Anthony Hylton | COVID-19: a curse or a blessing or both?

The Outbreak

Life as we know it before COVID-19 hit has been greatly impacted. In the short run, the prospects for improvement remain dependent on how the virus is managed by the Government of Jamaica, the Jamaican society as a whole, and individually, but ultimately, will be determined by the response of the global community.

The discovery of several vaccines and the administration of the vaccination programmes globally and locally have improved the prospects of life returning to some normality. However, there is no assurance that it will be so any time soon given the arrival of new, more deadly variants of the virus in a third wave; the reality of significant resistance to the vaccines here and elsewhere; as well as vaccine nationalism, which prevents equitable access to vaccines by developing regions and countries around the world, like the Caribbean and Jamaica.

Jamaica’s access to vaccines, and administration of that which it receives, has been affected by these developments, and to a great degree, our prospects for recovery will be determined by improvements in those areas.

The Opposition, while giving critical support to the Government’s response to the pandemic has, through its Shadow Cabinet, been developing its own set of policy responses and proposals for the handling of the pandemic, and more particularly, the set of measures it would deploy were it to form the government during the recovery period from COVID-19.

Public-policy formulation must take account of these developments as the Opposition fashions its policy strategies and programmes it believes can ameliorate the dire situation facing the Jamaican people and businesses and provide the opportunity to recover from the fallout of the pandemic and build back shattered lives and livelihoods.

So, what’s in a name?

A deep dive into the portfolio of industry, investment, and commerce was undertaken during the 2012-2016 period, and the conclusion reached that a refocusing of the portfolio to place special emphasis on supply chain management and logistics would yield a better understanding of the dynamics underlying the fundamental policy prescriptions necessary to generate economic growth and sustained development. That conclusion is made manifest in the decision to shift the focus of the portfolio under the new title Industry, Investment, and Logistics.

It is entirely ‘fortuitous’ that the new coronavirus outbreak forced governments from developed and developing countries, large and small, to undertake measures to manage the spread of the virus, causing panic throughout the global health community. Quite predictably, these measures had the effect of shutting down businesses across industries (excepting essential services), and eventually, entire economies were closed as both local and global movements of persons were severely restricted.

What was previously understood, but taken for granted, and was imperceptible, became clear. As essential items of food, medicine, sanitary conveniences, water, pharmaceuticals, etc, became unavailable within countries and regions, the importance of the global supply chain and logistics to our everyday survival and to economic growth, health, and well-being was suddenly grasped by all. Both the existence of the supply chain and its fragility were exposed by the pandemic. Supply chain management suddenly moved to the top of the agenda in board rooms as well as in national Cabinets.

The location of the centre of the global production system in China was confirmed by the shortage of finished products and critical raw materials as manufacturing facilities closed in China first as a result of the lockdown measures adopted there. The situation was made worse by the prevailing supply chain management orthodoxy in which goods were produced and shipped on a ‘just-in-time” basis to avoid the cost of carrying significant inventories or buffer stocks by businesses. Suddenly, the disruption in the global supply chain had laid bare, as deeply flawed, the deficiency in focusing exclusively on cost containment rather than risk management and business continuity. Adjustments needed to be made to the model and fast!

Those businesses that could adjust quickly to the new reality not only survived, but thrived in the new dispensation. Business resilience now relied heavily on their ability to be agile, which, in turn, required a shift from just-in-time arrangements to a just-in-case-a-disruption-occurs approach by firms seeking to mitigate the risks associated with operating complex supply chains and logistics.

Opportunities for Jamaican Businesses and Investments

In the aftermath of COVID-19, businesses are keenly aware of the risks not only to profitability, but to business continuity, if proper assessments are not conducted relating to a firm or country’s supply chain and logistics infrastructure and attendant management capabilities. Notably, among the top priorities set by the new Biden Administration in the US was a thorough-going review of the country’s supply chains involving raw materials and key inputs into strategic industries in its first 100 days in office.

Among the opportunities for Jamaican businesses are the geo-strategic location of Jamaica’s ports astride the international trade lanes and our proximity to the Panama Canal. But the potential for Jamaica to become a major freight logistics hub in the Americas was foreseen and clearly articulated in a previous PNP Administration. This is comprehensively documented in the Global Logistics Hub Initiative: Market Analysis & Master Plan, financed by the World Bank and commissioned by the Administration of 2012-2016. The study informs that an investment in excess of USD$20 billion would be required to build the ecosystem necessary to make the logistics hub operational over a 15- to 30-year period, which would directly generate quality jobs for some 80,000 Jamaicans.

These investments are to be made largely by private investors, with fiscal and other incentives already in place under the Special Economic Zone Act, establishing the Special Economic Zone Authority to regulate the Special Economic Zones (SEZs) to be set up in and around Jamaica. These SEZs are primarily industrial parks consisting of warehouses, factories, and distribution and fulfilment centres. Business process outsourcing are also major activities permitted in the SEZs.

Also, as businesses and governments seek to mitigate supply-chain risks, regionalisation is one of the strategies being pursued by international businesses, whereby distances between suppliers and consumer markets are being shortened considerably to focus on nearshore opportunities. So if a good or service can be procured or purchased from a source closer to the consumer or supplier market, even though a little more expensive, the risks associated with a longer and more complex supply chain will now be considered, thus providing enhanced opportunities for Jamaica’s generally higher cost producers.

Additionally, the continuing expansion of global e-commerce requiring the quick delivery of goods and services to customers is just now being fully recognised and exploited by local entrepreneurs wanting to participate in the ‘last-mile delivery’ of goods and services to consumers, many at home since COVID-19.

Recent price increases as a challenge

The vaccines have been a ‘double-edged sword’ as the improving economic environment mainly in the developed world has unlocked pent-up demand for goods and services, which has caused a snap-back in consumer demand, straining supply chains. The resultant effect has seen increases in freight rates due in part to shortages of or misalignment in container need and their deployment in distribution networks. The snap-back in demand has also driven raw material and product price increases for grains, computer chips, back-to-school supplies, plyboard, steel, and lumber affecting the construction industry, thus creating the perfect storm for other rounds of price increases. This has, in turn, increased the inflationary pressures on import-dependent economies like Jamaica currently experiencing increases in the price of basic food items and supplies.

The situation is made worse due to the fact that critical infrastructure is non-existent or underdeveloped in a heavily trade-dependent region to efficiently distribute the raw materials to markets or the produced goods and services to consumers. This lack of focus on logistics and supply-chain infrastructure and management in Jamaica and the wider region has served to expose our people and economies to imported inflationary pressures on a structural basis. Inevitably, the micro, small, and medium-sized enterprises (MSME) sector, together with the unemployed and those on fixed income, have been hardest hit from the crumbling of the supply chain as they cannot absorb the increased freight and product costs.

The Opposition recognises a connection between the flow of public- and private-investment capital directed to areas such as port and transport infrastructure, industrial real estate development, digital connectivity, education and skills training for logistics industry needs, smart manufacturing and agro-processing. This presents a competitive energy mix and Jamaica’s fuller participation in logistics and the global supply and value chains in what is a heavily trade-dependent economy.

The transition to a logistics-centred economy will provide the opportunity for significant investments in new and competitive industries as we restructure. This opportunity, however, must be accompanied by an urgent review of our existing trade and investment policy strategies in order to improve our export performance and take better advantage of our geo-strategic location and the global supply and value chains in a post-pandemic recovery.

Viewed in this way, the COVID-19 pandemic could be a blessing in a veiled disguise!!

- G. Anthony Hylton is spokesman on Industry, Investment and Global Logistics and Member of Parliament for St. Andrew Western. Send feedback to columns@gleanerjm.com