The National Industrial Policy revisitedSunday, August 17, 2003
THE National Industrial Policy (NIP) is once more in the public eye. After seven years in suspended animation, we are reliably informed, it is shortly to arise again in an updated revised version. It is unfortunate that last Sunday Observer's feature article didn't appear after the revised version was issued, as it would have considerably ameliorated most of the expressed criticism.
The NIP, launched in March 1996, was formulated after extensive national consultations and principally authored by Donald Harris, professor of economics at Stanford University, since retired. The NIP was well ahead of its time, as with the exception of Guyana, that had prepared an economic development plan, no other Caricom territory, to the best of our knowledge, had yet attempted such a sophisticated national planning exercise.
This resulted in visits from other territories to examine the Jamaican model. When it was launched, the NIP was considered to be a well-conceived national strategic plan that would be the basis for a future "rolling" planning process, to chart the critical path for national development.
During the first annual review on July 17, 1997 held at the Jamaica Conference Centre, the prime minister and all who attended the full house session were very upbeat and enthusiastic about the first year's progress. As stated in last Sunday's article: "The NIP was designed to promote growth through the initiatives of the private sector."
The successes of the policy listed in last Sunday's feature are all benefits that flowed from the policy. The taming of inflation must be commended, but not the excessively prolonged high interest rate regime that has financially crippled many corporate enterprises. Even today it is not possible to adequately compete, with few exceptions, with our Caricom partners for three fundamental reasons: high interest rates, and excessive utility and security costs related to the unacceptable level of crime.
Corporate strategic plans in the private sector are generally updated annually and extended for an additional year or more. This allows the planners to consider contemporary developments that may affect the future course of events. Adjustments to targets and other influential factors are then made to accommodate the changing environment. In the case of the NIP, this omission was the chief contributor to the divergence between the plan and reality. In other words, the plan, in the absence of regular revision, was overtaken by events.
The private sector repeatedly requested that the NIP be updated, because it had proved to be a most useful tool when negotiating to attract foreign direct investment (FDI). At the time of its currency, the NIP provided an economic framework enabling prospective investors to accurately assess the national environment on which to base their investment decisions.
For whatever reason, the NIP was allowed to languish and was further relegated by the destructive developments in the financial sector, natural disasters and the terrorist attacks of 9/11 that wreaked havoc around the world. Only recently was a team of technicians assigned to revise the NIP to bring it into conformity with prevailing national and international conditions. The sooner the revised NIP is completed and re-issued, the better for all concerned.
The planners of the revised NIP recognise and acknowledge "there is an urgent need to review the economic growth targets. Interim targets must be calculated, reviewed and updated annually with a clear outline of the adjustments required to meet the next targeted growth forecast". A principle priority is an Incentives Review, key to attracting FDI. The new scheme should see an amalgamation and simplification of the 19 or so existing incentives into one comprehensive "omnibus" policy that would be WTO compatible.
The eight Industry Advisory Councils (IAC) supported by the private sector did not have the impact envisioned due to a lack of funding and administrative support. Hence their plans were omitted from the policy-making process. The IAC concept is to be continued and completed strategic plans will be used to clearly outline the targets and plans for each economic cluster.
Those IACs that have put forward strategic plans should see their ideas included in the formulation of the core policies for each cluster.
Space does not allow an examination of each economic cluster, but some reference to Cluster 4 -- Apparel and Light Manufacturing -- is noteworthy, as the sector has been most affected by the economic changes. The sector currently contributes approximately 15 per cent to GDP, a decline from 20 per cent in the 1980s. The revised policy promulgates: "The new global environment demands a more efficient and flexible manufacturing environment and we cannot afford to be left behind. Major changes have to be made to improve labour productivity and flexibility and other operational practices in order to increase competitiveness in the global marketplace. Improving national productivity levels will be critical to the success of this sector. In this regard, issues relating to industrial relations, labour productivity and functions, security and an efficient transportation system must be made priorities as we seek to create an environment of efficiency. It will also be critical to invest in discovering and utilising technologies, which yield the greatest energy saving benefits."
It is a pity that no reference is made to the elevated interest rates that make working capital unaffordable. As remarked in last Sunday's article, the attraction of government paper seriously detracts from the prospect of local investment in the productive sectors.
Adjustments are to be made to growth targets previously envisioned in the policy and now out of kilter with prevailing economic conditions. The new targets would serve as performance benchmarks focusing on the national objectives to allow for the next phase of the policy, with Government as facilitator, to be one of sustainable economic growth. It must be emphasised that while still in the draft and preliminary stage, the adjusted growth rates are forecasts of actual growth calculated on the basis that the current macro-economic conditions will remain unchanged. It should be noted that the forecasts do not include the impact of major public sector investments such as Highway 2000, the expansion of Gordon Cay and the privatisation of airports and expected increases in private sector investments resulting from the new incentive scheme.
Nor do they take into account the effects of the recent currency depreciation and tax package. The targets should nonetheless satisfy the harshest critics concerning the credibility of the revised NIP, still in the draft and preliminary stage.
Real GDP growth rates (average annual %): 2000 (actual) = 0.8%; 2001-2002 = 1.5%; 2003-2005 = 2.5%; 2006-2008 = 2.9%; 2009-2010 = 3.2%.
After all the boisterous rhetoric, let's see if the private and public sectors together can now perform closer to reality.
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