The Industrial Composition of Economic Growth
In planning for accelerated economic growth, it is imperative to begin from an understanding of the industrial composition of the economy and current trends and challenges in performance. Even in a relatively small economy such as Jamaica's, economic activity comprises a multiplicity of activities and processes, all of which have to be considered in accelerating and sustaining stronger economic growth.
It is worthy of note that the goods-producing industry (including agriculture, manufacturing and mining) has contributed below 25 per cent of gross domestic product (GDP) in basic values at constant prices from 2011 to 2015. In parallel, the services industry (including Government, real estate, hotels and restaurants, merchandising and real estate) consistently contributed above 75 per cent.
From the goods-producing industry, agriculture, forestry and fishing have been contributing under 7.0 per cent of the real economy, while manufacturing contributes under 9.0 per cent and mining and quarrying, under 2.5 per cent. From the services industry, wholesale and retail trade, repair and installation of machinery have been the largest contributor at between 17.6 per cent and 17.9 per cent of real value added. The second largest contributor has been government services, which has remained static at about 13 per cent, while hotels and restaurants, sometimes used as a proxy for tourism, has approximated 6 per cent. It is to be emphasised, however, that tourism is not explicit as such in Jamaica's standard national income accounts. Including aspects of transportation, entertainment and recreation, tourism is recorded by STATIN as contributing about 10 per cent of total value added.
Jamaica has evolved from being a goods-producing economy to a services-dominant economy. After the shocks from the 2008-09 international financial meltdown and great economic recession, and following a sequence of adverse weather events, Jamaica has, over the last six consecutive quarters, recorded growth relative to the corresponding quarters of the previous year. Annual growth rates approximating 1 per cent have, however, been disappointing.
Production industry stronger
Despite Jamaica having become largely a services economy, the goods-producing industry in recent years and quarters have had stronger growth. For the years 2011 to 2014, goods, led by agriculture forestry and fishing, grew by an average of 0.3 per cent, while the services industry, despite hotels and restaurants averaging annual growth of 2 per cent, contracted at an average annual rate of 0.3 per cent. For 2015, the economy grew by 1 per cent, with goods growing faster than services. For the quarter April to June 2016, the Planning Institute of Jamaica's preliminary estimate for goods was 2.3 per cent, while that of services was 0.8 per cent.
While Jamaica is challenged to compete in low-tech, mass primary agriculture and manufactured commodity production (semi-refined sugar, bananas, garments), opportunity beckons in increasing added value in production for speciality export markets. Agriculture, in particular, offers opportunity for increasing domestic value added, especially in expanding linkages with food processing, beverage production, tourism and export niche markets. The imperative for robust and predictable supply points to irrigation, farm and marketing infrastructure, technology, marketing and the conditions under which production is generated.
Mining has potential to contribute, and this should be pursued. As a mature industry with its low share of GDP, the longer-term potential to sustain stronger aggregate economic growth is uncertain. Its contribution can be enhanced by more attention to potential outside of the bauxite/alumina mainstream. Construction is largely derived from the growth potential of other sectors, but can be enhanced by concerted efforts to expand residential housing.
Within services, buoyancy in electricity, water, telecommunications and wholesale and retail are signs of quickening economic activity. The need to increase linkages with agriculture and manufacturing is necessary to increase the domestic retention of the tourist dollar. Large forthcoming resort investments promise increased earnings, but planning has to be consistent with the social and environmental needs of the country and economy. Despite significant domestic and external investment in business process outsourcing (BPO), real estate and business services have only been growing at about 0.5 per cent per annum. BPO requires a quantitative and qualitative leap to realise its potential.
The relative shares of services and goods (3:1) mean that goods have to grow three times as fast as services to make the same contribution. As Jamaica pursues its potential in agriculture, food processing, mining and manufacturing, services remains a sleeping giant that needs to be awakened.
Colin F. Bullock is an economist and the former head of the Planning Institute of Jamaica.