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.
Friday, May 18, 2007
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.
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