Current Affairs

Current Affairs

AFTER nearly a decade at the helm of Jamaica's economic ship, which he steered through a prolonged period of negative growth and the near decimation of the financial sector, Dr Omar Davies, the finance minister, is receiving a vote of confidence from some members of the commercial sector.

Donovan Perkins, managing director of the Pan Caribbean Merchant Bank, last week endorsed Davies' assertions of increased confidence among investors, pointing to continuing investment during the budget season and even in an election year.

DAVIES... projects 2-4% growth.

"I remember four years ago nobody did anything prior to the reading of the budget," recalls Donovan Perkins. "The stock market would turn down and people would buy foreign exchange (for storage) because they did not know what new takes were coming.

"Investors and the business sector sat back and held their breath to hear what new announcements were to be made. But over the last two years it appears that people's expectation of surprises have diminished," Perkins commented.

This new maturity on the part of the commercial sector might have resulted from government's refraining from "sudden announcement of taxes" following the gas riots of 1999, Perkins believes.

PERKINS... people's expectation of surprises have diminished.

In delivering his ninth budget presentation last week, Davies reported that the economy grew by 1.7 per cent over last year as reflected by increases in the value of the total production of goods and services or the gross domestic product (GDP).

His forecast for economic growth next year is between two and four per cent and he plans, in the process, to spend $210 billion on programmes, projects and salaries. He intends to raise $126 billion of this amount from more rigouros tax collections, fees and the sale of government assets. The remaining $84.4 billion is to be raised through loans from local and foreign sources.

Anthony Chang, president of the Jamaica Chamber of Commerce, thinks there is a good chance that Davies will achieve his economic growth target, and revenue as a consequence, for the new financial year.

CHANG... there's a good chance that Davies will achieve his economic growth target this year.

Chang confirms that investors and business people have adopted, in the main, a positive attitude that has been forced upon them by fiercely competitive market conditions locally and internationally. Therefore, they do not enjoy the luxury of waiting out a budget or election period.

"Firms can't stand and wait; they try to push along. If you wait and see you may lose your shirt," he said last week. To illustrate the point, he cites the construction of a $20-million store on Red Hills Road in St Andrew. "In the past this would not have happened in an election year," he stated emphatically.

Adds Chang: " There seems to be an apparent convergence of economic thinking between the two major political parties. There isn't a whole lot of ideological difference between the parties."

ROBERTS... average wage increase has been higher than the rate of inflation.

In addition to anecdotal evidence, Perkins' bank carried out a survey between December 2001 and January 2002 which showed greater all-around confidence. Twenty-seven people/investors interviewed by Pan Caribbean Merchant Bank between had a modestly positive outlook for the economy.

The survey concludes that there appears to be wide acceptance that "some of the preconditions for economic growth have been realised and can be sustained over the two-year period of review (calendar years 2002 and 2003)".

It says further that the majority of respondents "have confidence in the direction of several key economic variables".

On the negative side, the survey showed that sections of the investment community were worried about government's ability to adhere to its target to spend within reach of revenues as well as the spectre of crime and violence and election-generated unrest.

Government says it will spend the equivalent of 2.5 per cent of GDP in excess of revenue earned this year. Last year the revised target was 3.8 per cent.

Chang points to another survey conducted by the Jamaica Conference Board, the research arm of the Jamaica Chamber of Commerce. This survey reveals that local businesses were "more confident about their economic prospects" during the first quarter of this year compared to six months before when the survey was first done.

Noted the report: "The gain in confidence reflected a more optimistic outlook among businesses for improvement in their firm's overall financial situation and to expect higher profit margins for the year ahead."

The proportion of firms that expected the economy to worsen also has fallen dramatically during the past six months, decreasing from 67 per cent to 30 per cent, according to the survey findings.

The survey also shows consumers becoming more optimistic about the overall economy and prospects for jobs particularly in the tourist sector.

Meanwhile, Danny Roberts, vice-president of the National Workers Union points to growing confidence among trade unions and employers in the ability of the administration to keep inflation at single digit level for five successive financial years.

"Last year the average wage increase in large establishments was recorded at 11.3 per cent, which is higher than the rate of inflation," says Robertson, citing data provided by the Statistical Institute of Jamaica (STATIN). Roberts' NWU is an affiliation of the governing People's National Party.

The rate of inflation or changes in the consumer price index came out at 7.6 per cent the for last financial year over the previous 12-month period. At the end of 2000/2001 the inflation rate was 6.4 per cent and the forecast for 2002/2003 is five to six per cent.

Robertson observes a downward trend in unemployment and a concomitant increase in the level of own-account or self-employed persons, which represents about 35 per cent of the employed population. Last year the unemployment level eased down slightly to 15 per cent.

He points to STATIN data for 2000 that reveals that 10 per cent of persons outside the "employed labour force" are there due to redundancy and lay off, while 34 per cent are as a result of personal decision to resign their jobs.

"We need to understand the new realities that exist and make the paradigm shift to recognise that employment and its creation are not what they used to be," Robertson said.

"What we are now seeing in almost all countries is a proliferation of small and medium size businesses, not big factories," he adds.

But business leaders have concerns too.

Chang stresses that the membership of the Chamber still faces red tape requirements that produces "transactional friction". In addition, he calls for "more transparent rules" in the granting of tax waivers, the frequency of which Davies indicated last week that he was going to reduce.

For his part Perkins, the merchant banker, worries about the proportion of the tax dollar that government uses to pay the interest on debt. He notes that this ratio was 36 cents out of every dollar at the beginning of the crisis in the financial sector in the mid-1990s.

Since that time the figure peaked at 55 cents in 2000, but based on Davies' figures presented to Parliament last week, Perkins notes that 57 cents in every tax dollar will go to debt servicing in 2002/2003. This, he says, is significant in light of the fact that the administration has now place on the budget debts of FINSAC, the vehicle used to bail out failed financial institutions in the 1990s.