The elusive quest for growth
Densil Williams, Guest Columnist
Last year was not a good one for the Jamaican economy. Some of the key macroeconomic indicators were pointing in the wrong direction at the end of the calendar year.
The country's GDP declined; one of the most watched anchors in the economy, the exchange rate, depreciated by eight per cent; the level of unemployment increased; the country's doing business score dropped marginally, etc. All this was just some of the grim news for 2012. One upbeat performance was the improvement in the country's competitiveness ranking, moving from 107 to 97 in 2012.
Despite the improvement in competitiveness, the local economy continues to struggle to find a sustainable growth path. This inability has left many players very nervous about the future. There is fear that we will not be able to achieve Vision 2030, which is a mere 17 years away.
If we are to reverse this trend, the only solution is to find sustainable growth poles for the domestic economy. There is no escaping from this reality. Vision, foresight, technical management, and adroit leadership will be most relevant in fashioning a growth strategy going forward.
Generating growth in the Jamaican economy is not an effortless task. There are some serious structural problems that need to be solved if the economy is to move forward. There is need for greater levels of productivity. Our productivity growth since the 1970s has been on the decline.
In order to grow, we have to produce more than we are currently doing. If our productivity growth is declining, logically, we will see a decline in the overall output as well. We have to do something about this productivity deficit.
To reverse the productivity deficit, first, there has to be a diagnosis of the real drivers of our productivity. Critically, there will be a need to radically revamp the education system. We need a system that values critical thinking and technical competence, not one that is known for sophistry.
ROLE OF TECHNOLOGY
We also need to revisit the role of technology in the production process and ensure that our people have access to the most sophisticated technologies in order to help them to work more efficiently and effectively. Our capital markets will also have to become more sophisticated so that enterprises can gain access to capital that is needed to modernise businesses, seek new markets, and invest in research and development and training of their workers.
Conceptually, these are important areas that we will have to address if we are to change some of the structural problems that have hindered robust growth in the Jamaican economy. These things, however, will not happen overnight. While we plan for the future, we must do something about the present.
Robust and sustainable economic growth is needed in the long term, but in the short term, we must find a way to ensure people can live a decent life. To do this, we have to find a way to grow the economy in the short term while planning for more robust growth in the long term.
From a management perspective, there has to be an operational arm of the Government that is working to deliver growth now. In addition, there has to be a strategic arm of Government that is working on the future. This arm needs to look closely at how we deal with the structural problems identified earlier, which have accounted for the anaemic growth we have seen for the last 50 years.
A clear path to addressing Jamaica's structural problems must be put in place. This is not merely operational, but requires strategic thinking. I do not get the sense that we are thinking along this line. We seem to be more concerned about the day-to-day operations, not the strategic direction for the future. They are not mutually exclusive, and must be a part of the overall management of the economy.
While we plan for the future, we need a reasonable level of growth today that will generate confidence in order to lay the foundation for growth in the future. The question everyone is asking now is: Where is this growth going to come from?
There is a sense that we must get an International Monetary Fund (IMF) agreement in order for this to be possible. However, those who understand the workings of multilateral financial institutions (MFIs) such as the IMF will tell you that we do not have to get an IMF agreement to generate growth. Forging an accord is critical mainly to generate confidence in policy direction, which is important for investors.
The IMF will lend Jamaica about US$1.2 billion to help it with balance-of-payment support, and it will also open doors for the country to borrow cheaply from other MFIs. These monies, however, can be gained from other sources, such as through bilateral borrowing from China, Venezuela, etc. What these bilateral borrowers will not do, however, is enforce conditions that will require a country like Jamaica to make changes to remove structural impediments to growth such as tax reform, pension reform, and the creation of an efficient and effective public sector, among other things.
When you borrow from the MFIs, they will ensure that these necessary conditions are achieved. It is achieving these conditions in the local economy that will engender sufficient confidence to stimulate investments to ensure the robust growth in the future.
That is why an IMF agreement is important. If we can achieve the same level of fiscal discipline and policy transformation needed to recalibrate the structural nature of the Jamaican economy without an IMF agreement, a deal may not be necessary. What the leadership needs to show us as a country is the plan to achieve fiscal discipline and policy reforms with or without an IMF agreement. This will help to build a strong level of confidence that is so badly needed in the economy today.
So, while we wait on an IMF agreement or the plan to drive greater fiscal
discipline and policy reforms, we need to get people back to work and
increase the level of output, i.e., our GDP in the local economy. There
is a sort of pessimism that the major growth poles are not looking good
for 2013 and we are going to be in deep trouble if we do not get the IMF
I am not that
There are important sectors in the local
economy that can drive growth immediately. The planned investments in
the three mega projects announced by Transport and Works Minister Dr
Omar Davies some time ago are ripe for driving some immediate growth. We
need to get the investments from paper into action -
Why is it that we do not see the cranes
and tractors working at Fort Augusta? Why is the highway project not yet
up and running?
Though the fight with the contractor
general is not over, I believe Jamaicans, generally, have accepted the
need for an oversight committee in place to fast-track these
Another important area that can generate
growth today is agriculture. There needs to be some urgency in ensuring
that the hotel sector is integrated with the local agricultural sector.
Local outputs should become the mainstay in the
We need to use our trade policy to effect
upper tariff bounds on some critical items that can be substituted with
local produce. This can help to drive local production and put more
hands to work. There needs to be more public-private partnerships,
especially on the agro-processing side, so that we minimise the wastage
of local produce.
Incorporating things like mangoes,
watermelons, carrots, etc. in our School Feeding Programme will go a
long way in increasing the output in the sector. Jobs will be provided
on the agro-processing side and, similarly, on the farms that grow these
produce. Urgent action is needed here as well.
focus and adroit leadership, these two sectors can help to ease the
pessimism immediately and bring back some growth in the local economy.
They will not generate the eight per cent growth that we need to really
transform the economy, but they can surely turn around the negative
growth path we are on.