Minister of Finance and Planning, Dr. Omar Davies, makes a comment to Milton Brady, managing director of FirstCaribbean International Bank Jamaica Limited, at the opening ceremony of FirstCaribbean's Savanna-La-Mar branch, located at Beckford Plaza, 33-35 Beckford Street, on Thursday, January 18. Davies then criticised banks for investing too much in government securities and too little in projects. - Contributed

Wilberne Persaud, Financial Gleaner Columnist

Last week's column inch allowed no exploration of key issues: growth, productivity, capital stock estimation, informal sector and their interaction.

Blavy's study referred to in a previous column established that: "Jamaica has experienced persistently low growth despite high rates of investment. Real GDP grew, on average, by 1.6 percent a year from 1980 to 2004, while investment rose from 15 per cent of GDP to 33 per cent over the same period."

Blavy's 'puzzle' required explanation of persistently high investment with low growth.

Important issue

An important slice of Jamaica's economic pie is created by operations opaque to government-activities not recorded by Statistical Institute of Jamaica.

They run the gamut from snow cone vendor to large criminal enterprise.

In 2002, the Inter-American Development Bank estimated the informal sector contributed between 35 and 40 per cent of GDP.

If GDP is underestimated so too are growth estimates. If capital stock usage is overestimated productivity measures are underestimated. When, however, these potential impacts are pulled together and the numbers adjusted to accommodate them, the result is not significantly changed estimates.

Average GDP growth 1991 to 2000 moves from 0.3 per cent to 3.0 per cent, just within error limits. The major conclusion still stands: low growth alongside high investment. The more troubling element though, is the fact that Jamaica "experienced a decline in productivity of 0.5 per cent a year from 1960 to 2000, compared with a 0.2 per cent increase in Latin America and a 0.9 per cent increase for the world average."

Aggregating outcomes

Is this symptomatic of metastasising cancer in the economy? This symptom derives from aggregating outcomes. Some economic enterprises are improving productivity. Nevertheless, counter measures are indicated.

Finance Minister Dr. Omar Davies, quoted in the Financial Gleaner of February 9, 2007, says it is "important for banks to realise that they have to go beyond holding government paper and start looking at being real banks. You cannot have such a high percentage of assets simply in government paper."

He encouraged banks to become proactive and aggressive by getting out into the field to seek new business.

"We now need to see banks go out there to find clients because the Ministry of Finance is not going to be your number one client in perpetuity. You will have to go out there and find real clients with real projects, and that is where your growth is going to come from."

Surely Minister Davies does not see the Finance Ministry as not a 'real client' with 'real projects'! Humour aside though, we do have a problem. The old National Commercial Bank found real clients with real projects.