Car dealers undermine energy policy efforts

Dennis Morrison, Contributor

Jamaicans' vacillation about vital questions affecting our development is nowhere more evident than in how we have danced around critical decisions regarding adjustments to how we use energy. For a country that produces not one drop of oil and is constantly borrowing more to finance our imports, it is remarkable how we have failed to rein in our wasteful consumption of this commodity.

We have neither instituted any serious conservation measures, nor invested in energy efficiency, nor diversified away from our near total dependence on imported oil. Worse, from the time of the first oil price shock nearly 40 years ago, when over 60 per cent of our current population was still unborn, to the near catastrophic prices reached in July 2008, our consumption of oil has increased faster than the growth rate of national production. This is one of the main causes of our economic problems - lethargic growth, ongoing devaluation of the Jamaican dollar, inflation, and debilitating loss of competitiveness of our industries.

Where we have been most extravagant in the use of oil is for road transport (particularly private motor vehicles), which has risen the fastest of any industry to over 25 per cent of our oil bill from 15 per cent in 1990. But if the Automobile Dealers' Association and the Used-Car Dealers' Association have things their way, we could become even more profligate. While the recently promulgated energy policy that was developed after wide consultation calls for the importation of energy-efficient vehicles and for increasing use of mass-transit forms of transportation, these bodies are lobbying for a motor-vehicle policy that would be directly contradictory.

insisting on policy change

The used-car dealers are insisting that the policy be changed to allow them to import older and more attractively priced vehicles in order to boost their sales. But these vehicles would be less energy-efficient. The auto dealers who sell new cars are demanding that they be permitted to import larger-engine vehicles at set fees per vehicle, regardless of engine size, that would lead to substantially reduced duties. But these vehicles would consume more fuel. This is typically Jamaican, whereby we announce a policy and then even before the ink has dried, immediately proceed to undermine it. And it is why the previous two energy policies were never implemented.

Those who are agitating for the energy policy to be torn up are either oblivious to the unsustainability of our current oil-import bill, or simply do not care about the burdens that balance of payments deficits impose on the population at large, focusing instead on their own profits. Do they not know that the massive loans from the International Monetary Fund being used to prop up our foreign reserves will not be an ongoing source? Moreover, these resources ought to be used to stimulate production, not fuel more consumption.

Aren't they aware that we are currently able to maintain our oil imports only because the Venezuelans ( read Chávez) allow us generous credit: we pay 60 per cent in cash for oil shipments from Venezuela and are allowed the balance as a soft loan. But for how long can this generous arrangement continue? In any case, this is money that has to be repaid, and we have amassed a debt of over US$1.2 billion since 2005, even as our bauxite exports have collapsed and remittances are down.

Imports using up resources

Anyone who doubts that motor-vehicle imports have used up vast resources in recent years must not have bothered to look at the figures. Prior to the liberalisation of motor-car imports in 1992, Jamaica spent a maximum of US$46.5 million in a year on the importation of motor vehicles. This had to change. By 1997, the figure had quadrupled, and for the decade of the '90s, the total bill was roughly US$1.5 billion, or an average of US$150 million per year. A rapidly expanding motor-vehicle population led inevitably to a huge jump in oil consumption from four million barrels of oil equivalent in 1992 to 6.4 million barrels in 2006, an increase of 60 per cent. Wasn't this crazy for a country short of domestic investment capital with which to spur growth?

Looking ahead, we must expect that the relief we have been experiencing since oil prices fell in late 2008 will end. As economic growth picks up, oil prices are going to return to the US$100 per barrel levels, and with this will come greater pressures on every aspect of our economy and social stability. We have no choice but to adjust our energy-consumption patterns. Stimulating car imports is not a viable or sustainable means of generating economic growth, investment, or job creation in Jamaica.

The energy policy must be implemented aggressively as we are already running behind in terms of taking actions to raise efficiency, promote conservation, and bring the oil bill to affordable levels. The priority is to encourage the use of more efficient vehicles and restrain engine sizes. The motor car dealers should, therefore, be making their strategic plans and business decisions within the parameters of the energy policy and not seeking to circumvent them.

Dennis Morrison is an economist. Feedback may be sent to columns@gleanerjm.com.