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Budget Debate Presentation to Parliament Hon. Karl Samuda, MP

Release Date: 
Wednesday, May 30, 2012 - 10:30

Building on a platform for growth … moving Jamaica Forward

Table Of Contents

PREAMBLE & PLEASANTRIES
EXAGGERATION BY MOF
CHALLENGES
TRADE
EXPORTS & INVESTMENTS
NATIONAL EXPORT STRATEGY
COMPETITIVENESS
INCENTIVES
TOURISM
AGRICULTURE
AGRICULTURAL EXPORTS
ICT:
CAYMANAS ECONOMIC ZONE
MANUFACTURING
JAMCO
JDIP/JEEP
JUTA
TAX RECOMMENDATIONS

Preamble & Pleasantries

Let me begin my presentation in this honourable House by congratulating Speaker Michael Pearl on his elevation to the Speaker’s chair. In your previous appointment you exhibited a sense of balance and desire for maintenance of good order in conducting the affairs of our Parliament.

It is with pride and humility that I pause to note that this is my 32’ consecutive participation in a budget exercise. During this time, I have served Parliament with seven (7) Prime Ministers and represented not only the Jamaica Labour Party (JLP) and the Peoples National Party (PNP) but spoke as an Independent member in 1991.

This, Mr. Speaker, would not have been possible without the loyal support and commitment of my constituents and family. My wife Pauline is here today. She has been by my side in politics for the past 37 years. In addition my three sons are an integral part of the some have called the Samuda dynasty of North Central St. Andrew.

I thank my Team from the bottom of my heart for the loyalty and love that they have shown me and my family over these many years. I also want to acknowledge and pay tribute to my two Councilors: Miss Susan Senior and Mr. Lee Clarke, former Mayor of the KSAC. Lee is one of the longest serving Councilors in history of Jamaica, having given continuous/unbroken service to the people of North Central St. Andrew for 31 years.

The last time I rose to speak in a Sectoral Debate I had responsibility for the Ministry of Industry, Investment & Commerce (MIIC) a portfolio now held by the member from Western St. Andrew. In that presentation I focused on those aspects of my portfolio that are pivotal to growth, employment and development. In particular,

    The need to create an enabling business environment;
    The promotion of local and foreign direct investments to generate hard currency earnings and create jobs;
    The need to grow the micro, small and medium-sized enterprise (MSME) sector into the big businesses of tomorrow;
    And the Infusion of science, technology and innovation in new entrepreneurial ventures;

As the then head of the “business ministry”, I spearheaded the implementation of a number of key strategies to chart the course forward. I am pleased to note that my colleague in the house and ‘successor’ has found it fit to continue with some of these initiatives and to build on a platform poised for growth.

Specifically, I applaud the Government’s decision to:

1. Continue the work of the National Competitiveness Council which puts all the mechanisms pertaining to national competitiveness under one umbrella. Thereby providing a single point of reference and support for the various initiatives necessary to Create an Enabling Business Environment

 

2. The continuation of work to Streamline the Business Registration System via improvements at the Companies office of Jamaica, and the creation of a one stop shop at MIIC

3. To champion the protection of Brand Jamaica; promoting Innovation in Business and assisting with the creation of an enabling business environment through the protection of Intellectual Property. This is highlighted in the Ministers legislative programme for FY 2012/2013

4. The prioritization of the development of micro, small and medium sized enterprises — addressing once again the need for capital through the provision of funds by DBJ and work on the Credit Bureau and Collateral Registry

5. And finally on the embracing on championing of the vision to make Jamaica the logistics Capital/hub of the Caribbean by facilitation projects such as the Caymanas Economic Zone (CEZ) and Vernamfield Field Development
New Team

On December 29, 2011 the people chose a new team to lead the country and we must all respect that. This has resulted in a Parliament with a mixture of personalities, demographics, gender and experience. Some are
fairly inexperienced in this business of Governance to which they have been called, others are steeped in the process — too steeped some may argue.

In the past others entering the House for the first time have had the benefit of a reasonable timeframe to hone their Parliamentary skills. This is not the case today. The learning curve, as many of you have begun to experience, is steep and sharp; requiring agility, dexterity and collaboration.

I am therefore pleased to note the sense of decorum which has thus far emerged in this Parliament which will go a-long way to foster the cooperation necessary for us to move the country forward. May it continue to improve and in so doing generate the respect and dignity that should attended this forum.

Exaggeration by MOF

But more than that, I cannot agree with the Minister of Finance when he suggests that the present situation is of unprecedented crisis proportions. This is simply not so.

Indeed, our present ratio of debt to GDP is not nearly as bad as it has been in former years. In addition, most of the vital economic indicators are showing positive movement:

• The economy has returned to a growth path, all be it modestly so
• Exports have begun to climb again — Traditional & Non-traditional

(Unfortunately imports are also climbing too fast (US$856.3 million on mineral fuels because of rise in crude oil prices of 20%, but I will return to that

• Real Per Capita GDP is moving up

• Inflation is at a six year low — 6-7% - Causing the National Planning Institute to declare:

“Low interest rates, stable inflation and exchange rates are expected to facilitate improvements in demand, auguring wellfor higher production of goods and services.”

    Commercial interest rates are falling — 18%
    Treasury bill rates are at a 10 year low of 6.5%
    The Stock Market Index is showing positive movement — 4.4%
    Recurrent revenues are at a over 6 year high - $311 .9b
    Visitor arrivals are at a over six year high and FE earnings from tourism are at the highest levels in years • Our murder rate is down considerably
    Manufacturing: traditional and non-traditional is showing growth again @ 14%
    Agriculture, Forestry & Fishing is growing and
    Mining & quarrying is growing
    Exports of domestic crops are practically all showing positive growth (eg)

Challenges

Mr. Speaker, in the journey to make our economy more efficient, competitive and business-friendly, we have made significant achievements as a nation, but there is still a long way to go to reach our destination.

The obstacles remain the same:

Excessive bureaucracy: This threatens to choke the lifeblood out of our businesses because of frustration, loss of time and money.

    Access to capital continues to be a major constraint facing our entrepreneurs, large and small
    High energy cost, continues to be a major cost of doing business in Jamaica; and of course there is also the
    high cost of security.

Jamaica is at a crucial time requiring critical policy decisions devoid of all other considerations save those in the best interest of the national seeking to have sustainable development.

This is not the time for point scoring of self aggrandizement. It is crucial that all of us understand the challenges that confront Jamaica land we love.

For emphasis I will repeat some of them:

Trade

To get a bit technical for a moment Mr. Speaker, our visible trade balance is in total disequilibrium.

Our merchandise trade deficit at the end of calendar year 2011 stood at the just under US $ 5 Billion.

This represents an increase of 29.6% or US $1B when compared to the similar period in 2010 using data from STATIN.

In other words the difference, between what we import and export is more than two and a half times our total exports (256%).

This makes it very difficult for the service sectors and others to make up the difference and avoid placing pressure on our Net International Reserves.

The result is a devastating impact on our Current Account in the Balance of Payments. As at December 31, 2011 our Current Account was US $1,134.9 in deficit --- a decline of 121.5% over the previous year

This is unsustainable.

Exports & Investments

Our exports are not keeping pace with increases in imports, Producers for export need incentives to re-tool, refurbish and introduce new and appropriate technology. Instead these incentives are being removed and the cost of doing business are increasing.

National Export Strategy

The NES Roadmap, which was completed in 2009,should continue to be implemented. It is well recognized that growing our exports will require new markets but must also include the nurturing and encouraging of new exporters.

This is a role outlined in the JAMPRO Act and operationally JAMPRO has tried to discharge this responsibility by facilitating technical assistance, access to financing, facilitation of business linkages, coordinating of cluster and sector initiatives, stakeholder partnerships and ongoing client interface with the export clientele.

I am disappointed with the budgetary allocation to JAMPRO which does not support this fundamental responsibility

Competitiveness

    This goes hand in hand with export earnings.
    We are operating with one hand tied behind because of the entrapment of high energy costs.
    We will never be able to compete anywhere in this environment
    The Trade imbalance with Trinidad has to be addressed. We support strong action if they refuse to come to the table to talk a better deal on energy
    Caricom must mean sharing
    natural endowment notwithstanding
    Now is the time to decide about the future of Caricom in the context of reciprocal trade.
    T & T cannot expect to maintain a surplus with Jamaica of US $661 B while it frustrates our exporters and invest in the development of pipelines to Barbados and the Eastern Caribbean, to supply gas on a preferential basis
    We should not support the notion of Caricom forever. It must be Caricom for as long as it satisfies Jamaica
    There can be no relationship, at least not a healthy one, without reciprocity

Incentives

We cannot support the removal of incentives for the productive sectors — agriculture, manufacturing and tourism in particular.

We therefore urge that the pace at which the promised omnibus legislation is completed is accelerated. Three years is simply too long to wait.

The existing system is fraught with frustration and uncertainty

Tourism
How long is it going to take us to truly understand the dynamics of the Tourism sector?

Look at the Balance of Payments figures and understand the significance of Tourism as an export sector

Travel provided US $1 .8B direct inflows for calendar year ended December 2011.

Larger than all other exports combined

I warn you here today Minister.., the creation of further disincentives to the sector will result in dire consequences for our economic recovery.

Imagine Montego Bay, Falmouth &Ocho Rios without visitors

Imagine the impact on restaurant, taxies, entertainment, gift shops, retail and wSmall hotels cannot keep fresh and attractive

In many instances the quality of our product has deteriorated resulting in discounted prices.

No high end franchises in Jamaica... the Ritz in financial trouble,,, discounting rooms to get occupancy

Breakeven cost rising therefore occupancy levels crucial

International competition through social media not one-on-one dissatisfied guest interactions

Agriculture

    Total land in farming is over 350 hectares of which only about 200k is active
    Crops over 150K; pastures just under 50K
    Inactive farmlands= 100 hectares

Agricultural Exports

    A solid platform has been created on which to build
    Almost every non-traditional exported domestic crop showed improvement 2011 over 2010
    The sector will require sustained effort to reach its full potential. The new/old Minister of Agriculture must increase the number of extension officers.
    They should be made to be more proactive. Visit farms more frequently and wait to be invited
    I am discouraged to see that the budget for RADA has been reduced, but heartened by increases in other areas.
    More Science and technology must be introduced to agricultural processes to increase production.
    Farming should be approached and organized from the Village level; matching idle lands with water and idle human resources.
    Minister, you need to undertake a comprehensive review of human and physical resources presently available to Agriculture.
    There should be Support for communities/villages with area specific training programs and exposing the framers to computers and the establishment of e-marketing mechanisms. (from donkey to Jeep then computer)
    Despite everything the government has inherited very positive trade in exports of domestic crops agricultural produce in 2011 when compared to 2008. You must now build on this **

ICT:
Mr. Speaker, we have attracted quality lCT investments to Jamaica.

Worldwide, spending in the business process outsourcing (BPO) side of the ICT business amounted to approximately $460 billion in 2007, and rose to $ 680 billion in 2011.

Jamaica, and in particular, the fair city of Montego Bay is a blue-chip ICT investment destination.

About two years ago, JAMPRO executed a strategy of employing market brokers (industry experts) based in our key lCT target markets (USA, Canada, India) to sell our services and broker hard currency deals.

We refocused on capacity building in the local BPO sector by working directly with existing Call Centre operators to expand the number of seats and agents they employ.

We focused on linkages, that is, the spin-off employment opportunities from out ICT investment, looking at how Jamaican builders, telecom companies, lawyers, real estate companies, trainers etc could benefit from this sector.

The approach bore fruit adding over jobs in the ICT sector and realized capital expenditure in 2008 of US $257M .

I am pleased that the Minister of National Security has moved to boldly to address the lotto scam issues which threatens Jamaica piece of the ICT pie. We stand ready to assist in this effort.

The availability of ready to use space continues to limit our possibilities of attracting big players to Jamaica.

The overwhelming imperative/thrust for 2012/2013 must be the development of ICT ready space using the public-private partnership model or negotiating directly with specific investors.

In addition there is a level of strangulating bureaucracy that continues to plague Jamaica at every level. This has served to discourage local and foreign investors from making the type of investments we desperately need.

I give by way of examples two cases:

Portmore Project

Two years ago, the Factories Corporation of Jamaica, despite having successfully executed a tender for technical services to construct 100,000 sq ft of ICT space in Portmore could not get the project off the ground because of bureaucracy. There is still no action taken to relieve this desperate shortage costing us hundreds of jobs.

This apparently compelling urge by some to frustrate business through a process of fear and intimidation of exposure of unfounded allegations of impropriety, serves only to turn off investors and damage our chances to grow and develop our economy.

In Montego Bay, (The MBZ) having completed designs and identified funding to construct another 100,000 sq. ft facility nothing has moved forward because of conflicting priorities between two powerful Agencies of Government. Her again negotiations with the private sector on Private - PublicSector Partnership(PPPs) stalled because of unnecessary bureaucracy.

Caymanas Economic Zone

Mr. Speaker, last year, I shared with the House the vision for the Caymanas Economic Zone, an initiative which has the potential to generate up to 10,000 jobs when implemented. The Ministry sought to pursuing a two-pronged approach to the development of CEZ.

    The first prong comprises a logistics hub and manufacturing facilities on the southern-side of the Mandela Highway consisting of between 1,000 and 1,500 acres.
    This phase was led by the private sector, and to that end, the Ministry of Investment, Industry and Commerce signed a Memorandum of Understanding on behalf of the Government of Jamaica with an international company on August 25, 2009.
    The Company held discussions with strategic partners in China, Hong Kong and South-east Asia. Their efforts have resulted in the identification and commitment of an anchor tenant for the Caymanas Economic Zone.
    The negotiations went as far a the preparation of a Term Sheet outlining the full scope and nature of the project, including the Port of Kingston.
    We were not able to proceed with the deal due to issues concerning the divestment of the Port of Kingston which was critical to the functionality of the CEZ as the project called for the construction of a flyover bridge from the Port to the Caymanas lands thus facilitating easy flow of cargo to and from the CEZ.

Mr. Speaker, the second prong of the CEZ Initiative was to have been Government driven and involved the development of a total of 500 acres on the northern side of the Mandela Highway, to be developed in two phases.

    Included in the first phase was the subdivision of 200 acres into commercial lots to be offered to local investors. To be included also were central service areas and the construction of a 100000 ICT facility.
    This entire facility was to have been funded through the sale of the lots and other identified resources from Factories Corporation.
    There was overwhelming response by our local Private Sector to the plan and based on the August 2009 press advertisements inviting ‘expressions of interest’ the parcels allocated were oversubscribed.
    But again the agents of bureaucracy were not to be outdone. My understanding is that to this day NEPA has not finalized their work.
    Minister of Industry, Investment & Commerce, I urge you to pursue this initiative to build a zero emission industrial park on the Caymanas lands now owned by Factories Corporation of Jamaica, and in this regard I wish you good luck.

It is for these reason that I, having fought against these challenges, support wholeheartedly the member from Southern St. Andrew, who now bears responsibility for the Ministry of Transportation in his efforts to bring the announced investments to fruition.

I urge the Ministers of Transportation & Works, Mining & Energy and Industry to expand the list of projects being fast-tracked to include ICT and manufacturing spaces.

The ICT sector now has a new challenge – TAXATION

The new measures announced by the Minister of Finance will be punitive to the ICT/BPO Industry.

An industry which, bases its value proposition on low cost inputs and high skilled labour.

The imposition of these taxes must be considered in the context of the existing 25% GCT rate applied to the industry and the fact that the industry will continue to be taxed at the highest corporate tax rate (33.3%) which undoubtedly makes telecommunication the most taxed industry in the country.

The telecommunication industry is a platform for innovation – one of Jamaica’s few success stories in the past 11 years
– Like Tourism, are we not killing the goose that laid the golden egg?

- Are we not jeopardizing the future developments of ICT parks such as CEZ

Manufacturing

Mr. Speaker, my support and advocacy of the local manufacturing industry is well known in this House. I remain an unrepentant believer in the ability of this sector to grow, expand and provide this country with the wherewithal to produce our way out of debt and poverty.

The development of the productive sectors are however being stymied by the costs of electricity which has just been increased by the movement in the rate of GCT. I urge the Minister of finance to revisit this movement and consider the impact to a sector which is a key prong to growth of this nation and the creation of jobs.

I support Minister Paulwell in his bid to revisit the arrangement with JPS Co. JPS must be made to understand that they must take a stake not only in the company but in the country.

JAMCO

In 2010, a decision was taken to re-establish the Jamaica Marketing Company Limited (JAMCO), with a view to assisting Jamaican firms to expand exports, in particular, non-traditional exports, through the creation of more distribution channels.

JAMCO was to facilitate and assist small Jamaican exporters to penetrate non-traditional export markets abroad, beginning with the UK. If successful, the company could expand its operations into other European countries, in order to take advantage of the opportunities afforded Jamaica under the CARl FORUM/EU Economic Partnership Agreement (EPA).

There is no item in the budget for this. How can we be serious about growing Jamaica out of debt when we cut the financial support to programmes designed and entities responsible to drive exports?

In moving forward, therefore, we must:

  • Continue our efforts to remove the barriers to competitiveness and growth in this country.
  • Excessive bureaucracy must no longer continue to overshadow our business environment.
  • Renew and expand our focus on the export trade, with more sustained supplies and the development of more value-added products.
  • We must continue to strengthen our investment promotion and trade facilitation capabilities and maintain our targeted approach to foreign direct investments, with job creation being a major objective.
  • Our micro, small and medium sized entrepreneurs and potential entrepreneurs must be support every step of the way not only in terms of access to funding but also in terms of business development support, and through the creation of an environment that makes it easy and affordable to start a business in Jamaica. Again, job creation must be a centerpiece of MSME development in Jamaica.
  • All of us must work together to build this country — Government, Opposition, church, private sector — one country, one people, one common goal. We must play our role in creating a society in which all Jamaicans are empowered to achieve their fullest potential, in keeping with the objective of the Vision 2030 National Development Plan.

JDIP/JEEP

  • Must be a mix of productive jobs
  • Focus on identified priorities – Agriculture – training
  • Set aside an allocation in the Ministry of Transport and Works to underwrite the cost of a major training operation at the level of villages throughout the country.
  • Funds should also be identified to clear idle rural lands with access to water and prepare for farming activities.
  • Train rural youth in the use of computers and give them access to the internet which should be used to engage in e-marketing.
  • Focus also on inner-city and farm roads.
  • Concentrate JEEP funding on developing social and business infrastructure at the community level.
  • Engage in a comprehensive maintenance (pothole) program

JUTA

Sympathy to family of boy killed in crash
Emphasises the need for training of the Transport Authority’s team in the discharge of their responsibilities
Insolvent
Political will necessary to turn around
No feeding tree
Tax Recommendations

Do not reduce CIT to 25% on unregulated companies. Possibly only those involved in production for export and training. Take this money and put back animal feeds, Rolled oats, planting materials and raw foodstuff

Roll back increases in licensing fees and other fees on commercial vehicles at least

Remove tax on condensed milk: the farmer is taxed on feed and then condensed milk. So the tax is applied to both the raw material and the finished product.

Remove tax on fresh vegetable. Not collectable. Supermarkets not going to carry

Allow for value of dividends to be deducted from income and have wage threshold conditions apply.

Implementation date of Asset Tax has been changed to March 15th. What happens this year September? Is this a two tiered process? Pay in September and pay again in March 2013? This will lead to added administrative expenses therefore needs explanation.

Establish a bi-partisan committee of the House to review the Treaty of Chaguramus with specific reference to trading in indigenous raw material/natural endowment (Oil)

Establish a committee to initiate a review of our pricing mechanism of fuel to JPS Co and the impact of the Petro Caribe arrangements on it

Quote :

“There is more content being produced today in 48 hours than has been produced from the beginning of mankind to 2003”
Gary Varynerchuk
Author – Thank you economy

KARL SAMUDA CD, MP
Spokesman on Transportation & Works

 

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