Tue | Jun 2, 2020

Imani Duncan-Price | Getting unstuck – Jamaica’s low-growth trap

Published:Sunday | October 13, 2019 | 5:30 AM

As far as I can remember, when I came back to Jamaica 15 years ago, in 2004, it had been said that small and medium-size enterprises (SMEs) are the drivers of the well-needed economic growth. So it became the language and focus of policy. Somewhere along the line, that acronym expanded to include the M - micro-enterprises.

Notwithstanding various MSME programmes with larger and larger pools of funds mobilised by successive governments, coupled with business development support programmes, impact has been limited. Growth continues to elude Jamaica.

Then comes the Jamaica Survey of Establishments 2018 conducted by the Statistical Institute of Jamaica (STATIN) that revealed some key insights. At the launch of the report in September, Industry and Commerce Minister Audley Shaw asked, “How can it be that over 90 per cent of the micro and small businesses are not borrowing money?”

It’s these types of statements that frustrate everyday Jamaicans and make them think politicians and policymakers are just not living with eyes open, not listening. Just drive around Kingston or rural Jamaica and you can clearly see that most of the enterprising locals pursuing micro and small business to enable them to live a decent life and take care of their families clearly cannot qualify for a loan at a formal bank. They are in the informal economy, which incidentally drives 40 per cent of Jamaica’s GDP.

To further substantiate this, an analysis of the period 2003-12 shows that only 16.6 per cent of Development Bank of Jamaica loans went to the informal sector. For formal banks, loans to the informal sector accounted for only four per cent of their disbursement. So much for policy focus driving action.

In addition, the World Economic Forum’s Global Competitiveness Report 2019 was released this week. While Jamaica’s ranking fell by one place to 80th out of 141 countries compared to 2018, that is not significant insight. Looking at the last 10 years, Jamaica’s actual average score has essentially remained constant, stuck at 54-58 out of 100. Within this, the ranking for access to capital has been stuck as well.

It’s Not Interest Rates

Having established the Central Kingston Small Business Development Programme in July 2019, in partnership with a microfinance company called LoanSmart, I have learned a lot. While I personally provided the funding, it was important that I partner with a company to assess and administer the loan part of the programme – so as to reduce the moral hazard issue where recipients see the politician as the source of a giveaway and not pay back the funds.

The loans in the programme are unsecured as these enterprising citizens of Central Kingston do not have any collateral. The loans are short-term, three months maximum, with weekly repayment, as a lengthier time becomes a burden on them and leads to an increased likelihood of non-repayment. I negotiated with LoanSmart that the interest rates be maximum half of what a regular microfinance entity charges. This is required to cover the administrative oversight needed to ensure viability of a revolving fund – many phone calls and visits by a very patient and rootsy loan administrative officer. And so far, the Jamaica Business Development Corporation has held one introductory business management training session.

The loans are being repaid on a regular basis and we are set for it to become a successful revolving fund so others in the constituency can access financial support.

Recommendations to Banks and Government

The new initiative led by the Private Sector Organisation of Jamaica to dramatically improve access to finance for SMEs is most welcome. However, it is focused on a certain segment of the economy – not the micro-entrepreneurs who comprise the majority of the drivers of economic activity in Jamaica.

I recommend that the banks consider partnering with established microfinance companies and provide capital to those companies that qualify so they can enable effective credit transmission to the micro-entrepreneurs in the economy. A lot more capital is required for a real economic boost.

As the Bank of Jamaica seeks to regulate the microfinance sector, be careful not to cut off the air supply with over-regulation. If these law-abiding micro-entrepreneurs can’t access working capital to help smooth out their business cycles, they will turn to other means to make money and feed their families.

In addition, as the global economy faces a downturn and as the Government prepares for the 2020-21 Budget, I recommend they pursue fiscal policy that prioritises stimulating productivity-enhancing investments in human capital. As Dr Peter Phillips stated recently, our emphasis needs to be on education centred on innovation.

“While we deal with the fundamentals of maths and English, we have to make a special effort to drive science and technology and place new subjects like robotics, animation, coding, and app development at the centre of education,” he said. “We must market Jamaica as a place with talent and skills to attract high-quality-paying jobs. In order to attract industries that pay high wages, we have to have an educated population.”

Let’s get unstuck!

Imani Duncan-Price is a PNP spokesperson on industry, competitiveness and global logistics; chief of staff for the leader of the Opposition; a World Economic Forum Young Global Leader; Eisenhower Fellow and former senator. Email feedback to columns@gleanerjm.com and fullticipation@gmail.com.