Wed | Apr 26, 2017

Customs pratices bar Jamaica from global logistics league

Published:Wednesday | July 8, 2015 | 7:00 AM
An artist's impression of the proposed Fort Augusta container terminal, one of several projects Jamaica plans to incorporate under its logistics hub initiative.

Andrea Erdmann reckons that the Government could start wooing investors for the Caymanas Special Economic Zone (CSEZ) by 2017 if it started working on it last month.

The author of a report, which provides an initial assessment of options for developing the 1,400-acre site, located on the border of Kingston and St Catherine, outlined a work plan that would put in place the necessary legislation, regulations, infrastructure, and master plan for the project by the end of next year.

Chief among her recommendations was that the Government make it a priority to expand the enterprise team, currently headed by Dr Vin Lawrence, to include the Urban Development Corporation, the utility companies, and telecommunications providers.

"The presence of representatives from these agencies is required to ensure that a comprehensive conversation takes place regarding the feasibility and development of the CSEZ," said the report.

Indeed, developing the area into a zone that would play a key role in Jamaica's desire to be a leader in the global logistics hub has many moving parts.

First, the proposed area is prone to flooding; the wastewater treatment facility for the area - Soapberry - will be operating close to full capacity of 20 million gallons by next year; and the electric substations nearest to Caymanas have either low reliability - the Duhaney site, which can drop out of the system from a single circuit breaker - or prove difficult to connect to because of the dense residential population at the Tredegar site.

infrastructure upgrades

The work plan calls for making the necessary upgrades to the infrastructure over the next two years.

But none of that will matter if certain laws and conventions are not changed.

The Government has already tabled a green paper on special economic zones (SEZs), and it aims to enact a new SEZ law this year. However, Erdmann believes the approach that was laid out to Parliament six months ago "departs from international best practices" in some instances.

"The current Customs practices of Jamaica do not allow it to play in the same global logistics league as Rotterdam, Dubai, Singapore," she wrote. "Re-vanning of cargo is not allowed inside free zones, and that status quo is going to stymie Jamaica's goal to be a global logistics and transshipment leader."

She added: "In order for Jamaica's logistics hub to thrive, Customs must allow transshipment of cargo in SEZs to be exported in different containers than the one in which it was originally imported."

Reforming Customs could take 18 months to address cargo handling and storage issues, as well as how and when duties are applied to goods entering and leaving the zone.

Erdmann, who is the independent consultant to the industry ministry and who prepared the report that was funded by the Public-Private Infrastructure Advisory Facility, suggested that the supervision of goods in and out of the zone should be left

to Customs and not the SEZ Authority, which would need to be established by next year.

Also, the use of expected annual exports should not be used as a criterion for zone eligibility because it is likely that it runs counter to World Trade Organisation rules, while a one-stop investor services facility operated under the SEZ Authority might not be optimal - that is, a national one-stop shop, like in El Salvador, or a virtual one-stop shop using an e-government portal might be a better fit.

highest priorities

The list goes on, but to pull it all together, the report placed the conducting of market analysis and a feasibility study among the highest of priorities on that list.

"A feasibility study is required as the next step to move forward with the CSEZ project," said the report, which went on to say that the study is crucial to determining market demand for space in the zone, the project's profitability, and finding a development scenario that minimises Government's financial risk, while maximising the return to a private developer.

Erdmann estimates that both studies will take around a year to complete, so the Government will have to issue requests for proposals for the research by next month if it wants to start wooing investors by 2017.

Preliminary market analysis, which reflects insights into challenges associated with developing large-scale real estate and industrial projects in the Caribbean shared by 10 developers, showed a number of issues.

For example, the report estimated that rent in the zone would have to be US$20-US$30 per square foot, or twice the current rates for rental of AAA office space in Kingston for a developer to be profitable.

On the other hand, research shows that while rents for standard factory buildings in Jamaican free zones are on par with or lower than those available in other Caribbean countries, they are higher than in many Asian zones.

"Pre-fabricated buildings in Garmex Free Zone cost US$4.97 per square foot, compared with US$6 in the Dominican Republic, US$5.02 in Costa Rica, US$4.46 in Colombia, and US$3.94 in Vietnam," said the report.

Still, the Government might have lost credibility among potential developers when Cabinet suspended plans to offer the shortlisted preferred bidder a contract to develop the Caymanas Economic Zone.

Also, one developer said that the Government would need to get the site development-ready (meaning enhancing the utilities and infrastructure available at the site) before considering investing in the CSEZ.

camilo.thame@gleanerjm.com