For the last 10 years, Jamaica has struggled to wipe out the huge deficit in public finances brought on by the financial sector crisis of the mid-1990s and subsequently aggravated by the big losses run up by Air Jamaica and other entities. Because this deficit is a major cause of the high and rising national debt, sustained high interest rates and elevated inflation rates, the balancing of the Government's budget has become the most urgent national economic priority. It is, therefore, not surprising that discussions about how to fix Jamaica's economic problems have focused on this subject.

In the aftermath of the first globalised economic crisis and the worst recession since the Great Depression, the Jamaican authorities are, however, confronted by the far broader challenge of getting the local economy on to a sustained growth path. First, world trade has slumped as the demand for goods and services in the rich, large markets of the advanced economies has been devastated by the financial meltdown and the consequential unprecedented loss of wealth by consumers. Facing rising unemployment, United States (US) consumers in particular have raised their savings levels, which will slow down the pace of economic recovery globally.

Gone is the rapidly expanding consumer-driven demand for the primary and cheap manufactured goods that provided the momentum for export-led growth of many developing countries and the bauxite, tourism services and other exports of Jamaica. Because Jamaica's domestic market is small, we can only achieve strong economic growth if we combine dynamic export activity with expanded production of domestically consumed goods and services.

Second, the global economic crisis has done great damage to the world's capital markets, making access to these markets far more difficult for countries like Jamaica and raising interest rates to punitive levels even for blue-chip borrowers. Foreign direct investment (FDI), which has been a critical factor in world economic growth, has been badly affected.

capital resources

With the contraction in FDI, the mobilising of local capital resources to support investment in the real economy is going to be a determining factor in speeding up the pace of Jamaica's economic recovery. The bias towards the financial economy must, therefore, be de-emphasised while an increase in the flow of financial resources to the micro-, small- and medium-sized enterprises (MSMEs) is particularly important due to their role in job creation. It should always be remembered that investment is the key driver of economic growth.

Obviously, restructuring of the public sector through divestment of non-core and loss-making entities, rationalising of overlapping entities, broadening of the range of services paid for by user fees and streamlining of central government functions are some of the steps that must be taken to help to reduce the fiscal deficit. These adjustments should also ensure that in the medium term, a greater share of budgetary resources are allocated to capital spending that will support economic expansion.

economic growth

Simultaneously, top priority must be given to transforming the country's inefficient use of energy, which has made its energy costs uncompetitive and is one of the greatest impediments to economic growth. This is essential to the revamping of existing economic sectors, such as mining, manufacturing and agro-processing, that can be made more competitive to satisfy both domestic and markets. As important is the focus that has to be directed to developing new sectors, like health care, and creative industries, such as sports, music and film. Globally, these industries are growing rapidly and are some of Jamaica's sleeping giants as the country possesses inputs on which it can rapidly build international competitiveness.

In terms of urgency, the initiative to diversify fuel sources to include natural gas (and probably coal) ranks high because this will pave the way for resuscitation of the bauxite industry by reducing the high energy costs, which is the major disadvantage suffered by the local alumina plants. The introduction of natural gas can also provide a platform for a range of new industries as was anticipated in the feasibility studies that were carried out in the mid-2000s.

Tourism will continue to be the leading sector in terms of economic growth, employment, investment and export earnings, but its potential for integration with other sectors and providing income-generating opportunities for micro-, small- and medium-sized enterprises is virtually untapped. Its linkages to and catalytic role in modernising domestic agriculture and agro-processing makes tourism one of the drivers of the programme to increase domestic food output, reduce food imports and expand exports of higher value agro-processed products, thus saving as well as earning foreign exchange. The manufacturing sector can also be further integrated with tourism, including the furniture, chemicals, apparel and other industries.

Diversifying

The broadening of the tourism product to include signature cultural heritage offerings, craft, world-class entertainment and sporting events, will be as important as further expansion of accommodation. Diversifying the island's appeal to more market segments and to new source markets, such as Latin America, is also important if the sector is to achieve sustained growth in earnings. Securing airlift from the region is a pre-requisite for opening up the markets and, therefore, structured initiatives to speed up the implementation of new air services agreements that have been made with Brazil, Chile and others is the main task ahead. Expansion of airlift is also the priority in stimulating strong growth in visitors from Continental Europe.

The ICT sector is another sleeping giant in which massive investments have been made but not converted into economic growth and export earnings, though they have contributed to the modernisation of the local production systems and raised productivity levels in several sectors. One important constraint to the greater utilisation of the installed ICT infrastructure is the limited office space for business outsourcing and other operations in which Jamaica has competitive advantage and which are still strong growth activities. Risk-averse local private-sector investors have shied away from investing in this area unlike the Dominican Republic, where the sector is enjoying explosive growth.

None of the above strategies can succeed without expansion of the island's workforce training system, including HEART, tertiary institutions and at the enterprise level. Even as public expenditure must be constrained to correct the fiscal deficit, investment in education and training must not be allowed to fall, as the island has a large deficit in its achievement and literacy levels that is a major barrier to higher productivity and competitiveness.

Dennis Morrison is an economist. Feedback may be sent to columns@gleanerjm.com.