Sun, Sea & Sand: Jamaica broke out of global economy doldrums with 10s of 1,000s new small & medium business people

Ahead of 2016 New Year global celebration launch, the IMF had depressing news for the global people, saying just global economy will disappoint and performance will be spotty.

But who has the best 2016 New Year launch party?

Perhaps Jamaican did. Days before the 2016 New Year launch party, Jamaicans got news that for 2015, registration of new business, being small to medium enterprise (SME) hit historic high, adding over 10,000 new SME, up about 20% from 2014 level. Weeks before that a major bank in Jamaica, got certified, and the banks subsidiary arm, plans massive providing of funds and investment in SME.

Why is SMEs so important?

SMEs are the backbone of most economies, accounting for over ninety percent (90%) of all industries and fifty percent (50%) of Gross Domestic Product (GDP) worldwide. Small enterprises outnumber large companies by a wide margin and also employ many more people. SMEs are also said to be responsible for driving innovation and competition in many economic sectors.

It is widely accepted that the small business sector has the potential to create employment, reduce income disparity whilst contributing to socio-economic buoyancy. SMEs are also considered an incubator for the development of entrepreneurial skills across all economic groups.”

The following is from the Jamaica Observer

New business registrations in Jamaica surging in 2015, expanding by 20%, topplling 10,000 mark & highest in a decade (source)

JAMAICA this year recorded the highest number of newly registered companies and businesses it has seen in more than a decade, closing at 10,733 according to data provided by the Companies Office of Jamaica.

It’s the highest annual number the country has seen since 2002 when it recorded 5,320 enterprises (companies and businesses combined) and 8,777 up to last year. The closest Jamaica came to the 10,000 mark was back in 2009 when enterprise registration totalled 9,317.

Chief executive officer of the Private Sector Organisation of Jamaica (PSOJ), Dennis Chung, in an interview with theJamaica Observer on Monday, says he is not surprised at the development, following a surge in business confidence at the end of the fourth quarter last year when compared to 2013. He added that 2016 should bring greater growth in businesses and companies’ registration and an overall better year for the economy.

In January, the Jamaica Chamber of Commerce’s (JCC) Conference Board in its Business and Consumer Confidence Indices reported that confidence in Jamaica’s investment climate reached its highest with 65 per cent of firms reporting that it was a good time to expand their productive capacity to take advantage of the future economic opportunities.

“Things have been better. Private sector credit has been improving and we have seen a sort of stabilisation in the exchange rate in the last year of just four per cent devaluation,” Chung told theBusiness Observer.

“We have seen lower interest rates, lower inflation and what we have also seen from the PSOJ is more people coming out of universities and starting business, so there is a more vibrant SME sector,” he continued.

According to data released by the Companies Office of Jamaica, as at December 18, business registration reached 8,565, while company registrations totalled 2,168 since the start of the year. Over a ten year period, 64,830 individuals registered businesses while company registration stood at 19,809. Of those numbers, 7,648 businesses closed throughout the period, while 1,170 companies were removed, according to the data presented.

Last September, the Jamaica Business Development Corporation (JBDC) secured $25 million from the National Commercial Bank and Fidelity Motors, in support of its Mobile Business Clinic Initiative geared at providing technical and developmental support to micro, small and medium-sized enterprises (MSMEs).

Under the programme, MSMEs had exposure to financial consultation, technology innovations, business advice, consultation and formalisation, logistics hub training, standards and certification and business modelling. The JBDC began the roll-out of the Clinic in St James and continued the initiative for three consecutive days in each month across the island.

The roll-out of the Mobile Business Clinic has had some impact on the number of businesses getting into the formal structure, after it registered a total of 35 start-ups and existing firms in Montego Bay, St James during the first week.

“I’m not surprised; a lot more people have started their own businesses. If you look at the activities of the JBDC and the Development Bank of Jamaica in terms of SME angel investor network you are going to find a lot more persons registering businesses,” Chung said.

“Remember also that because there was such high unemployment, then the alternative to that is to go and start doing something. The fact is that the Government is more stringent in terms of tax compliance and is out there more in terms of enforcing the need for registration.”

Chung added that there has been a push over the past two years to get more entrepreneurs into the formal sector.

As was expected, 2015 was a turning point for the economy and the fiscal accounts.

In 2015 the Jamaican economy started to see the benefits of the economic reform programme (ERP) and ended the year in a very strong position, with third-quarter growth of 1.5 per cent, the fastest-growing stock market in the world, multi-year lows in both interest and inflation rates, and improved business and consumer confidence.

All of this resulted from the perseverance of policies to maintain fiscal discipline and create the legislative framework that would bring greater competitiveness to the market. As a result Jamaica saw our debt to GDP ratio fall to 126 per cent (from 150 per cent in 2012), improving fiscal balances, and the first balance of payments surplus in 10 years, which by itself is a game changer and a significant achievement.

This performance was strengthened by the fortune of lower oil prices, the PetroCaribe debt buyback, and — up until recently — near zero US interest rates.

Without these occurrences, we would still have seen improvement in the economy — but at a much slower pace.

Also, from a regional perspective, Jamaica is poised to regain its place as the “Powerhouse of the Caribbean”, with the Trinidad and Barbados economies now in free fall, as low oil prices and policies against offshore financial havens take a toll on both economies.

Trinidad in particular is in for a rough ride, as oil prices are projected to remain low until maybe 2020, and by that time it could be further impacted by new sources of energy.

Micro level challenges

With all these macro achievements, however, Jamaica’s economy is still in a very vulnerable state, as there are still challenges at the micro level to address.

These risks include (i) an inadequately trained labour force (which resulted from periods where approximately 70 per cent of secondary school leavers left without passing one subject); (ii) crime and indiscipline, which is a major inhibitor to maximising our productivity; (iii) a still struggling SME sector, which, although conditions have improved, still struggles with capacity issues and bureaucracy in doing business; and (iv) an uncompetitive tax structure.

The fact is that unless we address these four major issues — which account for the majority of the most problematic factors in the Global Competitiveness Report — we will not successfully maximise our growth potential. This means that the benefits of growth for the economy, fiscal accounts and general standard of living will take longer to be realised.

This is important because even though we have been seeing the benefits at the macro level and specifically the fiscal and trade accounts, the fact is that the widespread micro effect has not been felt as yet. This is expected in any economic recovery. However, a failure to have widespread benefits in a timely manner will mean that economic activity and spending could be inhibited and lead to a loss of confidence.

In effect, therefore, we have done a very good job as it relates to the ERP, and the effect on the fiscal accounts and other macroeconomic indicators. Much commendation is due to those who have been charged with implementing and overseeing the ERP. However, similar to when a company is being restructured, expenditure management can only have short-term benefits. For the recovery to be sustained, you have to work on the revenue side.

As it relates to the country this means that we must now turn our focus to higher levels of GDP growth in 2016, as 1.5 or 2.0 per cent is insufficient to see the much needed impact on the middle and lower income classes.

In order for this to happen, it is going to be very important to focus on deliberate policy actions to address the issues of inefficient public sector bureaucracy, crime and indiscipline, more efficient justice system, more competitive tax rates and tax compliance, and — very important for me — labour market reform and workforce productivity.

Labour market reform and workforce productivity will be a critical success factor in 2016 if economic growth is to be above the low levels we are used to. It also is going to be a very important factor to increase the value added and compensation to labour. In other words, unless we are able to improve the productivity of the labour force, the standard of living generally will not significantly improve.

Therefore deliberate policy action geared towards education and productivity is going to be essential.

This for me will be the most critical factor for fundamental benefits of growth. That is to ensure that the average man on the street benefits from growth, as to do so they must be able to participate at the highest value added.

Some of the actions that can be taken include (i) vocational training programmes at HEART; (ii) focusing loans from the Students’ Loans Bureau on professions that will be in demand; and (iii) labour market reform.

If we are able to successfully address this and the other issues mentioned, then I have no doubt that we can achieve growth in excess of 3.0 to 4.0 per cent and Jamaica will once again be the envy of the Caribbean.

Honesty is very much alive

An incident occurred which gave me hope in our young people. Recently a friend of mine lost his phone at an event and gave up hope that it would be recovered only to receive a text from a young lady to say that she had found the phone and wanted to return it. She arranged to meet him and return it and refused to take any compensation and said she only wanted to return the phone because it was the right thing to do.

This single action certainly has bolstered my faith in the youth, and I want to say,’Well done, Lindesia’. She is a Political Science student at UWI.

Dennis Chung is a chartered accountant and the author of the books Charting Jamaica’s Economic and Social Development AND Achieving Life’s Equilibrium. His blog is dcjottings.blogspot.com

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