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Dated: 1 December 2002
Business sector leaders say 2003 will be a nervous year, with some describing it as unnerving, particularly since the recent instability in the foreign exchange market, and the supplementary estimates, which increased the budget deficit by $13.46 billion, taking the total deficit at March 2003, to 8.4 per cent of gross domestic product (GDP), twice the level projected.
President of the Small Businesses Association (SBAJ), Andrea Graham, predicts that the next 12 months will be very challenging, citing the impact of the latest package of additional taxes in the supplementary budget for 2002/03, and those to come in the 2003/04 budget.
The latest taxes, which have sent shock waves among businesses and individuals, also included revised penalties for 20 offences under the Income Tax Act and several more under the Customs Act. The new taxes will affect liquor license holders, and in particular, motor vehicle and heavy duty equipment owners, including businesses.
The SBAJ leader said businesses were already reeling from the high cost of transportation, security, and electricity. “They pose a real challenge for us, and only those that are creative and well oiled, will survive”, she predicted.
As for her membership, “the small, micro and informal sectors are extremely nervous,” she said, adding, “Government is coming after us with a vengeance.” Ms Graham contends that the combined impact of cheap imports and the high cost of doing business in Jamaica was making it impossible for businesses to compete.
She noted that in this environment, businesses find themselves hard pressed to stay afloat, noting that people were leaving their businesses to go abroad to work to support the business.
According to Miss Graham, the recent depreciation of the Jamaican dollar is having in an eerie and sinister effect on the cost of production. She said, “The foreign exchange cost on production of goods and services is increasing, it is creeping on you, it is hidden, you will just see it.”
She added that as a result, people would cut back and not buy. “It will also be difficult for workers as businesses clamp down on costs during the belt-tightening 12 months to come”, she said.
Jamaica Manufacturers Association (JMA) president, Clarence Clarke, also expressed concern about the impact of the depreciation on local costs. He explained that “devaluation affected the local cost of raw material, and the percentage would relate directly to the percentage by which the dollar is devalued.”
He said, “Despite the challenges in 2002, the manufacturing sector held strain. While it lost some companies, others expanded. So there was a balance between the two.” He said the sector remained constant, making up 15-16% of GDP, a 4 % decline from the 20% of GDP it sustained in the 70’s - 80’s. In 2000 the sector saw 1% growth and 0.1% in 2001.
Significant contributors, Mr. Clarke said, were food, agro processing, beverages and chemicals. He explained that, through creativity and doing more than cut and sew, the JMA was seeking to revive the apparel sector, which had seen significant setbacks. In the mix, he said, they were looking to include fashion designers from the island and around the Caribbean. The JMA played a major role in the Caribbean Fashion Week event, which drew works from local and Caribbean talent.
He noted that for 2003, some of the factors of concern would be a possible US-Iraq war and the ongoing strike in Venezuela, which has forced Jamaica to approach the free market for oil.
“Supplies may be disrupted and prices possibly higher,” he surmised. But overall, he expects continued expansion as well as growth through the brokering of strategic alliances with local and international companies for investments.
He noted the new crime fighting measures have borne some fruit and the JMA was looking forward to investments from overseas contending that “we should see some growth and further movement.”
At the level of the Jamaica Chamber of Commerce, president Michael Ammar said 2002 was a good year for the financial sector, with some banks returning high profits. It was especially good for National Commercial Bank (NCB), which returned to profitability. The manufacturing and trading community also did well.
“In 2003, the most pressing problem is how Government will manage the debt. It is unnerving”, he said, noting that it was serious, and a burden to the national economy. He said necessary cuts will have to be made, suggesting that some government departments could be closed, whilst others could be consolidated under one department.
At the same time he said, there must be efforts to go after those not paying their taxes, citing General Consumption Tax (GCT) and customs duties, which he said, were not being collected properly and needed to be looked into. This is important, given the $7.8 billion deficit caused by a shortfall in revenue. GCT compliance, whilst remaining above the international standard of approximately 70 per cent, fell slightly in 2002.
Mr Ammar was also concerned with the high level of interest rates and the downward movement in the dollar, which he said was “moving disorderly and was worrying”. In this kind of environment, he noted, “businesses are unable to plan, and decisions are not made”.
In a far-reaching suggestion, the JCC president said they are in favour of “dollarisation”, a term which became popular in Jamaica in the 1990s, but a concept, which based on parity between the US and the Jamaican currency, as well as central bank autonomy, has already been rejected by the Government.
He argued that in 20 years time, there will be currency blocks all around the globe, and he would not like to see Jamaica left behind. He stated, “We should be pro-active and look at the experience of Peru and Ecuador, which have dollarised successfully.”
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