Jamaica - Economy
The primary investment risk in Jamaica is crime because security is required to protect the physical infrastructure of most properties and the country’s murder rate remains one of the highest in the hemisphere. Additional risks include the challenges in navigating the government bureaucracy, the stagnant and price-sensitive economy, low labor productivity, and the possibility for labor disputes, some of which have led to sporadic protests in the past.
Jamaica had an estimated labor force of 1.3 million as of October 2015 with 13.5% unemployment. Women make up a slightly more than half of the labor force and have an unemployment rate of 18.5%. Unemployment levels for 14-19 year olds (44.2%) and 20-24 year olds (30.3%) are significant. Most Jamaicans are employed in services including retail and tourism sectors, followed by construction, transport and communications.
The mining and quarrying sector of the Jamaican economy, dominated by the bauxite and alumina industries, is the country’s largest export sector. Jamaica is the fifth largest producer of bauxite in the world. Mining and quarrying accounted for 4.0% of Jamaica’s GDP in 2008 and recorded an increase in real growth of 1.1% in 2008, in spite of the ongoing impact of Hurricane Dean in 2007 on the operations at the JAMALCO plant and minor disruptions to the sector caused by Tropical Storm Gustav in August 2008. The sector accounted for approximately 30% of Jamaica’s exports of goods and services in 2008.
The world aluminum industry has been disrupted by the onset of the global economic recession, which has led to a sharp fall in aluminum demand and prices and a massive build-up of inventories. This led to severe and widespread cutbacks in global aluminium and alumina operating capacity. The global cutbacks, which took effect as of the end of the first quarter of 2009, amounted to approximately 6.5 million tonnes of global aluminium and 18.0 million tonnes of global alumina capacity. These quantities amounted to approximately 17% and 23%, respectively, of 2008 global production. As a result, in 2009 the Jamaican bauxite/alumina industry suffered a major setback, with two of the four operating alumina refineries temporarily closing at the end of the first quarter of 2009 and a third closing in May 2009, and with crude bauxite production initially being reduced by one-third at the end of the first quarter of the year.
According to Tony Weis in the paper “Restructuring and Redundancy: The Impacts and Illogic of Neoliberal Agricultural Reforms in Jamaica”: “Jamaica’s landscape still bears the scars of the most ferocious form of agricultural production ever devised, as plantations kept their vice-like grip on the best land after Emancipation in 1838, with all subsequent distribution programmes only ever acting on the margins of these inhumanly constructed yet sacrosanct institutions.”
Business process outsourcing (BPO), including call centers and other remote technical support, has become an emerging sector for local and overseas investment - most prominently from the U.S. - and the government recently approved a five-year plan to encourage expansion. One drawback is Jamaica’s high electricity price – about 4-5 times higher than in the United States primarily due to inefficient petroleum-based power plants and outdated electricity infrastructure.
Jamaica's economy, already saddled with the lowest economic growth in Latin America, has faced greater challenges as the global economy has slowed. The economy faces serious long-term problems: a sizable merchandise trade deficit, large-scale unemployment and underemployment, and a debt-to-GDP ratio of almost 120%. Structural weaknesses, low levels of government infrastructure investment, and high-cost energy erode confidence in the productive sector. High unemployment exacerbates the serious crime problem, including gang violence that is fueled by the drug trade. Jamaica's onerous debt burden--the fourth-highest per capita--is the result of government bailouts to ailing sectors of the economy, most notably the financial sector in the mid-to-late 1990s. The government faces the difficult prospect of having to achieve fiscal discipline in order to maintain debt payments while simultaneously attacking serious crime challenges that are hampering economic growth. It also needs to address the high cost of energy to successfully expand the economy.
The country's economy is heavily dependent on services, which now account for more than 60% of GDP. Jamaica continues to derive most of its foreign exchange from tourism, remittances, and bauxite/alumina. Remittances account for nearly 20% of GDP and are equivalent to tourism revenues. Remittances dipped 15% from 2008 to 2009, but recovered and are now down about 10%. Three of Jamaica’s four bauxite/alumina firms suspended operations in 2009 due to falling demand amid the global economic downturn. Only one of the three has restarted some operations in 2010. Inflation rose sharply to 16.8% in 2008 as a result of high prices for imported food and oil but moderated to 10% in 2009 with the decline in international oil prices.
Jamaica operates as a mixed, free market economy with state enterprises as well as private sector businesses. Major sectors of the Jamaican economy include agriculture, mining, manufacturing, tourism and financial and insurance services. As an open economy, Jamaica is well integrated into the global economy with intraregional trade contributing prominently to overall economic activity.
Since the early 1980’s, successive governments have implemented structural reforms aimed at fostering private sector activity and increasing the role of market forces in resource allocation. During this period, a large share of the economy has been returned to private sector ownership through divestment and privatization programs in areas such as agriculture, tourism, transportation, banking, manufacturing and communications. Deregulation of markets, the elimination of price subsidies and price controls and the reduction and removal of trade barriers have reduced or eliminated production disincentives and anti-export biases.
In the early 1990’s, the reform process in Jamaica gained momentum with, among other developments, the liberalization of the foreign exchange market and the overhaul and simplification of the tax system. In addition to changes in personal income tax and corporate tax regimes, a number of indirect taxes were removed and replaced with a value-added tax. A Tax Administration Reform Project was implemented in 1994 aimed at broadening the tax base, facilitating voluntary compliance with the tax laws, improving the effectiveness of tax administration and tax collection and controlling tax evasion. To enhance compliance, Jamaica implemented a Tax Registration Number system aimed at broadening the tax base through the assignment of identification numbers to individuals and businesses.
Jamaica took two significant steps toward improving its economy in January and February 2010. The first was the Jamaica Debt Exchange (JDX), in which the country retired 350 high-priced domestic bonds and replaced them with 24 new bonds at lower rates of interest of about 12.5%. This helped reduce the debt servicing costs for Jamaica by about $450 million per year and provided the country with some fiscal relief. Second, the Government of Jamaica signed a U.S. $1.27 billion, 27-month Standby Arrangement with the International Monetary Fund (IMF) to support the country's economic reforms and help it cope with the consequences of the global economic downturn. Despite these moves, the government has limited spending available for infrastructure and social programs, since debt servicing still accounts for a substantial amount of government expenditures.
The government has privatized Air Jamaica and is selling off former sugar estates. These are notable successes, but there are still some former parastatals that need to be privatized.
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