The econ­omy needs to grow

Jamaica Gleaner - - SOCIAL - Dr An­dre Haughton is a lec­turer in the De­part­ment of Eco­nom­ics on the Mona cam­pus of the Univer­sity of the West Indies. Fol­low him on Twit­ter @DrAn­dreHaughton; or email feed­back to editorial@glean­erjm.com.

HOW HAS THE ECON­OMY BEEN GROW­ING?

THE JA­MAICAN econ­omy grew by zero per cent for the July to Septem­ber quar­ter of the 20162017 fis­cal year af­ter teas­ing us with growth of 1.2 per cent for the April to June quar­ter as a re­sult of im­prove­ments in agri­cul­ture, ho­tel and restau­rants, and elec­tric­ity and wa­ter.

The goods-pro­duc­ing in­dus­try grew by 2.2 per cent, while the ser­vice in­dus­try grew by 0.8 per cent. How­ever, the in­nate hand­i­caps in the econ­omy needed to main­tain gross do­mes­tic prod­uct on an up­ward, steady growth tra­jec­tory have not been ad­dressed prop­erly as ev­i­dent by a fall in growth over the sum­mer ev­ery year.

WHAT ARE SOME OF THESE CHAL­LENGES?

Drought con­di­tions neg­a­tively im­pacted agri­cul­tural out­put for the July to Septem­ber quar­ters last year and in 2014. I went to the mar­ket two weeks ago and there were no lo­cal onions or car­rot. We have not heard or seen any sig­nif­i­cant at­tempts be­ing made to pro­vide sus­tain­able wa­ter sources for our farm­ers across the is­land; just talk­ing and ad­ver­tise­ment, noth­ing se­ri­ous and con­crete. Also, fund­ing for agri­cul­tural and man­u­fac­tur­ing projects con­tinue to be a prob­lem. Although in­ter­est rates have been trend­ing down­wards, the re­search has shown that com­mer­cial banks are res­train­ing the flu­ency of the mon­e­tary trans­mis­sion mech­a­nism by main­tain­ing a high markup on the lend­ing rate and in­creased bu­reau­cracy in the loan ap­proval process.

WHAT ABOUT IM­PORTS AND EX­PORTS?

The re­search has in­di­cated that as the real ex­change rate in­creases (de­pre­ci­ates), Ja­maica im­ports more food, durable goods, food raw ma­te­ri­als and more of other ma­te­ri­als. Even when im­ports be­come more ex­pen­sive, the reliance on such for do­mes­tic pro­duc­tion process, in this case food, is im­port-based. Data from the Sta­tis­ti­cal In­sti­tute of Ja­maica (STATIN) have shown that in­ter­na­tional mer­chan­dise trade in ex­port has fallen by more than US$101 mil­lion as of May 2016. Ac­cord­ing to STATIN, tra­di­tional ex­ports (ba­nana and sugar, etc) rep­re­sented 60.8 per cent of to­tal do­mes­tic ex­ports in the Jan­uary to May 2016 re­view pe­riod, earn­ing US$267.4 mil­lion; roughly US$85 mil­lion less than the US$351.9 mil­lion recorded for the sim­i­lar pe­riod in 2015. STATIN has valued non-tra­di­tional do­mes­tic ex­ports at US$172.6 mil­lion, 14.1 per cent or US$28.4 mil­lion less than the US$200.9 mil­lion earned in the com­pa­ra­ble 2015 re­view pe­riod.

WHAT ELSE HAS THE RE­SEARCH SHOWN?

An anal­y­sis of the coun­try’s main ex­ports showed that there ex­ists lit­tle re­la­tion­ship be­tween each item of ex­port and the changes in the real ef­fec­tive ex­change rate. The ex­por­ta­tion of baux­ite and its sec­ondary prod­uct alu­mina fluc­tu­ated from year to year, in­de­pen­dent of the real ex­change rate (RER), and gen­er­ates the most for­eign cur­rency in­flow of all Ja­maica’s ex­ports. For­eign cur­rency rev­enues, from the is­land’s ex­port agri­cul­tural prod­ucts, in­clud­ing ba­nana, sugar and cof­fee, main­tain the same value ir­re­spec­tive of de­pre­ci­a­tion in the RER. In this case, even if the coun­try is pro­duc­ing more per an­num, hav­ing to sell each unit at a lower price each year means that the coun­try earns less from its out­put. Cof­fee pro­duc­tion for ex­port has im­proved af­ter the global fi­nan­cial cri­sis, while the pro­duc­tion of ba­nana has fallen.

WHAT IS THE SO­LU­TION?

The Ja­maican econ­omy is frag­ile and poli­cies to de­pre­ci­ate the do­mes­tic cur­rency to im­prove cur­rent ac­count in the short run may lead to fur­ther wors­en­ing of the cur­rent ac­count in the long run, if peo­ple do not change their con­sump­tion habits. Other than baux­ite and its byprod­ucts, Ja­maica’s main ex­ports have been farm­ing prod­ucts and tourism, which have main­tained the same flow of for­eign cur­rency to the is­land over the last 25 years. The re­sults of my re­cent re­search re­veal that strate­gies to de­pre­ci­ate the cur­rency must be sup­ported by strate­gies to ex­pand ex­ports. This ex­port strat­egy de­pends heav­ily on the coun­try’s abil­ity to trans­form goods from pri­mary pro­duc­tion to sec­ondary and ter­tiary pro­duc­tion pro­cesses, where they can fetch higher prices abroad and more rev­enue for the is­land.

WHAT OTHER CHAL­LENGES DO WE FACE?

The re­sults have shown that im­prov­ing cor­rup­tion con­trol and po­lit­i­cal sta­bil­ity can boost ef­fi­ciency across Ja­maica and boost the sus­tain­abil­ity of the cur­rent ac­count by mak­ing it eas­ier for ci­ti­zens to pro­duce and ex­port goods. The Gov­ern­ment needs to fully ex­am­ine the prac­ti­cal­ity, roles and re­spon­si­bil­i­ties of each min­istry, de­part­ment and agency each year to en­sure that they are com­plet­ing their man­date and are be­com­ing more ef­fi­cient in their pro­cesses. If a per­son holds a po­si­tion, they must be qual­i­fied to ful­fil the tasks re­quired of that po­si­tion and also be able to im­prove the out­put and ef­fi­ciency of that po­si­tion. The habit of shift­ing peo­ple around like ‘pass round don­key’ to fill roles they are not qual­i­fied for is a joke and is con­tribut­ing to the high-level in­ef­fi­ciency in the coun­try.

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