Labour productivity a puzzle in Jamaica – IMF rep
THE RESIDENT representative for the International Monetary Fund in Jamaica says labour productivity in Jamaica, as represented by the real value of what is produced in the economy, continues to decline, with more people working to achieve the same results or output year after year.
Speaking as the special presenter on Wednesday at a meeting of the Jamaica Association of Micro Financing, JAMFIN, in Kingston, Dr Constant Lonkeng Ngouana said that while indicators, such as the size of the micro and medium business sectors were encouraging, levels of productivity were not.
The problem needs to be fixed for growth to happen, he added.
Lonkeng suggested formalisation as one route to increased output, noting that while 130,000 firms were registered in 2017, there was an estimated 300,000 which were not, reducing their access to credit and the benefits of the formal economy.
He said data indicated the need to increase investments and innovation at the firm level, as indicators for both are also showing decline.
The IMF representative said growth has been driven in the last two years by net exports, but a deep look at the data available shows that investments as represented by net capital formation is going down.
“There is also evidence of limited innovation”, he said, pointing to a 2014 study in which Jamaican firms ranked dead last among regional entities which stated their intent to innovate in the medium term.
Noting that innovation could include research and development and new manufacturing processes, he concluded, “there is a lag here from the standpoint of capital formation and innovation”.
He added that the small and medium-size sectors were drivers of growth in Asia and could do similarly in Jamaica, if the challenge of informality could be overcome.
Chairman of JAMFIN Blossom O’Meally-Nelson said at the meeting that micro and mediumsize firms outside the formal system find the taxation system onerous and complex, and see formalisation as being of little benefit. She also highlighted a lack of trust of government among MSMEs.
Lonkeng responded that firms, whatever their size, can now have more trust in government after five years of economic reform, which has led to more predictable inflation; monetary policy, inclusive of reduced interest rates; the increased availability of foreign exchange, and an overall reduction of “aggregate risk”.
He acknowledged, however, that in relation to capital, “small entrepreneurs still pay rates in the double digits,” even while insisting that “there is some good news” as the Jamaican Government is no longer competing with businesses on the capital markets.
“The Government has moved from crowding out to crowding in. The Budget is nearly balanced and as policy rate goes down, other rates are expected to follow,” said the IMF rep.
He also indicated to the MSMEs that some of their destiny is in their hands.
“There is more work to be done on the MSME side. Try to document your business better, to get better credit and to better bridge the information gap between the borrower and lender,” said Lonkeng.
“There is now certainty at the aggregate level, and I don’t want it to be taken lightl, ... . At the end of the day, organic, sustained growth comes from small businesses coming on board and innovating.”