III. ECONOMIC TRENDS AND OUTLOOK The Jamaican economy grew by 1.2 percent in 1993 following a modest growth of 1.4 percent in 1992. This resulted from growth in the agricultural sector, tourism, construction and other service sectors. The pace of economic growth in 1993 slowed somewhat due to tight monetary and fiscal policies, the depreciation of the Jamaican dollar, and declining real incomes for the majority of the population. In addition, the servicing of a heavy debt burden, the deterioration in earnings from the bauxite/alumina industry (soft international market), and high interest rates have further constrained economic growth. The mixed economic outlook is expected to continue into 1994. While agricultural exports and tourism are expected to remain sound, growth prospects are likely to be constrained by foreign exchange problems, high inflation, an uncertain international market for aluminum, and the impact of the government's restricted fiscal and monetary policies. Principal Growth Sectors ------------------------ Tourism has been Jamaica's primary foreign exchange earning industry since 1983. Total visitor arrivals have remained well over one million annually. Stopover visitors (visitors staying one night or more) average 65 percent of total arrivals, two- thirds of which come from the U.S. Hotel room capacity on the island is 17,350 and is expanding. Jamaica has large commercial deposits of mineral resources such as limestone (two-thirds of the island), bauxite, gypsum, marble, silica sand and clays. The mining and processing of bauxite continues to be the major economic activity. Another area of growth is the textile sector. Exports of apparel from Jamaica to the US grew by 22 percent for the last 12 month period ending May 1994 compared to the same period last year. The value of these exports grew by USD 9 million to USD 420.1 million in this period. The agricultural sector generates about 8 percent of GDP and employs over one quarter of Jamaica's employed work force. Jamaica has a favorable climate and varied soil types. Major traditional export crops are sugar, spices, bananas, coffee, citrus, allspice, and pimento. Other crops of growing importance include yams, tropical fruits and vegetables, legumes, and horticulture. Balance of Payments Situation ----------------------------- Jamaica's balance of payments deteriorated from a surplus of USD 330.3 million in 1992 to a surplus of USD 98.1 million in 1993. Although the services account increased by 39.5 percent to USD 493.7 million, significant deterioration in merchandise trade (by 55.3 percent) reduced the current account balance from a surplus of USD 10.9 million in 1992 to a deficit of USD 239.2 million during 1993. In 1993, the capital account posted a surplus of USD 337.3 million, reflecting a 5.6 percent increase over the previous year. Further, despite reduction in Jamaica's external debt to USD 3.65 billion over the last two years (resulting mainly from debt forgiveness), debt servicing accounts for nearly half of the fiscal budget, limiting economic expansion. Jamaica passed the March 1994 performance target under its December 1992, three-year Extended Fund Facility (EFF); the current program, ending on September 30, 1995, could be its last. Privatization of public entities has been one of the strategies used by the government to strengthen the private sector and to reduce the budget deficit. Trade and Investment Barriers ----------------------------- The principal barriers for exporting to Jamaica are occasional foreign exchange shortages, poor internal transport infrastructure, and declining real incomes for the majority of the population. There are no significant investment barriers, except in certain areas of telecommunications and the insurance sector. As part of the continuing process of reform of the trade regime, the government embarked upon a tariff reform program in 1986 whereby the duty rates were gradually reduced from as high as 200 percent to the present maximum duty rates of 35 percent and 40 percent for agricultural items. (Please see Section VII for further details on tariff reduction.) Customs procedures: There have been some improvements as a result of the Government of Jamaica's efforts to streamline customs procedures. In order to facilitate the movement of goods, the government simplified the documentation and clearance requirements for exporters. Plans to computerize the entire system are underway. Government Role in the Economy ------------------------------ The dependency of the Jamaican economy on tourism makes economic growth sensitive to regional and global economic conditions. Macroeconomic weakness and foreign exchange market instability also contribute to slow economic growth. Major policy initiatives include introduction of the CARICOM trade area's Common External Tariff (CET), a general consumption tax (value-added tax), the acceleration of privatization of government companies, and banking and securities industry regulation. The government has announced macroeconomic policies aimed at achieving a one percent per month rate of inflation by the end of fiscal year 1994/95 (i.e., March 1995), although this goal is widely viewed as unrealistic. Labor Force ----------- While the size of Jamaica's labor force has remained fairly constant over the past few years, the overall stability of the numbers has disguised two divergent trends: older, more skilled workers are retiring and being replaced by younger, less skilled workers. The nation's education system, geared in the British mold to produce a few well-trained university students each year, is a major cause for concern about the future face of Jamaican labor. The thousands who graduate each year from "new secondary" (i.e. non-academic) schools are essentially unemployable. Meanwhile, efforts to establish meaningful technical training at the secondary and post-secondary levels have lagged due to resource constraints. Jamaica's per-capita foreign debt load remains among the highest in the hemisphere. In the agricultural sector, the increasing average age of the sugar worker is sparking concerns that producers here will be forced to mechanize harvesting operations over the next 4-5 years, despite strong resistance from organized labor. Other agricultural workers (principally banana and citrus) are in many cases small farmers as well as wage employees of agricultural concerns. Commonly, neither source of income constitutes a living wage by itself. Employees in the bauxite industry are among the best-trained and best-compensated in Jamaica. The industry has had an admirable health and safety record over the past five years. Growth prospects are limited, however, given the continued perception of soft international demand for aluminum. The tourist industry, which encompasses large resorts, medium and small hotels, and private villas, offers workers access to foreign exchange wages in the form of tips. Competition for positions at the top establishments is fierce. A perception exists that the Jamaican hospitality worker is not trained to the same standard of customer service as his or her counterpart in many other resort locations around the Caribbean littoral. One bright spot for employment has been the garment assembly sector. This industry has provided thousands of workers, usually single, unskilled heads of household, with the opportunity to receive industry-specific training from producers. Wages allow these employees to support an average of 4.5 persons per household. Over the past two years, however, inflation has reduced the average wage offered in Jamaica's export zones to a level at or below the poverty line. As a result, thousands of mid-level entry jobs remain vacant at garment-assembly plants. Major Local and Third Country Competitors in Specific Sectors ------------------------------------------------------------- The bilateral trade balance has historically favored the United States, based on Jamaica's imports of a wide range of U.S. goods. However, some of the major local competitors include: producers of food (such as fruits and vegetables, poultry, meats, and certain dairy products), beers, sodas, soaps and detergents, tobacco, cement, concrete, steel, paints, garments, tires, retail distribution and utility services. Some of the major third country competitors are in the areas of petroleum, machinery, motor vehicles and parts, certain chemicals and manufactured goods. Other major countries which export to Jamaica are Japan (USD 182.1 million), the U.K. (USD 94.6 million), Canada (USD 89.3 million), Mexico (USD 78.1 million), Venezuela (USD 90.8 million), and Trinidad and Tobago (USD 79.2 million). Trade with the CARICOM region showed an appreciable increase from USD 65.9 million in 1992 to USD 115 million in 1993 and is likely to show steady growth. Infrastructure Situation re Goods/Service Distribution ------------------------------------------------------ Jamaica's infrastructure ranks high among developing countries. Islandwide transport is facilitated by 9,000 miles of primary and secondary roads, and scheduled domestic flights. There is a railway system comprising 242 miles of track. The government is attempting to privatize the railway, which has not been operative since October 1992. Transportation: There are two major international sea ports - Port of Kingston and Port of Montego Bay - servicing over 20 international shipping lines. Norman Manley International Airport in Kingston and Sangster International Airport in Montego Bay are the two major airports. The inland transportation system is underdeveloped, and transportation of goods within Jamaica and to ports is problematic. As mentioned above, there is a nonfunctioning railway system across the island. Public transportation is inadequate and is an impediment to optimal business siting. Cargo and passenger transportation are carried through modern and well-equipped international air and seaports. Ten major airlines and over thirty international shipping lines link Jamaica with worldwide destinations. Electricity: The government-owned Jamaica Public Service Company (JPSCO) is the sole producer and distributor of electricity in Jamaica. Over 90 percent of electrical power is generated from imported fuel oil. Current capacity of 540 MW slightly exceeds peak demand of 370 MW. The government is considering divestment of JPSCO and is also encouraging private sector investment in additional generating capacity. Water: Jamaica has an adequate water supply from sources above and below ground. However, occasional droughts can reduce the water supply in the Kingston metropolitan area. Energy: Jamaica depends on imported energy for about 94 percent of its needs. Petroleum consumption is about 19 million barrels per annum. Banking: Jamaica has a well developed - and expanding - financial system, including a central bank, commercial banks, and various other financial intermediaries. Telecommunications: Jamaica has a complete digital network offering a wide range of telecommunication services locally and internationally, including direct dialing to most international locations. Major Infrastructure Projects Underway -------------------------------------- -- North Coast Development Project. This USAID/Japanese co- financed project consists of the design, construction and start-up of five infrastructure projects targeted to overcome major constraints to tourism development, such as upgrading roads, water supply, and sewage treatment. Project financing includes a Japanese loan of USD 63 million, a USAID grant of USD 5 million, and approximately USD 15 million in counterpart funding from the GOJ. -- Expansion of Sangster International Airport in Montego Bay. The design phase is well advanced, but the process of finalizing a finance package is still underway. Assistance in this effort is being provided by Citibank N.A.