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Whose Responsibility is it? #14

As a sequel to my previous comments on mixed signals with regard to business confidence and actual performance, the past week has brought some more confusion to the matters at hand. Let me try to highlight a few of these.

The Government is congratulating themselves on the successful completion of another in the series of IMF calibrated performance tests. I used the plural as the previous government ran the longer distance (as in a medley relay), and the current government took the good decision to pursue the IMF prescription. So therefore each deserves the encomiums. However having won the race and with both standing on the podium to receive the gold medal they find the time to bicker after they had committed to continuity of good governance. This is a confusing signal.

The increase in the NIR to US$ 2.46b at the end of September is a positive sign, but others are saying this is causing the decline of the Jamaican dollar versus its US counterpart. This is a confusing signal.

BOJ Governor Brian Wynter is criticized in this regard locally, but Global Markets (the newspaper of the IMF) has named and honored him as Central Bank Governor of the Year for the Caribbean. This is a confusing signal.

Government expenditure from April to August was J$ 13.8 b below budget so we assume that this was great management, so let hear the applause. Then it attributes the significant portion of the outcome to the “late approval of the budget”, a clear reference to poor timeliness. This is a confusing signal.

The trade deficit January to April fell by 11.5% compared to the previous year so the applause continues. This does not account for the roughly 50% decrease in the price of oil that represents a significant part of our imports, nor the fact that total exports fell by 17.6% for the same period of comparison. This is a confusing signal.

Funds repatriated to foreign countries by companies operating in Jamaica reached J$ 72b, the highest in five years through dividends and investments overseas. The figure represents 4.1% of GDP that leaves or is not invested locally for expansion. This is a normal expectation and practice of international business in moving of funds to places with better growth prospects and anticipated returns, but this is not in tandem with business confidence. This is a confusing signal.

Now with 4.1% of GDP being repatriated, how do we measure the goal of 5% in 4 years? Is it just 5% or should it be 5+4.1=9.1? This is a confusing signal.

Pension funds contribute greatly to investment growth in Jamaica particularly in housing and commercial construction, and the Stock Exchange equities and bonds. Now we have a serious issue growing with the D&G Pension Plan, and the sharing of “excess funds”. This concept of over-funding is challenged in the face of global pension funds becoming jeopardized due to lower investment yields and pensioners living longer.

This pension fund was developed for Jamaica and by Jamaican workers. So if the company is successful in its objective, and bearing in mind that it is not owned by Jamaicans, will the billions be added to the funds to be repatriated?

This has not been the only pension controversy in recent years and I can recall the bitter fights in the Air Jamaica Pension Fund and the Sandals Pension Fund, both of which had protracted court battles.

It seems that the root cause is that there is a possibility for the company to get back contributions that could offset the purchase price, and if that was so it could conceptually be part of the original due diligence, or machinations of some finance manager devoid of any moral compass. This is quite a different situation to buying a company for prior year tax losses carried forward. But I am not an actuary and the real motives are clouded. This is a confusing signal.

Cuba, Colombia, and the Dominican Republic were recognized for their work in Global Free Zones of the Year Awards, and we congratulate them. Jamaica on the other hand had the idea long ago, probably before they awardees did, but we have failed to act with dispatch in bringing ideas to fruition. The discussion continues ad nauseum between the two political parties here, and absolutely nothing happens except for the sale of our Port assets to an overseas shipping line (probably below its real value). It seems that we are good sellers (highly debatable) but poor builders. Yet we continue to expound and debate the importance of the Logistics Hub but do very little other than talk. This is a confusing signal.

Hon. Michael Lee Chin indicated that Jamaican companies continue to face difficulties listing on global indices, and attributed much of this to the poor social and economic state of the country. NCB’s intention and efforts date back to 2011, and GraceKennedy’s intention dates back to 1951 with the London Stock Exchange.

Victoria Mutual’ s Devon Barrett longs for the Government to re-enter the local bond market so as to absorb liquidity in the system. Now I recall that the Government’s bond activities in the past led to a massive increase in debt and that led to two significant “haircuts”.

Why would we want to go back there except for some illusionary profits and big bonus payouts to executives for doing nothing else but helping to sink the country further in the mire? I there is so much liquidity, why not channel these funds into sustainable business development rather than bailing out inefficient governments who are just getting back on their feet? This is a confusing signal.

My classmate and respected friend Richard Byles has suggested that we hold off on raising the tax threshold and use the projected saving to fight crime. The recommendation does not go far enough as it suggests that new equipment for the police will play a great role in defeating crime. However he admits that crime is a complex subject and I understand and agree with that.

A corrupt law enforcement officer without a vehicle, with a defective vehicle, or with a brand new vehicle, is still corrupt. A criminal whether petty theft, scamming millions, white collar, blue collar, murderer or rapist, is still a criminal. A country that believes that a person who commits a crime but doesn’t get sentenced because of poor prosecution or witnesses who fail to testify is innocent is a serious flaw in logic.

A community that believes that “eat a food” justifies anything; or Johnny was a good boy after a killing spree that takes the lives of men, women, children and babies, is a very sick place.

To deny taxpayers of a reasonable expectation while allowing government inefficiency, wastage, corruption, and theft, is not a way forward. A taxpayer giving up their money for further filling the trough is not a reasonable or logical expectation. This is a confusing signal.

You may think that these contradictions are as a result of years of diligent research and analysis on my part and perhaps deserve some kind of academic recognition; quite to the contrary.

Every confusing signal was contained in the Financial Gleaner, and the Observer’s Caribbean Business Report of Friday 14th October 2016.

I really don’t know how many of our colleague economists, analysts, business persons, or journalists, will have seen the disconnect, or if they have, would care to comment.

They are all enjoying our National Heroes’ weekend, and spare little thought to the clear and present danger of such conflicting views. So enjoy the beach, the mountains, Miami shopping, or just sleep. Nothing can go wrong!

However there must be something that we can garner out of the seeming chaos. The concept of adversity and opportunity being two sides of the same coin, so here goes:

  1. PM Andrew Holness has had the courage to address Public Sector Reform and the likelihood of fallout in employment in the government sector. This is a bold and truthful statement and one that has been sidestepped by others.
  2. There is no need to panic and several services currently provided will be tackled within the current but restructured public service.
  3. Some persons will be transferred of even displaced in the exercise.
  4. Government departments will have to be staffed by the most efficient persons, and systems that create undue bureaucracy will have to be revised or revoked.
  5. The persons who are displaced may have real opportunities to form companies to provide services in a cost effective but profitable way (as they did decades ago at the Government Printing Office).
  6. The services developed by these persons will be saleable to the private sector.
  7. In general the persons displaced will be of a higher educational standard than the current applicants based on current government employment requirements. These persons will bring entrepreneurial talents and training to bear on new MSME creation, and a better understanding of what is needed for success.
  8. Their potential offers to bring up the standard and level of understanding required to run sustainable enterprises that can grow instead of the current high levels of failure.
  9. This is the time for all those who just wanted government bonds, to mobilize their lending and investment criteria to address changing needs and a possible boom.
  10. All persons displaced should be trained in collective ownership (equity) benefits as an alternative to loan financing as well as other forms of appropriate sources.
Executive Insights
From the Desk of James Moss- Solomon
Executive in Residence, MSBM
October 15, 2016
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