Stony Hill Phoenix: a lesson in development

Approximately three months ago, my son started training with the Stony Hill Phoenix under 13 football club. They were making an entrance into the KSAFA under 13 football competition for the first time in a decade. I was attracted to the prospect of my son playing here for a few reasons (1) he would be able to make a mark with a new club; (2) I liked the skills shown by the young boys; (3) the coaching seemed appropriate; and (4) he would get the necessary playing time needed for development at this age.

He could have gone to Real Mona, Cavaliers, Meadhaven, or one of the more established teams, but I felt that for personal development this would have been better for him. As I mentioned he would get the playing time necessary to develop and have the chance to build with a set of skillful youngsters, which would have a greater mark than even winning with an already established team. I felt therefore that it was an ideal lesson in development for him. It is of course similar to building your economy with foreign investors, who are already established, or with your own start up entrepreneurial class. The latter always has more potential for growth and more loyalty to keep profits here.

A lot of his friends would ask him, “which team is that?”, “why don’t you play for Mona?”. All the questions you would typically expect from someone about a start up, for example, if one starts a company as opposed to working with a multinational in the corporate world. This is in contrast to a developed country like the US, where start up companies are encouraged and usually in a few years grow into large publicly listed companies.

Believe in ourselves
What was impressive about this team though is that the youngsters were encouraged to do their best and we always told them that they had the ability to win the competition. They were always told also they had nothing to lose and a lot to prove, as they were seen as underdogs. The lesson in psychological; development was more important for us than skills, which while being important, if one did not believe that the ultimate goal was possible then the skill would be useless. This reminded me also of two things – (1) some persons have told me that the JLP’s vision is a pipe dream as Jamaica is a developing country and we are a victim of globalization; and (2) Bruce Golding’s speech that we should stop making excuses for our failures and accepting mediocrity, as we must believe that everything is possible. It is this approach that we took to the young boys and spent a lot of time, each training session, telling them how good they are.

In addition to the psychological and skills training we worked on the discipline and team work. No matter how skillful one was if the discipline and positive attitude was not present we would sometimes dismiss the person from the side. Discipline was of utmost importance, as any unpunished incident could contaminate the team and lead to total breakdown. So indiscipline was not tolerated. This is similar of course to the way in which crime and indiscipline has been a scourge on the Jamaican economy and has eventually led to the lack of confidence of persons to live and invest in Jamaica.

Success
What was impressive about the team is that (1) the youngsters were not from the more affluent families; and (2) the team was an average age of around 10 to 11 years, and had many who were still in prep school. So in terms of height they were much smaller than the great majority of other teams, which in most cases had mostly high school students and an average age of 12 to 13 years. We also did not have a major sponsor, as this team was after all not known and companies would of course ask what sort of mileage can I possibly get from this team. But for me that was a part of the challenge I liked for my son and adversity I thought would help them to succeed.

In the first round we played teams and beat them by four, six, and eight to nothing. The opposing coaches would take notice in disbelief that this new team of small youngsters was so good. In fact later on the KSAFA website would refer to the team as “Butler’s toddlers” after they got to the final against the defending champions, and favourites, Real Mona. In making their way to the final they even beat Real Mona in the quarter final and went on to win their quarter final zone. In fact my son told me after the quarter final match that when they were being introduced to the Real Mona team, a comment from one member of the towering opponent was something to the effect that the Stony Hill team players were so short that they would get beaten by ten goals. Well Stony Hill beat them two goals to nothing.

Stony Hill went on to beat Boys Town in the semi-final three goals to nothing, and lost the final in a nail biting match two goals to one. We also ended up with the leading goal scorer, who scored 24 goals for the season and the closest goal scorer was about 8 goals behind. Of the starting eleven, eight of are still eligible to play next year. Even so the future of this promising team is threatened as there is a tussle between certain persons in the community and the coach, who has built this team, over control of the franchise. So while the adults fight over the team the boys and football development may well be the real victims, as after entering and doing so well, after 10 years, it may well go into hibernation again. Similar to the way in which we tease the world with our quality agricultural products but then cannot fill the increased demand.

This experience reminded me so much of what is wrong in Jamaica, as I have mentioned. We believe too much in mediocrity; we do not encourage small businesses, having a preference for large foreign investors, when the greatest growth potential is with the small startups, as we see in the US (Google, Dell, Apple etc.); we have a breakdown of law and order, which prevents us reaching our greatest growth potential; and most importantly we have neglected building our human resources, and in many instances go for foreign names rather than the potential in our own people. Our music has shown that even though we are a small nation we can be giants on the world stage. For too long though our politicians have ignored the development of Jamaicans and Jamaica’s potential and this is truly the only way that we can prosper as a nation.

This team is truly a lesson in development for Jamaica, but because of adult egos we may not see them again. At least for me the goal of my son’s development has been met as he has made good improvement.

Stony Hill Phoenix: a lesson in development

Approximately three months ago, my son started training with the Stony Hill Phoenix under 13 football club. They were making an entrance into the KSAFA under 13 football competition for the first time in a decade. I was attracted to the prospect of my son playing here for a few reasons (1) he would be able to make a mark with a new club; (2) I liked the skills shown by the young boys; (3) the coaching seemed appropriate; and (4) he would get the necessary playing time needed for development at this age.

He could have gone to Real Mona, Cavaliers, Meadhaven, or one of the more established teams, but I felt that for personal development this would have been better for him. As I mentioned he would get the playing time necessary to develop and have the chance to build with a set of skillful youngsters, which would have a greater mark than even winning with an already established team. I felt therefore that it was an ideal lesson in development for him. It is of course similar to building your economy with foreign investors, who are already established, or with your own start up entrepreneurial class. The latter always has more potential for growth and more loyalty to keep profits here.

A lot of his friends would ask him, “which team is that?”, “why don’t you play for Mona?”. All the questions you would typically expect from someone about a start up, for example, if one starts a company as opposed to working with a multinational in the corporate world. This is in contrast to a developed country like the US, where start up companies are encouraged and usually in a few years grow into large publicly listed companies.

Believe in ourselves
What was impressive about this team though is that the youngsters were encouraged to do their best and we always told them that they had the ability to win the competition. They were always told also they had nothing to lose and a lot to prove, as they were seen as underdogs. The lesson in psychological; development was more important for us than skills, which while being important, if one did not believe that the ultimate goal was possible then the skill would be useless. This reminded me also of two things – (1) some persons have told me that the JLP’s vision is a pipe dream as Jamaica is a developing country and we are a victim of globalization; and (2) Bruce Golding’s speech that we should stop making excuses for our failures and accepting mediocrity, as we must believe that everything is possible. It is this approach that we took to the young boys and spent a lot of time, each training session, telling them how good they are.

In addition to the psychological and skills training we worked on the discipline and team work. No matter how skillful one was if the discipline and positive attitude was not present we would sometimes dismiss the person from the side. Discipline was of utmost importance, as any unpunished incident could contaminate the team and lead to total breakdown. So indiscipline was not tolerated. This is similar of course to the way in which crime and indiscipline has been a scourge on the Jamaican economy and has eventually led to the lack of confidence of persons to live and invest in Jamaica.

Success
What was impressive about the team is that (1) the youngsters were not from the more affluent families; and (2) the team was an average age of around 10 to 11 years, and had many who were still in prep school. So in terms of height they were much smaller than the great majority of other teams, which in most cases had mostly high school students and an average age of 12 to 13 years. We also did not have a major sponsor, as this team was after all not known and companies would of course ask what sort of mileage can I possibly get from this team. But for me that was a part of the challenge I liked for my son and adversity I thought would help them to succeed.

In the first round we played teams and beat them by four, six, and eight to nothing. The opposing coaches would take notice in disbelief that this new team of small youngsters was so good. In fact later on the KSAFA website would refer to the team as “Butler’s toddlers” after they got to the final against the defending champions, and favourites, Real Mona. In making their way to the final they even beat Real Mona in the quarter final and went on to win their quarter final zone. In fact my son told me after the quarter final match that when they were being introduced to the Real Mona team, a comment from one member of the towering opponent was something to the effect that the Stony Hill team players were so short that they would get beaten by ten goals. Well Stony Hill beat them two goals to nothing.

Stony Hill went on to beat Boys Town in the semi-final three goals to nothing, and lost the final in a nail biting match two goals to one. We also ended up with the leading goal scorer, who scored 24 goals for the season and the closest goal scorer was about 8 goals behind. Of the starting eleven, eight of are still eligible to play next year. Even so the future of this promising team is threatened as there is a tussle between certain persons in the community and the coach, who has built this team, over control of the franchise. So while the adults fight over the team the boys and football development may well be the real victims, as after entering and doing so well, after 10 years, it may well go into hibernation again. Similar to the way in which we tease the world with our quality agricultural products but then cannot fill the increased demand.

This experience reminded me so much of what is wrong in Jamaica, as I have mentioned. We believe too much in mediocrity; we do not encourage small businesses, having a preference for large foreign investors, when the greatest growth potential is with the small startups, as we see in the US (Google, Dell, Apple etc.); we have a breakdown of law and order, which prevents us reaching our greatest growth potential; and most importantly we have neglected building our human resources, and in many instances go for foreign names rather than the potential in our own people. Our music has shown that even though we are a small nation we can be giants on the world stage. For too long though our politicians have ignored the development of Jamaicans and Jamaica’s potential and this is truly the only way that we can prosper as a nation.

This team is truly a lesson in development for Jamaica, but because of adult egos we may not see them again. At least for me the goal of my son’s development has been met as he has made good improvement.

The accounting side of subprime

While we have exhaustively looked at the subprime mortgage crisis over the past few weeks, and tried to discern the implications for Jamaica, there is one aspect that we have not fully examined. This is the accounting side of the subprime mess. We have seen where financial institutions in the US, Europe, and Asia have been reeling under the liquidity crunch caused by the subprime mortgage collapse, and where equity and currency markets have been significantly affected. In fact the subprime crisis can be blamed for the weakening of the US economy and the main reason for the recent 50 basis points (1/2 percentage) reduction in the Fed target rate this week.

The fact is that the US economy is made up of 70% consumer spending and the subprime crisis has resulted in a downturn of consumer spending and income, which in turn has severely affected the US economy. The crisis has also caused the IMF to revise down global growth projections. No doubt this has already begun to impact Jamaica, and we have seen where tourism arrivals to the Caribbean region are 10% lower than last year, and the demand for the greenback may have something to do with the flight to quality caused by the subprime crisis.

May be worse than appears
But the fact is that the subprime crisis, which is projected to last until March 2008, may be worse than appears. The reason for this is because of the accounting rules that call for financial instruments to be marked to market. Marking an instrument to market means valuing the financial instruments at market value and placing the market value on the balance sheet. So if one is carrying a portfolio of financial instruments backed by subprime mortgage securities purchased at $100, if after the crisis the market value becomes $20, then instead of carrying $100 on the balance sheet you would write off $80 from the asset value and carry $20 instead.

This means that the valuation of the company would reduce by $80 and the asset value reduce by 80%. Under International Financial Reporting Standards, if the instrument is classified as Available for Sale then the other side of the transaction would see the $80 being written off against shareholders equity, and if it is classified as Fair Value through Profit or Loss (previously held for trading) then it would be written off directly against profits. So while the US company Lehman Brothers, for example, has written off US$700 million against its portfolio the great possibility exists that there could be a lot more to write off. This is because the market for subprime mortgages has collapsed and there is no benchmark to value these assets. So companies have been using “Mark to Model”, which means using complex models to value these assets.

The problem though is that the models are not consistent, as market values would be, and may overstate the real value of the assets. The crisis has been compared to the 1994 bond crash, Mexico in 1995, Asia in 1997, Russia and Long Term Capital Management in 1998, and the internet bubble. It is clear then that the subprime crisis has now become an accounting challenge and one of the reasons for the flight to quality, where banks are wary of lending to each other and move towards cash and US treasuries, is because the instruments are not yet marked to market and so no one knows the true value and the extent of the crisis. When these instruments are marked to market then we will really see what the situation is.

Local effect
This could also affect local financial institutions, as they do business with US companies such as Bear Stearns and Lehman Brothers, which have been impacted. It is possible therefore that they have bought into some of these securities (Collaterized Debt Obligations) and could be carrying some of these assets on their books. In addition, as Jason Abrahams said a few weeks ago the overseas brokers have been calling loans for conversion to cash and US Treasuries, and this could have impacted local financial institutions. In addition, a global flight to quality would also mean that investors would find emerging market debt instruments less attractive, and this could reduce the demand and price for GOJ debt instruments, for example. The result is that our financial institutions would have to write down the value of those assets also. This is especially as quite a few of our financial institutions have reportedly tainted the Held to Maturity portfolio, which is the only one that could be carried on the books at cost until maturity and is therefore no longer available. The result of course is that balance sheet valuations may be negatively affected.

Consideration of the crisis must also be given by the government as the market will now demand a higher interest rate for any debt issues, and we have seen interest rates increasing marginally over the past 2 to 3 months. This heightens the need for greater fiscal discipline and is even more reason for the introduction of persons such as Don Wehby to the process and the strengthening of the management capability at the Finance Ministry. No doubt it will be challenging but manageable if properly administered. The remainder of the fiscal year will be the true test of the current administration.

Flow not flowing
A few weeks ago I mentioned in an article that I had changed Internet services to Flow, as I was frustrated with the constant disruptions from Cable and Wireless’ (C&W) ADSL. Well with less than a month into the service I have had 5 days of complete disruption because the network was (and is still at the time of writing) having problems. So I could possibly go into over 1 week of disruption within the first month.

When I called the first time a recorded message said that there were problems with the network in Kingston 6 and 8. I spoke with a customer service representative and to my amazement the person (who is supposed to respond to customer queries) was not even aware of the message on the telephone. So obviously there is a lack of communication between technical and customer departments. There was no resolution for 2 days and I then wrote a strong email and was called by the customer service manager and a director. I shudder to think of what happens to persons that suffer quietly.

Anyway they sent someone on the third day and it was back up. The service then lasted one day and then went down again. This time after calling I am told that they do not know when they will be able to send someone as the service team is fully booked. Now if the service team is fully booked that could give an indication of problems. Thank God that C&W was being their usual inefficient self and did not turn off the ADSL as I had requested that they do about 2 weeks before.

I do not think that these ISPs see the link, in a globalized world, between reliable internet services and productivity. In the world we are today it is imperative that everyone has reliable internet service as many transactions are done through the internet everyday. Our communication with each other is heavily dependent on the internet also. So when we do not have reliable internet, and telecommunications, productivity is hampered as this is just as critical as electricity. This is a requirement of competing globally and something for the regulators to carefully consider. In the meantime I am looking for a reliable ISP and if there is one out there please send me an email.

Setting priorities for development

After the election and all that has been happening I was thinking of not writing this week until I saw the story in last Wednesday’s Observer titled “Foreign firms repatriate $13b in profits in 4 months”. This should not be surprising as this is what foreign companies do. Would we really expect that overseas companies would make an investment in a foreign country and not want to take back some of the profits to recover their initial investments and accumulate more capital for expansion.

I have always said, and still maintain, that organic growth is significantly better for Jamaica than foreign investments. While foreign investments are important, especially within the context of a developing economy, it is even more important to develop the local entrepreneur. In this regard this is the reason why I have always said that setting the appropriate business environment and incentives for locally grown entrepreneurs is critical. This is also the reason why I say that FINSAC was the single greatest blow to the economy. But all of that is now behind us and we must be careful not to make the same mistakes we did in the past. In other words when we fall it teaches us how to not fall again.

Importance of organic growth
The importance of organically grown entrepreneurs is no where better represented than in the US today. For months we have seen signs of the US economy weakening but the companies have been doing well. The reason for this is because these organic companies extended their reach by investing in the booming economies of Europe and Asia. So when the local (US) operations were showing a downturn in profitability, the overseas branches were saving the day with increased profits. The recent downturn in the US economy and fear of recession occurred after the subprime mortgage problem found its way into the European and Asian economies and naturally affected the same overseas operations that were saving the US companies. The result is that recession is an increasing possibility.

This subprime situation will no doubt have repercussions for Jamaica, and in fact I think has already started to affect the Caribbean region. It is going to be important that going forward we pursue policies that will not only shield us from the effects of a possible recession in the US but that will also put us on a path of strong growth, and this means getting our priorities right. It also means ensuring that there is a direct correlation between our spending and implementation of policies with the returns from those. In short we do not have the luxury of spending now for long term returns and must ensure that we do the things that will provide immediate returns, so that there is some benefit while the funds are being spent.

My approach to doing this would be first to look at the current status of our cash and fiscal positions. This to ensure that the business of government can continue in the short term, while determining what the plan is for moving forward. After all we have a new government and it would be wise to first of all understand what the current finances are and if the budget still holds true. Apart from the other administrative things that will need to be done I would immediately set about putting in place a medium and long term plan to chart out the growth path. And this does not mean just setting targets but make a deliberate determination about what are the obstacles to economic growth and what is the best way to go about implementing that plan given the financial constraints that face the country. While doing this it is important to bear in mind the social side also so that the social programmes do not suffer from any financial considerations. The task is going to be extremely challenging but can be done.

Determining the priorities
Much has been said about bureaucracy, crime, justice, tax reform etc. The truth is however that while we recognize that these are critical factors that must be addressed in general it is not easy to do so. While those are general areas of concern it is going to be very important to sit down now and determine what the specific issues are and develop a task list that can address each of these inn detail. And importantly in the order that will give the greatest value.

In other words while I may agree that bureaucracy and tax reform are important factors it will be important to do the following:
- Determine what level of growth and other targets you want to achieve. Set goals;
- Through various channels make a determination of what the main obstacles are to these targets e.g. if I want to achieve growth of 4% then what are the prohibiting factors. I still believe we do not currently have the capacity to grow in excess of 3% consistently and that needs to be addressed;
- Detail the issues within each of those prohibitive factors that need to be addressed individually, getting it down to a task list;
- Determine what the cost, return, and payback period is for each of those initiatives that need to be undertaken. It is important to note the dependencies between these tasks, as there are many that will not be able to be implemented on their own. So the cost and return of a dependent task includes the other dependencies. Dependencies would include programmes at other ministries and the national level also;
- Set out the costs and timeline for implementation; and
- Put in place a tool for measuring the outturn against the projections. Plans must be in place for alternate action if the projected returns/outcome do not materialize and that may mean something was wrong in the initial assumptions or some change has taken place.

That briefly would be a simplistic overview of an approach to achieving what is needed to achieve the desired objectives. Although the list looks simple it is by no means an easy task and will require careful planning to ensure that the assumptions are correct and that the plan is credible. Inherent in this though is the need to set out the correct priorities for development as resources are limited.

A new economic order

At the time of writing it is clear that the JLP has not only won but seems to be picking up more seats in the recount and could possibly end up with 35 to the PNP’s 25. The PNP has said that they will take certain elected persons to court based on the citizenship issue and that outcome remains to be seen. Whatever happens it must be clearly understood that the right of choice of the people must not be compromised. In any event congratulations to the JLP for the hard fought and strategic campaign.

There is no room for any honeymoon period and the Finance Minister (who I expect to be Audley Shaw) must immediately get on with the business of managing the economy. The situation currently is that economic growth continues to elude us (will only grow at around 1.5% this year); in recent weeks the dollar has been slowly weakening; there is a high mountain of debt; the fiscal deficit is a problem; and no doubt inflation may be higher than originally projected because of the hurricane. It is therefore clear that the Finance Minister will be faced with many immediate challenges that the international community will be keenly watching.

The right person?
There are some persons who have questioned whether Audley Shaw is the right person for the finance job simply because he is not seen as an economic expert. From my perspective I think that he is well suited to the job and is quite capable of delivering the confidence needed and properly managing the affairs of the economy. While an understanding of economic and financial matters is needed in a Finance Minister, I think more importantly that what is needed is the ability to lead and properly utilize good advice. Both these qualities I think Audley Shaw has and based on that I would suggest to the doubters that Mr. Shaw is quite capable of the finance job. Even more dangerous is someone who thinks that because they are an expert in an area they do not take proper advice. So too much knowledge can indeed be bad also if the right personality is not present.

The challenge facing Mr. Shaw is that he will have to bring a new economic order to Jamaica. One where growth runs at upwards of 5% per year; where bureaucracy is reduced; where a business friendly environment is encouraged; where tax is used as a tool to encourage growth rather than just feed the revenue; and where organic growth in business is encouraged. All these things are necessary ingredients to create an environment where economic activity and growth prevails.

At the same time he will have the high debt level to contend with, while also meeting certain social services, and certainly this must be a main priority as it is this debt that is stifling the economy. It is this debt that has given some of us the perception that things are getting better. The fact is that we have been engaged in borrowing to support a life style that we can ill afford. Because of this borrowing to support a life style we find that we are strapped with debt that causes us to spend 60 cents out of each dollar servicing thus depriving the people of Jamaica of essential social services. The only way that we will be able to deal with this is to grow the economy at rates above 5%, which the last time we were able to do so was in 1990. We must realize however that achieving 5% growth may not happen in the next two or three years as the fact is that the economy just does not have the capacity to grow at those rates, especially with a projected slow down in the global economy, and more importantly the US economy where we send 25% of our exports and get over 50% of our tourists. So I don’t expect that 5% growth will happen in the next two fiscal years but what is going to be important for me is that the measures are put in place to ensure that the capacity to grow at those rates exist so that we can consistently see 5% growth instead of hitting 2.5% every five years or so.

Prudent fiscal management
In achieving this growth one of the things that must be ensured is prudent fiscal management. It is clear that with the liquidity issue in the global markets that any new debt is going to cost us more. If we continue to borrow then it will obviously place a greater upward pressure on interest rates, which will no doubt cause stagnation in the economy. This especially in light of a less healthy global economy and the possibility of recession in the US in 2008. This has led some to question the commitments made by the JLP and if they can deliver on these without worsening the fiscal deficit. Frankly I do not know where this argument came from as I have always thought that what was said is that they would be reallocating funds to ensure maximum returns, and certainly we would have to include an educated and healthy population among that. If it were the intention of the JLP to spend additional funds to deliver the commitments then I would also agree that this would be the wrong thing for the country. It will be important to ensure that the fiscal targets are met if not improved on as the longer it takes to get to a balanced budget then the greater the need for debt.

If we are going to build this capacity for growth it is important that some of the things in the JLP manifesto are implemented in good time. These include (1) a business friendly bureaucracy; (2) tax reform; (3) special attention to SMEs; (4) offshore financial centre; (5) develop the electricity generation capacity; (6) improving productivity in agriculture; (7) high end tourism and easy access to the east; (8) improve education and health access (a productive workforce); and (9) reduce crime. There are many other initiatives outlined in the JLP’s manifesto but these I think are most critical for developing the capacity for growth.

What is obvious to me though is that it is going to take time to implement many of the commitments and there is nothing wrong with this as we must be careful that the capacity is built carefully. I would expect that the new government will have a timeline for implementation. Consequently it would be good to outline the targets we expect to achieve as a country as these various initiatives are implemented and present this to the country.

As Mr. Golding has said, at the end of the day it is going to be very important for all Jamaicans to be involved in the process and pull in the same direction. It is not going to be an easy road but if we put the measures in place that will provide the capacity for growth then we certainly have the potential to achieve this and establish a new economic order for Jamaica where per capita income surpasses international standards and people can take advantage of this because of higher educational standards.