Chinese chance of a lifetime

Edward Seaga, Contributor

In 1996, I was invited to visit the People's Republic of China. It was a one-week-get-acquainted visit to Beijing, Shanghai and Shenzhen. The visit was a marvellous opportunity to see the actual extent of the development taking place in China.

Although this was particularly to visit industrial estates and agricultural projects, I could not help but note that the landscape in Shanghai was crowded with huge construction cranes for building skyscrapers. At least 20 could be counted at a glance. Construction of condominiums and factories was going on everywhere.

Our visit to the industrial estates was to a factory which was well landscaped. A wider view revealed that this picturesque plant was typical of the industrial area.

Agricultural projects visited were rice growing, fish farming, abalone (a marine conch-like delicacy) and shrimp farms. We also visited a goose farm which force-fed the birds to gain weight quickly. Three of the team were agriculturalists with doctorates.

The visit rolled along with meticulous timing. Everyone seemed to be industrious. Neatness and tidiness prevailed everywhere.

I am sure the entire country was not this spectacular, but for what was observed, including one of the wonders of the world, the Great Wall of China stretching as far as the eyes could see, I could not help but feel that I may have wasted my life.

PITCHING THE PLAN

When I sat down to talk with a high-level group of government officials, the discussions were on trade and development. This gave me the opportunity to promote my recent initiative for the development of a 250-acre free zone industrial area at Fort Augusta in the Kingston Harbour, with facilities for warehouse, wholesale and retail trade.

The assembly of component parts to create finished goods of the type that are available in the Panama Canal Zone free zone would also be included. Jamaican vendors visit Panama to buy these types of merchandise for resale in Jamaica. With this development, they could do so here. The development would also have a digital telecommunications establishment and a hotel for traders flying in to purchase goods.

At the southern end of the reclaimed area, sited at the mouth of Kingston Harbour, would be berths for two cruise liners to bring tourists to Kingston and to visit Port Royal. This was the only practical means to attract visitors to Port Royal. Travel to Port Royal from Fort Augusta would be a short trip by special barges across the mouth of the Kingston Harbour.

The area would be a free zone, much like Panama, but with a wider selection of operations. It would be called the Fort Augusta Free Zone.

The project would employ thousands of workers and, located as it would be in Kingston Harbour, would be in the right location to deal with the inner-city area with the highest unemployment, the Kingston waterfront.

My intention was to attract Chinese interests to become a substantial part of the development, as I knew that it would be almost impossible to find individual operators to become involved in the project in a sufficiently reasonable time.

If the Chinese were interested, they could become involved across the board on a large scale, promptly setting off the project to a successful start. From that beginning, it could become another Panama. How wonderful this would be? It would have a substantial impact on unemployment and the economy, a most welcome development.

I based my proposal to the group that China was no longer only a source for manufactured goods for clients. China had reached the stage of development that it was not just the 'factory of the world', but was capable of manufacturing its own Chinese brands to supply the international market. Chinese production was no longer the fragile goods for which the Far East was known years ago.

Japan had dispelled that low-grade production image in the Far East when, after the last World War, they began a massive upgrading of production in quality and broadened the range of goods they could provide which would eventually become world-beaters in motor vehicles, heavy equipment, optical instruments, cameras and stereos. Japan had accomplished this upgrading from low- to high-quality production in less than 30 years.

To my mind, China was already making headway in this direction from the decade of the 1990s and by the new century would have established itself as a competitive player in international trade. The manufacture or assembly of Chinese brand goods could be undertaken for distribution to the Western Hemisphere and Europe from the proposed Fort Augusta Free Zone. China and Jamaican interests would become a perfect fit.

STRUCK RIGHT CHORD

I could see from the amount of notes being taken that I had struck the right chord. I am not presumptuous as to believe that I would be giving the Chinese any new food for thought. They, undoubtedly, had already seen Japan's rise to become an international powerhouse for the production of tradable goods. What I was doing was sending a message to the Chinese that Jamaica was a natural fit if they chose to go this route.

After many years, nearly two decades, the government of China has now established its interest in Jamaica as the site for this type of development at an investment cost of US$1.5 billion. The major difference is that the Chinese project is 12 times larger than the 250-acre Fort Augusta project I had proposed.

Many problems have to be overcome in negotiation. The first issue is the developer. China has selected its own China Harbour Engineering Company (CHEC) to carry out the project. CHEC is well known in Jamaica for the Palisadoes redevelopment; the massive road infrastructure repair and development, called the Jamaica Development Infrastructure Programme (JDIP); the link highway between Kingston and Ocho Rios, now commencing, and the recently negotiated huge follow-up infrastructure project similar to the JDIP, the Major Development Infrastructure Project.

CHEC obviously has the ability
for massive development. The government of China would not have it put
forward otherwise. That does not appear to be an
issue.

The location apparently selected for
development is the Goat Islands (both Little and Great) has become an
issue. Together they total some 500 acres, which is one-sixth of what is
required. This gap, presumably, is to be closed by
dredging.

But questions arise. How would the massive
dredging for development affect the tide? Would it flood the Old Harbour
beach where thousands of residents reside at sea level? How would the
Old Harbour beach, which countless fishermen occupy, cope with an
adverse change in the littoral drift? Would the sand from that beach end
up elsewhere? If so, where? The turning basis for the ships would
require a further enormous area with possible great
consequences.

I advance these questions here to seek
reassurances that the tidal level and beach location have been
investigated by engineers. I know a little about dredging the sea bottom
to create new land, having been responsible for the Kingston waterfront
redevelopment, the Ocho Rios Turtle Beach development and the reclaimed
area in the centre of Montego Bay.

OWNERSHIP
PROBLEM

It should also be remembered that since the
seabed belongs to the Crown, the reclamation of land would require at
least 20 per cent of the land to be transferred to Government. This
would be possibly 600 acres, or the size of the present Goat Islands if
all the development took place offshore. It is quite possible that all
this is already being dealt with by Government, but the people want to
be informed.

The ownership of the site may present a
problem. While growing up, I can remember the announcement that the Goat
Islands and nearby Vernamfield in south Clarendon had been leased for
100 years by Great Britain to the United States in exchange for Britain
receiving 50 destroyers to bolster the British war effort. I do not know
if any subsequent decisions have been taken to terminate the lease
which is to run to 2040. If not, a balance of 27 years still
exists.

The recent publicity given to this lease did
not bring an intelligent response from Attorney General Patrick
Atkinson, who called it "rum bar talk", an inappropriate response to a
serious matter which has to be investigated. It cannot be assumed that
if the lease is still in place, there would be no problem in it being
surrendered by the United States, giving the Government of Jamaica the
freedom to negotiate with any other party seeking to use the Goat
Islands.

It is no secret that the United States is
uncomfortable with the prospect of China establishing such a massive
strategic beachhead in the Caribbean bearing in mind the sensitivities
which still exist as policy positions concerning Cuba's history and
status. The matter has to be cleared up as a prior consideration for
negotiations.

A particular issue
with an offshore site would be transportation of thousands of workers to
and from work by barges all at the same time, assuming the industrial
park is on the reclaimed area. This would be a logistic impossibility if
every worker had to arrive at work on time and at the same
time.

The negotiations will undoubtedly be looking
intensely at the revenue and foreign exchange earnings. If the
industrial park is to be declared a free zone, revenue would be
available only from PAYE taxes. The actual tax relief available for such
projects would be freedom from customs and excise duties and company
profit tax, as is customary for free zones.

The new
incentives act to be tabled in the House of Representatives this month
will be rewriting the package of Jamaican incentives with a view to
avoiding the lavish reliefs from various tax revenues. If the free zone
arrangement is allowed to stand and this is applied to the proposed
industrial park, the tax revenue that could be realised from the project
would be comparatively disappointingly small.

The
weakest area in the Jamaican economy, with a US$2-billion deficit, is
the lack of prospects for increasing foreign exchange earnings. One of
the most important points in the negotiations will be to retain as much
as possible of the net foreign exchange flows from export sales of
merchandise. Remember, Jamaica only retains one-third of the external
earnings in tourism and less than half of the foreign exchange from the
sale of bauxite and alumina.

GREAT FOREX
RELIANCE

On this basis, there is great reliance on
this proposed project to generate very substantial foreign exchange
earnings if it is to be more than just another big project like the
recent Spanish hotels, which would be of limited assistance. Bear in
mind that if it is a free zone, only 15 per cent of its production value
can be sold locally. The balance would have to be exported, to the
benefit of our export earnings.

Another stream of
foreign exchange will be earned from any funds brought into the country
to pay workers, utilities and other local costs. If the industrial park
is to employ the thousands of workers as suggested, the number of
workers who will be paid by external earnings to benefit Jamaica's
foreign exchange earnings is crucial.

The percentage
of the labour force which will be local will, therefore, assume major
importance. To ensure that there is no disappointment, the negotiators
should insist on determining an amount of foreign exchange earnings
which could be imputed as salaries to workers and payable to Jamaica,
for purposes of calculating foreign exchange receipts due from
labour.

Make no mistake about it: This project to
build a new harbour and establish a huge number of industries in one or
more industrial parks is the chance of a lifetime. Nothing better is
going to come along for the foreseeable future to return the country to a
path of growth with healthy foreign exchange earnings and far less
reliance on debt.

But the value of this huge project
as a substantial bailout for the Jamaican economy will depend on the
skill and the will of the negotiators to grab the negotiations with both
hands without losing any fingers.

Edward Seaga is a
former prime minister. He is now chancellor of the University of
Technology and a distinguished fellow at the UWI. Email feedback to
columns@gleanerjm.com and
odf@uwimona.edu.jm.