2009 - A year of challenges and opportunities

As we move full speed ahead into 2009 there is no doubt that it will be a very challenging year globally. Some of us had thought for a while that challenging economic times were ahead, and had stated this even in the face of opposition, by not only local commentators but even while persons such as Bernanke, Paulson, and Bush were praising the soundness of the US economy. I remember in March 2007 having a radio conversation with Ralston Hyman where he supported my thought that the US would go into recession by 2008 as the obvious threat to the consumer at the time would significantly slow economic activity. At the time many thought we were speaking rubbish and this denial continued well into 2008.

Even though today everyone admits that Jamaica and the world will have significant economic challenges, there is still an indication that as a country we do not understand what is required to face the challenge. When one reads and listens to the international press on a daily basis and compares it against our own local information it is obvious. In the US, UK, and Europe the main debates taking place are about what needs to be done to save the economy. In Jamaica, however, the main stories have nothing to do with a debate on the economy. Instead we are distracted by other stories, which to me is nothing more than a reflection of our state of poverty as a country.

Bleak global future
As an indication of the challenges that lie ahead, we can look at the main foreign exchange earners of remittances, tourism, and bauxite/alumina. All these earners are being affected negatively by the global economic challenges. Remittances in November 2008 saw a 17.5 per cent decline over the same period in 2007. Tourism saw declines in October and November 2008, and bauxite/alumina has announced that there will be lay-offs coming.

On the global front we have seen where the job losses continue, as Alcoa has announced a 13 per cent cut in their labour force and Marks and Spencer will be laying off thousands. Early earnings warnings from corporate giants such as Alcoa, Intel, Wal-Mart and Time Warner show that there is more pain in store for US equity markets, and thus greater loss of wealth. A technical analysis of the Dow Jones chart shows that it is now trading sideways and could see a move either up or down, but given the earnings warnings and unemployment difficulties ahead, my bet is that it will see further declines.

In fact, a CNBC article ("Early Warnings Signalling an Ugly Earnings Season") state "Analysts expect consumer-sensitive areas such as retail and parts of technology to be among the hardest hit as rising unemployment squelches consumer spending and hurts revenue and earnings. Even President-elect Obama's plan for a massive stimulus package isn't expected to have much impact until later this year." The recent manufacturing indices in a number of countries have shown significant declines and the US jobs number on Friday January 9, 2009, is expected to be significantly worse.

The global situation I think is therefore very bleak and in my view this may be an "L-shaped" recession rather than the previously thought "U-shaped" recession. And if the stimulus plan in the US does not have the intended effect, then some think we could be looking at a state of depression. Whether it gets there or not it is obvious that consumer spending across the globe will be significantly tempered for at least 12 to 24 months. This is important for Jamaica as the three main foreign exchange earners depend to a great degree on consumer spending, which means that we could see earnings significantly affected. I expect also that even after the recession has ended the effects in Jamaica will linger on for at least another 12 months as consumers try to build back the massive wealth they lost in 2008.

Opportunities exist
But while there are many challenges ahead, I believe that there are many opportunities for Jamaica and individuals.

Realising these challenges, however, will depend to a great extent on how we organise as a country and as individuals to meet these challenges. And while the government has announced a welcome stimulus package, and has provided funds for small businesses, I fear that as a country we are not taking the expected challenges serious enough, as we continue to be distracted by other debates. While I do realise that there are other things to be discussed, unless we engage in a serious discussion of the solutions realise we will always be mired in the poverty we have become used to as a country. As an example, the recent discussion in the US not to accept the senatorial appointment by the recently accused Illinois governor has been changed resulting from the need to focus the discussion around the economy.

Even the discussions around the Madoff Ponzi scheme always return to the effect it has on the economy and confidence. I also have little confidence that the bureaucracy will allow us to respond in time to the welcome policy initiatives announced by the government, and that by the time we get around to it the recession may almost be over, and we would have been seriously ravaged. But that is life in "Jamaica, no problem".

In saying this though I believe Jamaica faces many opportunities, primarily in agriculture and outsourced services. Agriculture I think can form the basis for a revitalised local economy and also provides niche export market opportunities. In addition I believe in times of crisis food security is very important. The opportunities in agriculture is something I have been espousing for a while and my discussions with Chris Tufton has shown that he has some well thought out plans for the future of the sector. As a country we must encourage much more debate on this.

While the opportunities are there, however, I believe the fastest approach to get this sector moving is through partnerships between government and the private sector in targeted projects, because the infrastructural problems such as roads, praedial larceny, and funding do not encourage private sector participation. I know of at least one major business person with available lands who is willing to take advantage of this opportunity in partnership with the government. The opportunities in agriculture must not be thought of as only primary production but must be extended to agro-processing plants. Why should we not have mainly Jamaican processed foods in hotels? The supply chain opportunities are immense.

The provision of outsourced services for countries like Jamaica in Information Technology and call centres, for example, are another area of opportunity. Although the potential profits are not as great as the agriculture potential, they are still a source of opportunity.

On an individual, and company basis, I believe there are many opportunities emerging. Anyone who knows of the herd mentality of investors, knows that when fear or greed sets in it always causes an over reaction and creates opportunities. I still think that the herd still has some running to do but opportunities are emerging and soon can be taken.

In the case of the government, companies, and individuals, however, it is very important to engage the services of someone who understands how to assist in the opportunities. In the US, for example, while job losses mount, professions such as accountants, analysts, and information technology are still in high demand, as when businesses seek to get more efficient and prepare for the road ahead they rely on these professions.

The Chinese say that there is opportunity in crisis. but unless we are prepared to meet the oncoming light it could turn out to be a train.