THE NEXT 50 years
IN CELEBRATING 50 years of Independence, Jamaicans and our manufacturers have much to be proud of.
Manufacturing has proven to be deeply resilient, with iconic companies such as P.A. Benjamin, GraceKennedy, Jamaica Broilers, and Berger Paints being joined by newer powerhouses such as WISYNCO, Tradewinds Ltd, Caribbean Producers Jamaica, and numerous others.
We have benefited from the development of world brands such as Red Stripe, Appleton, Walker's Wood, and Pickapeppa, and we are also producers of premium products such as Blue Mountain Coffee. Today, the manufacturing sector continues to make its mark at home and abroad.
The manufacturing sector has certainly been through significant changes since its inception in the late 1940s, reflecting the changes in world trade and shifts in economic policies in Jamaica. As we celebrate 50 years of Independence, it is important to understand what has driven these significant changes in order to ensure that Jamaica maintains a significant and viable manufacturing sector.
The sector does not stand alone, as it is deeply interconnected with virtually all of the other economic sectors - agriculture, tourism, retail and distribution, to name a few. A strong manufacturing sector can assuredly provide Jamaica with the core for sustainable economic growth and prosperity, enabling all Jamaicans to succeed in the years to come.
Jamaica boasts a fairly developed and diversified manufacturing industry, which has produced high-quality products and dominated exports over the last 50 years. The manufacturing industry in Jamaica emerged out of necessity as due to the shortage of basic goods - which were supplied by imports - after World War II, goods had to be produced locally.
Even before Independence, Jamaica recognised the importance of a strong manufacturing industry and as a small, colonial economy, Jamaica depended heavily on agriculture to provide jobs for a large section of the labour force. Manufacturing was seen as a means to provide jobs for the growing population. This process was popularly described as industrialisation and seen as the way forward for growth and development. In the early stages, sugar and rum production and export dominated the sector.
It is important to note that development was supported by the Government through numerous industrial policies that were implemented even before 1962.
Between 1947 and 1968, three development plans were adopted. In 1947, Jamaica passed the Textile Industry Encouragement Act, which provided incentives to attract foreign and local investment. Other legislation such as the Pioneer Industries Encouragement Law, the Industrial Incentives Law, and the Export Industry Encouragement Law, which were passed in 1956, also helped to stimulate the sector. Some of the incentives that boosted activities included income-tax exemptions, duty-free imports for raw materials and machinery, generous depreciation allowances, and tax-free dividends.
The Jamaica Manufacturers' Association (JMA) was formed in 1947 to provide support to local manufacturers and encourage locals to buy Jamaican. Robert Charles 'Bob' Lightbourne (late minister of industry and trade) in 1952, along with the JMA, contributed significantly togiving manufacturing its huge start by establishing institutions such as the Bureau of Standards and the Jamaica Industrial Development Corporation.
In its early stages of development, manufacturing was ripe with opportunities, having the support of Government, a budding entrepreneurial class, a local market of over one million people, and an abundance of labour. The sector quickly diversified from sugar and rum into producing a wide range of manufactured products such as garments, processed foods, machinery, and electrical equipment, which resulted in Jamaica experiencing impressive real growth.
Real value-added for the sector increased at an average of seven per cent annually between 1938 and 1950, and its contribution to GDP increased from 6.5 per cent to 11.5 per cent during the period.
Growth averaged 7.6 per cent annually in real terms between 1950 and 1968, and about 5.2 per cent between 1969 and 1973. GDP contributions for the sector increased steadily to 15.7 per cent in 1970, and to 18.2 per cent by 1977.
Manufacturing became the largest contributor to GDP in 1978, employing about 79,000 persons - approximately 10 per cent of the total employed labour force - and was about 10 per cent of total merchandise exports.
The 1970s, however, had mixed fortunes. Between 1974 and 1978, the manufacturing sector faced tremendous challenges as a result of restrictive government and trade policies as well as limited imports. These policies, while creating a protective environment, also affected the availability of important raw materials, spare parts, and the resources that manufacturers needed for production. There was also a fixed exchange-rate policy and high inflation as the oil crises of 1973 and 1978 affected the country and eroded the financial incentives to exporters.
Douglas Vaz - JMA past president, 1973-76 - described the manufacturing environment at the time as "hostile". During his tenure at the JMA, he fought for sound economic policies that would benefit industrialists and all Jamaicans, despite the deteriorating social and economic conditions as well as the rapid decline of virtually all economic sectors.
Despite the poor macroeconomic conditions in the 1970s, the manufacturing sector re-emerged as the Government explored economic free zones and attracted much-needed foreign direct investment (FDI). Under the International Monetary Fund liberal regime, the Government adopted an export-led strategy and implemented the Jamaica Free Zone Act (1982), which provided incentives to attract FDI. These incentives quickly developed a screwdriver industry and a lucrative apparel sector, which resulted in the industry experiencing its highest level of growth, contributing 21 per cent of GDP in 1989, employing 136,000 persons, and exporting US$318.1 million.
The export apparel sector was only viable as long as preferential duties and market access for Jamaica existed. Once the US government shifted trade policy and removed these preferences, apparel production very rapidly shifted to Latin America as well as the Far East, and starting in the early 1990s, the Jamaican sector declined significantly.
The overall manufacturing sector also began to contract due to rapid trade liberalisation of the economy and the floating of the dollar. Intensified globalisation, which saw increased competition in export markets, cheap imports that flooded the domestic market, and the discovery of cheaper labour in other markets were external factors that contributed to the contraction of the manufacturing sector. These external realities were challenging, but the domestic economic circumstances of the 1990s - the protracted high interest-rate policy, the collapse of domestic banks, increasing criminal activity - further reduced competitiveness and productivity in manufacturing. During that time, there was minimal investment in the productive sector as the cost was prohibitive, the risk high, and the reward far lower than simply putting money into monetary investments. It has been said that only those manufacturers that entered the 1990s debt free survived, and that they stayed in manufacturing because they could find no way to liquidate their equity.
THE WAY FORWARD
There should be no doubt remaining that the manufacturing sector, since its inception almost 70 years ago, has contributed significantly to the Jamaican economy. Although faced with challenges brought about by changes in the environment in which it operates, the sector maintains its significance as one of the major engines of economic growth, job creation, and prosperity. Manufacturing remains the largest contributor to GDP of all goods-producing sectors. Annual employment in the sector from 2008 to the present has averaged 76,000 persons. In the 2011-2012 financial year, manufacturing contributed 8.6 per cent to GDP, employed 6.8 per cent of the labour force, or 74,800 persons, contributed J$30.5 billion in taxes to the Government, and earned US$739.2 million in foreign exchange. Agriculture and tourism contributed 6.6 per cent and 5.4 per cent to GDP, employing 223,000 and 74,767 of the labour force, and contributing J$1 billion and J$10 billion to taxes, respectively.
Therefore, despite experiencing significant challenges, manufacturers have demonstrated their resilience, and many continue to reinvest, innovate, and expand their reach in the local and international marketplace, which proves that opportunities exist that can and are being pursued by those who have the heart and dedication for hard work.
In going forward, the manufacturing sector is expected to continue being a pillar of growth. The 2030 Vision Statement for the manufacturing sector is:
"A dynamic, vibrant, market-led manufacturing sector making high value-added world-class products desired by consumers everywhere, using appropriate technologies and environmentally sustainable pro-cesses, linked to other sectors, with motivated, productive employees, within an enabling business and regulatory environment."
The economic truth remains: there are basic factors that drive production at the macroeconomic and microeconomic levels. For all of Jamaica to achieve the goals of Vision 2030, the supportive environment must continue to be improved. This will require the Government, civil society, the people, and the private sector working together to address issues of competiveness and productivity. Jamaica must address issues surrounding its chronic problems of an unstable macroeconomic environment; the lack of financing, especially to micro, small and medium-sized enterprises; high levels of crime and violence; an unreliable justice system; high energy costs; an unjust and punitive tax system; and a broad-based resistance to adopt modern governmental, educational, social, environmental, and business systems. These are issues that continue to affect our level of productivity and competitiveness as a country.
History has shown that when manufacturing is in crisis, the Jamaican economy is in crisis. Indeed, a recent study by the University of the West Indies showed that over 40 per cent of the change in GDP for Jamaica could be attributed to changes in the performance of the manufacturing sector. In other words, by ensuring that the manufacturing sector is growing, the Government would be 40 per cent along the way to getting Jamaica to be the place to live, work, do business, and raise our families.
There are numerous strengths that reside in the sector, which include the sustained ability to produce high-quality products under one of the world's most recognised brands: 'Jamaica'. There are opportunities for exports, import substitution, and numerous deep linkages to other vital economic areas such as tourism, agriculture, distribution, and transport The sector earns foreign exchange, provides jobs, and reduces poverty. Jamaicans must recognise that a strong manufacturing industry is required for growth and development and demonstrate this every time we proudly support the industry by buying Jamaican.
Manufacturing is indeed the way forward.
- This article was written by the JMA