Editorial | Use divestment to incentivise staff

Not for the first time, Prime Minister Andrew Holness has urged Jamaicans to invest in stocks and has dangled the opportunity they will have when the Government eventually divests, through an IPO, Wigton Windfarm, an energy company owned by the Petroleum Corporation of Jamaica (PCJ).

We urge the PM not only to talk about these ­matters, but to act on them with greater urgency than his ­administration has so far managed. The ­administration should also consider how some of the state-owned assets can be creatively deployed in helping the ­administration to accomplish some of its critical policy goals, including employing/maintaining quality talent in the public sector without huge outlays of cash, which might threaten fiscal stability.

Divestment has long been on the agenda of Jamaican governments, but they have not been ­particularly good at it, in part, we believe, because of the wish of ministers, a raft of agencies and ­companies – their little empires through which they can dispense patronage.

It is hardly surprising, therefore, that the Holness ­administration, in nearly three years, has managed only two divestments: the Caymanas Park horse­racing facility and the Norman Manley International Airport. And not only did these efforts precede the current government, but serious work on the Caymanas deal was done during the 2007-2011 Jamaica Labour Party administration, of which Mr Holness was a member.

It would be useful, therefore, if the administration, as part of its divestment programme, published a full list of the entities it plans to put on the market and declared timelines for each, taking into account the ­perceived marketability or expected complexity of the deals. For any non-core company or service ­provider that is not on the list, the administration should provide full explanation of the strategy or ­policy reasons why it should remain in government ­ownership, management, or control.

With regard to Wigton, Prime Minister Holness told last week’s capital markets conference, hosted by the Jamaica Stock Exchange, that his administration was carefully crafting the proposed IPO but gave few details. However, he indicated that this was not the only entity that would be divested.

He said: “I am encouraging Jamaicans to buy shares in these public companies when they are placed on the stock exchange so that they own some of these assets and share in the capital gains and in the profits … when these companies are listed.”

We agree with the PM. For increasing the stock-owning class is one way of helping ordinary Jamaicans to share in the wealth generated by firms that made Jamaica’s stock exchange the world’s best performing for two years in a row, to which domestic consumers contributed by their purchases of these firms’ goods and services. However, relatively few of the Jamaican population own the J$1.55 trillion represented in the market value of these companies.

USEFUL VEHICLE

Wigton could well be a useful vehicle to experiment with a broadening of ownership, while at the same time remunerating public-sector employees better, without falling into conflict with the International Monetary Fund, at least for the medium term, over the Government’s commitment to reduce the public-sector wage bill to no more than nine per cent of GDP. Peter Phillips, the opposition leader, has said that that could mean cutting jobs, or otherwise losing staff, which might be to the detriment of the quality of service delivery. He has proposed adjusting the ratio to operate within a band, thus providing greater flexibility to the Government.

That is an option. In the short term, however, the Government, as we have suggested in the past, could well offer public-sector workers shares in divested companies, in lieu of pay hikes in cash, from which they make capital gains and/or divided income. Each offer could be risk-rated based on its type and its prospect of profitability and capital gains. On the face of it, Wigton should be attractive. According to the PCJ’s 2015 report, the latest that is available, the company, on revenue of J$1.54 billion, earned pre-tax profit of J$566 million, or a return of nearly 37 per cent.