«Productive Development Policies in Jamaica Mónica Panadeiros Warren Benfield Inter-American Development Bank Department of Research and Chief ...»
Conditioned to be a full exporter, the Export Industry Encouragement Act provides exemption from income tax for ten years and import duties on raw material and machinery for ten years as well, and being a partial exporter (threshold of 5 percent) this Act concedes an import tax rebate according to the percentage of export profits to total profits. 12,13 The Jamaica Export Free Zone Act enables manufacturers—conditioned to sell no more than 15 percent of their production on the domestic market—to benefit from income tax relief on profits and exemption from import duties and licensing. Free Trade Zones (FTZs) offer service operations (banking, data processing, etc.), warehousing, storing, and distribution facilities for trade, trans-shipment, and re-export operations. Export promotion is also carried out through financing schemes. The National Export-Import Bank (EX-IM Bank) provides a wide range of loan programs (at an average rate much lower than the market rate) geared specifically toward export development.
In order to attract FDI, a liberal regime has been implemented as part of the structural reforms undertaken. It represents great strides over the 1970s and 1980s, when the climate for foreign investment was very restrictive. At present, there is no specific legislation on foreign investment in Jamaica. Thus, the tax benefits provided through different norms are accessible both to local and foreign firms.
The promotion policies described include some amendments incorporated in response to the industrial strategy formally set in the National Industrial Policy – A Strategic Plan for Economic Growth and Development (NIP), 1996-2010. The NIP is intended to foster greater collaboration between the private sector and the government (the so-called Social Partnership among government, workers, and employers) in order to elaborate the details of the strategy and implement related policies. However the underlying assumption of the NIP is that the government is the master strategist in economic affairs.
This plan aims to achieve annual GDP growth of between 6 and 7.5 percent and to reduce unemployment. Recognizing the pivotal role of the export sector to the country’s development, the NIP emphasizes an aggressive export-oriented (to triple the value of exports), private sectorled development strategy coupled with a program of import substitution. It targets five strategic clusters in which Jamaica has always had a comparative advantage and which would serve to propel growth in the overall economy. They are: tourism, shipping and berthing, agroprocessing, apparel, and bauxite and alumina. These growth poles are thought to exhibit significant potential for export growth and expansion, and although it is recognized that export A minimum of 5 percent of export sales to non-CARICOM countries must be attained.
The 2001 Amendment provides approved export service providers that supply designated services with income tax relief for a period of ten years. In addition, the approved export service provider receives relief from customs duties and GCT on articles listed in the Act.
potential still exists in the more traditional agricultural sector, emphasis is being placed on human resource-based services such as the ones selected. The decision to target the services sector as the catalyst for economic development stems from the fact that services are expected to play an increasingly significant role in world trade.
These sectors are promoted through investment in infrastructure, technology, and machinery and equipment. In order to encourage the development of skills in areas with higher value added and technological content, some amendments in the regime of incentives described previously were introduced. Through equity financing (primarily, preference shares or convertible debentures to finance capital expenditures), the National Investment Bank of Jamaica invests in developing projects from these key economic sectors.
According to IDB’s previous research, the prevailing paradigm for public-private dialogue in Jamaica was predominantly informal. Studies conducted by the IDB found an alarmingly high amount of ministerial discretion in the provision of exemptions from tax and customs duties. Informal dialogue led to rent-seeking behavior, to the detriment of the wider economy. The scope for arbitrary favors was a disincentive to new investment and to forming cohesive private sector institutions that could effectively engage the government with one voice.
This process did not change with the NIP, and the subsequent evolution of the economy showed that the NIP has not succeeded either in delivering growth for Jamaica or in fostering a sense of partnership between the public and private sectors. This failure compounds the prevailing sense of distrust between the public and private sectors. Surveys conducted in Jamaica found that 84 percent of respondents considered the trust between the island’s public and private sectors to be among the worst in the world. 14 The Master Plan for Sustainable Tourism Development, formulated in 2003 to provide a comprehensive framework for the development of one of Jamaica’s leading industries, seems to have been intended to avoid these failings. It was designed in a two-stage process intended to facilitate consultation and to build consensus on the direction in which the industry should take.
This plan considers that a sustainable market position must be based on Jamaica’s heritage which is natural, cultural, historic, and built. Related to this, one of the plan’s main objectives is to ensure that local communities play a major role in defining, developing, and managing the tourism experience so that they are able to take ownership of the industry and remain committed Hynes and Morgan (2006).
to enhancing the visitor experience, the very base on which the success of the industry depends.
In this way, the plan intends to transform the current perception of the sector as an exclusive industry that benefits the few to one that is inclusive. In other words, this PDP seeks to foster the leakages of tourism to the rest of the economy.
In addition to the Tourism Master Plan, other initiatives involving a closer and more formal approach to public-private dialogue (PPD) were launched. Most of these have adopted or evolved to cluster methodologies, with the aim of consolidating efforts to gain external markets.
Among the various projects aimed at stimulating greater competitiveness, an interesting one is the Jamaica Cluster Competitiveness Project (JCCP), launched in September 2002. The JCCP was a two-year pilot project managed by the Jamaica Exporters’ Association (JEA). DFID, USAID, the Government of Jamaica, the JEA and participating firms funded the project. The goal of the JCCP was to build new competitive advantages at the firm level and to increase firms’ export capacity and their contribution to the nation’s economy. The project sought to increase sales and profits at the firm level by way of new products, increase new sales channels, and target more attractive customer segments; and improve the enabling environment by eliminating regulatory constraints to growth and competitiveness and strengthening the capacity of the private sector to engage in a public-private dialogue around issues of competitiveness.
More than 300 firms participated in the JCCP, which collectively represented approximately 15 per cent of the country’s national GDP. According to the evaluation conducted by Hynes and Morgan (2006), the PPD fostered by the JCCP was the result of a highly structured cluster process that focused on strengthening the linkages between firms, government agencies, and the international market.15 In this area of institutionalization, initially it was difficult to engage the public and private sector in a common cause, but towards the end of the cluster process the communication barriers between the two sectors were broken down. In this sense, the JCCP helped to fill the many “missing links” that existed throughout the economy. Specifically, the PPD that had been fostered enabled the development of a shared vision for the industry and the definition of the respective roles of the public and private sector. The private sector realized that it must lead the development of a new business strategy. For its part, the public sector Within this project, three industry clusters were selected as models for the government of Jamaica, namely, agribusiness, tourism, and entertainment and culture.
accepted that it must support the private sector by upgrading the island’s human and institutional capital and developing an industry strategy and implementation plan.
After the end of the two-year pilot process, the JCCP was extended for three additional years. The program’s mandate has been broadened to include the development of structures to support broad-based PPD around both economic and social issues.
Another recent initiative aimed at fostering public-private relationships is the Jamaica Productivity Centre (JPC), established in 2003 to address the country’s productivity challenges.
The JPC is a tripartite organization sponsored by the government of Jamaica, the Jamaica Employers Federation (JEF), and the Jamaica Confederation of Trade Unions (JCTU). This partnership reinforces the principle that growth in the national economy can best be achieved through the alliance and full cooperation of government, management, and labor. The mission of the JPC is to enhance the productivity and competitiveness of the Jamaican economy through a forum for constant dialogue that provides technical inputs for the formulation of national policies and strategies on all aspects of productivity and competitiveness. Research, promotion, and dissemination of information regarding best practices, applications, processes and techniques of productivity improvement, and facilitation of training are some of the JPC’s most important activities.
More oriented to micro, small and medium-size enterprises (MSME) is the Private Sector Development Programme (PSDP), a joint initiative of the government of Jamaica and the European Union launched in 2005. It seeks to strengthen the performance and competitiveness of the private sector so that it is able to operate efficiently in a more competitive international market.
The PSDP aims to address the competitiveness challenges that MSMEs face and in so doing seeks to: i) improve the macroeconomic environment by identifying and addressing policy and regulatory-level opportunities and constraints to MSME development; ii) provide firm and sector level assistance to companies in the MSME sector, improving their productivity and competitiveness via grants that are promoted and/or administered by private sector organizations and support institutions (PSOs); and iii) strengthen private sector (intermediary) organizations and support institutions (PSOs) via capacity-building support to PSOs on a cost-sharing basis, thereby strengthening the ability of these organizations to increase the assistance they provide to MSMEs. More recently, the PSDP, through one of its component, is adopting a “cluster approach” for business development and for enhancing competitiveness.
The Jamaica Trade and Invest (JTI, formerly JAMPRO), an investment and export promotion agency with efforts focused on a number of selected sectors, is the core implementing agency working closely with two others: the Private Sector Organization of Jamaica (PSOJ) and the Jamaica Business Development Centre (JBDC).
JTI and JBDC have central roles in facilitating the shift of the textile and clothing industry to a higher value-added fashion industry, in response to competition from China in the U.S. market. JTI works through its marketing and investment promotion activities, and JBDC’s role is technical assistance and business development, with special emphasis on SMEs.
In a similar way, due to the perceived enormous export potential, the government of Jamaica through JTI is attempting to facilitate the expansion and development of agri-business and agro-processing in non-traditional target areas and markets. Some of the areas and products that have been highlighted to attract investors are biotechnology, nutraceuticals, aquaculture, ornamental horticulture, and livestock rearing.
This landscape of the PDPs set in Jamaica reveals basically a vertical approach to industrial policy where government efforts are concentrated in selected sectors. Even some policies oriented to MSMEs, initially designed as horizontal policies, are evolving into vertical ones through cluster selection. One of the main exemptions was the recently ended Youth Entrepreneurial Project, aimed at promoting and financing internships for young people in host companies, and providing business development training and start-up grants to young new entrepreneurs. Other programs among the very few of a horizontal type are part of E-Powering Jamaica 2012, a five-year plan and core program of the National Information and Communication Technology (ICT) Strategy, which aims to significantly increase the active use of the Internet for education, business development, and public administration.
Presently, some of the PDPs discussed are under review to determine their compatibility with Vision 2030 Jamaica, a comprehensive, long-term national development plan prepared by the government of Jamaica. This plan aims to elevate Jamaica to developed country status by 2030, transforming the “…economic model from dependence on natural, financial and manmade capital to development based on the higher forms of capital—institutional capital, knowledge resources, human capital, and cultural capital” (PIOJ, 2009).
Operationally, the plan is being developed around four national goals mapped into 15 national outcomes. It also includes key strategies and actions for implementation in one- to threeyear periods, as well as an implementation, monitoring and evaluation framework. One of the four national goals refers to economic performance (“Jamaica’s economy is prosperous”), and this goal is broken down into the following six national outcomes: i) stable macro-economy; ii) enabling business environment; iii) strong economic infrastructure; iv) energy security and efficiency; v) a technology-driven society; and vi) internationally competitive industry structures.