Construction sector critical to economy

Dennis Morrison, Contributor

The recent election campaign put the spotlight on comparisons of the economic performance of successive political administrations in Jamaica. More than ever, the parties made their pitch to the voters using statistics about living conditions, job losses, and economic growth. While the statistics for the last four years were startling enough and were a big influence on the outcome, they do not tell the whole story of the downturn.

There are several key indicators that give a fuller, and perhaps more accurate, picture of the state of the local economy, especially those that capture what is happening in both formal and informal activities.

One such indicator is the pace of activity in the construction sector, and cement sales in particular. Cement sales have, over the years, increased above the rate of economic growth of the formal economy. What has happened to these sales in the past four years, therefore, tells the story of the depth of the economic slump over period.

Back in 2007 when the construction sector was bustling, domestic cement sales were well in excess of 900,000 tons, the highest ever. Carib Cement could not meet the local demand, forcing the Government to open up the market to imports to relieve the shortage which was crippling major construction projects. But last year, domestic cement sales were under 630,000 tons, or more than 30 per cent below the 2007 level.

Negative turn

Starting in 2003, Carib Cement had, in fact, seen sharp upward movement in sales on the domestic market with a big jump from just under 600,000 tons in 2003 to 800,000 tons in 2004. Its sales continued to climb strongly in 2005 and would have maintained the momentum in 2006 and 2007, but for production disruptions.

Then came a negative turn in its fortunes starting in 2008, with sales declining, which intensified in 2009 and 2010. The result is that by 2010, the company's domestic sales dropped to well below what they were in 2003. They were still well down in 2011, although there was a small increase.

What the fall-off in cement sales indicates is how badly the construction sector has slipped, and this must have had ripple effects in the job market and the wide range of businesses that supply inputs for the sector. The sector offers direct employment to a broad array of skills and is relied upon to absorb a large pool of unskilled labour. We can, therefore, conclude that the jump in job losses and increased number of people below the poverty line reflect the slump in construction activity.

Of course, the root cause of the shrinking construction sector is the collapse of investment in several major areas such as housing, tourism, infrastructure, and commercial real estate. When investment in these areas was accelerating in early 2000, there was actually labour shortages in certain skills, especially in the northwestern parishes and the mid-island, where hotel construction and bauxite projects were being implemented.

The jump-starting of investment activity is critical to the resuscitation of the construction sector and of employment.

Electricity factor

Another key indicator that I have found useful in assessing the state of the economy is electricity sales, as that also captures the level of both formal and informal activities. Sales of electricity have also been squeezed, and actually declined in 2010, an unusual situation, after three sluggish years. This was after growth of nearly seven per cent in 2006. The number of customers also fell in 2009 and 2010. Sales were flat in 2011, a reflection of the weak economy and pressure on households and a real sign that the economic recovery is fragile.

Our economic managers will have to proceed on parallel tracks, attending to the fiscal problems while pushing hard to secure injections of investment if the recovery is to pick up speed. Fiscal consolidation, to use the language of the International Monetary Fund (IMF) and others, if not synchronised with expansion of investment activity, is likely to stifle recovery, or worse. Can local businesses be relied upon to be more active in stimulating investment? Or is the expectation that the stimulus is to come from solely foreign-direct investment?

That the IMF, World Bank and other institutions which forecast economic trends have cut back their predictions for world economic growth for 2012 is not good news. But indications that the United States (US) economy is experiencing the beginnings of self-reinforcing growth may be an encouraging sign for economies like Jamaica that are heavily dependent on the US in terms of tourism, remittances, and trade.

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