Densil Williams | The elusive quest for growth
While the International Monetary Fund (IMF) celebrates Jamaica as the poster child for economic reform, the local planning agency, the Planning Institute of Jamaica (PIOJ), is revealing a more sober story. The PIOJ revealed that Jamaica’s economic growth for the 2019-2020 fiscal year will be less than the 1.5 per cent projected in the budget of March 2019. The agency reported that for the remainder of the fiscal year, growth will be slowed to 0.7 per cent.
Those who follow these issues closely will know that once there is a down-turn in a few key sectors (bauxite and mining, tourism, agriculture), growth is either anaemic or non-existent. For the 17 times the economy grew more than two per cent over the past 57 years, these sectors have been the major driver of that growth. The most robust contributors to growth have been bauxite and mining.
So with major uncertainty over trade between the two largest economies, China and the USA, global producers are very cautious and do not want to make long-term investments. As such, this uncertainty leads to fear of a recession. With this fear, major industries cut back on demand for raw materials, which inevitably hits the mining sector. It is not surprising, therefore, that prices in that sector have been trending downwards, making it difficult for major producers to continue operation at the normal levels.
The manifestation of this is the closing down of JISCO’s plant in St Elizabeth. With this closure, Jamaica’s output in the sector was reduced, dragging down the output for the entire economy as well. As expected, the gross domestic product (GDP) numbers will go south. The ‘5 in 4’ growth target, therefore, is only an aspiration, not a reality that can be attained anytime soon. The fundamental question for Jamaica is this: Despite all good intentions, why is growth eluding Jamaica?
Jamaica’s economy has some deep-seated problems that must be addressed before it can aspire to high and sustained levels of growth. It has a workforce that is generally unproductive. The majority of the labour force does not have formal training beyond secondary school. They are unable to engage with the skills and competencies required to operate in the knowledge economy led by smart automation.
This leaves Jamaican firms and industry sectors, generally, internationally uncompetitive. In addition, given the limited market size of the economy, the major sectors that drive growth are structurally uncompetitive with their current offerings.
Similarly, from a macro perspective, there is too little savings and as such, there is not sufficient capital for investment purposes. Further, the majority of the population does not have investable assets that can be used to collaterise loans for investment, whether in enterprise or in building human capital for improved competitiveness.
These deficiencies make it extremely difficult for any significant growth to occur beyond the anaemic 0.7 per cent per annum. What is needed for sustainable, high levels of economic growth is a serious, concerted, and extended effort to deal with the deep-seated deficiencies.
The current macro-fiscal and monetary policy mix are necessary but not sufficient to drive sustained long-term growth in Jamaica. The low-wage, low – quality jobs model we now practice will deliver growth in the region 0.5-1 per cent. This model will not lead to ‘5 in 4’. With our uncompetitive human resources, high sustained growth will be unattainable in the near term.
Governor Richard Byles is spot on to have observed that for any serious growth to take place, better-quality jobs are needed in the Jamaican economy. Celebrating unemployment at a historic low hides the true story of the low-wage, low-quality jobs, which explains why, despite the positive numbers, meaningful growth is still elusive.
Yes, it is understood that in the short term, people still have to earn a living while they plan for the long term. As such, low-wage jobs will have to be accommodated. However, focusing on some high-priority areas in the low wage, low-skills job environment can still deliver reasonable levels of growth in the short-term.
One such priority is agriculture. Dr Donovan Stanberry, in his Sunday Gleaner article of October 20, 2019, dealt with this comprehensively. Interestingly, instead of using the best lands for agriculture and attracting investments like the Azan-type model at Bernard Lodge, the Government is pushing to build houses and all sorts of non-value-added activities.
Reprioritising the Bernard Lodge lands for high value-added agriculture and seeking strong investors should be an immediate policy priority if any meaningful growth is to be derived in the short term.
Further, there needs to be an urgent priority on building competitive human capital. Building roads and bridges is necessary but will not be sustainable if the human resources are not able to produce to sustain them. Radical reforms are needed in education urgently.
THE DECADE OF EDUCATION
The two most important variables that will drive significant growth in Jamaica over the long term are human capital and location. Jamaica’s location provides one of the most strategic assets for it to join the global logistics network and plug firms and industries more efficiently into global commerce. For, given its size, Jamaica cannot compete globally by producing and selling anything to the world cheaper than larger economies that have scale and scope. So it has to be marketed as the gateway to the rest of the world and attract domestic and foreign investments to do business and be connected into the global economy.
However, for the location to be attractive, Jamaica must have internationally competitive human capital resources. Put differently, its people, every single one, must be trained to the highest levels of whatever profession to which they aspire.
For this to happen, we will need a decade-long investment in educational reforms to ensure that we build our systems and processes to give our people all the necessary skills and competencies to operate in a 21st century global economy where the 4th Industrial Revolution, undergirded by smart automation, is truly in swing and will be with us for at least another two decades.
In this ‘Decade of Education’ project, no child should be left behind. Affordability should not hinder the development of the human capital. We need every child to be educated from pre-school to tertiary. We cannot afford to do otherwise or else real sustained growth will continue to elude us.
The next election in Jamaica cannot be about hysteria over macro-economic policies and macro-variables pointing in the right direction. It has to be about delinking the deficiencies that have held back high levels of growth in the Jamaican economy for decades. Redistributive policies of giving more money to poor people will not lead to sustained, long-term growth for Jamaica.
We are a small, open economy. Investments in human capital and reprioritising short-term policies will get the process started. The ‘Decade of Education’ project must undergird all that we do now in order to prepare for the next phase of the industrial revolution, which will be even smarter than this phase. Anything else will lead to the same old stories, and growth will continue to elude us.