Morrison

As I had indicated in last week's column, Jamaica's geographic location puts us outside of the direct sphere of China's economic juggernaut, particularly its market for imported goods, except as a possible strategic supplier of alumina. And over the medium to long term, it could become a significant source market for tourism. But our strategic location and trade relations with its export markets in the Americas could be combined with its super-charged investment machine and expansionist export strategy to form the pillars for the deepening of economic ties.

In this regard, it is important to note that while China's ascendancy to the top position among the dominant exporters is well established, it is also rising spectacularly as both a recipient of foreign direct investment (FDI) and a source of such investment. Even as the world economy went into a slump in mid-2008 and most of its main competitors have been receiving less foreign capital, China's investment machine pulled in a record high of US$108 billion in FDI flows last year. This moved it to third spot behind the USA and France, and it is likely to overtake France, which received US$116 billion last year, for second position this year.

outward investment flow

What is most interesting [from Jamaica's standpoint] is that it simultaneously expanded its outward investment flow from US$22 billion in 2007 to US$52 billion in 2008, an increase of 132 per cent. Thus, it was in the unique position of sustaining rapidly expanding flows in both directions. This should not be surprising, given its ranking as the most preferred location for FDI inflows and the rapid pace at which it is accumulating foreign reserves with which to finance investment overseas.

Long before China had made the massive economic strides and built up its gargantuan foreign reserves, it had supported infrastructure investments with developing African countries. Zambia and Tanzania and others had benefited from landmark projects spearheaded by the Chinese, who supplied capital goods and labour. They have greatly expanded the levels of investment in such projects in recent times and are playing a critical role, especially in less developed countries in Africa like Angola, the Democratic Republic of Congo and Liberia.

We can expect that as China continues its economic surge and lays down the geo-political network to match its elevated economic power, the scale and scope of its official development assistance will grow substantially. High-level delegations, led by its president and vice president to Latin America and the Caribbean, have signalled an intent to raise the flow of official development assistance and investment capital to countries in the region. Already, Jamaica has benefited from special commercial credit for capital goods for port development and pipes for water-supply systems.

Currently, the convention centre being built in Rose Hall, St James, with substantial long-term concessionary financing from the Chinese government, is yet another indication of the investment projects that it is willing to support. The convention centre has been a long-sought-after infrastructure for Jamaica's tourist industry, but it would not have been viable on the basis of normal commercial credit. There is, in addition, the official development assistance that has been provided for projects, like the Greenfield Stadium in Trelawny.

massive expansion

Jamaica's strategic location in relation to the sea lanes in which huge amounts of cargo move between South and North America and Western Europe, as well as the traffic from the Panama Canal, has been at the centre of plans by the Port Authority of Jamaica for the massive expansion of the port of Kingston. These plans envisage the establishment of a logistic centre where arriving cargo from Chinese and other suppliers would be repackaged for onward air or sea transport to markets in the region or for the eastern seaboard of North America. The centre could also involve assembly of light manufactured goods and free-zone merchandising as was advocated years ago by former Prime Minister Edward Seaga.

Alternative investment projects involving a logistic centre and light manufacturing free zone have been proposed for the Caymanas area. There is, as well, the port development and heavy industrial production centre that is being promoted for the Port Esquivel area as was advocated under the Highway 2000 Corridor Development Plan. The huge expansion of the Panama Canal to accommodate "supersize" vessels is expected to boost the volume of cargo in the sea lanes in the western Caribbean, which could be serviced by the proposed developments.

essential partner

China's large stake in the flow of cargo in these sea lanes makes it an essential partner in any development programme for Jamaica to become a logistic and production centre as described above. It is also, most critically, the pre-eminent source of the long-term, patient capital that would be required on a big scale to underwrite this kind of development. The competition to attract such investment is going to be intense and potential players include Panama itself and The Bahamas, which has been a rival in Kingston's bid to expand to mega-port status.

Jamaica's readiness to handle major investment projects will no doubt be among the requirements to be met, as well as the underpinning of a stable and predictable macro-economic environment. But above all else will have to be the preparedness to guarantee a leap forward in upgrading the available pool of local manpower. Not only is this a deal maker for the investor but the benefit to the Jamaican economy would be limited without a pool of skilled local workforce.

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