Report links Jamaica's low productivity, weak growth to crime

World Bank experts have attributed Jamaica's perpetually disappointing economic performance to low productivity caused by three major obstacles.

They suggest the country could achieve GDP growth of up to 5.4 per cent, but said that was predicated on the Government addressing and removing the constraints.

Low productivity, the bank argued, was ascribed to a high crime rate, deficient human capital primarily reflected in lack of adequate training for most of the labour force, and distortionary tax incentives combined with enclave development, manifested in the mining sector and all-inclusive resorts, that do not spill over to the rest of the economy.

As the World Bank's country economic memorandum for Jamaica, 'Unlocking Growth', was released at a seminar at the University of the West Indies on Friday, Jamaica's Financial Secretary Dr Wesley Hughes, supported the low productivity thesis, noting that "people's choices to invest are more influenced by the amount of waivers and incentives that are inputs to their investment than the real returns to their investment".

Stumbling blocks

Hughes said rent-seeking activities dominate the Jamaican economy and that "the main actors in this process have become stumbling blocks in the attempts to achieve growth".

"A major conclusion of the study, not explicitly stated, is that there are groups that have a vested interest in the way Jamaica is presently ordered. Despite the crime and grime you see all around, the poverty and unemployment, the degraded environment, these groups benefit from the existing system and will fight tooth and nail to keep it as is. And they all look like us in this room," he said.

The report, an overview of which was given by Zafer Mustafaoglu, senior economist at the World Bank, said low productivity across the economy was reflected in total factor productivity - a measure of the efficiency of inputs in production - which has collapsed since the 1970s despite high investment in the country.

To illustrate that, the bank, which assessed the chief economic and social factors that have challenged growth in the economy over the past 40 years, provided estimates for the 16 years between 1992 and 2008, showing that labour productivity was negative in eight of 10 sectors and positive but negligible in the other two areas - communication services and manufacturing and transport.

But the report suggested that crime was the major contributory factor to low productivity, saying that "it severely limits future growth and leads to a vicious circle as low growth further increases crime and higher crime rates further reduce growth".

In addition, crime constrains business expansion and diverts resources from productive activities to crime protection, said the report.

Consequently, investment in Jamaica tends to flow into isolated or enclave activities, it said.

All-inclusive resorts were cited as as one of the best examples of that enclave development model with its low spillovers, in that, while tourists avoided crime-ridden areas, their dollars remained in the resorts. Mining communities and international businesses operating in export free zones were similarly isolated from the greater Jamaica, the report noted, referencing a 2007 United Nations-World Bank study which illustrates the link between growth and lower crime rates.

On that basis it said Jamaica could experience an annual increase of 5.4 per cent in per capita GDP, if it cuts crime rates to the levels prevailing in Costa Rica.

Statistics show that Jamaica has a murder rate of 60 per 100,000 inhabitants compared with Costa Rica which has a murder of about 7.8 per 100,000 and is considered one of the safest countries in Central America.

The migration rate of skilled workers has also increased because of difficult living and business conditions, including crime and government policies, and this has had a negative impact of the level and growth of productivity as well as innovation and entrepreneurship, the World Bank report said.

Another factor cited as affecting growth was Jamaica's fiscal policies and budget-management practices and policies.

The report said inconsistent, complex tax policy with numerous exemptions and special privileges have reduced tax revenue by an estimated 20 per cent, significantly reducing the Government's spending capacity.

"The complex system of taxes and incentives also creates distortions for the allocation of capital and lowers investment productivity," the report said.

While acknowledging there is no silver bullet to solving Jamaica's problems, the report said actions that would have a direct bearing on productivity and the efficiency of investment include addressing crime as a national priority, reducing tax distortions and increasing labour force skills.

"These reform actions, if quickly implemented, will scale up productivity in traditional sectors and encourage investment in new sectors," said the report. "It is time this be done if Jamaica is to avoid losing another decade of growth and if the country is to make a clean break from the economic and social fragility of the past."

advances possible

Two of Jamaica's best performing sectors - tourism and food processing - provide examples of how advances were possible once the constraints were resolved. The improved environment could stimulate productivity in sectors where Jamaica has a comparative advantage, as well as encourage the emerging new activities which have been identified through value-chain analysis in the food processing and tourism sectors, the report said.

The World Bank, in explaining the benefits to be derived from removal of those obstacles, said that a meaningful reduction in crime would make tourists feel safe to move out of resorts enclaves and enjoy new or revived tourist venues for sightseeing, entertainment, shopping, and dining.

Improved labour and managerial skills could make the tourism sector more competitive in the region.

And given that Jamaica already enjoys an international market for its food products, improvements throughout the processed foods supply chain, including agriculture, transportation, food safety certification and marketing will quickly advance this sector, the bank's report said.

mcpherse.thompson@gleanerjm.com