Despite the impressive macroeconomic numbers which Jamaica has been enjoying since 2014, high and sustained economic growth still eludes the country, up to this point. The latest attempt to use moral suasion to increase consciousness around the need for high and sustained growth, using the much-touted Economic Growth Council, has still not delivered on the promised ‘5 in 4’ aspiration. It did, however, raise the consciousness of the population in regard to economic growth as the most sustainable pillar to pull persons out of poverty.
A close reading of the data on our growth performance suggest that, while the economy has seen growth over the past year, the rate of growth has been decreasing, moving south of five per cent and getting closer to zero. This is not good news for an economy with such high levels of poverty and where a significant number of its citizens are struggling on the periphery.
The economy needs to grow, and also at a high and sustained level of above two per cent for a long period of time in order to get more people out of poverty, and in a sustainable way. The question, therefore, is: what levers do policymakers have to trigger a higher level of growth, given the structural deficiencies that are inherent in the local economy?
STIMULATE AGGREGATE DEMAND
A basic understanding of the economy shows that there are four major levers that public policymakers can use to stimulate demand in the economy. These are: Consumption by citizens (C), Investments by firms (I), Government Spending (G) and Net Export (X-M). The aggregation of these levers (C+I+G+[X-M]) provides an indication of the level of demand (and by extrapolation, the level of production) in the economy. The movement of this demand is an indication of the level of growth the economy will achieve. So, if aggregate demand increases, growth will go up and if it reduces, growth will go down, all other things being equal.
In the context of Jamaica, one will notice that Net Exports (X-M) is always negative and very large. As such, despite the strong performance of the other levers (C, I, G), the growth of the economy is being dragged down because of the low performance of the export sector. So, from a macro perspective, if we are to see stronger levels of growth in the Jamaican economy, it is very clear that there needs to be significant improvement in our net export position. This will happen if we either export more or import less.
Data from STATIN show that our imports are approximately three times greater than our exports. In other words, for every US$1 we get from exports, we are still short of US$2 to pay for those things we buy from abroad. This is unsustainable and will only serve to drag down the performance of the Jamaican economy, despite the performance of the other levers of growth.
It is no wonder the exchange rate continues with its erratic behaviour over the last few months. To arrest this situation, we have to urgently earn more from our export sector in order to close the US$2 gap. We cannot build up reserves through borrowing; we have to do so through earning more.
BUILD A STRONGER EXPORT ECONOMY
More Jamaican companies will have to start selling their outputs in the international market in order to drive higher export growth.
Over 17 years ago, when I started to work on how to get more local firms, especially small and medium-sized ones, to be more export-oriented, the biggest question I faced was: What can Jamaican firms export? It is a reasonable question but one does not have to look far in order to find answers. A detailed reading of the food import bill shows a number of local foods that Jamaica can produce and have a natural advantage in producing, which the world is demanding.
Former permanent secretary in the Ministry of Agriculture, Dr Donovan Stanberry, has been exploring these items in a very informative series in The Sunday Gleaner. There, he identified a number of starchy foods that can be produced for exports, and also can be substituted for imported food as well (this will help to reduce the import bill, also). Policymakers at the firm level and also at the national level need to pay close attention.
Similarly, an untapped area that can boost export drive is in our services sector. Jamaica’s creative economy is world renowned but we have not capitalised, in a formal way, on the potential of this sector.
Our music, our food, our intellectual property, our research, especially in the areas of medical sciences, plant sciences, etc., have tremendous potential for exports. Industry and research institutes have to partner to package the work, commercialise them and sell them to the world. This will be a significant boost to the export trade and especially to small and medium-sized enterprises that are mostly found in the services sector.
RESOLVE EXPORT CHALLENGES
While the desire to build an export-led growth strategy is strong, it is acknowledged that exporting is not an effortless task. Most of the companies I have studied over the last 17 years lament the many challenges they face in trying to export or to improve their export volume.
Senator Don Wehby, head of GraceKennedy Ltd, outlined quite comprehensively in his Sunday Gleaner column of January 19, 2020, the challenges that need to be addressed in order to stimulate more exports in the local economy. His observations find strong support in the empirical research in the area. These challenges, which range from financing, market entry, standards to packaging and branding, need to be addressed both at the public policy level and also at the firm level.
At the national level, the national export strategy which was spear-headed by Marjorie Kennedy and the team at JAMPRO is a step in the right direction to deal with some of the challenges. However, that policy needs to be resourced and a strong implementation team put in place to execute on it.
Jamaica has to increase its exports in order to reduce the gap between imports and exports so that the economy can see higher levels of growth. Given our small market size, it is only practical that local firms seek to sell their outputs in larger markets in the international arena as part of their growth strategy.
Exports will lead to higher levels of competitiveness at the firm level, which will translate into higher levels of growth at the national level. It will force firms to operate at higher standards of international norms. Further, it will lead to higher-paying and better-quality jobs.
Clearly, a strong export economy will lead to more vibrancy in the domestic economy and, by extension, will lead to stronger levels of economic growth.
Let us use the beginning of this decade to encourage more firms to become international in their orientation and embrace exports as a natural part of their business operation. This is the most practical lever to improve growth performance.