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Saturday, 16 March 2013
Taking Note of the Business Environment and Learning from Mistakes - STRATEGIC FACILITY PLANNING FOR SMALL AND MEDIUM SIZED BUSINESS
Topic: Strategic Planning
 

On 3 August 2011, The Jamaica Gleaner published an article titled: "Completed Montego Bay Convention Centre Raises Expectations for Tourism Sector".  It described the Montego Bay Convention Centre [MBCC] as:

"...the first of its kind in the English-speaking Caribbean and second in the region behind Puerto Rico, (as it) has joined a host of regions, including Asia, Europe and United States, with its convention offering."

MBCC has an approximate floor area of 21,500 m², and is capable of hosting 7,000 persons.  It was executed by the Urban Development Corporation [UDC], a government-owned entity.    The UDC website carries a page titled: "Montego Bay Convention Centre Retains Coveted Leading Meeting and Conference Title" which boasts of the facility being awarded the ‘Caribbean's Leading Meeting and Conference Centre' at the World Travel Awards 2012, for the second year in a row.

                On the face of things, the facility would seem to have been a success.  Yet, another article published in the Gleaner on 12 February 2013 reads: "Fire Them! - Shaw Calls for Marketing Firm to be Relieved of Mobay Convention Centre".  In it, the opposition Spokesman of Finance called for the termination of the services of the US property and convention centre managers marketing the facility since July 2011.  This was in response to the facility's high maintenance costs and that 99% of events hosted were local.  Are the managers really to be blamed, or are they mere scapegoats?

                Even though the Gleaner described MBCC as being "first of its kind in the English-speaking Caribbean", it really was not even first in Jamaica.  Another page on the UDC website reads: "Jamaica Conference Centre Wins World Travel Awards".  This referred to the same award MBCC had won, the year before it was completed.  In fact, the Jamaica Conference Centre [JCC] had previously copped the award in 2001, 2002 and 2007.  This facility was not only executed, but also managed by UDC.  It was completed in 1983 as the headquarters of the United Nations [UN] International Seabed Authority and venue for the organization's meetings.  It is roughly the same size as MBCC, when including the secretarial building.

                In 1982, the UN convention on the Law of the Sea was actually signed in Montego Bay and the town expected that the Conference Centre would have been built there.  Instead it was built in the capital city Kingston.  Thus began the lobby effort by the Montego Bay Chamber of Commerce and Industry, and the Montego Bay chapter of the Jamaica Hotel and Tourism Association [JHTA].  Ground was broken for MBCC on 14 February 2009, in the midst of an international recession.  In fact, there was an apparent lack of maintenance of JCC as early as 1993 and the facility was closed for maintenance from April to December 2008.  Even though JCC was the venue for meetings of the International Seabed Authority, it had consistently experienced low demand and high maintenance costs, even without an international recession.  Why then was the risk of low demand and high maintenance costs not flagged?

                In October 2007, construction of MBCC was actually postponed until April 2008, but this was because UDC questioned whether the facility was large enough for the Caribbean Marketplace event then scheduled for 2009.  The JHTA welcomed the delay, as long as the venture was not cancelled, and stated that the organization was not consulted by the ruling government about it.  According to the "International Association Meeting Markets 2002 - 2011" published by the International Congress and Convention Association, Hotels became the leading convention venues as early as 2005.  In 2013, the former tourism minister, who was in office when construction started on MBCC, admitted that globally convention centres are typically not profitable, but catalysts for growth in other sectors.  Yet, MBCC was projected to earn US$ 10 million annually when complete.  Not only were lessons not learnt from previous experience, but there was also a failure to recognize the trend away from convention centres and the economic environment at the time.

For 26 years, Montego Bay had lived in anticipation of having its own convention centre.  So much so that, no one questioned whether it was appropriate to build it or not, when the opportunity presented itself.  Certainly, it should have been obvious before construction that the economic environment was not conducive for this development, and it was highly likely there would be sufficient demand to maintain the facility.  But, a major event had been scheduled for the facility, one that promised to showcase Montego Bay in all its glory; and, a lot of work would have already been invested in the design and gaining the necessary regulatory approvals.  Who cared about the facility's future?  "If you build it, they will come" is not a sustainable facility planning strategy.  The maintenance expenses would have been known.  So, the risk of demand being insufficient to cover the maintenance expenses could have been quantified.  In hindsight, it would have been better if the construction had been delayed and previous investment treated as sunken funds.  When any venture is a first mover, mistakes will be made. If you fail to learn from them, your competition will.


Posted by phcjam at 6:47 PM EDT
Updated: Thursday, 27 June 2013 8:57 PM EDT
Saturday, 9 February 2013
Solar Energy can improve Our Economic Future with Conservation
Topic: Renewable Energy

According to the “Energy Policy and Sector Analysis in the Caribbean (2010 – 2011) ", the “Caribbean islands have the potential to lead the world to a new energy future ...”.  Research on this paper was the cumulative effort of the Department of Sustainable Development, in the Organization of American States (OAS), National Renewable Energy Laboratory, and the Renewable and Appropriate Energy Laboratory, of the University of California (Berkeley).  It assessed the Bahamas and nine  Eastern Caribbean Islands, namely: Antigua and Barbuda, Dominica, Grenada, St. Lucia, St, Kitts and Nevis, St. Vincent and the Grenadines; and made note of the availability of extensive solar and wind resources and geothermal potential in several of the Eastern Caribbean islands. However it also recognised that use of fossil fuels would remain significant over the long term because all islands were signatories to the PetroCaribe Accord, under which Venezuela supplies oil to them on concessionary terms.

Winston Hay, author of “Energy Cost and Our Economic Future: Can Jamaica Reduce Electricity Costs?” in the Mona Business School (MSB) Business Review, Nov/Dec 2011, states that the limitation of most renewable energy sources is their inability to consistently generate electricity on a 24-hour basis.  He indicates that the real benefit of renewable energy is in its use of indigenous energy sources and promotion of a cleaner environment, but cautions that it is currently unlikely to result in lower electricity rates.  In other words, renewable energy generated under the prevailing state-of-the-art technology is unlikely to reduce our electricity bills below the current electricity rates, without energy conservation.  More specifically, Mr. Hay states that “Solar Energy is unlikely to become economic for grid supplies in the near future, despite the intensive research being undertaken internationally.  

Grid-connection is the most economic use of solar energy.  It feeds electricity into the electric grid, which requires a license, and must allow for the grid to provide electricity in the night, when there is no sunlight.  Use of solar energy in the Caribbean should not be discouraged.  Rather, our effort at energy conservation cannot wane, but must intensify.  Solar energy provides a means of import substitution, whereby valuable foreign exchange can be saved by use of this indigenous source and, coupled with energy conservation, dependence on the use of fossil fuels will be reduced.  Our balance of payment accounts should improve; our foreign debt and liability reduce under the PetroCaribe Accord to finance purchase of the fossil fuels;, and the environment in our tourism-dependent economies can be protected.

The former paper seems to corroborate that use of solar energy will not reduce the electricity rates.  It indicates that a peak of only 174 kW of solar power was generated in the 927 MW of peak energy demand experienced in the target islands in 2010, but there was potential for use  of 205 MW of solar electric energy.  The 2010 electricity rates varied from a low of 21 US cents/kWh in St. Kitts and Nevis to 46 US cents/kWh in Dominica, with the mean being 33 US cents/kWh: which is also the mid-range value for the Caribbean at large, based on a 2011 survey by the Caribbean Electric Utility Service Corporation (CARILEC).  Local rates for solar energy were unavailable, so the researchers made reference to rates of the Pacific Islands: where electricity generated from grid-connected solar photovoltaic (PV) panels costs between 35 – 70 US cents/kWh, from large-scale solar PV with battery storage 75 US cents/kWh, and from off-grid solar PV between US$1.50 – US$2.50/kWh.  So, only grid-connected solar PV (which cannot provide electricity at night), could provide electricity at a rate equivalent to the mean rate stated above; and electricity bills would not fall at those rates.

On the website of the Petroleum Corporation of Jamaica (PCJ), a page titled “Solar Power in Jamaica” states that the amount of direct solar radiation received by the island is equivalent to five-times the annual energy requirement, but only 1% of that requirement is actually provided by solar energy.   The Jamaican Government recently invited proposals for the connection of 115 MW of renewable generating capacity to the national grid on a build, own, operate basis.  The acceptable rate specified for solar energy was 26.73 US cents, compared to 40 US cents currently being charged for public electricity supply in Jamaica.  Roger Chang, president of the Jamaica Solar Energy Association (JSEA), in commenting on the process, stated that the rate was reasonable and there was interest, but many investors, including the members of his association, had not placed bids because the conditions were not attractive enough.  This observation is particularly relevant to local investors who lack  experience in financing and installing systems of that scale.  Whether there will be any successful bids for solar energy is left to be seen, and how their rates will compare to the new LNG plants that are to be installed is another matter.  Typical diesel/oil plants in the islands studied have thermal efficiencies ranging from 30 – 40%, but some Jamaican plants are over 30-years old and have thermal efficiencies of 28%.  But, the new LNG plants are expected to be significantly more efficient.  Also, peak use of electricity occurs at night in Jamaica, so if grid-connected solar PV installations provided most of the 12.5% of renewable energy sources planned for 2015 the electricity rates would still not be significantly reduced.

I have noticed a regional effort to implement renewable energy options, but the effort to effect energy conservation seems to have been left to the CARICOM Regional Organization for Standards and Quality (CROQ), which for the last decade has sought to establish regional building standards, based on the International Building Code.  It is a misconception that use of renewable energy, and solar energy in this instance, will allow us to continue disregarding energy efficiency and conservation.  Compliance with Modern energy codes, for instance, permit energy usage to be reduced by as much as 30% without  use of renewable energy.  Energy efficiency and conservation will also reduce the need for increased generating capacity allowing reduction of the costs associated with supply and installation of power plants.  As was stated earlier, use of renewable energy is unlikely to reduce our electricity bills below the current rates, but foreign exchange can be saved by use of an indigenous energy source, such as solar energy, and coupled with energy conservation, dependence on the use of fossil fuels can be reduced.


Posted by phcjam at 10:01 PM EST
Updated: Saturday, 16 March 2013 7:15 PM EDT
Saturday, 1 December 2012
Energy Generation Needs to Change in the Caribbean (part 2)
Topic: Government Policy

 

In part 1, I made the point that Caribbean states cannot depend on monopoly power providers to implement their renewable energy policies.  But, a strategy needs to be effected that enables operation of independent power providers (IPPs) and self-generation.  However, renewable energy goals tend to be moving targets.  If renewable energy generating capacity does not increase at a faster rate than non-renewable capacity, these goals will never be met and the whole effort, though well meaning, will be self-defeating.  Such has been the experience of Jamaica.

Jamaica first promulgated its energy policy in 1995.  In 2001, the government privatized the sole power provider, the Jamaica Public Service Company (JPS).  It also rehabilitated six mini hydro-electric plants, with a combined capacity of 22 MW, to JPS.  At that time, this represented 4% of the generating capacity; and, neither IPP nor self-generation was permitted.  In 2003, renewable energy comprised 10% of the gross energy supply mix.

Full liberalization of non-renewable electricity generation was attained in 2004, coinciding with the government’s commissioning of the 20.7 MW Wigton Wind Farm: the largest in the English-speaking Caribbean.  By 2005, 30% of electricity was generated by several IPPs.  The use of renewable energy then increased to 12.5%: which includes 23.2 MW of co-generation capacity by two private sector firms that was not connected to the grid.

A green paper titled “The Jamaican Energy Policy 2006 – 2020” was prepared in order to update the previous energy policy.  In analyzing the 1995 policy, the drafters of the green paper concluded that: “Jamaica has achieved several of the objectives ... but weakness remain in areas of diversification from fuel oil and expansion of renewable energy”.  Discounting for non-electricity usage of renewable energy, they estimated that 6% of the island’s electricity supply was generated from renewable energy sources.  The energy demand was expected to grow by 3 – 4% per annum over the medium term; and, it was proposed that 10% of the electricity supply be generated by renewable sources in 2010, increasing to 15% in 2020.

The energy policy was again updated to align with the island’s long-term goal to achieve developed status by 2030, and the energy policy further developed into the National Renewable Energy Policy 2009 – 2030.  Instead of proposing goals based on electricity supply, it reverted to contribution to the gross energy supply mix.  The document states that renewable energy comprised 6% of the gross energy supply mix in 2008. This is less than half the value that pertained four years earlier.  In 2009, it rose to 9%, which was below the level six years earlier.  The document also proposes that renewable energy should be 11% of the energy-mix this year, 12.5% in 2015, and 20% in 2030.  The goal for 2015 was actually achieved back in 2005, 10 years earlier.  So, no real improvement could be expected before 2030; and, this is below the 25% of global capacity now being contributed by renewable energy.

This year, intermittent renewable-energy supply, as generated from photovoltaic cells (PVs) and wind turbines, can be connected to the grid for capacities up to 100 kW.  And, renewable energy generation has finally been liberalised for capacities up to 115 MW.  The website of the Petroleum Corporation of Jamaica also states that the 2030 goal for contribution of renewable energy has been increased to 30%.  There may yet be hope.  But, it should now be obvious that partial and tardy implementation of a renewable energy policy, though better than no effort, will not lead to a rapid adaptation of renewable energy.  Implementation of renewable-energy generating capacity must grow at a faster rate than non-renewable sources.


Posted by phcjam at 7:08 PM EST
Updated: Wednesday, 26 December 2012 4:01 PM EST
Thursday, 11 October 2012
Choose your Architect/Engineer Team to suit your Project – Strategic Facility Planning for Small and Medium Sized Businesses
Topic: Facility Planning
 

Author:  Paul Hay - Managing Partner, PAUL HAY Capital Projects

In "To Build, or not to Build", I dealt with the feasibility of undertaking a construction project.  I assume you have completed that activity, and decided to proceed with the project.  Now, you need an architect/engineer team.  A building project actually involves four phases: commencing with planning, through to design, construction, and terminating at the operation and maintenance phase.  On large jobs, separate teams may undertake the planning and design phases, especially where planning requires highly specialised expertise.  However, a single architect/engineer team generally undertakes both stages in smaller jobs.  Even though you may not be billed for planning, do not assume the stage does not exist: design cannot commence without first having determined the project requirements.

In "Consider Image Carefully", I recommended that you be intimately involved in this planning process.  This is especially true if the project is to be particularly complex or innovative.  As the owner, you should initiate the process because there is a better likelihood that you will determine the criteria to judge the selection of an architect/engineer team appropriate for your job.  It is not uncommon for an architect/engineer team to be changed even during the construction stage, so having a firm grasp of what is required from this team will facilitate an appropriate selection, though this is not guaranteed. 

At the very least, you should determine the nature of the project - whether innovative, complex, or routine - and your priorities with regard to cost, time frame and quality of the work.  The reasons will be apparent in shortly.  The selection of an architect/engineer team generally takes two forms: either direct negotiation with a specific team or a process involving the pre-selection of a number of teams, creating a short-list, and then selecting the most appropriate team.  The latter is typically used for large projects, so we assume the former is used: though the selection process to be outlined will be instructive to both.

The Coxe Group Management Consultants (Seattle) surveyed 100 design firms of varying sizes, markets and organizational formats.  They classified these firms by their "technology - what they do best - and, their "values" - the goals of the firm. 

With regard to the former, the Coxe Group identified three categories of firm technologies: the "strong-idea", "strong-service", and "strong-delivery" firms.  A "strong-idea" firm delivers expertise or innovation to unique projects.  It adapts to any project and typically depends on a few outstanding individuals.  A "strong-service" firm delivers experience and reliability particularly on complex projects.  They provide comprehensive service to clients that are actively involved in the process.  A "strong-delivery" firm provides efficient service on similar or routine projects to clients seeking a product, rather than a service.  It repeats successful solutions for technical cost and schedule compliance.

In this case, the nature of the project will indicate the appropriate team.  You need to determine if the project is to be unique, complex, or routine.  Having made this decision, the short-list of technology-oriented firms will be self evident.  Knowledge of the projects undertaken, or physical inspection of these, will be instructive.

Within these technology sets, the Coxe Group determined that the firms have values that are either "practice-centred" or "business-centred".  The practice-centred firms emphasize quality: serving their clientele and satisfactorily representing their discipline.  Business-centred firms are profit oriented.  Therefore, cost and time are emphasized. 

If you prioritize your needs based on quality, cost and time, you can eliminate firms with inappropriate values.  Practice-centred firms can also be judged on knowledge of their previous projects, or physical inspection of these.  Business-centred firms can be judged on their performance on the above.  Discussion with previous project owners will likely be needed for due diligence.  In the case of new firms, this evaluation will have to be done on previous projects by the principals and team members, prior to founding/joining the firm being considered.

You may intuitively realize that "strong-ideas" firms will gravitate towards practice-centred values, while "strong-delivery" firms gravitate to business-centred values.  But, especially small firms may lack focus and not be easily classified; while, highly focused firms will most likely disqualify themselves from discussing your project if it is not compatible.  Nevertheless, this procedure will serve to guide your selection of an appropriate architect/engineer team for your project.  Other than routine projects, the projects evaluated need not be the same but should be similar in nature contemplated: that is, uniqueness and complexity.  The teams' respective performances on the projects evaluated with regard to quality, price and time should then be compatible with the manner you expect your project to be handled.    It should now be apparent that when you choose particularly an architect based solely on work you may have seen, without thought to the performance on that job, you will likely end up with a practice-centred, strong-ideas firm, which may not be suitable for your project.  So, you need to consider both, and choose an architect/engineer team to suit your project.

 


Posted by phcjam at 6:37 PM EDT
Updated: Thursday, 11 October 2012 6:59 PM EDT
Tuesday, 2 October 2012
Energy Generation Needs to Change in the Caribbean
Topic: Strategic Planning

Energy Generation Needs to Change in the Caribbean

Bahamas’ only privately-owned power provider – Grand Bahama Power Company – recently commissioned an additional 52 MW power plant.  Speaking on the occasion, Minister of Grand Bahama – Dr. Michael Darville – urged the owners to support the government’s thrust to reduce the cost of electricity.  He stated that: “...the use of alternative forms of energy will bring real change to the cost of electricity and open new doors for the industrial sector to grow, thus attracting many foreign and domestic investors to Grand Bahama...”.  He further stated that high dependency on fossil fuels had negatively affected that nation’s development.

Bahamas was the largest of ten Caribbean nations studied by the Organization of American States’ Department of Sustainable Development, the National Renewable Energy Laboratory, and the Renewable and Appropriate Energy Laboratory of the University of California, Berkeley.  A report was produced titled: Energy Policy and Sector Analysis in the Caribbean (2010-2011).  One of the stated objectives of this study was to identify renewable energy and energy efficiency opportunities within the nations studied.

At that time, Bahamas’ energy capacity was 585 MW, none of which was from renewable sources.  It was determined that 73 MW of technical potential existed for renewable energy development, which represented 12.5% of that capacity.  However, Bahamas’ National Energy Policy targets 15% use of renewable energy by 2020.  In other words, the nation needs to fully utilize its renewable energy potential within eight years.  As if this is not difficult enough, Bahamas like most of the other nations studied does not allow the operation of independent power providers or self-generation of electricity, except on private islands. So, the task of achieving its 2020 objective is solely dependent on their two power providers, and mainly on the larger government-owned Bahamas Electricity Company which produces 80% of its power.

The report concludes that: “Caribbean islands have the potential to lead the world to a new energy future, this will not happen without consistent, thoughtful policies and plans”.  It is my considered opinion that the Caribbean needs to reconsider its restriction of independent power providers and self-generation if we are to realise our potential in renewable energy development.  This is particularly relevant to Bahamas if it is to have a chance of achieving its 2020 goal.  Very few governments, even within developed nations, can unilaterally undertake the transition to renewables.  But partnering with private enterprise will make this achievable.  New policies and standards must be developed and implemented to allow for distributed energy generation from renewable energy sources, to augment existing central power plants.  The use of Renewable Distributed Energy Generation is emerging as a growing sector of the global electrical power industry.  This is particularly so in developing countries, where electricity costs are high and a significant proportion of the society has no access to electricity.  But, business and technology practices will have to change.


Posted by phcjam at 4:32 PM EDT
Updated: Friday, 26 April 2013 3:26 PM EDT
Friday, 31 August 2012
2012 Interim Report on the Jamaican Construction and Real Estate Industries
Topic: Strategic Planning

 

 

In my last post “Status of the Jamaican Construction and Real Estate Industries to 2011”, I concluded that “if the (construction) industry growth can equal GDP growth this year (2012) and return to superior growth rates in subsequent years, the industry should regain pre-recession (2007) value-added in two years (2014)…; and, the real estate “…industry should return to pre-recession levels this year”.  But, the Planning Institute of Jamaica [PIOJ] released their “Review of Economic Performance April – June 2012” on 21 August 2012 and this conclusion seems unlikely to be achieved within the specified time-frames.

                The economy had 0.1% real GDP growth over the quarter relative to the equivalent period in 2011.  The goods-producing industries, which includes construction, had real growth of 0.1%, while the services industries, which includes real estate, was flat.  Growth rates for construction and real estate remained below GDP growth: construction at -3.2% and no growth for real estate.  The GDP growth for the current quarter is projected to be between -0.5% to 0.5%.  By the end of 2011, the construction industry was 13% below that of 2007, and real estate 0.5% below 2007.  The present “growth” is not sufficient to achieve pre-recession levels of value-added anticipated.

                On the positive side, quarterly value-added for real estate industry has consistently improved since the last quarter of 2011, all-be-it slowly.  At the current rate of improvement, it is likely that this industry will return to pre-recession levels in the second quarter of 2013.  The prognosis for the construction industry is however inconclusive.

                Quarterly value-added for construction has consistently fallen since the third quarter of 2011 to the first quarter of 2012, with an improvement in the previous quarter.  But, this gives no indication of a trend that can be expected over the current and next quarters.  The down-turn has been blamed on a 69.9% reduction in expenditure on telecommunication projects and 22.3 – 69.9% reduction in various government infrastructure projects: neither of which is expected to improve in the short term.  Particularly worrying is the 80.9% reduction in housing starts.

                The prognosis is not bad for the real estate industry, but only time will tell what will happen with the construction industry.  The government has made mention of significant private tourism projects in the pipeline.  If these materialize, there may yet be hope for a return to pre-recession levels of value-added by the end of 2014.  Otherwise, the Mona campus of the University of the West Indies is undertaking significant construction projects, and a number of commercial developments can be seen in the corporate area.  We will just have to wait on developments within the year to determine the future state of the construction industry.  One thing is however clear, improvement in the construction industry will be led by the private sector, not government; and, it is highly likely that academic and commercial developments will exceed residential, developments.


Posted by phcjam at 5:15 PM EDT
Updated: Friday, 31 August 2012 5:51 PM EDT
Tuesday, 10 July 2012
Status of the Jamaican Construction and Real Estate Industries to 2011
Topic: Strategic Planning

 

 

 

In 2008, Dean Burrowes recorded his analysis of the global recession in “The Jamaican Construction and Real Estate Industry and the Impact of the Global Economic Crisis”.  He noted that bankruptcy of major U.S. financial houses reduced liquidity in the local banking sector “drying up funds available for construction projects”.  Some developers scaled back or suspended projects under construction, fearing local job losses would impede sale of the completed buildings.  Then developers with projects in-the-pipeline then took a “wait-and-see posture until economic prospects improve(d)”.

               Economic data from the Statistical Institute of Jamaica for the period 2002 - 2011 confirms that the rate of growths in the construction and real estate industries did decline from 2008 – 2010, with construction being the worse affected.  The low rate of growths experienced in 2011 indicate that the real estate industry should return to pre-recession levels this year, but restoration of the construction industry may not materialize before 2014.

Table 1:  GDP, Value-Added by Industry at Constant (2007) Prices and Rates of Growth

 

Total GDP

Construction

Real Estate

Year

Value

Growth

Value

Growth

Value

Growth

2003

718,990

3.7%

54,162

5.0%

73,333

2.2%

2004

728,508

1.3%

58,784

8.5%

74,792

2.0%

2005

735,019

9.0%

63,435

7.9%

75,823

1.4%

2006

756,133

2.9%

61,078

-3.7%

77,237

1.9%

2007

766,972

1.4%

63,829

4.5%

79,827

3.4%

2008

760,892

-0.8%

58,992

-7.6%

80,980

1.4%

2009

737,442

-3.1%

55,873

-5.3%

79,968

-1.2%

2010

726,840

-1.4%

55,314

-1.0%

78,998

-1.2%

2011

737,804

1.5%

55,650

0.6%

79,394

0.5%

Source: Statistical Institute of Jamaica

     

* GDP and Value- Added at constant (2007) prices, J$ 'million

 

               From 2003 – 2011, Jamaica’s construction industry represented approximately 8% of its gross domestic product (GDP).  During this period, the industry showed negative growth in 2006 and from 2008 -2010.  In 2006, a major problem with the quality of locally-produced cement literally shut down the industry until alternative supplies could be imported.  The -3.7% growth in 2006 was followed by 4.5% growth in 2007.  So, the industry recovered from one crisis only to be thrown into another.  The pre-recession value added in 2007 was J$ 63.8 billion, only J$0.4 billion more than that of 2005, at constant (2007) prices.  So, the pre-recession value added is only slightly higher than that of 2005.

               In 2010, the value added at constant (2007) prices was J$55.6 billion, approximately 13% lower than 2007.  Growth in 2011 was only 0.6%, below the 1.5% GDP growth that year.  Previously, positive growth exceeded GDP growth and typically ranged from 0.9 – 3.4%.  If the industry growth can equal GDP growth this year and return to superior growth rates in subsequent years, the industry should regain pre-recession value added in two years, and as stated before this would only be marginally higher than that existing nearly a decade earlier.

               In contrast, the real estate industry represented 10% of GDP up to 2007, but has been 11% of GDP since 2008.  Its growth rate fell in 2008 and was -1.2% in 2009 and 2010, exceeding the GDP growth rate for the respective years.  In 2007, its value added was J$79.8 billion and fell by 1.0% to $79.0 billion in 2010.  It had a 0.5% growth rate in 2011, uncharacteristically lower than the GDP growth.  But typical growth rates range from 1.4 – 3.4%, so this industry should return to pre-recession levels this year.

Table 2:  Loans by Commercial Banks for Land Purchase and Construction

Year:

2006

2007

2008

2009

2010

2011

Loans

8,045

8,997

12,902

19,909

21,962

18,488

Value-Added

56,317

63,829

69,792

72,405

79,255

83,843

% Loan

14.3%

14.1%

18.5%

27.5%

27.7%

22.1%

Source: Bank of Jamaica

         

** Value-added at current prices, J$ 'million

     

 

               Interestingly, economic data from the Bank of Jamaica for loans by commercial banks for land purchase and construction does not confirm Burrowes’ observation that banks reduced funding for construction projects.  In 2007, commercial banks provided loans amounting to 14.1% of the value added by the construction industry.  This actually rose during the recession to a high of 27.7% at current prices in 2010, subsequently falling to 22.1% in 2011.  It is therefore likely that developers unilaterally suspended, scaled back and took a “wait-and-see posture” while awaiting improvement of the economy.  Loans from commercial banks should therefore not retard the construction industry’s return to pre-recession levels; and baring diminished confidence of developers, this should be achieved in 2014.


Posted by phcjam at 5:43 PM EDT
Updated: Friday, 31 August 2012 6:00 PM EDT
Thursday, 21 June 2012
To Build, or not to Build? – Strategic Facility Planning for Small and Medium Sized Businesses
Topic: Facility Planning


Author:  Paul Hay – Managing Partner, PAUL HAY Capital Projects

 

As I pondered upon my next blog post, I realized that I had not dealt with a fundamental question: whether to build, or not to build.  The first two posts dealt with the issue of image: the first warns about improper motives to build, and the second on creating an image that suits your business.  But, do you really need to build at all?  That is the question.

 

As has become customary, two cases are presented; one good, and one bad.  Both preceed the turn of the century: a very trying time in Jamaica.  In his book Jamaica Meltdown: Indigeneous Financial Sector Crash 1996, Wilbern Persaud stated that “Jamaica’s indigeneous financial sector crash was, to date, … estimated by the World Bank review of forty-two banking crises to be third”.  Our first blog post, “Consider Image Carefully – Strategic Facility Planning for Small and Medium-Sized Businesses”, described one failed financial entity as an example of poor strategic facility planning.  In this post, we examine one of its subsidiaries, a banking group, as  a good example in deciding not to build.

 

But we shall start with a case from Persaud’s book, another banking group, as the poor example which decided to build.  As Persaud states: “… at the height of the euphoric credit and real estate boom” this group “embarked on construction of a set of luxury apartments“ in an upscale community billed as “Kingston’s soon-to-be most prestigious address”.  The venture generated much interest, but the boom and accompanying inflation led to ever escalating costs.  To salvage the project, it was redesigned to become a hotel: thus taking advantage of the government’s tax incentive to the tourism sector, at the time.  As a business-type hotel, the venture was doomed to failure: it was too far from Kingston’s business district, too far from other facilities associated with the tourist trade, and in a local plagued with traffic congestion.  So after a relatively short period, the hotel did fail and was subsequently converted to apartments, under different owners.

 

By comparison, our other banking group owned a multistory building that was originally designed and constructed as apartments but later converted to government offices: though little refurbishing works seem to have been done.  This group also considered converting their building to a hotel.  But, it had all the advantages the former lacked.  It was in the heart of Kingston’s business district, between three successful hotels.  It was anticipated that at the very least the hotel could take referrals from the adjacent hotels.  So, a feasibility study was commissioned.

 

The consultants of the parent company were commissioned to undertake this feasibility study.  It was fortuitous that the same consultants had also been responsible for the construction of the building they were to examine.  After careful study of the cost for the conversion, against demolition and rebuilding the building, the banking group wisely decided to sell it.  It was sold to another established hotel also located in the area, though some distance from the site.  They were the ones to refurbish the building.  They sold their original premises and relocated to this new location and continue to operate from the location today.

 

The building was not in the core competence of the banking group.  It was in the core competence of its new owners.  It is not certain whether the new owners did any studies of their own, but the bank would have pitched it to them as being appropriate for a hotel.  Whenever a building project is contemplated, this should always be considered as any other investment: the options need to be considered, evaluated, and compared to determine the likely outcomes.  If this banking group can be criticized on any aspect of the sale, it would be that they failed to consider what could have happened when the hotel relocated.  The original hotel was located opposite one of the bank’s major branches.  When they relocated, a major competitor bought the land, demolished the hotel, and constructed a new facility on the site.  This competitor was previously engaged in putting up a new branch in the resort city of Montego Bay, but when the opportunity presented itself, they suspended the design of that building and seemed to have concentrated their effort on this new venture.  Who could have envisioned such a scenario?  


Posted by phcjam at 10:36 PM EDT
Updated: Friday, 12 October 2012 4:19 PM EDT
Tuesday, 8 May 2012
Is Energy at Government's Strategic Thinking?
Topic: Energy Conservation

THE EDITOR, Sir:

 

The Science, Technology, Energy and Mining Minister, Hon. Phillip Paulwell, at a press briefing on 2 May 2012 launched the Government of Jamaica/Inter-American Development Bank’s (GoJ/IDG) Energy Efficiency and Conservation Programme, which was the end product of the IDB Energy Efficiency and Conservation Technical Assistance (EECTA) Agreement signed on 2009 for US$20 million.  He explained that the current programme would make investments in energy efficiency and conservation to effect $2.6 billion savings in electricity bills of government ministries, agencies and public institutions.  He further directed these bodies to use their latest electricity consumption as a benchmark and reduce their consumption or be penalized.  This he said he spoke “the firm authority of the Minister of Finance”.  But, have we not heard this before?

                On 19 April 2011, the then Minister of Finance and Public Service, Hon. Audley Shaw, reported that budgetary allocations to a number of departments had been reduced by cutting the amount for utilities.  The year before that, Minister Shaw had issued the same directive without much success.  Since Minister Paulwell mentioned the electricity costs of February 2012 as being the highest at J$ 1.2 billion, are we to assume last year’s effort was also without success?

                Since the Minister spoke of using the last electricity cost as a benchmark, I suspect the effort of the last financial year was also without much saving.  In my article of 16 May 2011 titled “Energy Woe”, I made mention of the IDB Project Profile titled Jamaica Energy Efficiency and Conservation Program which estimated initial savings of 6.7%, not the 15% proposed by the then administration, and concluded by stating that “…failure to control expenditure cannot be attributed to the implementing ministries and agencies but to poor planning and unrealistic expectations”.  How is the pronouncement of the present administration different?

                The IDB profile mentions three components: institutional strengthening, investment in energy efficiency, and the demand-side management and public campaign.  It is not clear whether any of these components overlap.  But assuming no overlap, the first began when public sector workers were trained under a UNDP program to equip them to be energy monitors.  They received their certificates at a ceremony at the PCJ Auditorium on 21 April 2011.  This was the only component dealt with under the last administration.  When Minister Paulwell mentioned replacing 90,000 light bulbs, improving insulation and sealing building envelopes, and replacing 5,000 air-condition units he was announcing the beginning of the second component.  He also made mention of the third when he referred to workshops for public and private stakeholders on energy efficiency and conservation.  So, we seem to be better prepared this time around, though he gave no time-frame for implementation.

                The IDB profile made reference to 25% savings by 2015, which is consistent with their country strategy 2011 – 2015.  This projected saving is approximately equivalent to the $2.6 billion savings mentioned by Minister Paulwell.  But if the benchmark is this year, 2012, then we should only realize the stated savings by 2016.  According to the profile, “preliminary calculations for the program confirm the potential for savings in the public sector of up to US$ 7 million per year”.  Nevertheless, the Jamaica Information Service states that the project will be executed over a 4 year period, with savings of US$ 9 million per annum and a net present value of US$ 133.1 million after 20 years. This would indicate that a greater degree of planning has gone into this year’s programme.  But at the current exchange rate, the savings less amortization will be less than half the savings mentioned by the minister, after 20 years.  it is not clear whether this 20 year period is for the repayment of the loan, or the project life cycle.  Nevertheless, the second component, estimated to cost $9.6 billion will be spread over the next 4 financial years, and should provide jobs for local engineers and suppliers.

                It should now be apparent that, the outcome of the project as commendable as it is will not be as significant as alluded to.  More than likely, the investment referred to will be funded by an external source and will have to be repaid.  So, Jamaica will not benefit from the full extent of the savings even after 20 years.  If this time is the project lifecycle, then further funds will be needed to replace the investment.  This should not serve to discourage such an exercise but should be an example of what can happen when we wait too long to implement necessary energy efficiency and conservation measures.  The government should benefit from some savings this financial year, let us hope the expectation will be realistic.  Let us hope that energy will be at the forefront of this administration’s strategic thinking during their budget presentation.  We expect specificity and announcement of specific initiatives relevant to goal of saving energy and creating a competitive economy: attainable plans based off realistic objectives.  That should be our realistic expectation.

 

I am, etc.

 

 

Paul Hay MBA, BA(Arch.)
Managing Partner
PAUL HAY Capital Projects

Caribbean Capital Projects Management



P. O. Box 3367
Constant Springs, Kgn. 8
Jamaica, W.I.

tel: 1 (876) 756-0631
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Posted by phcjam at 12:05 PM EDT
Updated: Wednesday, 16 May 2012 10:04 AM EDT
Friday, 4 May 2012
Image that matters - Strategic Facility Planning for Small and Medium Sized Businesses
Topic: Facility Planning

Author:  Paul Hay - Managing Partner, PAUL HAY Capital Projects

 

While studying at the University of California, Berkeley, we as architecture undergrads would jokingly remark that "there's no place ‘worster' than Wurster".  We were referring to the building in which our school was located: which was called Wurster Hall.  This should not be inferred that the building was poorly designed.  On the contrary, I recall the lecturers expounding on its design and construction attributes.  We just did not like the image.  We did not like being trained in a building we considered the ugliest on campus.  It was bad for our image.  But, one lecturer explained that the building was specifically designed not to influence our creativity.

 

Recently, I came across an article in The Globe and Mail entitled "For Google, the Office is Key to Worker Success".  In the article, Canadian-born Google executive, David Radcliffe, was interviewed regarding his role of locating urban spaces that would become "hip headquarters and design them to spark creativity, play and collaboration".  He described this as "Googlïness" - creating environments that support culture, transparency and collaboration: facilities which allow staff to excel.  In other words, Google wants their building to stimulate creativity.

 

So, which of the two seemingly contrasting philosophies is correct?  It should be realized that the administration of the School of Environmental Design also wanted their staff and students to excel: they just did not want the building influencing their designs.  They did not want any aspect of the building's design reproduced or be held as the standard to which others would be judged.  This is understandable.  So, the appropriate image for any organization really depends on the objectives it seeks to achieve.

 

Strategic facility planning involves four steps: understanding the values and goals of an organization, analyzing its long-term objectives, planning for its long-term needs, and acting on the plans.  The mission, vision, firm culture, and possibly balanced scorecard, of an organization first need to be understood.  Organizations in creative industries, for example, prefer flexible organization structures, such as organic or matrix organization structures.  So, an institutional look and feel, as well as heavily enclosed office spaces would be inappropriate.  But, the needs of all stakeholders should be understood.  The need of architecture students to have a building they are proud of and one which impacts positively on their self-image is also important.  Our choice of motor vehicles is not only for their functionality but also intangibles, as prestige and ‘sex-appeal'.  Why should we expect any difference in our choice of buildings?

 

Analysis can utilize SWOT analysis, scenario planning, brainstorming, etc.  An organization's mission or vision may span over the five year limit of a strategic facility plan.  And, it is unwise to create unrealistic expectations in our stakeholders.  So, long-term objectives need to be SMART.  At this point, it will be apparent whether the organization's image needs to be addressed at all.  In the service industry, for example, an organization's tangible assets are used to assess the quality of its service.  Image could be critical, especially if their building is inferior to their competitors'. 

 

The selection of an appropriate architect and/or interior designer will be critical in establishing a design team to execute the plans.   Vision likely translates to a marketing plan which will guide the selection of an image.  Marketing plans will, no doubt, be innovative, imaginative and resourceful.  They will detail the use of an organization's effort and resources towards a desired end.  Do not entrust your image to a team you have not communicated your vision.  It has been my experience in the Caribbean that only banks, embassies, hotels and hospitals provide this guidance.  I assume the design team creates the image for the others, and I doubt they are carefully selected to deliver on the required objectives either.  The image presented by an organization will be present for decades, it should not be left to the discretion of anyone who may not understand their client, nor follow any rigor in analyzing their objectives and plan for their long-term needs.    Where image matters, it should not be left to chance.


Posted by phcjam at 6:30 PM EDT
Updated: Thursday, 10 May 2012 9:59 AM EDT

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