Build It, Sell It, Distribute It — Reimaging Jamaica’s future economy now
The Country Director, World Bank Caribbean, Tahseen Sayed, is spot on when she says:
During these challenging times, let us pause and rethink the future opportunities for economic diversification in the Caribbean.
She is inviting us to #RethinktheFuture of the Caribbean. I will take a step further and say let us #RethinktheFuture and #reimaginethefuture of Jamaica as a Logistics Centred Economy.
And why not?
The need for Economic Diversification
Ms. Sayed in calling us to #RethinktheFuture of the Caribbean draws in shape focus the need for economic diversification in the Caribbean. The Covid-19 pandemic has brought squarely home the social and economic risks and the associated consequences of a lack of economic diversification in the Caribbean.
The over dependence on one industry, tourism, tells the tale.
Just think about this for a second according to a United Nations Conference on Trade and Development (UNCTAD) report — Impact of the COVID-19 pandemic on trade and development: transitioning to a new normal — tourism represented as a share of total exports:
- 54% of Jamaica’s exports
- 64% of Barbados’ exports
- 80 % of Aruba’s exports
- and a whopping 89% of St. Lucia’s exports.
Now just imagine having most of those exports evaporate.
Well, sadly we don’t have to imagine, this is all too real for the people of the Caribbean.
COVID-19 to put in mildly has landed a tremendous body blow to the economies of the Caribbean and tourism in many respects has taken the hardest hit.
According to the Inter-American Development Bank (IDB) fourteen of the 15 most tourism-dependent nations in the Americas are in the Caribbean and Jamaica is one of them.
Along with representing 54% of Jamaica’s exports tourism represents 33.9% of Jamaica’s GDP, employed 120,000 people directly, and generated another 250,000 indirect jobs, making Jamaica one of the most tourism dependent nations in the world.
It cannot be over stated Caribbean economies are (over) dependent on tourism. The consequences for are real as,
But is does not necessarily have to be this way.
Let us take Jamaica as a case study for potential diversification of the Caribbean economies.
Logistics Centred Economy
Let us take a second or two to imagine Jamaica with a high Gross Domestic Product (GDP), positive social indicators representative of a high quality of life, low unemployment with high quality jobs, etc. In effect, think of Jamaica as a developed state.
Jamaica, the Singapore of the Caribbean.
Jamaica, a logistics centred economy.
But what exactly is a logistics centred economy?
A logistics centred economy simply defined is an economy based on logistics.
That is to say, the efficient organization and management of the flow of materials, people, services, financial resources, and data involved in production, distribution, and consumption of goods and services inside of the country.
Another related perspective is that a logistics centred economy is in essence the physical and technological means to organize and manage the movement, distribution or production of various flows (material, human, financial, data, etc.) in the economy and connect those flows both locally and globally.
Logistics is the one industry that supports all other industries.
Consequently, Jamaica’s logistics centred economy, is just that, an economy centred on logistics. This however does not mean a logistics only economy.
In imaging Jamaica as as logistics centred economy I am inviting you to look at the whole supply and value chain — from conceptualization of ideas to research & development, to design, to production, all the way through to consumption and with greater emphasis being placed on being sustainable, all the way to recycling — to see where along this line of activities Jamaica could participate?
I am inviting you to imagine Jamaica diversifying its economy by ValuStacking.
That is to say an economy based on the efficient and effective movement of goods, services, people, money and data from point A to point B, while of course ValuStacking — creating, adding and capturing value — along the way.
This will require constantly and consistently examining and re-examining global supply and value chains of a variety of goods and services to see how value could be created, added and or capture — ValuStack.
In the simplest of terms Jamaica’s logistics centred economy is about Build It, Sell it, Distribute It, from the world to Jamaica and Jamaica to the world.
It should be noted that:
In the two decades before the COVID-19 pandemic, the annual value of intermediate goods exported across borders tripled, to more than $10 trillion, giving rise to an intricately choreographed production system.
But build what? Sell what? Distribute what?
Global supply chains
There is no doubt that global supply chains have been disrupted, cracked, broken, whichever adjective you want to use.
As such, many may question the efficacy of a growth strategy based in large part on global trade. Fair enough.
However, it is this very disruption, as you will come to see, that presents some unique opportunities for Jamaica, Jamaican businesses and the rest of the Caribbean. Again more on that later.
It is important to note that global trade and the supply chains that support it while severely impacted were far from eliminated. Covid-19 slowed global trade and production greatly but did it stop it.
Trade marches on.
According to UNCTAD’s Global Trade Update published in February 2021:
Overall, world trade recorded a drop in value of about 9 per cent in 2020, with trade in goods declining by about 6 per cent and trade in services decreasing by about 16.5 per cent.
The report went on to further to state:
The effect of COVID-19 on global trade was most severe during the first half of 2020 with a drop in value of about 15 per cent. Global trade began to recover in Q3 2020 and more strongly in Q4 2020. The recovery in the second half of 2020 was largely due to the rebound of trade in goods. Trade in services continues to lag substantially below averages. In Q4 2020 global trade in goods grew by about 8 per cent on a quarter-over-quarter basis while trade in services stagnated at Q3 2020 levels.
The continued development of Jamaica into a logistics centred economy presents to my mind an opportunity first to cushion, along with other fiscal, monetary and commercial strategies, the economic fallout from COVID-19.
Secondly, to paraphrase world-renowned economist Richard Baldwin, economic stimulus packages being implemented should act as shields to protect the economy from the medium to long term impact of COVID-19.
Thirdly, to set the foundations for a restructured Jamaican economy that will thrive in a post-COVID world.
The economic diversification inherent in transforming Jamaica into a logistics centred economy is focused on tapping into both goods and services global value chains. What we are taking about is big money. According to a McKinsey and Company study, Globalization in Transition: The Future of Trade and Value Chains,
“In 2017, gross trade in services totaled $5.1 trillion, a figure dwarfed by the $17.3 trillion global goods trade. But trade in services has grown more than 60 percent faster than goods trade over the past decade.”
In contrast the World Bank has Jamaica’s GDP listed at USD $14.806 billion in the corresponding year. Now just imagine if Jamaica captured just 0.01% of the $17.3 trillion global goods trade and or $5.1 trillion of the global services trade?
This is what it would mean for Jamaica if let us say we attracted 0.01%:
- 0.01% Global Goods Trade = $1,730,000,000. That equates to adding 11.68% to Jamaica’s 2017 GDP.
- 0.01% Global Services Trade = $510,000,000. That equates to adding 3.44% to Jamaica’s 2017 GDP.
These are some serious numbers.
Now you may be thinking is this real? Is this even possible? Is this a real opportunity for Jamaica?
Can Jamaica really ValuStack? Can we really create, add and or capture additional value in our economy ranging from $510 million — $1.73 billion?
In a very engaging piece, Emerging Economies Have a New Imperative, published in Project Syndicate, authors Jonathan Woetzel and Mekala Krishnan, put forward that,
“All told, we estimate that up to one-quarter of global goods exports — worth $2.9–4.6 trillion annually — could feasibly shift to different countries in the next five years or so, though the potential varies considerably across industries.”
They further noted that:
“This movement need not lead to a wave of reshoring to advanced economies, particularly if it encourages nearshoring, or movement from one emerging economy to another. Nonetheless, it does create new imperatives for emerging economies that are eager to add jobs and develop their industrial base through export growth.”
The Covid-19 pandemic while being disruptive has also undoubtedly offered Jamaica, the Caribbean and other emerging economies an opportunity to diversify their economies. Woetzel and Krishnan make as such clear, stating that,
“The pandemic has delivered a wake-up call. Cost structures are changing across countries, and new technologies are gaining traction in global manufacturing. These developments could set the stage for supply chains to become more secure and productive; but emerging economies will need to prioritise their own resilience in order to claim a bigger share of global production.”
What Jamaica in its transformation as a logistics centred economy is offering to multinationals and the global trading system is a node of resilience. Jamaica is being offered up as a nearshore location for both manufacturing and services that adds further redundancy, stability, responsiveness to supply chains by acting as a platform to connect various production and services networks.
But Build what? Sell what? Distribute what?
This is where the rubber meets the road.
What should Jamaica produce?
This is a very important question and one lucky there are several sources to pull from. We will explore three below:
- Jamaica Logistics Hub Initiative: Market Analysis and Master Plan
2. The International Trade Centre’s Export Potential Map
3. Harvard’s Atlas of Economic Complexity
1. Jamaica Logistics Hub Initiative: Market Analysis and Master Plan
The over 400 page report identifies several industries and the goods and services associated with them. These include but are not limited to:
a. Agro-processing
b. Pharmaceuticals manufacturing and distribution
c. Medical devices manufacturing and distribution
d. Information Communication Technology and Business Process Outsourcing
2. The International Trade Centre’s Export Potential Map
The Export Potential Map identifies products, markets and suppliers with (untapped) export potential as well as opportunities for export diversification for 226 countries and territories and 4,377 products.
See below for a a snapshot of 25 products the Export Potential Map has identified that could diversify the Jamaican economy. Click here to see more.
3. Harvard’s Atlas of Economic Complexity
The Atlas of Economic Complexity is an award-winning data visualization tool that allows people to explore global trade flows across markets, track these dynamics over time and discover new growth opportunities for every country.
See below for a a snapshot of 4 products, which is part of a list of 50, that the Atlas of Economic Complexity has identified that could diversify the Jamaican economy. Click here to see more.
Conclusion
Economic diversification for Jamaica and other Caribbean economies is not just possible it is an imperative. It is as Woetzel and Krishnan, stated in Emerging Economies Have a New Imperative,
“The pandemic has delivered a wake-up call.”
Now its the time get up and act.
