Cedric Wilson

The campaign to save the Cockpit Country from bauxite mining is gathering momentum and the battle lines are drawn. Yet, while the matter of preserving the Cockpit Country is vital, Professor Al Francis of the University of the West Indies, the foremost economic expert on the bauxite-alumina industry in Jamaica, has been asking another question for some two years now: "Is Jamaica getting the most out of bauxite?"

The evolution of the bauxite industry in Jamaica is nothing short of interesting. Over the period 1949 to the mid-1960s, some 225,000 acres of red land were acquired mostly from private owners by one Canadian and five American companies in central Jamaica for bauxite mining. The first commercial shipment of bauxite was made in 1952 and in six brief years, Jamaica emerged as the largest producer of bauxite in the world, a position it held until 1971 when it was overtaken by Australia for the number one spot. Nevertheless, until 1974, the benefit the economy derived from bauxite mining was scandalously low.

In the first place, the industry is capital intensive. As such, production is largely done by heavy machinery. Hence, the industry's contribution to overall employment levels is relatively small.

Second, the tax received from the export of the ore was outrageously low. For every ton of bauxite exported in 1973, the country got a mere US$1.61. While no recent study has been done to quantify the economic losses caused by dust pollution and the scar the extraction process leaves on the land, it is possible that up until 1974, the net economic benefit of bauxite mining might have been negative.

Thus entered Michael Manley in 1974 - well acquainted with the blistering polemics of dependency theory and armed with a mandate he received two years earlier to give "power to the people".

According to dependency theory, underdevelopment in less-developed economies is primarily the consequence of the unbalanced economic relationship with industrialised economies. And development is only possible if there is a radical reorientation in the economic relation between them. Indeed, it was this notion that fuelled Manley's advocacy for a "new economic order" during the turbulent 1970s. At the end of long and, at times, acrimonious negotiation with the North American-based bauxite-alumina companies, a levy was introduced allowing Jamaica to reap eight times more from each ton of the ore exported. In 1975, the levy was US$10.64 per ton.

major development

Another major development in the industry occurred during the late 1980s when the aluminium prices on the world market went into a slump. Alcoa, faced with losses, decided to pull out of Jamaica. Prime Minister Edward Seaga who clearly understood that prices on the global aluminium market move up and down over time, intervened and strategically acquired 50 per cent of the plant. The result was a partnership - Jamalco - in which the Government and Alcoa had equal shares in the entity. This was important in the sense that tax levy revenues from the sector were augmented with flow from the return on that investment.

The next important development occurred in 2001. The Patterson administration entered into negotiations with players in the sector to secure the expansion of capacity. One of the major negotiating points was the shifting of the emphasis from the levy on production to income tax. The logic behind this is plausible since taxing profit rather than the input into the production process tends to provide greater incentive for profitability.

The outcome of these negotiations was a US$690 million investment in the sector, doubling the capacity of the Jamalco plant in 2004. However, it is evident that the best deal was not secured since the combined levy-income tax rate declined from US$6.61 in 2000 to US$3.26 per ton in 2004. What is more disturbing is that over the period, the price of aluminium on the world market actually increased by some 11 per cent.

Professor Al Francis points out that this has caused the overall foreign exchange inflows to remain flat even though the industry is seeing record levels of production. Two years ago, in a letter to the Jamaica Observer, he called for greater transparency in the industry. But his was a voice crying in the wilderness and when the echoes subsided, there was nothing but silence.

Environmental concerns have once again brought the bauxite-alumina industry into sharp focus. The Government has responded by expressing an intent to do a study to find the beginning and the end of the Cockpit Country. But in light of the questions the economic statistics raise, a better starting point would be an honest assessment of whether the country is in fact maximising its revenue inflows from the sector.

Bauxite is too precious a resource and the needs of our people are much too great for it to be squandered. The time for reckoning is now. To refashion a famous quote to suit our circumstances, it is only appropriate to say: "My fellow Jamaicans, ask not what you can do for bauxite, but what bauxite can do for you."

Cedric Wilson is an economics consultant who specialises in market regulations. Send your comments to: conoswil@hotmail.com.