Sat | Feb 22, 2020

Manufacturing: Jamaica’s fallen titan

Published:Sunday | January 12, 2020 | 1:03 AMDavid Salmon - Contributor
Richard Pandohie
The Industrial Terrace entrance to the Garmex Freezone and Commercial Complex in Kingston which has seen a revival in activity since the slowdown of the manufacturing sector in decades past.
1
2

If one traverses the stretch along Industrial Terrace, attempts at a return to the once bustling manufacturing activity of decades past are evident. Where in recent years there was peeling paint, bleached buildings and rusting steel – all screaming of a bygone era where manufacturing roared as the titan of economic development of the country – there are now signs of renewed activity.

But still remaining is the ghostly presence of a vibrant past.

The development of Jamaica’s manufacturing sector had its origin long before Independence as the island’s early administrations charted a new economic path for the country. Starting in the early 1950s, successive governments sought to encourage industrialisation through the nursing of an endemic manufacturing sector. These efforts were achieved by providing tax incentives and the environment for businesses to flourish. This full-hearted push was coupled with a galvanised effort to expand the extractive industries and the infant tourism sector.

At this point, manufacturing played an incalculable role in the expansion of Jamaica’s pre- and early post-Independence economy.

Speaking with The Sunday Gleaner, Richard Pandohie, president of the Jamaica Manufacturers and Exporters’ Association, noted that, “Manufacturing has always been a significant part of the Jamaican economy. I mean, if you go way back, bauxite was one of our main exports over the years, and then you had things like Petrojam, you had Red Stripe, Pepsi, etc.”

Previously, agriculture had long dominated the island’s productive capacity in the context of the plantation-style economy. It provided significant employment for the majority of the population, employing 40 per cent of the labour force in 1950s.

During this time, 70 per cent of the basic activities in Jamaica were directly related to agriculture. The agricultural sector accounted for 67 per cent of the value of all exports of goods and services. Despite this early influence, as the sector’s impact began to wane, manufacturing became the increasingly profitable venture that contributed to economic growth.

INDUSTRIALISATION BY INVITATION

The strategy undertaken, industrialisation by invitation, sought to attract foreign direct investment by incentivising multinational corporations to produce manufactured goods for both local consumption and export. From 1950 to 1968, the average annual rate of manufacturing growth was over seven per cent, which represented some of the best performance in any local industry at the time. By 1962, manufacturing, instead of agriculture, began to be the most significant contributor to the economy, accounting for 15.4 per cent of overall gross domestic product versus 13.4 per cent for agriculture. This share rose to 15.7 per cent in 1970 and to 18.2 per cent by 1977.

Throughout its lifespan, growth rates in the sector have varied considerably, averaging about 7.6 per cent annually during 1950-68, about 5.2 per cent during 1969-73, and declining at an annual rate of 3.8 per cent during 1974-78. By 1978, the sector employed about 79,000 people or approximately 10 per cent of the total labour force. It also provided about US$72 million or an estimated 10 per cent of total exports for that year.

However, beginning in 1978, various manufacturers began to adopt an import distribution model to their business.

Said Pandohie: “So, over the years, we have had a relatively strong base in manufacturing and then when the economy began making a transition. A lot of the manufacturers found themselves in a position where they could not sustain their business, so the business model changed to in many cases an import and distribution model.”Additionally, during this time many manufacturers began to consolidate their factories in Central and South America, which foreshadowed the decline of the local manufacturing sector.

The downfall of manufacturing as Jamaica’s economic titan coincided with the ominous storm clouds that enveloped the economy in the late 1970s towards the 1990s. Unfortunately, the social revolution being pursued by the Government at the time did not translate to industrial revolution.

Said economist Mark Ricketts: “The major reason for the manufacturing sector’s decline was the ’70s and the policies pursued. I mean, they literally savaged manufacturing, the numbers fell precipitously in terms of employment and output. The sector itself was literally destroyed.”

NEVER THE SAME

While manufacturing attempted to rebound somewhat from the nadir of its lifespan during the 1980s, industrial output was never the same and the 1960s was an echo of the past.

Moreover, the high interest rates during this time gutted the industry.

Omar Azan, founder and CEO of Boss Furniture Company Limited, outlined his experiences with the high interest rate regime during the 1990s.

“I remember when I first started, interest rates were 68 per cent, and if you went over your overdraft limit, you had to pay 120 per cent.”

Thus, the once formidable sector limped on into the 21st century, not with bright prospects but diminished authority.

Nevertheless, decline is not the end of this story. The story of manufacturing is one of persistence and resilience. Despite coming from a low base, the sector has begun to see growth from the ashes. The Planning Institute of Jamaica recorded that manufacturing was one of the sectors that recorded growth last year at 4.9 per cent in the third quarter.

Industry leaders like Pandohie are also cautiously optimistic about the sector’s future.

“The direction is positive, albeit from a low base, and we need to do a lot more. But right now, we believe we are in a position where we can have that point of inflection where we can move to the next level of manufacturing,” he said.

This shows that not all memories die and even titans can be resurrected from tragedy.