Mon | Dec 16, 2019

The Next 50 Years - Make Jamaica business friendly

Published:Wednesday | December 19, 2012 | 12:00 AM

Densil Williams, Contributor

JAMAICA'S ECONOMIC performance in the aftermath of its Independence from British colonial rule 50 years ago makes for uncomfortable reading.

Gross domestic product (GDP) growth was roughly 0.7 per cent on average over the period. In 1962, unemployment was 13 per cent, and in 2011, unemployment stood at 14 per cent. Compared to Barbados, which gained independence just four years later, our economic performance has been dismal.

Henry and Miller, in their 2009 work on institutions versus macro-economic policy, put the performance in context: In 1960, per capita income in Jamaica was US$2,208; in 2011, it was US$4,750. Barbados' per capita income in 1960 was US$3,395; and in 2011, it was US$23,600.

This is almost five times Jamaica's 2011 figures. Further, poor fiscal management has resulted in a huge debt burden for the country. Today, debt to GDP stands at 140 per cent. This massive debt burden results from the poor performance in fiscal management. Between 1962 and 1972, the fiscal deficit averaged around 2.3 per cent of GDP. Between 1973 and 1980, the deficit averaged around 15.5 per
cent of GDP. In 2011, the fiscal deficit was 6.2 per cent of
GDP.

While the verdict is still out as to what really
went wrong in terms of macroeconomic management, what is certain is that
the uncompetitiveness of Jamaican enterprises has to be among the mix
of factors that contributed to the poor performance over the last 50
years. Indeed, I share the view of Professor Alvin Wint of the
University of the West Indies, Mona, as espoused in his work on the role
of government in enhancing the competitiveness of developing economies,
that the fundamental hindrance to growth is the lack of internationally
competitive enterprises.

If we accept the Porterian
argument that it is businesses that trade, not government, for an
economy to grow, firms will have to produce and sell their outputs in
both domestic and international markets. All the major economies in the
world have large and competitive enterprises that are producing and
selling goods and services to the world market. The meteoric rise in
China's economic fortunes over the last 30 years is directly linked to
the vast number of Chinese enterprises that are producing and selling
their outputs all over the world.

If Jamaica is to
become prosperous in the next 50 years, there will have to be a
significant improvement in the competitiveness of its indigenous
enterprises, and it will have to attract competitive direct investments.
There are very few enterprises in Jamaica that are truly international,
and can compete in the global marketplace. This has to
change.

So the big question that must be answered in
looking ahead is this: What has hindered the competitiveness of Jamaican
businesses over the last 50 years, and how can these factors be
reversed over the next 50 years? To respond to this question, one has to
reflect on the challenges to doing business in Jamaica over the
period.

Challenges to Doing
Business

There are a number of factors that have
influenced doing business in Jamaica over the last 50 years. These
include, but are not limited to, the
following:

Void in
professional management:

It is true that
professional management is important in order to design effective
corporate strategy that can lead to strong performance of enterprises.
There is a great body of empirical research at the Mona School of
Business and Department of Management Studies which has looked at the
impact of managerial characteristics on firm
performance.

The general consensus is that more
professionally run enterprises have a stronger proclivity to survive
than less professionally run ones. Unfortunately, for a long time in
Jamaica's history, enterprises were not managed by professionals who
were trained in business and management.

Therefore,
bad decisions were made that led to the decline of these businesses. For
example, in 2000, Trevor Hamilton & Associates surveyed
Jamaican enterprises and found that a high percentage of Jamaican
manufacturing enterprises spread their limited resources to deal with
activities such as storage, packaging, marketing and promotion
internally. These eventually become fixed costs when they should have
been variable costs. Fixed costs as a percentage of total manufacturing
costs were, therefore, much higher in Jamaica than in the other
countries.

One of the factors that contributed to the
void in strong leadership at the enterprise level in the early part of
the nation's development was the mass migration of professionals and
businessmen in the 1970s. This migration led to a loss of talent in
critical areas in the public service and also created a void in the
entrepreneurial class, which is necessary for driving innovation and
economic growth.

Inhospitable Regulatory and
Property-Rights Environment:

While adroit
corporate leadership is critical for business success, it is also
equally important to have a supportive business environment in which
firms operate.

The Doing Business
Report
, which captures quantitative indicators on business
regulations and the protection of property rights, shows that in 2012,
Jamaica ranked 88th out of 183 countries. The report captures indicators
such as starting a business, dealing with licences, employing workers,
registering property, getting credit, protecting investors, paying
taxes, trading across borders, enforcing contracts, and closing a
business. After 50 years of Independence, this performance is not
encouraging. More worrying is that the data for the last five years have
shown that it is getting worse.

Deficit in Social
Order

In addition to the less-than-hospitable
regulatory and property-rights environment, another factor in the
business environment that has made it difficult for businesses to operate is the deficit in social
order - mainly the high crime rate.

Almost all surveys
- from the World Economic Forum Global Competitiveness
Report
to the World Bank's Doing Business Report
- argue that crime and security have been a perennial problem
for Jamaica's businesses. The deleterious impact of crime on the cost of
doing business in Jamaica is well documented by researchers at the
University of the West Indies at Mona.

Bad Economic
Policy Choices

Bad choices in macroeconomic policy
have also made it difficult for Jamaican firms to achieve high levels of
competitiveness. Over the 50 years since its Independence, Jamaica has
run a deficit in its fiscal accounts for the majority of the period.
This has led to instability in the macroeconomic environment. The cost
of doing business, therefore, increases. Further, this instability makes
it difficult for businesses to plan as it creates a level of
uncertainty in the business environment.

Over the last
50 years, these factors have made it difficult and less than
hassle-free for businesses to operate in Jamaica. Clearly, moving into
the next 50 years, these issues have to be
addressed.

Going Forward

While one
cannot predict the future with certitude, proper planning based on
strong methods can reduce the risk of making costly mistakes. It is in
this context that I will make some recommendations that can help to
reduce the risk of doing business in Jamaica as we start the next 50
years.

  • Upgrade human capital in order to make doing
    business more hassle-free.
  • Place more emphasis on
    management training and the application of rigorous scientific methods
    to management enquiry.
  • Produce managers that are
    emotionally intelligent and technically sound in the various disciplines
    of management.
  • Rethink the management curriculum at
    our universities.
  • Our business schools must embrace
    creativity, innovation, entrepreneurship, and internationalisation as
    key themes.
  • Further transform the regulatory and
    property-rights environments.
  • Make it easier for
    business persons to get credit, close their businesses when they are not
    performing well, enforce contracts.
  • Learn lessons
    from other fast-emerging economies like Estonia and
    Botswana.
  • Implement crime-prevention strategies
    guided by leadership from both the business community and the political
    directorate.
  • Get the macroeconomic policy framework -
    low interest rate, low inflation rate, stable exchange rate,
    sustainable debt service, and low fiscal deficit - working
    right.

While Jamaica has made good progress on the
social and democratic fronts, performance on the economic front over the
last 50 years has been less than comfortable. A major contributing
factor is the uncompetitiveness of Jamaican businesses. Immediate
attention must be given to reversing the long period of macroeconomic
instability so that certainty can be brought to the business
environment. This will boost confidence and lead to greater business and
economic expansion.

Dr Densil A. Williams is senior
lecturer of international business at the University of the West Indies,
Mona.