The Jamaican economic paradox: how a stagnant economy can not look that bad

One of the conundrums that has puzzled some economists for decades is how it is that Jamaica, supposedly mired in stagnant growth for decades looks as good as it does. Admitted, that Jamaica does not look very good everywhere, and the places where it looks terrible are really pitiful to see.

Several suggestions have gone on the rounds: 

  • Informal economy is large and many real economic activities are not measured fully. This covers the many activities, like vending, where small operators do not register formally their activities, but also includes things like illegal drugs trading. 
  • Remittances are significant, so domestic economic activity can seem sluggish, but private inflows from abroad keep many afloat.
  • The economy has many layers–income inequality is high: those much better off can and do live well; those very poor can suffer enormously. 

There are other factors that may be at play, but these cover many of the significant options, I think.

The idea that Jamaica can grow much faster, as measured by official data, is exciting, and as the Economic Growth Council gets the mantra of ‘5 in 4’ rolling more, people may be energized to look for signs that faster-than-anemic growth is soon to arrive. I’d like to see it, but I will not be holding my breath. However, I’ve been pondering a few things in recent months.

The seeming weakness of the Jamaican dollar against the US dollar is a boon to many people. I’ve written about this before. Those with US dollar assets have made significant gains in recent years, especially with domestic inflation falling sharply. Put simply, those bananas that cost J$300 a dozen 3 years ago, were costing just over US$3.30 when the J$ was at 90 to the US, but now cost US2.35, when the J$ is about 128 to the US. That’s a 30% gain in a world of minuscule gains. Of course, the cost of imports has tended to go up in J$ terms, as the rate fell. 

I also made the point that one has to look at the basket of currencies to really appreciate what the exchange rate has been doing. So, for instance, those many people who had work links with the UK and now are retired in Jamaica, have seen lesser gains, as the pound has been pummeled against the US dollar. Nevertheless, they have done better than if they just had J$ assets. 

Those with access to foreign travel–and they may well be largely the same group who have US dollar assets–can keep the quality of their live higher by sourcing goods and services directly from the US. But, that group is supplemented by those who get goods (and some services) directly from relatives and friends abroad–call them ‘barrel people’. 

Construction in many places has been going on quite rapidly, mainly residential, but also commercial (plazas, here and there) and bigger projects, like hotels. 

We also have the paradox of seeming to grow because we are inefficient. As I wrote recently, digging holes and refilling them is inefficient, but shows up as more economic activity. Farming is hard to judge, but the data show that recent good weather has boosted agriculture, coming off a severe drought.

Services are even harder to judge. Financial services may well be growing well, in terms of profits and balance sheet. But, I would always want to know about the quality of financial services, where I get the impression many are unhappy. That’s not easily measured. 

Telecom services would be another fast growing area, as many Jamaicans love their mobile phones, and are getting to love more cable TV and internet access in many forms. 

Anecdotally, we can come to lots of conclusions about growth. It was never utterly flat, I think but the spread was uneven. I’m not taken by notions that traffic is a good indicator (weak pun), given that we are disastrous at planning road works and have lots of roads that get jammed for the silliest things. 

So, let’s see what data for 2016 Q4 show. I think they wont be so pretty. There! I’ve said it.

No more sitting on hands

LETTER OF THE DAY – Private Sector Must Get Off Its Butt!
Published: Saturday | September 7, 2013

THE EDITOR,
Sir:

Friday’s report that “sections of the private sector remain sceptical about the extended fund facility’s chances of success …” and that “this doubt is borne out of the previous failed International Monetary Fund (IMF) programme, as well as the magnitude of the challenges Jamaica faces,” is truly troubling.

Finance Minister Dr Peter Phillips said last week that there was “a slight but important and significant improvement in investor confidence” from approval of the IMF arrangement. He added that “business confidence will improve further with Jamaica having passed the first quarterly IMF test”.

Now, we know that the private sector is not a homogeneous mass, but for this doubtful view to be given prominence makes me wonder if Dr Phillips has been misled or if he has misinterpreted the mood of local entrepreneurs. We would expect that foreign investors would be even more sceptical than locals.

My concern is that, if the Government is really going to rely on the private sector to get Jamaica growing, we have a bigger struggle ahead than we realise. If the view is that Government’s failure to adhere to the previous IMF programme holds so much negative weight, how much success under the current programme will be needed to shift that view?

Clearly, if investors wait until the programme period is well under way to get off their hands, the likelihood of growth by the end of the programme would seem to be limited, if not impossible.

Catch-22

This is a real catch-22. I’m not faulting the private sector for its doubts, because Government has betrayed trust badly in the past. This is one of the costs of lack of commitment to reform.

However, if the new social partnership is to mean something, the so-called emphasis on consensus should mean that the private sector has to show that it takes the Government’s latest commitments seriously and believes in the State’s policies and commitment.

If not, let’s all stop fooling around and talking about making more sacrifices. Let’s not hope for more foreign direct investment. If the private sector wants to get behind the effort to move the economy forward, it has to be behind the Government.

Maybe I misunderstood the views expressed, but my feeling is that the private sector wants to play a wait-and-see game, and I fear the patient may well be dead and about to be buried by the time they are ready.

DENNIS JONES

Economist

dennisgjones@gmail.com