The Americas | Jamaica at 50

On your marks, get set…oh

Half a century after Jamaica’s independence from Britain, its economy is struggling to get out of the starting blocks

|KINGSTON

THE world is used to trailing behind Jamaican sprinters. The small island has won a string of world records, and may claim more at the 2012 Olympics. Its economy, however, is not so speedy: on current forecasts it will finish the year with the slowest average growth rate since 2000 in the Americas—behind even earthquake-stricken Haiti. On August 6th Jamaica will celebrate the 50th anniversary of its independence. But the festivities will be muted by frustration with its performance.

The Jamaican economy should by rights be booming. The island is just a 90-minute flight away from the United States, the world’s biggest market, with which it shares a language. It is on the shipping route to the Panama Canal, and has a spacious natural harbour in Kingston. It is politically stable, without the ethnic tensions that have riven other Caribbean nations.

Jamaica has reasons for its plodding growth of late. Tourism, which employs one in ten islanders, has dipped with the world economy. And the market for bauxite and alumina, its main export goods, has been rockier than for other commodities.

However, the country’s economy was stagnant long before the credit crunch. In real terms Jamaicans are no richer today than they were in the early 1970s. And most of the island’s enduring problems, like its public finances, are home-made.

Jamaica has run fiscal deficits in 44 of its 50 years of independence. Few people pay taxes: the middle class is small, the informal economy big, and enforcement chilled-out. Only about 3,000 of the country’s 65,000 registered firms are thought to contribute. The government has steadily dished out waivers to favoured industries: tourism pays an effective tax rate of 5%.

Lacking sufficient revenue, Jamaica has financed public spending by borrowing. Years of accumulated deficits, a bank bail-out in 1995, and punishing interest rates have swollen the national debt to a Greek-style 140% of GDP. Servicing the burden now accounts for over half the budget.

The government has further hurt the economy by unwise intervention. Its tax breaks for imports by hotels have cut local firms out of the supply chain. That has limited job growth, forcing many of the young into lowly tourism posts, such as hawking handicrafts (and hashish) on the beach. “Money goes where money is, and the rest of us stay poor,” says Dee Brown, who punts tourists around the north coast’s Blue Lagoon on a bamboo raft.

The private sector has also been shackled by bureaucracy. Filing taxes requires 72 separate steps and over 400 hours a year, twice as long as in Trinidad and Tobago. Sherry Lue-Fung, who runs a fashion-accessories shop, pays an accountant $400 to do it. Importing her handbags and bracelets can take a whole day at the docks. Manufacturers complain about electricity, which takes three months to get connected and costs five times more than in Trinidad.

Jamaica is due a spurt of growth. One might come from credit. After years of high interest rates, a modest public-debt swap in 2010 cut short-term borrowing costs. That should spur banks to lend and firms to invest, rather than parking cash in government bonds. This year Jamaica approved its first credit reference agency, which should foster the growth of consumer loans.

Portia Simpson-Miller, who became prime minister in January, is cautiously trying to broaden taxation. Despite furious complaints, she extended sales tax last month to various foods including the patty, a venerated island delicacy. The IMF may require the government to end some tax waivers, which jointly reduce revenues by a quarter.

There are tentative signs that security, a big cost to business, may be improving. Many hotels spend over $100,000 a year on guards. The island’s crime problem long seemed insurmountable. But in 2010 Christopher Coke, the leader of Jamaica’s biggest drug gang, was arrested and extradited to the United States. The murder rate then dropped by a third, though it is now creeping up again.

The island will need a political makeover to improve its policies. Both main parties pander to interest groups whose votes are controlled by unsavoury strongmen. Many tame constituencies plump almost unanimously for one party, a voting pattern one foreign diplomat compares to North Korea’s. That means policy proposals have little effect on elections.

Damien King, the head of economics at the University of the West Indies in Kingston, believes that Jamaica’s economy has the potential to reach Chinese growth levels of 8% a year. But unless its politicians start to streamline the bureaucracy, raise more revenues and invest them wisely, that will remain as likely as a Chinese gold medal in the 100-metre sprint.

This article appeared in the The Americas section of the print edition under the headline "On your marks, get set…oh"

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