IFC backs PPPs to spur growth
THE International Finance Corporation (IFC) — the private sector arm of the World Bank Group — is urging the Jamaican Government to find ways to “support export-oriented companies” to boost foreign exchange earnings as it engages in talks to find ways to help drive projects through public-private partnerships (PPP).
Alfonso García Mora, IFC vice-president for Europe, Latin America and the Caribbean, made the call in an exclusive interview with the Jamaica Observer while in the island earlier this week.
“This country needs to look outside more, and we need to support export-oriented companies because that will bring much more stability to the balance of payments of the country,” García Mora told the Caribbean Business Report. He name-dropped sectors such as agribusiness that could be targeted, but also said the country could look to the global supply chain for products which could be manufactured here and sold abroad.
“The supply chains have changed dramatically after COVID, and I think this country needs to think, ‘how can I benefit from that?'” García Mora continued.
“We have to think of [targeting] areas of industries and sectors that are labour intensive…because…we need to generate jobs.”
Since the onset of the COVID-19 pandemic, companies have been facing supply chain issues and have tried to navigate some of the challenges by holding larger inventories than normal. Corporate CEOs have even started to identify supply chain turmoil as the greatest threat to growth for both their companies and their countries’ economies — greater than the pandemic, labour shortages and geopolitical instability.
Still, the call to target more exports was not the only prodding the IFC vice-president did while in Jamaica this week, during which he met and engaged in discussions with Finance Minister Dr Nigel Clarke.
Chief among topics discussed during the short visit was how the IFC can help the Government execute certain projects through public-private partnerships (PPP).
“We need to find ways to grow,” García Mora noted. “We cannot afford to continue having this economy growing at 1 per cent to 2 per cent [as it has been doing] for many years, because the lack of growth generates unemployment, generates frustration, generates migration and generates violence and crime. So it is an imperative to find ways to grow.”
He said the growth agenda needs to rely on the private sector with the public sector creating the environment to facilitate growth.
“I think this is one of the key things that the current Government is doing, but there are still [a lot] of things to be done,” he said as he pointed out that the previous growth model based on public expenditure is not sustainable.
“The only way that you can generate a stable growth path is by creating a solid private sector and this is what the current Administration, I think, is doing.”
Jamaica’s economy has recorded a spectacular recovery after the COVID-19 slump, growing by 5.2 per cent last year. However, projections are that growth will revert to the long-term trend at 2 per cent this year and continue around that figure for the next few years.
But García Mora said growth could exceed those projected levels with PPPs if the business environment is made more accommodating for private sector initiatives chiefly along the lines of digitalisation, logistics and infrastructure, and climate finance.
“This country still has a long way to go in terms of digitalisation. There is no broadband in many parts of the country and we know that digitalisation is important because it allows us to be more productive and more inclusive in terms of providing access to finance, access to health, education and basic services,” he added.
Turning to logistics and infrastructure, the IFC vice-president said more needs to be done to leverage the country’s location.
“Are we getting the most that we can get from the country’s unique position?” he asked rhetorically before answering,”Definitely not. Why not? We don’t have the right infrastructure to do that.”
Among the infrastructure the IFC is helping Jamaica with is the North Coast Highway improvement project which has an investment value of approximately US$600 million. As part of this engagement, the IFC said it is committed to providing transaction advisory services to the Government of Jamaica and structuring and implementing a competitive tender process to mobilise a private operator that will design, build, finance, and operate three brownfield roads.
He said discussions were also held about reviving the railway network.
“If it is feasible from a financial perspective, yes, [we will fund it],” he said as he noted that he believes it “makes sense from a development perspective”.
“If you look at the country, you truly need to interconnect much quicker and faster and more efficiently. Again you need private sector investments.”
However, Finance Minister Dr Nigel Clarke cautioned the Caribbean Business Report to understand that the discussions about reviving the rail service are exploratory right now.
“Where we agreed at the end of the day is to do a kind of masterplan for a multi-modal transport plan [for Jamaica] using PPPs to help in delivering some of the services,” Clarke said. He added that it is not yet clear that reviving the railway is the best way to go as yet, citing that the issue will be analysed and the best option to improving transportation logistics will be chosen.
“We are exploring other areas, not just transport. We are talking about projects related to the health sector, water and sanitation, affordable housing,” Garcia Mora said.
García Mora also praised the Government for its innovativeness in executing a catastrophe bond in 2021 to finance climate shocks, but again said there are greater opportunities to explore in this area.
“This is an area that we would like to explore with the private sector in Jamaica…to start issuing sustainable bonds as it is happening, for instance, in Brazil, or in other countries that are also very exposed to climate.”
He said these bonds could either be green bonds or blue bonds.
A green bond is a fixed-income financial instruments which is used to fund projects that have positive environmental and/or climate benefits and covers initiatives such as renewable energy projects, clean transportation for general public, energy efficient projects such as green buildings and so on. Blue bonds work in the same way as traditional bonds but are different in that the entities issuing them are determined to use the resources generated — or a large proportion thereof — for the protection and conservation of marine ecosystems.
“Jamaica is a country where the blue economy is critical. Everything in this country happens in the coastal area. So it will not be difficult at all to think on activities, initiatives and financing that can really go to support a new economy approach,” Garcia Mora said.
He said the IFC will look at creating incentives for local financial institutions to borrow from it for investing in climate funding to help boost private sector investment in Jamaica, which at between 15 per cent and 20 per cent of gross domestic product, lags far behind the level of investing in Asia were the private sector investments each year are equivalent to about 25 per cent to 30 per cent of gross domestic product.
“We [will] give [financial institutions] the funds with the condition that they have to invest that money into some specific things, such as the green economy, the blue economy and SMEs. If they want our money, they have to do this.”
He said the benefits will go way beyond any sums the IFC may put up for investing because for each US$1 invested by the World Bank affiliated lender, another US$1.50 is mobilised by international partners.
“What does that mean? It means that if I invest US$10 million in a bank…there are other investors internationally that also come with IFC, and they [will] invest another $15 million, thanks to the $10 million that we invested. So the full investment will be US$25 million.”