FOR years, successive administrations have paid lip service to plans to revitalise and develop downtown Kingston. This current administration has tried to encourage ministries to move downtown but there has been marked resistance to that idea.

When GraceKennedy signed a loan deal with Scotiabank for J$1.875 billion for the construction of a distribution hub in Spanish Town, at a fixed 13.5 per cent, the news was greeted in many quarters as a case of favouritism and that somehow GraceKennedy was enjoying special treatment from the country’s leading bank. That was not the case. Grace had simply done its homework and was taking advantage of the Urban Renewal Relief Act, which provides stimuli for investment in certain special development areas in downtown Kingston and Spanish Town.

GraceKennedy has constructed a 235,000 square-foot distribution facility. This new hub will allow the Jamaican conglomerate to consolidate its warehouses and so result in greater efficiencies and economies of scale. It will act as a distribution point for all of GraceKennedy food brands and will house its cold storage facility.

Chief Operating Officer of GraceKennedy Don Wehby has said that the Spanish Town distribution centre is a US$28 -million investment that will bring costs savings and a new revenue stream to GraceKennedy while making, at the same time, a declarative statement of its commitment to downtown urban renewal.

Speaking with Caribbean Business Report from Scotiabank’s downtown headquarters, Senior Vice-resident, Corporate & Commercial Banking Wayne P Hewitt said: “GraceKennedy has benefited from the urban renewal programme as administered by the Urban Development Corporation (UDC). The UDC has outlined the areas where it is focusing upon, and if one is planning an investment in any of those areas you can apply through the UDC for a number of tax benefits under the Act. One of the tax benefits attached is an urban renewal bond such as the one we structured for Grace.”

According to Hewitt, the urban renewal programme allows four benefits, which are: a tax credit of up to 25 per cent of whatever the sum of the investment is. Therefore, if you invest J$100 million in, say, a business in Port Royal, you are able to get a tax credit of J$25 million. The second benefit is that whatever rental income is earned from that investment becomes tax-free. If one were to set up a factory in downtown Kingston and earn rental income, that income would become tax-free.

Thirdly, if you later dispose of the said property there are exemptions from transfer tax, and fourthly, as mentioned, one can access an urban renewal bond.

Hewitt continued: “The lenders of that bond will get the income from that loan tax-free to them which in turn allows the lender, ie the bank, to lend at a discounted rate because the institution can adjust for tax. In other words, it is a win-win situation. For example, my base lending rate today is 19.875 per cent. Corporate taxes are 32 1/3 per cent. So if one were to take advantage of this facility, instead of borrowing at my base rate, they would be borrowing at 13 1/4 per cent.”

The young corporate banker pointed out that more companies need to go this route, and that since Scotia completed the GraceKennedy transaction, it hasn’t done any similar deals. In other words, not many companies are knocking on its doors. In fact, it has three deals it is talking with parties to but Scotiabank is yet to get the green light on any of them.

Scotia has decided to take the merits of the programme to clients in an effort to see more projects take off in urban areas. Nevertheless, it is meeting some push-back with concerns about security and the stigma associated with downtown Kingston.

Hewitt outlines the merits of downtown such as less congestion, good parking and easy access to the airport.

Over the last two months Scotiabank has ramped up its corporate and commercial loan book, seeing it add another J$5 billion since the imposition of the Jamaica Debt Exchange programme (JDX). It has made a conscious decision to go out and aggressively seek business as it weans itself off an over-reliance on interest income.