IN my March 11th Jamaica Observer article, “How to think about growth in Jamaica”, I said, “We should not despair, as it is simply not true that Jamaica can’t grow. Jamaica is actually relatively blessed in terms of its endowments, at least compared with many other Caribbean countries, and certainly with many other countries worldwide. Our problems are completely fixable with sufficient will, although it may take decades of sustained effort in some of our more problematic areas.” I also promised to address the issue of how to achieve five per cent economic growth in Jamaica.

The first point to note is that if all goes well, the current calendar year could see the best growth since 2006, which itself was a high point for a decade. That is not to suggest that I regard the roughly two per cent GDP growth projected by the IMF as in any way impressive, or even remotely sufficient. It is, however, a start. There is also a reasonable possibility of three per cent growth in 2016, and higher thereafter, assuming we take certain tough decisions.

There still appears to be some confusion, however, on the growth issue, engendered by the excessively theoretical approach of many that doesn’t translate well into practice. It is a much longer discussion, but exhibit A of this mindset would be market efficiency devotees at certain US business schools.

The first point to note is that some organisations, such as JAMPRO, have effectively had one hand tied behind their back for the past four years by the insistence of the multilaterals that reform to the incentive structure should be the first order of priority at a time when Jamaica was literally at a decade low point for foreign direct investment, as opposed to such reforms being done during an investment boom when no one would probably even notice, or probably care — particularly if substantial reforms to the general business environment improving competitiveness had already taken place.

This back-to-front approach is a good example of the issue of the correct sequencing of economic reform, and is a well known one in economics. There are examples too numerous to mention of what happens to even good policies that are incorrectly sequenced, meaning specifically that the correct ordering of the preparatory steps was not done.

A notable example, in the Jamaican context, is that of exchange control and financial liberalisation, but that is a historical discussion for another day.

One country that has understood this quite well is China, which has been, until recently (we will see how well they do in their future financial hangover) quite good at this critical skill, no doubt reflecting the expertise of highly educated policymakers.

The impact of poor sequencing has been most obvious in Jamaica in the tourism sector, where the uncertainty, and better deals abroad, have definitely affected it.

However, the significant cost of lost investment opportunities (in jobs, lower investment, higher exchange rate depreciation) over the last four years, particularly in the Jamaican tourism sector, has already been incurred, and is now merely a sunk cost. In many cases, this may mean that the investment was merely delayed, and some projects appear to be coming back on the table. It is also important to note that the investment incentive issue was by no means the only problem issue as, apart from the lingering effects of the great global recession on tourism rates (which are now finally improving), Jamaica suffered from a situation of extreme macroeconomic uncertainty.

AMCHAM’s great work

The latter is probably key in understanding the almost total lack of interest for many decades from US investors in Jamaica (implicitly admitted by a former female US ambassador to Jamaica, without saying which one), despite us being next door, essentially since the 1980s. This is despite the great work of organisations such as AMCHAM and JAMPRO, and no reflection at all on their leadership and advocacy.

Indeed, some of the US investors who were here, or came over the last few decades, have left, including Goodyear, Alcoa, the Ritz Carlton, and Mirant, to name but a few.

Before someone decides to dispute this claim, it is useful to quote from the speech of Digicel’s Barry O’Brien at last week’s Jamaica Investment Forum, simply as a point of comparison for what I mean.

In a not unfamiliar theme for my readers, comparing what he described as the very similar countries of Jamaica and Ireland, O’Brien advised that for the year ending 2012, the total of US foreign direct investment in Ireland stood at US$204 billion, more than the US total for China, India, Russia, and Brazil (the BRIC countries) combined.

According to American Chamber of Commerce Ireland statistics, there are approximately 700 US subsidiaries currently in Ireland employing roughly 115,000 people and supporting work for another 250,000, out of a total labour force of 2.17 million. It would be interesting to get the exact figure for Jamaica, likely to be a tiny fraction of this number.

It was high value-added US multinational investment that drove Ireland’s original “Celtic Tiger” boom, and it was US multinational investment that recently allowed Ireland to turn around quickly, exiting its IMF agreement on time, despite having one of the world’s most severe financial and property crashes as a percentage of GDP in the world, coinciding, and part of the global crisis in 2008. This was despite the fact that the Ireland crisis surpassed, by a significant margin, even Jamaica’s impressive entirely home-grown financial crisis in the 1990s, then a possible bronze medallist internationally.

However, “this time could be different”. The starting point is that the pace of potential tourism investment, and therefore overall foreign direct investment, is continuing to pick up from the recent decade lows a few years ago.

The real test will be if someone can get one of the leading US hotel operators to make a substantial investment of its own money (not operating as a franchise although that is welcome) in Jamaica. This will be the final signal that Jamaica is back globally, and not just for regional players.

The greatest potential for growth in the short-term, however, and what should be the focus of current government support, is business process outsourcing. In a few years, this industry has transformed the economy of the Philippines which, before its mushrooming, looked not totally dissimilar to that of Jamaica. The industry now employs many hundreds of thousands to create an industry rivalling that of India in size, the pioneer in using this industry to transform their economic prospects. The goal should be to create a Jamaican industry of at least US$2 billion in revenues, less than one-tenth of the countries previously mentioned employing well over 100,000 people directly.

As occurred in the 1980s under Seaga, the US has recently signalled that it is finally paying attention to the region, starting with the energy summit held in Washington at the beginning of this year. Although we may need to thank China for this, nevertheless it provides a welcome opportunity to finally make the vision of the Caribbean Basin Initiative, from all those years ago, a reality. As a seminar by AMCHAM last week Wednesday outlined, the Caribbean now has an opportunity to “refresh” this long-standing initiative, about which we will say more shortly.

Audley Shaw

Opposition finance minister Audley Shaw’s recent speech “Growth and Jobs: Our Only Salvation” does a good job of outlining the consequences of the “great squeeze” that Jamaica has seen for the past eight years.

Shaw objects “to the proposal to impose a 10 per cent profit tax on this sector”, arguing that it offers “potential for exponential growth in job creation”. Time will not allow us today to either critique, praise or even review his 54-page speech, including this point. However, the excitement posed by the huge opportunity for Jamaica presented by Prime Minister Portia Simpson Miller’s coup in getting President Obama to stop in Jamaica on April 9th, should not obscure the still extremely meaningful challenge in “converting” this opportunity into a sale. Creating actual investment results rather than a political feel good photo op as has almost always occurred in the past with such meetings. This is a challenge Mr. Shaw will be very familiar with from his time at JAMPRO.

Hopefully, President Obama plans to bring a delegation of US businessmen with him, on his way to Panama. If he can bring a delegation of the CEOs of the 20 leading US global BPO players, virtually all of whom are already in the Philippines and India, that would be a much better gift than even a new OPIC guarantee fund to encourage regional investment, or a multilateral guarantee to allow the buy-back of our PetroCaribe debt, as advocated by Shaw in his speech — although the latter might be a nice present in the unlikely event it was possible.

It might also be in the US national interest to have more of this BPO capacity “near shore”. The US has, in any case, consistently said it is no longer interested in aid, but only trade, for the region. This would give our government the opportunity to ask the decision makers themselves whether a 10 per cent profit tax was a barrier to a US$2-billion industry in Jamaica, just in time for the white paper on Special Economic Zones, and with sufficiently powerful voices to impress even the IMF. If President Obama, part Irish himself, can bring us even one per cent of their “luck” in attracting US foreign direct investment, it would be a wonderful visit indeed.