Information Technology

Analysis: impacts on the (non-IT) globally competing firm

As a developing nation, Jamaica has much to gain from being a full participant in the global economy. Because their primary trading partner is the United States it is critical that they establish and maintain the infrastructure necessary to engage our consumers as fully as other nations around the world. Given the limited GDP of the nation and the skills of its inhabitants, Jamaica must continue to develop or face record deficits in Balance of Payments as detailed below.

Tourism, Agriculture, and Mining currently a substantial portion of the country's revenue. All these industries suffer from deficient technology by U.S. standards. The Agriculture is currently operating at a technological level decades behind their U.S. counterparts. And while this sector's contribution to total GDP has been increasing steadily in the 1990's, it is not the direction the nation's leadership desires. The Prime Minister in his 1997 budget speech empahasized technology and education as Jamaica's road to prosperity in the new millenium.

Balance of Payments:The Balance of Payments recorded a deficit of over US$330.0 million on the current account, more than doubling the 1996 deficit of US$139.3 miillion. The deficit during the 1990 to 1997 period, has been produced by the increase in the merchandise trade deficit to US$1.7 billion at year end, averaging almost US$1.2 billion, an increase of some 13.3% per year.

In 1997, imports increased by 6.5% to US$3.1 billion, compared with US$2.9 billion recorded in 1996. Merchandise exports remained flat at US$1.4 billion, reflecting largely the bouyancy in the international alumina market, rather than the strong supply-side responses in the domestic economy. 1

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Sectoral Performances2
Agriculture:

The sector's contributions to total GDP has risen steadily during the 1990s moving from 6.2% to 8.4% in 1996. Foreign exchange earnings have increased steadily averaging US$192.3 million, representing 16% of the average of just over US$1.2 billion per year of total exports. With a workforce of over 206,000, the sector now ranks as the country's second largest employer, behind Community, Social and Personal Services, and representing approximately one fifth of the employed labour force.

Nevertheless, the GDP data reveal a declining trend in overall growth of the sector between 1990 and 1996 when growth peaked at 12.9%(1992) but fell steadily to 3.3% by 1996. Export agriculture, on the other hand, grew by 10.2% in 1996, but declined in three (1992,1994 and 1995) of the previous four years.

The PIOJ's Agricultural Production Index, which measures the volume of production of a selected number of crops, estimated that, for 1997, the agricultural sector recorded its first decline in output since 1991, down by 17% compared with 1996. This performance is also reflected in the export side, where the Index estimated that production for exports declined by 10%. These outcomes resulted from the effects of the country's worst drought in three decades.

Mining:

The Mining sector, through mainly the bauxite/alumina industry, contributed heavily to the Jamaican economy by providing just over one half of total foreign exchange earnings, and an annual average of 9% of GDP for the 1990 to 1996 period. The sub sector recorded an average annual growth of 4.8%, recovering form the 0.8% growth of the decade of the 1980's. Increased capacity and high levels of utilization have been the source of this growth. Capacity utilization within the industry ranged between 80% and 90% since 1994. Alumina production peaked at 3.4 million tonnes in 1997. As a capital intensive industry, it provided jobs for approximately 6,000 people, less than 1% of the employed labour force.

Manufacturing:

Prelimminary indications are that the manufacturing sector in 1997 continued to decrease at an average annual rate of 1.0% a characteristic of the past five years. Nonetheless, the upward trend in the annual average export earnings of 6.5% also continued.

The overall performance of the sector has been adversely affected by: high financing and operating costs, linked partly to high interest tates; increased competition from imports in a liberalized domestic market; an appreciating exchange rate; high costs linked to low efficency levels; and drought related cutbacks in agricultural inputs. In addition, the sector has traditionally been the one most affected by industrial action, with work stoppages averaging 23.0% per year between 1992 and 1997. This represented almost one third of the average 61 per year over the same period, for the entire economy.

The sector remaines a relatively large employer of labour at just under 89,000 workers, in 1997, representing 9.4% of the country's work force. Foreign Exchange earnings averaged US$430 million per year over the 1990 to 1997 period, a quarter of total Merchandise exports. The sector has remained a major contributor to GDP, of about 18.0%. Consequently, Government has implemented specific strategies to increase output. In 1997, most of Government's efforts were directed at assisting the sector through preferential loan financing schemes and loans for debt restructuring, administered through the development banks and the National Investment Bank of Jamaica (NIBJ).

THE SERVICE SECTOR

Financial Service

The economy went though the first full year of the financial sector fall-out in 1997, the crisis having emerged in the latter half of 1996. Early in 1997, the Government created the Financial Sector Adjustment Company Ltd. (FINSAC). to rescue and restructure troubled entities. In addition, the Government accelerated its program of strengthening its regulatory framework thorough amendments to the Banking, Financial Institutions, Building Societies, and Industrial and Provident Societies Acts, by increasing the intervention powers of the supervisory and regulatory authorities in the Bank of Jamaica, the Superintendent of Insurance and the Ministry of Finance.

The extent of the problem as it emerged by year end is reflected in the fact that Government had to intervene in 4 banks, and five insurance companies. The Government's injection, in paid out cash or commitments, was some $35 billion; $30 billion of which was in the form of low interest rate loans ($21.3 billion mainly to insurance companies), and the rest as equity. These advances are secured by assets either pledged by, or acquired from the financial institutions concerned.

Despite the problems in the banking and insurance industries, the stock market recorded its best year since 1992 when it recorded a year on year gain of almost 20.0% on the Jamaican Stock Exchange(JSE) Index, to close the year at 19, 847, continuing its steady recovery since its record breaking rise and fall of 1992. Market capitalization also increased by over 20% to $80 billion. However, the market reflected the realities of the economy, because most of the listed companies were less profitable than the few spectacular gainers. Another reflection of the sluggish economy in the past few years is the fact that, since 1995, there has not been a new listing on the JSE, but rather a number of delistings over the period, several of which have been prompted by insolvency. Lower interest rates and an increase in investment activity in the real sector are necessary to improve the fortunes of the stock market.

Tourism

The tourism industry continued to be the major source of foreign exchange in the services sector and the economy in general. Between 1990 and 1997 net earnings from the industry averaged US$835 million per year, averaging some 70% of total merchandise exports. The cruise passengers sub category has more than doubled over the past ten years, while the foreign national stop-over category increased by over 40%. These statistics may well be reflecting some level of adjustment in both the local and the global tourism industries.

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