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Don't let crime efforts distract focus of the dollar depreciating

BY HUGH GRAHAM

Sunday, September 16, 2018

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These past few weeks have seen several shocks to our economy, much like I had predicted last year when the dollar first slid to $130.

The devaluation of the dollar has now placed the country in a tight financial spot as we navigate the International Monetary Fund (IMF) deal, while trying to stimulate economic activity. And while the Government places increased focus on crime, the management of the dollar should not be considered second or a non-priority.

Recently, the Jamaica Manufacturers and Exporters Association (JMEA), in a statement later retracted, questioned whether the Bank of Jamaica (BoJ) had deliberately allowed the dollar to depreciate, so as to keep the inflation rate at the targeted amount stipulated by the IMF deal.

The dollar precipitously stands between $135- $137 to US$ and I am led to believe that if we do not put in place a long-term sustainable plan for a healthy economy, we are truly doomed for “bang belly state “for a long time. This in itself is no joke, as a depreciating dollar is just one sign that things are going to get rougher and tougher on Jamaicans, in particular the poor, but also the business community.

In response, Finance Minister Nigel Clarke has, in essence, said we shouldn't be concerned as appreciation and depreciation in a floating-rate regime is quite normal, but he has gone further to say the issue is politicised and we (the public) are misled by the actual impact on the economy.

I would like to point out that there is no politicisation in the increase of cost of living. It is not a fear. It is reality. A stroll in the shops, markets and supermarkets would bring clarity if there is any assumption, as a weekly grocery list shows people are spending the same amount of money for less food.

To make matters worse, drought in various parts of the island, where certain foods are produced, has caused scarcity resulting in price increases. Yam for example has increased from $80 per pound to $130-$140 per pound. That is a more than 50 per cent increase for some goods, and so it is for other main staples Jamaicans consume.

They are not the only ones! Businesses are increasingly under pressure where rent is sometimes paid in US dollars, loans and goods purchased are also in US dollars. There are several businesses whose products are bought and sold in J$ which are feeling the squeeze. This also affects companies which depend on exports to stay in business. The exchange rate being so high, is a challenge for companies that have to send products overseas. We are already struggling with our import/export balance of payments and this is a deterrent to companies looking to export.

Companies under this stress will pass the increases down to consumers. Many of these goods and services are considered essential, as they cannot be produced in the island for one reason or another, so there will be no choice but to accept these increases.

The situation with the dollar is also compounded by the increases in oil prices globally. Consumers are already paying increased gas prices.

The BoJ recently reported that ideally, the inflation rate should be between four and six per cent. It estimates a five per cent standing at the end of the year, taking into consideration weather and other external factors such as oil prices increase.

My question then to the finance minister is, what measure is there in place to ensure that the dollar does not depreciate further and, given that oil prices are fluctuating but expected to go up, what measure/s does the Government plan to put in place to cushion its impact?

The struggling manufacturing sector is particularly vulnerable, as oil price increases are linked to increased inflation and reduced economic growth. Oil prices directly affect the prices of goods made with petroleum products as the cost of production goes up.

I ask this because we are in a constant state of the sheep looking for the shepherd, when it should be the shepherd leading the flock.

It cannot be that in 2018, when we know what to expect under the IMF, we are still unable to develop a plan that will bolster the manufacturers and producers of the economy to ensure that when external shocks occur, as we know they will, we are able to stand strong rather than crumble.

The only solutions are long- term and needs strong policy and Government support.

We should start by making investments in agriculture, and further processing of value-added products (concomitant – agriculture)?

How do we do this? We first develop a plan to attract persons to the field, we seek outside investments to develop sustainable crops and we must solve the drought situation in parishes where we can grow food. We need more conservancies, wells, and dams where we can store water for dry weather season.

We need to seek outside investments in developing hydropower. One of the most interesting things I've noticed is where one parish is parched dry with no water, but yet another overflows.

We must find a way to capture this resource and use it, especially in agriculture areas. For example, Portland is noted to have very fertile land suitable for all kinds of domestic crops, yet the water situation leaves much to be desired. The same goes for the parish of St Elizabeth, where melons and scallions thrive. The idea would be to develop whatever crops can be grown in the parish given limitations, such as soil type and other issues like drought.

After we've controlled our drought situation, we need to look at value-added agriculture products. There're times when I am glad to see tomatoes selling for $50 a pound. But I know this victory for me is a loss to farmers. There must be a way to maintain stability in prices to counter surplus and, I think, finding other ways to use vegetables and fruits may be the answer.

We have to look at either exporting these excess produce or turning them into another product. Salsa anyone? Local salsa, guacamole, roasted tomatoes, pasta sauce…are just a few ways we can use what we have.

In The Bahamas, mangoes are also seasonal. However, Bahamians ensure that no mango go to waste. They sun dry these fruits and they are sold at twice the price of fresh mangoes out of season.

And while I think harping about the high level of imports is beating a dead horse, we must counter our imports as the amount of foreign exchange needed for these purchases is a problem. A lot of entrepreneurs and businesses survive by doing this form of retail. Taking this away would mean closing down a business and adding numbers to the unemployment figures.

The only way to counter this is by balancing imports with exports. Jamaica is rich in cultural diversity and we should focus on selling what we have. Everyone is an expert on Jamaica except Jamaicans.

We have to find ways to own our foods and this means producing and selling and finding new markets for our spices and sauces and even cultural items. We don't need to sell the Jamaican experience only through tourism. We can export the experience in a bottle or jar or cloth.

I recently came across an article that spoke of the increasing popularity of sweet potatoes in Germany. The item not only was scarce but costly in comparison to what we pay. And this goes across Europe where a movement of health conscious choices sees demand for foods like yams, sweet potatoes, and cassava among others which Jamaicans should position themselves to capitalise on as viable business options.

The Ministry of Industry and Commerce can lead the way. A model of Government finding export market for agriculture produce can be found from Guyana with their Rice Development Board.

Whatever it is, Government needs to support producers, whether small or large, especially now given that oil prices are up, the IMF is bracing us and we are all trying to make ends meet in a globally competitive environment. Tax incentives, anything that encourages exports, should be considered by the Government.

The other problem is that the Government can't be blamed for causing persons to purchase and hoard US dollars, causing the J$ to weaken but the current policies in place will cause this behaviour inevitably. So it is the responsibility of the Government to ensure the stability and strength of the J$ as it is crucial to a healthy economy and more so the health of businesses in general that use and depend on foreign exchange.

We need to stop making excuses and find long term solutions that will lead to sustainable management of the dollar as everything in the economy is connected. Anything less is just going around in circles like a dog chasing its tail.

Hugh Graham is Chief Executive Officer of Paramount Jamaica and Councillor for the Lluidas Vale Division of the St Catherine Municipal Corporation

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