Keith Collister, Contributor
Left: COLLISTER, Right: Wayne Chen, chief executive officer of Super Plus. - RUDOLPH BROWN/CHIEF PHOTOGRAPHER
AS 2005 draws to a close, it is a useful exercise to perform a brief review of the progress (or lack thereof) that Jamaica has made in the course of the year as measured by some key economic, financial and social indicators. A full accounting will need to wait until the final figures are released next year, but a number of the broad trends are already clear.
ECONOMIC PROGRESS
For 2005, economic progress appears to have been very limited. While the full year numbers are not yet available, inflation is projec-ted to be in the mid teens rather than the budgeted single digit rate, in contrast to the rest of Latin America where according to the IMF only a few countries experienced double digit inflation this year.
Growth is likely to be less than half of the 3.6 per cent budgeted, which again is likely to compare poorly with most of Latin America. Employment creation is also likely to be negligible for the full calendar year, while living standards are expected to decline.
FALLING LIVING STANDARDS - WHAT ARE THE SUPERMARKETS SAYING?
One of the best ways of analysing 'the man on the street' impact of the projected fall in living standards is by looking at the sales of the two largest local supermarket chains, as food is supposed to be among the most recession-proof businesses. In an interview on yesterday's radio programme Real Business, Wayne Chen of Superplus and John Mahfood of Grace Kennedy's Hi Lo suggested that a combination of factors had resulted in 2005 being a bad year for the supermarket business. The main factors included the effect on consumer purchasing power of high inflation, the sharp rise in gas prices, and the increase in GCT. Mr. Chen described the 10% increase in GCT to 16.5% as having a higher than anticipated impact as this was a thin margin business. Other factors included the depletion of consumer savings due to rebuilding expenses from last year's hurricane, which combined with poor weather conditions over the past year had heavily impacted agricultural incomes. Furthermore, in their view police action had also reduced other forms of income, making remittances even more important as a safety net, particularly in rural areas. Mr. Chen also argues that the lack of job creation and thus formal income generation for more than a decade, and increasing supermarket capacity over the period, may also have had an impact on sales.
TOURISM
A weak tourism year appears to have been saved by the hurricane damage to Cancun, although the calendar year is still likely to be quite lacklustre as most of the positive impact on our local tourism industry of that event will be in the first quarter.
FINANCIAL
Jamaica's debt had peaked in 2002 at a very dangerous 150 per cent of GDP, but according to the IMF has fallen to 134 per cent of GDP as at the end of the third quarter of 2005. However, the progress in reducing the debt to GDP ratio over the course of the year reflected mainly a combination of increasing nominal GDP due to higher than anticipated inflation, combined with negative real interest rates for much of the period, and not the faster real economic growth that was originally projected.
Debt accumulation is likely to continue as the balanced budget target is unlikely to be reached, with international investment banks Bear Stearns and Morgan Stanley currently projecting a deficit of around two per cent of GDP. The higher than projected deficit appears to be almost entirely due to the poorer than projected performance of tax revenues, particularly GCT, despite the increase in the headline rate.
While Jamaica's current account widened in 2005, it is likely that the exchange rate will have fallen only slightly more than the authorities had anticipated for the calendar year, and the international borrowing programme for the fiscal year has already been completed leaving Jamaica with foreign exchange reserves well above target.
Business confidence and the stock market were weak this year, particularly in the third quarter, and while the stock market has recovered somewhat from its lows, its performance will still be negative for the calendar year.
SOCIAL FACTORS
The murder rate has already substantially exceeded the previous year, and it is likely that the uncertainty created by the poor crime situation has been a major contributor to the decline in business confidence. While I believe that the policy elite in Jamaica are slowing coming to the realisation that Jamaica needs a national plan based on consensus, trust and a shared vision to cross the societal divide created by politics, class and race, a proposed first step in the creation of a social partnership, 'the Partnership for Progress initiative', was unable to be signed on August 18 due to the last minute pull-out of the union movement. While disappointing, this may also suggest the need to engage the society in a wider fashion, starting at the community as opposed to just the national level. This is likely to require a major renewed effort on the part of progressive elements in the society to overcome the 'noise' created by a political season that now appears to be in full swing.
