Many commentators including Prof Ken S Julien, Andrew Jupiter, Ian Welch and Gregory McGuire have warned us on the precarious state of our main foreign exchange earner, the local natural gas industry. Jupiter said: “… the ingredients that allowed Pt Lisas to be successful have dissipated. Pt Lisas faces the challenges of decreased volume of gas from the upstream producers, increased price of gas from the producers, no buffer gas, reduced prices of ammonia and methanol in the international market, lower gas prices and its increased production on the US, replacement of our petrochemical production by new plants in Louisiana in the US. Hence, NGC is unable to purchase and sell natural gas to continue to sustain the Pt Lisas model.
Frank Look Kin tells us the industry has always been one of boom-bust-boom cycles that depend on global supply and demand changes. However this time the changes in both the local and international gas industry have caused these commentators to call for an adjustment, a new model; it is time for Pt Lisas to evolve. The overarching concern is that this industry produces foreign exchange, the life blood of the country’s economy that allows the import of necessary and other imports, which also keep the on-shore commercial sector operating. Instead we have witnessed a continued decrease in GDP, a recession, over the last four years.
Gregory McGuire tells us: “The country has been in a cycle since the 1980s, when there is an economic downturn diversification (of the economy) comes to the top of the agenda and when there is an energy boom, less so.” He continues; “But, diversification is not only a government problem, the private sector also has a huge role to play.
The private sector is the one generating the money so it needs to make choices that are more developmental and less about trying to make the fastest dollar. Government should have the responsibility regarding incentives and ease of doing business. If we say the government is failing to diversify then the private sector is equally failing. They have invested in commercial trading activity, not in new industry or production. Where they chose to invest their money does not foster further development and diversification,”
On the other hand Mariano Browne has this to say: “… there have been many criticisms about the performance of the domestic private sector and its capacity to move the country to a sustainable growth path. Critics have focussed on its concentration in the retail/distribution/services sector which accounts for 50 per cent of GDP. These criticisms are overstated. In Jamaica this segment accounts for over 70 per cent of GDP. 75 per cent in Singapore and over 80 per cent in the US.
“The newly opened entertainment park in Chaguaramas has an announced cost of $530million. It demonstrates that the private sector will invest, even if I do not agree with the investment chosen. What then is required to increase the level of domestic investment in foreign exchange generating activities?”
This is the problem, the mindset of the local private sector, since investment in exporting is risky. Hence with an assured flow of foreign exchange from the energy sector the risk and uncertainty are low supporting investment in retail/distribution/services. Hence, we see the local investment in malls, in the water park and again in franchised designer clothes and accessories for which the owner of a multitude of shops across the country claims the foreign exchange is difficult now to come by?
As a small open economy (SOE), we need to import to survive, hence we have to export to purchase at least the necessities. Exporting throughout our history has been driven by foreign investment in a plantation economy where today the products are oil, gas and its derivatives. It is immaterial in such an economy what percentage of GDP is retail etc., since the fundamentally important factor is (exports-imports. Though Singapore was quoted above as having some 75 per cent of GDP as retail etc, Singapore is one of the richest countries in the world as an exporting entrepot. Indeed Singapore’s trading (imports+exports) is some 408 per cent of its GDP, the highest in the world. Jamaica has instead been under IMF watch since its independence.
Hence economic growth of our SOE is dependent on the balance of payments (exports-imports) being positive, i.e. on increasing exports, which depends on possessing locally owned, competitive and sustainable companies, though some are calling for foreign direct investment.
We entered the Covid-10 period in a recession based on the then prevailing trade parameters in the local and international gas industry.
With the pandemic’s reduction of global demand and the disruption of the product supply chain our recession got worse with government engaging in social spending funded by debt to keep the population afloat and the economy in idle. Local economic recovery after Covid-19 is not in our hands; this depends on that of the global economy and the product supply chain. Still, in the medium to longer term we have to grow our exports, our balance of payments, which I have discussed at length in other spaces and the role of government, whichever is in power, and the R&D institutions in our Triple Helix.
Mary King is an economist