Fri | Nov 27, 2020

Editorial | Rising optimism for manufacturing

Published:Sunday | June 2, 2019 | 12:00 AM

The formal commissioning last week by the Musson Group of a J$7-billion upgrade of the milk products manufacturing plant it purchased from Nestlé three years ago was a big deal. It was another vote of confidence by PB Scott’s outfit in Jamaica’s economy.

What added to the weight of the occasion, and the significance of the investment, was the disclosure by Richard Pandohie, chief executive officer of Seprod Group, the Musson subsidiary that operates the facility, of deals with Nestlé to manufacture two of its products for distribution in the Caribbean. Further, according to Mr Pandohie, there are other agreements in the pipeline to manufacture on behalf of companies in Latin America.

These developments will drive optimism of new life being breathed into Jamaica’s manufacturing sector and of a signal that the economic reform programmes of the past seven years are working, even if slowly.

Nestlé, the Swiss food company, has operated in Jamaica for nearly 80 years. So when its Jamaican subsidiary decided to sell its Bybrook, St Catherine plant, where it started out producing sweetened condensed milk, and sell some of its brands to Musson, that was perceived merely as a continuation of the dribbling of manufacturing jobs from Jamaica. In 2014, Nestlé had ended the manufacture of its chocolate-flavoured drink, Milo, in the island, deciding to import the product from Malaysia and elsewhere in Asia.

Essentially, it had become too expensive to manufacture in Jamaica and Nestlé, albeit later than others, was, like other multinationals, consolidating in jurisdictions where inflation was low, interest costs affordable and energy rates competitive. The steady trek had developed into a near stampede between mid-1990s and early 2000s when companies such as Goodyear, Gillette and Colgate-Palmolive were part of the exodus. Domestic manufacturers, with nowhere to go, and unable to compete with imports, shuttered their operations. Jamaica’s Caribbean Community partner, Trinidad and Tobago, with which Jamaica has a large trade deficit, was a big beneficiary of this collapse.

Things, though, have begun to look up, especially since 2013 when Jamaica, at the precipice of a fiscal cliff and spurned by private markets, entered a borrowing relationship with the International Monetary Fund (IMF) that obligated the island to a tough fiscal regime, which committed the Government to achieving a primary balance of 7.5 per cent (now down to 6.5 per cent) of gross domestic product (GDP).

GETTING THERE

Since that time, across two administrations, the country’s debt has fallen from nearly 150 per cent to 96 per cent of GDP. The Government, no longer gourmandising on debt, and leaving room for the private sector to borrow, has balanced its budget. Inflation is low and firms can borrow at single digit interest rates. The country’s foreign reserves, at over US$3 billion, are on target.

With the light and power company having upgraded its plants to use cheaper fuels, the price of energy has fallen by nearly a third and is expected to decline further. The upshot is that the economy is becoming more efficient, although growth, at around two per cent, remains relatively low.

It seems that enough has happened to make Musson/Seprod, which has opened a plant to process wheat flour, confident enough to put big money into manufacturing, as well as convince Nestlé that it would be worth its while to manufacture its Full Cream Condensed Milk and Nestlé Green Butterfly Milk in Jamaica. The price of delivering those products would obviously have been critical to Nestlé’s decision.

This development is also to be seen against the backdrop of the move by Red Stripe to repatriate the manufacturing of its export beer and the decision by Paramount Trading, in partnership with the brand’s owners, to blend Allegheny lubricants in Jamaica, rather than merely importing the finished product.

This doesn’t mean that Jamaica is out of the woods. Last year the island imported US$6.1 billion, including US$902 million in foods, and ran a trade deficit of $4.24 billion. It exported only US$1.87 billion, or 31 per cent of the value of imports, although this represented a 38 per cent increase on exports in 2017. The bulk of this increase would have been because of the reopening of long mothballed alumina plants.

The opportunities nonetheless are there, especially if it’s appreciated that they reside not only in export, but also in import substitution, if we are competitive. Jamaica, it appears, is getting there.