Managing direct foreign investment

Sunday, November 04, 2018

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The recent and persistent hysteria about Chinese investment requires some clarification.

First, Chinese flows into Jamaica are of two kinds: (a) loans to the Government to finance infrastructure development and construction carried out by Chinese companies, for example China Harbour; and (b) direct foreign investment such as the takeover of the Alpart plant, purchase of sugar factories, and operating the north/south link of Highway 2000.

Second, Jamaica started taking loans from China after the global financial crisis of 2008, and while aid and investment from traditional sources were proving difficult to mobilise. Local and other foreign investors could have invested in the Alpart plant and did not. The Government was relieved to have the plant operational, providing employment, taxes and foreign exchange.

Third, developing countries can accelerate their economic development by increasing the level of investment, and inflows of foreign capital can complement local investment. This is a policy which Jamaica has practised since it had internal self-government and it has, on balance, served the country very well. In many instances foreign investors have undertaken projects which the local private sector did not or could not.

Fourth, how much Jamaica benefits from local private investors and direct foreign investors depends on the regulatory environment negotiated and mandated. In addition, the Government must monitor operations to ensure adherence to Jamaica's laws, policies and any company-specific agreements negotiated.

Fifth, regardless of which country the foreign investor comes from, and whether it is a private company or a state enterprise, the Government of Jamaica must negotiate the best deal and stipulate ways to include local companies.

China is the second-largest source of direct foreign investment in the world, after the United States, and there is no reason that Jamaica should not garner some of that investment pie. The success in this regard will depend on Jamaica's ability to compete with other countries for foreign investment from all sources.

Given the competition globally for investment in these areas, governments in countries needing or wanting investment would be advised to proactively facilitate the ease of doing business for firms. Ensuring that the costs of entry are minimised and bureaucratic processes streamlined will be key to this process. One of the prerequisites of an expansion in business activity is to make it as easy as possible for enterprising individuals, local and foreign, to establish and operate businesses. Successive Doing Business reports of the World Bank and the International Finance Corporation document that Jamaica, despite improvements, has more work to do with regard to making it easier for businesses to establish and operate.

We are confident that the Government of Jamaica and local private companies are capable of partnering with foreign investors, including the Chinese, to improve Jamaica's economic development.

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