Morrison
In a previous column, I had pointed to the aggressive drive since the late 1990s, targeting the tourism sector, that resulted in investment totalling over US$3.5 billion by 2007. In the same period, over US$1.4 billion was pumped into the mining sector, which was overwhelmingly in the form of foreign direct investment, as was the case in tourism. Together with the foreign capital deployed in the telecoms sector, these investments, which were over and above inflows to acquire existing businesses, added substantially to the country's productive base.
By the mid-2000s, Jamaica had emerged as being among the best-performing small-country mobilisers of foreign direct investment. In the Caribbean region, we even managed to outperform Trinidad and Tobago and to catch up with the Dominican Republic, which had been the star performers in the 1990s. While Jamaica saw its inflows of foreign direct investment jump from US$481 million in 2002 to peak at US$882 million in 2006, an increase of 83 per cent, inflows to Trinidad went up by 31 per cent from US$791 million, to US$1,035 million during the same period. The Dominican Republic sustained an 85 per cent increase in its inflows, which went from US$917 million to US$1,698 million.
But, as is now well established, Jamaica underperformed in terms of overall economic growth, productivity and competitiveness. In the 2000 - 2007 period, Trinidad's economy averaged GDP growth of nine per cent per annum, propelled in large measure by rapidly rising values for its oil and gas exports. The Dominican Republic averaged 5.9 per cent, and Jamaica 1.6 per cent. Is it that Jamaica utilised investment less efficiently?
growth picture disappointing
Though Jamaica's overall growth picture was disappointing, the impact of tourism investments was significant, as stopover arrivals in the 2002-2007 period went up by 34 per cent, and gross earnings moved from US$1.18 billion in 2002, to US$1.90 billion in 2007, an increase of 61 per cent. Further, the expanded room capacity and critical supporting infrastructure in place now put Jamaica in a position to handle an additional three-quarter million stopover visitors, or roughly 50 per cent more tourists.
But strong growth in visitor arrivals was not reflected in output levels in the manufacturing and agricultural sectors, although the construction sector benefited significantly from the investments in resort development. Without deeper integration of tourism with the rest of the economy, the impact of expanded visitor arrivals will continue to be limited.
Bauxite investments also boosted the country's export capacity, with alumina exports reaching a record 4.2 million tonnes in 2005, as the proportion of bauxite processed locally rose to over 70 per cent. The combination of higher value-added production, increased output and higher prices pushed up gross foreign-exchange earnings from US$712.6 million in 2002, to US$1.31 billion in 2007, or by 84 per cent. There were important gains in productivity levels as well.
Nonetheless, as we have seen, this industry will require new initiatives to overhaul its energy system and modernise its production processes if currently idle capacity is to reopen and be competitive. Its relative energy inefficiency and the limited inputs supplied from local sources curtailed the industry's contribution to GDP growth.
It is clear that the modernisation of our telecommunications system has contributed to greater levels of efficiency, quite apart from quality of life improvements. One needs only to observe the speed of transactions in our financial system, the operations of the tourist industry and other service industries to see evidence of the impact that the modern telecoms system has had on our economy. Its contribution to growth is only partly reflected in the increased output of the sector.
foreign direct investment
There are substantial empirical data to support the position that high levels of foreign direct investment are associated with strong economic growth. Over the past 15 years, the most outstanding examples have been India and China, which have used access to foreign direct investment as a tool for technology transfer, stimulation of growth in export sectors, and modernisation of their domestic sectors.
Trinidad and Tobago and the Dominican Republic have also been relatively successful in utilising foreign direct investment to spur growth in their economies. In the case of Trinidad and Tobago, growth has been highly concentrated in the oil and gas industry, but the Dominican Republic has experienced far greater spillover effects on local production from foreign investment. Its tourism investment, for example, has benefited the local manufacturing, agriculture and construction sectors far more than in Jamaica.
Lead contractors for recent hotel projects in Jamaica by the Spanish chains were, in most instances, recruited from the Dominican Republic, which was also the source for a range of electrical and other supplies.
It is not surprising that Jamaica's manufacturing sector was not able to capitalise on the increased demand for operating supplies to meet the expanding tourist industry. First, the sector was one of the main losers of the structural adjustment programme that was implemented in the 1980s. Then it suffered further setbacks in the 1990s when a combination of high interest rates and accelerated liberalisation of imports led to the displacement of much of its capacity.
declines in output
With continuing declines in output of locally manufactured goods, increased demands of the tourist industry are being met by imports. The rapid expansion of food imports also reflects the reality of the ongoing contraction in agricultural production and the increased reliance on imports to supply the requirements of that industry. Nowhere is the stagnation in Jamaica's economy and the breakdown in its investment process over the last 40 years more evident than in manufacturing and agriculture.
Dennis E. Morrison is an economist. Feedback may be sent to columns@gleanerjm.com.