Devaluation is no strategy for growth

The Editor, sir

I have been following the ongoing debate about devaluing the Jamaican dollar.  Kudos to the Caribbean Policy Research Institute (CaPRI) on hosting the forum “Jamaica $100 to US $1: A Cause for Panic or an Opportunity for Growth?”.  But, I cannot believe that devaluation is still being advocated as a strategy for growth.

                In the article titled “Devaluation Solution Persists Despite Contrary Evidence” in the Financial Gleaner of 1 March 2013, Wilberne Persaud rightly stated that: “… devaluation of the Jamaican dollar does not really deliver increased exports and decreased imports.  It did little over the years to correct incipient and chronic deficits in our balance of payments”.

For those still not convinced, Dr. Michael Witter had assessed our exchange rate policy since 1962, and presented his findings in a paper titled “Exchange Rate Policy in Jamaica: A Critical Assessment”.  His conclusion was that devaluation is insensitive to the effects of speculation by those lacking confidence in Jamaica’s productive sectors; and it does not recognize the inelastic demand for imports both for production and consumption.

                I am not advocating the fixing of the exchange rate.  Rather, I simply support the views of those quoted that devaluation is not a strategy for growth, or policy to correct balance of payment deficits.  It has been proven to be otherwise.  We need to address our lack of competitiveness by some other means.

I am, etc.

Paul Hay

Paul Hay is a Jamaican national, founder of PAUL HAY Capital Projects: a consultancy, based in Kingston Jamaica, with a vision of providing strategic planning and implementation services to organizations for non-residential facilities in the Caribbean.

Doing Business 2018 - Jamaica Preparations

By October 2016, the World Bank and International Financial Corporation will publish their 14th report on the Ease of Doing Business Index. The present Government will have little opportunity to influence the outcome of that report because the period that will be under review ends next month.

Nevertheless, it is important that the thrust to improve Jamaica's performance does not wane. Referring to Doing Business 2016: Measuring Regulatory Quality and Efficiency, in 'Jamaica Takes the Leap in Doing Business Indicators: 5 Lessons for the Wider Caribbean', Navita Anganu-Ramroop lamented that:

"Not all countries are bothered by rankings, and therefore not all countries make a concerted effort to change and attempt to improve same, failing to realise that the competitiveness of nations are equally important and necessary for the competitiveness of firms operating within the country."

Doing Business 2016 also states that Latin America and the Caribbean (LAC) is one of the regions "with the smallest share of economies implementing regulatory reforms. ..." In fact, Jamaica and The Bahamas were the only Caribbean nations that actually improved their global ranking in that report.

The Bahamas moved from 108th to 106th, while Jamaica moved from 71st to 64th out of 189 global economies. With the widening of the Panama Canal and construction of a second canal in Nicaragua, a significant increase in trade and investment can be expected in the Caribbean Basin. So, improving competitiveness of local firms is imperative and this through greater effort than before.

It is also important to realise that 11 out of the 12 highest-ranked nations within LAC are located in the Caribbean Basin. Jamaica cannot afford to slack up on its previous effort. It should be of no comfort that greater trade is expected in the greater Caribbean if we are ill-prepared to benefit from it.

Doing Business 2020 - Jamaica Preparations (2 of 2)

In May 2019, the World Bank and International Financial Corporation will commence collection of data that will be evaluated for publication in their 17th report on the Ease of Doing Business Index: Doing Business 2020. In the current one, Jamaica ranks 75^th, out of the 190 countries, which is below its rank four years ago.

One would expect the Government to be bothered by this and make a concerted effort to improve the outcome. Instead, Jamaica seems destined to its fourth consecutive fall in rank, because sufficient changes have not been made to laws and regulations that govern the operation of Small, and Medium-size Enterprises (SMEs).

Quoting from “Doing Business 2019”, “It is important to have effective rules in place that are easy to follow and understand. To realize economic gains, reduce corruption, and encourage SMEs to flourish, unnecessary red tape should be eliminated”.

In a letter titled “What’s being Done About ‘Doing Business’?” published in the Jamaica Observer on 4th December 2019, I recommended that our Government aim to be the first Latin American and Caribbean nation in the top 50 economies by consistently implementing no less than four reforms annually. Some may argue that time would not permit, but I disagree.

Doing Business overall-ranks are aggregated on assessment of 10 areas in the life of a business. In Jamaica’s case, the five worse-ranked areas are: (i) Trading Across Borders, (ii) Registering property, (iii) Enforcing Contracts, (iv) Paying Taxes, and (v) Getting Electricity. All have ranks worse than 110 and have been so for at least five years.

In fact, all are getting worse resulting in our lower ranks. These are the areas most in need of reform, especially by a country with aspirations of being amongst the top ten economies of the world. Based on the Budget Debate so far, changes are proposed for especially “Paying Taxes”, but these are too late for inclusion in the next evaluation cycle.

Hopefully Doing Business 2021 will show a greater effort made. I leave you with another quote from the current report: “Any rational government that cares about the economic well-being and advancement of its constituency pays special attention to laws and regulations affecting small and medium-size enterprises.”

Doing Business 2020 - Jamaica Preparations (1 of 2)

By October 2019, the World Bank and International Financial Corporation will publish their 17th report on the Ease of Doing Business Index. Our Government has until May 2019 to attempt to influence the outcome of that report because only data available at that time will be considered for the report.

Referring to the report Doing Business 2016: Measuring Regulatory Quality and Efficiency, Navita Anganu-Ramroop lamented, in 'Jamaica Takes the Leap in Doing Business Indicators: 5 Lessons for the Wider Caribbean', that:

"Not all countries are bothered by rankings, and therefore not all countries make a concerted effort to change and attempt to improve same, failing to realize that the competitiveness of nations are equally important and necessary for the competitiveness of firms operating within the country."

Doing Business 2016 also stated that Latin America and the Caribbean (LAC) is one of the regions "with the smallest share of economies implementing regulatory reforms. ...". In fact, Jamaica and The Bahamas were the only Caribbean nations that actually improved their global ranking in that report.

Fast forward to Doing Business 2019: Training for Reform, “South Asia and LAC are the (only) two regions absent from the top 50 ranking”. Again, LAC has the “lowest share of reformers with 56% of economies”. Consequently, LAC had the “lowest average increase” in score, +0.22 points”.

For Doing Business 2016, Jamaica had made 4 reforms and moved from 71st to 64th out of 189 global economies. Since then, Jamaica has consistently fallen in rank to its current 75, having implemented only one reform over the year ending May 2018: a reduction from the 2 reforms that were implemented in the previous year.

In Doing Business 2019, Brazil is the only LAC economy to improve its ranking. Like Jamaica, it implemented 4 reforms, by which it was able to improve its rank from 125 to 109. In the previous year, El Salvador, Dominican Republic and The Bahamas improved their rankings after implementing at least 3 reforms.

Again, El Salvador had implemented 4 reforms and was the top performer: improving its rank from 95 to 73. But, El Salvador, Dominican Republic and The Bahamas have subsequently fallen in rank after implemented less than 3 reforms, just like Jamaica.

Jamaica’s National Competitiveness Council is optimistic the island can be ranked in the top 10 economies in the Doing Business 2021. This seems overly optimistic considering no LAC economy is currently within the top 50, Jamaica has consistently fallen in rank over the past 3 years, and only two years remain to the deadline.

More realistically, it is proposed that Jamaica aim to become a top 50 ranked economy by 2020, and our Government strive to implement at least 4 reforms annually. It is also important to realize that 11 of the 15 highest-ranked LAC nations are within the Caribbean Basin. So, Jamaica cannot afford to be slack in its effort to become competitive.

Doing Business in the Caribbean 2019 - Political Will Lacking

Doing Business 2019: Training for Reform is the 16^th in the long-standing series of co-publications by the World Bank and International Financial Corporation (IFC). This annual report on the ease in doing business series involves analysis of data for 190 nations, from June 2017 to May 2018.

For the last 5 years, I have reviewed these reports and, like previous articles, I will commence by examining the global ranking of Caribbean states in Doing Business 2019. With the exception of Puerto Rico, all the states examined are members of the Association of Caribbean States (ACS).

Data is presented in two tables below. Last year’s data is included for your convenience. Differences between the years may simply result from changes in the methodology used to prepare the current report, not necessarily a tangible change of performance. Data on scores and number of regulatory reforms implemented have been added.

Table 1: Global Ratings of Caribbean Islands

	RANKING		SCORE		#REFORMS
Report Year:	2018	2019	2018	2019	2018	2019
ACS Caribbean Island States:	113	115	58.10	58.47	0.92	0.61
Caribbean SIDS:	109	111	65.61	60.04	0.82	0.55
Puerto Rico (US)	64	64	69.26	69.46	1	1
Independent Caribbean SIDS:	112	115	58.73	59.10	1.25	0.75
Jamaica	70	75	66.92	67.47	2	1
Trinidad	102	105	60.93	60.81	0	0
Bahamas, The	119	118	58.13	58.90	3	2
Barbados	132	129	56.78	56.78	0	0
OECS:	117	121	57.78	57.83	0.50	0.33
St. Lucia	91	93	62.96	63.02	0	0
Dominica	98	103	61.03	61.07	0	0
Antigua & Barbuda	107	112	59.42	59.48	1	1
St. Vincent & the Grenadines	129	130	56.34	56.35	0	0
St. Kitts & Nevis	134	140	54.35	54.36	1	0
Grenada	142	147	52.64	52.71	1	1
Large Caribbean Island States:	140	142	49.59	49.82	1.50	1
Dominican Republic	99	102	60.57	61.12	3	1
Haiti	181	182	38.48	38.52	0	1

Table 1 shows information on 13 Caribbean Islands, divided into two groups: 11 Small Island Developing States (SIDS) and 2 large island-states: namely the Dominican Republic and Haiti (ie. Santo Domingo).

The SIDS group is sub-divided into three.

Puerto Rico, being the only SIDS that is not politically independent, is a group unto itself. The 6 smallest islands are members of the Organization of Eastern Caribbean States (OECS); and, the remaining 4 islands comprise the Independent SIDS group.

Table 2 shows information on 12 ACS Latin American (LatAm) states. Like the previous grouping of ACS Caribbean Islands, these LatAm states are divided into two groups – Central American and South American States: the former comprising 8 states and the latter 4.

It should also be noted that Table 2 includes three CARIFORUM member-states: Belize, in the Central American group, as well as Guyana and Suriname in the South American group. With the exception of Puerto Rico, all ACS Caribbean islands in table 1 are members of CARIFORUM.

Doing Business 2019 Fact Sheet: Latin America and the Caribbean lists 32 LAC states: 33 inclusive of Chile, which is an OECD state. The regional average score is 58.25 which has a rank of 121. With the exception of Puerto Rico, 24 of these are ACS member states: the remaining 8 being in non-ACS South American states.

11 of the top 15 LAC economies are ACS member states: the lowest rank being 105.  This is equivalent to Doing Business 2018 but the lowest rank was then 102. This is mostly due to the superior rankings of the 5 ACS Central American economies, but also 5 ACS Caribbean Islands and Colombia, as the sole ACS South American economy. 

Table 2: Global Ratings of ACS Latin American States

	RANKING		SCORE		#REFORMS
Report Year:	2018	2019	2018	2019	2018	2019
ACS Latin American States:	105	109	60.39	60.34	1.08	0.42
ACS Central American States:	86	91	64.02	64.08	1.25	0.62
Mexico	49	54	72.27	72.09	1	0
Costa Rica	61	67	69.36	68.89	2	0
El Salvador	73	85	65.20	65.41	4	2
Panama	79	79	65.71	66.12	2	1
Guatemala	97	98	61.16	62.17	0	1
Honduras	115	121	58.13	58.22	0	0
Belize	121	125	57.11	57.13	0	0
Nicaragua	131	132	55.27	55.64	1	1
ACS South American States	132	135	55.31	55.11	0.75	0
Colombia	59	65	69.04	69.24	0	0
Guyana	126	134	56.78	55.57	2	0
Suriname	165	165	48.10	48.05	1	0
Venezuela	188	188	30.85	30.61	0	0

These top 15 performers, from highest to lowest, are: Mexico [54], Chile [56], Puerto Rico [64], Colombia [65], Costa Rica [67], Peru [68], Jamaica [75], Panama [79], El Salvador [85], St. Lucia [93], Uruguay [95], Guatemala [98], Dominican Republic [102], Dominica [103], Trinidad and Tobago [105]. Only Chile, Puerto Rico, Peru, and Uruguay are not ACS members.

As before, Colombia is the sole ACS South American economy, in its group of 4; Mexico, Costa Rica, Panama, El Salvador, and Guatemala the 5 ACS Central American economies, in its group of 8.

The Dominican Republic is the only large ACS Caribbean-Island economy, in its group of 2. Jamaica, Trinidad and Tobago are the 2 larger ACS SIDS, in their group of 4. Puerto Rico is the remaining larger SIDS economy. St. Lucia and Dominica are the 2 ACS OECS economies, in their group of 6.

The superior ranking of the ACS LatAm economies is specifically due to performance of Mexico, Colombia and Costa Rica. Mexico is the best Central American performer and Colombia the best ACS South American economy: the former being more highly ranked than the latter.

Belize and Nicaragua are the only ACS Central American economies below the LAC average: Belize being a CARIFORUM member. Conversely, Colombia is the only ACS South-American economy above average; and beside islands mentioned in top 15 LAC economies, only Antigua and Barbuda, and Barbados are above-average.

Regrettably, ACS also comprises 9 of the 10 lowest ranked economies in LAC. In ascending order from the lowest, these are: Venezuela, Haiti, Suriname, Bolivia, Grenada, St. Kitts and Nevis, Guyana, Nicaragua, St. Vincent and the Grenadines, and Barbados: 7 are CARIFORUM members, and Bolivia is the sole non-ACS member.

Also, the ACS LatAm group has the greatest discrepancy between ranks: Colombia being highest at 65 and Venezuela the lowest at 188. The remaining 2 – Guyana and Suriname – being CARIFORUM members – are also in the bottom 10 along with Venezuela.

ACS not only has the most capable economies to effect reform, but it also has the most deserving economies. Therefore, it seems the body most suitable to facilitate this reform in the shortest order. But, indifference to reform continues to further deteriorate performance. Political will is simply lacking in this regard.

According to Doing Business 2018, “Latin America and the Caribbean and the OECD high-income group had the smallest shares of economies implementing business regulation reforms”. But as stated in my previous article, states of the Organization of Economic Co-operation and Development (OECD) are already highly ranked.

This behavior has not changed. According to Doing Business 2019: LAC has the “lowest share of reformers with 56% of economies” (58% including Chile). Only 19 of the 33 LAC economies implemented at least one regulatory reform to make it easier to do business, which amounted to 27 reforms in total.

Consequently, LAC had the “lowest average increase” in score: which amounted to +0.22 points; and is one of only “two regions absent from the top 50 ranking”. It may be recalled that Mexico, which is an ACS member, was the sole economy in the top 50 ranking in Doing Business 2018. However, it had made no reforms subsequently.

It may be argued that Mexico could have been negatively impacted by natural disasters during the period. But, Puerto Rico was impacted even worst yet managed to make a single reform. Its score increased more than the LAC average, and its ranking remained intact.

LAC has no reason to persist with such behaviour and this is no less true for ACS economies, even though they are typically ranked higher. El Salvador, which was a stand-out in Doing Business 2018 and an example of what could be achieved where the political will exists, reduced its reforms from 4 to 2 this period and fell 12 places in rank.

Beside El Salvador, Bahamas is the only other ACS economy to have implemented 2 reforms. Only 10 of the 25 ACS economies made at least one reform. In all such cases, their scores marginally increased but, excluding Puerto Rico, all ACS economies fell in rank.

In the LAC, Brazil made 4 reforms – the only LAC economy to make more than 2 changes – and its rank improved 16 places, from 125 (in Doing Business 2018) to 109. In Doing Business 2018, El Salvador, Dominican Republic and The Bahamas made at least 3 reforms and all increased in rank (see Doing Business in the Caribbean 2018).

At that time El Salvador had implemented 4 reforms and was considered among “the 10 economies showing the most notable improvement in performance…”, while ranks of practically all other ACS economies fell. It is time all ACS governments get serious about regulatory reform and consistently implement them every year.

Paul Hay is a Jamaican national, founder of PHC Projects: a managed service provider and consultancy, based in Kingston Jamaica, with a vision of providing strategic planning and implementation services to organizations for the construction/renovation of non-residential facilities in the English-speaking Caribbean.

Related articles:

Doing Business in the Caribbean 2018: El SalvadorStands Out

Doing Business in the Caribbean 2017: Central America Leads by Example

Doing Business in the Caribbean 2016: Central America shows the way

Greater Caribbean Business in 2015

Doing Business in the Caribbean 2015: Who Cares?

Business in the Caribbean 2014: CARIFORUM needs Reform, part 2

Business in the Caribbean 2014: CARIFORUM needs Reform

Singapore: Example to the Caribbean in Doing Business