Season of opportunity or winter of discontent
Claude Clarke, GUEST COLUMNIST
The latest Jamaica Chamber of Commerce (JCC) Conference Board Report, showing a sudden surge in business and consumer confidence, has handed the administration an unexpected boost in its own self-assurance. And it may be tempted to believe, despite empirical evidence to the contrary, that its IMF-prescribed bitter medicine is about to effect a miracle economic cure.
But the reported confidence belies economic facts. At the end of the third quarter of 2014, GDP growth, at only half a percentage point, continues to be no better than it has been during our many years of economic stagnation.
Our trade deficit as a percentage of total merchandise trade has grown to 60 per cent, three percentage points higher than it was a year earlier, indicating worsening economic competitiveness. We remain trapped, with the likes of Syria and Sudan atop the World Misery Index; and unemployment and poverty levels remain stubbornly high.
Gloomy global growth forecasts for 2015, continuing stagnation in Japan, the EU teetering on the brink of recession, and slowing Chinese growth are all worrying signs for Jamaica's tourism and commodity export-dependent economy. The optimistic outlook of Jamaican business is, therefore, surprising.
Perhaps the confidence is driven by Government's high IMF test scores and the happiness of some corporate interests for the lowering of their marginal tax rates to 171/2 per cent as reward for prompt tax payments.
Rising consumer confidence is also hard to reconcile: with the minimum wage falling to US$1 per hour and the growing numbers of persons living in poverty.
Anticipation of the end of the public-sector wage freeze and an expectation that this may influence a general uptick in wages may explain some of this optimism, as would the impact of falling oil prices.
Much optimism has been generated by the collapse of world oil prices. But the Government should know that it is a double-edged sword. On one hand, it provides an ease on the consumers' pockets. However, there will be a drastic cut in revenue from the price-based tax on oil imports and the Government might have to increase taxes in other areas to compensate. This will eventually undermine confidence.
NO COMPETITIVE ADVANTAGE
Contrary to opinions expressed in some quarters, Jamaica will gain no competitive advantage from lower oil prices, as they benefit all consuming countries equally. Our energy uncompetitiveness comes from our choice of energy source and the inefficient manner in which we use it. Lower oil prices will not change that.
The reported surge in consumer and business confidence will no doubt reinforce the finance minister's determination to see the IMF programme through. However, the real question is not if the Government can complete the programme but whether it can deliver the results Jamaicans are expecting: their economic betterment.
For if the programme's narrow focus on extracting resources from the economy to pay debt is not replaced by an approach that marries fiscal responsibility to economic expansion, the people will not be dissuaded from punishing the administration at the polls.
The public's ire might have been avoided had the administration been prepared to incorporate growth-inducing strategies in its economic programme at the outset.
It has only belatedly begun to turn its attention to growth, and is showing an appreciation of the importance of creating policy mechanisms capable of unleashing private capital to productive purpose.
It has begun to take steps to promote the development of a venture capital ecosystem and specific equity finance efforts for the technology sector like 'Start Up Jamaica'. However, much more needs to be done to create a financial services environment that will give Jamaica a chance of succeeding on the world economic stage.
The capacity of a country's financial sector to provide adequate and competitively priced capital and financial services is as important to economic success as competitive energy. And if Government is to succeed in leading the economy from stagnation to growth, creating such a financial infrastructure must be among its top priorities.
For that financial infrastructure to be capable and competitive, it must be fully plugged into the global financial system with its wide variety and abundant supply of capital. Lifting exchange controls, as was done a quarter-century ago, is not enough to make this possible. What international capital needs to become productively engaged in the Jamaican economy is confidence that the Jamaican currency is both competitive and stable.
But the ongoing crawling peg devaluation, intended to improve the competitiveness of the Jamaican dollar, is perpetuating the image of instability, even while the dollar remains uncompetitive. And while some ground has been gained in bridging current inflation differential with our main trading partners, the country's core uncompetitiveness, built up over two decades of monetary mismanagement, remains.
Meanwhile, the burdensome cost of financial services on the country's competitiveness is not being addressed. There is no regulatory framework for keeping commercial lending rates internationally competitive. The BOJ's survey comparing bank fees and charges across the region notwithstanding, the fact is that the activities of the sector take a disproportionately large share of our stagnant economy: a share which in recent years is almost 30 per cent greater than it was when our economy registered healthy growth in the late 1980s.
The financial sector's burgeoning profits now run opposite to the country's economic performance. How is this possible? How can it be healthy for the economy?
Government's development and investment banking activities are inadequate to mobilise and deliver the levels of capital needed for that purpose, in a country that claims to be on a development mission. With the vast amount of accumulated profits residing within the financial sector, it is incomprehensible that the Government cannot devise policies and strategies to bring this large pool of capital and the urgent development needs of the country together.
The equities market is among the most efficient way to bring capital to business. Last month, we saw the opening of an impressive new LASCO manufacturing plant. As Prime Minister Simpson Miller proudly declared it a model of entrepreneurial success to be emulated, I wondered whether she was aware that, outside of Lascelles Chin's exemplary business acumen, LASCO Manufacturing's success is substantially the result of equity capital raised on the Junior Market of the Jamaica Stock Exchange; and that at the urging of the IMF and some local traditional big business interests, her own Government had decided to put an end to it.
The example of LASCO Manufacturing and other productive enterprises, which have been boosted by capital raised on the stock exchange, should cause the Government to ask whether, in the interest of production and economic growth, it would not be wise to reverse its decision to phase out the fiscal basis on which the junior market existed.
The upwelling of business and consumer confidence reported by the JCC Conference Board heralds a season of opportunity for the administration, but its failure to provide conditions favourable to growth portends a winter of our discontent. With a general election looming in the next two years, which will it be?
Claude Clarke is a businessman and former minister of industry. Email feedback to firstname.lastname@example.org.