Economist sees growth continuing if Gov’t remains disciplinedSaturday, November 05, 2016
Karl Samuda has that ‘I told you so’ look on his face these days.
In August this year he had boldly predicted that agriculture, the industry for which he has portfolio responsibility, would grow the Jamaican economy by two per cent this year.
Last week, Samuda, the minister of industry, commerce, agriculture and fisheries, sat in the Parliament and listened with a degree of pleasure as his colleague, Finance Minister Audley Shaw, told the House that the economy has recorded growth of 2.3 per cent for the July to September quarter.
"The last time that this economy grew in one single quarter by above 2.3 per cent was in 2002," Shaw said, adding that the main contributor to that performance was the agriculture sector, which grew in the same quarter by 28.8 per cent.
According to Shaw, domestic agriculture grew by 43 per cent in the July to September quarter this year, and traditional agriculture, including the sugar industry, grew by 21 per cent. The hotel and restaurant sector has also grown by more than two per cent.
The country, he therefore said, was well on the way to the five per cent growth in four years projected by the Government.
In August, Samuda had told guests at the Denbigh Agricultural, Industrial and Food Show’s opening ceremony that there was no question that the Government would achieve the growth target.
He obviously based his comment on Statistical Institute of Jamaica’s data reporting that local crop production had grown by just over 13 per cent over the quarter ending June this year.
"There is the announced position of the Government to increase the gross domestic product (GDP) in five years by five per cent. Let me just hasten to tell you, the ministry in which the agriculture ministry falls is a ministry responsible for 53 per cent of the employed labour force in the country," Samuda said.
"This ministry comprises 90 per cent of the classified taxpayers in the country. In addition, the ministry contributes to the GDP 33 1/3 per cent of all goods and services produced in the country. This is the ministry that is going to increase the level of growth in the country on which everyone has to rely. We cannot fail; we must produce in order to enable Jamaica to reach that golden target of five per cent," he said.
Economist Dennis Chung, while upbeat about the performance, pointed out that the growth in agriculture was expected because it is compared to the year before, when the island experienced severe drought.
"However, I think we’re at a situation now where, if things are as is, then we can normalise on growth of a little over one per cent, which is where I think the growth is normalised if you take out the drought situation," Chung told the
Jamaica Observer on Friday.
Looking ahead at what the country needs to do to improve on the growth performance, Chung, who is the Private Sector Organisation of Jamaica’s chief executive, pointed to at least four major tasks.
"One of the big risk factors is the price of oil. That’s why the hedge is so important. With a hedge in place, we can predict with some amount of certainty what prices are going to be because it has a big impact," Chung said.
"The other thing is that we need to continue the fiscal programme. In other words, ensure that we live within our means, so Government must reduce the debt more and more; so the debt-to-GDP ratio is very, very critical," he added.
"Then, we need to look at measures that are going to grow the economy, because you can’t reduce the debt-to-GDP ratio by just consolidation, which is what we’ve been doing over the past three years. What we need to do is grow the GDP," Chung argued.
"What that means is primarily there are three things that I think we need to hit — the crime and indiscipline, bureaucracy, and also the competitive tax environment, which means that we should be looking at effectively lowering rates while going after more compliance," he added.
Chung’s assessment that crime and bureaucracy are two of the major impediments to growth is shared by the International Monetary Fund (IMF) with which Jamaica entered a new four-year economic reform programme in 2013 and which laid the foundation for the current growth performance.
But the IMF, while noting that the programme "has been a turning point for the Jamaican economy and a case study in ownership and collaboration", concluded that growth remained weak.
"The Government will therefore need to implement bold structural reforms to unleash Jamaica’s potential," the IMF said in its assessment in June this year.
"The obstacles to Jamaica’s growth and job creation are numerous and severe," the IMF said. "Key among them are: crime, the cost and availability of credit, tax compliance costs, unreliable and expensive electricity, and a large informal economy. The large size of the public sector has also stifled private sector dynamism and places too much emphasis on Government as the engine of growth and employment."
The IMF noted that it is now working closely with the new Government and other international partners to tackle key roadblocks to development and help expand the private sector.
The lending agency listed what it said were five key reform areas to achieve those objectives. They are:
• Increasing access to finance by increasing banking sector competition and reforming financial sector taxation
• Downsizing the public sector through improving efficiency and reallocating public functions back to the private sector
• Cutting red tape and unnecessary ‘gatekeeping’ at all levels of Government to aid the business climate and strengthen productivity and competitiveness
• Implementing labour market reforms that strengthen the link between pay and performance and increase labour market dynamism
• Reducing crime and tackling both its economic and broader social ramifications.
"These measures will take time to bear fruit," the IMF said. "But they can only take place in an environment of fiscal discipline and economic stability. Despite the difficult road ahead, Jamaica can rise to the challenge and seize the moment."
Chung agreed, and pointed to the state of the Jamaican labour force as the fourth critical factor going forward.
"We have to start training people, because if we get growth and people are not trained then they’re not going to benefit from it, because you can’t get more value than what you produce," he told the Sunday Observer.
Training people for higher -value jobs, he said, will get rid of the menial tasks such as those in the sugar cane industry and in street sweeping that should be mechanised.
He said that getting rid of regulatory impediments would create a more competitive environment as well as innovation in the economy, "which is why the junior stock exchange is so important, because it brings new business to the fore. Economies can’t grow and get more competitive unless you have new businesses".