Aubyn Hill
THIS YEAR has been a difficult one in terms of the demands on the Government to spend money. What seems like an endless barrage of hurricanes has hit the island since about June this year.
People have been washed away, homes have been washed away, roads have been washed away, blocked and where any semblance of roadways - especially rural ones - exist, like their urban counterparts, they are made almost non-negotiable because of numerous and deep potholes. Police, teachers and other civil servants need more pay, parliamentarians are set to get more pay and we have to continue to pay down our debt.
In this kind of climate most everyone in Government should be seeking to encourage investment in all spheres of the economy and especially to non-traditional investment destinations.
Traditional areas of complete or almost complete Government control such as educational facilities and services (all types of schools), health services (hospitals and specialised medical teaching facilities), hotels and some of the Government land that has been sitting idle in land banks for far too many years, need the energising focus of private investors.
DUE DILIGENCE AND MORAL HAZARD
It is time that many more private investors (local and foreign) be encouraged to take more leading roles in building new educational facilities and upgrading and expanding existing ones, while the Government ensures that they are built to world-class standards and achieve similar elevated results. Many returning residents have a keen interest, as do retired teachers, and even teachers currently employed in our educational system, to upgrade basic, high schools and even tertiary educational facilities or build new ones where they are needed. I am also aware that many returning residents, for their own self-interest, would want to be given the opportunity to upgrade certain regional hospitals which would provide them and their families with more modern facilities and treatment. Indeed, some have had good responses from the Ministry of Health, but the process must be made easier for them to help.
In dealing with Government assets, correction, the assets of Jamaican taxpayers - many who are quite poor - the Government and its officials do have a responsibility to exercise due care and proper, due diligence when these assets are to be privatised.
BUSINESS PLAN
Prospective investors should be checked to ensure that they have a sensible and viable business plan that will enhance the facilities and services that now exist, or they plan to put in place, and that they do have financial resources to not only start the project or process, but to continue even when they may suffer slight setbacks or hiccups.
Unless this thorough but speedy process is followed, in order to get a clear decision to prospective investors who can invest elsewhere, we could burden taxpayers (through their government) with more pain. This happens when an asset is supposedly privatised but is returned to the Government with much more debt and problems after the erstwhile private owners have received and taken their benefits. We have had enough examples of these burdensome returned divestments in recent years.
Done badly and without proper due diligence, this divestment process ties an albatross around the Government's financial neck. It is called moral hazard. When a private investor supposedly buys an asset off the Government but when things go bad or become difficult the private investor returns the asset to the Government with much more debt than when it was received from the Government and often in a much worse condition than the one in which it was sold to the investor in the first place - the Government suffers moral hazard. It becomes an insurer of the last resort to the investor. This must be avoided.
MINDSET CHANGE AND ROCKFELLER CENTRE
With due diligence and moral hazard in mind, we still need a mindset change among some Government officials and bureaucrats when it comes to opening up non-traditional, Government-owned investment destinations to private investors. There are some who still harbour the belief that there are no circumstances under which Government assets should be sold or privatised. Never mind that the government can no longer afford to maintain or even build more of these necessary assets. These officials need to relieve themselves of this costly and restrictive outlook.
The state looms so large in our economy that we really do not have to worry about the Government playing too small a role in the economic affairs of this country. Rather we need to worry that in a globalising world where people have choices across borders in terms of where to invest or from where to buy services - that includes educational, health, recreational, entertainment and even places to live - we are not being competitive. We have to change our approach to encourage private investors to upgrade our facilities to make Jamaica a more liveable and crime-free country as well as a more welcoming destination for tourists who play such a major role in the economic life of the country.
I recall a time in the 1890s when the Rockefeller Centre was sold to Japanese interests. There was a great hue and cry in the United States that the Japanese were embarked on the economic invasion of America and that Americans are foolishly selling them their assets.
This continued until some wise soul got on one of the national television networks and asked the rhetorical question as to whether the Japanese were going to put the Rockefeller Centre on a barge, ship it down the East river into the Atlantic ocean and set it up eventually in Tokyo. The answer was clear, investors who choose to invest in our country (whether they are local or foreign) generally will not be able to take away with them our schools, hospitals, universities or our land.
DEPRESSED
In the end the Japanese investors bought the Rockefeller Centre at a very high price and sold it back when the real estate market was depressed, at a very low price. The Americans (natives!) made money both when the Japanese bought it and when they sold it. There is a lesson in there for us. Let us do our due diligence well, cut out the red tape to get to decisions as fast as possible and avoid moral hazard by selling to well capitalised investors. But let us change our mindset to recognise that there are many aspects of services and facilities that the Government can no longer handle well and that well chosen private investors can upgrade and improve them as we reach towards world class standards and good employment opportunities for Jamaicans.
Aubyn Hill is the CEO of Corporate Strategies Ltd., a restructuring and financial advisory firm. Email:
writerhill@gmail.com
