Editorial | What future for Chinese investment in Jamaica?

Current China-Jamaica relations are strong and wide-ranging. Over the last four to five years, the two countries have forged meaningful economic, political and cultural ties, resulting in greater international trade, financial and investment flows between the two countries. Despite some degree of pushback on the deepening relations with China from some fearful elements in the Jamaican society, there has been consensus at the political level that the relationship is beneficial to Jamaica.

While it is correct to point to the recently concluded Stand-By Agreement with the IMF as important to Jamaica’s economic turnaround, it would be unwise to ignore the contribution of the very high levels of foreign direct investment, debt financing and support that came from other sources, particularly China and Venezuela (PetroCaribe Agreement) in this success story.

However, the news with regard to Chinese investment in Jamaica is not all rosy.

The recent decision by JISCO, the Chinese owners of the Alpart alumina plant in Nain, St Elizabeth, to close operations for the next two years, will have a direct negative impact on the gross domestic product growth. The reasons given for this decision are worth noting for planning purposes. JISCO points to the soft alumina market. The very high cost of operating the plant, which is above the world market price for alumina, makes Alpart unprofitable. Bearing in mind that after buying the plant for close to US$300 million from RUSAL in 2016, JISCO invested another US$300 million to make it operational, the decision to close must have been compelling.

The plan to upgrade the plant during the period of closure, while positive, does not guarantee reopening any time soon. That decision in two to three years’ time will depend partly on the demand-supply balance at that time, and by how much Alpart’s future production costs will be lowered. New alumina capacity is likely to come on stream globally during the period of closure. Further, the global economy is showing signs of a slowdown, thus lowering the demand for alumina.

The planned investment in the Alpart refinery by JISCO was announced as the start of the renaissance of Jamaica’s industrial development. This level of industrial expansion was expected to replicate the impact of the original introduction of the bauxite/alumina in the 1950s and 1960s on the Jamaican economy, and was expected to generate thousands of new high-paying jobs, producing new and innovative products for the world market. There has been no recent update on the overall project: the public is due one.

Other bad news

The other not-so-sweet news about China investment in Jamaica has been the decision by COMPLANT, owners of Pan Caribbean Sugar Company (PCSC), to walk away from its investment in the Monymusk sugar factory, and to limit its capital spending in Jamaica. After taking over the Monymusk and Frome sugar factories in 2009, COMPLANT spent large sums to upgrade operations. But, as was the case with the JISCO alumina operations, local production costs have been way above the price of sugar in the markets where PCSC operates: they were unprofitable. Consequently, their sugar investments have lost over $6 billion since 2009.

The Chinese, through China Habour, have invested over US$700 million in completing the development of the North-South Highway. Given the expected unprofitability of the toll road operation, the company was given substantial acreage of land for development, which, it is hoped, will ensure a reasonable return on their investment over the next 30 or more years. Again, not much has been heard recently about the planned development of the new housing, shopping zones, hotels and light industries following the transfer of the lands by the Urban Development Corporation.

The strong determination of the United States to push back on the emergence of China as a world power, particularly in the Western Hemisphere, might have caused the Chinese to pause and rethink strategy. For example, the imposition of tariffs on aluminium by the US government would likely have an impact on any investment planned for the Alpart industrial complex by JISCO.

It would be good to hear from the Jamaican Government on the issues raised here, as well as developments around the recently signed agreement with China on the Belt and Road Initiative.