Jamaica’s Dying Manufacturing Sector Seeks Govt Cure

By Zadie Neufville

SAVANNA-LA-MAR, Jan 19, 2011 (IPS) – For close to 10 years, Patrick Marzouca has just managed to keep his tiny car factory afloat in a rapidly declining productive sector.

On Dec. 9, the Excel Motors chief watched as three Jamaican- made Island Cruisers were loaded onto a ship bound for the Turks and Caicos Islands, the first shipment of a batch of 30 to be sold in that Caribbean territory.

Built as a tour car, the development of the two-door Island Cruiser has been hampered by double-digit interest rates, Marzouca said. In recent years, the businessman has seen his factory staff reduced to one – just to maintain the equipment.

It’s a common situation in Jamaica’s manufacturing sector.

A combination of government policy, high interest rates and exorbitant energy and security costs has reduced the sector’s contribution to the island’s Gross Domestic Product (GDP) from 21.3 percent in 1990, to 8.3 percent in 2009.

The sector now employs about 78,000 workers, down from 120,000 in 1990.

For more than two years, the president of the Jamaica Manufacturers Association (JMA), Omar Azan, has called for single-digit interest rates as a way to spur the sector and help ease Jamaica’s dependence on raw goods exports and tourism.

In the past year, government has made “low cost” funds available and instigated a debt swap that reduced interest rates on government paper from 18 to 12 percent.

But Finance Minister Audley Shaw’s debt refinancing did not slash rates as expected. Banks have been stubborn and almost a year later, rates are only just creeping downward.

When added to the downturn in the world economy, a decrease in domestic demand, unsold inventory and the high cost of inputs, the manufacturing sector has been hit hard.

The loss or reduction of export markets, including bauxite, and the collapse of the local agricultural sector have also taken their toll.

Local raw material and demand dried up with the collapse of dairy, beef and the food fish sub-sectors and the loss of traditional banana and sugar markets. Agro-processing and the manufacture of animal feed, agricultural chemicals, packaging, food products, milk and cheese, among other products, also declined sharply, putting many out of business.

Financial analyst Ralston Hyman believes government policy is contributing the woes of the manufacturing sector. He pointed to the island’s 33 percent corporate tax rate and the high fuel prices, which he said, makes the cost of production here well above those of other CARICOM (Caribbean Community) countries.

There is consensus that Jamaica’s current climate is incapable of kick-starting manufacturing. Analysts now seem united in their call for an economic policy that will stimulate growth, recently projected at one percent per year but now revised downward.

According to Hyman, many of the problems in the productive sector are the result of “flawed government policies”. He pointed to a Dec. 23 threat by Standard and Poor (S&P) to lower Jamaica’s credit rating from B- (B minus) unless government implements “a sustainable economic plan” for reducing what S&P termed the “onerous” debt burden.

Marzouca is critical of the “lack of government support” for the productive sector, an observation that finds agreement in the agricultural and agro-processing sectors.

Peter McConnell, managing director of Trade Winds Citrus Company, wants policies that allow local businesses to operate on a “level playing field”. While he does not support protection for inefficient producers, he noted that local farmers, in particular, need the protection of strong and effective policies if the country is expected to feed itself.

“We need to look to the local market and the region and do what we are good at to compete,” McConnell told IPS.

Business is booming at McConnell’s juice plant in Bog Walk, a farming district about 26 miles outside the capital Kingston. Despite a decline in agriculture, Trade Winds is churning out millions of gallons of fresh fruit juices each week for an insatiable Jamaican and CARICOM market.

Trade Winds was born out of a dying sugar industry and is bouncing back from near extinction by the Citrus Tristeza virus, which forced the replanting of the company’s 2,700 acres of citrus groves.

The old sugar mill now houses an ultra modern processing plant and cooling facility, and the rows of sugar cane have given way to citrus trees. The company uses all of its own and provides a market for a variety of fruits from both local and regional farmers.

But while Marzouca and McConnell have beaten the odds, both admit that the current climate continues to be difficult. In addition to the other challenges, development and research funding are almost non-existent.

Shaw is not immune to the problems and he has threatened to forcibly lower interest rates “if the banks didn’t do it themselves”. The finance minister also announced that government was reviewing measures to make banks more competitive.

Without giving details he said, “There are several initiatives that we are now considering to bring to Cabinet. If accepted, and once implemented, they will encourage greater competition among banks because it will involve greater portability and mobility of loans.”

Analysts are already warning of dire consequences if the government sets interest rates. This could they say, could impact future fundraising prospects of the government overseas.

“There will be chaos in the banking sector and severe dislocation in the capital markets,” Hyman cautioned, noting that it would also mean setting the banks’ labour and other costs.

“The government must re-negotiate and extend the current IMF loan,” he said, proposing among other things using the stock exchange to divest government holdings, land reform, and alternative energy policies aimed at reducing Jamaica’s fuel bill.

Azan wants government to pay equal attention to strengthen tourism, agriculture and manufacturing. The MAJ president noted that given the interdependency of local industries, a strong manufacturing sector would help to support recovery when others were impacted.

(END)

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