Staying the course in 2014
AS we move towards 2014, it is natural for us to not only reflect on 2013 but also think about what we must do in 2014 to improve our lives. This should not only be on a personal level, but also at a country level. I can't really remember us ever doing that as a country, but rather we always get some message about the great potential we have as a nation, and that we should be considerate of the less fortunate.
But have we seriously thought about what our objectives are, and what specific strategies we need to employ to meet those objectives? We do that at a company and personal level, with some amount of success, but have never really done so at a national level. And we also see that individuals who fail to do so usually end up not being successful.
I believe that for the first time I can ever remember that we are close to doing that, and it is based on the strategy and timeline included in the Economic Programme, otherwise known as the IMF agreement. The fact is that if we have the commitment to stick to the fundamental reforms in the programme, then it is my view that the economy will become competitive, and the business climate will improve. However, while these reforms are necessary, they are far from sufficient to cause the fundamental transformation needed in the economy.
The reality is that unless we can solve the crime and bureaucracy challenges, then we will be hard pressed to see the sort of economic and social development we want and need. Sticking to the path we are on not only means that the government should ensure the reforms are implemented to cause greater competitiveness but it also means that government needs to do nothing to slow down the return of the much needed confidence. This is because confidence is necessary for capital to move into real investments and the reality is that the only way that we can see economic growth of any substance is if private capital returns to real investment.
It is important to understand this, and to implement the necessary policies to ensure that capital is confident enough to go into real investments. The chain result of increased confidence, and a more competitive economy, is that jobs will be created, consumer spending will increase, government revenues will increase, and the cycle (called the multiplier effect) will continue. This will no doubt cause an increase in real GDP growth, which will then lead to a reduction in the debt to GDP ratio.
So if we want to see sustainable economic growth and development, then it can only happen with private capital being confident enough to commit to real investments in the economy.
It would follow therefore that policies must be implemented which satisfy the requirements for business and consumer confidence to improve. If business confidence improves, then new investments will take place, leading to higher profits, employment, and fiscal revenues. If consumer confidence improves then more money will be spent in the economy, and the economic multiplier will increase. In both cases credit will also rise.
For this to happen, though, we must stick to the transformation plan. If we allow ourselves to swerve from our objectives and implementation plan, then we could derail the improvement. One thing is sure: the government cannot take the path of previous administrations and seek to tax our way out of the problem, as this will only lead to short-term fiscal gain and long-term loss. This has been the path chosen in the past and it has not worked.
The legislative reforms that have been done so far, under the programme, will add to the enabling environment we need. However, this can only be complete where bureaucracy and crime are tackled. As an example of the stifling effect of bureaucracy, the development approval process takes too long and at best may take around nine months. Estimations are that reducing that nine months to six months could unleash approximately $30 billion into the economy, which also means increased employment. An effect of crime is that it prevents maximising capital because of the prevention of running more than one shift, for example.
Therefore, while I believe that it is necessary for us to stick to the tasks outlined in the economic programme, it is also important to not take steps to negatively affect confidence, to stick to the programme plan, and to address the problems of crime and bureaucracy.
I cannot express enough the importance of reducing bureaucracy and crime, as these have a crippling effect on economic and social development. Failure to do so will cause any recovery to be long and painful.
I also would like to take this opportunity to thank all who read my column and to wish you happy holidays. The cry from the retailers is that this Christmas is the worst they have seen in a very long time, and it is not unexpected, as once we started with the IMF programme it was unavoidable. I believe that this is part of the transformation in the economy, where productivity is going to be key to survival. However, we must have the conviction to see the programme through.
I expect that the first quarter of 2014 is going to be the real test of our conviction, but if we are able to make it through that period then we could start seeing some real benefits (assuming that crime and bureaucracy are addressed).
Irrespective of what happens, though, individually we must all take steps to improve individually. Happy New Year.
Dennis Chung is a chartered accountant and the author of the books Charting Jamaica's Economic and Social Development AND Achieving Life's Equilibrium. His blog is dcjottings.blogspot.com