Editorial | How to pivot to growth

A few days after this newspaper explored the question of national productivity in the context of the recent contretemps over a Chinese-owned motor vehicle repair garage Jamaican were crawling over themselves to get into, the International Monetary Fund (IMF) warned policymakers of their need to address the issue to enhance the island’s growth prospects.

Jamaica continues to do well with respect to macroeconomic stability, and was set to return to growth after last year’s decline in the GDP, the Fund observed in its latest Article IV review of Jamaica.

What the IMF didn’t explicitly say was that the growth wouldn’t be robust. It, however, made this observation: “Low productivity has been worsened by structural impediments including high crime, barriers to competition, poor educational outcomes, inadequate infrastructure, and barriers to trade.”

If there were uncertainties before, the Fund’s statement ought to be a clear impetus for the authorities to accelerate work on an updated national productivity strategy. Indeed, the IMF remark, on its face, supports Prime Minister Andrew Holness’ declaration last October of his administration’s “pivot” to growth.

For while a necessary condition, the macroeconomic stability that Jamaica achieved over the past decade, isn’t, of itself, sufficient to deliver the levels of growth, and quality development, the island wants.

This call for a reorientation of economic strategies coincides with a period of deep global uncertainty, especially for small countries. But it is also a potentially opportune time for such a pivot, given the resurgence of industrial policy, particularly in the United States and Europe.

REINVENT THE WHEEL

While Jamaica cannot import, wholesale, someone else’s industrial policy – which must be adapted to the country’s specific economic conditions, taking into account national strengths – it need not reinvent the wheel. It can learn from the experiences of countries such as South Korea, Taiwan, and Estonia.

Moreover, Jamaica has a long history of drafting and implementing industrial policies, including early success with rapid GDP growth from the late 1950s to the end of the 1960s.

If the country, after decades of stagnation, is to have a chance of returning to the performance of that period, it must give significant attention to six key issues, many of which have been advocated before. They nevertheless remain valid.

* There must be a focus on sectors with the highest potential for growth and global competitiveness, such as agro-processing, digital services, renewable energy, and niche manufacturing. Just as Chile leveraged its wine industry and South Korea built its electronics sector, Jamaica must concentrate on industries where it can become a global leader.

* One of Jamaica’s greatest weaknesses is its low annual research and development spending (estimated at 0.1 per cent of GDP). Increasing investment in innovation, partnering universities with private firms, and providing incentives for technology adoption will require increased spending on R&D to get closer to the global average of two per cent of GDP.

* Jamaica must go beyond basic financial literacy and actively support startups with incubators, export training, and government-backed business development programmes. Estonia transformed its economy by fostering digital entrepreneurship, showing that small nations can thrive by supporting innovative industries. The current initiatives by the Development Bank of Jamaica in this area need far more resources and scaling.

* Continuous attention must be placed on the reduction of rent-seeking behaviour which can undermine industrial efforts. There must be a commitment to transparent policies. Strong governance arrangements can reduce market distortions.

* Learning from Singapore’s Skills Future initiative, Jamaica must provide reskilling opportunities that align with industry needs. Continuous education, technical training, and incentives for staying in Jamaica rather than migrating will be essential. Again, the initiatives in this area by HEART/NSTA Trust need to be scaled up and focused on technologies of the future.

* Bureaucratic inefficiencies often stifle progress. Digital models around the world prove that streamlining regulations and digitising processes can dramatically improve efficiency. Jamaica has already taken important steps in this area. It must now ensure that the regulatory agencies function as growth enablers, not barriers.

OBSTACLES

Industrial transformation, however, comes with obstacles. Countries that have successfully implemented industrial policies have had to confront issues such as regulatory inertia, limited financing, resistance to change, and skill shortages. Jamaica needs a national strategy to overcome these hurdles. This will require continued focus on simplifying business registration and investment approval processes to encourage local and foreign investment.

Importantly, too, industrial policies must survive political shifts. Establishing long-term national strategies will prevent disruption with each change in government is critical. That implies the need for building national consensus around the strategies, as was achieved with macroeconomic stability.

Further, any successful industrial policy for Jamaica must be paired with a renewed international trade strategy. Jamaica, along with CARICOM, must push for new agreements that grant better access to global markets, especially for the region’s niche industries, as well as encourage technology transfers and investment in key sectors.

CARICOM must also expand its trade networks with other Caribbean and Central American nations to gain collective bargaining power. It is very important that climate concerns in these agreements are not ignored.