World Bank on unlocking Jamaica's growth

Ian Boyne, Contributor

"Jamaica was one of the world's slowest-growing economies in the last four decades. In the 2000s, Jamaica's average real GDP growth ranked 180th out of 196 countries. Jamaica's ranking in terms of average real GDP growth continuously deteriorated during 1960-2008. Jamaica also lost ground against countries in Latin America and the Caribbean. Its ranking in the 2000s was 29th out of 34 countries."

That's stark and crushing to national pride. But it's only one of the few stark facts which one will encounter in the World Bank's hefty, more than 300-page report just released a few days ago, titled Jamaica Country Economic Memorandum: Unlocking Growth. The document was formally presented at a seminar at the University of the West Indies, Mona, in association with the Department of Economics.

After documenting the well-known fact that Jamaica has chalked up one of the highest debt-to-GDP ratios in the world, the report continues: "Jamaica fell behind most of its per capita income peers. Comparing Jamaica with its closest 19 peers in per capita GDP shows that the country has lost ground between 1970 and 2008. Jamaica's real per capita GDP growth was 13 per cent, and its rank within this group of 20 countries fell from seventh to 18th. This growth was the lowest in the entire group. The best performer was Taiwan, advancing from 15th in 1970 to second in 2008, growing by 747 per cent."

When you think of the lost opportunities, of the high-growth countries which were once trailing us, no wonder not everyone is excited about Jamaica 50. What is a pity is that this important World Bank document will be almost totally lost as a resource in Jamaica, as it will end up being read by only a tiny few, and what, therefore, should form an objective, dispassionate base of reference for economic and political discourse will lie unused, while the meaningless and empty political propaganda continues, and our chattering classes and pundits remain oblivious to hard, empirical data.

Meanwhile, we will continue to make the mistakes we have always made, and policymaking will continue to be held hostage to rent-seeking interests, parasitic classes and populist pressures. And speaking of rent-seeking interests, let's look at the facts surrounding tourism, the favoured child. Noting Jamaica's strong budgetary and other support for this sector, the World Bank notes that "the tourism sector's overall linkages to the overall economy are weak and most tourism earnings go abroad. Given the high dependence on large hotels, most of the tourism earnings do not stay in Jamaica. This leakage has been estimated to be as high as 80 per cent for the Caribbean, one of the highest in the world. Estimates of the multiplier effect of on Jamaica's tourism are low."

The World Bank report says, "The issue of relatively small linkages becomes more salient given the fiscal and economic cost of Jamaica's tourism incentives to attract investment. According to a recent Inter-American Development Bank report, these incentives are expensive to maintain and consume scarce public resources. The report cites tourism as an example of a sector shielded from country-specific risks through tax incentives that contribute little to increased productivity, leading to stagnating real growth rates." And whenever Government seeks to adjusts those incentives, the powerful and irresistible tourism lobby - which has strong hold on both political parties - howls and lobbies until it gets its way. That it has strong media interests also does not hurt.

Incentives

Jamaica Country Economic Memorandum: Unlocking Growth, after noting the many incentives geared to the tourism sector, observes: "This strategy has encouraged growth of large-scale hotel investments at the expense of the development of smaller accommodations. There are vulnerabilities in maintaining such a strategy of undifferentiated 'sand, sun and sea' tourism. These include high leakage rates and limited linkages to the rest of the economy and issues about sustainability, both fiscal and environmental."

There is a whole section analysing the tourism sector (along with food processing). Tourism is growing in Jamaica but it has lost market share worldwide and in the region.

The World Bank identifies three main obstacles to growth in the Jamaican economy: Crime, low human capital and productivity and lopsided fiscal and budget-management practices and policies. Jamaica is clearly following the neoliberal polices being recommended by the World Bank, generally, and on all there areas the Government is committed to reforms. What is interesting is the bank's review of Jamaica's economic performance, beginning in the 1950s. In the 1950s, there was robust growth of approximately six per cent, and in the 1960s, 2.9 per cent.

In the 1970s, growth began to decline, and in the 1980s "economic growth remained poor despite efforts to revitalise the market economy". Jamaica Labour Party (JLP) propaganda notwithstanding.

The World Bank explains that "the statist reform was extremely costly for Jamaica without any clear economic gain, and the market-oriented reversal in the early 1980s took years before beginning to bear fruit." By 1985, real GDP was actually 35 per cent lower than in 1972 - retreating to its 1960 level. GDP growth did accelerate in the second half of the 1980s but, in the past 20 years, real per capita GDP has increased on average only one per cent.

Economic performance

The World Bank shows that economic performance has been poor across the board. Of 46 economic subsectors, only financial services and telecommunications had growth rates of more than four per cent a year between 1992 and 2008. And the World Bank makes a point which has been stressed by all the dependency-school economists at the University of the West Indies since the 1970s: That our leading sectors have very few backward and forward linkages. In other words, we have followed what the World Bank calls an "enclave" development strategy. Tourism, with our all-inclusives, is only our most celebrated example. Mining is highly capital-intensive, only employing one per cent of the labour force, and "tourism has developed in a way that prevents strong intersectoral linkages".

The report also highlights Jamaica's low productivity level. This is why our high investment rate has not translated into growth. We have one of the worst rates of investment to growth globally. Poor productivity is not only among our workers but also among our entrepreneurs. We don't have the most creative and innovative capitalist class. Our deficits in education has been a major constraint on growth and productivity.

"The available evidence shows that Jamaica has a low level of human capital, with poor quality of education and insufficient training of its labour force despite the country's efforts," the World Bank reports.

Jamaica has been doing poorly in terms of exports, despite all our chat about "export or die" since the 1970s. Our share of the global goods exports has been falling while Latin America's has been growing. And our diversification levels have been disastrous. When you look on the chapter dealing with food processing and see our opportunities not exploited, you cry. When you note that we have a trade-to-GDP ratio of 111 per cent, you realise what our export sluggishness means. Our exports, as a percentage of GDP, have fallen since the 1990s

Deploring our enclave-development strategy as shown in mining, tourism, and overreliance on free zones, the report says, "Similarly, ICT has been a strategic and fast-growing sector promoted through tax incentives. Some of these benefits are included in the Export Free Zone Act, an arrangement that could prevent the development of strong links between firms located in these zones and other sectors or enterprises." But is anyone at JAMPRO or at the Ministry of Industry reading these reports and bringing their hard data to bear on policymaking and promotional strategy?

We need a more evidence-based approach to our discourse, rather than the emotional invective, grandstanding, demagoguery and political propaganda. We are already at the start of another election campaign, and instead of hard, cold, rational analysis of our challenges and prospects, we are being treated to drivel and blindsiding.

The World Bank has a major bright spot in this report: 'Our War on Poverty', a major success until recently, due largely to the global recession. "Although Jamaica's growth has been disappointing by regional and global standards, poverty has nonetheless declined significantly. The poverty incidence fell from 28.45 in 1990 to 9.9 per cent in 2007. Moreover, the substantial fall in poverty head count was accompanied by a narrowing of inequality, with most of the reduction in poverty occurring in initially poorer areas outside the Kingston Metropolitan Area."

So contrary to baseless JLP propaganda and uninformed talk-show punditry, which continues to this day, the PNP did record some achievements during its eighteen and a half years. Poverty reduction is not something to sniff at, for what is the point of development if not people upliftment? Let's give credit to the People's National Party, which did not waste all our resources, or corruptly used them, as JLP tribalists have charged.

Tribalists

And, yes, poverty has increased significantly since 2007, but that has been largely because of the global recession, as the World Bank itself notes, so I caution the PNP tribalists, too. (Lord, deliver us from the tribalists, but I must not take the Lord's name in vain, so I withdraw it. You just have to read the Gleaner blogs where the worst of that type is on demonstration.) "And the decline in poverty was especially impressive between 2003-2007." Inequality also declined.

Jamaica Country Economic Memorandum: Unlocking Growth represents an important resource, though its analysis is too narrowly economistic and woefully neglectful of political economy. Yet its fascinating comparison between Jamaica and Barbados should show the importance of social capital and balanced development.

But I agree with its conclusion: "Recent fiscal reforms are necessary but not sufficient for increasing growth. There is no silver bullet for all of Jamaica's problems, or any single, unique, binding constraint whose removal would solve them all."

Ian Boyne is a journalist. Email feedback to columns@gleanerjm and ianboyne1@yahoo.com.