Stephen VasciannieACCORDING TO the World Investment Report 1999: Foreign Direct Investment and the Challenge of Development, published by the United Nations Conference on Trade and Development (UNCTAD), Jamaica's profile as a host country for foreign investment showed steady improvement in the five years between 1994 and 1998.
Specifically, UNCTAD's assessment of foreign direct investment inflows for Jamaica, in millions of US dollars, is as follows:
Year Investment
Inflows
1994 130
1995 147
1996 184
1997 203
1998 350
Among other things, this suggests that in the five-year period from 1994, foreign direct investment flows to Jamaica have increased by approximately 269 per cent, and that investment flows for 1998 were approximately 172 per cent greater than they were for 1997.
Taken at face value, these figures are clearly not devastating for Jamaica: they represent a positive inflow, and suggest that, all things considered, Jamaica is not perceived as an international basket case by some sections of the investment community. However, although these figures provide some basis for economic optimism, they raise the question as to why, notwithstanding an increase of 269 per cent in investment flows between 1994 and 1998, Jamaica still experienced low growth, and even decline, in the same period. Assuming that the UNCTAD figures are correct, this situation suggests that there are some serious structural problems in the Jamaican economy, problems that prevent the conversion of positive inflows into economic opportunity, employment and growth for the populace in general.
Another important issue that arises from the UNCTAD information on investment inflows concerns how we may maintain, or increase such inflows in the coming years. The three main political parties now expound on the virtues of foreign investment as an engine for economic take-off, and, save for the period of the 1970s when (to put it mildly) some amount of ideological uncertainty prevailed, Jamaican policy-makers have expressed pro-investment sentiments on a reasonably consistent basis.
But, clearly, pronouncements and sentiments can only take us so far, for the foreign investor is always keen to identify practical measures that facilitate profit maximisation. So, the question is: what are some of the main points that investment scouts will examine, as part of their due diligence, before committing funds to a foreign economy?
At the practical level, the investor will, of course, wish to be satisfied that the country has in place a level of infrastructure that will not retard the progress of the investment project. So, for instance, if the proposed investment involves production for export, the investor will consider access to ports (including the road network), port facilities (including the question of delays for drug searches), and the prevailing bureaucracy with respect to export trade.
As part of the assessment of infrastructure as well, the sensitive investor will consider the extent to which prospective workers are themselves affected by infrastructural conditions in the potential host country.
So, for instance, if the bus service in the potential host country is so inadequate that workers are apt to arrive late, or with frazzled nerves, this will be a factor to be given due consideration.
Similarly, if the labour legislation in the country concerned shows insufficient regard for the concerns of either capital or labour, this too will be noted -- even where the country advertises itself as having incentive legislation with respect to matters such as capital imports and tax holidays. Generally speaking, how does Jamaica fare with respect to these infrastructural criteria? As to the road network, Dr. Peter Phillips has recently argued that, for the first time in the history of independent Jamaica, we now have in place a system of road maintenance which operates on a regular, year-to-year basis.
Road maintenance
This system, together with improvements concerning Hope Road, and the much vaunted "Highway 2000" Project, could prompt the view that road conditions are being returned to standards that are compatible with foreign investor interests, as well as the interests of Jamaicans.
But that reflects only a small part of the overall picture. Take the new road maintenance programme, for instance: the new system may lead to improved maintenance in the future, but, at the same time, some roads have been allowed to deteriorate to the point where people have had to use road blocks and protests to bring about improvement.
And, again, with respect to the Highway 2000 Project, one wonders whether this is really appropriate at this time: would it not be better to use the substantial investment on this project to repair infrastructure generally, and to build roads to reduce congestion in urban centres?
Highway 2000 seems set to bring no substantial economic advantages in the short-run, and in an environment of economic stagnation, it seems to be a misallocation of resources.
As to the effects of poor infrastructure on workers, the new bus system in parts of the Kingston Metropolitan Area is clearly an improvement -- though the shrewd investor will note the arguments about compensation between the Government and the franchise holders under the pre-existing scheme.
This impasse concerning compensation, Jamaica's chequered history in public transportation and accusations of political bias in employment for the new system, all prompt questions about the long term viability of the new system.
Another important set of considerations for potential foreign investors pertains to the overall state of the macroeconomy in the host country.
As a matter of first principles, the foreign investor will seek a stable environment, and will show a marked preference for economies with strong local demand, and confidence among local investors.
