State agencies must work hand in hand - DBJ, UDC, JAMPRO hold the key

Ralph Thomas, Contributor

The topic of development is one of the greatest enigmas faced by most countries, especially developing ones. It is a concept that is very poorly defined by everyone and subject to the contradictions and normative views held by a society.

Different countries accept different views of development that reflect the hopes and aspirations of the people, but also accept the conventional definitions used by multilateral agencies such as the World Bank and International Monetary Fund (IMF) to define their state of existence.

Here in Jamaica, many accept the convention that if we achieve macroeconomic stability, as measured by economic indicators such as the rate of GDP growth; meet acceptable levels of inflation that allowed investors to gain a positive rate of return on their investments; maintain stable exchange rates and hold sufficient foreign-exchange reserves, we would be well on our way to being identified as a developed country.

But achieving these objectives would still be an insufficient outcome, as can be clearly demonstrated by looking at our Vision 2030 plan, the road map that we are following to developed-country status, which includes many other key objectives that have to be achieved to meet our date with this destiny.

falling behind

Indeed, when the list of 16 objectives in this plan is examined, it becomes very clear that our progress to achieving many of these objectives has faltered and we have regressed significantly in the area of poverty reduction and other critical benchmarks of progress.

To this must be added the socio-economic conditions and deteriorating state of our rural and urban communities, the state of consciousness of our people relative to our sovereignty and independence, continued declines in our values and attitudes, and the difficult-to-measure attribute of happiness of our citizens.

Development is, therefore, a matter of national perspectives and national priorities that focus on desired outcomes of our people, not sectarian interests or a myopic focus on economic aggregates.

It must include infrastructural development that promotes healthy lifestyles, community safety, education, and employment in meaningful work that promotes wealth creation, financial well-being, and protection of vulnerable persons, including those who cannot work because of age, infirmity or youth.

Beyond the big-picture management of macroeconomic aggregates, our development thrust must require that available resources are focused on improving life in both urban and rural communities simultaneously.

This means that the present state of inchoate development, where communities appear without a holistic plan for how its citizens will interact with each other; where its children will play or go to school; its residents purchase goods and services and interact with the revenue-collecting and service capabilities of the State, and small businesses grow and prosper in the correct context, must be corrected.

Community development must also factor in how the neighbourhood relates to the sustainability of the environment, and the protection and development of natural resources in trust for future generations.

Clearly, the role of the State in shaping this destiny is critical, as our society will not evolve to the hoped-for outcome without proper facilitation, incentives and punishments, leadership and vision.

In this context, the role of government and how far it should intervene in private sector-driven activity, and the extent of its facilitation, must be examined. Government ministers and their ministries need to re-engineer the process of governance and government to be more oriented to being servants of the people, becoming more of a facilitator, and be less obstructionist and more efficient.

Agencies have influence

As we examine the capacity of the State to facilitate socially relevant development, we must critically assess major state-owned enterprises (SOEs) that have traditionally played a critical role in guiding and facilitating the development of our physical infrastructure and the financing of enterprises that engage in production of goods and services for local consumption and export. Among these are the Urban Development Corporation (UDC), the Development Bank of Jamaica (DBJ), the National Export-Import Bank of Jamaica (EXIM Bank) and JAMPRO.

UDC's name presupposes that its focus should be urban development, and this is clearly expressed in its mission statement. In carrying out its critical role though, it has had some impact on rural development, as a secondary benefit to its primary thrust in urban development, particularly in tourism-related investments.

In recasting the role of the UDC in the context of a progressive focus on economic development, the mission of the organisation must be broadened to be more inclusive of rural development objectives, so that our citizens can become indifferent to choosing to reside in rural or urban areas. That decision should not arise because all the necessary services and benefits and access to state facilities and employment exist in proximity to their residence.

The UDC must take on as its mission to reverse the rural-urban drift, and play a much more significant role in employment and job creation and evolution of more even and holistic development throughout Jamaica, consistent with the resources and talents available in communities everywhere and the capacities of the State.

Clearer goals and objectives must be set for performance of SOEs, and measurable outcomes and benchmarks established and monitored to ensure that the pace of relevant development quickens.

Development banks act as financial intermediaries to channel flows of funds into critical areas that private-sector investors consider too risky, or otherwise unat

tractive without incentives or financial support from the State.

DBJ
is funded by large blocks of funds sourced from multilateral agencies
such as the World Bank, Caribbean Development Bank, and the PetroCaribe
Fund. It plays a traditional role of mostly on-lending funds to other
financial institutions, who in turn lend to borrowers who are investing
in various projects.

Rethinking DBJ

However,
this is not achieving the national objectives of promoting rapid growth
in investments and production. Indeed, by operating as a wholesaler of
funds, it adds a layer of bureaucracy and cost to the underlying
borrower that could be mitigated by playing a more direct role in
project evaluation and lending. The potential benefits of the
institution are not being efficiently transmitted to investors and
borrowers, and its mission, vision, strategy and tactical implementation
must become congruent with a progressive model of economic development.

A
strong capability is required to provide equity capital to start-ups
and high-growth businesses that can emerge in the energy, technology,
creative industry and agro-processing sectors to jump-start our economic
growth. Such venture-capital involvement requires that DBJ acquire the
capacity to evaluate, fund and manage the origination and deployment of
such investments accompanied by the necessary governance and technical
support, such as qualified directors to guide and influence the
management of these strategic equity investments.

Well-capitalised
businesses are more resilient and creditworthy and are able to borrow
complementary funds at lower rates and meet financial obligations. They
grow faster, create more value and contribute more immediately to
industry and job growth, by bypassing the lengthy stage of internal
capital accumulation required to support business expansion.

A
stronger focus on risk management is required at DBJ to enable it to
better address the spectrum of risks it encounters in different
transactions and with different borrowers. This is also necessary at the
aggregate level of managing the Treasury operations of the institution;
which should manage its portfolio of assets and liabilities and
mitigate risks by engaging in offsetting transactions.

Jamaica 50 growth fund

In
addition, swift and seamless execution of the new administration's plan
to create the Jamaica 50 Growth and Development Fund (J50GDF) is
required. This financial innovation has the potential to mobilise
much-needed financial resources from a wider array of investors locally
and globally.

Funds
can be deployed into equity investments, in potentially high-growth and
job-creating enterprises in select industries that are a critical part
of the value chain, combined with long-term debt placements that act as
quasi-capital, in order to achieve the right mix of debt/equity that
promotes reorganisation and sustainable growth of enterprises. Such
innovations should be part of the new focus of the DBJ, which itself
requires restructuring.

Better
coordination of the activities of EXIM Bank and JAMPRO are necessary in
a major thrust to drive domestic and export production, and import
substitution and sustainable development. JAMPRO promotional activities
must seek diversified opportunities beyond enclave investments in
low-income multiplier sectors, towards new high-growth and
high-employment initiatives that drive accelerated GDP.

It
can be concluded that innovation and better execution of the role of
the State and SOEs in active partnership with the widely defined private
sector will allow Jamaica to attain the elusive goal of high GDP growth
rates and developed-country status.

Ralph S. Thomas is a senior teaching fellow and joint appointee of the
Mona School of Business and the Department of Management Studies, UWI.
He is a financial consultant and was a vice-president of the Bank of New
York-Mellon. Email feedback to columns@gleanerjm.com and
ralphthomas003@yahoo.com.