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Sunday, 7 July 2013
Preparing for Competition – Strategic Facility Planning for Small and Medium-Sized Businesses
Topic: Strategic Planning

The “Strategic Planning for Small and Medium-Sized Businesses” series is meant to illustrate lessons learnt from larger businesses that could benefit smaller businesses.  Initial posts used examples that were intentionally anonymous because information shared was not common knowledge.  In my last post – “Taking Note of the Business Environment and Learning from Mistakes” - I broke from this tradition because the information used was common knowledge, though the conclusions were not.  This post continues in this vein, though it has not been decided if this shall be the trend of things to come. Nevertheless, our present example is being played out in the global arena between sovereign states.

 

The Jamaican Logistics Hub Project

 

To date, I have written two articles on Jamaica’s Logistics Hub, both being published in the Caribbean Journal.  The first – “The Logistics Hub Project and Jamaica’s Development” – introduced  Jamaica’s Logistics hub initiative as an effort to capitalize on the opportunity being created by the intended doubling of the Panama Canal’s capacity in 2015 to establish the world’s fourth logistics transshipment hub.  The second – “What History Means to Jamaica’s Logistics Hub” - established the historical precedent of Jamaica’s strength in regional maritime activity.  This post looks at the threat of Panama’s logistics hub.

 

The Panama Logistics Hub Project

 

In an article entitled – “Jamaica trails Panama in Logistics Hub Race” – appearing in the Jamaica Gleaner dated 6 February 2013, an emerging market specialist, Dr. Walter Molano, is recorded as being skeptical  of Jamaica’s initiative, and makes reference to the Masters thesis of Daniel Munoz and Myrian Rivera entitled Development of Panama as a Logistics Hub and the Impact on Latin America.  In that document, reference is made to the widening of the Panama Canal as the final leg of Panama’s two-part strategy, which began in 2007, to develop a regional logistics hub like Singapore or Dubai.

The first leg of the strategy involves the development of a logistics park on 3,500 acres of land, which began in 2009 and is scheduled to be completed in 40 years. The Colon Free-Zone has been in place since 1947.  It now comprises three major ports, a free trade zone, and an airport: all linked by highway and railway.  154 companies already occupy the free zone.  Two ports – Balboa and Cristobal – are located on the Pacific Coast.  The third – Manzahillo – is located on the Atlantic coast.

Balboa and Cristobal are owned by Hutchinson Port Holdings: owner of four of the seven largest ports in the world, including Rotterdam.  Manzahillo is operated by SSA Marine, which also manages ports on the Atlantic and Pacific coasts of the United States. The United Nations Conference on Trade and Development [UNCTAD] recognized Manzahillo as the “most important transshipment port in Latin America; and, there are plans to expand Manzahillo in 2015.  The 2008 Maritime Review listed Manzahillo and Balboa as key transshipment hubs, along with Freeport in the Bahamas, and Kingston in Jamaica.

The Munos and Rivera thesis benchmarked the Panama transshipment hub against the logistics hubs of Singapore and Dubai and determined performance gaps which needed to be addressed for Panama to develop its own logistics hub.  It also compares the performance of the transshipment ports of Freeport and Kingston.  It concludes that Panama has the greatest connectivity to top global shipping routes and should leverage it against its competitors: adding that ports will cooperate against others if their profits will be higher in doing so.  More specifically, it indicates that the short-term effect of growth of transshipment in Panama will affect Freeport and Kingston; and, that diversion will be due to proximity to main trade routes not capacity.

 

Effect on Caribbean Transshipment Ports

 

On implementing the Panama Logistics Hub project in 2007, both Bahamas and Jamaica dropped in the UNCTAD rankings of port activity by countries in the Latin America and Caribbean region:  Bahamas dropped one rank to eighth, and Jamaica similarly fell one rank to fifth.  After the global reduction in port activity in 2009 due to the recession, both ports dropped a further two ranks: to tenth and seventh respectively.

On closer inspection, the “Containerized movement of Latin America and the Caribbean Ranking 2012" revealed that Freeport held the tenth rank; but contrary to Jamaica’s overall activity, the port of Kingston was actually ranked twelveth.  Even more interestingly, the Freeport container port is operated by Hutchison Port Holdings – the owners of Panama’s Balboa and Cristobal Ports; and according to Munos and Rivera “Freeport provides cheaper costs than Panama and can maintain its position as transshipment hub for routes South-North America and Europe-South America and the Caribbean.

 

Threat to Jamaica Logistics Hub

 

Jamaica has significant hurdles it needs to clear.  Its ambition to become the fourth global logistics hub is contingent on Panama completing the widening of its canal.  But, Panama has been first out of the blocks establishing its logistic capability and multi-modal transportation services.  In doing so, it has secured foreign “anchor” companies, which is a critical component of logistics hubs.  To top it off, the company that owns two of Panama’s ports also controls Kingston’s competitor Freeport and its other operator manages U.S. ports along the Atlantic coast.  So, they could potentially divert traffic away from Kingston.

 

Threat to Panama Logistics Hub

 

However, an environmental scan also reveals hurdles in Panama’s path.  On 29 August 2012, the Jamaica Gleaner published an article entitled “Gordon Cay Project to be tendered in September” which stated that the dredging of the Port of Kingston would commence by March 2014 to be completed by April 2015, the deadline for completion of works on the Panama Canal.  But more importantly, U.S. east coast ports of Savannah, Jacksonville and Charleston did not have sufficient draught to accommodate the larger ships.  The CEO of the Panama Canal – Alberto Aleman Zubieta – has even criticized authorities in the United States and Canada for not preparing their ports. Dredging is now scheduled for harbours on the U.S. eastern seaboard, but this will not be completed before 2020: five years after the widening of the Panama Canal. 

 

The Nicaragua Canal

 

If Panama even contemplated delaying completion of the canal, a new competitor has arisen to challenge the canal itself.  There is a proposal from a Hong Kong based developer, HKND Group, to construct a canal across Nicaragua, starting in 2014 and scheduled for completion in 2020.  This proposal includes a “dry canal” freight railway, an airport and two duty-free zones.  Whereas the Panama Canal has been designed to allow passage of ships up to 65,000 tons in capacity, the Nicaraguan Canal will allow ships up to 250,000 tons: thus allowing LNG tankers to pass through, en route to China.  So, the viability of the Panama Canal itself is being threatened, because there is currently not enough business to support both canals, unless world trade significantly increases by 2020.

 

Prognosis for Logistics Hubs

 

There is no upside for Panama.  This development not only challenges its logistics hub, but even its core competence: the Canal.  However, there are several advantages in Jamaica’s favour.  Jamaica will be able to receive larger ships than are expected from the Panama Canal.  It could start offering LNG bunkering service from the LNG tankers expected through the Nicaragua Canal; it will have the unique ability to transship and consolidate cargo destined to or from either of the canals. This is of course a long-term strategic advantage.  But, investors will bear this in mind when deciding on the free zone they will occupy.

In the short term while feasibility studies are being completed for the Nicaragua Canal, Jamaica will commence work on its logistics hub, and the race will be on in earnest. We have already noted that Panama cannot afford to delay completion of its canal. But, there may also be no practical advantage to fast-tracking either this completion or the expansion of its Atlantic port.  Few ports will be able to receive the large ships earlier; and, the demand for added port capacity may not exist. Many investors will take a wait-and-see posture and suspend or postpone plans to utilize the Panama Logistics Hub, as they await word of the Nicaragua Canal studies.

 

Conclusion

 

Panama will therefore not get the lead it had planned, when Jamaica starts its logistics hub.  So, Jamaica will have less ground to cover from its late start. Risk-averse investors may favour it, because it can handle cargo to or from either canal.  In the mid-term when it is certain the Nicaragua Canal will be built, investors - like those transporting LNG - who need to use the largest ships will be established in Jamaica.  These larger ships will also increase Jamaica’s container throughput.  This Jamaican initiative does have weaknesses it needs to work on.  But, Panama’s logistics hub strategy is contingent on it having the greatest connectivity to global shipping routes, and that is now uncertain. 

Furthermore, an article entitled “Chinese, Port Authority sign deal”, in the Jamaica Gleaner dated 5 February, indicated that the Port Authority of Jamaica had signed a memorandum of understanding with a Chinese Shipping line to undertake a feasibility study of developing Jamaica’s transshipment terminal and logistics centre.  Results of that study were never published; but, the Chinese company is China Ocean Shipping Company [COSCO]: Asia’s largest operator of containerships, sixth largest in the world in the number of containerships, and ninth in aggregate volume. It also offers services in logistics, ship building and repairing, and terminal operations. If they are still involved, it is unlikely the Nicaragua Canal will impede their operation.


Posted by phcjam at 5:25 PM EDT
Updated: Monday, 8 July 2013 4:04 PM EDT
Wednesday, 29 May 2013
Could Jamaica's Past Foretell Its Future?
Topic: Strategic Planning

In my Op-Ed "The Logistics Hub Project and Jamaica's Development", I indicated that Jamaica's Logistics Hub initiative intends to make use of the island's strategic geographic location to attract larger ships that will be able to ply the Panama Canal from 2015 onwards.  No doubt there are skeptics that question Jamaica's ambition to build the fourth global transshipment logistics hub.  However, energy use in Jamaica's shipping/aviation sector has increased 268% in the four years prior to the global recession in 2008.  This has fallen 59% in the following four years, but will no doubt rise again as the global economy recovers.

However, reports indicate that Jamaica's larger neighbours to the north, Cuba and the Dominican Republic, are also preparing for these larger ships.  So, what competitive advantage does Jamaica have by comparison?  Michael Porter, of the Institute of Strategy and Competitiveness, Harvard Business School, states that the competitive advantage of a nation accrues from it distinguishing itself from competing nations and developing on differences in history, infrastructure, institutions, culture and factors involved in the ways people live and do business.  Here, we will look at history as a source of Jamaica's strategic advantage.

Most accounts of English activity in the Caribbean between the 16th and 17th centuries mention privateers and pirates.  In referring to the privateering trade, Sir Thomas Modyford - Governor of Jamaica - is recorded as saying "More frugall, more prudentiall, more hopeful in laying a good foundation ... for the great increase of His Majesties dominions in these parts".  This statement inspired an essay by Nuala Zahedieh entitled "A Frugal, Prudential, and Hopeful Trade: Privateering in Jamaica, 1655 - 1689", reprinted in the book West Indian Business History: Enterprise and Entrepreneurship.

Rather than looking at the "glamour and excitement" of privateering, Zahedieh emphasizes the business aspects of the trade.  He states that: "Given Jamaica's strategic location ... and the island's capture, it is not surprising that the first settlers, many from the conquering army, enthusiastically took to plunder".  The primary target was the Spanish Empire "... and the prominence of privateering in early English Jamaica derived first and foremost from the island's geographic location in the heart of the Spanish Indies convenient for the major ports and straddling the principal trade routes".

According to the website of the Jamaica National Heritage Trust, Port Royal was first used by Tainos as a fishing camp when only a sand spit.  The Spanish used it for cleaning, refitting and caulking their ships.  But, the English realized its "strategic importance" and fortified it.  Records of business life in Port Royal during the 1660's clearly indicate the importance of privateering.  In fact, the privateers "spent much of their money in Port Royal, which had the most convenient harbour, best supplies and best market for prize goods in the Caribbean". 

The modus operandi of the privateers was to commandeer ships with cargo with minimal confrontation.  But, land expeditions were more profitable.  Between 1655 to 1671, privateers sacked 18 cities, 4 towns and over 35 villages.  These expeditions are testimony to the island's strategic geographic location.  In fact, records indicate that the very nations mentioned earlier were targets of such expeditions.  Chrostopher Myngs raided Cuba in 1662; smaller towns in Hispaniola and Cuba were repeatedly plundered; and, Sir Henry Morgan captured Panama in 1671.  In the 1680's, privateers even crossed Panama's isthmus to the Pacific Ocean, and "caused havoc up and down" its coast.

"Whilst the returns to those serving aboard the privateers was often relatively paltry, men in the port made great gains.  Not only investors and creditors benefitted.  The influx of men with money were so great that repercussions rippled right through the Port Royal economy".  In 1668, Sir Modyford explained that the exploits of the privateers created "excellent opportunities" to any with money in Port Royal: opportunities for profit far greater than existed in England at that time. "We often ... double nay treble our money without any hazard".

Port Royal was destroyed by an earthquake in 1692, by which time it had become an important economic centre.  In the following century, the merchants moved across the harbour to settle in Kingston, the present capital of Jamaica.  Though Port Royal would again become a famed British naval station, today it has reverted to a quiet fishing village overlooking the bustling port of Kingston. If history were to repeat itself, could the port of Kingston lay "a good foundation ... for great increase" for Jamaica?

Could Kingston become that important economic centre Port Royal had become?  On the face of it, the sad response is no.  But, on closer inspection Kingston, probably by serendipity, seems to be preparing for such an eventuality.  According to the article "Hylton to Press Ahead With Offshore Centre", appearing in the Gleaner dated 17 February 2012, Don Wehby - then Minister without portfolio in Jamaica's Ministry of Finance - "identified the Kingston Waterfront as the intended base of the International Financial Services Centre".  An act was passed in February 2011 to create this new statutory body; the board has been appointed and is presently serving a two year term, ending on 26 February 2014.

In addition, the Planning Institute of Jamaica [PIOJ] has published a document titled "A Growth-Inducement Strategy for Jamaica in the Short and Medium Term", dated December 2011.  It lists three development projects planned for Kingston: Downtown Kingston  Redevelopment, West Kingston Commercial Lifestyles Centre, and the logistics infrastructure.  Commenting on the "Kingston Lifestyles' market brand", PIOJ states that it "would be based on a strategic clustering of the economic, cultural, historical, social and geographical assets, and business opportunities, that competitively advantages downtown Kingston as a commercial zone".  It would therefore seem that, if these projects proceed as planned, the only question that needs be asked is if history will indeed repeat itself.


Posted by phcjam at 10:31 PM EDT
Updated: Sunday, 7 July 2013 5:43 PM EDT
Saturday, 11 May 2013
Nation Burned while Government played the Fool
Topic: Strategic Planning

William Saunders, Energy Consultant, penned an article titled: More Lessons from the Past – Missed Energy Opportunities in Jamaica’s Sunday Gleaner, dated 21 April 2013.  In it, he outlined Jamaica’s failure to act upon initiates to diversify its energy mix and promote development of indigenous sources of energy: beginning in 1978, when Jamaica first formulated its energy plan.  He ends the article with the statement:

“Can you imagine where we would be today had a small fraction of these (available) funds been used to finance the hydro power development, waste-to-energy, as well as wind energy?  Furthermore, since the fuel they would have replaced is US $-denominated, loans for renewable energy projects are essentially devaluation risk free.”

The dollar devalued by an average annual rate of 212.6% from 1970-2005.  Devaluation in a globally competitive economy normally boosts exports and increase GDP growth, but not in Jamaica.  Dr. Michael Witter documented his assessment of Jamaica’s exchange rate policy from 1962 onward in an academic paper titled: “Exchange Rate Policy in Jamaica: A Critical Assessment”.  He concluded that devaluation had the effect of inflating the value of imports significantly over that of exports.    From 1990-2006, GDP grew 1.1% on average while energy use grew 2.5% per annum.  In 2006, the value of oil imports amounted to 87% of export earnings.

Zia Mian, a retired senior World Bank official and international energy consultant, states in an article entitled “Jamaica’s Energy Challenge – part III”, in the Sunday Gleaner dated 30 March 2008, that: “Jamaica’s economy is relatively energy intensive.  Per capita energy consumption is estimated at over 10 barrels of oil equivalent (boe)”.  Jamaica has one of the highest rates of energy consumption in Latin America and the Caribbean region.  This is mainly due to the heavy usage of the bauxite/alumina sector.  The oil consumption per sector from 2004-2011 is shown in table 1.  It should be noted that there was a marked decline in total oil consumption in 2009, more in 2010, and an increase in 2011: the exact pattern of the bauxite/alumina sector.

Table 1: Jamaica's Oil Consumption per Sector (‘000BBLS)

         
                 

SECTOR:

2004

2005

2006

2007

2008

2009

2010

2011

Transport

6,076

6,248

6,373

6,080

5,835

6,403

5,648

6,012

Electricity

6,226

6,555

6,390

6,654

6,275

6,662

6,578

6,529

Bauxite/Alumina

9,444

9,799

9,552

8,808

9,392

3,494

2,885

3,753

Shipping/Aviation

2,161

3,203

5,224

5,904

4,404

3,882

3,768

3,514

Other

1,629

1,521

1,625

1,281

1,212

1,157

1,139

1,195

TOTAL =

25,536

27,326

29,164

28,727

27,118

21,598

20,019

21,003

Source: Data derived from Ministry of Science, Technology, Energy and Mining

Carlton Davis, former Cabinet Secretary and chairman of the Jamaica Bauxite Institute, stated in an article entitled: “Energy Cost and our Economic Future – Future of Alumina Sector Hinges on Energy Cost”, in the Mona School of Business Nov/Dec 2011 issue, that:

 “Given the importance of the cost of energy in the production of alumina and the consensus that oil will be more expensive over the long-term than natural gas or coal it is incumbent that oil is replaced by one of these two fuels.  However, it is necessary for the industry to increase the efficiency of whatever fuel is used.  Given what is at stake the Government has a lead role in affecting this transformation.”

However, the volume of oil consumed by each sector is not commensurate with their actual energy cost.  In 2008, the transportation sector used 21.52% of oil by volume, but this represented 40% by cost, because it uses a more refined product which is more expensive.  The cost to import fuel into Jamaica between 2008 and 2011 is shown in table 2.  Fuel is by far the largest expenditure on imported goods.  With the exception of 2009 and 2010, the cost of importing fuels was greater than half of the returns from exports.

Table 2: Trade in Goods  & Services [J$’000]

     
         

Year:

2008

2009

2010

2011

Exports:

418,360,800

367,316,800

361,232,600

383,865,600

Goods

180,630,391

116,355,584

116,449,101

139,533,852

Services

237,730,409

250,961,216

244,783,499

244,331,748

 

 

     

Imports:

714,509,600

558,285,200

571,607,900

668,087,200

Fuels

226,802,098

124,996,495

147,081,190

209,816,388

Other Goods

361,461,471

161,141,521

174,444,804

312,036,055

Services

126,246,031

272,147,184

250,081,906

146,234,757

Source: Data derived from the Statistical Institute of Jamaica

Going forward, there are a number of promising signs in the electricity, bauxite/alumina, and transport sectors.  But, the shipping/aviation sector should not be overlooked.  Its consumption has risen through the years and prior to the global recession, which started in 2008, was almost on par with the transport sector by volume.  As the global economy recovers and Jamaica completes its logistical hub, in preparation for the widening of the Panama Canal, this sector could easily overtake the electricity sector in energy use.

The existence of relatively cheap oil imports as prevailed in the 1950s through to the OPEC action in 1973 factored in Jamaica’s economic growth.  But, the international oil market has changed.  Oil prices have hovered around US$100 per barrel since the end of the last decade and prices of US$150 – US$200 per barrel are projected on recovery from the global recession.  Table 2 shows that Jamaica has a serious trade deficit, and oil is a major contributor to this.  As in the case of the bauxite/alumina sector, the economy has become uncompetitive significantly due to the high cost of energy.  So, promising signs seen on the horizon need to produce tangible results.  Otherwise, foreign governments and merchants who have profited from trade with the nation shall stand at a distance to lament over its passing.


Posted by phcjam at 2:40 PM EDT
Updated: Wednesday, 29 May 2013 10:38 PM EDT
Saturday, 20 April 2013
Singapore: Example to the Caribbean in Doing Business
Topic: Strategic Planning

In the Competitiveness of Small Nations: What matters?, Densil Williams and Beverly Morgan analyze the competitive performance of Singapore, Barbados, Jamaica, Trinidad and Tobago under the “Global Competitiveness Report” over a period spanning 2004/5 to 2010/11.  Singapore consistently outperformed the Caribbean nations.  Smallness is typically seen as a disadvantage to competitiveness, but Singapore shows that this can be overcomed.  Since 2007/8, it has ranked in the top five most competitive nations in the world.  But with a per capita income rivaling western European nations, one could argue that this is an unfair comparison.  However, Williams et al explain that all these countries had similar economic structures, history, and institutions during the 1960’s: Singapore has just attained a greater level of development.

 

In “Doing Business 2013” – the Global Competitiveness Report for the period 2011/12 – Singapore was ranked the most competitive nation of the 185 nations examined.  Puerto Rico was the highest ranked Caribbean nation at 41.  Trinidad and Tobago was highest Caribbean nation studied by Williams et al, at 69, overtaking the usually more competitive Barbados, which was ranked 88; just ahead of Jamaica, at 90.  An article in Jamaica’s Daily Observer of 5 April 2013 read: “Gov’t to improve Jamaica’s Ratings for Doing Business – GG”.  The Jamaican government plans to improve  on laws, procurement procedures, use of information and communication technology, risk management, government services and macroeconomic management.

 

The Global Competitiveness Report analyses ten criteria across four stages of the business cycle, namely: start-up, expansion, operation, and insolvency.  In the interest of time, I shall focus on the operation stage, which involves four criteria: dealing with construction permits, getting electricity, paying taxes, and trading across borders.  Since my expertise is primarily in the Real Estate and Construction Industries, I will further narrow the scope of this discussion to the criterion “dealing with construction permits”.

 

For this criterion, rankings of the Caribbean nations are significantly different from the overall ranking, but Singapore still excels, with a rank of 2.  There construction permits undergo eleven procedures; this lasts 26 days, and costs 16.7% of the per capita income.  Jamaica ranks next highest in the group at 50: requiring eight procedures, 145 days and costing 212% of per capita income.  Barbados follows closely with 53: requiring ten procedures, 416 days and 83% of per capita income; followed by Trinidad and Tobago at 101: requiring 17 procedures, 297 days and 5.3% of per capita income.

 

For this criterion, St. Vincent and the Grenadines ranked 5th and Grenada 10th.  So, these could be case studies for the larger Caribbean islands considered here.  But, it is unacceptable for Jamaica to issue a construction permit in the time it takes Singapore to issue five; or, Barbados to issue a construction permit in the time it takes Singapore to issue sixteen.  It should now be obvious how Singapore has developed more than its Caribbean counterparts since the 1960’s. 

 

In fact, Singapore had less than 2% unemployment in the third quarter of 2012.  It had a budget surplus of o.7% of gross domestic product in 2011.  And, its construction industry grew by 11.6% from 2007 – 2011, by which time it was worth £14.6 billion: this industry is also projected to grow by approximately 5% per each year up to 2016.Technology is used to advantage by Singapore.  According to Williams et al. “The state of technological readiness in any country will impact on its ability to increase productivity, for technology helps to drive greater efficiency and thus improves output and performance”; and “technology as an enabler to improved competitiveness in the Caribbean is clearly an area that needs much attention”.

 

As early as 1995, Singapore’s Ministry of National Development implemented a project called CORENET: which stands for COnstruction and Real Estate NETwork.  Its objective was to re-engineer processes in the construction industry to achieve faster turn-around times, as well as increasing productivity and quality.  CORENET was implemented by the Singapore Building and Construction Authority in collaboration with other public and private organizations.  An IT infrastructure was developed to facilitate integration of processes in a building’s lifecycle, namely: design, procurement, construction and maintenance.

 

The current effort provides information services to speed up business planning and decision making; electronic building plan submission, checking and approval; as well as IT standards for communication between involved parties.  The benefits involve provision of one-stop convenience for private and public sectors alike; one-stop submission of plans to multiple agencies from any location at any time; online access to check submission status; and single billboard for approving authorities to post submission status.

 

While our Caribbean nations are still submitting paper-based drawings, which to a large extent are hand-drawn, Singapore has for almost two decades developed a digital one-step process of dealing with construction permits.  The moral of this story is that development takes foresight, planning, and diligent implementation of our plans. We have to acknowledge that Caribbean nations are uncompetitive, be willing to change, and apply bold and innovative solutions.  We cannot expect to improve our competitiveness by doing the same thing day in and day out.    Fortunately the global competitive report allows us to benchmark our performance against competing nations.  Low growth results from a lack of competitiveness.  Competitiveness results from using resources more productively, and “when productivity is high, economic growth is high”.


Posted by phcjam at 2:25 PM EDT
Updated: Saturday, 11 May 2013 7:21 PM EDT
Tuesday, 2 April 2013
Leadership for Vision 2030 Jamaica
Topic: Strategic Planning

PH5DRTFUDMGA

One line of the Jamaican National Anthem reads: “Give us vision lest we perish”.  Vision 2030 Jamaica provides a national development plan for making “Jamaica, the place of choice to live, work, raise families, and do business”.  Michael Porter, of the Institute of Strategy and Competitiveness, Harvard Business School, states that competitive advantage of nations accrues from distinguishing itself from competing nations and developing on differences in history, infrastructure, institutions, culture and factors involved in the ways people live and do business.Porter’s framework for achieving this strategic advantage requires government to play a purely facilitatory role.  But, Dr. Densil Williams, co-author of Competitiveness of Small Nations: What Matters? disagrees: stating that government needs to play a pivotal role in small developing nations, like Jamaica.  This needs to be clarified if Jamaica is to achieve its Vision 2030 objectives: especially since “transformational leadership” is one of the guiding principles on which Vision 2030 is based.  I would recommend that the government seek the path of partnership, which happens to be another of Vision 2030’s guiding principles: partnership internationally, regionally, and locally: as well as inter-ministerial collaboration.Jamaica needs these guiding principles in operation right now to achieve Vision 2030.  As an illustration, I will now refer to Jamaica’s proposed logistics hub, which promises to be the logistics hub of the Latin America and Caribbean [LAC] Region, as well as the U.S. Gulf and East Coasts.  When complete, it will be the fourth global transhipment logistics hub: the others being located in Singapore, Dubai, and Rotterdam.  Dr. Williams’ book presents the performances of Singapore, Jamaica, Barbados, Trinidad and Tobago as recorded in “The Global Competitiveness Report” over the last five (5) years and he concurs that Jamaica seems to have a competitive advantage in port infrastructure.  An ideal location midway between North and South America, in close proximity to the Panama Canal contributes to this advantage.  The Panama Canal will be widened by 2015 to accommodate wider ships and Jamaica hopes to capitalise on this by expanding its port facility and affiliated infrastructure spread over four south coast parishes: namely Kingston, St. Catherine, Clarendon and St. Thomas.An IDB (2010) study on the productivity of the LAC region concluded that “ports and airports are grossly inefficient.  Dr. Williams’ book also points out weaknesses in Jamaica’s current port infrastructure that needs to be addressed by the Ministry of Industry, Investment, and Commerce [MIIC] and the Port Authority.  He states that it takes twice as long to export a shipment from Jamaica compared to Singapore; and it costs four (4) times more.  Bear in mind that Singapore is the reputed leader in port infrastructure since 2003, and its scale of operations is significantly larger.  But, this indicates partnership with international expertise should be explored to correct these weaknesses: be it inter-governmental or with the foreign private sector.

 

To MIIC’s credit, it has recognised that the logistics hub will generate 10,000 jobs and has formed a human resource working group with stakeholders the Ministry of Education in its logistics task force;  this group being headed by Dr. Fritz Pinnock – Executive Director of the Caribbean Maritime Institute.  Speaking at the recently concluded stakeholders-consultation at the Shipping Association of Jamaica, the MIIC Minister Hon. Anthony Hylton emphasized that Seventy percent (70%) of employees at the Dubai logistics hub are foreigners, but “we want to train our people to fill the jobs and vacancies that are here”.  However, two (2) years is not enough time to train the amount of people needed.  Even though this is an example of inter-ministerial collaboration, regional and international assistance is required.

The previously mentioned IDB study pointed out that the poor performance of LAC ports and airports was partly to blame on inadequate physical infrastructure but, more importantly, on support activities involving the movement of cargo and inefficiencies due to inadequate regulations, lack of competition for services, and deficient operation procedures and information systems.  Furthermore, Dr. Williams states that “high transportation cost for moving goods in Caribbean countries has been cited as one of the major drivers of low levels of productivity”.  This begs the intervention of the Ministry of Transport and Works.  Jamaica also has no railway network, and this could be helpful in connecting the four parishes over which the logistics hub is spread.  Possibly partnership with regional concerns could also prove beneficial here.

Dr. Williams also notes that “Jamaica is highly uncompetitive in the supply of electricity”.  This needs to be addressed by the Ministry of Science, Technology, Energy and Mining, electricity providers, and the Port Authority themselves.  No single ministry can accomplish all that is required and, with limited resources available, partnerships with other governments and the private sector is inevitable.  The World Bank Group has already endorsed the establishment of the logistics hub and has “pledged to help find funding”.  The MIIC Minister has also been to Europe, Asia and Panama to promote the logistics hub, as well as the Jamaican Chamber of Commerce.  Nevertheless, Porter instructs that everything is important for competitiveness, and Dr. Williams states that countries with a colonial past that have achieved high levels of productivity have adopted not only their political, but also their legal and economic institutions to the reality of their environments.  So, much more remains to be done.

PH5DRTFUDMGA


Posted by phcjam at 11:12 PM EDT
Updated: Thursday, 27 June 2013 9:02 PM EDT
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
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

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