A time for change: How to grow and develop the economy
Julian 'Jingles' Reynolds, Contributor
Now that Jamaica has formally entered into the standby agreement with the International Monetary Fund that is supposedly to benefit Jamaica with a loan of US$1.27 billion, and is expected to trigger an additional US$1.3 billion in loans from the World Bank, Inter-American Development Bank, Caribbean Development Bank and other such multilateral funding agencies, I am again putting forward to the Government of Jamaica my proposal for US$200 million to be used solely for financing developmental projects to stimulate the production levels of Jamaica.
If there is to be meaningful growth and development of the Jamaican economy, then adequate capitalisation must be made to seriously impact the productive sectors, nationally. Should the Government fail to do this, then it will be on some hard-to-explain mission of tightening a noose of dependency and doom around the country's neck.
In several articles over the past 20 years published in this newspaper and elsewhere in and outside of Jamaica, I have consistently pointed out that Jamaica suffers because affordable capital is not available to entrepreneurs struggling to grow and establish small- and medium-size enterprises (SMEs) in Jamaica. Having lived, worked and operated in the small-business sector in the United States all of my adult life, I became very aware of the significance of the small business sector and the emphasis placed on it by the American government and financial sector.
The US Small Business Adminis-tration (SBA), an agency of the Federal Government, offers guarantees for affordable financing to the US small-business sector. The sector generates 50 per cent of the private, non-farm gross domestic product (GDP) of the United States, according to studies released by the Office of Advocacy of the US Small Business Administration. America is Jamaica's biggest trading partner.
Royal Caribbean Bakery and Golden Krust Caribbean Bakery, perhaps the two largest Jamaican-American companies in the United States, got their major financial assistance through the US SBA. With its SBA funding, Golden Krust was able to develop from a small 'mom & pop' operation in the Bronx, New York, to a franchise chain with more than 120 stores in nine states, and boasting gross revenue exceeding US $70 million.
In Jamaica, there is not much hard data on SMEs. One thing is sure, they make up a considerable part of the so-called 'underground economy'. But unlike more advanced economies that offer venture capital financing and single digit interest rate loans to the SMEs to stimulate employment and growth, Jamaica's financial sector has practised a virtual adversarial role in providing financing to small businesses.
Banks in Jamaica pretending to be helpful to micro and small businesses often make compounded loans at three per cent per week, rates that rival loan-shark rates in the United States and would be considered illegal lending in that country. It's only in the last six months or so that a few commercial banks have made relatively small pools of capital available for a limited period of time to the SMEs
Despite several announcements from the banking sector of making available "lower interest rates" financing to SMEs, most of them are never fully utilised, remaining unattractive to potential borrowers for many reasons, mainly excessive bureaucratic hurdles, still too high interest rates, and the inability to meet the requirements mandated by the lending institutions and the government. So unfriendly is the Jamaican financial sector to entrepreneurs that not one venture-capital fund exists offering seed financing to businesses that have growth potential.
In the early 1990s, Jamaica Venture Fund, a venture-capital company headed by Dr Noel Lyon, was established that in 1992 invested in Jamaica Money Market Brokers, founded by the late Joan Duncan, a true entrepreneur and visionary, who organised Jamaica's first investment brokerage firm, which turned out to be a great success. However, one cannot identify one other business that this venture fund provided seed capital for. And despite several subsequent announcements of launches of venture-capital funds including one from ex-banker Aubyn Hill about three years ago, there are no examples to show of successful companies that these pretentious venture capitalists have financed.
Which leads me again to advocate my statist view that especially in small developing economies, governments must take a proactive role in making capital and other resources available, particularly to the more unsophisticated micro, small and medium sectors. It is in the best interest of the state. Statism has become associated primarily with the failed economies of the Soviet Union and Eastern Europe, but Singapore and China, two of the most successful economies over the past two decades, are government controlled with both governments having more than 60 per cent involvement in the economy through state-linked companies.
The neoconservatives and free marketers would have us believe that very little or no government involvement in the economy and leaving full reins in the hands of the private sectors in a freewheeling global economy is best, but see what catastrophic consequences this has led the world's economies to recently.
In the Develop Jamaica Initiative that has been presented to both the present and previous governments and was first presented in 2004 at a Downtown Kingston Rotary Luncheon I was invited to address, I called for, along with US$200 million to be made available for financing entrepreneurs with developmental projects and small- and medium-size businesses, a production czar in the spirit and with the effectiveness of Robert Lightbourne, Carlton Alexander, Gloria Knight, Ray Hadeed, and Mable Tenn - all except Ms Tenn are now deceased
Two names come to mind, Claude Clarke, former industry minister, and Dr Rosalea Hamilton, president of the Micro, Small and Medium-sized Enterprises and lecturer at the University of Technology, but I am sure there are other qualified people. Two things I would insist they have, living-abroad experience and operating in a major industry. The production and development czar would be answerable to a parliamentary appointed commission comprising representatives from applicable government ministries, sector organisations such as the Jamaica Agricultural Society, the Jamaica Exporters' Association, the Jamaica Manufacturers' Association, the Jamaica Bankers' Association, 4-H Clubs, etc. The administrative budget must not exceed US$5 million per annum and targets must be set, for example, an annual GDP growth rate of six per cent in three years after implementation of the Initiative.
The initiative should be targeted at specific industries that show great potential for creating employment, earning foreign exchange, and stemming the huge balance-of-payment deficit. Recommended are agriculture and agro-processing, community/cultural ecotourism, furniture manufacturing, mining and quarrying, energy, health, education, film-television and music, sports, fashion, and information/ communication technology.
In one specific subsector, producing for export to the organic and nutraceutical industries in the United States and Europe, the potential for Jamaica is stupefying, with its abundance of unproductive land and a tradition of herbal and natural produce usage through Rastafari, the maroons and Seventh-day Adventists. The American market alone for these sectors is in excess of US $40 billion per annum. Consider Jamaica supplying half of one per cent of this. In discussions I had last year in the United States with a major player in this sector, a willingness, almost eagerness (home of reggae music), to accommodate items from Jamaica was indicated, but concerns for sustainability of supplies, packaging and competitive pricing were also voiced.
Companies selected for funding can receive financing more than once but should not exceed a total of US$5 million, which should be single-digit loans and small grants where necessary for areas like research and development. A support component should be included to provide services in marketing, accounting and proper record keeping. And personnel can be drawn from the diaspora.
There is a leadership dynamism that is required to achieve this transforming of the Jamaican economy to improve the country's standard of living for every Jamaican. In a previous article, I suggested a clarion call to be sounded by leaders in every corner of Jamaica: Increase production and productivity or die! There is some spouting of good sounding words and feeble attempts coming from some quarters of the government and the banking sector, but the leadership command, the sense of urgency, the take-charge approach are blatantly absent, as if they are not sure of the direction that must be taken, or they lack the love for country, the driving national spirit and commitment to improve Jamaica.
But it must be done if we are to decrease the crime rate, particularly the murder rate, and feelings of despair and hopelessness spreading through the society. Jamaica is losing investments because of the perception others have of it. I am involved in a Hollywood-financed film project and one sticking point that studio executives keep coming back to is the safety of shooting on location in Jamaica for six weeks. If they decide not to, and it is my partners and my job in convincing them to, then some US$20 million will be lost to the Jamaican economy. Can we continue to let this happen?
Julian 'Jingles' Reynolds is a writer, film-maker and entrepreneur who operates in the USA and Jamaica. Feedback may be sent to email@example.com