Wednesday, August 27, 2014
Jamaica's growth strategy — Part 2Dennis Chung
THE reason that five ministries — energy, transport, tourism, security, and justice — can cause "sustainable" growth in Jamaica, is they can hit at the heart of our economic challenge. That of productivity, which results in our deteriorating balance of payments challenge. The fiscal challenge is only a distraction of the real structural issue we face. What I am heartened about with these five ministries is that the ministers have been performing well, and I think are intent on being successful. I think they are also supported by three good junior ministers: Damion Crawford, Julian Robinson, and Morais Guy.
The most important, and easiest fix is to deal with our energy costs. The high energy cost (US 40 cents) per kilowatt hour causes us to be globally uncompetitive, even in our areas of comparative advantage (tourism and bauxite). Unless we fix this problem, then even with fiscal tightening, the economic situation will only get worse. We can, I think, in the short term (even without the industrial production changes), save around US$400 to US$500 million in the short to medium term. And if Minister Paulwell continues to implement his vision, I think we can do so and see the economy being stimulated by up to that amount coming back as disposable income for consumers.
The area of transport is also very important from two aspects. First the "mega" projects, as they are referred to, are critical for our short- to medium-term economic growth. One, because they will have a short-term stimulus effect on the economy, and second, because the long-term benefits of the highway and port expansion can be significant (I don't have enough space to explain the effect). Secondly, the area of properly organising the transport sector is critical. This itself can result in oil imports savings of at least US$200 million annually, if implemented correctly. But more importantly, it can significantly increase productivity.
The third area of tourism is also critical. First tourism will benefit greatly from initiatives in energy and transport, which will see the profitability and product become more competitive. Secondly, though, the additional rooms that are on the cards to be built will also create a stimulus impact that could also increase jobs and consumption. What is going to be very important is that institutions like HEART be aligned with the development so that they can provide the skills needed.
The fourth area of security needs no discussion really, as we have talked the area of crime's impact to death (no pun intended). Suffice to say that the approach being executed by Minister Bunting of going after the money is the most logical and practical approach, and seems to be reaping success. More importantly, though, is the increased presence and work of the police on the roads as we start to bring back some law and order to the streets. We must now focus on getting rid of noise pollution, so that people can get to rest and be more productive.
The final ministry to mention is that of Justice. In particular, I think that the focus of Minister Golding on getting the legislative agenda active, and dealing with some of those archaic laws that hold back the productivity of the country is critical if we are serious about competing globally as our laws are indeed "a shackle" for economic and social development.
So the recently concluded budget did not only look at fiscal tightening but, I think, did have a growth strategy outlined, and did recognise the need for providing stimulus to the economy in order for us to grow. Stimulus, of course, does not necessarily refer to getting loans from overseas for government, but rather also putting policies in place, and reallocating funds (such as the JEEP) to ensure that the consumer lives to fight another day.
It is also clear that unless these growth strategies become reality, then we will be facing another fiscal crisis next year.
Dennis Chung is a chartered accountant and the author of "Charting Jamaica's Economic and Social Development - A much needed paradigm shift". His blog is dcjottings.blogspot.com
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