Wed | Feb 21, 2018

Editorial | Offer government employees stocks for pay

Published:Thursday | January 4, 2018 | 12:48 AM

Last November, when the manufacturing and distribution conglomerate Wisynco, offered Jamaicans 20 per cent of the business for J$6.1 billion, the offer was not only immediately snapped-up, but oversubscribed — by three times. That is, J$18.8 billion chased the 784.5 million shares.

Weeks later, the more-than-a-century-old building society, Victoria Mutual, launched an IPO for 20 per cent of its wealth management arm, Victoria Mutual Investments. It aimed to raise J$690 million. It had over J$2 billion in offers.

In part, these results reflect the quality of the job William Mahfood, the chairman, and his siblings, have done over the past decade-and-a-half in giving new life and profitable direction to a wobbly family business, and how well VM has done in recent years in re-imagining the operation and burnishing its once stodgy image. But they also say something more: that there is a lot of money sloshing around in the Jamaican economy seeking good opportunities in which to invest.

The stock market is proving to be one of those places. For instance, last year a dozen companies listed on the Jamaica Stock Exchange (JSE).  They raised over J$15 billion. Most of the listings were on the junior market, where the reporting rules are less onerous and the government gives firms tax breaks for going public.

There are opportunities for the Holness Administration, if it wishes to be creative, in what is happening in the equities markets, including, as we have argued several times in the past, a solution to, or part thereof, its troublesome wage negotiations with public sector employees. It provides an opportunity, too, to begin to seriously address the politically-sensitive matter of public sector reform.

So far, public sector unions have rejected the government’s offer of a six per cent pay hike, spread over two fiscal years, starting in April 2017. Demands range between 30 and 100 per cent.

Even if the Administration wanted to accommodate the workers, it has a problem.  Under the Stand-By credit agreement it negotiated with the International Monetary Fund, the government is committed by 2020 to reducing the public sector wage bill to nine per cent of GDP. It now stands above 10 per cent.

So, meeting the workers’ request could possibly not only put that obligation in jeopardy, but place at risk the fiscal stability Jamaica has achieved over the past five years.  Indeed, after debt-servicing, paying public sector workers — the current wage bill is J$193 billion — is the Government’s largest expense, accounting for 36 per cent of all revenue and 40 per cent of projected tax collection. Wages and debt-servicing combined eat up over 60 per cent of the annual budget.

As we have argued before, the Government, given its real problem, has not demonstrated the capacity for the kind of engagement with stakeholders, and for the mobilisation of the wider society, necessary for building the consensus required for lasting solution of this issue. Neither has it been creative.

In other words, there is need for a frank, open discourse in which everything is on the table, including the matter of public sector reform and what the administration, at the end, expects the public sector to look like. This, inevitably, may mean separation from jobs. People should know and be able to think about, and plan, for their future.

On the Administration’s part, it needs to find ways to meet its current wage bill and, perhaps, redundancy payments. It can’t borrow for this. But it can sell assets, of which it has a substantial portfolio, including some which are of decent quality.

The environment, we believe, is right for the sale of some these assets, if judiciously selected, through IPOs. Indeed, with the Jamaican market doubling in 2015 and rising, on average, around 40 per cent in each of the past two years, employees could be offered stocks in divested entities in lieu of current cash or as part of redundancy payments. It can’t be that difficult to design schemes to make such an arrangement worthwhile for all sides.