Editorial | Nigel Clarke, FDI and growth

DR NIGEL Clarke’s confidence that an economic recovery built on robust growth will begin this year is encouraging. However, two reports published last week provide reasons for reflection, and perhaps tweaks, by the finance minister, to the policies that he expects to deliver the targeted three to eight per cent expansion in gross domestic product (GDP).

But if Dr Clarke remains convinced of his projection, he, as this newspaper previously suggested, must address the matter in the context of recent developments. The minister has the appropriate platform in the parliamentary debates of his third revision to the Government’s Budget for the fiscal year that ends on March 31, from which he is snipping just under half a per cent, or J$3.5 billion.

Admittedly, the finance minister has given himself a wide growth target, providing vast acreages within to adjust to exigencies – domestic and exogenous. But even with that, dangers still lurk, as he is aware.

“So long as we can roll out our (COVID-19) vaccine programme, beginning in April 2021, and our markets to the north continue their vaccine roll-out, I’m confident that the projections will absolutely be met,” the minister told a forum organised by the brokerage house, Mayberry Investments.

Part of Dr Clarke’s optimism rests on the recent return to growth in the construction sector after the downturn triggered by the COVID-19 pandemic. But we suspect that he is also banking on a steady uptick in tourism, which collapsed by nearly 80 per cent last year when global restrictions on travel were implemented. That, in the normal course of events, would not be unreasonable.

Indeed, our protocols allowed for a cautious crack of the tourism door in recent months. And after Donald Trump’s mismanagement of the pandemic in the United States – Jamaica’s biggest tourism market – Joe Biden’s advent to the presidency seems likely to improve the roll-out of that country’s vaccination project as well as other initiatives to halt the spread of the virus. That should be a fillip to Jamaica’s tourism. Except that some of Mr Biden’s policies – including the requirement to test for the virus and stay in quarantine for a fortnight for persons entering the United States, including citizens – will, in the short term, likely deter many Americans from travelling. Travel advisories against Jamaica specifically will not help.

Gloomy Medium-Term Picture

All of this is on the back of the latest World Investment Report by the United Nations Conference on Trade and Development (UNCTAD), which paints a gloomy medium-term picture of global foreign direct investment (FDI), especially for Latin America and the Caribbean, from which Jamaica can hardly extricate itself.

In 2019, FDI globally reached US$1.54 trillion, a three per cent increase on the previous year. It was, however, projected to have collapsed dramatically in 2020 as multinational firms pulled back from foreign capital outlays because of the pandemic. The global economy was expected to decline by around five per cent last year.

“Global FDI flows are forecast to decrease by up to 40 per cent in 2020 …” says the World Investment Report. “This would bring FDI below $1 trillion for the first time since 2005. FDI is projected to decrease by a further five to 10 per cent in 2021 and to initiate a recovery in 2022. A rebound in 2022, with FDI reverting to the pre-pandemic underlying trend, is possible, but only at the upper bound of expectations.” The advice, in other words, is to temper expectations.

Of all regions, the prognosis is worse for Latin America and the Caribbean, where FDI was expected “to halve in 2020”. “...The industry profile of FDI in the region also makes it vulnerable. In 2019, FDI in Latin America and the Caribbean grew by 10 per cent to $164 billion,” UNCTAD said.

Jamaica had a good run with FDI during much of the previous decade. Between 2015 and 2019, the island received 35 per cent of all the tourism-related greenfield projects in small island developing states funded by FDI. However, FDI inflows of US$665 million in 2019 was 14 per cent below the amount for 2018 and the third consecutive year of decline and a five-year low for the island. That decline, obviously, worsened in 2020 and, by all analysis, will continue this year. Put another way, there are no short-term prospects for big FDI inflows.

We appreciate that Minister Clarke’s growth target is from a lower base, after this year’s projected decline in GDP by up to 12 per cent. Nevertheless, the finance minister might have to consider how he can gee up domestic capital to take risks, as well as what other policy initiatives that are within his control, and he can unleash, to drive growth.

At the same time, questions remain about access to COVID-19 vaccines by Jamaica and developing countries, and if the drugs are available, whether poor countries will be able to pay for them. These are among the issues raised by a report on global disparities by the charity Oxfam, which Dr Clarke and the Jamaican Government will have to take into consideration.