Fri | Jul 20, 2018

Updated: Briefing | 'The economy needs to grow'

Published:Wednesday | November 16, 2016 | 12:00 AMDr Andre Haughton


How has the economy been growing?


The Jamaican economy teased us with growth of 1.2 per cent for the April to June quarter as a result of improvements in agriculture, hotel and restaurants, and electricity and water.

The goods-producing industry grew by 2.2 per cent, while the service industry grew by 0.8 per cent. However, the innate handicaps in the economy needed to maintain gross domestic product on an upward, steady growth trajectory have not been addressed properly as evident by a fall in growth over the summer every year.


What are some of these challenges?


Drought conditions negatively impacted agricultural output for the July to September quarters last year and in 2014. I went to the market two weeks ago and there were no local onions or carrot. We have not heard or seen any significant attempts being made to provide sustainable water sources for our farmers across the island; just talking and advertisement, nothing serious and concrete. Also, funding for agricultural and manufacturing projects continue to be a problem. Although interest rates have been trending downwards, the research has shown that commercial banks are restraining the fluency of the monetary transmission mechanism by maintaining a high markup on the lending rate and increased bureaucracy in the loan approval process.


What about imports and exports?


The research has indicated that as the real exchange rate increases (depreciates), Jamaica imports more food, durable goods, food raw materials and more of other materials. Even when imports become more expensive, the reliance on such for domestic production process, in this case food, is import-based. Data from the Statistical Institute of Jamaica (STATIN) have shown that international merchandise trade in export has fallen by more than US$101 million as of May 2016. According to STATIN, traditional exports (banana and sugar, etc) represented 60.8 per cent of total domestic exports in the January to May 2016 review period, earning US$267.4 million; roughly US$85 million less than the US$351.9 million recorded for the similar period in 2015. STATIN has valued non-traditional domestic exports at US$172.6 million, 14.1 per cent or US$28.4 million less than the US$200.9 million earned in the comparable 2015 review period.


What else has the research shown?


An analysis of the country's main exports showed that there exists little relationship between each item of export and the changes in the real effective exchange rate. The exportation of bauxite and its secondary product alumina fluctuated from year to year, independent of the real exchange rate (RER), and generates the most foreign currency inflow of all Jamaica's exports. Foreign currency revenues, from the island's export agricultural products, including banana, sugar and coffee, maintain the same value irrespective of depreciation in the RER. In this case, even if the country is producing more per annum, having to sell each unit at a lower price each year means that the country earns less from its output. Coffee production for export has improved after the global financial crisis, while the production of banana has fallen.


What is the solution?


The Jamaican economy is fragile and policies to depreciate the domestic currency to improve current account in the short run may lead to further worsening of the current account in the long run, if people do not change their consumption habits. Other than bauxite and its by-products, Jamaica's main exports have been farming products and tourism, which have maintained the same flow of foreign currency to the island over the last 25 years. The results of my recent research reveal that strategies to depreciate the currency must be supported by strategies to expand exports. This export strategy depends heavily on the country's ability to transform goods from primary production to secondary and tertiary production processes, where they can fetch higher prices abroad and more revenue for the island.


What other challenges do we face?


The results have shown that improving corruption control and political stability can boost efficiency across Jamaica and boost the sustainability of the current account by making it easier for citizens to produce and export goods. The Government needs to fully examine the practicality, roles and responsibilities of each ministry, department and agency each year to ensure that they are completing their mandate and are becoming more efficient in their processes. If a person holds a position, they must be qualified to fulfil the tasks required of that position and also be able to improve the output and efficiency of that position. The habit of shifting people around like 'pass round donkey' to fill roles they are not qualified for is a joke and is contributing to the high-level inefficiency in the country.

- Dr Andre Haughton is a lecturer in the Department of Economics on the Mona campus of the University of the West Indies. Follow him on Twitter @DrAndreHaughton; or email feedback to

(Editor's note: In a previous version of this article it was incorrectly stated that the Jamaican economy grew by zero per cent for the July to September quarter of the 2016-2017 fiscal year. The zero per cent growth referenced in fact took place in 2015.)