Jamaica farewell

Neil Ford

Closely tied to the economic health of its main trading partners, Jamaica struggles to control its own financial fate. A major source of income is remittances sent home by the nation’s three million-plus diaspora, but this, in turn, is dependent on host countries having jobs available for Jamaican immigrants

In common with many other Caribbean countries, the government of Jamaica has its fingers crossed over the health of the global economy. The three pillars of its domestic economy – bauxite/alumina, tourism and overseas remittances – are all famously sensitive to slight changes in GDP in just a handful of major trading partners. Stronger growth in China would drive up demand for alumina, while a sustained recovery in the United States would encourage more US citizens to opt for a Caribbean holiday and enable more US firms to employ Jamaicans, who are then able to send money back to the island. 

The economic output of all three sectors contracted in the second quarter of this year. GDP declined by 0.4 per cent in the three months to the end of June and by 0.8 per cent in the year up to the end of June. The recession has increased the national debt, which now stands at 140 per cent of GDP, making it unsustainable by most measures. In addition, Jamaica’s dependence on imports has helped to fuel inflation and currency depreciation over many years. 

Since regaining power in December 2011, Prime Minister Portia Simpson Miller’s People’s National Party has sought to tackle the debt through a new agreement with the International Monetary Fund (IMF). The previous standby agreement with the IMF was suspended as a result of a lack of implementation by the previous government. However, a new four-year US$932.3 million extended fund facility has been agreed, with each tranche of the loan released once the government has completed specific reforms. 

Kingston has agreed to cut total state outgoings by reducing social spending and freezing the wages of government employees. The government must also increase the resources available to Tax Administration Jamaica to increase the tax take. If sufficient progress is made on restructuring, the existing debt exchange programme will be widened. The IMF hopes that the reforms will increase longterm growth and reduce unemployment. 

The scale of the problem remains daunting. Three months into the IMF agreement in August, the IMF chief of mission for Jamaica, Jan Kees Martijn, said: “Overall policy implementation thus far under the programme has been strong and structural reforms are progressing. All quantitative performance targets and indicative targets for end-June were met, including the floor on social spending.” But he added: “Recent economic developments mostly confirm the challenges of the Jamaican economy.” 

Conceding that the country’s image needs to recover, Finance and Planning Minister Peter Phillips said: “I can say that we are seeing the slow but steady and significant re-building of this confidence, certainly, in the international community. The successful conclusion of this first review will add to that level of confidence. So, what we have to do is sustain our commitment to the path and not lose heart or become overwhelmed by the immediate painful difficulties which we face. The reason we have a four-year programme is because we know that there is a whole series of reforms in many areas… to be implemented.” 

However, the economy has been growing during the second half of this year, as increased capital spending under the Jamaica Development Infrastructure Programme begins to kick in. The main priority is upgrading several hundred kilometres of the country’s road network. Simpson-Miller visited China in August in order to secure preferential loans to help fund the programme. 

The government is also keen to develop the port of Kingston as a transhipment hub by taking advantage of the country’s location on shipping routes through the Panama Canal. The widening of the canal, which is scheduled for completion in 2015, will increase the volume of cargo passing through the region. 

But in the short term, much will depend on growth in the main three sources of revenue. There is little that Kingston can do to influence remittance inflows, which average $2 billion a year at present. Despite the existing range of financial incentives, the government also has limited influence on the future of the bauxite/ alumina sector. The country produces about five million tonnes of bauxite a year, but alumina output – which is refined from bauxite – fell from 1.95 million tonnes in 2011 to 1.75 million tonnes last year. There is also little prospect of attracting investment in the third stage of the bauxite-alumina-aluminium production chain – aluminium smelting. 

The government can, however, improve long-term growth prospects in the tourist sector by tackling the country’s violent crime problem. Some steps have already been made in this direction, but more progress is required if the country is to compete more effectively with neighbouring islands. 

Each year since 2010 the country has registered a record number of visitors – reaching 3.3 million last year – drawn by its attractive climate, world-class beaches and a unique culture. Yet the sector is not as important as on many other Caribbean islands, partly because of Jamaica’s much larger population in relation to the number of visitors. Moreover, too many holidaymakers do not leave their resorts because of the country’s high crime levels. 

Wider distribution of visitors would increase the country’s tourist capacity and help to tackle an unemployment rate that reached 16.3 per cent in July. New cafés, guesthouses and other tourist businesses could generate more employment in some of the least developed parts of the country, which are currently dependent on the production of sugar, sugar-related goods such as rum and molasses, bananas and coffee. 

Stephen Vasciannie, the Jamaican Ambassador to the United States, says: “The loans have been helpful to bring stability, but now we are looking towards enhancing production. Our economic problems stem largely from the fact that there is a high unemployment rate and from the fact also that the country tends to consume more than it produces, so what we are trying to do in government is raise the employment level and also open up the country to foreign investment so that we can raise production and productivity.” 

The key to economic diversification could be the manufacturing sector, but the clothing industry has failed to expand as hoped. Kingston is now looking to Jamaicans living abroad to return to the country to set up manufacturing businesses. The country has a population of about 2.6 million, while at least as many Jamaicans live overseas, particularly in the UK, USA and Canada. 

The government hopes to encourage many of those expatriates with business success to return home. Vasciannie adds: “Jamaica benefits from the fact that there are so many of our nationals in the diaspora, because they send money home in the form of remittances, and some also take part in the investment projects.”

Yet the economy would be a great deal more secure if growth were driven by those actually living on the island. 

About the author:

Dr Neil Ford is an independent consultant and journalist, focusing on international affairs, particularly in Africa and Asia


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