EGC makes appeal for removal of hurdles

We have structural problems that we have to address, or else sacrifices will be wasted, says Lee-Chin

Sunday, November 24, 2019

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The Economic Growth Council's (EGC) Ninth Quarterly Report to the nation presented by EGC Chairman Michael Lee-Chin last Wednesday at Jamaica House.

On the 27th of April, 2016, with the honourable prime minister, we made the commitment to do anything, and everything possible, to achieve 5 in 4.

An objective necessary to transform the lives of every Jamaican, making Jamaica the place to live, work and play.

An objective necessary to lift our people from poverty and give opportunities to every Jamaica to achieve their fullest potential.

An objective necessary to make up for the poor stewardship we have had since independence.

Over the past 3.5 years, we have had over 400 stakeholders meetings, we listened to their concerns and also their prescription for solution. Notwithstanding the consistent effort of the EGC in designing a plan, having 400 meetings, quarterly reports, growth to the degree expected has eluded us. We have structural problems that we have to call out and address wholeheartedly or else the sacrifices endured by all Jamaicans under two International Monetary Fund (IMF) agreements will be wasted.

After the first 75 meetings we noted what we heard from the stakeholders of Jamaica as the growth retardants:

1. Lack of focus on a goal; no plan, no accountability

2. Political tribalism

3. Lack of leadership with a focus on growth

4. Distraction by fiscal mismanagement

5. Crime

6. Difficult to do business in Jamaica

7. Poor capital allocation of our financial resources

8. High cost of capital

9. Better access to capital

10. High cost of energy

11. Unproductive labour force

12. No confidence by investors

13. Corruption

14. Sabotage

15. Low standard of expectation of self and country

We collated the stakeholders' feedback and prescriptions into eight growth initiatives and 111 sub-initiatives.

We printed and distributed these in our 'Call to Action'.

To increase speed, one has to minimise friction and increase horsepower.

The eight policy initiatives that are summarised in our report are designed to address, on a legislative and policy basis, the aforementioned frictions:

Maintain macro-economic stability and pursue debt reduction

Improve citizen security and public safety

Remove profit from crime

Reorganise the police force

Accelerate reform of the justice system

Thoroughly address social exclusion

Strengthen border control and maintain territorial integrity.

Resources

Improve access to finance

Pursuing bureaucratic reform to improve the business environment

Development and Building Application Approvals

Interface with the courts

Business start-ups

Paying taxes

Port community system

Procurement

Licensing, permitting and approval agencies 17

Stimulate greater asset utilisation

Build human capital

Pursue labour market reform

Implement a growth-oriented, open-door, immigration policy

Harness the power of the diaspora

Catalyse the implementation of strategic projects

Implementation of growth initiatives.

Some of the growth initiatives embedded in the successor agreement with the IMF, hard wired.

Implementation: Success is 1% strategy, 99% implementation.

Phase 2: Implementation

We have all heard the adage “What gets measured and monitored, gets done.”

I would like to take this opportunity to review what has been accomplished over the past 3.5 years in the context of the 15 growth retardants expressed in the initial 75 meetings. Let me be perfectly clear, in a corporation, the person responsible for implementation is the CEO. In governments, the persons responsible for implementation of policies are the permanent secretaries. Accountability is what makes plans work.

In corporations, if a business plan is not executed, the CEO is fired. In governments, if policies are not implemented in a timely manner, no one is fired. Until we fix this lack of accountability issue in the public sector, we will continue to not achieve our desired goals. Until we fix this lack of accountability issue, there will be no public sector transformation. Until we fix the lack of accountability issue, achieving 5 in 4 will be an uphill battle.

We can fix the lack of accountability issue only if both sides of the House cooperate and change the laws pertaining to the removal of permanent secretaries when they are under-performing. The EGC has worked diligently over the past 3.5 years with the bureaucracy, we have the experience of running successful organisations, therefore had to have been honest in dealing with difficult issues, and while there are good people in the bureaucracy doing their best everyday, their efforts are frustrated by the basic structure of our inherited governance structure of not being able to remove permanent secretaries for under-performance.

I am therefore calling on both the Opposition and the Government to work together to change the laws protecting non-performing permanent secretaries from being removed.

Lack of focus on a goal, no plan, no accountability:

We defined a goal 5 in 4. A plan was devised the eight growth initiatives and 111 sub-initiatives. No accountability, this is a problem that is by far the greatest structural impediment to achieving our goal of 5 in 4.

The best example of no accountability is the Amanda project, the responsibility of the Ministry of Local Government, NEPA, PIOJ and JAMPRO.

The Amanda project had an initial completion date of March 2015, 4.5 years ago, according to the localauthorities.gov.jm site. Today, 4.5 years later, it is still not operational. The Amanda project is important to delivering the following services:

Allow developers to upload applications online

Allow developers to pay for applications online

Allow developers to track progress of applications online

Allow the general public to view the status of the applications.

This project is most important to Jamaica's ranking in the Doing Business Report and ultimately to achieving our goal of 5 in 4.

Here are reasons given for the delays:

A project team is required, there is no project manager nobody is accountable.

Various challenges arise as we go along, as late as this Friday, the online payment program had a problem it was spitting out negative invoices, meaning that we would have to pay the customers. This is after being late by 4.5 years.

Secured fibre connection has been down for a few months

High turnover of staff at the MOs.

No Internet at the MOs.

Given the importance of the Amanda project to the achievement of 5 in 4, I am therefore calling on the Ministry of Local Government, NEPA, PIOJ and JAMPRO to coordinate their affairs and appoint a person who can be held accountable for delivering this most important growth-enabling project that has been nearly five years delayed.

Political Tribalism:

Notwithstanding our national motto “Out of many, one people”, Jamaica is still polarised between green and orange, and decisions are far too often made in the green self-interest or the orange self-interest, instead of Jamaica's interest.

Lack of leadership with a focus on growth:

This has been dealt with with the formation of the EGC. The EGC defined the goal, 5 in 4, designed a plan “the call to action”, has had over 400 meetings with MDAs focusing them on their contribution to growth, helping them solve their everyday issues, monitoring them.

Distraction by fiscal mismanagement: Ministry of Finance

This is no longer an issue. Jamaica has emerged from two successful tenures with the IMF and our financial metrics are now sound and the country is on a great footing.

Crime: Ministry of National Security

According to the World Bank, cross-country panel data suggest that Jamaica could boost economic growth per capita by 5.4 per cent per year if we were to bring homicide rates down by 80 per cent to the levels of Costa Rica (about 12 per 100,000). We are currently at 60 per 100,000.

Difficult to do business in Jamaica: JAMPRO, MICAF, MEGJC

While Jamaica has done some work to improve the regulatory environment, we have not seen much advances in reforming systems directly affecting businesses. This is evidenced by our 'Ease of Doing Business' ranking that has fallen from 64 in the world in 2016 to a ranking of 71 in the 2019. I am told the every one place in ranking is worth US$500m in FDI, therefore a seven-place fall has cost the country over US$3.5b. Although nominal improvements can be identified in areas such as:

Starting a business, which we moved up from a world ranking of 9 in 2016 to a ranking of 6 in 2019;

Dealing with construction permits, which we moved up from a ranking of 72 in 2016 to 70 in 2019;

Registering a property, we moved up from 122 in 2016 to 85 in 2019;

Paying taxes, we moved up from 146 in 2016 to 124 in 2019;

Trading across borders, we moved up from a ranking of 146 in 2016 to 136 in 2019; and

Resolving insolvency, which we moved up from 35 in 2016 to 34 in 2019.

Despite these improvements Jamaica has regressed in the following areas:

Getting electricity, we were ranked 80 in 2016 now ranked 120 in 2019;

Getting credit, we were ranked 8 in 2016 now 15 in 2019; and

Enforcing contracts, we were ranked 107 in 2016 now 119 in 2019.

Poor capital allocation of our financial assets:

Divesture of $30 billion of UDC/FCJ assets: The divesture of assets that should have freed up significant funds and promote a greater utilisation of Government assets has not occurred. The EGC has been in several meetings with the UDC and there have been some reluctance to divest particular assets.

Over the past three years we have heard every excuse under the sun as to why important and substantial assets, like Dunn's River Falls, are being kept and not divested, notwithstanding that there are ways to divest and still maintain Jamaican control.

Divestment would not only give the Jamaican Government capital upfront but also an increased income tax revenue emanating from professional management being put in place. I will remind you that NCB was a Government divestiture in 2002, and since then the Government has received over US$570m in corporate taxes alone, in addition to cash upfront and many millionaires have been created by owning the shares. I implore the UDC and FCJ to stop making excuses and start divesting as is called for by the 'Call to action report'.

Pension reform, although passed by Parliament, has not gone far enough to fulfil the responsibility we have to our retirees. When compared to other countries, our still restrictive limits will keep potential capital, that should be unleashed to engender growth, incarcerated in a dwindling supply of government bonds.

The conservative changes will make it difficult to protect our pensioners from retiring with a low standard of living. I call on the Ministry of Finance to review the impact of reform on large pension plans, which are the ones with the most retirees.

Insurance reform, which should have been completed in early 2017, is still being cogitated on, nearly three years later. Not being decisive is keeping long-term capital incarcerated and not unleashed into growth-inducing programmes. I call on the FSC to act more decisively.

High cost of capital:

Although the BOJ has reduced interest rates to historically low rates, financial institutions are still paying a corporate rate of income tax of 33 per cent, while other non-financial corporations pay a tax rate of 25 per cent. This incremental cost is one reason why rates have not come down in lock step with the BOJ's rate. Additionally, financial institutions are saddled with what was supposed to be a temporary asset tax, a frictional cost, that prevents commercial rates to fall in lock step with the BOJ rate.

In addition, financial institutions have to set aside capital for different risk-rated assets, and regulatory capital which bears no interest, all contributing to an increase cost of funding. I am therefore calling on the Ministry of Finance and the BOJ to review their policies as they pertain to increasing frictional costs to financial institutions.

Poor access to capital: Ministry of Finance/Bank of Jamaica/Development Bank of Jamaica.

There is a lack of financial literacy and public trust in banks in Jamaican MSMEs. There is a need to incentivise proper risk profiles and credit reporting for micro enterprises. According to the recently published Jamaica Survey of Establishments for 2018, 90 per cent of small businesses have never benefited from loans and access to finance from formal institutions and 94 per cent have never benefited from SME-targeted loans.

High cost of energy: Ministry of Science, Energy and Technology.

Electricity costs in Jamaica in 2016 averaged US$0.32/kWh. In 2019, due to the introduction of more renewables, this figure has dropped slightly to US$0.29/kWh. By comparison, the average price of electricity in the USA is about US$0.12/kWh; in Canada US$0.10/kWh, Mexico, US$0.08/kWh; India, US$0.08/kWh; Thailand, US$0.11/kWh; and China, US$0.08/kWh.

Unproductive labour force: Ministry of Labour and Social Security.

Between 1951 and 1975, Jamaica's labour productivity growth averaged 5.3 per cent per annum. However, between 1976 and 2017, labour productivity growth was negative (an average of -0.61 per cent annually). The labour productivity for the US grew by 1.6 per cent per year while for Canada, it was 0.9 per cent per year. However, these are not the highest in the world.

For the same period, the top five highest countries were: The Philippines (8.43 per cent/year), China (6.75 per cent/year), India (5.80 per cent/year), Colombia (4.69 per cent/year) and Ireland (3.57 per cent/year). All figures are from the Global Productivity Index.

No confidence by investors:

Over the past 3.5 years we have experienced unprecedented levels of confidence. The overall confidence level in 2016 was 109. As of the end of the third quarter of 2019, the overall confidence level stood at 161, just shy of the record 167 at the end of the second quarter. The energy level in Jamaica is palpable and businesses are investing, despite many inefficiencies that we are grappling with.

Corruption:

While Jamaica has improved on the corruption index with a score of 44 points out of 100 and ranked as the 70 least corrupt out of 175 countries on the 2018 Corruption Perception Index reported by Transparency International, this score is only an incremental movement from 2016 when Jamaica scored 39 out of 100 and was ranked the 83 least corrupt out of 176 countries. A country score indicates the perceived level of public sector corruption on a scale of 0 (highly corrupt) to 100 (very clean).

Sabotage:

In speaking to hundreds of public service employees I am told that there are elements within the bureaucracy the do not want to see growth because it is felt that anything positive would help the existing Government. This is sad, as some of us would rather put political loyalty ahead of country loyalty. As I said earlier, we need to put Jamaica first all of us.

Low standard of expectation of self and country. Currency depreciation: Ministry of Finance, Bank of Jamaica.

Currency depreciation doesn't engender confidence. The currency depreciation between 2013 and 2016 was 24 per cent (J$101:US$1 to J$125:US$1 while the depreciation between 2016 and 2019 was 12 per cent (now J$1:US$140) .

Conclusion:

Jamaica is clearly a turnaround situation. To be successful we need to do three things:

Be purpose-driven

Find creative solutions, and

Persevere.

Our stated goal of 5 in 4 is the minimum necessary for us Jamaicans to give all Jamaicans access to a good middle class life, proper health care for all, security for our elderly and care for our environment.

Being Purpose-driven gives us the fuel to find creative solutions to our unique problems.

And being purpose-driven gives us the strength to persevere.

The EGC, notwithstanding all the hurdles, has the confidence that we will achieve our stated 5 in 4, maybe not in the expected four years, but we will persevere until we achieve 5 per cent. We will continue to work diligently, be strong in calling a spade a spade, lead by example in being role models for nation builders, and most importantly put Jamaica first in all we do.


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