Mark Ricketts | Tame the beast ...Crime, tax compliance, electricity costs, choking Jamaica's expansion
A country's economic health can be gauged by looking at its economic growth and development. Economic growth is an increase in the market value of the goods and services, gross domestic product (GDP), produced by an economy from one time period to another. Expressed differently, it is the annual percentage change in real national output.
Unfortunately, Jamaica's economic growth has been unimpressive and our country is one of the slowest growing economies in the Caribbean, averaging 1.0 per cent per year over the last 30 years. The World Bank forecast our economy should show a modest improvement in growth, inching up to 1.7 per cent in 2016, then two per cent in 2017.
There are several things which drive growth.
Growth usually occurs when there is a substantial increase in physical assets (machinery, tractors, forklifts), resulting in a rise in capital use by workers.
Finding and extracting natural resources, as Jamaica did in the 1940s with bauxite, is usually a boon to higher levels of economic performance. Also of importance in driving growth is the increase in the employed labour force as well as sharp improvements in the quality of the labour market.
Innovation and technology, in so far as they drive productivity, can play a significant role in annual increases in GDP.
Rising demand for goods and services spurs economic growth.
Undertaking structural reforms, by improving the economy's infrastructure, social overhead capital and skill levels, can be a lever for growth and development.
For the last few years, Jamaica has been placing particular emphasis on reducing its gargantuan debt and on other monetary and fiscal policies to stabilise the economy.
The thinking is that this should provide sufficient inducement for investors, both local and foreign, to undertake investments in our country that will create jobs, improve technology, as well as increase our physical capital stock, all necessary drivers of growth.
There are some positive signs at the moment, in that our debt to GDP, while still high, has declined, and consumer and
business confidence have risen and these factors, among others, have accounted for the World Bank being slightly more optimistic in its growth forecasts.
In looking at a country's growth, there are different ways to evaluate or define it.
For example, individuals of a country might be happier if growth is more balanced between urban and rural areas, or between domestic and export-led growth. They might be happier if growth is more balanced between consumption and investment or between the service-producing sector as against the goods-producing economy.
Economists, in looking at growth, sometimes like to examine whether growth is inclusive, that is, benefits are widely and more equitably distributed. A point of some satisfaction for economists and the wider population is when growth is not just a one- or two-year wonder, but is enduring and sustainable. In essence, the needs of the current generation can be satisfied without engendering the growth prospects of future generations.
The annex of the International Monetary Fund's (IMF) June 2016 quarterly report on our country highlighted growth drivers and constraints and pointed out that "Jamaica's potential growth has historically been one of the lowest in the region and total investment in Jamaica is among the lowest of the region".
The IMF's listing of the top five retardants to growth in Jamaica when compared to other countries in the world:
ii) The cost and availability of credit
iii) Tax compliance costs
iv) Electricity costs
v) Competition from the informal sector.
This tells us that if we are to get above-average annual growth rates, we have to get much higher levels of investment. The Government is hoping that with its Economic Growth Council in place and numerous quantitative improvements in the fiscal and monetary areas, the stage is now set for higher levels of capital formation, and hence growth. All we can hope for, as a nation, is that the Government is right.
Mark Ricketts is an economist, author and lecturer.