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Saturday, 1 February 2014
Doing Business in the Caribbean 2014: CARIFORUM needs Reform
Topic: Regional Competitiveness

Doing Business 2014: Understanding Regulations for Small and Medium-Sized Enterprises, is one of a long-standing series of co-publications of the World Bank and International Financial Corporation, which records the global competitiveness of 189 nations from 2012 to 2013. Sixteen of these nations are Caribbean: Fifteen are CARIFORUM member states.

The current and previous ranking of these nations is shown in table 1. My immediate observation was that the Caribbean’s longest-standing independent nation – Haiti – was ranked last at 177, while the only non-CARIFORUM and dependent nation – Puerto Rico – was ranked first at 40; and these positions were unchanged from the previous year.

Caribbean Nation

Population (Millions)

Income (US $)

2013

2014

Antigua & Barbuda

0.1

12,640

63

71

Bahamas, The

0.4

22,833

77

84

Barbados

0.3

16,152

88

91

Belize

0.3

4,180

105

106

Dominica

0.1

6,460

68

77

Dominican Republic

10.3

5,470

116

117

Grenada

0.1

7,110

100

107

Guyana

0.8

3,410

114

115

Haiti

10.2

760

174

177

Jamaica

2.7

5,140

90

94

Puerto Rico (US)

3.7

18,000

41

40

St. Kitts & Nevis

0.1

13,330

96

101

St. Lucia

0.2

6,530

53

64

St. Vincent & the Grenadines

0.1

6,380

75

82

Suriname

0.5

8,480

164

161

Trinidad

1.3

14,400

69

66

 

In “Political Independence and Economic Development in the Caribbean”, I took a look at the Caribbean phenomenon that larger independent nations, like Haiti, generally have lower-income economies compared to the smaller dependent ones, like Puerto Rico: as it is in this case.

The article concluded that initial obstacles faced by the then newly independent nations were being overcome notably through the effort of the Organization of Eastern Caribbean States (OECS) and the Caribbean Community (CARICOM). However, it is now apparent that much work still remains to be done.

In “Doing Business in the Caribbean: Lessons from Singapore”, I benchmarked the performance of Barbados, Jamaica, and Trinidad and Tobago in one indicator, from “Doing Business 2013”, against the top ranked Singapore, which is once again first in “Doing Business 2014”.

In my article, I indicated that Singapore shared a similar history and, in the 1960s, similar economic structures and institutions to the Anglophone Caribbean islands. But, it has subsequently achieved a greater level of development, and now consistently excels in the Global Competitiveness Index.

Singapore is now host country of the APEC Secretariat. If you have never heard of APEC, neither did I. But, APEC stands for Asia-Pacific Economic Cooperation. Founded in 1989, it is a forum that is committed to three main pillars: liberalization of trade and investment, business facilitation, as well as economic and technical cooperation.

APEC comprises 21 nations whose economies constitute 54% of the world’s GDP and 44% of global trade. If that is not impressive enough, the four highest ranked nations are members of APEC: including USA: on whom Puerto Rico is a dependant.

Regional factors play a part in driving reforms in the business regulatory environment of APEC member states. APEC concentrates reform in institution, regulation, and policy to facilitate more efficient markets and reduced trade barriers in their region.

There is still much variation in the performance of APEC member states: ranging from Singapore at 1 to Indonesia at 120. However, variation in the Caribbean amounts to 137, which has increased from the previous year: because Puerto Rico advanced 1 place and Haiti fell 3 places. But, no member of APEC has a low-income economy, such as Haiti.

The variation is similar but still larger when comparing Puerto Rico to Suriname: which has an upper, middle-income economy and ranked second to last among Caribbean nations. But, Indonesia is a lower, middle-income economy. So, this is no real comparison: especially considering that APEC outperforms the Caribbean by approximately 40 ranks.

“Political Independence and Economic Development in the Caribbean” also focused on the Anglophone Caribbean nations that were long-standing members of OECS and CARICOM. This group comprises twelve of the fifteen CARIFORUM member states ranked, and shows much less variation in their rankings than their non-Anglophone colleagues, who had the lowest ranks.

The CARIFORUM states of Dominican Republic, Haiti, and Suriname had the three lowest ranks in the Caribbean. They speak different languages; their economies vary from low to upper, middle-income; and, they have significantly different population and land sizes: though Haiti and Dominican Republic really occupy a single land mass: Hispaniola.

When the Anglophone nations of Belize and Guyana are added to this group, the five members occupy the lowest six ranks on the Caribbean nations. But, the characteristics of this group, as mentioned above, remain unchanged. For ease of reference, the eleven remaining nations shall be referred to as the small island developing states (SIDS).

The ranks in both groups typically fell from the previous year. Only Suriname improved its rank in the former. But, Puerto Rico, and Trinidad and Tobago improved in the latter. Nevertheless, the SIDS fell in ranks by an average of approximately 5 places compared to less than a place for non-SIDS.

The Dominican Today publication of 13 January 2014, "World Bank Project Aims to Make Companies More Competitive", makes mention of the visit of a World Bank delegation to the Dominican Republic to start a “Competitiveness Project” in conjunction with their Economy Ministry. But, the problem is really a regional one, and CARIFORUM should drive the reform needed for capacity building.

The overall performance in “Doing Business 2014” has deteriorated from last year: both in rank and variation. Puerto Rico is not a member of CARIFORUM, so the variation within CARIFORUM member states actually fell: but, this was due to a faster fall in ratings by the better performing SIDS group relative to their non-SIDS counter parts.

Nevertheless, the United Nations has projected greater growth within the non-SIDS group this year. So, reform is needed for them to sustain this growth. Finally, the naysayers who are opposed to any regional grouping should consider competing against the likes of APEC by themselves.

As before, “we have to acknowledge that Caribbean nations are uncompetitive, be willing to change and apply bold and innovative solutions”. In my next article, I will discuss APEC’s approach, diagnose the Caribbean’s performance, and recommend target areas for CARIFORUM’s action.


Posted by phcjam at 9:18 PM EST
Updated: Saturday, 1 February 2014 9:42 PM EST
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Sunday, 8 December 2013
Political independence and Economic Development in the Caribbean
Topic: Regional Development

In 2003, Alvin G. Wint – former head of the Department of Management Studies at the University of West Indies, Mona Campus – noted in his book Competitiveness in Small Developing Economies: Insights from the Caribbean that dependent territories in the Caribbean typically have the smallest economies but the highest per capita incomes.

Early in the 1960’s when most Caribbean countries were either dependent or newly independent, territories which would later form the Caribbean Community (CARICOM) could be listed from the highest to lowest per capita income as: Trinidad and Tobago, Jamaica, Barbados, Guyana, the Leeward and Windward islands.

Twenty years later, seven territories of the Leeward and Windward Islands formed a monetary union called the Organization of Eastern Caribbean States (OECS). Wint states that: while they “are politically independent, their monetary policy independence is constrained by their membership in this regional economic union”.

Later, the 2000/2001 World Development Report (WDR) classified Trinidad and Tobago, Barbados and most member states of OECS as having upper middle incomes, while the other CARICOM states had lower middle incomes. But, the Bahamas and dependent Caribbean territories were classified as having high incomes.

The dependent territories attributed their success to the global perception that they had lower political and economic risks. While many CARICOM member states were approaching 40 years of political independence at that time, this certainly seemed to have been the case.

 

Independent states adopted independent exchange rates in the 1970’s

Besides falling in ranks from the 1960’s per capita listing, Jamaica and Guyana both have flexible exchange rates. With the exception of Trinidad and Tobago, other Caribbean countries use fixed exchange rates. According to Wint, “movement away from fixed exchange rates in the 1970’s gave developing countries the opportunity to adopt independent exchange rates for the first time…”.

The fact that Trinidad and Tobago did not share the same fate is instructive. Changes in exchange rates increased after 1973; and, “most non-oil producing developing countries experienced significant budgetary imbalances as a result of the quadrupling of oil prices in 1973”. Trinidad and Tobago, being an oil-producing state, would have been spared this experience.

Non-oil producing countries of the Caribbean typically use a significant portion of their export earnings for oil imports. Devaluation of the Jamaican and Guyanese currencies therefore inflated the value of their imports over their exports: thus making a bad situation worse. 

According to Wint, “The advantage of fixed exchange regimes, on the other hand, tends to be the financial discipline they impose on governments”. With regard to OECS, it was stated that: the union “had forced on all the countries a degree of macro-economic discipline…”.

 

Caribbean Community agreed to establish a monetary union in 1992

In the mid 1970’s, CARICOM formulated a compensation facility utilizing currencies of its member-states. The objectives of this facility were two-fold: to facilitate monetary stability, and to encourage trade. This was initially a bi-lateral facility, but in 1977 became a multilateral facility referred to as the CARICOM Multilateral Clearing Facility (CMCF).

CMCF’s objectives included the promotion of regional cooperation within the banking sector and also cooperation between member states. CMCF succeeded until the early 1980’s, when Guyana defaulted on its debts and Barbados was unable to extend more favourable payment terms.

Recently, the CARICOM Secretariat in conjunction with the Guyana Bureau of Statistics hosted a seminar on the community’s trade performance, and it was stated that the intra-regional exports from 1973 – 1981 averaged 9% of total exports. Also, there was a decline in the 1980’s because of a debt crisis.

Nevertheless, the CARICOM Single Market and Economy (CSME) was conceptualized in July 1989 by then CARICOM heads of government at Grand Anse, Grenada. In 1992, the heads of government agreed to establish this monetary union. But, CSME was only a part of CARICOM’s development strategy in the midst of globalization: where size and strength were becoming increasingly important.

 

Caribbean Single Market and Economy stalls in 1993

CSME’s primary objectives are price and exchange stability, and reduction of transaction costs of regional trade. The secondary objectives are the stimulation of capital flows from intra-regional trade and investment, improvement of balance of payments, and increased growth and employment.

CARICOM member states were grouped into one of two classifications. States in category A were already compliant with the 1992 CSME criteria, and were only required to maintain monetary stability. States in category A were the Bahamas, Belize and the OECS: OECS having already been established as a monetary union.

States in category B had to make adjustments to become compliant. States in category B were initially Trinidad and Tobago, Barbados, Jamaica, and Guyana; but Suriname and Haiti were added later. The strength of regional currencies suggested a monetary union would have been straightforward, but this has proved otherwise.

A 3-phase implementation schedule was proposed. A Council of CARICOM Central Governors should have been established in phase 1. This phase included Trinidad and Tobago, Barbados, Belize and OECS. But, phase 1 stalled in 1993 when Trinidad and Tobago floated their currency; and, efforts to proceed without them failed.

 

Non-compliant states stalled the CSME

This failure was founded in the 1980’s, between the end of CMCF and conceptualization of the CSME. Paradoxically, it was due to issues of trade and monetary instability. The Barbadian government engaged in deficit spending in the run-up to the 1981 election. While, Trinidad developed a programme to diversify its exports to non-oil markets in response to a slump in oil prices in 1982.

By the mid 1990’s, Trinidad had substantially increased its non-oil exports, “particularly to the Jamaican market”. But, when Jamaica liberalized its exchange system in 1991, Trinidad followed suit in 1992 floating its currency to provide incentives for its exporters.

Trinidad’s trade policy began with protectionism, which led to reduced earnings for Barbados. Coupled with that government’s fiscal relaxation in 1986, this gave rise to a financial crisis in 1991: where Barbados’ net international reserves dropped to three weeks of imports. 

 

Economic development in CARICOM improved after 2002

In an article titled “Jamaica and the Caribbean Community” published in the Jamaican Gleaner of 24 November 2013, Byron Blake – former assistant secretary general of the CARICOM Secretariat - wrote that the Bahamas, which was one of the compliant states, “was not prepared to join the CSME” and could have been excluded from CARICOM were it not for a “special pact” signed between themselves and CARICOM.

Nevertheless, there was exceptional growth in intra-regional trade from 2002 – 2008, and the CARICOM Single Market was established in 2006. Growth in trade contracted as a result of the global economic and financial crisis. But, intra-regional trade is now 17.2% of total exports. This is almost double the rate in 1981: Trinidad and Tobago being the dominant exporter to the region.

WDR 2012 indicates that Trinidad and Tobago, and Barbados had joined the Bahamas as high income economies. Data for both were not included in WDR 2014, so it is uncertain whether this was sustained. However, the report indicated that OECS states of Antigua and Barbuda, as well as St. Kitts and Nevis had high incomes.

This seems to indicate the initial set-back associated with political independence has now been overcome. Now, the real threat to economic development is the misuse of political independence, particularly with regard to macro-economic stability. The example of Barbados is instructive in this regard: as a non-oil producing state.

 

Barbados restored macroeconomic stability without devaluation

In 1973, mercantile exports of many developing countries, including Barbados, increased. Barbados exercised fiscal conservatism by off-setting increased expenditure on oil with increased inflows from exports, and created a surplus fund.

Barbadian policy makers were cognizant of the negative impact devaluation had on its CARICOM colleagues: Jamaica and Guyana. According to Wint, these “policy makers illustrated that the macroeconomic stability of which the exchange rate was a symbol would be supported by prudent economic policy and fiscal conservatism”.

This approach was taken to deal with its deficit spending of 1981, and “fiscal correction was so comprehensive that it allowed Barbados to negotiate a standby agreement with the IMF without requiring any discussion on exchange rate adjustments”. This approach was again successfully applied in dealing with its 1991 crisis.

The Barbadian example shows that “…a fixed exchange rate as a nominal anchor does not necessarily reduce the temptation to resort to fiscal impudence and a corresponding inflation tax, but it does induce a rapid return to fiscal propriety if the anchor is not to be lost”.

 

Conclusion: Political independence requires fiscal propriety

It is therefore incomprehensible that a reputable financial institution such as Moody’s could recommend that OECS be dismantled and the Eastern Caribbean Dollar devalued. It could also be inferred from this recommendation that CARICOM should abandon CSME and the use of a common currency.

But, the facts support the response of Sir Dwight Venner - Governor of the Eastern Caribbean Central Bank – that “Evidence to the contrary suggest that the stability of the deposits in the banking system have been anchors on which the stability of our economies and financial system has been built over the last three decades…

Macroeconomic stability is essential for growth in two dominant service industries in the Caribbean: international financial services and tourism. Macroeconomic stability is necessary for the full implementation of CSME. It is not necessary for OECS or CARICOM to change course.

A Caribbean Monetary Authority (CMA) is proposed to be established in phase 2 of the CSME, which will be accountable to a Council of Finance Ministers. Then, a common currency will be issued to settle regional transactions. Finally, Guyana and Jamaica will be admitted, on becoming compliant. Phase 3 requires all states to enter the monetary union as well as CMA membership.

The revised Treaty of Chaguaramas, which was concluded in 2001, has the objectives of improving administration of trade, increasing the scope of trade to include services, and facilitating regional investment. International concerns should not be allowed to derail the progress made. Otherwise, political independence in the Caribbean will truly have been at the expense of economic development.


Posted by phcjam at 5:48 PM EST
Updated: Saturday, 1 February 2014 9:14 PM EST
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Saturday, 19 October 2013
Trinidad and Jamaica should Reconsider Strategic Alliance in the Mineral Sector
Topic: Regional Development

William Demas – former Head of the Economic and Planning Division of the Government of Trinidad and Tobago – compared the 5-year national plans of Jamaica and Trinidad and Tobago (T&T) in his book The Economics of Development in Small Countries, first published in 1965, and noted that:

“...both plans anticipate a slow-down in the rate of growth of G.D.P. as compared with the 1950’s. In both cases growth rates of G.D.P. of 5 per cent are projected..., in both cases, the slow down in the rate of growth of G.D.P. is the result of the anticipated slowing down in the rate of growth of the mineral export sectors to 3 per cent – bauxite in Jamaica and petroleum in Trinidad.”

The existence of relatively cheap oil imports as prevailed in the 1950s through to the OPEC action in 1973 factored in Jamaica’s economic growth.  But, the international oil market has changed.  Oil prices have hovered around US$100 per barrel since the end of the last decade and prices of US$150 – US$200 per barrel are projected on recovery from the global recession. 

The Jamaican dollar devalued by an average annual rate of 212.6% from 1970-2005.  From 1990-2006, GDP grew 1.1% on average while energy use grew 2.5% per annum.  In 2006, the value of oil imports amounted to 87% of export earnings.

Zia Mian, a retired senior World Bank official and international energy consultant, states in an article titled “Jamaica’s Energy Challenge – part III”, in the Sunday Gleaner dated 30 March 2008, that: “Jamaica’s economy is relatively energy intensive.  Per capita energy consumption is estimated at over 10 barrels of oil equivalent (boe)”. 

Jamaica has one of the highest rates of energy consumption in Latin America and the Caribbean region.  This is mainly due to the heavy usage of energy by its bauxite/alumina sector.  Jamaica operates four alumina refineries. All of these use oil to convert bauxite to alumina, which is then shipped to smelters overseas for further processing to aluminium.

Oil is the most significant cost involved in producting alumina. According to data from the Jamaica Bauxite Institute, Fuel/Energy represented 40% of the operating cost of producing alumina in 2009, when operating costs were US$ 217.40/metric tonne; and 52% in 2012, when operating costs were US$ 345.80/metric tonne.

Carlton Davis, author of Jamaica in the World Aluminium Industry 1938 – 1973, former Cabinet Secretary and chairman of the Jamaica Bauxite Institute, stated in an article entitled: “Energy Cost and our Economic Future – Future of Alumina Sector Hinges on Energy Cost”, in the Mona School of Business Nov/Dec 2011 issue, that:

 “Given the importance of the cost of energy in the production of alumina and the consensus that oil will be more expensive over the long-term than natural gas or coal it is incumbent that oil is replaced by one of these two fuels.  However, it is necessary for the industry to increase the efficiency of whatever fuel is used.  Given what is at stake the Government has a lead role in affecting this transformation.”

According to the Economic and Social Survey Jamaica 2012, export earnings from the bauxite/alumina sector declined by 11.5% in 2012: crude bauxite by 7.5% and alumina by 12.4%.  This decline was partly due to the “global slow down associated with the European debt crisis” but also the result of:

<!--[if !supportLists]-->·         <!--[endif]-->Lower alumina prices, where Jamaica could not compete due to its relatively high cost plants; and

<!--[if !supportLists]-->·         <!--[endif]-->Increased global competition from newly commissioned, more efficient, alumina plants.

Two of Jamaica’s refineries are slated to be converted to coal-fired electricity generating plants in the near future; and the remainder converted for use of natural gas. According to Carlton Davis, “...data from the alumina sector indicates that using natural gas would require less capital investment than coal”. Conversion of a plant from oil to natural gas would cost US $30 million, while conversion to coal costs US $250 million.

Zia Mian also states in an article entitled “Cross-Caribbean Energy Link-Up”, in the Sunday Gleaner dated 29 September 2013, that: “After T&T informed Jamaica that it had no gas to honour its commitment to supply 1.125 tonnes of LNG per annum to bauxite and power sectors, I developed and suggested an interim gas-supply option. This option was predicated on trilateral cooperation among Jamaica, T&T and Venezuela”.

The objective of this initiative was to purchase natural gas from Venezuela, have it liquefied in Trinidad, and ship it to Jamaica. In September, Trinidad signed a bilateral agreement with Venezuela to resolve their border issues and share natural gas from fields which lie on those borders. This “recent bilateral deal has reopened the opportunity for Jamaica to buy natural gas from Venezuela and liquefy it in T&T”.

In fact, “T&T’s United States LNG market is now minimal and T&T has been selling LNG to Far Eastern markets”, and “the costs of transport to those destinations are generally high”. So, a strategic alliance between Trinidad and Jamaica at this time could prove mutually beneficial.

A World Bank project has been underway in Jamaica for some time now to support the development of a regulatory environment for introduction of natural gas.  The preferred fuel for the recently tendered 360 MW generating plant is natural gas; and, one of the bidders intended to source this fuel from Puerto Rico, which would have meant Jamaica would have been getting Trinidadian LNG via Puerto Rico.

In this regard, I support Zia’s recommendation that Trinidad and Jamaica “must give this opportunity another  try and see if it could reduce the cost”, though I would add not only in electricity generation, but also in alumina production.

In the 1960’s, the only endeavour cheap oil did not allow Jamaica was to have its own aluminium smelters; though there was a proposal in the 1970’s to have Jamaica’s bauxite shipped to smelters built in locations such as Trinidad. The more recent cancellation of Trinidad’s Alutrint smelter complex should not end further collaboration between these two nations in the mineral sector. Both nations, in Jamaican paralance, need to “wheel and come again”.


Posted by phcjam at 12:40 PM EDT
Updated: Sunday, 8 December 2013 5:45 PM EST
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Thursday, 5 September 2013
Chinese Initiative a Game Changer for Jamaica’s Logistics Hub
Topic: Regional Development

To date, I have written three articles about different aspects of Jamaica’s Logistics Hub. This makes my fourth. Frequent readers of the Caribbean Journal may only be aware of three, counting this one. The first, “The Logistics Hub Project and Jamaica’s Development” explained the opportunity the logistics hub presents for Jamaica’s development. The second “What History means for the Jamaica Logistics Hub” illustrated Jamaica’s established strength in such maritime endeavours. By now, some may have already realised that these articles were not arbitrary, but part of what is known as a SWOT analysis: SWOT being an acronym for Strength, Weakness, Opportunity and Threat.

The third article “Preparing for Competition – Strategic Facility Planning for Small and Medium-Sized Businesses” is posted on my blog, and uses the logistics hub as an example in assessing threats: the threat in this instance being the Panama Logistics Hub. So, the astute will now realise I have to date not touched on the hub’s weakness, at least not directly, nor had I intended of do so at this time. But, recent events have prompted me to conclude this series, even though details of the initiative have yet to be made public. Recent pronunciations particularly by public officials have shown a glaring ignorance of the precarious nature of this project, and acting on such ignorance could jeopardize the initiative.

Following my first article, Sheldon Rose – Supply-Chain and International Logistics Professional – pointed out a number of these weaknesses to me. I had mentioned that the logistics hub initiative would be constructed across four of Jamaica’s south-coast parishes. Sheldon pointed out that legally these nodes could not be separate from each other: legislative changes are required to facilitate the transportation of in-bond goods between the respective nodes of the hub, especially without the direct supervision of the customs department. Equipment for transhipment ports have to be custom-built and take years to fabricate. Provision needs to be made for handling hazardous materials, including oil-spills. Also, the hub would significantly impact the bio-diversity of its surroundings, so hydrological and environmental studies were needed to analyze the environmental impact.

The Logistics Hub involves the parishes of Kingston, St. Thomas, Clarendon and St. Catherine.  Starting next year, the Kingston Harbour is to be dredged, and additional berths installed west of the existing piers at the Port of Kingston to accommodate the super-sized vessels that will start coming through the expanded Panama Canal in 2015. Next, a bunkering and commodity transhipment port will be built in St. Thomas; and a dry-dock port, along with cargo and passenger airport built in Clarendon.  However, an industrial park – the Caymanas Economic Zone (CEZ) - is also proposed to be built in St. Catherine in the initial stage: only 200 acres being allocated for the park in the first instance but intended to be expanded to 1,000 acres after subsequent developments.

The expansion of the Port of Kingston later incorporated Fort Augusta, in St. Catherine. Minister Anthony Hylton had initially pitched the merger of the port expansion and CEZ to China Harbour Engineering Company (CHEC).  But, Prime Minister Portia Simpson later disclosed in her contribution to the 2013 budget debate that lands at Fort Augusta were insufficient for CHEC plans. Then, Ronald Mason’s article in the Sunday Gleaner of 18 August 2013 titled “Environment vs. Job, Economic Development” made mention of a US $1.5 billion investment by the Chinese into a development of which Liu Qitao – president of the CHEC parent company, China Communication Construction Company (CCCC) - referred to as the Portland Bight Industrial Park.

The location in question, the Great and Little Goat Islands, are located off the coast of St. Catherine. They are the second and third largest islands in the Jamaican archipelago: being 600 and 300 acres respectively in area. Peter Espeut explains in his Gleaner article “Selling our Birthright”, dated 23 August 2013, that the Goat Islands are connected to each other and to the mainland by mangrove wetlands. The mainland itself is “fringed with hundreds of acres of mangroves” and forms the Galleon Harbour with the Goat Islands.  This area has been declared a fish and game sanctuary by the government: being “one of the most fecund fish nurseries” in Jamaica, and a “habitat to thousands of birds”.

Construction is proposed to commence in 2014. The 100 m high hill on the Great Goat Island is to be “pushed into the sea to cover the wetlands” and create a huge peninsula on which the logistics centre will be built. A further 2,000 acres of land on the mainland is also to be developed, and the seabed dredged to accommodate the super-sized vessels: thus removing coral reefs and shoals in the process. This Chinese initiative consolidates the industrial park and port facilities, so in-bond goods initially will not have to be transported outside the area. As a matter of fact, this new port is now closer to the prospective cargo airport than was previously envisioned; but, having a toll highway to presently connect the various nodes of the Logistics Hub is not satisfactory. Rather than focus only on the ecological concerns though, it should also be appreciated that this Chinese initiative offers the logistics hub benefits it never had, including increased size, and should not be taken glibly, especially in the context of Panama’s offerings.

Panama also has ambitions to be the fourth global logistical hub, and it is far advanced in this regard. The Panama Pacifico Project, which has a duration of forty years, has allocated 3,500 acres of land for its industrial park. Panama’s Colon Free Trade Zone (CFTZ) has been operational since 1947 and now comprises three major ports and an airport, all linked by highway and railway: not to mention the 154 companies that already reside in this logistics park. Panama has two different organizations managing its ports and has made provision for a third: the operator of Singapore’s Logistics Hub. The Goat Islands alone is no match for this. The original hub initiative alone is no match for this. They complement each other. If not the Goat Islands, what alternate green field site does Jamaica have to offer the Chinese?

But, let me not leave my readers despondent: thinking the initiative is a lost cause. It is good that Jamaica realise that Panama’s Logistics Hub is a threat to its becoming the fourth global logistics hub, but it should also be realised that the Nicaraguan Canal is also a threat to the Panama Canal. Jamaica’s strength is in its central geographical location and it is the only hub that can consolidate freight for both canals, as well as tranship freight from either of these canals.  The Chinese initiative cannot be easily dispensed with. It is critical for the success of Jamaica’s logistics aspirations. Jamaica is off to a late start, it cannot afford to drop the baton now. It must decide whether it wants to enter the arena of global trade or be ever satisfied with its meagre tourism, bauxite, and remittance earnings.


Posted by phcjam at 11:36 AM EDT
Updated: Saturday, 19 October 2013 12:39 PM EDT
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Saturday, 20 July 2013
CARICOM and Caribbean Economic Development
Topic: Regional Development

In 1963, the Centre for Developing-Area Studies (CDAS) was established at the McGill University in Canada. William G. Demas – then Head of the Economic Planning Division of the Government of Trinidad and Tobago, served as its first research fellow in 1964.  Under its auspices, Demas delivered a four-lecture series on economic development of small countries, the substance of which was reproduced in 1965 as a book titled The Economics of Development in Small Countries, with Special Reference to the Caribbean.

In the Preface to the first edition, Demas wrote: “In the course of my work in the field of economic planning in Trinidad, I was led to question the relevance to small countries of much of the accepted doctrine on economic development. I came to the conclusion that a somewhat different approach was necessary for small countries, such as the Caribbean”. In the Introduction to the later edition, Sir Hilary Beckles, pro Vice-Chancellor, Principal and Professor of Economic and Social History at the University of the West Indies, Cave Hill, Barbados, remarked that “This brilliant text emerged from the intensity of his contributions to development ideas within the regional integration movement”.

In 1965, several former British colonies in the Caribbean also formed the Caribbean Free Trade Association (CARIFTA), an agreement between member states to eliminate trade barriers. These former British colonies then formed the Caribbean Common Market (CARICOM) in 1973, which involved the introduction of a common external tariff and free movement of labour and services.

On CARICOM’s fortieth anniversary, Jamaican manufacturers complain of Trinidad’s large trade surplus with Jamaica; that Trinidad maintains non-tariff barriers; and how energy subsidies to Trinidadian manufacturers give them an unfair competitive advantage. However, these Jamaican manufacturers have not sought a ruling in the Caribbean Court of Justice (CCJ), neither has any serious petition been made to CARICOM to establish a policy on the use of subsidies. Yet, there are calls for Jamaica to withdraw from CARICOM, even temporarily.

But, Demas stated that “… economic regionalism offers one important avenue for many small underdeveloped countries to achieve the possibility of a more fully self-sustained pattern of growth”, and “… at least some regional cooperation or some limited measure of economic integration maybe better than none at all, and any move towards regionalism will be a step in the right direction”. Could Demas’ conclusions have been relevant only to Trinidad and Tobago?  Certainly not!

The fact is that Jamaican manufacturers could raise the same objections to trade with the United States.  But, no one is even suggesting that Jamaica cease trading with the US, even temporarily. Demas stated that there are two “essential characteristics of self-sustained growth”: one, savings and investment, and the other he termed “transformation of the structure of production”, noting that “development really means a structural transformation of the economy”. It is my contention that CARICOM has not facilitated this transformation expeditiously, which has led to unbalanced development and discontent with CARICOM itself.

Demas postulated “seven basic elements” of this second characteristic, which are:

·         Capacity to transform;

·         Unification of the national markets for goods and services;

·         Shift of production and labour between sectors of the economy;

·         Interdependence between domestic industries and activities;

·         Changes in the importance and composition of foreign trade;

·         Reduction of dualism; and

·         Development of appropriate institutions.

From CARIFTA through to the CARICOM Single Market and Economy (CSME) in 1993, the focus has been on the element “unification of the national markets”, and more so for goods than services. So, a country like Trinidad which has 59% of its Gross Domestic Product (GDP) derived from production of goods would have benefited much more than Jamaica, which has 30% of its GDP derived from production of goods. Most Caribbean service-producing countries also depend on tourism which has been shown to be an enclave sector, that is, one in which a large proportion of their inputs are imported from outside the region, even though they may be available regionally. Therefore, “Interdependence between domestic industries and activities” also needs to be addressed in these service-producing countries and, Demas cautions that “… an enclave economy – even one which yields a high level of per capita income and consumption to its inhabitants – cannot be considered truly developed”.

It was previously stated that the Jamaican manufacturers could take their case to the CCJ. The CCJ is one of the institutions falling under the element “Development of appropriate institutions”. However, the CCJ came into being long after Jamaica first started protesting about Trinidad’s trading practices, and as such, its late establishment would have effectively denied affected parties any means of redress.  Capital and other financial institutions are other relatively new additions to CARICOM, even though Demas first highlighted their importance forty-eight years ago. Other important institutions involved are education and training, public and business administration, land tenure, agrarian systems, and an “appropriate structure of incentives”.

Another issue, raised by other commentators, is Jamaica’s comparatively low productivity to Trinidad.  This is what Demas refers to as “dualism”- in this case, both regional dualism and dualism between economic sectors are involved.  In this regard, Demas notes that “… development of a national economy really means that all sectors – whether goods-producing or service-producing – and all regions become technically progressive, although not necessarily at the same rate”.  Here, Demas recommends that sector-dualism be addressed in the initial stages of development, followed by regional dualism.  However, we have already established that the goods-producing and service-producing sectors were never handled in a balanced manner.

The productivity of Jamaica, as a predominantly service-producing economy, has declined over the past thirty years. One of the reasons given for Jamaica’s fall in productivity is the unresponsive nature of its labour costs to productivity. This shows poor “capacity to transform”, which is essentially the ability to respond to price and market conditions, especially those outside the local market. Jamaica also has a large proportion of unskilled labour, which means shifting “labour between economic sectors” will be problematic, if not impossible.  CARICOM is yet to guarantee the free movement of labour, but these categories of workers will understandably not be in high demand elsewhere by CARICOM member states.  CARICOM will not be able to offer Jamaica a “quick-fix” to these problems.

However, “changes in the importance and composition of foreign trade” are a potential threat to regional trade itself, and by extension regional integration; if transformation issues are not addressed better than they are now. When a nation’s economy transforms, Demas states that the proportion of its trade to GDP may be unchanged, but the composition of its imports shifts away from consumer goods towards intermediate and capital goods.  Unless regional partners also start producing more intermediate and capital goods, they will therefore experience a trade surplus with a more developed partner.

 

CARICOM really needs to do a better job than it is presently. It needs to address these transformation issues expeditiously. Institutions like the CCJ and integration of capital markets need to become fully functional in short order. Dualism between the goods and service sectors needs urgent attention; and, an effort needs to be made to integrate the region’s industries and activities. CARICOM cannot afford to be preoccupied with unification of the mercantile markets at the detriment of all else.  It needs to decisively address Caribbean economic development. But, it cannot rectify all the deficiencies alone. So, member states must not renege on their own responsibilities to achieve self-sustained growth. 


Posted by phcjam at 8:49 PM EDT
Updated: Tuesday, 3 September 2013 2:44 PM EDT
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Wednesday, 2 February 2011
Location of future PHC Projects blogs

Please note that blogs can now be found at the following locations:

Letters: http://phcjam.com/letters

Articles: http://articles.phcjam.com

Lecture notes: http://phcjam.blogspot.com

 

Paul Hay

Managing Partner

PAUL HAY Capital Projects

 

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Posted by phcjam at 4:16 PM EST
Updated: Saturday, 22 February 2014 2:49 PM EST
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