Business

What of industry at 50?

BY CAMILO THAME Business co-ordinator thamec@jamaicaobserver.com

Sunday, August 05, 2012    

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THE completion of the National Stadium in 1962 was perhaps a good signal of things to come for Jamaica.

Not only that the country would become a dominant force in track and field, but the project was part of major construction works taking place while industries were being expanded.

The year Jamaica gained political Independence from Britain the University and University College Hospital were being built, while considerable housing in several communities -- including Hope Pastures, Trafalgar Park, Pembroke Hall and Harbour View -- were being constructed.

Moreover, it was in 1962 that Alcoa proceeded with the initial installation of its plant in Clarendon (now called Jamalco), the Esso oil refinery (now Petrojam) was undergoing construction, and Jamaica Public Service Company installed a 20 megawatt generating unit at Hunts Bay.

And even while those projects represented the basis for heavy industry, the construction of major hotels, such as the 400-bed Sheraton and the 204-bed Runaway Bay Hotel, as well as the addition of new air services and the drafting of plans for a national airline (which would eventually be established in 1968) formed part of the foundation on which the tourism industry would be built.

Indeed, the 207,000 visitors in 1962 pale in comparison to the two million stopover arrivals Jamaica welcomed last year. And alumina exports totalling 570,000 tonnes 50 years ago would reach as high as four million tonnes in 2007, before the global recession led to the closure of refineries, which halved export volumes.

What's more, the 1960s saw a major push to establish new industries under the Jamaica Industrial Development Corporation.

Seventeen new industries obtained concession under the Industrial Incentives Law in 1962, with Jamaica Potteries Limited, a company which made ceramic products, by far receiving the largest concession -- equivalent to 0.2 per cent of GDP at the time.

So where is Jamaica now?

The widening of sectors accommodated higher levels of employment -- unemployment was 13 per cent of the labour force in 2011 compared to 22 per cent 40 years ago.

Albeit, unemployment still remained much higher among women than men. Fourteen per cent of employable males were not working in 1972 (the earliest available data) compared to nine per cent now. But 17 per cent of women did not have work last year, compared to 34 per cent back then.

There was also a clear shift in the importance of the various sectors.

Banking, insurance and real estate grew from six per cent of GDP to 21 per cent over the 50 years, while transportation, communication and storage rose from 6.9 per cent to 11.2 per cent of the country's income.

The proliferation of banks, near-banks and insurance firms from the 1990s to now was perhaps the most notable development. While substantial construction of road networks over the years, improved public transportation systems, including a change in importation requirements that resulted in greater affordability of motor vehicles, transformed that sector.

The liberalisation of the telecommunications sector also heralded significant investments and created more jobs at the turn of the millennium.

On the other hand, the reduction in the contribution of manufacturing and agriculture to the nation's income -- from 12.5 per cent and 13.3 per cent of GDP, respectively, to 6.6 per cent and 8.6 per cent over the 50 years -- reflected the decline in competitiveness of those sectors.

The stories of the local clothing and textile industry as well as ceramics perhaps give some idea of what happened.

The ceramics industry, which attracted the largest concession in the year of Jamaica's Independence, is practically non-existent, while clothing and textiles saw its virtual death in the 1990s.

For clothing, the value of exports was equivalent to one per cent of GDP in 1962 in the face of US protectionism. There was a boom in the 1980s and early 1990s, particularly as quota systems in the US made it attractive for foreign firms to set up shop in Jamaica.

Quotas were removed, making way for almost unlimited supply from Asia, while wage levels in neighbouring countries, such as Haiti, remained lower than Jamaica.

Aside from the particular set of circumstances that may have hurt the sector in the past, the relatively high cost of energy (electricity cost 40 US cents per kilowatt-hour) has more recently been touted as the cause for the manufacturing industry's uncompetitiveness, alongside what has been described as low labour productivity.

But the cost of money is likely the bigger impediment to the sector.

Borrowing rates over the last two decades have remained in the high double digits, and still remain in the teens even after interest rates on government paper fell.

Interestingly, the rate set by the Bank of Jamaica is now roughly the same as it was in 1962 -- 6.5 per cent. But commercial bank lending rates now average 17.4 per cent compared to 7.5 per cent 50 years ago.

For agriculture, the sugar cane industry underwent the most notably decline.

In 1962, cane reaped totalled 3.7 million tonnes compared to 1.5 million tonnes in 2011, which translated into 140,000 tonnes of sugar being produced last year compared to 400,000 tonnes of sugar.

Low levels of investment and replanting by government-run sugar factories and plantations over decades were at sugar cane's deterioration.

But the cultivation of other agriculture crops and the rearing of livestock over the years did not sufficiently fill the hole left by sugar.

For instance, sugar and rum exports in 2011 were almost the same in value of exports of all food items -- US$111 million compared to US$135 million for other food exports.

Fortunately, there is still track and field.

Jamaica will probably dominate the individual sprints at the Olympics today, as was expected of the 100 metre women's final at the time of writing this article.

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