Edward Seaga From the earliest days of our modern history, Jamaicans have been cultured to believe in foreign investment as the lifeline which will overcome the capital deficiency of the country. Where the country is short of capital, foreign investment will supply it. Hence, everything must be done to attract this foreign investment.
The benefit of this type of investment should be the jobs it provides for labour in a country chronically short of employment for the people and the foreign exchange it might earn. This is a mantra, which is expressed in many areas of daily life where the caution is repeatedly given not to do or say what you wish if it will scare away foreign investors.
ridiculous extreme
This approach is often taken to the ridiculous extreme, as posed by the interviewer on the BBC programme HARDtalk to Prime Minister Bruce Golding recently, when he was asked, "what kind of signal does that (rejection of homosexuality) send about Jamaica to the outside world, indeed to potential investors?" (my emphasis).
I would be willing to bet that there is not one foreign investor who would be turned off by Jamaica's stance on homosexuality. Some might be disappointed, however. But the important point is not about sexual mores; it is about the degree of obeisance to foreign investors which can reach inane levels.
employment opportunities
Foreign investment is essential to providing employment, which cannot be provided otherwise or in developing Jamaican resources, which cannot be developed by Jamaican capital (bauxite mining, alumina).
In the 1950s the strategy adopted to fulfil this mantra was to encourage bauxite mining, invite manufacturers to produce goods locally and set up hotels to develop tourism. This was the three-pronged strategy.
The development of the bauxite and alumina industry has been notably successful, despite setbacks. It provides little work, but much benefit from foreign exchange earned and revenue received from the operations and profitability of the industry.
tax relief justification
Up to the 1980s, the industry was providing 72 per cent of the foreign exchange earnings of the country and 34 per cent of the revenue of government. These justify the tax relief given for the operation of this industry, especially when in the 1980s government was able to acquire, cheaply, 43 per cent additional equity in one of the companies (Jamalco) giving Jamaicans a significant and precious piece of ownership in this vital industry.
The establishment of factories to manufacture products was heavily supported by tax relief beginning in the 1940s with the Pioneer Industries Law. But this was too narrow to bring real benefits so the Industrial Incentives Law was introduced to attract a broader range of industries beginning in the early 1950s.
mixed-origin industries
It succeeded in establishing a number of new industries of mixed origin, some local, some foreign. But there was a huge cost. This required foreign exchange to import raw materials and capital goods because Jamaica had neither of these requirements.
The problem here was that little or none of the production was for export; hence, no foreign exchange was earned to pay for the raw materials required. The investment programme created a substantial net loss of foreign exchange. Although this was recognised by those who did not close their eyes, the incentive programme was justified because it was supposed to create much-needed jobs. But it did not.
A seminal study done by Paul Chen Young for his doctoral dissertation at Pittsburgh University in the 1960s, in the height of the promotional programme to invite foreign investment for industrialisation, showed that between 1958 and 1972 261 companies were established employing 18,000 persons at a level of 80 employees per registered factory. For this, industrial estates were established and generous tax relief offered.
benefit received
The central finding of the study was that the benefit received from the programme of industrialisation by invitation, as it was popularly known in the days of the Puerto Rican Operation Bootstrap model, was less than half its cost.
I began to get turned off with this programme after assessing it in the 1960s. As a result, in the 1980s the promotional strategy was for the establishment of free zones which required no expenditure of foreign exchange to purchase raw materials or capital equipment. It earned foreign exchange from the payments received by the substantial number of workers (over 30,000) and from payment of other domestic costs, such as utilities. The earnings up to the early 1990s made the free zone garment industry the top foreign exchange earner, reversing the loss position of the non-free zone industrial incentive programme. This obviously made sense.
free-zone space
However, the industry changed in the early 1990s and the free zone garment projects left Jamaica. But by that time, one million square feet of factory space had been constructed in a state-of-the-art free zone complex on Marcus Garvey Drive called Garmex. This space is now almost entirely used for warehousing and other non-productive industries which could find other accommodation.
My attention was drawn to two recent announcements to create a new industrial estate at Caymanas, in St Catherine and for Jamaica Trade and Invest (formerly JAMPRO) to establish six overseas promotional offices. Two questions arise. Why not first use fully the Garmex state-of-the-art complex if new industries are to be established in Jamaica, and further what industries, would be attracted? Jamaica has ceased to be attractive to foreign manufacturers seeking cheap labour. The Caribbean and Central America region offers cheaper labour rates.
china dominates
What other products could be manufactured here? The answer is it would be very difficult to find products which could be manufactured here by assembly or otherwise on a competitive basis, since China now virtually dominates that market as the factory of the world. The only outlet would be to establish a free zone for the assembly of Chinese products by Chinese manufacturers to export to North America. This would depend on whether Jamaica would continue to enjoy relief from duties for goods exported to the USA under the Caribbean Basin Initiative (CBI) for any reasonably long period. This is not likely, unless specially negotiated in any forthcoming free trade agreements.
The same is true of the Economic Partnership Agreement (EPA) which will offer free access of Jamaican goods to the European market in return for free access of European goods to the Jamaican market.
Tourists enjoying the sun, sea and sand at Grand Lido Negril in this October 31, 2004 file photograph. The tourism sector offers a substantial number of jobs for Jamaicans. It is becoming the largest employer of labour in the country.- Andrew Smith/Photography Editor
But what goods manufactured in Jamaica can be competitively exported to Europe? Virtually nothing. The EPA will, therefore, be a one-way flow of benefits with free entry of European goods to Jamaica for which duties would have to be relieved at a significant cost to the government revenue.
The tourism sector offers a substantial number of jobs for Jamaicans. It is becoming the largest employer of labour in the country. It is also one of the top two foreign exchange earners. This is almost like a free zone in concept where the investor imports practically everything duty free and the net benefit to Jamaica is the revenue and foreign exchange earned by workers and utility services.
competitive product area
Of course, if the investment is locally owned, other benefits can flow to the country. Unlike bauxite, the sun, sand and sea as tourism "raw materials" are not depleting resources, although the beauty of the country can be jeopardised by over-development or bad development. This aside, tourism is a win-win investment strategy so long as it is recognised that only 34 per cent of tourism earnings are retained in Jamaica. The success of tourism needs no help from Jamaica Trade and Invest (JTI).
So what is the need for six overseas offices? To promote what production which can be sold or what other services which are not already being promoted? The JTI should first determine what is the product area in which Jamaica can be competitive if any, and then determine where and how the production is to be promoted overseas.
This leaves the Cinderella of the productive sectors, agriculture, to come to the rescue. Agriculture uses natural resources: sun, soil and water to produce crops. A job created in agriculture costs far less than a job in bauxite, manufacturing or tourism. Some foreign exchange is required for animal feed, fertiliser and pesticide. But some foreign exchange can also be earned, depending on the products. Employment can be considerable. This offers much needed poverty relief to the rural areas.
These factors make agriculture on balance, the sector the broadest range of benefits to Jamaica, natural area for promotion and investment.
agro21 results
There is a tendency to write off the results of Agro 21, the only project ever launched to introduce large-scale production of new crops, opening the door to new technology. It was set back by two successive years of flood rains in Clarendon, in which water rose to the window level of houses. These extraordinary flood rains washed out the crops prior to the approach of the reaping season. Other than that, the Planning Institute of Jamaica in 1988 summarised the achievements of Agro 21 with some telling figures:
50,000 of a targeted 65,000 acres of farmland were put into production, a 78-per-cent achievement;
26,750 new jobs were created compared to the targeted 33,645, an 80-per-cent achievement;
US$35.24 million of foreign exchange savings or earnings resulted, a 69-per-cent achievement.
If nothing else, this established that there is a role for new large scale ventures in agriculture and also opens the door to further foreign investment of real benefit to the country.
Edward Seaga is a former prime minister. He is now a Distinguished Fellow at the UWI, Mona campus. Email: odf@uwimona.edu.jm/columns @leanerjm.com.
