica is that perhaps the only thing that has been devalued more than the Jamaican dollar is the Jamaican people. Our politicians since independence have created a system of governance that discounts the primacy of Jamaicans, unless you are of course a politician.
So while the ordinary Jamaican can suffer, like Christ carrying the cross, in our efforts to reach that hilltop we aspire to, the privileged few have established a system where everything is convenient for them, and their close friends and relatives of course. In fact, when we arrive at the hilltop we find that it is used as a place to hoist the cross where we are crucified.
The Promised Land
This image came to my mind as I stopped at the US embassy, in Liguanea, to pick up something from someone who unfortunately had to be in the line. Unfortunate not because they were going to get a US visa but because of the manner that Jamaicans are treated in the process. I stood there for a while observing and felt sorry for the Jamaicans that had to be standing there for hours in the face of the rising sun, awaiting the chance to go to the Promised Land. The impression one gets of course is that us Jamaicans are lesser world citizens. There is no way that Americans would be allowed to go through such an ordeal of course, but I wonder what system is in place in other countries. Even the garden along the wall seems to have greater importance than the poor Jamaicans, as it is well kept and away from the road where damage can occur. The Jamaicans, however, are left to deal with the sun and possible damage from any reckless driver, who may have a few unpaid tickets but whom the police have been unable to apprehend.
But maybe if I were the Americans I would treat us Jamaicans with the same apparent level of disdain. The way the entrance is situated it seems as if it were deliberately designed that way so that persons in line would have to deal with the rising sun and possibly be discouraged from applying for US visas. But of course even this inconvenience is minor compared to the daily ordeal we have to go through based on the society that our politicians have so carefully crafted to ensure that Jamaicans face the same tribulation that all Christians know that Christ went through. So we could assume that the difficulties created by our governments may indeed be a willful intention to bring us closer to our God, as this suffering is indeed Christ-like.
So the Americans may think that if their government can treat them like that then why do we have to build a covering on the side of the road to protect them from the ravages of the sun? Why would we have to build a place where they can sit comfortably in while waiting to be processed? Why should we treat these persons like human beings when they come to our country where they run drugs, commit murders, and steal our jobs? Let us do as their governments do and process them like cattle, while at the same time collecting their visa application fees, which can contribute to reducing the large trade deficit we have created. As a Jamaican, I have to admit that the Americans may have some justification for saying this.
The patronizing way in which other countries view Jamaicans is of course the fault of our leaders. They are the ones that by their neglect perpetuate the indiscipline in society, which leads to the high crime rate, low literacy rate, poor economic performance, and low per capita income. This in turn forces Jamaicans to seek opportunities overseas but because of the low levels of literacy and indiscipline, they find that the best way to survive is by running drugs, and in the process killing a few people. That is why within the Caribbean, and in countries like little Cayman, we are seen as nuisances, because all we do apart from exporting crime is constantly go begging for assistance.
Encouraging corruption
The system put in place by the US embassy for visa applications is far less than adequate. First of all you apply for an appointment and a time is given to you. But the policeman on the outside shouts out to the Jamaican “cattle” that the time given to you does not mean anything, as even if you have a 7:30 AM appointment you can still go up to 11 AM. The most important thing is that you get inside before they close off for the day. So we have the right ingredients for creating a corrupt system, which may be a perk for the police appointed to the US embassy.
These ingredients are:
1. The police monitor the traffic and can make a determination of who goes to the front of the line. In fact while there I observed a lady pull up in a SUV and speak to a policeman there, in a very jovial manner of course. A healthy looking lady alighted from the car and was ushered to the front of the long line. Someone in the line mentioned that the driver was from a particular Ministry and carried persons there all the time. I asked a policewoman about this and she said that as long as I did not see any money passing then it was okay. Note: I did not bring up the subject of money. She went on to state that if she sees her family or friends she will carry them to the head of the line. Further, the police have the discretion of determining if someone has a valid complaint, such as time constraint, in order to elevate them to the front.
2. People are significantly inconvenienced and it may be cheaper for them to pay some money to go to the head of the line rather than lose 2 to 3 hours of productivity.
3. Appointment times are irrelevant thus creating a chaotic system.
This mix creates an environment where corruption can occur. I am not saying there is corruption but as Jamaicans say if you “rub butter on puss mouth” then what do you expect. Speaking to a policewoman there that someone should report this, her comment was that TVJ has come and other persons have written to the US embassy and their superiors about the problem and nothing has come out of it so she is indifferent about whether anyone wants to complain about it or not as nothing will change. This is the police so is it any wonder that we have a crime problem.
The disregard that politicians have had for Jamaicans is of course a fundamental reason why we are in the current economic situation. Until we realize that the individual is the most important ingredient for growth then we will always be a developing country, and treated as such by others. I am sure that politicians are aware of this type of situation Jamaicans face but is anyone making representation on behalf of Jamaicans. However, in true Third World style we will not vote based on these issues, but rather charisma, curry goat, and a box of beer.
Friday, May 11, 2007
Can Jamaica afford to grow?
At the start of the 2006/7 fiscal year I had indicated that we would not meet the fiscal revenue projections, and that we would fall short by 5 to 10 per cent, with the expectation of a natural disaster.
We ended up short about 5 per cent with no natural disaster. I also indicated during the fiscal year that at best we would be on target with expenditures, which we once again exceeded. I also thought that the fiscal deficit would come out at around 4 per cent, and not the 2.5 per cent projected. We ended up at 5.4 per cent, with J$14 billion of expenditure being put in 2007/8.
These estimations were based primarily on the fact that I did not believe that Jamaica had the capacity to grow at 3 to 4 per cent, and we ended up at around 2.8 per cent. Again, while 3 per cent for 2007/8 is probable, it is not likely, especially if we have a major natural disaster. I say this because I still do not think that we have the capacity to grow at that rate, and also the following factors will be a negative:
. The slowdown in the US economy will negatively affect us, and more importantly the problem in the housing market, although possibly subsiding, will affect discretionary income, which tourism depends on and 75 per cent of our tourists come from North America
Growth in the Latin American region is expected to be lower in the coming year;
. Our tourism sector has seen a slowdown over last year, and I expect that this may continue for a while;
. The cement company indicated that they expected softer cement sales in the last quarter, and this is an indication of a slowdown in construction; and
. Agriculture will not see as phenomenal growth as last year, as we are not recovering from any natural disasters.
With all these factors, it does not seem likely that we will achieve a 3 per cent growth rate.
I see this also in the context of the promises by both political parties that they will find money to finance free health care, education and more money for the police to fight crime. The accusations are that the money cannot be found and that these are mere promises which cannot be sustained. When I hear these comments the first thing I think to myself is, are we thinking logically and this is exactly the reason why we are constantly in this predicament.
It would have made sense to apply that reasoning to the money spent on Cricket World Cup. We do not question expenditure for two months of entertainment but seek to question the proposals by the prime minister and Opposition leader to spend money on health, education, and crime. It seems logical to me that the latter would have a far greater value than cricket.
The logic I apply to this is as follows:
1. If we are to grow at acceptable international rates then we need to have a productive workforce and an adequate social and physical infrastructure;
2. If we are to have a productive workforce and proper infrastructure then we need to have (a) an educated population; (b) a healthy population; and (c) a low crime rate;
3. If we are to achieve these things then we will need to put money into them given the fact that the majority of our people cannot afford it individually;
4. If we do not put money into these sectors then we will not lay the foundation to ensure we are internationally competitive and grow at acceptable rates;
5. If we do not grow at acceptable rates and become competitive then we will sink further into debt and poverty. We may even qualify for debt relief under the IMF's debt relief programme for countries in dire straits, if that is our objective;
6. Therefore, logic dictates that the only option for us is to invest adequate resources in health, education, and fighting crime to move the country forward; and
7. It follows logically then that we must find the resources to do these necessary things, and it may mean reallocating funds or radically reforming the public sector for efficiency. We have tried the route of taxation over the years and it has now reached a point where any further taxation becomes unproductive.
So, based on my reasoning, it is now a matter of how and when the money to finance these areas can be made available, and the longer we wait, while discussing it to death, the worse it becomes. A recent report by the World Bank states that crime costs us 3.7 per cent of GDP. This of course is only the logic of a simple accountant, who could be wrong, but if there is another way, someone please show me.
Customer service deficiencies
Another thing I would like to look at is the level of customer service in this country. Is it that the Jamaican consumers have "exploit me" written all over their foreheads?
Or is it that there is something seriously wrong with our education process and corporate culture? It seems as if everywhere I go there is a problem with customer service, and in many instances the regulators do a poor job in protecting consumer rights. Maybe because they are more concerned with the licensing and other fees they receive than the role they are set up for. I think the fees should go to government and then the government finances the regulators to avoid any conflict, but then again if it goes to government the regulators may not be financed effectively.
Apart from the issues I always write about, I had another problem with a large bank in Jamaica. I have a credit card with them that expired a few months ago. They sent me a new card but I did not activate it, and therefore do not have the use of it.
As far as I am concerned, the contract with the previous card ended and the only way for another contract to come into play is if I sign accepting the card or activate the new one. I did neither. But they sent me a statement with the annual fee for the new card, even though I have not activated it, signed for it, or called them to ask them to send it.
Well, my position is that I will not be paying the fee, will not be activating the card, and I would love to see if they are going to charge me penalty and interest on the annual fee, which another bank has done with me already, even though they were the ones that sent me a card I had not asked for. Each time I receive the statement I throw it in the garbage, so I guess the balance is very significant now, as it has been going on for almost two years. But I did not ask for a card to be sent to me.
I am sure that this practice is happening to anyone who is part of a mailing list the banks have access to, and the regulators may be aware of this. But is anything being done about it? I wonder about the poor consumer who is intimidated by this tactic and ends up paying the money because of a fear of not being on their receivables listing. Personally, I will not succumb to any financial institution that tries to hold me up and take away my money because they have failed to properly manage their balance sheets and are now prey to falling interest rates.
We ended up short about 5 per cent with no natural disaster. I also indicated during the fiscal year that at best we would be on target with expenditures, which we once again exceeded. I also thought that the fiscal deficit would come out at around 4 per cent, and not the 2.5 per cent projected. We ended up at 5.4 per cent, with J$14 billion of expenditure being put in 2007/8.
These estimations were based primarily on the fact that I did not believe that Jamaica had the capacity to grow at 3 to 4 per cent, and we ended up at around 2.8 per cent. Again, while 3 per cent for 2007/8 is probable, it is not likely, especially if we have a major natural disaster. I say this because I still do not think that we have the capacity to grow at that rate, and also the following factors will be a negative:
. The slowdown in the US economy will negatively affect us, and more importantly the problem in the housing market, although possibly subsiding, will affect discretionary income, which tourism depends on and 75 per cent of our tourists come from North America
Growth in the Latin American region is expected to be lower in the coming year;
. Our tourism sector has seen a slowdown over last year, and I expect that this may continue for a while;
. The cement company indicated that they expected softer cement sales in the last quarter, and this is an indication of a slowdown in construction; and
. Agriculture will not see as phenomenal growth as last year, as we are not recovering from any natural disasters.
With all these factors, it does not seem likely that we will achieve a 3 per cent growth rate.
I see this also in the context of the promises by both political parties that they will find money to finance free health care, education and more money for the police to fight crime. The accusations are that the money cannot be found and that these are mere promises which cannot be sustained. When I hear these comments the first thing I think to myself is, are we thinking logically and this is exactly the reason why we are constantly in this predicament.
It would have made sense to apply that reasoning to the money spent on Cricket World Cup. We do not question expenditure for two months of entertainment but seek to question the proposals by the prime minister and Opposition leader to spend money on health, education, and crime. It seems logical to me that the latter would have a far greater value than cricket.
The logic I apply to this is as follows:
1. If we are to grow at acceptable international rates then we need to have a productive workforce and an adequate social and physical infrastructure;
2. If we are to have a productive workforce and proper infrastructure then we need to have (a) an educated population; (b) a healthy population; and (c) a low crime rate;
3. If we are to achieve these things then we will need to put money into them given the fact that the majority of our people cannot afford it individually;
4. If we do not put money into these sectors then we will not lay the foundation to ensure we are internationally competitive and grow at acceptable rates;
5. If we do not grow at acceptable rates and become competitive then we will sink further into debt and poverty. We may even qualify for debt relief under the IMF's debt relief programme for countries in dire straits, if that is our objective;
6. Therefore, logic dictates that the only option for us is to invest adequate resources in health, education, and fighting crime to move the country forward; and
7. It follows logically then that we must find the resources to do these necessary things, and it may mean reallocating funds or radically reforming the public sector for efficiency. We have tried the route of taxation over the years and it has now reached a point where any further taxation becomes unproductive.
So, based on my reasoning, it is now a matter of how and when the money to finance these areas can be made available, and the longer we wait, while discussing it to death, the worse it becomes. A recent report by the World Bank states that crime costs us 3.7 per cent of GDP. This of course is only the logic of a simple accountant, who could be wrong, but if there is another way, someone please show me.
Customer service deficiencies
Another thing I would like to look at is the level of customer service in this country. Is it that the Jamaican consumers have "exploit me" written all over their foreheads?
Or is it that there is something seriously wrong with our education process and corporate culture? It seems as if everywhere I go there is a problem with customer service, and in many instances the regulators do a poor job in protecting consumer rights. Maybe because they are more concerned with the licensing and other fees they receive than the role they are set up for. I think the fees should go to government and then the government finances the regulators to avoid any conflict, but then again if it goes to government the regulators may not be financed effectively.
Apart from the issues I always write about, I had another problem with a large bank in Jamaica. I have a credit card with them that expired a few months ago. They sent me a new card but I did not activate it, and therefore do not have the use of it.
As far as I am concerned, the contract with the previous card ended and the only way for another contract to come into play is if I sign accepting the card or activate the new one. I did neither. But they sent me a statement with the annual fee for the new card, even though I have not activated it, signed for it, or called them to ask them to send it.
Well, my position is that I will not be paying the fee, will not be activating the card, and I would love to see if they are going to charge me penalty and interest on the annual fee, which another bank has done with me already, even though they were the ones that sent me a card I had not asked for. Each time I receive the statement I throw it in the garbage, so I guess the balance is very significant now, as it has been going on for almost two years. But I did not ask for a card to be sent to me.
I am sure that this practice is happening to anyone who is part of a mailing list the banks have access to, and the regulators may be aware of this. But is anything being done about it? I wonder about the poor consumer who is intimidated by this tactic and ends up paying the money because of a fear of not being on their receivables listing. Personally, I will not succumb to any financial institution that tries to hold me up and take away my money because they have failed to properly manage their balance sheets and are now prey to falling interest rates.
Friday, May 04, 2007
What is the budget's role?
At the Observer Business Leader Awards, 'Butch' Stewart spoke to one of the main issues affecting the economy - the need for a friendly business environment. He commented that in his business exploits throughout the Caribbean, Jamaica was the least friendly in terms of business. I would be a lot more inclined to believe comments about the business climate from a business person, such as Butch Stewart, than those from any multilateral agency or government official, many of whom had never had to contend with the business environment they have created.
One point of note is the need for greater tax compliance, which very importantly must be accompanied by tax reform. The government is now trying to rope in the estimated 40 per cent of the informal economy, which by their own policies they have assisted greatly to create. But while much greater tax compliance is extremely important, it is also essential that it be handled correctly for the protection of the economy. I say this because if tax administration does not take care in bringing the informal sector into the tax net, it could create a whole lot of judgements for tax payments and end up destroying many of the businesses. In other words, if 50 per cent of the informal economy shuts down because of stringent compliance measures, then we could end up losing 20 per cent of businesses (50 per cent of 40 per cent of the informal economy).
I recently had an experience where in trying to assist a small business to get compliant, I called the tax authorities and outlined the following situation: this person was in a bad way with all tax issues and wanted to make everything right. In order to do so, of course, he would need income and so I asked what needed to be done to bring this company into compliance while at the same time issuing a conditional clearance to allow them to proceed with business, while the compliance steps are being taken. Of course the "business-friendly" tax person said he was not willing to discuss any forward movement until certain filings were done. By this time of course the business may have to shut down, resulting in lost employment and economic activity. But the surprise of course would have been if the response was, "Sure, we can have this done within X timeframe if X is done."
Budget process
This brings me to the budgetary process. If the budget can be presented with no consideration of strategic direction, and policies on how we intend to move this country forward, then what could I expect from a public sector employee? The key to not being disappointed with government services is to have no expectations.
Almost every commentator on the budget, including myself, believes that the process lacks any policy direction for the country. In fact, the budgetary process has turned into a grand waste of time that slows down business activity for approximately two months every year, while we ponder our fate based on what the finance minister has to reveal. If the minister is kind enough not to introduce any new taxes, then we scamper back to our businesses to see if we can eke out profits for another year. If, on the other hand, the tax package and the increased debt burden cause us too much strain then we go back to see if it is beneficial to close down, given the high cost of redundancy and other closing costs. At the end of the main budget debate, who can say that they feel energised and enthused about the plans we have for the development of the country? If there is anyone out there who feels this way, please contact me and give me hope, because I do not feel that we have achieved anything from the budgetary process except some giveaways, although we have said that we have no money.
The budget process needs a major overhaul. Every company that aims to survive in a competitive world (not just make money from government paper) goes through a constant process of reinventing itself. This takes the form of looking at the business processes (internal and external) and conforming to what will add greatest value to the company. We also need to take a serious look at our budget process, which is certainly not geared towards developmental activities, but rather at balancing revenues with expenses.
Strategic plan needed
What we need is a focus on a wholesome strategic plan, supported by the budget, and not the budget setting the stage for policy objectives. Wouldn't it make more sense to have the sectoral debate as the main part of the budget and then the presentation by the finance minister as the support, advising how these policy objectives are to be financed? So then the security, education, and health ministers would present their policy directions to the nation, after a strategic process where the various sectors justify the value-added of their expenditures to the finance ministry. After these debates the finance minister would present to the nation how these plans are to be financed. But much is always made of the expenditure and revenue estimates, which without the policy directions are meaningless numbers.
So at the end of the main budget presentations this year, the conversations are not about the relevance of the development plans presented (because there were none), but rather the discussions focused on (1) How are the various promises to be justified? (2) What level will the debt end up at? (3) What will the fiscal deficit end up at? (4) How much money did Mirant get for the sale of JPS? (5) What was the response of the multilateral agencies in respect of borrowings? (6) Who did what, when and where?
Is this the best that we can do after 45 years of political independence? In a time when the world is celebrating growth rates of 5 per cent and above and our neighbours show growth rates of 9 and 10 per cent, we are ecstatic with 2.5 per cent. And, as if to show our complacency with this anaemic growth rate, we present a budget that provides no direction on how we will move forward with the development of Jamaica. So we do not know what the specific plans are to consistently achieve world-class growth rates and create the environment needed for greater private sector investments.
My hope continues to be that the sectoral debate will provide some greater insight as to how we will address problems such as crime, education and health. And these policies need to be credible and not just commitments made that are not kept. We need to know how we intend to restore the public's trust in our institutions, such as the courts and police force. We need to know what we intend to do about public entities such as Air Jamaica, SCJ, and JUTC which every year remain an increasing burden on the country's resources, without any light at the end of the tunnel.
The role of the annual budget should be about providing not only an update on the state of the economy, but what the plans are for moving the country forward. If at the end of the budget the objectives are not met, then the sectors with responsibility for policy, and the prime minister ultimately, should be held accountable by the opposition and the people for any failures. Until we get to this stage, then the annual budget will be nothing more than a ceremony of parading the latest outfits and a bunch of meaningless numbers being bandied about.
One point of note is the need for greater tax compliance, which very importantly must be accompanied by tax reform. The government is now trying to rope in the estimated 40 per cent of the informal economy, which by their own policies they have assisted greatly to create. But while much greater tax compliance is extremely important, it is also essential that it be handled correctly for the protection of the economy. I say this because if tax administration does not take care in bringing the informal sector into the tax net, it could create a whole lot of judgements for tax payments and end up destroying many of the businesses. In other words, if 50 per cent of the informal economy shuts down because of stringent compliance measures, then we could end up losing 20 per cent of businesses (50 per cent of 40 per cent of the informal economy).
I recently had an experience where in trying to assist a small business to get compliant, I called the tax authorities and outlined the following situation: this person was in a bad way with all tax issues and wanted to make everything right. In order to do so, of course, he would need income and so I asked what needed to be done to bring this company into compliance while at the same time issuing a conditional clearance to allow them to proceed with business, while the compliance steps are being taken. Of course the "business-friendly" tax person said he was not willing to discuss any forward movement until certain filings were done. By this time of course the business may have to shut down, resulting in lost employment and economic activity. But the surprise of course would have been if the response was, "Sure, we can have this done within X timeframe if X is done."
Budget process
This brings me to the budgetary process. If the budget can be presented with no consideration of strategic direction, and policies on how we intend to move this country forward, then what could I expect from a public sector employee? The key to not being disappointed with government services is to have no expectations.
Almost every commentator on the budget, including myself, believes that the process lacks any policy direction for the country. In fact, the budgetary process has turned into a grand waste of time that slows down business activity for approximately two months every year, while we ponder our fate based on what the finance minister has to reveal. If the minister is kind enough not to introduce any new taxes, then we scamper back to our businesses to see if we can eke out profits for another year. If, on the other hand, the tax package and the increased debt burden cause us too much strain then we go back to see if it is beneficial to close down, given the high cost of redundancy and other closing costs. At the end of the main budget debate, who can say that they feel energised and enthused about the plans we have for the development of the country? If there is anyone out there who feels this way, please contact me and give me hope, because I do not feel that we have achieved anything from the budgetary process except some giveaways, although we have said that we have no money.
The budget process needs a major overhaul. Every company that aims to survive in a competitive world (not just make money from government paper) goes through a constant process of reinventing itself. This takes the form of looking at the business processes (internal and external) and conforming to what will add greatest value to the company. We also need to take a serious look at our budget process, which is certainly not geared towards developmental activities, but rather at balancing revenues with expenses.
Strategic plan needed
What we need is a focus on a wholesome strategic plan, supported by the budget, and not the budget setting the stage for policy objectives. Wouldn't it make more sense to have the sectoral debate as the main part of the budget and then the presentation by the finance minister as the support, advising how these policy objectives are to be financed? So then the security, education, and health ministers would present their policy directions to the nation, after a strategic process where the various sectors justify the value-added of their expenditures to the finance ministry. After these debates the finance minister would present to the nation how these plans are to be financed. But much is always made of the expenditure and revenue estimates, which without the policy directions are meaningless numbers.
So at the end of the main budget presentations this year, the conversations are not about the relevance of the development plans presented (because there were none), but rather the discussions focused on (1) How are the various promises to be justified? (2) What level will the debt end up at? (3) What will the fiscal deficit end up at? (4) How much money did Mirant get for the sale of JPS? (5) What was the response of the multilateral agencies in respect of borrowings? (6) Who did what, when and where?
Is this the best that we can do after 45 years of political independence? In a time when the world is celebrating growth rates of 5 per cent and above and our neighbours show growth rates of 9 and 10 per cent, we are ecstatic with 2.5 per cent. And, as if to show our complacency with this anaemic growth rate, we present a budget that provides no direction on how we will move forward with the development of Jamaica. So we do not know what the specific plans are to consistently achieve world-class growth rates and create the environment needed for greater private sector investments.
My hope continues to be that the sectoral debate will provide some greater insight as to how we will address problems such as crime, education and health. And these policies need to be credible and not just commitments made that are not kept. We need to know how we intend to restore the public's trust in our institutions, such as the courts and police force. We need to know what we intend to do about public entities such as Air Jamaica, SCJ, and JUTC which every year remain an increasing burden on the country's resources, without any light at the end of the tunnel.
The role of the annual budget should be about providing not only an update on the state of the economy, but what the plans are for moving the country forward. If at the end of the budget the objectives are not met, then the sectors with responsibility for policy, and the prime minister ultimately, should be held accountable by the opposition and the people for any failures. Until we get to this stage, then the annual budget will be nothing more than a ceremony of parading the latest outfits and a bunch of meaningless numbers being bandied about.
Friday, April 27, 2007
Globalization and devaluation
Over the past few weeks, two significant events have happened in the global market. The first is that the US dollar has weakened considerably against major currencies, reaching record lows against the Sterling and Euro, and secondly the Dow Jones Industrial Index (DJIA) passed 13,000 for the first time. The US economy has also been steadily weakening as a result of the housing problems.
The record level of the DJIA is supported by strong earnings growth of listed US companies despite a weakening US economy. As expected under economic theory the devaluation of the US dollar has led to greater earnings for US companies, as US produced goods have got relatively cheaper, and Europeans have been buying goods in the US. What this means is that US companies sell more goods, as a result of the devaluation, thereby increasing revenues and earnings. Costs would not have been impacted at the same pace as revenue increases.
Jamaica’s uniqueness
In Jamaica, however, we have found that devaluations have not been supported by greater export earnings. In fact the data between 2002 and 2006 shown in the graph, illustrates that export has not grown at the same rate as devaluations. The data shows that even when we have had significant devaluations this is not necessarily followed by strong export growth. Similarly, 2006 showed a strong growth in exports but the rate of devaluation was relatively low.
The question then is why countries such as the US show a close link between devaluations and exports. Additionally, why does the US show strong earnings report when the US economy is showing signs of slow down? In contrast, when the Jamaican economy shows signs of weakness it affects corporate profits. In Jamaica we have seen in 2006 that export of goods have grown 27.2% (US$453M) but the trade deficit widened by 14.1% (US$816.6M) as a result of imports growing at a faster absolute pace than exports, 19.2% (US$816.6M). This trend is a continuation of 2005, where imports grew by US$699.5M while exports grew at US$62.7M, resulting in the trade deficit widening by US$636.8M.
This was not the case in 2004, when imports and exports grew at the same absolute amount thus leaving the trade deficit unchanged. It is relevant to note though that between 2001 and 2006 the trade deficit has continually worsened, moving from US$1,618.2M to US$2,944.9M (82% decline) over the period. This in my opinion is the real number to focus on, when we are discussing growth, and not just the growth in the GDP number. This is the real reason for the massive increase in our debt even though we are celebrating growth. In other words, the economy grew by 2.8% in 2006 but at the same time we saw devaluation of just under 5% and the trade deficit worsened by US$363.6M. The question then is (1) how can this occur when we have recorded the highest growth rate in over a decade; and (2) what has caused this disparity between growth and a worsening trade deficit. After all one would expect that if one’s income grows then you should be able to have greater savings not find yourself in deeper debt.
High import content
The answer to this question is the reason why (1) US companies show greater earnings when there is devaluation and the US economy is weakening; (2) why we do not benefit from devaluation; and (3) our debt level is climbing despite growth. The problem is that our economy and major companies are not geared towards export, but rather relies heavily on the internal market. In addition, much of our goods and services produced are composed of a high import content, so that the more we produce the more we import. So even though the percentage increase in exports is higher than that of imports, imports outweigh exports by such a high amount that even a smaller percentage increase is much greater than the absolute increase in exports.
Additionally, what this points to is the fact that our economic growth is not being facilitated primarily by domestic input but by imports. Thus when the Jamaican economy is vibrant, and real growth experienced, based on the present arrangements of our production input factors, the growth we experience actually causes us more pain in the long run. For this reason when we grow we actually have increases in debt, as in order to grow we need to borrow more money to facilitate the widening trade deficit. This is the situation we face that can only be changed with proper strategic planning to ensure that we not only grow but replace foreign inputs with local ones.
In the US we find that companies are doing better as a result of the strong growth experienced globally. US companies are net exporters, that is local inputs are greater than any foreign inputs. So while they grow because of increased net earnings we grow in Jamaica as a result of increased borrowing to finance foreign inputs. Therefore, if we were to re-organize our production inputs we would find that we can positively affect our devaluation issues as well as the debt problem in the long term.
In order to do this we must look at the trade numbers and identify areas where we are deficient and develop strategic policies to address them. When one looks at the trade data, it shows that the greatest opportunities lie in the areas of food, mineral fuels, chemicals, manufactured goods, and machinery & transport equipment, which shows exports being less than imports by US$380M, US$1,491M, US$606M, US$682M, and US$1,108M respectively. Further analysis of course needs to be done in these areas to determine what value added the imports bring to the country but these areas should be the catalysts for developing a national policy for growth. This should be with a view to ensuring that growth is not merely accrue from borrowing money to encourage greater expenditure but real growth of Jamaican inputs. The area of fuels stands out, and shows the importance of developing a sound energy policy and transportation system that reduces the amount of fuel consumption. If we can achieve this then we can also address the problem of unemployment and real per capita income growth.
The data therefore shows that even though we had growth of 2.8%, the benefits of this growth is going to be short lived unless we can go further to develop our local inputs for inclusion in the growth of the economy, replacing imported inputs. This is no different from living a lifestyle of luxury off borrowed funds. In the short run growth in personal assets are possible from debt, but over the long term the debt has to be repaid.
The record level of the DJIA is supported by strong earnings growth of listed US companies despite a weakening US economy. As expected under economic theory the devaluation of the US dollar has led to greater earnings for US companies, as US produced goods have got relatively cheaper, and Europeans have been buying goods in the US. What this means is that US companies sell more goods, as a result of the devaluation, thereby increasing revenues and earnings. Costs would not have been impacted at the same pace as revenue increases.
Jamaica’s uniqueness
In Jamaica, however, we have found that devaluations have not been supported by greater export earnings. In fact the data between 2002 and 2006 shown in the graph, illustrates that export has not grown at the same rate as devaluations. The data shows that even when we have had significant devaluations this is not necessarily followed by strong export growth. Similarly, 2006 showed a strong growth in exports but the rate of devaluation was relatively low.
The question then is why countries such as the US show a close link between devaluations and exports. Additionally, why does the US show strong earnings report when the US economy is showing signs of slow down? In contrast, when the Jamaican economy shows signs of weakness it affects corporate profits. In Jamaica we have seen in 2006 that export of goods have grown 27.2% (US$453M) but the trade deficit widened by 14.1% (US$816.6M) as a result of imports growing at a faster absolute pace than exports, 19.2% (US$816.6M). This trend is a continuation of 2005, where imports grew by US$699.5M while exports grew at US$62.7M, resulting in the trade deficit widening by US$636.8M.
This was not the case in 2004, when imports and exports grew at the same absolute amount thus leaving the trade deficit unchanged. It is relevant to note though that between 2001 and 2006 the trade deficit has continually worsened, moving from US$1,618.2M to US$2,944.9M (82% decline) over the period. This in my opinion is the real number to focus on, when we are discussing growth, and not just the growth in the GDP number. This is the real reason for the massive increase in our debt even though we are celebrating growth. In other words, the economy grew by 2.8% in 2006 but at the same time we saw devaluation of just under 5% and the trade deficit worsened by US$363.6M. The question then is (1) how can this occur when we have recorded the highest growth rate in over a decade; and (2) what has caused this disparity between growth and a worsening trade deficit. After all one would expect that if one’s income grows then you should be able to have greater savings not find yourself in deeper debt.
High import content
The answer to this question is the reason why (1) US companies show greater earnings when there is devaluation and the US economy is weakening; (2) why we do not benefit from devaluation; and (3) our debt level is climbing despite growth. The problem is that our economy and major companies are not geared towards export, but rather relies heavily on the internal market. In addition, much of our goods and services produced are composed of a high import content, so that the more we produce the more we import. So even though the percentage increase in exports is higher than that of imports, imports outweigh exports by such a high amount that even a smaller percentage increase is much greater than the absolute increase in exports.
Additionally, what this points to is the fact that our economic growth is not being facilitated primarily by domestic input but by imports. Thus when the Jamaican economy is vibrant, and real growth experienced, based on the present arrangements of our production input factors, the growth we experience actually causes us more pain in the long run. For this reason when we grow we actually have increases in debt, as in order to grow we need to borrow more money to facilitate the widening trade deficit. This is the situation we face that can only be changed with proper strategic planning to ensure that we not only grow but replace foreign inputs with local ones.
In the US we find that companies are doing better as a result of the strong growth experienced globally. US companies are net exporters, that is local inputs are greater than any foreign inputs. So while they grow because of increased net earnings we grow in Jamaica as a result of increased borrowing to finance foreign inputs. Therefore, if we were to re-organize our production inputs we would find that we can positively affect our devaluation issues as well as the debt problem in the long term.
In order to do this we must look at the trade numbers and identify areas where we are deficient and develop strategic policies to address them. When one looks at the trade data, it shows that the greatest opportunities lie in the areas of food, mineral fuels, chemicals, manufactured goods, and machinery & transport equipment, which shows exports being less than imports by US$380M, US$1,491M, US$606M, US$682M, and US$1,108M respectively. Further analysis of course needs to be done in these areas to determine what value added the imports bring to the country but these areas should be the catalysts for developing a national policy for growth. This should be with a view to ensuring that growth is not merely accrue from borrowing money to encourage greater expenditure but real growth of Jamaican inputs. The area of fuels stands out, and shows the importance of developing a sound energy policy and transportation system that reduces the amount of fuel consumption. If we can achieve this then we can also address the problem of unemployment and real per capita income growth.
The data therefore shows that even though we had growth of 2.8%, the benefits of this growth is going to be short lived unless we can go further to develop our local inputs for inclusion in the growth of the economy, replacing imported inputs. This is no different from living a lifestyle of luxury off borrowed funds. In the short run growth in personal assets are possible from debt, but over the long term the debt has to be repaid.
Balancing numbers and lives
Last week two significant events happened in my space. The revenue budget was presented and I attended the funeral of a young man cut down at the start of his life. This young man of course is just one of hundreds killed each year by either gunmen or the police. He was a very hard worker and very enthused about developing a productive life through his entrepreneurial assets. His crime, like many others, was being in the wrong place at the wrong time.
The day before the funeral the Finance Minister presented the revenue estimates, a part of the overall budget, which has earned the reputation of being a meaningless set of numbers in a big book each year. Meaningless because the budget does not seem to support any development objective and is really ignored when more expenditure or new taxes are needed. In fact the real budget comes at the end of the budget year, which is the supplementary estimate.
The presentation by the Finance minister, I think was good, as he seemed to identify all the issues that affect us, but in terms of anything in the budget to engage discussion about a development path forward, non-existent. His budget presentation was nothing short of a statement that it is recognized that an election is in the air and until it is over with we will be doing nothing. But even more important the budget process does not support any objective to improve the daily living conditions of Jamaicans and in particular prevent the lives of ambitious young Jamaicans from being snuffed out. Mr. Shaw’s presentation did provide some insight as to major policy actions that would be adopted by the JLP, and I am hoping to see further development of these ideas as promised to be revealed in the manifesto.
Numbers Game
While the annual budget is a numbers game, displaying the balancing skills of government, the same cannot be said about the balancing of people’s lives. So while on the one hand we argue about one or two percentage points in GDP growth or inflation, or what the debt/GDP ratio is, the lives of Jamaicans are not improving relative to the rest of the world, which is experiencing phenomenal growth. And improvement does not mean borrowing money to buy a second hand car or answering two cell phones at once. Improving people’s lives means significant improvements in per capita income; proper physical infrastructures, such as secure bridges and roads; readily being able to access health services, not having to appeal to the public for assistance on the nightly news; being able to walk or drive without wondering if you are going to be cut down by gunmen or abused by police. A better GDP or inflation number this year, over last year, means nothing if we cannot relate this to better living conditions.
If the government was thinking ahead instead of just implementing additional taxes on cigarettes, wouldn’t it be in the best interest of Jamaicans, and the health system also, to ban smoking in public places, as developed countries have done. Is it more important to earn immediate revenues or look at the future effects of smoking? This logic is difficult to understand, just as I find it hard to comprehend how an intelligent person sees clearly marked in large letters on a cigarette box “SMOKING KILLS” and still lights up. I think the next tax to be dreamt up is the one on noise pollution. Instead of banning loud playing of music in public places, the government will one day place a tax on people who play music. This is the only reason why I can imagine this public nuisance, and lack of public order, continues unabated.
Clearly though there are really no new ideas in the budget and what was not included is more important for comment. For years now there has been a call for significant tax reform, and this was recommended by the Matalon report over two years ago, which has been condemned to a life of dust and shelves in the good company of many similar reports. As usual though we have been thrown a bone in the form of the expected consolidation of payroll taxes. I applaud this effort although long overdue but as servants we must not be ungrateful and ask for more.
The budget also included another provision for the allocation of funds for small businesses. The comment I would have here is “what’s new?” The minister also suggested to financial institutions that the interest spreads were too wide and needed to be narrowed thereby joining the prestigious club that tries to reduce interest rates through moral suasion. Of course another way to do this is to fix the business environment and stick to fiscal targets, thus moderating government’s need for debt, which will (1) force commercial banks to lend money to businesses; and (2) reduce interest rates through competition.
Elusive growth
Growth is projected at 3% for 2007/08, and while achievable will be difficult. This depends on crime levels (still number one priority after years) and two factors beyond our control, the US economy and hurricane season. While we have provided $5.8 Billion more in the expenditures for disaster management we have not considered any contingencies for hurricanes in the growth or inflation estimates. It is apparent now also that the US economy is weakening, caused by a worse than expected housing market.
The minister seems to have indicated though that the need for debt will not be reduced anytime soon. In fact the budget calls for an incremental $37 Billion in debt next year, which means that we will be much closer to the $1 trillion mark. The debt level is the only record we break more times in a year than Asafa Powell breaks his record. In 2006/07 the fiscal deficit was 5.4% of GDP, a far cry from the 2.5% originally projected, and in 2007/08 is projected to be 4.5%.
For this reason Bear Sterns has considered it necessary to downgrade our bonds from market perform to under perform. The logical flow from this of course is that GOJ bond prices could fall. If prices fall then yields increase. If yields increase then it means to attract new debt interest rates will have to increase. If so then how likely will it be that interest spreads will fall? It may be a little more difficult.
If bond prices fall then financial institutions will be impacted as we now use International Accounting Standards, which calls for financial instruments to be valued at market. We also know that some of these companies have eliminated the Held to Maturity classification, thus the reduced valuations would have to be shown in equity or profits. Trading gains could go down at a time when reduced interest rates are impacting profits. The biggest sector on the stock exchange listing is financial stocks, so go figure.
This scenario of course may not play out as I am sure that business persons in the financial sector are very astute and will ensure they are protected from this but it illustrates the link between the budget process and the entire economy. So when we present a budget that does not speak to the development objectives it puts everything on stand still. As an optimist, however, I am convinced that the budget process will see a clearly defined path for development when the other contributions are made and all my fears will be laid to rest.
So while the Finance minister has laid the blueprint for the policy, by identifying the major policy issues, I expect that these will be developed and at the end of the budget presentations we will have a clearly defined plan for balancing people’s lives, and we will live happily ever after.
The day before the funeral the Finance Minister presented the revenue estimates, a part of the overall budget, which has earned the reputation of being a meaningless set of numbers in a big book each year. Meaningless because the budget does not seem to support any development objective and is really ignored when more expenditure or new taxes are needed. In fact the real budget comes at the end of the budget year, which is the supplementary estimate.
The presentation by the Finance minister, I think was good, as he seemed to identify all the issues that affect us, but in terms of anything in the budget to engage discussion about a development path forward, non-existent. His budget presentation was nothing short of a statement that it is recognized that an election is in the air and until it is over with we will be doing nothing. But even more important the budget process does not support any objective to improve the daily living conditions of Jamaicans and in particular prevent the lives of ambitious young Jamaicans from being snuffed out. Mr. Shaw’s presentation did provide some insight as to major policy actions that would be adopted by the JLP, and I am hoping to see further development of these ideas as promised to be revealed in the manifesto.
Numbers Game
While the annual budget is a numbers game, displaying the balancing skills of government, the same cannot be said about the balancing of people’s lives. So while on the one hand we argue about one or two percentage points in GDP growth or inflation, or what the debt/GDP ratio is, the lives of Jamaicans are not improving relative to the rest of the world, which is experiencing phenomenal growth. And improvement does not mean borrowing money to buy a second hand car or answering two cell phones at once. Improving people’s lives means significant improvements in per capita income; proper physical infrastructures, such as secure bridges and roads; readily being able to access health services, not having to appeal to the public for assistance on the nightly news; being able to walk or drive without wondering if you are going to be cut down by gunmen or abused by police. A better GDP or inflation number this year, over last year, means nothing if we cannot relate this to better living conditions.
If the government was thinking ahead instead of just implementing additional taxes on cigarettes, wouldn’t it be in the best interest of Jamaicans, and the health system also, to ban smoking in public places, as developed countries have done. Is it more important to earn immediate revenues or look at the future effects of smoking? This logic is difficult to understand, just as I find it hard to comprehend how an intelligent person sees clearly marked in large letters on a cigarette box “SMOKING KILLS” and still lights up. I think the next tax to be dreamt up is the one on noise pollution. Instead of banning loud playing of music in public places, the government will one day place a tax on people who play music. This is the only reason why I can imagine this public nuisance, and lack of public order, continues unabated.
Clearly though there are really no new ideas in the budget and what was not included is more important for comment. For years now there has been a call for significant tax reform, and this was recommended by the Matalon report over two years ago, which has been condemned to a life of dust and shelves in the good company of many similar reports. As usual though we have been thrown a bone in the form of the expected consolidation of payroll taxes. I applaud this effort although long overdue but as servants we must not be ungrateful and ask for more.
The budget also included another provision for the allocation of funds for small businesses. The comment I would have here is “what’s new?” The minister also suggested to financial institutions that the interest spreads were too wide and needed to be narrowed thereby joining the prestigious club that tries to reduce interest rates through moral suasion. Of course another way to do this is to fix the business environment and stick to fiscal targets, thus moderating government’s need for debt, which will (1) force commercial banks to lend money to businesses; and (2) reduce interest rates through competition.
Elusive growth
Growth is projected at 3% for 2007/08, and while achievable will be difficult. This depends on crime levels (still number one priority after years) and two factors beyond our control, the US economy and hurricane season. While we have provided $5.8 Billion more in the expenditures for disaster management we have not considered any contingencies for hurricanes in the growth or inflation estimates. It is apparent now also that the US economy is weakening, caused by a worse than expected housing market.
The minister seems to have indicated though that the need for debt will not be reduced anytime soon. In fact the budget calls for an incremental $37 Billion in debt next year, which means that we will be much closer to the $1 trillion mark. The debt level is the only record we break more times in a year than Asafa Powell breaks his record. In 2006/07 the fiscal deficit was 5.4% of GDP, a far cry from the 2.5% originally projected, and in 2007/08 is projected to be 4.5%.
For this reason Bear Sterns has considered it necessary to downgrade our bonds from market perform to under perform. The logical flow from this of course is that GOJ bond prices could fall. If prices fall then yields increase. If yields increase then it means to attract new debt interest rates will have to increase. If so then how likely will it be that interest spreads will fall? It may be a little more difficult.
If bond prices fall then financial institutions will be impacted as we now use International Accounting Standards, which calls for financial instruments to be valued at market. We also know that some of these companies have eliminated the Held to Maturity classification, thus the reduced valuations would have to be shown in equity or profits. Trading gains could go down at a time when reduced interest rates are impacting profits. The biggest sector on the stock exchange listing is financial stocks, so go figure.
This scenario of course may not play out as I am sure that business persons in the financial sector are very astute and will ensure they are protected from this but it illustrates the link between the budget process and the entire economy. So when we present a budget that does not speak to the development objectives it puts everything on stand still. As an optimist, however, I am convinced that the budget process will see a clearly defined path for development when the other contributions are made and all my fears will be laid to rest.
So while the Finance minister has laid the blueprint for the policy, by identifying the major policy issues, I expect that these will be developed and at the end of the budget presentations we will have a clearly defined plan for balancing people’s lives, and we will live happily ever after.
Monday, April 16, 2007
Children of a lesser God
The first thought about what to write this week was of course the budget, as everyone else has done. In fact I was preparing to do so, as the expenditure estimates do need some further explanation. At the time of writing the revenue estimates have not yet been presented and so would not have been a focus.
The question as to what I should comment on though was answered on Easter Sunday while at the gas station. While there I saw a young boy, aged 10, trying to sell some sweets. I called him and started to question him about where his mother was and why at his age he was on the street and not at home studying. He indicated to me that his mother was very sick and that he had to sell the sweets in order to be able to go to school the following week. I gave him some money and told him to make sure he keeps out of trouble knowing too well that this is just one of many such children who are victims of the violent culture of the streets.
I have always had a lot of respect for Andrew Holness but cannot support any call for locking up parents for wrongs done by their children. I believe they should have some civil responsibility but not criminal. Any such action would be panic management, which is one of the worst things that you can do in a crisis. Where would we stop though? Should we also lock up the child services officers that are supposed to see to the welfare of children?
This I thought was more important to comment on than a group of rowdy parliamentarians presenting and arguing over some numbers. I might add numbers that really have no meaning, as it is only presented to appease government creditors and the populace into feeling good that government is spending some money or didn’t impose any new taxes this year. Don’t get me wrong, the budget process is important from the point of view that it provides us with insight as to how the economy may be impacted but really and truly does not provide any strategic direction.
Wrong approach
This though is the way we approach many things we do, both in the public and private sectors, but more so in government because there is no market to keep them in check. Every year we go through the budget process it seems to be an exercise in balancing the books rather than used as a tool to develop the long term strategic objectives of the country, like our tax policies, but then again it does not seem as if we have any strategies at all. So because of this lack of vision for our country we have situations like that little boy who has to be on the streets at the age of 10 selling sweets in order to go to school the next week. Because of the lack of vision the nightly news always seems to have an appeal from some poor person, who cannot afford medication to save their life, appealing to the public. Instead of spending money on improving people’s lives so that we can have greater productivity, however, we find it more important to build expensive stadiums and then figure out what to do with them.
The fact is that even after we have agreed on the budget, and determine that it is the best we can do in the circumstances, what will be the result? We will as usual come with a massive supplementary estimate because the budget numbers were not practical. We will continue to spend massive amounts on off-budget expenditures such as Air Jamaica, SCJ, and JUTC, and at the end of the year we will be told what amounts were spent. We will continue to borrow more money above the projected loan receipts, resulting in the poor people having to forgo another year of basic social services. We will continue to spend the money on so called legacy investments such as the Trelawny multi-purpose stadium while people in Jamaica cry out for running water.
So at the end of the day I ask, what is the sense of creating budgets and us analysts wasting time on them if it does not guide our strategic decisions and we do not maintain fiscal discipline. It seems that proper planning is not only a Jamaican issue but extends to the Caribbean. How can the politicians in CARICOM now be saying that the organizing committee for cricket did not negotiate the terms of the host agreement correctly?
How can we now be saying, US$400 million later, that we negotiated incorrectly and gave the ICC most of the revenues? What happened to the enthusiasm with which the politicians applauded the world cup efforts while enjoying the luxuries of the opening ceremony at the expense of Jamaica’s poor? The organizers will no doubt have to bear the brunt of the criticisms though as it is obvious that there was not much consideration given to the economic environment when setting ticket prices, which I believe to be the main inhibition to greater attendance.
No proactivity
As usual though we do not proactively deal with issues for fear that we may offend a party supporter, or in the case of a company, an employee. Never worry that the cost of delaying any action is always going to be greater to the country, or company, in the long run. The West Indies cricket team, for example, proved that they are no longer in the top cricketing teams. This is actually no surprise because who in their right mind would have thought that they would have won the world cup. But even though we have known of the weakness of the team, for years we continue to blame the players. If the players for years continue to show poor results, is the problem with the players or the administration. Unless we deal with the persons running cricket then we will get no better.
It seems obvious to me that Jamaicans are children of a lesser God. I say this because if, as it is said, God is guiding this government then I cannot safely say that it is the merciful God that we as Christians have all grown up knowing. It must be a lesser God that Jamaicans in particular are the children of. I say this because the persons that have been sent to govern us from independence until now have only served to inflict pain on this country.
Instead of practically managing the country’s business we see where calls are being made for reparation. Now tell me, if we had, from 1962, managed the affairs of this country properly would we need to be calling for monies for wrongs caused on our mother’s ancestors when our father’s ancestors were the ones that did the wrong. After all our motto says “out of many one people” because it is accepted that we are a mixed up nation. How many of us can say that we are pure descendants of the slaves. The fact that most of us are mixed should we be looking for partial reparation and what is the ratio.
As far as I know, the purpose of the budget is to set out the expenditures to be undertaken by government to run the affairs of the country for a year. The budget does not support any long tern strategic objectives, however, so what is the sense of it. We have had budgets every year since independence. Have people’s lives generally got any better? I will continue, however, to provide commentary for Jamaicans so that they can understand what is presented, as it is a necessary evil we labour through each year and it gives an insight into how the government is thinking.
Never mind my rhetoric though because when all is said and done we do need to have a budget. My hope is that some day the budget will be a tool used to support strategic long term objectives for the development of Jamaica.
The question as to what I should comment on though was answered on Easter Sunday while at the gas station. While there I saw a young boy, aged 10, trying to sell some sweets. I called him and started to question him about where his mother was and why at his age he was on the street and not at home studying. He indicated to me that his mother was very sick and that he had to sell the sweets in order to be able to go to school the following week. I gave him some money and told him to make sure he keeps out of trouble knowing too well that this is just one of many such children who are victims of the violent culture of the streets.
I have always had a lot of respect for Andrew Holness but cannot support any call for locking up parents for wrongs done by their children. I believe they should have some civil responsibility but not criminal. Any such action would be panic management, which is one of the worst things that you can do in a crisis. Where would we stop though? Should we also lock up the child services officers that are supposed to see to the welfare of children?
This I thought was more important to comment on than a group of rowdy parliamentarians presenting and arguing over some numbers. I might add numbers that really have no meaning, as it is only presented to appease government creditors and the populace into feeling good that government is spending some money or didn’t impose any new taxes this year. Don’t get me wrong, the budget process is important from the point of view that it provides us with insight as to how the economy may be impacted but really and truly does not provide any strategic direction.
Wrong approach
This though is the way we approach many things we do, both in the public and private sectors, but more so in government because there is no market to keep them in check. Every year we go through the budget process it seems to be an exercise in balancing the books rather than used as a tool to develop the long term strategic objectives of the country, like our tax policies, but then again it does not seem as if we have any strategies at all. So because of this lack of vision for our country we have situations like that little boy who has to be on the streets at the age of 10 selling sweets in order to go to school the next week. Because of the lack of vision the nightly news always seems to have an appeal from some poor person, who cannot afford medication to save their life, appealing to the public. Instead of spending money on improving people’s lives so that we can have greater productivity, however, we find it more important to build expensive stadiums and then figure out what to do with them.
The fact is that even after we have agreed on the budget, and determine that it is the best we can do in the circumstances, what will be the result? We will as usual come with a massive supplementary estimate because the budget numbers were not practical. We will continue to spend massive amounts on off-budget expenditures such as Air Jamaica, SCJ, and JUTC, and at the end of the year we will be told what amounts were spent. We will continue to borrow more money above the projected loan receipts, resulting in the poor people having to forgo another year of basic social services. We will continue to spend the money on so called legacy investments such as the Trelawny multi-purpose stadium while people in Jamaica cry out for running water.
So at the end of the day I ask, what is the sense of creating budgets and us analysts wasting time on them if it does not guide our strategic decisions and we do not maintain fiscal discipline. It seems that proper planning is not only a Jamaican issue but extends to the Caribbean. How can the politicians in CARICOM now be saying that the organizing committee for cricket did not negotiate the terms of the host agreement correctly?
How can we now be saying, US$400 million later, that we negotiated incorrectly and gave the ICC most of the revenues? What happened to the enthusiasm with which the politicians applauded the world cup efforts while enjoying the luxuries of the opening ceremony at the expense of Jamaica’s poor? The organizers will no doubt have to bear the brunt of the criticisms though as it is obvious that there was not much consideration given to the economic environment when setting ticket prices, which I believe to be the main inhibition to greater attendance.
No proactivity
As usual though we do not proactively deal with issues for fear that we may offend a party supporter, or in the case of a company, an employee. Never worry that the cost of delaying any action is always going to be greater to the country, or company, in the long run. The West Indies cricket team, for example, proved that they are no longer in the top cricketing teams. This is actually no surprise because who in their right mind would have thought that they would have won the world cup. But even though we have known of the weakness of the team, for years we continue to blame the players. If the players for years continue to show poor results, is the problem with the players or the administration. Unless we deal with the persons running cricket then we will get no better.
It seems obvious to me that Jamaicans are children of a lesser God. I say this because if, as it is said, God is guiding this government then I cannot safely say that it is the merciful God that we as Christians have all grown up knowing. It must be a lesser God that Jamaicans in particular are the children of. I say this because the persons that have been sent to govern us from independence until now have only served to inflict pain on this country.
Instead of practically managing the country’s business we see where calls are being made for reparation. Now tell me, if we had, from 1962, managed the affairs of this country properly would we need to be calling for monies for wrongs caused on our mother’s ancestors when our father’s ancestors were the ones that did the wrong. After all our motto says “out of many one people” because it is accepted that we are a mixed up nation. How many of us can say that we are pure descendants of the slaves. The fact that most of us are mixed should we be looking for partial reparation and what is the ratio.
As far as I know, the purpose of the budget is to set out the expenditures to be undertaken by government to run the affairs of the country for a year. The budget does not support any long tern strategic objectives, however, so what is the sense of it. We have had budgets every year since independence. Have people’s lives generally got any better? I will continue, however, to provide commentary for Jamaicans so that they can understand what is presented, as it is a necessary evil we labour through each year and it gives an insight into how the government is thinking.
Never mind my rhetoric though because when all is said and done we do need to have a budget. My hope is that some day the budget will be a tool used to support strategic long term objectives for the development of Jamaica.
Friday, March 30, 2007
Consumerism is good for growth
I spend quite a bit of time keeping pace with what happens in international capital markets. I believe this is necessary because, operating as we are in a global environment, we must know what is happening in major markets in order to be able to predict future effects on our economy. As an example, Dr Davies explained that the decision to raise the US$350 million now was because of problems being experienced on China's equity market, and the fear of a crash of global equity markets. So raising the money now was appropriate because a later date could see investors shying away from emerging market instruments, making raising that sum that more difficult.
While I agree with that rationale, if one were following the international markets then it would be clear that this blip in the Chinese and other international equity markets was not the beginning of the end, which might come later in the year. The fact is that global equity markets have been on a prolonged bull run and any negative event can easily cause a much prophesied correction, as was what happened. Since then the China equity market has seen new highs, and the US and European markets have continued their upward trend. The fear for the dollar now is that the US economy is weakening, and this could see a reduction of interest rates. This, however, will have a positive impact on equity markets and could be beneficial for emerging market debt, which is usually at higher rates.
Less means more
One of the main issues with the US economy is the weakening consumer spending, which is its mainstay. The fact is that economic activity is based on the strength of consumer spending, as consumers are the ones who purchase homes and buy goods to support companies. Thus the argument is that the more money consumers have to spend then the more beneficial it will be for the economy. For this reason, when there are signs that the US economy is weakening, the Fed will reduce rates to encourage greater spending (through increased credit) and the government will sometimes reduce taxes to put more disposable income in the hands of consumers. In a recent interview on CNBC, Rudy Giuliani stated that when he was Mayor of New York he actually reduced taxes over 20 times in order to close the deficit they had, and it worked.
The fears of a weakening US economy are driven by a lack of consumer spending in the housing market, and this has spilled over in lower consumer confidence and retail sales. There is no doubt that strong consumerism is good for economic growth. In Jamaica's case, however, we do not subscribe to this logic, as we don't with many other rational arguments. I have long pondered whether this is an action based on ignorance or incompetence, and the conclusion I have come up with is that it is neither. It is an action based on lack of will.
It is obvious that our annual budget is not geared towards supporting the development of either the economy or the country, but rather a futile exercise to support the insatiable appetite of politicians who seek to support their constituents and hold on to state power. The problem is that the pie is constantly shrinking, and will continue to do so as we acquire greater amounts of debt, giving the mirage of greater expenditures each year, but the reality is that an increasing amount of revenue goes to satisfying debt servicing rather than the Jamaican public. Only if we have events like Cricket World Cup do we bother to seek to spend any money on Jamaica, and in that eventuality it is not primarily for Jamaicans, who are nevertheless thankful for the visitors because of the indirect benefits we get when they come to the island. So we find that while we may have emancipated ourselves from physical slavery, mentally we are still stuck in a time warp of satisfying the new master (foreigner) while the local (slave) continues to vie for the scraps left by our new masters.
We do not realise that if we were to reduce taxes then this would place more money in the hands of consumers, which would in turn generate more spending and boost economic activity. Instead taxation is used as a means to plug any hole government has in its fiscal accounts rather than as a tool to foster economic development. We also create systems to frustrate, rather than encourage, investments.
Unfavourable systems
A recent example is that I was sent a package through FedEx, who also cleared the package for me. This was educational material, on DVD, and when it came to me the duty was overstated by over 100%. Well, FedEx did not pick up on this, but I did, and when I investigated, it was discovered that the customs officer had made an error and entered the wrong code. This was after a ridiculous explanation that educational material on DVD attracted a higher rate than that in a book. So much for the technology efforts of the government. The long and short is that FedEx told me that I had to pay the full amount charged and then wait two weeks for a refund. The amount was over 100 per cent more than what should have been charged. Now I had nothing to do with the error, as it was being handled by FedEx and Customs, but I am the one who is being asked to suffer the consequences of their error. This would never happen in the US, but FedEx comes to the backward island of Jamaica where they can give less than adequate service, supported by the Jamaican government who believes that their monopoly on the wharf is licence to abuse the rights of Jamaicans. My sin, of course, is that I am Jamaican. I can solve the courier problem by never using FedEx again, but I cannot use a different Customs department. Thankfully there are well-intentioned persons in Customs, and a Mr Ewan Harvey is trying to resolve this for me so that I can try to get on with some productivity. But what of the many other Jamaicans who do not have the fortitude to call and express disgust about it?
Is it any wonder then that if our own government sets up systems to prevent the progress of the "dishonest" Jamaicans, while encouraging the "squeaky clean" foreigners, Jamaicans will find it difficult to invest in our own country? Is it any wonder that based on this attitude monopolies such as Cable and Wireless and JPS have come to Jamaica and sought to extract their pound of flesh from these Caribbean locals who have "EXPLOIT ME" written all over our foreheads?
Even the private sector has a problem understanding the power of encouraging consumerism and goes in many cases for short-term profits. Recently I bought a monitor from a computer company, and was not happy with the performance so I took it back. They informed me that if they did not find anything wrong with it that they could not replace it, even with the more expensive brand I requested and was willing to pay for. On the other hand, last year I bought something at Best Buy (in Florida) and the next day went back and changed it for another brand, without having to give a reason. The only requirement was that it was in the same condition. The moral of this is that it is best to buy as much as possible from American companies over the Internet, rather than purchase the same item for more locally. On the other hand, Customs and FedEx may make this an unpleasant experience anyway, so anywhere you turn you are screwed. So much for being a Jamaican in Jamaica. I think I might go for the CARICOM passport to see if I can get some reprieve.
If we are serious about maximising economic development then we have to realise, as developed countries do, the power of consumer spending. Consumers, of course, must include taxpayers from the government's point of view.
While I agree with that rationale, if one were following the international markets then it would be clear that this blip in the Chinese and other international equity markets was not the beginning of the end, which might come later in the year. The fact is that global equity markets have been on a prolonged bull run and any negative event can easily cause a much prophesied correction, as was what happened. Since then the China equity market has seen new highs, and the US and European markets have continued their upward trend. The fear for the dollar now is that the US economy is weakening, and this could see a reduction of interest rates. This, however, will have a positive impact on equity markets and could be beneficial for emerging market debt, which is usually at higher rates.
Less means more
One of the main issues with the US economy is the weakening consumer spending, which is its mainstay. The fact is that economic activity is based on the strength of consumer spending, as consumers are the ones who purchase homes and buy goods to support companies. Thus the argument is that the more money consumers have to spend then the more beneficial it will be for the economy. For this reason, when there are signs that the US economy is weakening, the Fed will reduce rates to encourage greater spending (through increased credit) and the government will sometimes reduce taxes to put more disposable income in the hands of consumers. In a recent interview on CNBC, Rudy Giuliani stated that when he was Mayor of New York he actually reduced taxes over 20 times in order to close the deficit they had, and it worked.
The fears of a weakening US economy are driven by a lack of consumer spending in the housing market, and this has spilled over in lower consumer confidence and retail sales. There is no doubt that strong consumerism is good for economic growth. In Jamaica's case, however, we do not subscribe to this logic, as we don't with many other rational arguments. I have long pondered whether this is an action based on ignorance or incompetence, and the conclusion I have come up with is that it is neither. It is an action based on lack of will.
It is obvious that our annual budget is not geared towards supporting the development of either the economy or the country, but rather a futile exercise to support the insatiable appetite of politicians who seek to support their constituents and hold on to state power. The problem is that the pie is constantly shrinking, and will continue to do so as we acquire greater amounts of debt, giving the mirage of greater expenditures each year, but the reality is that an increasing amount of revenue goes to satisfying debt servicing rather than the Jamaican public. Only if we have events like Cricket World Cup do we bother to seek to spend any money on Jamaica, and in that eventuality it is not primarily for Jamaicans, who are nevertheless thankful for the visitors because of the indirect benefits we get when they come to the island. So we find that while we may have emancipated ourselves from physical slavery, mentally we are still stuck in a time warp of satisfying the new master (foreigner) while the local (slave) continues to vie for the scraps left by our new masters.
We do not realise that if we were to reduce taxes then this would place more money in the hands of consumers, which would in turn generate more spending and boost economic activity. Instead taxation is used as a means to plug any hole government has in its fiscal accounts rather than as a tool to foster economic development. We also create systems to frustrate, rather than encourage, investments.
Unfavourable systems
A recent example is that I was sent a package through FedEx, who also cleared the package for me. This was educational material, on DVD, and when it came to me the duty was overstated by over 100%. Well, FedEx did not pick up on this, but I did, and when I investigated, it was discovered that the customs officer had made an error and entered the wrong code. This was after a ridiculous explanation that educational material on DVD attracted a higher rate than that in a book. So much for the technology efforts of the government. The long and short is that FedEx told me that I had to pay the full amount charged and then wait two weeks for a refund. The amount was over 100 per cent more than what should have been charged. Now I had nothing to do with the error, as it was being handled by FedEx and Customs, but I am the one who is being asked to suffer the consequences of their error. This would never happen in the US, but FedEx comes to the backward island of Jamaica where they can give less than adequate service, supported by the Jamaican government who believes that their monopoly on the wharf is licence to abuse the rights of Jamaicans. My sin, of course, is that I am Jamaican. I can solve the courier problem by never using FedEx again, but I cannot use a different Customs department. Thankfully there are well-intentioned persons in Customs, and a Mr Ewan Harvey is trying to resolve this for me so that I can try to get on with some productivity. But what of the many other Jamaicans who do not have the fortitude to call and express disgust about it?
Is it any wonder then that if our own government sets up systems to prevent the progress of the "dishonest" Jamaicans, while encouraging the "squeaky clean" foreigners, Jamaicans will find it difficult to invest in our own country? Is it any wonder that based on this attitude monopolies such as Cable and Wireless and JPS have come to Jamaica and sought to extract their pound of flesh from these Caribbean locals who have "EXPLOIT ME" written all over our foreheads?
Even the private sector has a problem understanding the power of encouraging consumerism and goes in many cases for short-term profits. Recently I bought a monitor from a computer company, and was not happy with the performance so I took it back. They informed me that if they did not find anything wrong with it that they could not replace it, even with the more expensive brand I requested and was willing to pay for. On the other hand, last year I bought something at Best Buy (in Florida) and the next day went back and changed it for another brand, without having to give a reason. The only requirement was that it was in the same condition. The moral of this is that it is best to buy as much as possible from American companies over the Internet, rather than purchase the same item for more locally. On the other hand, Customs and FedEx may make this an unpleasant experience anyway, so anywhere you turn you are screwed. So much for being a Jamaican in Jamaica. I think I might go for the CARICOM passport to see if I can get some reprieve.
If we are serious about maximising economic development then we have to realise, as developed countries do, the power of consumer spending. Consumers, of course, must include taxpayers from the government's point of view.
Friday, March 23, 2007
Cricket, aeroplanes, and poverty
A recent article in Forbes magazine looked at what some of the world’s billionaires drive. Of course at the top of the list were Bill Gates and Warren Buffett. Gates drives a 1999 Porsche 911 and a 1988 Porsche 959 coupe. Buffett drives a 2001 Lincoln Town car with the words THRIFTY on the licence plate. The magazine also states that the trend noticed is that billionaires tend to not focus on material possessions such as cars, which depreciate, but rather tend to put their resources and efforts into their businesses.
Recently I was having a discussion with a well known Jamaican, who commented that while working in Trinidad in the 1980s, it was very obvious to him that instead of buying fancy cars and houses, as Jamaicans do, what they did was to retool their factories and spend most of their money on modernizing the businesses. Well they became the manufacturers for CARICOM and we had FINSAC. This is not to justify the manner with which a Trinidadian, recently being interviewed by Cliff Hughes, pompously stated that the agreement to supply LNG to Jamaica was a MOU and therefore not binding on either party. What happened to the word of a government? Doesn’t that mean anything anymore? I am sure that this is not the sentiment of the Prime Minister, and people like that should be banned from speaking for fear of reversing our CARICOM efforts.
Resource usage
These two accounts bring to the forefront the relationship between cricket, airplanes, and poverty, in the Jamaican context. They all compete for the same resources. Of course in true Jamaican style, cricket and airplanes (Air Jamaica) get the lion’s share, while poverty continues to increase because it is deprived of resources as a result of cricket and airplanes. I can say this for the politicians, that are afraid to because it might cost them votes, as no one is going to vote for me.
On the day of the opening ceremony, at the expensive Trelawny multi-purpose stadium, TVJ covered this magnificent affair, with all the Jamaicans present enjoying themselves immensely. In true Jamaican style we showed the world that we know how to party. Two stories later I saw an elderly teary eyed lady saying that she fell down carrying water in a bucket to her home, because there was no running water. Still another report showed a man saying that his car had been damaged by the police whom he had to lend to chase thieves on many occasions, as they had no vehicle, and he was having difficulty being compensated.
Now this is the same country where we spend J$9 billion to host world cup cricket, and maybe about JS$2 – J$3 billion on the Trelawny stadium. This is the same country that has a national airline that lost US$153 million (J$10 billion) in 2006, and US$120 million (J$8 billion) in 2005. This is the same country that runs a sugar company that loses hundreds of millions each year. As the celebrated IMF report states in paragraph 14 “…the data indicate that the deficit of the JUTC exceeded planned amounts by three-folds; that of the Sugar company exceeded planned amounts by almost seven-fold; and that of Air Jamaica has been more than double the expected amount. Altogether, the excesses of these three enterprises amount to almost 1 percent of GDP this year.”
In addition to all these losses we spend J$ billions on a stadium to host an opening ceremony and some warm up matches, and may have some positive revenue impact in the future. In the present though, the old lady can continue to carry the water, and fall down while doing it, because the money has to be spent on cricket, airplanes, and sugar to sweeten the hardship. Although she will have made sacrifices for these expenditures to have taken place, and for some Jamaicans to have enjoyed the ceremony, more than likely she will not live to see the benefits of the expenditures, if any of us will.
Needless to say, when I saw the newscast I was more than hurt by the disregard we have for the less fortunate in this country. And those who suffer the most will not be able to enjoy the cricket, because at US$80 per ticket it will not be possible to buy water and go to the cricket match also. And even if they could afford to then they might not be able to get a bath in time to attend.
Development is key
If we as a country are serious about development then we have to make better choices. We cannot continue to spend money needlessly on events that do not add long term value. Not in the position we are in. I am not saying that we should not have hosted the opening ceremony and the cricket matches, but why not spend J$1.5 billion or J$2 billion less and fix up the national stadium for the opening ceremony. Still have the expenditure on Sabina and the physical infrastructure but seek to spend the money more wisely. If we had taken that approach and spent J$1.5 billion less, would it have negatively impacted the benefits. I think not.
With respect to Air Jamaica, this thing seems like an ever expanding black hole. Even if we consider the MIT report, which says that the net benefit of Air Jamaica is over J$5 billion per annum, which I doubt very much, the present losses seem to be eating away at that net benefit. I also have no doubt that Air Jamaica is losing passengers, as if you want to get to your destination on time, Air Jamaica is not the likely choice. If we cannot contain the losses, and turn a profit by 2009, as called for in the business plan, I will agree with the IMF, shut it down. We cannot continue to spend J$10 billion per year to support an airline that has borrowed the crutches from the Jamaican dollar.
We must face the fact that our resources are very scarce, and we need to be very wary of what we spend it on and how. It is only by spending on things that will provide value in excess of the spend that we will get out of the situation we are in and achieve development. Growth is not difficult to get, or at least should not be, it is development that is a challenge and what we must focus on. In 2007 we should not have an old lady carrying water from the river because there is no piped water. We should not have the police having to borrow a private car to provide security. A duty free car for the police is just over J$1 million. A fraction of J$2 billion could have provided the cars we need to fight crime.
So at the end of cricket and the losses of Air Jamaica, my question is what is the benefit we expect to gain. Will we have a more educated work force? Will crime be reduced? Will we be able to save our tourist capital from the jaws of crime? Will our youth have more employment opportunities because they have acquired a skill? Will the old lady have piped water and the police get the vehicles they need because of the revenue flows generated. We don’t need the benefits ten years from now, we need it now.
It is not good enough that we will benefit from whatever monies we spend. The timing is important. If someone develops a product that is useful for the next generation then it means that his business will fail, if he has no other product or service. The lesson is that when we spend monies, we must be careful to ensure not only that the benefits are forthcoming but that it happens in a timely manner. Because at the end of the celebrations, while the money is being spent, then there comes reality, when it has to be paid back.
Recently I was having a discussion with a well known Jamaican, who commented that while working in Trinidad in the 1980s, it was very obvious to him that instead of buying fancy cars and houses, as Jamaicans do, what they did was to retool their factories and spend most of their money on modernizing the businesses. Well they became the manufacturers for CARICOM and we had FINSAC. This is not to justify the manner with which a Trinidadian, recently being interviewed by Cliff Hughes, pompously stated that the agreement to supply LNG to Jamaica was a MOU and therefore not binding on either party. What happened to the word of a government? Doesn’t that mean anything anymore? I am sure that this is not the sentiment of the Prime Minister, and people like that should be banned from speaking for fear of reversing our CARICOM efforts.
Resource usage
These two accounts bring to the forefront the relationship between cricket, airplanes, and poverty, in the Jamaican context. They all compete for the same resources. Of course in true Jamaican style, cricket and airplanes (Air Jamaica) get the lion’s share, while poverty continues to increase because it is deprived of resources as a result of cricket and airplanes. I can say this for the politicians, that are afraid to because it might cost them votes, as no one is going to vote for me.
On the day of the opening ceremony, at the expensive Trelawny multi-purpose stadium, TVJ covered this magnificent affair, with all the Jamaicans present enjoying themselves immensely. In true Jamaican style we showed the world that we know how to party. Two stories later I saw an elderly teary eyed lady saying that she fell down carrying water in a bucket to her home, because there was no running water. Still another report showed a man saying that his car had been damaged by the police whom he had to lend to chase thieves on many occasions, as they had no vehicle, and he was having difficulty being compensated.
Now this is the same country where we spend J$9 billion to host world cup cricket, and maybe about JS$2 – J$3 billion on the Trelawny stadium. This is the same country that has a national airline that lost US$153 million (J$10 billion) in 2006, and US$120 million (J$8 billion) in 2005. This is the same country that runs a sugar company that loses hundreds of millions each year. As the celebrated IMF report states in paragraph 14 “…the data indicate that the deficit of the JUTC exceeded planned amounts by three-folds; that of the Sugar company exceeded planned amounts by almost seven-fold; and that of Air Jamaica has been more than double the expected amount. Altogether, the excesses of these three enterprises amount to almost 1 percent of GDP this year.”
In addition to all these losses we spend J$ billions on a stadium to host an opening ceremony and some warm up matches, and may have some positive revenue impact in the future. In the present though, the old lady can continue to carry the water, and fall down while doing it, because the money has to be spent on cricket, airplanes, and sugar to sweeten the hardship. Although she will have made sacrifices for these expenditures to have taken place, and for some Jamaicans to have enjoyed the ceremony, more than likely she will not live to see the benefits of the expenditures, if any of us will.
Needless to say, when I saw the newscast I was more than hurt by the disregard we have for the less fortunate in this country. And those who suffer the most will not be able to enjoy the cricket, because at US$80 per ticket it will not be possible to buy water and go to the cricket match also. And even if they could afford to then they might not be able to get a bath in time to attend.
Development is key
If we as a country are serious about development then we have to make better choices. We cannot continue to spend money needlessly on events that do not add long term value. Not in the position we are in. I am not saying that we should not have hosted the opening ceremony and the cricket matches, but why not spend J$1.5 billion or J$2 billion less and fix up the national stadium for the opening ceremony. Still have the expenditure on Sabina and the physical infrastructure but seek to spend the money more wisely. If we had taken that approach and spent J$1.5 billion less, would it have negatively impacted the benefits. I think not.
With respect to Air Jamaica, this thing seems like an ever expanding black hole. Even if we consider the MIT report, which says that the net benefit of Air Jamaica is over J$5 billion per annum, which I doubt very much, the present losses seem to be eating away at that net benefit. I also have no doubt that Air Jamaica is losing passengers, as if you want to get to your destination on time, Air Jamaica is not the likely choice. If we cannot contain the losses, and turn a profit by 2009, as called for in the business plan, I will agree with the IMF, shut it down. We cannot continue to spend J$10 billion per year to support an airline that has borrowed the crutches from the Jamaican dollar.
We must face the fact that our resources are very scarce, and we need to be very wary of what we spend it on and how. It is only by spending on things that will provide value in excess of the spend that we will get out of the situation we are in and achieve development. Growth is not difficult to get, or at least should not be, it is development that is a challenge and what we must focus on. In 2007 we should not have an old lady carrying water from the river because there is no piped water. We should not have the police having to borrow a private car to provide security. A duty free car for the police is just over J$1 million. A fraction of J$2 billion could have provided the cars we need to fight crime.
So at the end of cricket and the losses of Air Jamaica, my question is what is the benefit we expect to gain. Will we have a more educated work force? Will crime be reduced? Will we be able to save our tourist capital from the jaws of crime? Will our youth have more employment opportunities because they have acquired a skill? Will the old lady have piped water and the police get the vehicles they need because of the revenue flows generated. We don’t need the benefits ten years from now, we need it now.
It is not good enough that we will benefit from whatever monies we spend. The timing is important. If someone develops a product that is useful for the next generation then it means that his business will fail, if he has no other product or service. The lesson is that when we spend monies, we must be careful to ensure not only that the benefits are forthcoming but that it happens in a timely manner. Because at the end of the celebrations, while the money is being spent, then there comes reality, when it has to be paid back.
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