Business

Manufacturers focus on linkages, efficiencies

Lobby group head concerned about increased taxes on sector

BY JULIAN RICHARDSON Assistant Business Co-ordinator richardsonj@jamaicaobserver.com

Wednesday, January 08, 2014    

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JAMAICAN manufacturers are looking to forge more linkages with other sectors and invest more towards driving operational efficiencies in 2014, as they brace for what is expected to be another challenging year for the industry.

"We are looking forward to another tough year, I don't think there is anything that shows that we can expect a brilliant year," Brian Pengelley, president of the Jamaica Manufacturers' Association (JMA), told the Business Observer.

"We have to stay the course with the IMF (International Monetary Fund) restrictions we are under and I think we just have to prepare ourselves for more of the same," he added.

The manufacturing sector in 2013 continued to be impacted by macro-economic uncertainty, the high cost of electricity, crime, bureaucracy and inadequate support for locally made products — factors that have played a role in the decline of the industry from one that up to the 1980s contributed over 120,000 jobs and more than 20 per cent of GDP, compared to 75,000 jobs and 8.6 per cent of GDP today.

Official data indicate that the manufacturing sector declined by .8 per cent year to date up to September 2013 compared to the corresponding period in 2012, with the 'food, beverages and tobacco' subsector falling .5 per cent, and the 'other manufacturing' division — including rubber, plastic, petroleum and chemical products — down by 1.4 per cent.

"Last year was a tough year for manufacturing, even though we saw some slight expansion across the sector and a few more jobs created," Pengelley said, noting that most of the job creation was in agroprocessing, in line with efforts to have linkages between tourism, manufacturing and agriculture strengthened.

Growth through linkages with other industries, leading to import substitution and procurement of locally made products, is one of the priority areas of focus for the industry this year, said the JMA president.

A study commissioned by the United Nations Food and Agriculture Organisation in 2008 estimated that total food purchases by hotels was approximately $16 billion. Of that amount, only $4.8 billion or 30 per cent represented local purchases.

The aim is to incrementally increase the local proportions.

"We are making sure that we drive as hard as we can linkages between sectors in Jamaica because we have to look internally first and make sure we capitalise on what we have here at home," said Pengelley.

One such initiative is the Agro-Tourism Farmers' Market, which brings buyers and sellers of agro-produce and other manufactured goods together at a series of events in resort areas on the island. It was born out of a partnership between the Ministry of Tourism and Entertainment's Tourism Linkages Hub, the Ministry of Agriculture and Fisheries, Rural Agricultural Development Authority, Jamaica Hotel and Tourist Association, Jamaica Manufacturers' Association, and Jamaica Business Development Corporation.

Manufacturers made significant moves last year to drive cost out of their businesses. Perhaps the most significant of them all was the formation of a joint venture between Pepsi-Cola Jamaica and Red Stripe, creating the largest beverage distribution company in Jamaica and adding significant efficiencies to both companies' route to market network.

Expect some more big moves to that effect, noted Pengelley. In fact, Red Stripe signed off on a lease agreement yesterday for a plot of land it will use to plant cassava as part of a project to reduce its dependency on imported inputs for beer production.

"Companies are taking the leap and investing in their businesses so they could drive some efficiencies in their operation, especially where the consumption of electricity is concerned," he said.

Jamaica's relationship with Caricom continued to appear uneasy in 2013.

Among the incidents, local manufacturers accused Trinidadian exporters to Jamaica of violating trade rules by misrepresenting products as being of Caricom origin, allowing them to benefit from lower customs duties and price advantages in the domestic market.

Jamaica is a major market for Trinidadian goods, but the island's exports to Trinidad & Tobago are less than three per cent of what it imports from the twin-island republic, with complaints of unfair trade barriers in T&T against Jamaican products.

Jamaica's trade imbalance with Trinidad is a big factor behind its annual trade deficit with Caricom, which stood at US$775.3 million in 2012. Former industry minister Claude Clarke suggested last year that the country loses $15 billion a year in revenues from subsidising imports from Caricom and called for a suspension of the subsidies, at least during the island's lending arrangement with the IMF.

Against this background, Pengelley said manufacturers will be aggressively looking at new export markets this year.

"Jamaica, we are not going to sit down here and continue to talk about Caricom and the benefits that we are not getting," he said. "We are going to look for new export markets that we can get involved in and sell Jamaica, and, more importantly, drive the 'Buy Jamaica' campaign."

Meanwhile, Pengelley expressed concerns about the possiblity of increased taxes, which he said could hit the manufacturing sector hard.

"I hear rumours of taxation but everybody has to understand, for the productive sector to survive, you cannot tax inputs into production, the taxation has to happen on the other end, after goods are produced and are ready for sale," he said.

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