GLEANER COUNCIL - Creating room for growth
This week, The Gleaner Council will examine the key enablers in the business environment that, if properly addressed, could significantly contribute to sustainable economic growth in Jamaica.
Jamaica's economy is perennially characterised by low-growth, high fiscal deficit, low productivity, private-sector stagnation and high debt.
With little debt capacity - the amount of debt the Government can repay in a timely manner without jeopardising its financial viability - our fiscal position leaves us vulnerable to external and domestic shocks.
This leaves us no option but to demand increased tax collection to cover recurrent and capital expenditures of the Government. But there is a clear dilemma that must be resolved.
To increase the tax burden in this climate of perennially low-growth and low productivity is counterproductive and further dampens the growth and economic development prospects of the country.
So where should policymakers focus? Does this situation warrant even more government spending?
The Jamaican Government already plays a far-reaching role in the economy.
It owns substantial assets, it's responsible for capital, welfare and other recurrent spending that is a significant percentage of GDP, employs a substantial part of the labour force and runs a large number of companies and executive agencies.
Initiatives including, but not limited to free health care and free tuition have placed added burdens on the fiscal accounts.
Deficit financing over the years, where government spends more than it collects in revenue, has also proven costly and had the unintended consequence of stymieing risk taking and investment in private-sector enterprise, as well as retarding public-sector capital expenditure programmes.
In prior years, interest on government paper created an environment where rational investors would invest in money and bond markets, derive healthy returns and avoid the risks and headaches of running a business.
Now, while some may take the view that government involvement has negative consequences for the growth of private enterprise, that is far from the case.
In fact, the Government's involvement, especially at times of economic shocks, serves as a catalyst for demand of private-sector goods and services, given that it's the largest buyer in the market.
However, there must be a balanced approach between government and private-sector influences, especially in the current context where the Government is forced to contend with the International Monetary Fund's firm stance on spending restraints.
sustainable business formation
With those constraints in mind, the main engine of growth for the Jamaican economy must come from sustainable business formation, supported by talented and highly productive staff endowed with relevant skills.
We suggest that to enable the business environment for sustainable economic growth, there must be focus on:
Tax reform (covering education, administration, efficiency, simplicity and equity),
Corruption and crime reduction
Human capital development
Increased labour productivity
Competitive energy and electricity costs
enhanced use of information and communication technologies
Increased access to financing for the real sector, and
Proper insolvency legislation administered in a fair, effective and efficient justice system (supported by alternative dispute resolution mechanisms).
It is also our view that the country needs to become internationally competitive by adding value to its factor endowments and exploiting the opportunities in the various trade agreements it has signed.
With regard to trade, the Economic Partnership Agreement has created some market opportunities and domestic risks for which firms and policymakers must be cognisant to be serious contenders in Europe.
The trade imbalance between Jamaica and its major trading partner in CARICOM, Trinidad and Tobago, also requires urgent attention in the interest of Jamaican firms, and Jamaica as a whole.
Furthermore, increased pursuit of south-south trade agreements, the expansion of the Panama Canal and the planned increased capacity of Gordon Cay need to be central in the Government's trade negotiations so that Jamaica doesn't miss out on some of the promised benefits resident in those opportunities.