How can the Economic Growth Council help Jamaica achieve 5% economic growth?

How can the Economic Growth Council help Jamaica achieve 5% economic growth?


Friday, April 29, 2016

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Michael Lee-Chin assumed the chairmanship of the Economic Growth Council (EGC) the day before yesterday, saying, "As chairman of the EGC, I pledge that the EGC will work tirelessly and passionately to achieve a GDP (gross domestic product) growth rate of five per cent over the next four years."

He added "We are all as mad as hell and we won’t take any more. So we are going to do something about it. But we have to be strong and take a different path, a calculated path which some may say is risky, but we have no choice. The status quo is not good enough."

A prolonged period of five per cent economic growth would both allow a fast improvement in Jamaican citizens standard of living, and mean that the debt would effectively "melt away".

Finally, Jamaica is in the process of losing its demographic dividend, and for myriad social reasons needs to get serious about putting its young people to work over the next 15 years if we are not to simply waste the talent of our youth.

However, we have been here before, looking for a new Government to rescue us from stagnation. In an interview I did with Lee-Chin for
Latinfinance in September 2007, entitled ‘Jamaica gets down to business’, Lee-Chin noted, "We have an overt courtship of the private sector, both local and international, to come to Jamaica, stay in Jamaica and create wealth in Jamaica. Wealth creation is the panacea to Jamaica’s problems." He no doubt would say the same thing today.

My article then was primarily about the national planning summit, entitled ‘Jamaica Tomorrow,’ organised by the Private Sector Organisation of Jamaica (PSOJ) under its then President Chris Zacca. All of Jamaica’s main private sector companies were represented, as well as the majority of the then new Government ministers (many of whom are the same now) and key civil servants.

Papers were prepared on issues including debt reduction, bureaucracy, tax reform, and job creation, as well as land titling, education and crime. Then Prime Minister Bruce Golding told his audience that "Jamaica is just too rich to be so poor," and that "Jamaica must not only be open for business, but ready and anxious for investment".

While many of our key problem issues were identified at that summit (some had been identified decades previously), and went on to become part of future International Monetary Fund and Inter-American Development Bank programmes, the speed of reform continued to be slow relative to the need for reform.

We never seemed to catch up with the speed and scale of the global economic crisis during that previous Jamaica Labour Party term, as Jamaica was exceptionally vulnerable to the crisis due to our high debt and very weak industrial base. Indeed, virtually all the reforms completed under the previous Government, between 2012 early 2016, were actually reforms identified as necessary under the first IMF programme (this was in any case unrealistically short), including some of the big remaining reforms, for example to the public sector.

So although Jamaica now has a balanced budget (and interest rates have fallen sharply as was predicted would happen if this occurred) and the fall in oil prices has allowed us to achieve historically low inflation, and we even have a "fairly" valued exchange rate (this fiscal year’s current account deficit could be below 3 per cent), macroeconomic stability or "stabilisation" has been achieved without significant growth so far.

Indeed, there is almost a view that faster growth like Lee-Chin’s five per cent is not possible, with growth projected by the IMF in a range of 2.5 to 2.8 per cent between 2016 and 2020, still substantially above our recent sub 1.0 per cent performances.

In short, Lee-Chin’s promise to roughly double the growth imbedded in current IMF projections appears ambitious, particularly as we have substantially underperformed even the IMF’s low-growth projections.

However, I believe it is possible for Jamaica to grow much faster, even five per cent, and even with a likely, hopefully mild, world slowdown (a major recession like 2008 would render this all but impossible).

This is because Jamaica is such a small part of the world economy, and we have performed so very badly, that there is an opportunity to better with our wasted resources, which include human, physical and financial capital.

Appointing a master salesman is a good first step, as Jamaicans need a vision that they can believe in — to increase economic confidence — before anything else can happen. It will not be megaprojects, however helpful, but the mobilisation of Jamaican’s business acumen, both here and particularly abroad, that will make the difference.

Secondly, there needs to be an enormous mobilisation of capital, underpinned first by an improvement in access to equity (without equity you can’t get debt), to make things happen. As the owner of one of the largest banks and the largest regional venture capital company, Lee-Chin understands the importance of capital.

Retaining the Junior Stock Market incentive is a good first start, which could be supported by further policy initiatives that encourage pension fund investment in venture capital, or release the huge amount of dead capital held in untitled land and in the estates of the deceased that haven’t been transferred.

Third, creative approaches to the use of government assets, as well as an unsentimental approach to their sale, would be an extremely powerful way to generate greater economic activity. Opportunities include partnering with the private sector to drive the development of downtown Kingston, or other towns across Jamaica, effectively monetising land in return for capital.

Fourthly, helping to attract new industries will be central to the success of any economic growth council, whether you want to call it export-led growth (the latter is the only kind that will work for a small, poor , highly indebted economy) or industrial self-discovery (Jamaica’s merchandise export basket has been deteriorating for years as we have failed to keep up in embedding technology in our tradable products).

Finally, such a council, particularly if it attracted other leading Jamaican businessmen (here and abroad), or "friends of Jamaica" of a similar status (Digicel comes to mind), could be invaluable in opening doors to the top CEO’s of the Fortune 500 and their counterparts in other leading economic powerhouses, such as Japan, China and India.

Jamaica has consistently failed to take advantage of its central location to be the "alternative gateway to the America’s". To achieve such a vision would require us to reform with "Bolt-like speed" to create the most transparent, easiest, fastest and lowest-cost English-speaking jurisdiction to do business, focussing primarily on international business services that could be done elsewhere. For example, in such a vision both DHL and Federal Express would have major regional airline operations at Vernamfield, as they do in Singapore.

To achieve all of this will require both political will and a complete change of traditional mindsets; meaning genuine leadership that abandons the globally problematic "not invented here" mentality, eschews the extremely prevalent "crabs in a barrel" syndrome; and realises that for a leader it is better to have a first-class temperament than a first-class mind (whilst this saying was a comment on the US presidency we have proven this over and over again in the Caribbean).

In short, at all levels of society but particularly at the top, Jamaicans will need to work together genuinely (including former opponents), to achieve the needed economic success to make such an ambitious growth goal possible.

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