Jamaica’s booming economy is attracting foreign investment
Just seven years ago, Jamaica was an economic basket case. The government was bleeding so much red ink it couldn’t fix potholes or keep streetlights on as it faced a staggering $20 billion debt in 2013.
Today the nation of 2.8 million is the economic-turnaround story of the Caribbean. Among the tough belt-tightening decisions that got it here: improving tax and customs collection; speeding up construction permits and business registrations; imposing a three-year freeze on public sector wages, privatizing its main airport and seaport, and restructuring billions of dollars in domestic debt.
“What we’ve seen over the last five, six, seven years are things that nobody thought you could tackle,” said Brian Wynter, outgoing governor of the Bank of Jamaica, the country’s central bank. “Not just the world is looking at it, but Jamaicans are looking at that.”
Jamaica is not only solvent, but the English-speaking Caribbean nation recently paid off more than $66 million to its own electric utility, the Jamaica Public Service Company, after being behind in its payments for more than two years.
“That was highly symbolic of a new Jamaica emerging, a Jamaica that has the financial wherewithal and the financial strength to pay back its obligations,” Finance Minister Nigel Clarke said.
And that’s not all.
There are more people working today in Jamaica than there have ever been. For the first time in 50 years the island nation is enjoying record-low unemployment, the country’s foreign minister told Jamaican-Americans in South Florida during a recent visit. It fell to 8 percent the first quarter of this year from a high of 16 percent in 2013. Interest rates are also at their lowest, while banks are extending credit and foreign investments are pouring in.
Earlier this month, Prime Minister Andrew Holness, who led the Jamaica Labor Party into office in 2016 by promising steep tax cuts and job creation, welcomed a $6.5 million R Hotel in New Kingston. The budding tourist zone is also preparing to welcome a new solar-powered AC Marriott next door to a two-year-old BMW showroom, and not far from a Porsche dealership. A mile-and-a-half away to the southwest, young men and women are fielding customer-service calls for tech giant Amazon and other U.S.-based companies out of the newly constructed 58 HWT Tech Park.
Meanwhile, Starbucks coffee shops selling Jamaican Blue Mountain coffee are popping up along with new luxury highrises, and Hilton has announced a new ROK Hotel by its Tapestry Collection. The 168-room hotel will be located in downtown Kingston, where the rapidly changing skyline is already being dominated by the towering new headquarters of food and finance giant GraceKennedy, a new 11-story Ministry of Foreign Affairs and Trade and recently opened waterfront dining and entertainment options.
“I was born in 1966 and I’ve never seen an optimistic, positive economy in Jamaica before,” said Mark Myers, managing director of Restaurants of Jamaica. “Jamaica was always tough, headed in the wrong direction. Now, the environment is such that I actually see opportunity, real opportunity.”
Myers is so bullish on the economy that he’s planning to aggressively expand his family’s empire of 48 Pizza Hut and Kentucky Fried Chicken restaurants, by opening 10 more KFCs across Jamaica over the next two years. “Stability brings across an environment where people are willing to treat themselves,” he said.
Jamaica got here through sheer resolve, analysts said, an attitude that spanned two different administrations that decided to enact tough reforms and stay the course. While the People’s National Party — now out of power — started the deep spending cuts and enacted the wage freezes, the Jamaica Labor Party, which came into power campaigning against the austerity, instead built on them.
“Jamaica is coming out of a situation where it was essentially living from quarter to quarter, month to month,” Clarke said. “The ability to resolve these kinds of issues means that Jamaica can plan for the long term. We’re not detained by having to focus all our energies on meeting next month’s obligations and that makes us a stronger society because we can look ahead and we can plan ahead.”
Low growth, high debt
For much of its 57 years of independence, Jamaica’s story has been one of low growth and high debt, as it spent more than it brought in, racking up domestic and international debt. The global financial crisis and a damaging Hurricane Sandy in 2012 only made matters worse, pushing the country into a recession.
By 2013, it had become one of the world’s most indebted nations. Poverty was worsening, international reserves were depleting and no one was willing to lend money at affordable rates.
Just paying interest on the national debt took up 54 percent, or $3.8 billion, of the country’s budget. The payments were more than what the government was spending on roads or other public works, and a loan agreement with the International Monetary Fund was stalled after the country defaulted.
The environment just wasn’t sustainable, said Clarke.
“You don’t get investments, you don’t get jobs, you don’t get growth,” he said, noting that private investors were risk averse and paying the interests on loans trumped investments.
So the government at the time, led by the People’s National Party, returned to the negotiating table with the IMF, with which Jamaica had a contentious history of multiple failed loan agreements.
After a lot of wrangling, angst and skepticism about whether the rescue would work, the government signed a $932 million loan with the Washington-based fund. Among the IMF conditions for providing the money to the central bank, Jamaica would have to clean up its act: freeze public sector salaries for three years, implement a local debt exchange to bring down interest payments, reform the tax system, streamline tax incentives and maintain a budget surplus of 7.5 percent of gross domestic product. The surplus requirement percentage was the highest in the world, even after it was reduced to 7 percent in 2015.
The reforms continued under a successor, larger $1.6 billion loan that Jamaica signed with the IMF in 2016. Under this new agreement, which matures in November, Jamaica committed to further reforms. They included providing a tax break to employees while raising the income tax on higher earners and raising taxes on fuel, cigarettes and alcohol. Jamaica reformed the public pension to include employee contributions; closed, merged and privatized state entities; and reformed the central bank to not only make it more independent but to focus on controlling inflation.
Over the period of both agreements, Jamaica confronted its history of chronic fiscal deficits, said Clarke, the finance minister. “Budget deficits of 5 percent and 6 percent of GDP pre-IMF were essentially erased even while both IMF agreements maintained a floor on social spending.”
“We are very focused on ensuring that all Jamaicans participate in the gains of this period and that is happening,” he said. “In the last budget, we made sure that our small and medium size businesses were included...by eliminating a number of taxes that they consider burdensome. The minimum business tax we abolished; we abolished the asset tax, which is costly and disproportionally affects small businesses.”
The IMF estimates that Jamaica’s gross domestic product, or GDP, will be about $15.6 billion for this year, which is why the country is seeing its national debt fall to about $15 billion or below 96 percent of GDP as of March. Jamaica, the IMF’s country economist said, is on track to reach its goal of having the debt be 60 percent of GDP by March 2026. The debt-to-GDP ratio is an important indicator of a nation’s economic health.
“That’s not to say that Jamaica is out of the woods from a debt reduction standpoint. It still has some ways to go, because while debt has come down from 147 to below 100 percent of GDP, it is still a very high debt level,” said Uma Ramakrishnan, IMF mission chief for Jamaica.
While per capita income remains low, at about $5,144, according to the World Bank, so too is economic growth, which has averaged annually around 1 percent since 2013. The Fund estimated that the economy expanded by 1.8 percent in 2018, which is far less than the Dominican Republic’s 7 percent, which was the highest in the hemisphere last year.
“While the growth rates may not be where we all are wanting it to be, they are headed in that direction,” Ramakrishnan said, adding that Jamaica has had 16 quarters of consecutive growth.
“The focus has been indeed on lowering that debt and a remarkable turnaround has been achieved in the country,” she added. “Singular credit goes to Jamaica and the Jamaican people and the policy makers, and the steadfast discipline that they have shown in reducing their public debt.”
In a region where Venezuela’s debt stands at a crushing $156 billion and Haiti’s currency has depreciated 100 percent in four years, Jamaica, by all accounts, is an example of how political will can turn around a dire situation. Rather than jettison the IMF program when it narrowly defeated the People’s National Party in 2016 on an anti-austerity message, the Jamaica Labor Party continued with the IMF program and signed a new loan agreement shortly thereafter. And that, analysts say, is a lesson other heavily indebted Caribbean nations should heed.
But while the country’s sweeping reforms have helped Jamaica move up in the World Bank’s “Doing Business” ranking — in 2016, it was named among the 10 most improved economies in the world — they are still not sufficient, say analysts who worry that corruption, crime and income inequality can roll back the gains.
The country’s daunting homicide rate, 47 per 100,000 people in 2018 is three times higher than the average for Latin America and the Caribbean. Studies have shown where crime is very high, so is the cost of doing business, which can become an impediment to faster growth, analysts said.
Another challenge is income inequality. Jamaicans in both the middle- and low-income classes say that the progress has also resulted in a rising cost of living that is keeping many Jamaicans from enjoying the benefits of the last few years of sacrifice.
“I am not feeling it but I see it a lot,” said Veronica Bennett, 58, a fruit vendor from the parish of St. Catherine, about the progress.
Lenisia Gayle, 24, a certified secretary, said that while there is no lack of opportunities in the country for those with skills, it’s hard to find a job commensurate with one’s skills or that pay a livable wage.
“I want when I go to the supermarket to still have money left over,” Gayle said as she filled out an application at a herb house in Montego Bay, the tourist resort town 112 miles north of Kingston.
In the last few months, Gayle, who was hoping to work as a receptionist, said she’s been offered more than a half-dozen jobs. She has turned all of them down because of the low pay.
“It makes me a bit tense when I’m applying for a job and I see how much they are going to pay me,” she said. “It’s frustrating and it makes no sense to work some place and all they are going to pay me is $76 a week or less.”
Natoya Williams, 21, who works at a call center in Kingston, agrees. The call centers have become a key part of Jamaica’s growth strategy as the the island promotes itself as a destination for third-party business outsourcing.
Williams said that while such jobs are plentiful, workers still have a hard time making ends meet without bonuses.
“You are given a key. But you don’t get to choose which door the key opens,” she said, referring to the country’s job opportunities. “A lot of times, they are not beneficial to the people they are being given to.“
Jaevion Nelson, a human rights, social and justice advocate, said Jamaica needs to address income inequality across the island.
“Yes, we have high rates of employment now, and so many people who are being employed in business processes outsourcing sectors, for example, and the tourism sector, which are both huge,” he said. “But when you go to these facilities a number of workers complain about the challenges they are having.
“Things are extremely expensive in Jamaica and you have to just wonder all the time how the average person fares on a day-to-day basis because of the high cost of living, particularly in the bigger cities, where things are so expensive, rents are so expensive, food is so expensive and the cost of just getting around is so expensive,” added Nelson, who is also the executive director of J-Flag, an LGBT organization. “There are so many people who just can’t afford basic leisurely things to do because they have to spend all of their salaries on very basic necessities, which I sometimes think can’t even stretch from one paycheck to the next.”
Still, job creation in the country is strong and continuing at an unprecedented, steady rate, said Wynter, the head of the central bank, which released a reggae-tinged campaign about its efforts to hold the annual inflation rate steady at between 4 and 6 percent.
“These jobs that are being created are private sector jobs. They are being created across multiple sectors — tourism, construction, the business processing outsourcing, hotels and restaurants, manufacturing — and I think what’s critical is to keep going,” Wynter said. “Can we go faster? We think so.”
Late last month, the bank cut interest rates to make mortgages and domestic business loans more accessible in hopes of stimulating the economy. Lloyd Distant Jr., president of the Jamaica Chamber of Commerce, said it’s another step in the right direction.
“We remain very bullish about the economy,” he said. “We believe that there are way more significant positive signs. The business community continues to invest and our members continue to make statements around the reasons why they are investing, because they believe we are making the right decisions around fiscal policies... which gives the confidence to invest in this climate.”