New World Bank Report Supports Jamaica’s Efforts to Unlock Growth

June 23, 2011

KINGSTON, Jamaica, June 23, 2011 - Jamaica has grappled with issues of low productivity and poor economic growth for decades. The World Bank’s recent Country Economic Memorandum (CEM) on Jamaica, Unlocking Growth, states that “Jamaica’s disappointing economic performance is a case of low productivity,” but the longstanding nature of the problem was highlighted by Dr Wesley Hughes, Jamaica’s Financial Secretary, who quoted a 1952 World Bank mission report, The Economic Development of Jamaica, on these challenges.

The important task of the future” the mission team wrote of Jamaica then, “is to improve productivity.”

Dr Hughes highlighted the similarity between both reports’ conclusions during a dissemination seminar for the CEM on June 17, 2011 at the University of the West Indies in Kingston, Jamaica.

The puzzle of economic growth in Jamaica has been one of high investment but relatively low growth….There has been an inability to utilize capital and technologies and this is partly linked to low human capital skills or low productivity of labour,” Dr. Hughes stated.

World Bank Director for the Caribbean, Francoise Clottes noted that “Jamaica has barely grown in the past four decades” and that countries like Singapore and Mexico which were Jamaica’s peers at the start of the 1970s have outperformed the island in subsequent decades.

“It is critical to change poor growth performance and generate rapid economic growth as soon as possible. Jamaica’s government has prepared studies and strategies to this end and there have also been contributions from academia and the private sector. The CEM is just one more step in that direction,” she explained.

Three Main Factors Behind Low Productivity

Jamaica’s current CEM states that low productivity is the reason for poor growth rates in Jamaica over the past 40 years. The report has however drilled down deeper and identified high levels of crime, deficiencies in human capital and fiscal distortions as the three main causes of Jamaica’s low productivity. These factors are the three most binding constraints to economic growth in the country, it concludes.

In his presentation, World Bank Senior Economist Zafer Mustafaoglu said many factors impede growth in Jamaica, and the country must identify and address the most binding obstacles to growth.

The report takes a holistic approach and examines a large set of economic and social factors that may be hindering growth. It filters them through a growth diagnostic analysis and narrows the focus to those that constrain growth the most,” he stated.

 Binding Constraints Cripple Growth

In explaining the crippling effects of crime, deficient human capital and fiscal distortions on growth in Jamaica, the senior economist provided details on the impact of each of these factors on Jamaica’s economic development.

Crime burdens businesses as firms have to invest in security systems and other forms of protection. World Bank data shows that expenditures in private security in Jamaica represent 1.3 percent of GDP.

With regards to human capital, there is a need to improve the quality of education and training provided and to invest more in skills training for the workforce. Returns to education are very high, suggesting scarcity of educated workers. The problem is further compounded as many educated Jamaicans opt to migrate.

Fiscal distortions which hinder growth include tax distortions, weak fiscal policies and poor budget management practices. Institutional and political factors are also obstacles to strong fiscal and expenditure policy and efficient management of public finances.

Recommendations for Faster Growth

Besides highlighting the key obstacles, the CEM recommends policy options for government and the private sector to address these growth challenges.

Recommendations include:

  • Tackling crime by addressing youth violence and engaging at-risk children and young people through educational and other social interventions as well as by improving police and justice services
  • Improving the quality of human capital by investing more in education and training and creating opportunities for skilled Jamaican migrants to re-invest in their country
  • Correcting fiscal distortions by reducing tax incentives and exemptions, improving budget preparation, implementation and reporting, continuing divestment of public bodies and improving public service provision.

Understanding and acting on the factors behind Jamaica’s low productivity will go a long way in unlocking growth potential and creating conditions for greater reductions in poverty,” the report summarizes.

A number of other activities have been undertaken to disseminate the CEM in Jamaica, including a high level meeting with key stakeholders co-chaired by the Caribbean Director and the Financial Secretary, media interviews and presentations to sector groups in the towns of Ocho Rios and Montego Bay, in collaboration with local chambers of commerce.