Sat | Jan 19, 2019

Jan Keil | Jamaica needs a special industrial zone

Published:Friday | December 21, 2018 | 12:00 AM
Jan Keil
In this 2016 photo, a container is placed on the new weighbridge at the port terminal operated by Kingston Wharves Limited.Kingston hosts the world's seventh largest natural harbour and its port facilities are in direct proximity to an industrial corridor.
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In last week's column, I argued that a country like Jamaica can only escape poverty through industrialisation. This is a long process of rapid growth in emerging manufacturing industries.

Today, I sketch an idea of how this goal can be reached.

Jamaica has a decent geographic location. It is closer than Trinidad & Tobago to the United States and the major Panama channel's shipping routes, and lies right in the centre of the Caribbean and the middle American coast.

Kingston hosts the world's seventh-largest natural harbour. Most importantly, port facilities are in direct proximity to an industrial corridor that ranges from downtown Kingston to Portmore, and all the way to Spanish Town. This 'D-Town/S-Town' industrial cluster concentrates the majority of Jamaican manufacturing, transportation, and warehousing operations.

If there is any chance at all for Jamaica to industrialise, all government agencies must bundle their financial and human resources for economic programmes into this area. The overriding goal must be to create a unified industrial zone, similar to Chinese 'free trade zones', the Vietnamese 'special economic zones', or Mexican 'maquiladoras' the latter appears to have started paying off recently.

Let's examine the required ingredients for this to happen.

Foreign manufacturers can only be attracted when we ensure that they spend zero dollars on security. Extortion payments and disappearing goods are currently a major problem. The area must be entirely fenced and protected via video cameras and elite guards.

As in China and Mexico, the D-Town/S-Town industrial zone cannot be freely accessible to the general public. Police and private services are currently not capable of managing the security, which requires the establishment of a special and independent police or military police unit.

Electricity must not cost more than 10 US cents per kWh. In Jamaica, costs are more than double that rate. The answer lies in combining two proven technologies suited for this island: solar power - which is currently less than three cents/kWh in the best locations; and pumped-hydroelectric storage plants - storage costs at two cents/kWh in the best plants.

Furthermore, electricity must be reliable, which can only be ensured with an entirely new grid, detached from the national system. The next column will address this issue in detail.

Transportation and shipping must be cheap and available at a higher capacity. This includes an augmented Kingston port facility, a deeper and wider harbour passage, new roads inside the industrial zone, and possibly even a small-scale cargo rail system located entirely inside the zone.

Industrial engineers must be schooled at our universities, backed by 100 per cent tuition plus subsistence scholarships, requiring students to work in engineering jobs for five to 10 years and pay taxes before leaving the country. This is practised in many other countries.

Jamaica must fight for a fully unified European Union-style market within an augmented Caricom where foreign investors 'buy' unrestricted access into the entire region.

Jamaica must copy China, Malaysia, and Vietnam in attracting companies with financial benefits; for example, extremely low initial taxes for a predefined period - maybe one per cent corporate income tax for 10 years, plus increments thereafter. Any deal with foreign investors must be protected by international arbitrage courts.

How should all of this be financed? First, existing resources must be redirected away from any agricultural and service sector use and by cutting down spending in other areas. It cannot be that roads are built along the north coast to support tourism while industrial infrastructure deteriorates. Any upgrade must first be realised inside the industrial zone.

New resources can be obtained by taxing tourism, coffee, ganja and services. These industries should be used as cash cows to support industrial zone infrastructure. New funds can be raised using special-issue bonds that are strictly project-bound, fully secured by assets purchased, and senior to all other claims.

What could be the benefits for the nation?

As in China, investors must be required to eventually and increasingly employ Jamaicans in managerial and engineering positions. As in China, joint ventures with Jamaican companies could be encouraged after an initial period. As in China, one should include rules that partially 'Jamaicanise' company ownership over a long time horizon and without additional costs for investors - for example, by paying five to 10 per cent of workers' salaries into employee stock ownership programmes instead of pension funds - and maybe with an option of partial diversification across industrial zone companies.

This has significant benefits: it aligns the interest of Jamaican workers with the national industrialisation process, with investors and managers in their firm, creating positive incentives for productive behaviour ('x-efficiency'), and possibly even transforming work ethics.

Factories would become partially nationally owned after periods of 20, 30, or more years.

Industrialisation is a hard sell to the general public. They are painful, and those that put their blood, sweat and tears into it are usually not the ones that benefit the most. Often, not even their descendants do.

Rightfully, Jamaican workers will probably not accept what Vietnamese workers do. But if a company will eventually be majority employee-owned, with prospects of participation in management and profit sharing, this may be a very different story.

- Jan Keil is lecturer/assistant professor in the Department of Economics, University of the West Indies, Mona.

jan.keil@uwimona.edu.jm