Getting unstuck

Getting unstuck

A road map for sustainable and inclusive economic transformation in Jamaica 2020 onwards

Sunday, January 26, 2020

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The following is a lightly edited version of the speaking points of the presentation by Dr Peter Phillips, leader of the Opposition, to the Jamaica Stock Exchange 1st Regional Investment and Capital Market Conference on January 23, 2020:

There is an urgent need for us to change course and chart a road map for sustainable and inclusive economic transformation to make the transition from a low-wage to high-wage economy producing globally competitive goods and services. In charting this road map we should begin by recognising that we've had two previous attempts to chart such a course. The first was Vision 2030, which aimed at bringing Jamaica to developed nation status by the year 2030. The second was the ambitious programme laid out by the Economic Growth Council to achieve five per cent annual gross domestic product (GDP) growth in four years. Both Vision 2030 and “5 in 4” seemed to have been abandoned.

As well, in 2012 we were forced to launch the Economic Recovery Programme (ERP) to rescue Jamaica from the brink of bankruptcy, restore macroeconomic stability, and return the economy to growth. And you will recall that it was in December 2015, in the third year of the ERP, that for the first time in our history, our stock market was voted as the best-performing market in the world. At that time poverty levels were on the decline, economic growth was picking up, the exchange rate was stable, inflation and interest rates were trending down, and the debt-to-GDP ratio was on a downward trajectory.

Where are we today?

The present Administration is to be commended for maintaining the debt-reduction programme it inherited; the stock market continues to boom and interest rates are low. Yet there are severe challenges:

• Rising employment has been accompanied by increasing poverty.

• The 30 per cent increase in urban poverty means that for the first time wages are so low that employment no longer automatically lifts workers above the poverty line. This is confirmed by the Statistical Institute of Jamaica, which reported that “the largest increase in the employed labour force between April 2017 and April 2018 occurred in elementary occupations which include…car washers and street vendors”.

• Poverty will continue to rise in an economy, which concentrates wealth at the top and can only create low-wage, precarious employment.

• The rural economy, based primarily on the export of sugar and bananas, has collapsed, and for the first time crime has overrun rural Jamaica.

The road map

A credible road map in 2020 for sustainable and inclusive growth must place priority on the transformation of education and training, especially, since the present labour force is without the technological capacity to transform and modernise the economy and produce the goods and services that can successfully compete in the global market.

We have the case where “estimates… indicate that capturing one per cent of the global market in the business process outsourcing sector would generate an additional US$1.5 billion in income, as well as employment for some 170,000 persons”.

As we go for growth, we must continue to be fiscally prudent as we embark on the next phase of the economic transformation. While maintaining the fundamental commitment to fiscal prudence there is still more countries can do to drive growth as the structures and fiscal space opens up. The biggest choice Jamaica will have to make is how we are gong to utilise that greater fiscal space. We can either fritter it away in political gimmickry or we can muster the energy and tackle the fundamental economic and social deficits that continue to make Jamaica one of the most unequal societies on earth and limit our prospects for real and sustainable growth.

6-point growth road map

1) Incentivising production and innovation through the tax system: We recognise that there are still some fundamental deficiencies such as the unification of tax rates and getting an efficient tax system that incentivises production and innovation. We have to incentivise the innovative elements within the private sector. And firms who engage in retraining and providing for high productivity labour need to be rewarded through the tax system.

Our research institutions at the universities, Scientific Research Council, Bodles Research Station, and others need to re-examine the ecosystem for the creation of new products. There needs to be greater alignment between the knowledge sectors which host our research and the commercial sectors that use these research to develop goods and services and earn commercial value from them. Simply put, our universities and government-financed research institutes need to develop a strategy for collaboration with industry players to fund innovative research, share intellectual property ownership, and share the commercial gains from the partnership. The collaboration must be a win-win for all involved in the innovation and commercialisation process.

2) Establishing effective public-private partnerships through industry councils to drive innovation and competitiveness: We will embark on a process of reform, working with the private sector and other non-governmental sectors to ensure that we do not lose revenues while incentivising firms to continue to be innovative.

3) Targeting internationally competitive investments (local and foreign) for the special economic zones (SEZs): Jamaica's economic growth will be propelled by a strong push towards exports. We need to have firms that are innovative, nimble and internationally competitive in order to join the export market and win. We will be targeting firms that have a strong proclivity towards exporting to join the SEZs, produce internationally competitive goods and services, and sell Jamaican outputs to the world. We will be incentivising firms (using or tax system and our regulatory frameworks, to make doing business easier), especially those more technologically intensive businesses and especially, in industry sectors such as biotech technology, pharmaceuticals/nutraceuticals which leverage the biodiversity of the Cockpit Country to become apart of the SEZs.

4) Unleashing the creative energy and resilience of small- and medium-sized enterprises (SMEs): Not to be left out of the SEZs are our SMEs, the engine that has the greatest potential to propel growth. SMEs have the greatest potential to drive innovation and need to be incentivised. We cannot leave this to chance. We will be dealing with issues that hinder their growth such as “access to financing”. In this regard, we commend the timely initiative being led by the Private Sector Organisation of Jamaica and other associations to unleash the fuel in this area. Capital exists, but these firms cannot access same because of the high levels of informality in their operations and the rigid structures of our financial system. The Jamaica Business Development Corporation (JBDC) and other agencies will have direct targets to get more SMEs to formalise their operations so that they can access debt from banks and other capital market houses and, equity through trading on the Jamaica stock exchange. There will be a stronger and more focused approach to get the JBDC, the Small Business Association of Jamaica, and our universities to work together to assist resource-poor SMEs to formalise their operations and go after the huge pool of funds that are in the domestic market.

5) Expansive land-titling drive so that 700,000 more Jamaicans can become participants in the economy: Over 700,000 Jamaicans live on land without titles. Some call them squatters. Near 60 per cent of our farmers work the land for which they have no title, no security of tenure, no ability to go to a bank and finance the technological upgrades that are needed to drive a thriving rural economy, and growth overall. The next People's National Party Administration will launch the most comprehensive land-titling drive. This is critical to modernising our economy.

This is not just talk. Laws will be passed to facilitate an easy, legal and affordable pathway to registered titles. Many of these Jamaicans who are “unbanked” would also become part of the formal system and access more benefits. These titles will come with the provision of housing benefits so the people can improve not only the size but the quality of housing for their families contributing to the growth that Jamaica needs and deserves.

6) Massive revolution in the human capital stock of the country: If we do not address the problems in our education system now, despite all the growth that will come, the majority of Jamaicans will not benefit. The economic transformation that we will be embarking on is not for a few to benefit and the majority remain in poverty. The transformation is to lift everyone out of poverty knowing fully well that some will always benefit more than others. The transformation is not to make everyone a billionaire, but to make everyone have a decent standard of living and feel proud as a citizen of this country.

The single most important factor to allow this to happen is education. Simply put, we cannot hope to achieve a high wage economy with a labour force where in the majority (over 900,000 participants) have no certification. The problem is that the majority of the people that find their way into the labour force are educated in underperforming schools. The divide between traditional and so-called 118 non-traditional schools persists for decades and students leave without adequate training and certification. This cannot continue to happen. It must end before the decade ends. This re-imagined education and training system will also have positive implications for our crime situation.

By the end of the decade, we would have equalised the quality output in the school system, significantly improved the certification and skills level of our labour force, and enabled more Jamaicans to attain high-wage jobs or start internationally competitive businesses that will give them a high return on investments from selling their outputs both locally and overseas.

This road map will engender stronger, more sustainable and inclusive growth in our economy. No citizen will be left behind from this new approach to economic growth and development. We are building a Jamaica that works for all.

Dr Peter David Phillips is leader of the Opposition.

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