Edward Seaga, Contributor
THE CARIBBEAN Single Market (CSM) is now a reality. It came into effect on January 1, 2006. The CSM was intended to include an integrated economy, the original plan being the establishment of a Caribbean Single Market and Economy (CSME).
In the process of implementing the full-scale model, difficulties were encountered which could not be overcome, certainly not at this time and, perhaps, never. This CSM, thus, has become a truncated version of the CSME. This is not a good omen for the start of a much-publicised regional development which took some 14 years to prepare.
The CSME was intended to facilitate the movement of trade, finance and people across CARICOM borders. What now remains as the CSM is principally a regional trading system designed primarily to enhance export-led economic growth. Indeed, the CSM is billed as the principal developmental thrust to lift the economies of the region to transformational levels.
Success or failure of the CSM will depend on the perspective from which it is seen. The member states of the CSM comprise the CARICOM 15-member group. These have wide differences and deep similarities. Haiti, the only French-speaking member, has more than half the population and one of the lowest per capita incomes in the World, US$390. Several countries, though mini-states like Barbados and The Bahamas, have much higher per capita incomes, US$9,270 and US$14,920 respectively. Barbados, with one of the highest levels of human development in the world co-exists with one of the lowest, Haiti. Jamaica has the second-largest number of people, 2.7 million, the third lowest per capita income, US$2,820, and the largest purchasing power. In this widely contrasting mix, it is the strength of market which positions Jamaica as the centre piece of the group.
FORMAL ORGANISATIONS
Jamaica has membership in a variety of groupings. Some are formal organisations like the British Commonwealth of Nations, the Organisation of American States (OAS), the Caribbean Community and Common Market (CARICOM), and, possibly, in the Free Trade Area of the Americas (FTAA); others are informal links based on historic and cultural ties. Of these, CARICOM has become the focal point, moreso now that the CARICOM union has taken its first step towards a Caribbean Single Market and Economy by launching the CSM. But does the CSM offer Jamaica the best prospects? Is it our best step forward?
MIXED FORTUNES
With a wide disparity of countries, the CSM will hold good fortune for some and misfortune for others. The principal area to be assessed for progress is the growth of exports in member countries.
Regional trade with Jamaica over the years, since the inception of CARICOM in 1973, persisted as a low impact economic activity, particularly in exports. In 1973, trade from Jamaica with the CARICOM region was 6.3 per cent of Jamaica's total exports and 5.2 per cent of total imports. By 2003, Jamaica's total trade with the region had declined to an insignificant 3.2 per cent in exports and increased to a more substantial 13.3 per cent in imports. The weak export performance by Jamaica is further reflected in comparison to the exports of Barbados. In 2003, Barbados, though much smaller in territorial and economic size than Jamaica, exported US$100.3 million in goods and services to CARICOM countries; Jamaica exported one half that value, US$50.9 million. Exports by Jamaica to all CARICOM countries in 2003 were less than the earnings of sugar exports by Jamaica in that year, US$74.3 million.
In the 30 years of CARICOM trade, Jamaica has moved from being a net exporter in CARICOM to a net importer, a position which has prevailed since 1992 with a widening gap each year.
Inability of the Jamaican economy to increase exports to CARICOM by any reasonable margin, over the past 30 years, has drawn much attention and comment.
This weak export performance is at the heart of queries now being raised in scholarly studies as to whether Jamaica can overcome its anaemic export record in CARICOM.
The reasons for this listless performance is not to be found in any lack of product acceptance by consumers. In a region where the producing countries carry much the same lines of production, preference is largely driven by competitive pricing.
Studies have found that the main contributors to the lack of price competitiveness in Jamaican exports are:
Low productivity, arising largely out of inadequate skills; andMacro-economic instability.PRODUCTIVITY
Recent studies on productivity all cite low productivity rates as one of the main reasons for non-competitive production in the Jamaican economy.
In a study of productivity rates in Caribbean countries, including Cayman, Puerto Rico, Haiti and Cuba, done by Benthan Hussey of the Planning Institute of Jamaica, Jamaica ranked an embarrassing 19 out of 25 in the comparative period of 30 years, 1960-1990.
One of the principal reasons for the low rating of Jamaican productivity, the study found, was that wages increased annually by 1.8 per cent and unit labour costs by 3.1 per cent, while productivity was decreasing by 1.4 per cent. This movement is in the wrong direction. If wage increases exceed productivity, competitiveness in the price of goods and services will deteriorate and the purchasing power of consumers will erode. The situation as far as Jamaica is concerned has not improved. Using GDP per capita as a proxy for productivity, Jamaica ranks a lowly 11 of 13 Caribbean countries for which data is available for 2004.
Some specific sectors of the economy illustrate the impact on the work force when wage increases out-strip productivity growth.
NOTORIOUSLY LOW PRODUCTIVITY RATE
Agriculture has a notoriously low productivity rate, in good part because of low and inefficient production in the sugar industry which dominates the sector. According to the findings of the Report of the Task Force on the Sugar Industry in Jamaica, 2001, the average cost of production of sugar is considerably greater than other comparable countries:
Jamaica US$660 per ton
ACP countries US$375 per ton
This is understandable given that production per man day, in Jamaica is .87 tonnes, less than one tonne, in comparison with the international market which averages 3.0 tonnes per man day, more than three times greater.
The problem extends beyond the agricultural sector. Apparel exports are a prime example of a thriving sub-sector in manufacturing which became one of the largest export earners in the economy between 1985-1995. It has since been reduced to a few surviving producers and the work force of 40,000 largely laid off.
A JAMPRO study sets out a cost comparison which shows up the overpricing of Jamaican production. Measurement of the labour cost per available working hour puts Jamaica at the top of the table of nine regional countries ranging from El Salvador US$220, to Jamaica US$364.
Fixed costs were considerably higher in Jamaica than other comparable countries:
Productivity and other costs
Utilities 167 per cent higher
Security 110 per cent higher
Telephone 34 per cent higher
Operating personnel 22-42 per cent higher
These translate to higher unit costs and decreased competitiveness which strongly affect the ability of Jamaican producers to compete against imports domestically, as well as in the export market.
Hence, Jamaica lags behind other countries. Jamaican exports are priced out of the market and domestic production is unable to adequately compete against imports while neighbouring and other countries with lesser potential lead the way.
This is not a viable scenario for involvement in the Caribbean Single Market. Current conditions of economic frailty and little evident prospects for overcoming non-competitive performance would expose the Jamaican economy to still greater displacement of local production with no greater ability to compensate by expanding Jamaican exports. The trade gap will widen and the crisis in the economy worsens with participation in the CSM under these conditions. In the 2005 Global Competitiveness Report, of a total of 104 countries studied, Jamaica rank 95 in terms of macroeconomic stability. Trinidad, the only other CARICOM country included in the study, ranked 16th in macro-economic stability.
From the Jamaican perspective, the question must be asked: Is there room to improve productivity and competitiveness of Jamaican production to enable participation in the CSM to be worthwhile?
HUMAN DEVELOPMENT
Human capital formation is a critical link in the production process. The education system, in particular, provides the training ground for skills to improve productivity.
The education system in Jamaica is fundamentally flawed. It is substantially underfinanced in comparison to the majority of CARICOM partners. Budgetary allocations should total at least 15 per cent of public budget expenditure. This has not been attained except in one year, 1997.
Some of the embarrassingly weak performances of the education system will assist in reminding the authorities of the risks to which the country is exposed and the charge they bear to prevent further failure.
The record of depressing performances can be cited for those areas which impact most directly on production.
A UNCTAD/UNDP report reminds that:
"It is estimated that 30-40 per cent of grade six students are functionally illiterate;""Some 70 per cent of all students who sit CXC exams achieve no passes at all;"Jamaican pass rates in English and mathematics from 1991-97, averaged 27 per cent and 25 per cent respectively, ranking Jamaica 15 out of 17 countries in the region;""Both basic literacy and numeracy are very poor among new labour force entrants and older workers', making the training of technical skills all the more difficult."THIRD LOWEST
Little wonder that Jamaica ranks third lowest on ratings in vital areas of the education system. The statistical database of UNESCO for the region ranks Jamaica third lowest in literacy at 79.9 per cent. Belize and Dominica are marginally lower.
It is not only the dismal performance of the sector which matters in regard to productivity. The sector is itself a misfit in the society, producing at one end, 70 per cent school leavers with no skills at all, and at the other end, 80 per cent of university graduates who, according to a World Bank report, live abroad.
Jamaica is at a grave disadvantage in the regional setting. The education system, as it currently stands, is not geared to lifting productivity and improving competitiveness in the marketing of Jamaican goods and services.
Edward Seaga is a former Prime Minister. He is now a Distinguished Fellow at the University of the West Indies Email: odf@uwimona.edu.jm.
