Wayzata World Factbook 1996

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U.S. DEPARTMENT OF STATE JAMAICA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES BUREAU OF ECONOMIC AND BUSINESS AFFAIRS JAMAICA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/ Income, Production and Employment: Real GDP (1986 base year) 768.7 712.5 546.4 Real GDP Growth Rate 2/ 1.4 1.2 2.0 GDP (at current prices) By Sector: Agriculture/Forestry/Fishing 251.2 320.3 N/A Mining/Quarrying 297.6 277.2 N/A Manufacturing 619.1 703.6 N/A Construction/Installation 407.9 491.5 N/A Retail Trade 745.1 904.3 N/A Transportation/Storage/ Communication 242.7 303.9 N/A Real Estate/Business Services 392 429 N/A Government Services 191.6 360.9 N/A Other 6.7 23.9 N/A Total 3153.9 3814.6 N/A Real GDP Per Capita ($, 1986 base) 314.0 288.2 221.2 Labor Force (000s) 1074.9 1083.0 N/A Unemployment Rate (pct.) 15.7 16.3 N/A Money and Prices: Money Supply (M2) 1209.5 1549.9 1372.8 3/ Commercial Interest Rate 46.4 61.3 65.0 Personal Savings Rate 15-28.8 15-25.0 15-30 Retail Inflation 40.2 30.0 39.0 Wholesale Price Index N/A N/A N/A Consumer Price Index 419.6 546.0 758.9 4/ Exchange Rate (JD/USD) 23.00 25.11 33.40 Balance of Payments and Trade: Total Exports (FOB) 1053.6 1044.5 1200 Exports to U.S. 386.3 379.9 397 Total Imports (CIF) 1775.4 2165.2 2230 Imports from U.S. 943.6 1074.3 1128 AID from U.S. (FY 93, 94, 95) 5/ 50.4 34.6 22.5 AID from Other Countries 6/ 170.1 429.0 N/A External Public Debt 3678.0 3647.2 3608.0 7/ Debt Service Payments (actual) 637.9 542.1 539.9 Net Official Reserves (Dec.) -50.7 70.8 194.8 8/ Trade Balance -721.8 -1120.7 -1030.0 Trade Balance with U.S. -557.3 -694.4 -731.2 N/A--Not available 1/ Projected. 2/ Growth rate is based on Jamaican dollars whereas real GDP is shown in U.S. dollars. 3/ Figure is based on January-June data. 4/ Fiscal year ending December. 5/ FY '95 does not include military assistance. 6/ Commitments from Jamaica's cooperation partners. 7/ Figure is based on January-May data. 8/ Figure is based on January-June data. 1. General Policy Framework Economic Structure: Jamaica is an import-oriented economy with imports of goods and services accounting for two-thirds of GDP. Tourism and the bauxite/alumina industry are the two major pillars sustaining the economy. In 1993 these two industries accounted for about 77 percent (USD 1535.9 million) of the country's foreign exchange earnings. Hence, both GDP and foreign exchange inflows are extremely sensitive to external economic factors. Agriculture employs 24 percent of the workforce, and contributes about eight percent of GDP. The relatively small size of the Jamaican economy, and relatively high costs of production (e.g., interest rates) has reduced the contribution of the manufacturing sector over the last several years to about 18 percent in 1993. However, the Government of Jamaica has made some progress in promoting investment in certain nontraditional export-oriented manufacturing enterprises (especially the garment industry) in the last few years. About 56 percent of Jamaica's work force is employed in the services sector, contributing 59 percent of GDP. Economic Policies: The Jamaican economy grew by 1.2 percent in 1993, following a growth of 1.4 percent in 1992. The pace of economic growth thus far in 1994 has been modest due to tight monetary and fiscal policies. However, continued high inflation (arising from wage increases, high interest rates, and drought during the latter part of the year, among other factors) has led to declining real incomes for the majority of the population. The government has reduced public sector operations through privatization of certain public entities. To date, about 29 entities have been divested and the government is seeking to divest some 78 entities in the next few years to increase economic efficiency. Under the Common External Tariff, the tariff rate is to be phased down from the current 5-30 percent to 5-20 percent by 1998. Fiscal Policy: The Jamaican fiscal year (JFY) 1994/95 budget calls for Jamaican dollars (JD) 55.2 billion in outlays, an increase of 27.2 percent over the previous fiscal year's budget, but will be about 10 percent lower in real terms given the 37.1 percent inflation rate in JFY 93/94. The present budget reflects a tight budgetary situation with only 38 percent of the outlay directed to meet the economic development and social needs of the country. The other 62 percent will be used for debt servicing costs (49 percent), Bank of Jamaica losses (3.5 percent), and government employee compensation (8.5 percent). The government hopes to finance the budget through an expected total revenue of JD 39.9 billion through recurrent, capital revenue, and the capital development fund. The balance is proposed to be financed from external debt (44.7 percent of total deficit) and internal debt (55.3 percent). Furthermore, in order to ease the pressure for foreign exchange and to reduce inflation to the target of one percent per month for FY 94/95, the government has increased the issue of local registered stocks, treasury bills and certificates of deposit (offering high interest rates) to mop up excess liquidity. In the past, the Bank of Jamaica's open market operations were a means by which the Government of Jamaica funded its fiscal deficit. The current budget, however, is a departure from the recent practice of reliance on massive central bank assistance. Monetary Policy: The Bank of Jamaica (BOJ) continued to reduce spending demand by issuing long term securities (Local Registered Stock, short-term certificates of deposit (CDs), and T-bills) at very high interest rates (varying from 52 percent in January 1994 to 37.5 percent in October 1994). These increases in deposit yields were transmitted through the financial system and had the effect of raising commercial bank lending rates as high as 65 percent in September 1994. Interest payments on the maturing securities have served to increase liquidity, necessitating additional security offerings. Funds acquired by the BOJ through issuance of CDs were generally borrowed by the government and used to finance current expenditures. It is contemplated that the BOJ will reduce its reliance on CDs as an instrument for mopping up excess liquidity in the future. The BOJ has increased the ceiling on treasury bills recently from JD 7.5 billion to JD 12 billion. Other instruments used by the government to control aggregate demand and stabilize the exchange rate include the reserve requirements of financial institutions (50 percent), and issuing a USD 12.5 million bond (the first such issuance was in September 1993 for USD 20 million). The Bank of Jamaica achieved a positive stock of net international reserves (NIR) by the end of 1993 for the first time since the mid 1970's. The NIR has remained positive through 1994 and has reached the level of USD 316.4 million as of July 1994. 2. Exchange Rate Policy On September 26, 1991, exchange controls were eliminated to allow for free competition on the foreign exchange market. The principal remaining restriction is that foreign exchange transactions must be effected through an authorized dealer. Licenses are regulated. Any company or person required to make payments to the government by agreement or law (such as the levy and royalty due on bauxite) will continue to make such payments directly to the BOJ. There is also a requirement that 20 percent of foreign exchange purchases by authorized dealers must be paid directly to the BOJ. This represents a significant reduction from the earlier requirement, lifted in July 1994, for 28 percent of foreign exchange purchases to go to the BOJ. A requirement that 25 percent of foreign exchange purchases go to Petrojam (the government monopoly for imports of petroleum) is still in effect but is not fully utilized given the availability of foreign exchange in the system. When Petrojam is privatized, this requirement will, of course, be terminated completely. With the increased use of foreign currency by importers and other earners of foreign exchange, together with the decline in official inflows, the Jamaican dollar lost ground by 47 percent in December 1993 over December 1992. In an effort to increase the official inflows of foreign exchange, the government introduced and increased the number of cambios as authorized dealers in April 1994. To date, 116 licenses have been issued, although only 46 are in operation. This increase in authorized dealers, along with high interest rates offered on the government securities, has had a positive impact on the inflows of foreign exchange. For the period January-September 1994, foreign exchange inflow into the official trading market increased remarkably by 93.5 percent over the corresponding period in 1993 to USD 996.6 million. The weighted average selling rate of one U.S. dollar was JD 33.45 in September 1994. If this positive trend continues, U.S. exports to Jamaica are likely to increase. 3. Structural Policies Pricing Policies: Prices are generally determined by free market forces. However, prices of certain items such as domestic kerosene and bus fares are subject to price controls. Prices of these items can only be changed by ministerial approval. In addition, the margins of motor vehicle dealers is restricted to 12.5 percent of CIF plus customs duty on motor vehicles, and between 12.5 to 20 percent on motor vehicle parts. The Fair Competition Act was introduced in 1993 to create an environment of free and fair competition and to provide consumer protection. Tax Policies: Taxation accounts for 90 percent of total recurrent and capital revenue. Tax revenue includes: personal income tax (38 percent of tax revenue), value-added tax (29 percent), and import duties (12 percent). Although no new taxes have been imposed so far during FY 94/95, the government proposes to raise additional revenue of about JD 723 million through increases in the ad valorem tax on petroleum products, the departure tax, and the general consumption tax on purchases of motor vehicles. Given the increase in the national minimum wage from JD 300 to JD 500 per 40 hour workweek effective July 1994, the income tax threshold was raised from JD 18,408 to JD 22,464 effective January 1994 and will be increased to JD 35,568 effective January 1995. Jamaica implemented the Caribbean Economic Community (Caricom) Common External Tariff (CET) on February 15, 1991 in order to enhance the region's international competitiveness. Under the CET, goods produced in Caricom states are not subject to import duty. Third-country imports are presently subject to import duties ranging between 5 percent and 30 percent, with higher rates applicable to certain agricultural items, "non-basic" and finished goods. The tariff rate is to be phased down to 5 to 20 percent by 1998. The Government of Jamaica offers incentives to approved foreign investors, including income-tax holidays and duty-free importation of capital goods and raw materials. The United States and Jamaica signed a bilateral investment treaty in early 1994. Regulatory Policies: All monopoly rights of the state Jamaica Commodity Trading Company (JCTC) ceased December 31, 1991, but it retains responsibility for concessionary sales such as PL-480. The U.S. Embassy is unaware of any government regulatory policy that would have a significant discriminatory or adverse impact on U.S. exports. 4. Debt Management Policies Jamaica's stock of external debt fell to JD 3.65 billion in 1993, the lowest since 1986. The average annual decline over the past three years has been 4.2 percent. Cancellation by official bilateral creditors, conversions on commercial bank debt, debt servicing, and reduction in contracting new loans contributed to this debt reduction. Half of the public debt is owed to bilateral donors (the United States is the largest bilateral creditor), 35 percent to multilateral institutions, 9 percent to commercial banks, and 6 percent to other entities. Actual debt servicing during 1993 accounted for 22.6 percent (USD 637.9 million), of which 8.42 percent represents interest payments. The debt service burden in 1993 was lower than for any year since 1984. The ratio of total outstanding debt to exports of goods and services declined from 156.3 percent in 1992 to 150.59 percent in 1993 due mainly to debt reduction and improvement in exports. Although the debt per capita improved by 14.6 percent to USD 1,475 over the last four years, debt servicing continues to be a major burden on the government budget (49 percent). Jamaica passed the June IMF test for its Structural Adjustment Program. The current IMF agreement is expected to be Jamaica's last. Jamaica negotiated a new Multi-Year Rescheduling Arrangement (MYRA) with the Paris Club of OECD creditor countries and agencies in 1992. The MYRA provides for rescheduling of USD 281.2 million of principal and interest for the period October 1992 to September 1995. Under the debt conversion program (reducing foreign commercial debt), about 30 percent or USD 119.4 million of outstanding commercial debt has been converted over the last five years. 5. Significant Barriers to U.S. Exports Government Procurement Practices: Government procurement is generally effected through open tenders. U.S. firms are eligible to bid. The range of manufactured goods produced locally is relatively small, so instances of foreign goods competing with domestic manufacturers are very few. Customs Procedures: Due to the efforts of the Government of Jamaica, customs procedures are being improved and streamlined. In order to facilitate the movement of goods, the government has simplified the documentation and clearance requirements for exporters. Computerization of the entire system is underway. 6. Export Subsidies Policies The Export Industry Encouragement Act allows approved export manufacturers access to duty-free imported raw materials and capital goods for a maximum of ten years. Other benefits are available from the Jamaican Government's EX-IM Bank, including access to preferential financing through the Export Development Fund, lines of credit, and export credit insurance. Jamaica does not adhere to the GATT subsidies code. 7. Protection of U.S. Intellectual Property Jamaica is a member of the World Intellectual Property Organization (WIPO) and respects intellectual property rights. The Jamaican Constitution guarantees property rights and has enacted legislation to protect and facilitate acquisition and disposition of all property rights, including intellectual property. Jamaica is a member of the Bern Convention (copyright) and intends to adhere to the Paris Convention for the Protection of Industrial Property (i.e., patents and trademarks). The Government of Jamaica and the Government of the United States signed a bilateral Intellectual Property Rights Agreement in March, 1994. The U.S. Embassy is not aware of any complaint concerning the protection of intellectual property in Jamaica. Patents: There are plans to modernize the patents, trademarks, and designs legislation. Under the present regulations, patent rights in Jamaica are granted for a period of 14 years with the provision of extension for another seven years. The "novelty test" contained in the Jamaican patent law, however, limits the definition of "novelty of invention" to that which is novel in Jamaica, without reference to the novelty of the invention abroad. Further, patents granted in Jamaica shall not continue in force after the expiration of the patent granted elsewhere. The periods of examination are long; it can take years for a patent to be issued. Copyrights: The Jamaican Senate passed the Copyright Act in February 1993 which entered into force September 1, 1993. The Act adheres to the principles of the Bern Convention and covers a wide range of works, including books, music, broadcasts, computer programs and databases. New Technologies: There is no statute with regard to new technologies. Jamaica follows common law principles as established in England. Breaches of such laws can result in either injunction or suit for damages. Impact on U.S. Trade: Piracy of broadcasts and pre-recorded video cassettes for distribution in the domestic and regional market is widespread. Video stores import a large number of copyrighted motion pictures and television programs each year. However, a draft policy paper on cable television was tabled in parliament in February 1994 which identified 100 unauthorized cable systems involving investment in Jamaica valued at between JD 20-40 million. The government is presently examining submissions from the public before it decides on the final licensing regime for the legal operation of cable television. 8. Worker Rights a. The Right of Association The Jamaican Constitution guarantees the rights of assembly and association, freedom of speech, and protection of private property. These rights are widely observed. b. The Right to Organize and Bargain Collectively Article 23 of the Jamaican Constitution guarantees the right to form, join and belong to trade unions. This right is freely exercised. Collective bargaining is widely used as a means of settling disputes. The Labor Relations and Industrial Disputes Act (LRIDA) codifies regulations on worker rights. About 15 percent of the work force is unionized, and unions play an important economic and political role in Jamaican affairs. In the Kingston Free Zone, none of the 18 factories are unionized. Jamaica's largest unions, including the National Workers' Union, have been unable to organize workers in the Free Zone. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is not practiced. Jamaica is a party to the relevant ILO conventions. d. Minimum Age for Employment of Children The Juvenile Act prohibits child labor, defined as the employment of children under the age of twelve, except by parents or guardians in domestic, agricultural, or horticultural work. While children are observed peddling goods and services, the practice of child labor is not widespread. e. Acceptable Conditions of Work A 40-hour week with 8-hour days is standard, with overtime and holiday pay at time-and-a-half and double time, respectively. Jamaican law requires all factories to be registered, inspected and approved by the Ministry of Labor. Inspections, however, are limited by scarce resources and a narrow legal definition of "factory." f. Rights in Sectors With U.S. Investment: U.S. investment in Jamaica is concentrated in the bauxite/alumina industry, petroleum products marketing, food and related products, light manufacturing (mainly in-bond apparel assembly), banking, tourism, data processing, and office machine sales and distribution. Worker rights are respected in these sectors, and most of the firms involved are unionized with the important exception of the garment assembly firms. No garment assembly firms in the free zones are unionized and only one firm outside the free zones is unionized. There have been no reports of U.S.-related firms abridging standards of acceptable working conditions. Wages in U.S.-owned companies generally exceed the industry average. Extent of U.S. Investment in Selected Industries.--U.S. Direct Investment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category Amount Petroleum (1) Total Manufacturing 168 Food & Kindred Products 0 Chemicals and Allied Products 157 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 11 Wholesale Trade (1) Banking (1) Finance/Insurance/Real Estate 8 Services 20 Other Industries (1) TOTAL ALL INDUSTRIES 1,077 (1) Suppressed to avoid disclosing data of individual companies Source: U.S. Department of Commerce, Bureau of Economic Analysis (###)