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LABOUR MARKET REFORM COMMISSION Technology, Innovation & Productivity Committee Towards a talent-driven outward-oriented globally-competitive SME framework Discussion Paper

Commissioner Silburn Clarke FRICS, DFJCS Dr Andre Jones Chairmen Small and Medium Enterprise Working Group March 25th 2016

Labour Market Reform Commission Ministry of Labour & Social Security / Ministry of Finance & Planning

Commissioners Chairman,

Dr Marshall Hall

Deputy Chairman,

Mr. Silburn Clarke Chair, Technology Innovation and Productivity Committee

National Coordinator, TBD Dr Wayne Wesley, Dr Heather Rickets, Mr. Wayne Jones, Dr. Michael Witter Ms. Brenda Cuthbert Mr. Easton Williams Sen. Kavan Gayle Prof Gossett Oliver

Chair, Education and Training Committee Chair, Social Protection Committee Chair, Industrial Relations Committee Chair, Labour Policy and Legislation Committee Mr. Dwayne Gutzmer Mr. Danny Roberts Ms. Janet Morrison Mr. Granville Valentine

Mr. Robert Gregory Dr. Noel Cowell Mr. Errol Miller Ms. Yvette Sutherland-Reid

Technology, Innovation and Productivity Committee Chair: Commissioner Silburn Clarke Dr Vanesa Tennant, Dr. Marina Ramkissoon, Mr. Mervyn Eyre, Dr. Andrea Barrett, Dr. Andre Jones, Ms. Sonia Jackson,

Working Groups Chair Labour Market Information System Chair, Human Factors and the Workspace Chair, Public Sector Efficiency Chair, National Systems of Innovation Chair, Small & Medium Enterprises Chair, Cross-cutting Issues

Commissioner Prof. Gossett Oliver Commissioner Robert Gregory Commissioner Dwayne Gutzmer Prof. Ishenkumba Kahwa Prof. Neville Duncan Dr Charles Douglas Dr Kavian Cooke Mr. Rudolph Thomas Ms. Tashana Briscoe

Small and Medium Enterprise Working Group Co-Chairmen Commissioner Silburn Clarke Dr Andre Jones Dr Charles Douglas Prof Neville Duncan

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Document History Date

Version Description

Author

20th March 2016 21st March 2016

v1 v2

Initial Draft Modify sec 8 Productivity, Modify sec 3b Talent

SC / CD / AJ SC

23rd March 2016 24th March 2016

v3 v4

SC SC

25th March 2016

v5

List of References inserted Update Sec 11 Youth Unemployment Modify Executive Summary Inset Summary of General Directions Add Development Banking model; the PPP Business Development Bank Add Emerging Markets 9.3 Title added: “Towards a talent-driven outward-oriented globally-competitive SME framework: Discussion Paper”

SC

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Acknowledgements The SME Working Group acknowledges the many and varied contributions by way of ideas, data, comments, feedback, reviews, recommendations, overstandings and understandings that were offered directly and indirectly to the Group during the compilation of this Initial Report. Specific mention must be recorded to fellow Commissioners of the Labour Market Reform Commission including late LMRC National Coordinator Commissioner Lloyd Goodleigh, Dr. Marshall Hall Chairman, Sen. Kavan Gayle, Dr. Michael Witter, Dr. Wayne Wesley, Dr. Heater Ricketts, Mr Danny Roberts, Mr. Robert Gregory and Ms. Brenda Cuthbert, Mr. Easton Williams; the members of the Technology Innovation and Productivity Committee, in general, and Ms Sonia Jackson, Dr. Marina Ramkissoon, Mr. Robert Gregory, Dr. Vanesa Tennant, Dr. Andrea Barrett, Dr Kavian Cooke, Mr. Mervyn Eyre, Comm Prof Gossett Oliver, Comm Dwayne Gutzmer in particular; members of the Jamaica Productivity Centre led by Dr Charles Douglas and including Ms. Winsome VanRiel; members of the PIOJ including Ms. Monique Savage, Ms. Deidra Coy and Ms. Toni-Ann Doyley; members of the Partnership for Jamaica National Council; the members of the PSOJ Economic Committee; and the Trade Agreements Implementation Division of the MFAFT Comm Silburn Clarke Dr. Andre Jones Dr Charles Douglas Prof Neville Duncan SME WG TIPC LMRC

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Table of Contents

Document History............................................................................................................ 1 Acknowledgements ......................................................................................................... 2 Table of Contents ............................................................................................................. 3 Executive Summary ........................................................................................................ 5 Introduction ....................................................................................................................12 TIP Committee Membership .........................................................................................................................................12 Mandate ......................................................................................................................................................................................12 Areas of focus ..........................................................................................................................................................................13

Situation Analysis: Operating Context for SME’s ..............................................13 1. Existential threat to the Jamaican society, economy, way of life, civilization .....................13 2. SME’s are essential for successfully growing GDP and increasing prosperity .....................15 3. State of our national talent pool (knowledge creators) .....................................................................16 4. State of our national talent pool (employees) ..........................................................................................17 5. State of the national macro-economic framework .................................................................................19 6. State of the labour market .....................................................................................................................................19 7. Changing population demographics ...............................................................................................................20 8. International firm competitiveness ................................................................................................................21 8.1 Industrial evolution ............................................................................................................................................. 21 8.2 Productivity .............................................................................................................................................................. 24 8.3 Export performance.............................................................................................................................................. 28 8.4 Psychic / Cultural distance ................................................................................................................................ 29 8.5 Building and preserving Jamaican Dollar US$ trading competitiveness ..................................... 30

9. Development of world-class outward-oriented globally-competitive SME’s ......................32 9.1 SME Typology ........................................................................................................................................................... 32 9.2 Business Development Bank for SME’s ........................................................................................................ 38 9.3 Emerging marketspaces for SME.s ................................................................................................................ 42

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10. Informal Sector ..............................................................................................................................................................44 11. Unemployment ..............................................................................................................................................................47 12. Transport & Communication ...............................................................................................................................49 13. Public sector productivity ......................................................................................................................................50

Priority Recommendations for Action ..................................................................52 1. Linking pay with productivity .............................................................................................................................52 2. Identifying and supporting high-growth export-oriented SME’s..................................................52 3. Adopt / Adapt Business Excellence Frameworks (BEF’s) .................................................................53 4. Mobile money for increasing productivity, compliance and reducing informality.........54 5. Microwork youth employment ...........................................................................................................................55 6. Encouraging indigenous innovation by IP rights protection ..........................................................56

7. National consensus on medium-term and long-term economic framework .......56

References .......................................................................................................................57

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Executive Summary The existential threat to the Jamaican society, economy, way of life and civilization is our failure to successfully and sustainably grow our GDP and so increase national prosperity for our citizens and subsequently equitably distribute prosperity gains throughout the society. A review of the evolution of global industrial development suggest that Jamaica may be struggling on the periphery of the global economy due to its historic failure to assert its stake in the industrial centre. The shape of the current constellation of domestic firms as well as the quantity and quality of their workforce derives largely from these decisions, or indecisions, of the past. Despite this, it is still possible for Jamaica to leap-jump towards the centre. The Small Medium Enterprise Working Group of the Technology Innovation and Productivity Committee (SME-WG TIPC) examined these issues over the last nine months. Its concise Initial Report comprises three sections o o o

Introduction Situational Analysis Recommendations for Actions

Two broad categories of recommendations emerge from the report; 1. Specific Recommendations: These number seven and include; 

High-growth SME’s should be identified and supported with business development banking, special equity financing and operational efficiency training



Adopt / Adapt Business Excellence Frameworks (BEF’s) to unique context of Jamaican firms



Employee compensation to be linked with firm and business unit productivity



Deploy mobile money for increasing productivity, compliance & reducing informality



Address youth unemployment with a microwork model



Encourage indigenous innovation by modernizing the legislation to strengthen patent rights protection



Institutionalise the development and maintenance of national consensus on medium-term and long-term economic framework so as to provide a consistent, certain and predictable environment for businesses to operate within

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2. General way-forward directions aimed at improving labour market outcomes: These more general “directions”, numbering 80, are embedded throughout the Situational Analysis section (summarised in Table 1 below ). In general, these ‘directions’ provide a number of dynamic context-grounded, data-driven, evidence-based suggested actions. The economic development process today is defined by the ongoing revolution in the tools of the workspace and along with that the global integration of the firms around the world on the basis of the digital technology platform. This process calls for a fundamental shifts in how we prepare the workforce and assign resources to firms to compete in today’s globally competitive economy. Under the old agro-industrial paradigm, economic growth was driven by competitive advantages that were constructed around a model of cheap labor and natural resources. This model was supported by foreign direct investment into productive sectors to generate exports for what were largely protected markets. Under this paradigm, the real bottlenecks to economic expansion were primarily capital and to a lesser extent, natural resources. Analysis of business ownership data from developed economies, in the late 1980’s pointed to the detection of a distinctive U-shaped curve, reflecting the transition from large, capital-intensive firms to smaller, knowledge-based entrepreneurial firms in those developed countries; the modern Small and Medium Enterprise (SME). This phenomenon was interpreted as evidence of a structural shift in those economies from a traditional to, what has been termed, a knowledge-based entrepreneurial economy, or the new digital economy. The old economy thrived for nearly three centuries from the days of the first Industrial Revolution in the mid 18th Century when the environment was relatively stable and a degree of certainty prevailed. The new economy emerged beginning in the 1980’s as a response to the global events of that period with the main drivers being; the globalization / IT revolution shortening economic distance; routinized tasks shifting from high-cost zones to low cost zones and ; high-cost zones re-aligning to leverage comparative advantage in high-value knowledge industries and services. The maintenance of high wages required knowledge-based economic activity that could not be costlessly diffused across geographic space. Recent expansion of broadband availability and capability in emerging economies, the ubiquity of the mobile smartphone and combined with the changing nature of work and new innovative business models are opening opportunities for the former geographic limitations to be relaxed and so enable the engagement of high-quality, high-wage decent work to be delivered from high-value-add, innovative, agile enterprises in the emerging economies. A monumental shift in the economic fortunes of developing countries across all geographies have been occurring since the early 1990’s significantly transforming the hopes, incomes, health, education democracy, governance and general well-being of billions of consumers across the globe. These countries have been growing their GDP at higher than historic annual levels through an

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embrace of goods and services export trade and have successfully penetrated the markets of the world with their wares; thereby lifting billions out of poverty. Jamaica is yet to be a part of that global movement. In this Initial Report the SME WG explores these and other issues and offers the possibilities for transforming Jamaica’s own fortunes through the deployment of its army of talent-driven, outwardly-oriented, globally-competitive SME’s into the global spaces.

Table 1 Summary of General way-forward directions aimed at improving labour market outcomes: i. ii. iii. iv. v. vi. vii. viii. ix. x.

xi.

xii. xiii. xiv. xv.

Craft and articulate one national long-term strategy to significantly grow the SMEs: ensure that actions are coherent with the national growth imperative Recalibrate the implementation time horizon to Vision 2030 Quickly reform or remove any GoJ Department or Agency that is not aligned with national thrust Ensure that all national stakeholders are aligned and onboard with one long term strategy (government, business, workers/employees, academia, youth) Focused policy management and direction to assure that all aspects of government are aligned with the National Growth Agenda. A major shift in mindset, orientation and culture towards innovation and global market demands is urgently needed in the business sector Encourage and incentivize firms that are export-oriented Modernise the Patents Act urgently to support indigenous innovators and inventors A process of on-going re-examination of the output of tertiary institutions to assure alignment with industry needs is urgently needed. Urgently overhaul the secondary training services to improve the output quality so as to assure alignment with industry needs. Set targets to grow the percentage of graduates from secondary stream with certification from present levels to 70% by 2010 in incremental steps (ie 40%, 50%, 60%, 70% in years 2017, 2018, 2019 and 2020 respectively) Consider streaming Grade 6 primary students entering the secondary stream into specialist colleges that better match their talent, interest, passion, potential and aptitudes rather than offering all students one general secondary education option. Three possible streams are (1) general academic colleges, (2) arts/sports / hospitality colleges and (3) technical / engineering colleges. Vocational options could be offered in both streams (2) and (3) Specialisation enables better resource allocation in an environment of persistent constrained teaching / lecturing resources (personnel, materiel and financial) Conduct demographic study to determine the detailed profile of the 70% uncertified A shift in model, ie a flipping of the script, to reduce non-certification to 30% would have a profound ripple effect in all areas of society and economy Set national stretch goal to double certification in workforce to reach 65% by 2020, attain 75% certified workforce by 2025 and 85% by 2030.

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xvi. xvii. xviii. xix. xx. xxi. xxii. xxiii. xxiv. xxv. xxvi. xxvii. xxviii. xxix. xxx.

xxxi.

xxxii. xxxiii. xxxiv. xxxv. xxxvi.

Get it right the first time, every time; Students graduating from five years of secondary education and training must be empowered with academic and/or technical/vocational and/or creative (arts/sports) skills / certification Avoid duplication and triplication of government remedial spending on same cohort of youngsters Training of youth should emphasize critical thinking and adaptability as 21st century futures are highly dynamic. Jobs for next 5 , 10 years are not defined today Implications to be further explored by Education and Training Committee Expand scope and reach of Registered Apprenticeship Programme in order to mainstream work-study mode of experiential learning in order to develop practical workplace experience and increase employability Financial intermediation is in need of reform. The system is archaic and do not adequately support entrepreneurs and entrepreneurial activity (Contrast with electronic mobile financial ecosystem of M-Pesa in Kenya) Unlocking and enabling access to a small portion of the $300billion pension funds for the Jamaican productive sector would release funding to SME’s Lending practices of commercial banking sector needs reform to facilitate more competitive risk-based loan pricing for SME’s. Competitiveness signaling provided by devaluation must be complemented with other incentives for SME exporters (Innovation Fund, R&D Investment Write-off, Special Interest rates for Exporters) Expand the role of the JPC in the determination of firm-level productivity assessments in order to support compensation and productivity alignment Human Factors Working Group to examine psychosocial factors operating within firms Threshold for disengaging CEO’s should be more dynamic (OECD 2013; Three quarters of weak financial performance is 2012 threshold for fair dismissal of CEO) Projected shrinkage among population of digital natives and millennials and implications for workforce creativity, dynamism, adaptability, energy, flexibility and agility to be examined by TIPC Implications for pensions, health, unemployment to be examined by Social Protection Committee Jamaica must discard its historical political and industrial failure to assert industrial independence and move rapidly to create a balanced trade model suitable to its small, open economic context. The current primary goods export – secondary goods import model is not sustainable. It is imperative that Jamaica adopt an aggressive position to overcome the imbalances and challenges prevailing in the 21st century industrial regime and so be able to thrive in this competitive global environment. A coherent national policy framework for medium-term industrial and economic expansion and development that enjoys buy-in across all sectors needs to be crafted Concerted strategic long-range political and economic actions needed to propel Jamaica from the periphery of global commerce and towards the centre Transformation of the prevailing business culture to one that supports and encourages continuous improvement in products, services and processes. Growth in employment without a concomitant growth in output is a self-defeating capital destroying tactic. Reduce / eliminate actions that add unproductive workers to the employed labour force ie employment that does not promote added value Policies should be geared towards the adjustment of nominal wages in keeping with adjustments of productivity Productivity-enhancing policies should be developed and implemented to maximize returns in the export-dependent industries

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xxxvii. Increase efforts to further reduce the importation bill in an effort to slow the growth of inflation; local production as well as the promotion of substituting imported goods with locally produced goods should be increased. This should also help to stabilize the value of the Jamaican currency which in turn will reduce inflationary pressures. xxxviii. Concerted strategic long-range political and economic actions needed to propel Jamaica from the historic chronic negative trade outcomes. xxxix. Develop a strategic dynamic database mining and management capability within GoJ to monitor imports that are substitutable (eg renewables to substitute foreign petroleum products) with a view to engage domestic SME’s to enter these sectors xl. Economic products and services that leverage the reach of the cultural DNA of the Jamaican society may provide opportunities for significant contributors to economic growth based on culture-based competitive advantages. xli. Price stability (inflation management) and competitive forex pricing are inexorably linked macro-economic variables that are best managed in a consistent manner by a professional, independent, prudent BoJ xlii. A strategy of consistent maintenance of competitive forex value is preferred to one of regular remedial multi-year plowback. The resulting stabilizing impact on the business environment, generally, and export firms, in particular, would be positive. xliii. In order to maintain long-term consistency in the overarching economic policy framework and so avoid the volatility associated with the past decades, A seven person Council of Economic Advisors should be created comprising noted economic specialist experts and representing the government, business, employees, youth, academia, the diaspora and civil society constituencies. This Council would debate and agree the national medium and long-run economic policy framework for the country and so stabilize the medium and long-run planning framework for businesses. xliv. In the context of constrained resources, a triage approach is demanded in the resource allocation decisions to deploy support and encouragement of the SME sector; not all SME’s are the same. Those firms that possess the highest likelihood to succeed should be given preference over those firms that are have a high likelihood of failure (see Figure 9.1.4 and Table 9.1.5 below) xlv. Introduce risk-based lending approaches in commercial lending. Where SME’s are wellgoverned, well-managed, going concerns the default risk would be lower than SME’s with riskier profiles (eg start-ups) and so would, consequently, warrant lower interest rates for borrowing. xlvi. A common standard on definition of SME should be settled. MIIC limits the sector at $150million annual turnover, while NCB and DBJ SME portfolio caps sector at $500mill and $400mill annual turnover respectively. xlvii. It is proposed that a Business Development Bank dedicated to the needs of the real productive segment of the SME Sector be created. The import merchant- trading sector would be specifically excluded. xlviii. This institution would be founded as a bank with all the regulatory, governance and fiduciary safeguards associated with a Bank, rather than the creation of a “Fund” or an “Agency” or any other non-bank nomenclature. xlix. The institution of a Bank connotes particularities in terms of governance, prudential standards, savings functions, loan functions. l. The institution’s focus would strictly be on the entrepreneurial community and would not engage in consumption lending, nor lending for consumer trading (ie buy and sell traders). li. The institution would need to be “arms-length” from government so as to firewall any influence on operational decisions.

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lii.

The object of the institution would include business savings, loans, equity participation, financial advisory services, sub-ordinated financing, capital equipment financing purchase and lease-back. liii. Possible nomenclature Business Bank, Producers Bank, Commerce Bank, liv. Possible funding sources: i. Participant Savings (from entrepreneur community); similar to Credit Union model. Loans tied to level of savings. ii. Percentage of Business Registration Fees from Companies Register iii. Private Pension Fund participation as equity investor in Bank iv. Deep pocketed state-institutions National Insurance Fund, National Housing Trust, Tourism Enhancement Fund, CHASE Fund, HEART. lv. A Private-Public management and governance model would be proposed with the real export-earning Private Sector block (eg JEA, JMA, JAS, JHTA) providing the majority shareholding lvi. The proposed Business Development Bank would be regulated by the BoJ lvii. A data-driven credit risk model (CRM) should be developed as condition prior to the full operation of the bank in order to rigorously model and forecast risk probabilities based on the historic data in the records of the MIDA, SSF and any other Jamaican banking operation for which the data may be accessible. This CRM model, incorporating external credit scores, would contribute immensely to objective credit decision-making of the Bank. lviii. The Business Development Bank would be expected to be a self-sustaining profitable institution lix. Urgently design a strategic campaign (PPP) to penetrate those high-growth emerging markets around the globe with closest fit to Jamaica’s competitive offerings. The global infrastructure of the Ministry of Foreign Affairs and Foreign Trade must be exploited and its agents deployed on the ground to gather market intelligence. lx. Enlist the business associations, trade associations, think tanks, business schools to analyse the gathered intelligence and to design priority strategies and tactics for action. lxi. Mount an immediate joint campaign with business enterprises to effectively penetrate the most promising of these markets lxii. Leverage geopolitical relationships to further the cause of the export agenda lxiii. The size of the challenge implies a multi-dimensional, multi-pronged, multi-year operation to effectively harvest the opportunities lxiv. The speed of implementation to bring effect to the Single Legal Business Space in Caricom should be accelerated and the timeline shortened considerably lxv. The changing structure of the economy (see Table 10.6) from production to services requires that workers be better educated and possess some of the soft skills which are essential for functioning in today’s world. Employers and employees should be targeted in order to reach those persons who have no basic qualification or training to become more equipped to deal with their present employment status. lxvi. Under-registration in the NIS needs to be addressed through direct contacts with the employees and the employers and public education strategies. The target populations should be all persons in the informal sector, private household employees and the agricultural sector. lxvii. The development of macro-economic policies aimed at reducing the informality and unregistration in the economy. lxviii. The uniquely severe unemployment metrics that attend the youth population demand specific and special attention lxix. Urgent policies and strategies needed to align the course content of tertiary institutions, with the demands of the Third and Fourth Industrial Revolution

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lxx.

Universities need to become hotbeds of business incubation, early-stage start-ups, business acceleration leading to commercialized innovations lxxi. Policies to be developed to address the imbalance between high secondary enrollment and low tertiary participation lxxii. Review of mass transit options for efficiently moving the workforce, particularly in the urban spaces lxxiii. Revisit / review railroad policy for efficient movement of overland freight lxxiv. Design and implement a comprehensive Broadband strategy with focus on wide availability, ease of access and globally competitive cost affordability for businesses and individuals lxxv. The long-delayed implementation of the Left-Turn-on-Red policy at traffic-lighted intersections should proceed immediately. Despite general acceptance by the regulatory authorities (JCF, Road Traffic Authority) this initiative to increase productivity in road use has been stalled for some time. lxxvi. Healthy, secure and educated population is a vital necessity for improving economic growth trajectory lxxvii. Superior quality of leadership and management of the public sector directly impacts the sector’s ability to deliver transformational outcomes; particularly in a context of tightly constrained financial resources and perceived low workforce motivation and engagement. lxxviii. Optimising fit of strategy, systems, structure and structure of public sector to support the needed high growth regime lxxix. Culture of public sector needs urgent reform. In order to build dynamism and agility, all heads of agencies should be on time-limited performance contracts as obtain in Executive Agencies. lxxx. Citizen safety and security as well as the building of safe communities promises to be increasingly enhanced by the 24/7/365 monitoring of public spaces from modern internet appliances such as vehicle-based dash cams.

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LABOUR MARKET REFORM COMMISSION Technology, Innovation & Productivity Committee Small & Medium Enterprises and the Market for Talent Discussion Paper Mar 25th, 2016 Introduction

The medium term National Development Agenda demand rates of economic growth (1.6%, 2.0% and 2.9% in fiscal years 2015/16, 2016/17 and 2017/18, respectively) that surpass the historic average of 0.8% annually. In fact it calls for multiples of the historic growth rate (2.0, 2.5 and 3.6 times). An increase in the number, quality and level of internationalisation of the Small and Medium Enterprises (SMEs) in Jamaica is vital to achieving the medium term growth objectives. The higher the level of quality and excellence of the SME organisation in its market executions and the higher the level of participation in international market spaces is the higher the likelihood of success on the economic growth and societal development fronts. Similarly, the greater the numbers of excellent firms participating in the hunt for global revenues the higher the likelihood of successful economic growth. Central to all of the above however, is the quantity and quality of the members of firms; leaders, managers, entrepreneurs, the workforce, or in one word, the firm’s talent. This talent will determine whether the medium term outcomes will be one of successful take off or whether the trajectory will continue to be flat with the consequent historic social and economic challenges. The world is entering a “Fourth Industrial Revolution” (WEF 2016) which is heavily technology-driven and promises to fundamentally change the way that the globe’s citizens live, work, and interact socially. In its scale, scope, and complexity, the transformation is forecast to be unlike anything humankind has experienced before with artificial intelligence, robotics, augmented reality, 3D asymmetric printing some of the early harbingers of the change. Jamaica must position itself to thrive in this environment

TIP Committee Membership The TIP Committee boasts a diverse membership comprising stakeholders from trade unions, employers, academia, international development partners and the public service including the Ministry of Labour and Social Security and other Government entities.

Mandate 

Recommend programmes and services for increasing international competitiveness of SMEs;

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   

Draft policies and programmes to strengthen and accelerate Jamaica’s capacity in technology generation, adoption and transfer; Recommend policies to improve public sector efficiency and performance in support of enhancing the labour market and consequently, economic growth and development; Enhance Jamaica’s labour market information systems; Strengthen and modernize the Jamaica Productivity Centre (JPC) in order to support innovation and efficiently transform both the private and public sectors;

Areas of focus: 1. 2. 3. 4. 5.

Quality of the workforce Quality and excellence of business organisations (private and public) International competitiveness of firms Technology generation, adoption and transfer The role of the Jamaica Productivity Centre

Situational Analysis: Operating Context for SME’s 1. Existential threat to the Jamaican society, economy, way of life and civilization

Fig 1: Annual GDP rates and Period for doubling GDP

a. Observation: i.

ii. iii.

The average annual GDP growth rate for the Jamaican economy has been historically below 1%. Its 40year average is 0.8%, the lowest in the world (WB). This performance has persisted over several periods Jamaica Historical GDP Performance (PIOJ: see box insert) i. Past four decades - 0.8% An examination of the data for the 1995-2012 period, ii. 1990- 2014 period - 0.88% indicates favourable growth metrics for all regions and iii. 2000- 2014 - 0.59% iv. 2014 FY - 0.5% groups around the world (Table 1.1) v. 2015 (Apr – Jun) - 0.6% Jamaica’s historic low growth rates would require 5 generations to achieve a doubling of national GDP and average incomes

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Table 1.1 Annual GDP growth rates (i) 1995-2012 average; (2) 2013 (3) 2014 (WB)

Country Name East Asia & Pacific (developing only) Upper middle income Middle income Low & middle income Lower middle income Least developed countries: UN classification Low income Heavily indebted poor countries (HIPC) Arab World Other small states Fragile and conflict affected situations Middle East & North Africa (all income levels) Sub-Saharan Africa (all income levels) Sub-Saharan Africa (developing only) Middle East & North Africa (developing only) Europe & Central Asia (developing only) High income: non-OECD East Asia & Pacific (all income levels) Small states Central Europe and the Baltics Latin America & Caribbean (all income levels) Latin America & Caribbean (developing only) World Caribbean small states North America High income OECD members High income: OECD Europe & Central Asia (all income levels) European Union Pacific island small states Jamaica

19952012 (avg) 2013 2014 8.3 7.2 6.7 5.6 5 4.6 5.6 5.2 4.8 5.6 5.2 4.9 5.4 5.8 5.7 5.4 5.2 5.8 4.9 5.7 6.3 4.8 5.6 5.8 4.7 2.8 2.2 4.6 3.7 3.8 4.6 2.1 -1 4.5 2.2 2.5 4.3 4.3 4.3 4.3 4.4 4.4 4.1 0.8 1.5 4.1 3.8 2.3 3.9 2.4 1.8 3.8 4.2 3.6 3.7 2.7 2.8 3.5 1.2 2.8 3.1 2.7 1.4 3.1 2.7 1.8 2.8 2.4 2.5 2.8 1.2 1.1 2.5 2.2 2.4 2.2 1.5 1.7 2.1 1.4 1.8 2.1 1.4 1.7 2.0 0.6 1.4 1.8 0.2 1.4 1.8 3 4.5 0.5 0.5 0.7

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b. Conclusion 1. 2. 3. 4.

The existential threat to the Jamaican society, economy, way of life and civilization is our failure to successfully and sustainably grow our GDP and so increase national prosperity for our citizens and subsequently equitably distribute prosperity gains throughout the society Without the growing and preservation of national wealth, the quality of life is challenged Jamaica will not achieve objective of becoming the place of choice to live, raise families and do business in 2030 at these historic rates of GDP growth. In the strategy to achieve a significant take-off in GDP growth and economic development, the labour market should not be a retardant, a constraint nor a braking factor.

c. General way-forward directions aimed at improving labour market outcomes: i. ii. iii. iv. v.

Craft and articulate one national long-term strategy to significantly grow the SMEs: ensure that actions are coherent with the national growth imperative Recalibrate the implementation time horizon to Vision 2030 Quickly reform or remove any GoJ Department or Agency that is not aligned with national thrust Ensure that all national stakeholders are aligned and onboard with one long term strategy (government, business, workers/employees, academia, youth) Focused policy management and direction to assure that all aspects of government are aligned with the National Growth Agenda.

2. Firms, in general, and SMEs in particular, are essential for successfully and sustainably growing GDP and so increasing national prosperity a. Observation i. ii.

iii.

iv.

v.

vi.

Governments are to GDP as firms are to markets While GDP growth must be facilitated by the government, it is globally competitive firms operating successfully within global marketplaces that will be able to sustainably harvest margin revenues from global consumers Majority of business leaders tend to be domestic-market oriented rather than export-oriented Jamaica has been categorized as a Stage 2 economy by the World Economic Forum (WEF) in their 2015 Global Competitiveness Report (see box insert) Attributes of Stage 2 economies include increasing firm competitiveness driven by education and training as well as rising wage increases based on increasing efficiencies / productivity The quality of the national talent pool directly impacts firm’s ability to adapt science to production processes and technologies, and so innovate, be productive and ultimately be

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vii. viii. ix. x. xi.

competitive. Further, the higher the quantity of the quality talent is the higher the probability of increased numbers of quality SME firms in the economy. Efficient firms optimize GDP within existing Production Possibility Frontier (PPF) but innovative firms expands the PPF to new levels thereby creating new GDP spaces State of cluster development is low (93/140: WEF 2015) Production process sophistication is low (87/140, WEF 2015) Patenting is low (82/140, WEF 2015) Firm spending on R&D is low (74/140, WEF 2015)

b. General way-forward directions aimed at improving labour market outcomes: i. ii.

A major shift in mindset, orientation and culture towards innovation and global market demands is urgently needed in the business sector Encourage and incentivize firms that are export-oriented

Stage I Haiti Nicaragua

Transition I to II Honduras

Stage II Jamaica Dom Rep Guyana

Transition II to III Costa Rica Barbados Panama

RESOURCE-BASED ECONOMIES

EFFICIENCY-BASED ECONOMIES

Countries compete based on factor endowments: primarily unskilled labour and natural resources. Compete on the basis of price and sell basic products or commodities, with their low productivity reflected in low wages.

Countries begin to develop more efficient production processes and increase product quality. Competitiveness is increasingly driven by higher education and training. Wages have risen and they cannot increase prices

Stage III Trinidad

INNOVATION-Based ECONOMIES

Companies must compete by producing new and different goods using the most sophisticated production processes driven by innovation. Wages will have risen by so much that they are only able to sustain those higher wages and the associated standard of living by higher value production

3. State of our national talent pool (academia / knowledge creators) a. Observations i. ii. iii. iv. v.

The higher the incidence of Knowledge Economy factors within an economy is the higher the economic performance; with a correlation of 0.84 (WB 2008, see box insert) The availability of scientists and engineers in the Jamaican economy is low (99/140, WEF 2015) The ratio of tertiary level graduates in the labour force is low (refer sec 4B) Research and development in private and public sectors are low (WEF) The ability for the society as a whole to tap into the creativity and inventiveness of the broad population is weak as the nation’s Patent Act dates from1857

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vi. vii.

Government acquisition of advanced technology products is low (107/140, WEF 2015) There is a serious mis-match between industry demands and tertiary output manifested by high unemployment among Caribbean region’s young tertiary graduates (ECLAC 2015)

b. General way-forward directions aimed at improving labour market outcomes: 1. 2.

Modernise the Patents Act urgently to support indigenous innovators and inventors A process of on-going re-examination of the output of tertiary institutions to assure alignment with industry needs is urgently needed. 3. Urgently overhaul the secondary training services to improve the output quality so as to assure alignment with industry needs. Set targets to grow the percentage of graduates from secondary stream with certification from present levels to 70% by 2020 in incremental steps (ie 40%, 50%, 60%, 70% in years 2017, 2018, 2019 and 2020 respectively) 4. Consider streaming Grade 6 primary school students entering the secondary stream into specialist colleges that better match their talent, interest, passion, potential and aptitudes rather than offering all students one general secondary education option. Three possible streams are (1) general academic colleges, (2) arts/sports / hospitality colleges and (3) technical / engineering colleges. Vocational options could be offered in both streams (2) and (3). 5. Specialisation enables better resource allocation decisions in an environment of persistent constrained teaching / lecturing resources (personnel, materiel and financial)

4. State of our national talent pool (employees) a. Observations 1. 2.

68% of our employed labour force has no certification (746k of 1.094mill: STATIN 2012) 63% of our employed labour force has no training (691k of 1.094mill: STATIN 2012)

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3. 4. 5.

6.

Despite a MoE budget of J$26billion (2012/2013), each year an estimated 30,000 kids of secondary school-age are added to the pool of non-certified talent. (MOE, 2012/13) Quality of math and science education is low (96/140, WEF GCR 2015) Primary, secondary and tertiary education enrollment are deemed low in global comparisons (WEF 82/140 , 93/140 and 79/140 respectively, WEF 2015) Employability of young tertiary graduates is low (ECLAC, 2015)

Aspiration: a Jamaican workforce with near-term profile of 70% certified workforce up from 30% certified in 2015

70% uncertified

70% certified

b. General way-forward directions aimed at improving labour market outcomes: i. ii. iii. iv. v. vi.

vii.

viii.

Conduct demographic study to determine the detailed profile of the 70% uncertified A shift in model, ie a flipping of the script, to reduce non-certification to 30% would have a profound ripple effect in all areas of society and economy (graphic above). Set national stretch goal to double certification in workforce to reach 65% by 2020, attain 75% certified workforce by 2025 and 85% by 2030. Get it right the first time, every time; Students graduating from five years of secondary education and training must be empowered with academic and/or technical/vocational and/or creative (arts/sports) skills / certification Avoid duplication and triplication of government remedial spending on same cohort of youngsters Training of youth should emphasise critical thinking and adaptability as 21st century futures are highly dynamic. Jobs for next 5 , 10 years are not defined today Further implications to be explored by Education and Training Committee Expand scope and reach of Registered Apprenticeship Programme in order to mainstream work-study mode of experiential learning to develop practical workplace experience and increase employability

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5. State of our macro-economic framework / enabling environment a. Observations i.

Macro-economic stabilisation of economy is encouraging (lowered inflation rate, inflation targeting, dynamic forex rate tied to purchasing power parity (PPP) competitiveness). ii. Consequential lowering of interest rate for lending to SME’s is, however, slowed due to high stickiness in financial institutions iii. Pension funds are off-limits for funding domestic entrepreneurs except via blue chip corporate bonds and stock market equity participation

b. General way-forward directions aimed at improving labour market outcomes: i.

Financial intermediation is in need of reform. The system is archaic and do not adequately support entrepreneurs and entrepreneurial activity (Contrast with electronic mobile financial ecosystem of M-Pesa in Kenya) ii. Unlocking and enabling access to a small portion of the $300billion pension funds for the Jamaican productive sector would release funding to SME’s iii. Lending practices of commercial banking sector needs reform to facilitate more competitive risk-based loan pricing for SME’s. iv. Competitiveness signaling provided by devaluation must be complemented with other incentives for SME exporters (Innovation Fund, R&D Investment Write-off, Special Interest rates for Exporters)

6. Status of the Labour Market

a. Observations: 1. 2. 3.

In a recent assessment of the country’s Labour Market Efficiency by the WEF GCR the most inefficient factor was adjudged to be the mis-alignment of pay with productivity. This factor scored a very low global ranking of 111 out of 140 countries (WEF 2015) Hiring and firing practices are rated low (80/140, WEF 2015) Labour-management cooperation are also rated low with a ranking of 75when compared to other economies (WEF 2015)

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4.

National capacity for the retention and attraction of talent enjoyed ‘very low’ and ‘low’ ratings respectively.

b. General way-forward directions aimed at improving labour market outcomes: 1. 2. 3.

Expand the role of the JPC in the determination of firm-level productivity assessments in order to support compensation and productivity alignment Human Factors Working Group to examine psychosocial factors operating within firms Threshold for disengaging CEO’s should be more dynamic (OECD 2013; Three quarters of weak financial performance is 2012 threshold for fair dismissal of CEO)

7. Changing Population Demographics a. Observations: i. Fertility rates have been declining and the decline is projected to continue to 2030 (STATIN) ii. Population growth rates are expected to decline to –0.1% in 2030 from 0.36% in 2011; to record population shrinkage in 2030 iii. Percentage of population over 65 years is projected to reach 11% in 2030 from 8.1% in 2011 and 4.3% in 1969. iv. While the 15-64 years group is expected to remain stable at 65.9% (in 2011) and 66% (in 2030). However, the 15-29yrs sub-group is projected to shrink by 2030 (STATIN, see box insert), thereby increasing the average age of the 15-64 years age cohort.

b. General way-forward directions aimed at improving labour market outcomes: i. ii.

Projected shrinkage among population of digital natives and millennials and implications for workforce creativity, dynamism, adaptability, energy, flexibility and agility to be examined by TIPC Implications for pensions, health, unemployment to be examined by Social Protection Committee

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Composition of workforce by age group

8. International Firm Competitiveness 8.1 Industrial Evolution a. Observations i.

ii.

The first Industrial Revolution began in the 1700’s and was principally led by Britain the dominant colonial power at the time. The key characteristic of the era was the successful harnessing of water and steam power to mechanize production. Steam engine locomotives expanded transport and communication and opened new geographies and markets. Britain’s industrial ascendancy created a two-edged dilemma for its colonies. On the one hand colonies were tasked to produce and deliver raw materials / primary products to satisfy rising demands for inputs by British industry. On the other hand, the colonies were legislated into purchasing final manufactured products from Britain. This represented a double captivity; a two-horned dilemma (Neill, 1991). Two of Britain’s large North Atlantic colonies rebelled at the negative implications on their development that these captive arrangements portend and opted, in the late 18thCentury, to develop their own indigenous industrial production capabilities and capacities. The tenets of North Atlantic industrial independence movement did not reach into the West Indies. It has, therefore often been remarked that were a time traveler from the 17th Century to pay a visit to the Jamaica of 2015, he would be very comfortable with the familiarity of most of the domestic production methods .

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iii.

iv. v.

vi.

Jamaica is a small open export-trading economy in very close proximity to the largest and most innovative economy in the world; the USA. Jamaica also sits in the Englishspeaking grouping within the Caribbean and Latin American Region, and with the distinction of being the largest of these islands sharing historic commonalities. The Latin American region has over 600million consumers. When combined with the USA and Canada over a billion consumers live in close trading proximity to Jamaica It has been long argued by some development economists that proximity has significant advantages from the opportunities that it presents for weaker economies to be pulled along economically by stronger, locomotive economies. Kaname Akamatsu’s Flying Geese economic development model was centered around Japan as the powerhouse economy in South East Asia (Akamatsu 1937, 1943) . Akamatsu argued in the context of Japan of the 1930’s, that as Japan (the leading goose) grew and ascended the higher levels of the value chain, it would tend to shed its lower level activities to its proximal SE Asian neighbours (the trailing geese) eg Korea. The model has been applied more generally since the 1960’s and posits that as the more sophisticated economies in the SE Asian region eg Korea, Malaysia, Singapore ascended the value chain, that trailing economies, eg Thailand, would occupy and capture the industries and markets that they abandoned. More recently the model has been used to explain the industrial awakening of Vietnam and Burma. The question then becomes, if the USA is the leading goose for this region, what opportunities can the Caribbean grab from the constant ascent of the US economy. The recent growth of the BPO sector is clearly one exemplar of onshore businesses processes being pushed offshore. What other near-shore offshoring opportunities exist for Jamaica to exploit for wealth creation ? In the context of emerging economies, Nobel Laurate W. Arthur Lewis in the mid20th Century developed a ground-breaking theory of economic growth and industrialization for developing tropical economies with surplus low-level wage labour. Lewis established two requirements for a developing nation to become the desired recipient of capital investment, whether that investment was domestically or internationally based, and hence to achieve economic growth. The first was that wage levels, which reflect that a surplus pool of labor, existed and can be exploited profitably. The second requirement

22

vii.

viii.

related to living standard. The labor force must possess “enough physical energy to work” (Clarke, 2010) Lewis (1954) indicated that the main sources from which workers came into the economy as development proceeded was from subsistence agriculture, casual labour, petty trade, domestic service, wives and daughters in the household, and the increase of population. In industrial expansion, lack of skilled labour would only create a temporary or “quasi-bottleneck,” as the bottleneck would be quickly removed (in the environment where capital was available for development), by the capitalists or their government quickly providing the facilities for training more skilled people. Lewis posited that the real bottlenecks to economic expansion was therefore primarily capital and to a lesser extent, natural resources, suggesting that capital caused development to happen and not the other way around. Lewis’ work is credited with being one of the underlying factors behind Singapore’s industrial transformation. The way that the citizens of the globe live, work, and interact socially is undergoing rapid changes. The march of automation and robotics is accelerating. unabated. Any human tasks that are routinised and repetitive are prime candidates for automation. Some observers have announced that the globe is on the cusp of a new, or fourth, Industrial Revolution (WEF 2016). Still others regard the increased velocity and scope of the current transformations in industrial production systems as a continuation of the ICT-driven Third Industrial Revolution which commenced in the 1970’s. It has been forecast that the scale and complexity of the transformation to be wrought by fourth Industrial Revolution will be unlike anything humankind has experienced before, with artificial intelligence, robotics, augmented reality, 3D asymmetric printing some of the early harbingers of the change (WEF 2016; see Box insert). While these changes will undoubtedly pose grave threats to lower level / low wage jobs, there will also be threats to jobs further up the value chain from AI and advanced heuristics. Opportunities will abound, however, as markets are redefined in fundamental ways and particularly as global market reach will no longer be hindered by the constraints of geography.

b. General way-forward directions aimed at improving labour market outcomes: i.

ii.

Jamaica must discard its historical political and industrial failure to assert industrial independence and move rapidly to create a balanced trade model suitable to its small, open economic context. The current primary goods export – secondary goods import model is not sustainable. It is imperative that Jamaica adopt an aggressive position to overcome the imbalances and challenges prevailing in the 21st century industrial regime and so be able to thrive in this competitive global environment. A coherent national policy framework for medium-term industrial and economic expansion and development that enjoys buy-in across all sectors needs to be crafted

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8.2 Productivity a. Observations i.

Over the period 2001 -2013, Jamaica’s labour productivity, measured by output per employee, declined at an annual average rate of 0.7% (JPC, 2015: refer Figure 8.2.1). This was due to average growth in employment (1.4%) outpacing growth in output (0.6%). Output per hour worked, an alternative measure for labour productivity also saw a decline at 0.8% per annum. This represents a reduction in labour intensity over the period; meaning that less output was being produced by each worker within a given hour. (JPC, 2015: refer Figure 8.2.1below)

Percent Change

Figure 8.2.1 : Jamaica Productivity Trends

12.0 10.0 8.0 6.0 4.0 2.0 0.0 -2.0 -4.0 -6.0 -8.0

iii. iv.

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

GDP Growth

Employed Labour Force Growth

Labour Productivity Growth

Labour Productivity Levels

Among a selected set of Small Island Developing States (SIDS) reviewed over the period 1990 to 2013, Jamaica’s labour productivity levels was the worst performer (see Figure 8.2.2 below) As a measure of productivity, Jamaica’s GDP (PPP) per hour worked was reported in 2013 at $12 and its rank at 54 of 62 countries observed (The Conference Board / Eurostat). The top three highest ranked countries were Norway, Luxemburg and the United States with $75, $73 and $67 per hour respectively (Figure 8.2.3).

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620,000 610,000 600,000 590,000 580,000 570,000 560,000 550,000 540,000 530,000 520,000 510,000

Figure 8.2.2

v.

vi.

vii. viii.

“In a highly competitive environment, SMEs from both the manufacturing and service sectors have to focus on productivity to meet the requirements of customers; they must nurture a strong productivity mindset and embrace continuous productivity improvement on a company-wide basis “ (APO, 2015a) “Productivity is, above all, a state of mind. It is an attitude that seeks the continuous improvement of what exists. It is a conviction that one can do better today than yesterday, and that tomorrow will be better than today.” (European Productivity Agency, Rome Conference, 1959 cited in APO 2015a) The critical antecedent to productivity improvements is innovation. This is expressed as individual employee innovative work behaviours, group / team innovative behaviours and ultimately, as firm-level innovativeness. (TIPC, 2015) The quality of management within the firm determines the innovative behaviours of the talent within the firm (APO, 2015b; Carter, 1997; Clarke, 2013; Cowell, 2004; Stone, 1982)

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Figure 8.2.3: GDP (PPP) per hour worked

ix.

The success of Productivity-improving Initiatives depends on the quality of leadership and management within the firm. The consequences of continuous productivity improvements include increased firm competitiveness, a growing economy and ultimately sustained national development (refer Figure 8.2.3 APO Graphic below)

26

Figure 8.2.3

Asian Productivity Organisation: Productivity-improving Initiatives

b. General way-forward directions aimed at improving labour market outcomes: i. ii. iii. iv. v. vi.

Concerted strategic long-range political and economic actions needed to propel Jamaica from the periphery of global commerce and towards the centre Transformation of the prevailing business culture to one that supports and encourages continuous improvement in products, services and processes. Growth in employment without a concomitant growth in output is a self-defeating capital destroying tactic. Reduce / eliminate actions that add unproductive workers to the employed labour force ie employment that does not promote added value Policies should be geared towards the adjustment of nominal wages in keeping with adjustments of productivity Productivity-enhancing policies should be developed and implemented to maximize returns in the export-dependent industries Increase efforts to further reduce the importation bill in an effort to slow the growth of inflation; local production as well as the promotion of substituting imported goods with locally produced goods should be increased. This should also help to stabilize the value of the Jamaican currency which in turn will reduce inflationary pressures.

27

8.3 Export Performance

a. Observations i. ii. iii. iv.

v.

vi. vii.

Trade data indicates a constant negative merchandise trade for period 2001 - 2013 Over the same period there was consistent positive services trade Overall the export trade balance (goods and services) for 2001 – 2013 was negative Historically, Jamaican trade predominantly involved the export under non-reciprocal arrangements of primary goods to Europe and other developed countries such as the United States and Canada, and, in turn, importing the majority of the manufactured goods. The goods exported were lucrative when they attracted preferential prices. These preferences, however, have since been eroding. To remain competitive, Jamaican firms must recognize that the critical challenges are to expand the range of goods which are produced for consumption in global markets, to further develop the Jamaican services sector, and to become more innovative, productive and competitive. (ITC 2015; JAMPRO 2011) Increasingly, reliance has been placed on non-traditional exports such as entertainment and fashion, which are products of the copyright-based cultural and creative industries, as significant contributors to economic growth based on demonstrated competitive advantages. A study published in 2007 found that these industries contribute approximately 4.8 % to GDP and 3.0% of all employment (James 2007). In this context, capitalizing on Jamaica’s strong national brand “Brand Jamaica”, maximizing Jamaica’s intellectual property (IP) and strengthening the intellectual property rights protection regime have become critical cross-cutting export strategies. (ITC 2015) A significant contributor to the merchandise trade deficit is the import of petroleum and petro-related goods. Developing countries share of export trade jumped from 24% in 1990 to 41% in 2011 as businesses in developing countries successfully penetrated global markets (Figure 9.3.2). Excluding China, total trade in developing countries quadrupled from US$2.4trillion to $10trillion (1990-2010) as exports from developing economies as a percentage of GDP jumped from 27% to 40% over the same period. (Radelet, 2015)

b. General way-forward directions aimed at improving labour market outcomes: i.

Concerted strategic long-range political and economic actions needed to propel Jamaica from the historic chronic negative trade outcomes.

28

ii.

Develop a strategic dynamic database mining and management capability within GoJ to monitor imports that are substitutable (eg renewables to substitute foreign petroleum products) with a view to engage domestic SME’s to enter these sectors

8.4 Psychic / Cultural Distance a. Observations Jamaica’s DNA has been shaped by a diverse cultural demographic that reflects the richness of the Caribbean cultural fabric. This unique potpourri, formed over centuries, is a blend of African, Indian, Spanish, French, Chinese, Irish, Mediterranean and British influences. This cultural history potentially provides a launching pad for global outreach to various cultures, consumers and markets. An analysis of 68 countries across the globe using Kogut-Singh’s psychic distance model based on Geert Hofstede’s cultural dimensions revealed Hong Kong as the closest country to Jamaica and Guatemala the furthest from Jamaica culturally (Clarke, 2009). The top 16 countries that are closest to Jamaica reveals a diverse mix that may explain the world-wide appeal of Jamaica’s cultural and creative products and services (see Table 8.4 below)

i.

ii.

iii.

Table 8.4: Analysis of Cultural Distance from Jamaica Based on modelling of Geert Hofstede Cultural Dimensions (Kogut & Singh, 1988)

b. General way-forward directions aimed at improving labour market outcomes: i.

Economic products and services that leverage the reach of the cultural DNA of the Jamaican society may provide opportunities for significant contributors to economic growth based on culture-based competitive advantages.

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8.5 Building and preserving Jamaica Dollar US$ Trading Competitiveness a. Observations: i.

ii.

iii.

The pursuit of JA$:US$ trading competitiveness by active devaluation as a macro policy has been employed by the BoJ since 1973 when the JA$ was adjusted to 90 US cents from the previous 70 cents that prevailed in 1971 and 1972; the US being used as a global proxy by virtue of its significant trading relationship with Jamaica. In the 44 year period since (1971– 2015), the JA$ : US$ exchange rate was priced competitively for 17 of those 44 years and priced un-competitively (ie was overvalued) for 24 of the years; being on par for three years. The assumption in the foregoing was that the base year of 1971 was a neutral starting point (BoJ, STATIN, US Bureau of Labour Statistics, IFS Statistics: Figure 8.5.1 in box below). The pattern of execution of forex adjustment reveals inconsistency with periods of aggressive devaluation followed by relaxation back into overvaluation then a corrective cycle of aggressive devaluations.

JA$ : US$ Forex Rate Competitiveness 80%

70%

Fig 8.5.1

60%

Zone of competitively priced JA$

50%

40%

30%

20%

10%

0% 1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

-10%

-20%

Zone of uncompetitiveley price JA$

30

2020

iv. v.

vi.

vii.

viii.

Interestingly the average JA$ over the 44 year period was a mere 0.68%. The longest period of sustained back-to-back competitiveness in the exchange rate pricing occurred over three consecutive years; these were in 1990 – 1992, 1999 2001 and in the current 2013 – 2015 period. Sustained periods of competitive exchange pricing is necessary for the trade advantages of the competitive currency to be most effective; otherwise this effectiveness is lost. The data reveals five multi-year periods where persistent gradual corrections were plowed back (four of five years duration and one of six years) 1974-78; 1980-84; 1986-1991; 1996-2000; and 2010-2013. Plowback tends to generate disruptive disturbances within the society. This volatility makes business planning very challenging and should be stabilized for the long-run The nominal Gross Domestic Product (GDP) in Jamaica was worth 13.89 billion US dollars in 2014. The GDP value of Jamaica represents 0.02 percent of the world economy. GDP in Jamaica averaged 5.51 USD Billion from 1960 until 2014, reaching an all time high of 14.75 USD Billion in 2012 and a record low of 0.70 USD Billion in 1960. (http://www.tradingeconomics.com/jamaica/gdp) Not surprisingly, the pattern of Jamaica USD GDP valuation (Fig 8.5.2) is the inverse of the exchange rate movement (Fig 8.5.1); ie as the exchange rate tends to overvaluation, the GDP value tends to inflate. Figure 8.5.2 Jamaica Nominal GDP Value

ix.

In real terms, the per-captia GDP in PPP (purchasing power parity), the highest per-capita GDP recorded by Jamaica was US$9,047.5 in 2007 and the lowest at $7,390.98 in 1990 (Figure 8.5.3)

b. General way-forward directions aimed at improving labour market outcomes: i.

Price stability (inflation management) and competitive forex pricing are inexorably linked macro-economic variables that are best managed in a consistent manner by a professional, independent, prudent BoJ

31

Figure 8.5.3: Jamaica Per Capita GDP (PPP)

Source: http://www.tradingeconomics.com/jamaica/gdp-per-capita-ppp (based on WB data) ii.

A strategy of consistent maintenance of competitive forex value is preferred to one of regular remedial multi-year plowback. The resulting stabilizing impact on the business environment, generally, and export firms, in particular, would be positive. In order to maintain long-term consistency in the overarching economic policy framework and so avoid the volatility associated with the past decades, A seven person Council of Economic Advisors should be created comprising noted economic specialist experts and representing the government, business, employees, youth, academia, the diaspora and civil society constituencies. This Council would debate and agree the national medium and long-run economic policy framework for the country and so stabilize the medium and long-run planning framework for businesses.

iii.

9. Development of world-class outward-oriented globally-competitive SME’s 9.1 SME Typology a. Observations i. ii.

iii.

According to the MIIC, the classification of SME is as illustrated in Table 9.1 below (MSME & Entrepreneurship Policy, 2014) Competing in the global economy demands that the domestic business firms are significantly improved to operate at global standards. The country will not make any serious progress in achieving growth unless the necessary capacities and capabilities to meet the demands of the global marketplace becomes the norm among and within local businesses (JBDC 2015). The talent in microbusinesses can expect to be compensated in the region of $25k to $33k per month (see Table 9.2) and so are essentially subsistence businesses.

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iv.

Hence, for the purposes of the TIPC mandate, micro-businesses are not being considered as stable businesses with high-growth high-value potential. SME’s may be characterised along several dimensions. For the purposes of this report the focus will be on three: export-oriented vs domestic-focused; start-up vs going-concern; formal vs informal.

Table 9.1.1 Firm Size Micro Small Medium

Employees