SMALL and medium-sized enterprises (SMEs) remain reluctant to pursue listings on the Jamaica Stock Exchange (JSE) as a means of raising capital, even as private equity funds continue to secure capital for investment in local businesses. These findings were revealed in a recent Jamaica Chamber of Commerce (JCC) Business and Consumer Survey.

Addressing this issue, PB Scott, chairman and CEO of Musson Group, pointed to misconceptions within the Jamaican business community. He believes that many view the process of listing on the stock exchange as overly complex, which may be holding them back from exploring this option.

“I think it’s somewhat naïve in Jamaica to think that it’s complicated. It requires a level of sophistication to go and get a listing and raise money on the public markets. The business has to reach some level of maturity, and, unfortunately, capital formation in Jamaica has really not been that consistent, and we haven’t had a stable environment. This is really our first period of stability in the last eight years since the IMF agreement came into place,” said Scott during a panel discussion following the findings.

Scott’s comments come on the heels of a new question introduced in the JCC’s Business & Consumer Confidence Indices survey for the third quarter of 2024. The question was, “Is there a present need for capital financing and what the likely sources are?”

The survey revealed that 58 per cent of businesses are in need of capital financing, but many prefer traditional financing methods. Of those surveyed, 51 per cent plan to rely on cash flow for their financing needs, while 49 per cent intend to secure loans from financial institutions. Only a small fraction — 4 per cent — view a public offering as a viable option for raising capital.

Scott stressed the need for more conversations to encourage businesses to explore partnerships and public offerings. He believes that increasing awareness and understanding of these options could lead to growth in the small percentage of businesses willing to pursue public listings.

“With more conversations, that 4 per cent will increase. People have to feel comfortable to diversify into a partnership mindset for business operations, and the more conversations we have, even if they are uncomfortable, that number will increase,” Scott explained.

He emphasised the role of the Development Bank of Jamaica (DBJ) in fostering these discussions and helping businesses transition to a partnership-orientated approach. However, during the discussions, Sydney Thwaites, president of the Jamaica Manufacturers and Exporters Association (JMEA), emphasised the challenges that small and microbusinesses face, particularly in accessing capital and energy resources. According to Thwaites, many of these businesses are not yet ready to become borrowers, making it difficult for them to secure the necessary funding, let alone achieve the sophistication required to consider an initial public offering (IPO). This sentiment was also reflected in the third quarter survey, which revealed that 17 per cent of businesses identified collateral as the most challenging loan requirement, while 14 per cent pointed to having a positive cash flow outlook. Additionally, 10 per cent of respondents cited profitability and profit and loss (P&L) management as key hurdles. These barriers underscore the broader struggle for small businesses in Jamaica to access the capital needed for growth and expansion.

Meanwhile, Scott also addressed concerns about Jamaica’s economic outlook over the next 12 months, noting that high interest rates and tight liquidity are key reasons for a pessimistic sentiment among businesses. The cautious outlook among businesses is further reflected in the survey, with 36 per cent of businesses being optimistic about economic improvement over the next 12 months, a decrease from 39 per cent in the second quarter of 2024. Meanwhile, more businesses expect economic conditions to worsen, with 27 per cent expressing a negative outlook in the third quarter compared to just 17 per cent in the second quarter.

Scott pointed out an intriguing dilemma facing the Jamaican economy: while fiscal discipline has reduced the debt-to-GDP ratio from 150 per cent to 70 per cent, this shift has brought its own set of challenges. He explained that the debt reduction has not resulted in a disappearance of funds; rather, the capital that was once tied to debt has moved into other assets or securities. This rapid shift in portfolios poses risks, as investors may not be fully prepared to navigate the new landscape.

“It would not be normal in general in any country where a change in portfolios happens so quickly. There will be a situation where people make bad investments because you can’t take a flow of money built up over decades and use it to invest in other things without knowing what to do and what to invest in,” Scott remarked.

He cautioned that such rapid adjustments could lead to short-lived business perspectives, as some investors may struggle with the swift changes in the economic environment. The survey was conducted between July and September of 2024.