By Dennise Williams, Staff Reporter
A section of the Highway 2000 - File
LOOKING AT the first four months of 2003 in the business community, as in the rest of Jamaica, things are never dull. January to April was highlighted by:
The Jamaica Stock Exchange's (JSE)
positive vibrations
Hot dynamic companies that shook up the financial services industry such as:
Jamaica Money Market Brokers (JMMB)
National Commercial Bank (NCB)
Capital & Credit Merchant Bank
The debt Devaluation
Tourism Highway 2000
Inflation Taxes
So let us look back at the months that have passed.
JANUARY
In January, NCB boasted that their net profit was over $1.9 billion for the year to September 2002, a more than 400 per cent increase over the previous year. They attributed their success to reduced expenses, increased earnings from their loan portfolio, increases in customer deposits and increases in their OMNI insurance portfolio. NCB, owned by Jamaican-Canadian businessman Michael Lee Chin, described itself as, 'one of the best capitalised banks in Jamaica.' JMMB created waves in the equities market by going public in December of 2002. By the first week of January 2003, JMMB raised $1.018 billion from 12,400 investors who logged on to their public share offer. In fact, the offer of 234,134,784 shares was oversubscribed by 37 per cent and the company rushed to satisfy investor demand by placing an additional 24,100,000 shares on the market. And still looking at the JSE, Wayne Iton, general manager of the JSE, states that Jamaica's stock market index grew more last year than indices for the major markets in the world. Said Iton, 'We were up by 34.17 per cent last year.' Across the world, major markets were down 20 per cent. By the end of 2002 and the beginning of 2003, the JSE's market capitalisation was $292 billion. Stated Iton, 'We can be justly proud of our performance I hope 2003 will be another bumper year.'
BOJ MOVE
By the second week of January, the Bank of Jamaica (BoJ) had to put the breaks on the Jamaican dollar. Banks and other institutions licensed under the Financial Institutions Act were required to place five per cent of their Jamaican dollar deposits with the BoJ as at January 10. At this point in time, the average value of the dollar was J$51.94 to US$1.00. According to BoJ, the measure was instituted to handle the increased speculation and heightened instability in the foreign exchange market due to the fact that there was high levels of J$ liquidity in the market. By the end of the week, the measure allowed the J$ to appreciate by five per cent. In regards to tourism, at the beginning of the year, a survey of Jamaican hoteliers revealed that they were optimistic about the winter tourist season. According to the Tourism Barometer Survey done by Pricewater-houseCoopers, 51 per cent of hoteliers believe that occupancies will increase, but 82 per cent were of the opinion that room rates will fall. The survey also found that 43 per cent of the hoteliers polled were optimistic about the future of the industry. The survey polled over 125 hotel owners, CEOs, general managers, and financial controllers. With the national debt being the prevailing issue, January saw United States credit rating agency, Bear Sterns, putting in their two cents. As stated by Bear Sterns senior managing director Dr. Carl Ross, "Jamaica still faces a precarious medium-term debt dynamic that will require a continuation of very severe fiscal restraint. I am still of the view that upside in Jamaican bonds will be elusive until the fiscal performance turns around, which is not expected to be evident until at least mid-year, and only then if the government succeeds in designing and implementing a very austere fiscal 2003-04 budget." Mr. Ross did state that he felt 'more comfortable about the near term prospects' of Jamaica because of the following reasons he outlined:
Despite the fiscal deterioration in 2002, the government remains committed to balancing the budget by fiscal 2005-06. The effort to do this will be Herculean, which means maintenance of primary surpluses in the range of 10 per cent to 12 per cent of Gross Domestic Product (GDP), plus some reductions in interest rates.
The election is over.
The willingness to pay is still apparently very strong.
Domestic conditions seem to be supportive of the continuation of a strong local demand for US-dollar assets. The Government debt is rising, but the Government and the BoJ are doing all they can to keep rates from rising.
HIGHWAY 2000
During the third week of January, Capital & Credit Merchant Bank announced that they would be offering 198 million shares or about 33 per cent of the company at the end of March. The amount they expected to raise was undisclosed at the time, however, this second new listing on the JSE did serve to create an addition buzz about the equities market overall. Highway 2000 continued on track after being set back by heavy rains in October 2002. In January, the first leg dualisation of the Old Harbour Bypass stretch from Bushy Park to Sandy Bay was on track, being under construction for the past nine months. Interestingly, at this time the exact amount of toll to be collected had not been released to the public, but the company did go on record saying, "the toll will be payable in Jamaican dollars, but the rates are set in US currency and indexed to US inflation."
In terms of the outlook for the year to come, Gleaner columnist Raymond Forrest stated, "When the Jamaican dollar has depreciation or devalued, there have been steep increases in the inflation rate commensurate with the fall in the Jamaican dollar. A steep fall means a high inflation rate and a small fall being a low inflation rate. This is because Jamaica has a high marginal propensity to import, which in everyday language means that Jamaica depends heavily on imported goods, such as oil, food supplies and other key items."
Was he psychic or what? On a more upbeat note, the best leaders for the previous year were hailed. On the hot list of movers and shakers were:
Paul Hoo of Supreme Ventures
Audrey Marks of Paymaster
Seamus Lynch of Digicel
Gary Barrow of Cable and Wireless
Keith Duncan and Donna Duncan-Scott of
JMMB
Earl Jarrett of Jamaica National
Amrit Sinanan of RBTT Bank
Robert Levy of Jamaica Broilers
Hayden Singh of Courts Jamaica
Don Wehby of Grace, Kennedy Financial
Services Division
Wayne Chen of Superplus
Richard Byles and Donovan Perkins of Pan Jam
Ryland Campbell, Andrew Cocking, and Curtis
Martin of Capital & Credit Merchant Bank
Lester Spaulding of the RJR Group
NCB continued to be hot news when its owner, Michael Lee Chin, purchased the Mutual Towers on Oxford Road for J$650 million. This purchase was in line with Mr. Lee Chin's pledge to reinvest NCB's profits in Jamaica. On Thursday, January 23, Patrick Hylton, of FINSAC was presented with a J$100 million cheque with the remaining balance to be paid off in one year. The interest rate on the outstanding amount was charged at 10 per cent.
One of the early salvos launched was by Charles Johnston. As reported, Mr. Johnston, one of the key players of the takeover bid of the Kingston Wharves from Grace, Kennedy & Co, has charged that Grace was itself engaged in conflicts of interest and has abused its power. Three shareholders the Shipping Association of Jamaica, Property, Maritime and Transport Services, and Transocean Shipping have requested the extraordinary general meeting, primarily to remove eight of the existing directors, including Douglas Orane, the CEO and chairman of Grace, Kennedy, which currently manages the Kingston Wharves and to replace them with eight others, including Mr. Johnston. The last week of January saw a response to such allegations. It was reported that the current directors of the Kingston Wharves have asserted that the attempt to change the composition of the board was a result of the stevedoring companies wishing to control the Kingston Wharves. The last week of the first month of 2003 witnessed 88 employees of Life Of Jamaica losing their jobs as a result of its merger with Island Life Insurance Company.
FEBRUARY
In February, the month opened with good news, bad news and a lot of hope. Beverly Lopez was elected the new president of the Private Sector Organisation of Jamaica (PSOJ). She replaced Oliver F. Clarke, O.J., who did not seek re-election to the post. Mrs. Lopez stated that, "The officers of the PSOJ intend to focus on social, moral, and economic issues impacting on the development of the country for the upcoming term. We will be continuing the close collaboration with the security forces, while focusing on economic growth and trade related issues."
On the financial market front, it was reported that there was very little interest in the new US dollar indexed bond. The bond offered an interest rate of 10.125 per cent and would be due on 2009. However, dealers and brokers were only given two days notice to take up the offer and most felt that the time frame was insufficient. Business leaders went on record stating that the tax net needed to be widened in order to garner more revenue for the Government. Said John Issa of SuperClubs, "for the last 10 years I have been a public advocate of widening the tax net. I think it is immoral for the Government to add new taxes when there are so many people outside the tax net. I once said of the PAYE system that it was the greatest organised injustice in Jamaica."
Keith Collister of First Global Bank said, "... expenditure cuts should be preferred over tax increases (which should be a last resort). I believe that high marginal tax rates already reduce effort and increases evasion by driving people into the informal sector." Moving on from taxes to retail, it was announced that one time furniture giant Homelectrix Limited was to be liquidated by June. The furniture store, formally owned substantially by the Hughes family, was more than J$1 billion in debt when the Government gained control of the store and then sold it to Dennis Joslin. Mr. Joslin's company, the Jamaica Redevelopment Foundation, was looking to sell the company for $150-200 million. From retail to shipping, the Kingston Wharves saga continued. In addition to the usual cast of characters, the Kingston Port Workers Superannuation Fund appointed four new trustees ahead of next Tuesday's extraordinary general meeting of the Kingston Wharves.
KINGSTON WHARVES SAGA CONTINUES
Earlier that week, four of the trustees of the Port Workers Superannum Fund resigned against the background of an objection by the current Kingston Wharves board, of which Grace, Kennedy is a part of, to them voting the shares held by the pension scheme in Kingston Wharves at the upcoming meeting because of conflicts of interest. That conflict of interest, the board contended, arose from some of the trustees' current involvement in litigation with the Kingston Wharves. Grace, Kennedy subsequently applied for an injunction against the Fund and the Shipping Association to prevent them from voting in the upcoming extraordinary general meeting. In the money market, the earth moved when the Government offered a 30 per cent, 150-day instrument. It was the highest interest rate offered since early 1998. Investors scrambled to put their money on this instrument by breaking existing money market instruments, regardless of the early encashment penalties that financial institutions implemented. When the offer closed one week later, it took J$6 billion from the market. Derrick Latibeaudiere, governor of the Bank of Jamaica, later defended the instrument by saying, "The increasing pace of depreciation of the Jamaican currency could not have been allowed to continue. We must never forget the disastrous repercussions of exchange rate depreciation and a high inflation environment. Jamaica suffered its consequences in the early 1990s and it is not an experience to be repeated."
On the national arena, it was announced by the Planning Institute of Jamaica (PIOJ) that the country experienced 4.1 per cent real growth in the economy during the periods of October to December 2002. For that period the winners were tourism, which grew by 16 per cent; transport and communi-cations, which grew by 11 per cent and bauxite, which contributed 26 per cent to the mining and quarrying sector. The PIOJ boss did acknowledge, "macro-management is complicated by exchange rate adjustments as well as the widening deficit." Still looking at the overall economy, Moody's Investors Service released a statement indicating faith in Jamaica. Said Moody's, "Jamaica's weakening financial position is expected to be reversed in the upcoming budget for the new financial year. Moody's expect that the forthcoming budget for the fiscal year 2003/2004 will contain measures aimed at correcting the sharp fiscal deterioration observed in fiscal year 2002/2003, while placing the fiscal account a path to reach a sustained overall fiscal surplus."
The continuing the Kingston Wharves saga got even livelier when Chief Justice Lensley Wolfe rules in Grace, Kennedy's favour. Chief Justice Wolfe ordered that the shares held by the Shipping Association in Kingston Wharves should not be voted at an extraordinary general meeting of Kingston Wharves that was scheduled to be held on February 25. Because the impending appeal of the ruling, the meeting was pushed back to a later date. Then the Financial Services Commission (FSC) jumped into the fray. The FSC sought to find out if the consortium of pension funds, stevedoring companies and shipping interests acted in concert to obtain control of the board of Kingston Wharves. In the last week of February, William Clarke, the managing director of the Bank of Nova Scotia (BNS), responded to the call for the profits of foreign investors to be reinvested in Jamaica. Essentially, he was of the opinion that the ability to repatriate funds was an important, if not vital, incentive for foreign direct investment.
MARCH
The Ides of March were upon us when the Minister of Finance Dr. Omar Davies, admitted that there was a bit of a miscalculation concerning the level of national debt. Dr. Davies had projected that the debt would have climbed to 569.4 billion between October 2002 and March 2003, but latest figures show that at the end of December 2002, the country was already in debt to the tune of $572.7 billion, with 61 per cent domestic and 39 per cent external. However, it was stated that the shift in the foreign exchange levels was the primary reason for its miscalculation on how much the national debt would have grown. Hmmm. Also blamed on the devaluation of the local currency was price increases levied on cement by Caribbean Cement. The price increase of 14 per cent on bagged cement and seven per cent on bulk was necessary, according to general manager, Anthony Haynes, on "the significant devaluation of the Jamaican dollar over the past year." The last price increase came in February of 2002. In the latter part of March, it was revealed that Carib Cement would invest US$ 6 million in its operations. The focus of this investment would be to improve the environmental impact of its Eastern Kingston plant, as well as assuring the availability of its main production line. Jamaica Broilers also increased their prices in April. The company stated that consumers should prepare to pay more for poultry because of 13.5 per cent devaluation since December. The company contended that they could not contain the rising costs as about 40 per cent of its raw materials are imported. However, not every company under pressure was able to increase their prices. In the third month of the year, Air Jamaica was still reeling from the affects of September 11th and the impending United States war with Iraq. The measures included a reduction in some staff categories, salary givebacks, renegotiating aircraft lease rates and a change in operating schedules. Christopher Zacca, Air Jamaica's CEO stated that the company regretted to lose valuable staff members who made invaluable contributions to the airline. The following week, Air Jamaica's financial troubles continued. While tight-lipped on its exact financial situation, Mr. Zacca revealed that the airline needed US$30-35 million to 'make it through this year.' In light of these losses, Air Jamaica asked the Government to take a bigger stake in the airline in a debt to equity swap. This would see the Government owning 45 per cent of the airline.
However, it wasn't all bad news in the second week in March. Premier Water Company, bottlers of Catherine's Peak Pure Spring Water, invested US$120,000 into a new automated bottling line as part of the efforts to increase efficiency at the company. The new bottling line will produce up to 100 cases of bottled water each day for the nine-year-old company. Good news came from Capital & Credit Merchant Bank when it announced that it achieved over J$1 billion in shareholder equity and Grace, Kennedy announced that its net profit jumped by 40 per cent. And despite the welcomed positive news, the Jamaican dollar just would not behave. Despite a hike in interest rates (on Monday the 17th rates were between 17 to 17.5 per cent and by the end of the week rates leaped to 19 to 20 per cent), the dollar galloped forward to J$54.86 to one by March 19. At the last week of the month, it was reported that Operation PRIDE, the shelter scheme aimed at giving land to poor Jamaicans, would be converting the debt owned by beneficiaries into mortgages. This drive to collect funds was necessary as Water and Housing Minister Donald Buchanan stated that the government would no longer be giving budgetary support to constructing the PRIDE schemes. At that date there was 116 Pride schemes accounting for 44,000 housing solutions that benefits 200,000 persons. The schemes are managed and constructed by the National Housing Development Corporation.
APRIL
By April, the war in Iraq had began to take its toll on the tourism industry. While admitting that, "it has not had an immediate negative impact in terms of cancellations," Paul Pennicook, Director of Tourism did state, "what we are seeing is a significant slowdown in call volume at the tour operators' offices and call centres. There is a slowdown in bookings for future travel." To combat tourist fears of travel, Pennicook stated that the Jamaica Tourist Board is informing tourists that, "we are ready to welcome them." In terms of the future, Pennicook was more upbeat saying, "we are cautiously optimistic that when the mood changes it will be in our favour." Cha ching! The Hardware & Lumber Group reported that net profits were up almost 300 per cent for the year ending December 2002. This was caused by improved sales in its retail division of more than $1.2 billion.
By the second week in April, the impending budget was the talk of the town. How would the increasing debt burden affect the 2003/2004 budget? Would the budget impact on the Minister of Finance's ability to borrow to fund the budget? Would GCT be increased? Many opinions were cast about. One suggestion was that a budget contained at $240 billion would signal to the financial market that the Patterson administration was serious about containing the cost of the public sector. Another suggestion came from tax expert Ethlyn Norton-Coke. She suggested increasing GCT to 25 per cent while eliminating income tax. An additional suggestion was for the Government to publish the budget in a simpler format. Speaking on the budget in the third week of April, Senator Deika Morrison, State Minister for Finance and Planning has indicated that the reduction of the fiscal deficit and the achievement of a balanced budget would not be easy. By the last week in April, the bomb had dropped and Jamaicans stood in shock and awe of the new taxes levied by the Minister of Finance. Said Janet Hinds, a 24-year-old mother, "people cannot afford to buy the bare necessities and now they have imposed taxes on something as critical as medication that many Jamaicans need to stay alive. What is the rationale behind that? It is almost as if they are working against the people who they claim to put first." Michael Ammar, president of the Jamaica Chamber of Commerce stated that the new taxes, "will cause a lot of confusion. I would have preferred if GCT was increased by one or two per cent across the board instead of targeting vital sectors like agriculture and manufacturing." In regards to the four per cent cess on imported goods, Mr. Ammar stated, "it is an irrational form of taxation, which is totally immoral." Henry Rainford of the Jamaica Livestock Association stated, "most farmers are bankrupt or on the verge of bankruptcy. Farmers already have a rough time and taxing animal feed and raw material will wipe out the industry."
Moving from national to corporate news, the Jamaica Lottery Company announced that it would list by July 2003. In statements published April 11, chairman of Jamaica Lottery Company (JLC) Howard Mitchell stated that the company has completed most of the work required for listing. Additionally, the company squashed rumours that a major competitor was in the process of taking controlling interest in the JLC. Right.
Still on company news, First Caribbean International Bank (Jamaica) had recommended that minority shareholders accept an offer to swap their equity stake in the local bank for shares in the regional holding company, FirstCaribbean International Bank. Upbeat company news came from Grace, Kennedy when they announced that they would be investing more than $200 million in a major expansion of their retail operations in Montego Bay, Westmoreland and Mandeville.
