BOJ estimates net investments at US$1b

Steven Jackson, Business Reporter

Jamaica attracted roughly US$1 billion ($86 billion) in net investment last year when factoring all business activity, including foreign direct investment, according to a central bank report released last week.

The growth in the investment stock meant that the island retained more investment and was less vulnerable to shocks in 2010 than a year prior, the Bank of Jamaica (BOJ) said.

"What it says is that investment into the country would have increased," said the author of the report titled 'BOJ International Investment Position Update 2010', who opted for anonymity due to the central bank's media protocol.

Most of this activity came from the expansion of foreign-owned companies who were also retaining larger portions of profits in the island, as opposed to FDI growth.

Specifically, Jamaica's international investment position, or IIP, hit a record negative US$17.9 billion in 2010, or a US$977 million deterioration over 2009. The worsening IIP counter-intuitively meant that overseas investment increased.

"Increased investment from abroad would have caused the negative position to go up," stated the author assigned to the BOJ External Sector Statistics Unit.

The IIP measures the stock of external financial assets and liabilities held by the public and private sector. It spans so much cross-border financial activity that the popular Net International Reserve (NIR) represents only one of the five components of the IIP.

"Jamaica is not a worse place to do investment," he said about the rise in liabilities. "Net liabilities would have increased but that doesn't mean that it is a weaker place for investment."

The increased activity would have resulted from a growth in financial derivatives, direct, portfolio and equity investments held by non-residents, up 11.7 per cent year on year to US$23.69 billion.

The BOJ representative said that it was "too early to say whether this growth in investment would continue into 2011". The investment growth occurred despite a fall in FDI to US$201 million in 2010, one of the lowest amounts recorded in 20 years.

"The FDI rate would have increased less rapidly and would have been influenced by the crisis in the developed world, (but) the stock of direct investment would have increased," explained the author.

The stock of direct investments, which includes retained earnings and direct equity investments (above 10 per cent) in local companies, totalled US$10.8 billion in 2010. Portfolio investments, which include equity and debt positions, totalled US$587 million, while other investments comprised mostly of loans and trade credits totalled US$12.2 billion. The IIP gained heightened importance following the global financial crisis as an indicator of vulnerability.

"Since the unravelling of the current global financial crisis, more emphasis has been placed on position statistics. Many analysts recommend its uses as it adds to the suite of statistics used for meaningful economic analysis and forecast," stated the BOJ report.

The concept of the IIP was mainly developed with the widespread liberalisation of financial markets in the early 1990s, which facilitated the free movement of capital across borders, explained the BOJ report. "Consequently, countries became more exposed to the risk of a sudden and significant outflow of capital, which increased their vulnerability to external shocks," it stated.

steven.jackson@gleanerjm.com