Dollar gain hits exporters - JEA to study impact on hotel sector pressing for cheaper local goods
Published:Sunday | June 27, 2010 | 12:00 AM
Sabrina Gordon, Business Reporter
While many individuals and sectors are welcoming the strengthening of the Jamaican dollar against major currencies in recent months, the development is proving to be worrying for producers whose businesses rely on overseas trade.
The reliance on overseas markets also extends to hotels and hospitality services, but that group appears, for now, to be more focused on the cost of local inputs than translation gains from foreign-exchange earnings.
The Jamaica Exporters' Association (JEA) tells Sunday Business that it is about to embark on a survey to determine the extent to which its members are being affected negatively by the recent Jamaican dollar gains against the currencies trading on the Jamaican spot market - 4.2 per cent against the US dollar calendar year to date, 2.7 per cent up on the Canadian dollar, and 11 per cent against the pound sterling.
The JMD is also up 18 per cent on the euro.
According to exporters, the current foreign currency scenario drives up their costs and eats into profits and viability.
"The appreciation is actually cause for concern for our members because it comes against a background where we don't see the increase in production and productivity," said JEA President, Vitus Evans.
Even more worrying for the JEA than the Jamaican dollar's strengthening are indications that the gains could continue.
"We were waiting to see if it was a temporary occurrence, but within the last couple of weeks, we have seen it continuing where the dollar has revalued some five to seven per cent against all three major trading-partner currencies," he said.
"Our cost of exports has definitely gone up, and this concerns us because we can't pass on the cost to the market, which makes it difficult for us in terms of competitiveness, given we are competing against others with a less-expensive structure," he explained.
But his counterpart in the hospitality sector, President of the Jamaica Hotel and Tourist Association, Wayne Cummings, alluding to the other end of the spectrum where the appreciation would have been driving down the cost of imported inputs for domestic producers, said his sector was waiting for more businesses to cut prices.
So far, only poultry producer Jamaica Broilers Group and beverage manufacturer and distributor Wisynco had announced price reductions.
"The Jamaican dollar appreciating is good, if sustainable, and prices trend downward. So far, I have only heard of Jamaica Broilers and Wisynco, but many more companies now need to show new prices, lower prices, so that the US-dollar-earning sector, like tourism, is not impacted negatively on the ground," Cummings said.
"It's good if macroeconomic indicators remain stable, but suppliers must reprice goods to show the stronger dollar, thus benefitting the consumers as well as the tourism sector."
While the exporters have not given a time frame for the completion of the findings, the JEA is hoping to receive initial feedback from members within a matter of days, the association's head said this week. He added that the study was prompted by what exporters saw as an absence of clear and coherent underlying reasons for the currency strengthening.
"Imports have reduced and there is quite a bit of US dollars on the market, plus inflows from the IMF, but (there is) no production to take that up, and if there is no production to underpin the money in the system, then there is likely to be a massive devaluation if the inflow spent is not used for production," said Evans.
The JEA has about 230 members firms involved in some 16 sectors, including processed foods, building products, fresh produce, tourism, horticulture, beverage and tobacco.
The sector continues to struggle to build and maintain markets in the Caribbean and beyond to Europe and Asia.
In 2009, with recessionary markets in retreat globally, the sale of Jamaican goods abroad shrank by a massive US$1.36 billion year on year to US$1.39 billion - a 49.5 per cent decline on the US$2.74 billion earned from export goods in 2008.
The latest data for 2010 from the Statistical Institute of Jamaica show total exports at the end of January at US$117 million, up US$7.6 million or 6.9 per cent on the US$109.4 million reported reported for January 2009. Export trade for the month with the United States, Jamaica's main trading partner, was valued at US$60.4 million, or 51.7 per cent of total exports.
The JMD on Thursday traded spot at 85.83 against the USD; 82.26 against the Canadian and 126.17 against the pound; and the Bank of Jamaica last priced the euro at J$105.71 for customs purposes.
Economists are acknowledging that for the export sector, appreciation in the local currency makes doing business more burdensome, but stressed the advantages for the economy in general.
An important step
"Yes, it will be a little hard on exporters but it is an important step for growth in the Jamaican economy," said Avinash Persaud, senior fellow with independent think tank CaPRI.
He stressed that it was important not to take a narrow view of the implication for competitiveness.
"What is more important for exporters is the high level of interest rates and the other things associated with a lack of confidence and credibility," Persaud said.
"A more credible framework at the end of the day is better than increase in competitiveness."
Economist Dr Peter-John Gordon, fellow at the Sir Arthur Lewis Institute for Social and Economic Studies and a director of the Jamaica Productivity Centre, says an appreciation of the Jamaican dollar against the US would be sustainable only if Jamaican productivity was increasing faster than productivity in the US.
"What is happening now is that the nominal exchange rate is appreciating at the same time when the US inflation rate is less than the Jamaican inflation rate."
This is an inconsistency, he said, that cannot last forever.