Thu | May 25, 2017

Growing exports

Published:Sunday | June 21, 2015 | 6:00 AM
Finance Minister Peter Phillips (centre) discusses exports with (from left) Nicardo Neil, Beverley Morgan, Anthony Grant and Hilda Vaughn on a tour of a fish farm on Thursday.
Claude Clarke
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Ever since the 1970s when the economy began its long downward slide, there have been calls for a national commitment to exports. We have been showered with rallying slogans ranging from 'export or die' to 'export and live'.

Now, caught in the grip of IMF austerity, public-sector restiveness, general social decay, and economic contraction, the calls are growing louder and bear more than a tinge of desperation. They are heard coming from all quarters: Government, Opposition, private sector, economic pundits and neophytes alike.

It is beyond dispute that as an energy-importing island nation with a significant population density, there is little hope for our people to enjoy prosperity if we are unable to generate income beyond our shores. But that income will be beyond our reach if our capacity to produce goods and services competitively is not brought up to international levels, and if the international market space in which our goods and services have a competitive advantage is not expanded.

Today, because of our inability to produce competitively, that space hardly exists anywhere, even within our own domestic market. The challenge of achieving prosperity will, therefore, be mammoth. A rapid increase in exports must, therefore, be the central focus of our strategies as we go forward.

There is no doubting the enormous productive potential of our people as evidenced by their stellar performance when working abroad. Equally gargantuan are their economic expectations. The challenge is to actualise the former to meet the latter. It will not be easy, as it will require economic competitiveness that involves bringing people's consumption in line with their economic output. That is substantially the problem which confronts the Government in its showdown with public-sector workers.

Without commenting on that issue directly, I cannot help but wonder why Government has not applied the same principle of bringing income in line with output to the entire economy. Addressing that issue for public-sector workers alone might allow the Government to satisfy the IMF tests, but it does comparatively little to move the country towards the level of competitiveness required for exports growth and economic expansion.

The massive incomes of those providing domestic services, most notably financial services, relative to the value of the services provided, are borne by the country's producers and are, by far, the greatest hindrance to our competitiveness. Both the Government and the IMF acknowledge that, without growth, the economic reform programme will not work. It is, therefore, perplexing that the incomes that contribute most to the economy's failure to grow continue to be ignored, while public-sector workers are the focus of Government's frugality.

It is substantially Government's failure to keep the incomes earned for domestic services in line with their value that has contributed most to Jamaica's inability to make CARICOM a positive source of trade.

 

TRADING BLOCS

 

Since the European Economic Community was created in 1957, countries around the world have been moving to form themselves into trading blocs to provide the market space in which they are likely to enjoy competitive advantage. For any country to benefit from these special trading arrangements, competitiveness within the trading bloc is necessary. Where a country cannot compete, the result is the situation in which Greece now finds itself.

Jamaica is the Greece of CARICOM. Like Greece in the European Union, Jamaica has failed to realise the benefits of the protected market offered by CARICOM. The problem, at its core, is our inability to compete with our regional trading partners. And it is much less a failure of business than it is a failure of governance.

Trinidad has given massive energy subsidies to its producers, directly and indirectly. But it is Jamaica's leaders who have allowed them to do so without consequence. Our Government cannot be excused for allowing this practice to continue while the jobs of Jamaican workers are exported, our economy bleeds millions in foreign exchange spent on overpriced CARICOM imports, and the Government loses billions in revenues foregone.

Even more egregious has been the Government's economic management, which continues to perpetuate the uncompetitiveness of Jamaican production. And it is here, with the restoration of competitiveness that preparation for Jamaica's export future must begin.

The factors that contribute to Jamaica's uncompetitiveness are many, from exchange-rate policy to inadequate social services, a weak economic infrastructure and the burden of taxation on production. The drive for increased exports must first address these obstacles. If we are to be honest, two years of passing IMF tests have taken us no further along that path.

Maximising our exports to the protected CARICOM market should be an ideal starting point, but as has been demonstrated, this will not happen unless we address impediments to our economy's competitiveness and remove the competitive disparity created by Trinidad's use of energy subsidies to give its producers an unfair advantage in the region.

But even after these problems have been addressed, CARICOM, as a trading bloc, is much too small to provide the boost that the country's production needs. The nations of CARICOM, excluding Jamaica, have a combined GDP of less than US$50 billion. The opposition leader is, therefore, correct in suggesting that Jamaica look beyond CARICOM to expand the opportunity for export trade.

 

UNCOMPETITIVENESS

 

However, while it is true that a new protected export market is important, like Greece within the EU, Jamaica will not be able to benefit, unless we first address our productive uncompetitiveness.

If we can improve our competitiveness, a trade pact with the our Spanish-speaking neighbours would be an ideal platform for increasing our export growth.

The Central American Free Trade Association (CAFTA), which includes the United States and the Central American nations of Costa Rica, Guatemala, Honduras, El Salvador and Nicaragua, along with the Dominican Republic, without the US could provide an additional protected market five times the size of CARICOM. Since its formation in 2005, CAFTA has achieved a high degree of success.

I remember well at a trade conference in Costa Rica in the 1980s, prior to CAFTA, there was a unified lament that only two per cent of Central American exports were to markets within the region. Today, more than 12 per cent of CAFTA's exports are to countries within the grouping. In addition, it has doubled its exports to the United States.

It seems a no-brainer that Jamaica should pursue membership of this group on a basis that takes into account the peculiar circumstances of our economy and existing international treaties. This objective should be pursued with urgency and passion and is certainly a more important goal at this time for our economic and social future than making the CCJ our final court.

The benefit to our people will be far greater if the market for their economic output could be expanded to provide a more secure economic future than ending their access to what is arguably the world's most respected final court.

- Claude Clarke is a businessman and former minister of industry. Email feedback to columns@

gleanerjm.com.