Diversity is the key – World Bank
THE World Bank Group is encouraging countries like Jamaica to seriously consider diversification as a way to tackle the supply chain crisis plaguing the world.
World Bank managing director of Development Policy and Partnerships, Mari Pangestu told the Jamaica Observer, “The disruption of the supply chain including the high cost of transport and the disruption in transportation and logistics have actually led to companies as well as countries diversifying the sources of many goods. You’re gonna see increasingly regional value chains.”
She said whereas countries would have normally sought cheaper opportunities far beyond their shore, many governments are now focusing on alternative sources which are geographically closer and more reliable but not necessarily cheaper.
But before this diversification strategy can be implemented, she explained that there’s much work to be done.
“You’ve got to get your enabling investment environment right, you’ve got to get investments in infrastructure, you need more certainty in your regulations,” Pangetsu stressed.
On her recent visit to Jamaica, Pangestu noted that a significant portion of her discussions with the Government had to do with “how to improve the agriculture infrastructure to be able to increase the production of food domestically. Part of it is increasing productivity and part of it is ensuring the value chain from farm to table or from the production point to the time it reaches the consumer that it can also be efficient.”
With regards to food security in particular, Pangestu admitted that the export restriction trend which has emerged globally will have lasting effects on countries like Jamaica. As a result, she made an appeal for countries implementing trade restrictions to refrain from doing so.
“Our main message is that countries need to keep trade open to make sure that you can have flows of food as well as fertilisers and their inputs. Otherwise the prices will fluctuate even further and this is what happened in the 2008 crisis. We also don’t want countries to panic by imposing either export restrictions or panic buying because there is enough food available; it’s just a question of how can we make sure that the food and the fertilisers and the inputs move. It’s important this time around to also see what happens to fertiliser because it will affect food production for the next season, so we also have to ensure that’s also going to be flowing without impediments and we try very hard to work with countries to make sure that we can ensure the flow of the supplies.”
In an effort to mitigate the crisis, the World Bank official further called on the Government to intensify its social protection programmes to include more cash transfers, food support in schools as well as cash for work programmes. She said these social protection programmes will allow market price adjustment and demand and supply to respond normally.
“The issue is also of affordability because the food prices have gone up and the best way to protect parts of your population from high food prices is well targeted social protection programmes that are linked to food. The main thing is to protect the poorest part of your population from the high food prices and make sure you can find alternative sources, either imports or focus on increasing your domestic production at the same time. So, I think you’ll have to do both and how you define how much food subsidy to give is very dependent on who you think the vulnerable population is,” said Pangestu.
As at April 2022, Jamaica’s consumer prices recorded its sharpest spike over a 12-month period since September 2010 at 11.8 per cent. That’s up from 11.3 per cent in March. The point-to-point inflation is a signal that even higher prices may be on the horizon.
Notwithstanding the challenges, she noted that Jamaica has done well for itself so far in terms of managing the crisis.
“Jamaica has been able to manage navigating this multiple crisis much better than many other countries. It has been able to maintain macroeconomic stability even though debt to GDP went up in 2020 because of the pandemic. It actually came down in 2021 and the government is committed to managing the fiscal situation and that’s important in terms of how investors perceive Jamaica. Inflation will be an issue because of the food and fuel price but let’s hope that this will not be a permanent situation but that in one or two years these prices will come down. While we are dealing with that we need to diversify the food sources,” she said.
In the meantime, Pangestu pointed out that it will be harder to realise strong economic growth going forward. As a result, she urged local authorities to cast a wider net in terms of the areas which can produce real growth.
“The world economy is going to grow at a much slower rate and you’re gonna have higher inflation or potential for stagflation, so this is really gonna slow down the recovery of many developing country.”
According to the latest World Economic Outlook, the World Bank now expects the global economy to expand at a rate of 3.2 per cent in 2022 which is down from its estimate of 4.1 per cent. For Jamaica, the economy is expected to expand 4.0 per cent in 2022, which is down 0.2 percentage points from March, and growing 2.7 per cent in 2023.
“We see in Jamaica that tourism has started to rebound even though it’s not back to pre-pandemic levels. I think the key is, how can we find sources of growth? We will still have slow growth but let’s look at opportunities for growth,” she continued.
Some of the growth inducing areas highlighted by Pangestu includes: tourism, the creative industries, business process outsourcing, opportunities in energy diversification and further infrastructure to improve connectivity across the island.