With remittances now sluggish, investors must step up to plate

The poor in rural Jamaica and in our inner-city communities more than ever have to look to remittances to make ends meet as the pressure from the downturn in the local economy shows no sign of easing. Customarily, relatives abroad tend to top up what they usually send home when Christmas and Independence holidays come around. With the cost of living escalating and jobs hard to come by, families dependent on remittances must be anxiously looking out for the 'holiday money' for the coming Emancipation-Independence and back-to-school season.

They may be disappointed, however, as the sluggish pace of economic recovery in the United States (US), United Kingdom (UK) and Canada, major sources of remittances, has limited even the regular amounts that their relatives are sending, much less any extra holiday money. This is shown by the slowdown in the rate of recovery of remittance inflows so far this year, compared with the same period in 2010. Last year, these inflows increased by US$71 million, or 10.1 per cent, in the first five months, but for the same period this year, they were up by only US$50 million, or 6.5 per cent.

This should come as no surprise for, in both the US and Canada, the recovery from the Great Recession appeared to have been gathering steam in the early months of 2010, with unemployment falling and business and consumer confidence rising. In recent months, there has been a marked slowdown in the rate of economic growth and in the US.

Slow recovery

Unemployment has actually gone back up. Conditions are even tougher in the UK, where austerity measures, including tax increases and spending cuts, have been implemented as the government seeks to address fiscal deficit and debt problems.

The hard truth is that the damage inflicted on the US and UK economies by the financial crisis and the recession will continue to limit the rate of recovery of employment and income growth. Faced with weak job markets and stagnant incomes, our relatives in the US and UK will, therefore, be hard-pressed to increase the amounts they send home, and in some cases, may even have to cut back on what they used to send. In previous recessions, which were far less severe than this one, it has taken up to five or six years for remittances to recover.

Even as remittances are recovering more slowly than in 2010, the area of greatest weakness is investment activity. This was the main driver of economic growth and job creation prior to the recession. In the period up to 2008, record foreign direct investment flowed into the tourist industry, telecoms and the bauxite sector, accelerating business activity, creating jobs, and revitalising the construction sector.

There was, as well, unprecedented public-sector spending on infrastructure projects, including housing, roads, water supply, airports and seaports. While infrastructural works continued through the Jamaica Development Infrastructure Programme, the Falmouth Pier, housing and water-supply projects, as the recession struck foreign direct investment inflows fell sharply. Recovery of the Jamaican economy is not going to gain traction until private investment activity is reignited.

Tourism development, energy supply, bauxite/alumina production and ICT are the most obvious areas that could attract major investment within a reasonable time frame. The start-up of several hotel projects (Fiesta, Excellence, Gran Bahía) that received approvals for their second phases before the recession, could jump-start investment activity and generate badly needed construction jobs in the short term. Moreover, finalisation of new integrated resorts (Harmony Cove, Celebration Jamaica) that were in the pipeline could lift the economy out of the doldrums.

Securing economic impact

In The Bahamas, tourism projects - such as the US$3-billion Bahamar integrated resort, stalled by the recession - are going ahead. Hotel investment worldwide is recovering rapidly, increasing by 117 per cent in the second quarter of this year. Without new investment, the local industry will lose its competitive edge and fall behind other regional destinations. Equal focus must also be given to securing greater economic impact through deepening the linkages between the tourist industry and the rest of the economy, especially the micro, small and medium-size enterprise sector.

Investment in the energy sector is perhaps the greatest priority for Jamaica's economy, as high energy costs are a big impediment to growth and job creation. The installation of new electricity-generation capacity would relieve the crippling costs for households and businesses, while creating jobs and spurring economic activity in the construction industry. Revitalisation and expansion of the bauxite industry is critically dependent on the diversification of our fuel source.

A glaring weakness of the Jamaican economic landscape is the continuing lack of initiative by the local investor class, which is still on the sidelines, leaving it to foreign investors to take the lead. It was anticipated that the lowering of interest rates would be a catalyst for increased local investment, but we are still in a wait-and-see mode.

Dennis Morrison is an economist. Email feedback to columns@gleanerjm.com.