THE EDITOR, Sir:
Given the pallid state of the economy, I was hoping the Government would provide us with a cogent plan to address its anaemic growth.
The fairness doctrine dictates that growth targets should get priority over debt and deficit reductions, because only growth can negate these two albatrosses which have a stifling hold on the Jamaican economy. We all want to be gushing with adolescent glee as a result of the performance of the economy. Please give us the opportunity.
The Jamaican economy has the potential to grow at the 5%-7% range. Instead, we have a projection of less than 1% for 2012. Over the last 20 years, Jamaica has underperformed the global economy, the emerging market and the Latin America and Caribbean.
It is hard to convince Jamaicans that they are imbued with a destiny of underperformance. It is very likely the Government will miss its GDP target for 2012. Let us know how you will grow the economy above 5%. The target is to have the economy double in 10 years.
Is our distinguished minister of finance trying to emulate the failed policies of the British Chancellor of the Exchequer, where the emphasis is on austerity without an equal focus on growth has proven to be disastrous. George Osborne has shifted the burden to the poor and elderly, and Peter Phillips seems to be doing the same. Mr Osborne has levied tax on pastries, while Mr Phillips targeted patties.
The British economy has just seen its third consecutive quarter of decline, and output is down 15% since 2008. The UK now has the largest fiscal deficit of any leading economy. Is this what Mr Phillips thinks Jamaica needs?
WILL THE GOVERNMENT EVER BREAK ITS SILENCE?
Will the Government let us know how it plans to make up for revenue lost by the reduction of the corporate tax rate from 33% to 25%? It is most likely that the corporations that cheat on their tax at 33% will do the same at 25%. Maybe, the Government will quantify for us the elasticity of revenue in relation to tax rate. Japan, US, France, Brazil, Germany and Spain all have corporate tax rate north of 30%, not to mention the Scandinavian countries. Tax reduction did not help Ireland.
If a lower tax rate was the solution, Bangladesh would have a far superior economy to Sweden, Norway, Finland and Denmark. Realistically, for Jamaica to generate the appropriate revenue, tax as per cent of GDP should be in the 34%-37% range, not the current level of 27%. In Germany, it is 40%, Canada 35.8%, Sweden 47.9%, Norway 43.6%, and Haiti 9.4%.
The word unemployment seem to be absent from the vocabulary of our eminent minister of finance. Does anyone truly believe that the unemployment rate is 12.8%? What about the youth unemployment? Obviously, the rate falls in the range of Spain at 52%, Portugal 36% and Greece 53%. Perhaps, in order to alleviate the chronic youth unemployment, Jamaica should adopt the highly successful apprentice programme being deployed in Germany. Growing the economy north of 5% per year would contribute significantly towards reducing unemployment.
One of the sectors which would contribute significantly towards the attainment of this goal is manufacturing. It is a fount for economic innovation. Currently, manufacturing as a per cent of GDP is just above 8%. It needs to be a lot higher, somewhere above 18%. This would surely help to diversify the economy. Moreover, it would help reduce Jamaica's vulnerability to external shocks.
In economic downturns, countries with a large manufacturing sector usually recover much faster. Also, it would meaningfully enhance both the skill level and the productivity of the workforce. A larger manufacturing base will improve our export earnings and reduce the glaring current account deficit. The country will then reap the benefits of macroeconomic stability.
JAMAICA IS APPEALING, DESPITE CRIME
Granted, the crime rate in Jamaica is far too high. But, it should not be a detriment to attracting foreign investment. The current level of US$242 million is unacceptable. The target for FDI should be at an average of US$700 million over the next five years. Has the Government heard of Monterrey in Mexico? It is only a city with a population of 4.6 million. Within the last year, criminals attacked the Casino Royal hotel and killed 53 people; in May, 49 bodies were found dismembered in the street, and last June they had 33 murders in one day.
Yet the country was able to attract US$2.4 billion in foreign investments in 2011. It produced US$44 billion in exports last year. Jamaica only produced a measly US$114 million of manufacturing export. Surely we can do 10% of what Monterrey does. Most of the manufacturing is assembling imported parts which Jamaica can easily do. There is not much local sourcing.
Currently, investment at 16% of GDP is way too low. It needs to return to at least the 2006 level of 28%. Consumption should also be increased, but the current austerity proposals can only diminish demand. The Government should be aiming to stimulating demand. The key to get consumption to rise is to increase household income faster than GDP growth.
The Government cannot pretend that there is a veneer of normality when the chasm has widened. What the country wants from our Government is for it to pursue growth with a messianic zeal. It is about time Jamaica treats the world as its fulcrum.