Jamaica Should Take Full Advantage Of Sports Tourism

Why sports?

THE ISSA/GRACEKENNEDY Boys and Girls’ Championships held at the national stadium last weekend was a phenomenal event. Jamaica’s young athletes broke more than 30 records over the five days, which has convinced many that this is the best championships ever held.

Athletic scouts, coaches, and other sports interests from all over the world came to watch the young athletes participate while at the same time enjoy Jamaica’s ‘No Problem’ culture.

Also, this coming Friday, Jamaica’s men’s national football team, the Reggae Boys, will play against Panama at the national stadium in a World Cup qualifier, in the final round of matches to try and make it to the World Cup next year in Brazil. Panamanians and other tourists are expected to travel here for this event, which is a highly anticipated fixture. With all these events, can Jamaica strategise to take full advantage of sports tourism?

What is sports tourism?

Travelling to participate or watch sporting events has been increasing worldwide as tourist try to double up on their travelling experiences. This sports tourism is a fast-growing sector in the global travel industry and is said to value approximately US$600 billion a year.

Many countries have been formulating their sports tourism strategies to take advantage of this increasingly growing sector. Australia, for example, has been benefiting massively from sports tourism. Currently, it represents approximately five per cent of its gross domestic product earning – about $3 billion per annum.

They have distinguished between domestic and international sports tourism, defining domestic sports tourism as any sports-related trip involving staying away from home for at least one night or more, while international sports tourism is a trip to the country, with the primary purpose to participate, or be a spectator or an official. Given Jamaica culture, its strategy should focus on international sports tourism, which could boost the country’s foreign-exchange inflow.

What is the strategy?

Countries will not benefit much from sports tourism if the sports and tourism sectors are not properly coordinated. Industry coordination is outlined as one of the main strategies for a country. Australia’s strategy outlines that proper coordination between the sports authorities, tourism authorities and business people at both the parish and national level can increase linkages, thus allowing the country to benefit more.

Their strategy identifies that for country to fully capitalise on the benefits of sports tourism, the linkages between sports and tourism must be well defined. Traditionally, sporting events are organised for sporting purposes only, with less emphasis on the tourism aspect, which has resulted in lost opportunities.

What will facilitate these linkages?

Education and training are important components to link the sports and tourism sectors. Australia realises that for sports to have its desired tourism effect, sporting event organisers must learn the business skills necessary to coordinate successful events, and at the same time recognise and take advantage of the tourism component that accompanies the hosting of these events.

Education and training can be made available through local universities and must be affordable and appropriate to suit the specific needs of the industry. Research and data collection are also necessary to move the industry forward.

If Jamaica wants to advance as a sport-tourism destination, proper data must be collected from tourism sporting events to help analyse the industry’s contribution to national growth as well as how to structure the sectors to achieve efficiency.

Can the Government help?

Government regulations as well as the ease of doing business in a country will play a major role in facilitating the success of sport-tourism activities. There are several aspects that must run smoothly, for example, the need for road closures during an event, or the issuing of visas to tourists or the granting of licences/permits for certain facilities. The culture of everything and the frame of mind of everyone surrounding the sporting village must be centred on the specific sporting event. This will enable Jamaicans and tourists to maximise from the experience.

What is the role of infrastructure?

Good infrastructure is very important to the success of sports tourism ventures. The specific venues where the events are held must meet international standards and must be user-friendly to foreigners.

The infrastructure outside the venues is equally important, good airport facilities will help tremendously, and essentially, accommodation must be available for all the visitors. The Commonwealth advises that all countries wishing to engage in sports tourism ventures must conduct a facilities audit to see what facilities and what standards exists in the country and to identify what facilities and standards are needed. If Jamaica strategises, the country might be able to boost growth through sports tourism.

Global Growth Projections Predominantly Positive

What is the global outlook for the second half of 2014?

ACCORDING TO the International Monetary Funds’s (IMF) World Economic Outlook (WEO) October 2014, the world economy is expected to grow at an average rate of 3.7 per cent this year.
Improvements in growth projections are endorsed by a slightly better global economic performance in the second half of the year relative to the first half. This increase in economic growth globally in the latter part of the year can be attributed to adjustments to government policy to facilitate growth in the more advanced economies, which will increase world demand as a result of increased income.
What are the projections?

The WEO October 2014 explains that growth in the more developed countries, including the US and China, will pick up towards the end of the year. Growth is expected to be restored as temporary disadvantages to demand and production arising from geopolitical and other issues gradually disappear. The revised global output projection for US and China are projected to improve. Growth for other countries, however, are expected to be slightly less than that which was predicted earlier this year, with a minor decline in growth projections for Japan, the Middle East, the euro area, Latin America and emerging markets.
What will drive growth in the US and China?

Growth in the US is expected to average roughly three per cent in the second half of 2014. Improvements in economic growth in the US will arise from the implementation of the correct monetary policy stance and good conditions in financial markets balanced by a more favourable fiscal policy, stronger household income and restored strength in the housing market. The increase in output and demand should result in lower unemployment rate, which might not appear so if the labour force participation rate increases.
Growth projections in China are expected to be less than predicted earlier this year due to weak first-quarter performance in 2014. The government has subsequently altered fiscal policy providing tax breaks and incentives to business to improve performance.
Subsequently, growth in output will continue to increase and the country’s economic performance is expected to be better towards the end of the year.
What about growth for other advanced economies?

Growth projections for other advanced economies are expected to improve towards the latter part of this year. Growth in the euro area is expected to average 0.8 per cent, a slightly weaker projection made earlier this year. Growth in the second half of the year is expected to be better than growth in the first half of the year arising from an improved fiscal and monetary policy stance.
Growth projections are positive for the other advanced countries, including the UK, Canada and Sweden. Growth for the UK, in particular, is expected to be approximately 3.2 per cent this year, slightly better than the original predictions. This will arise from marginal improvements in consumption patterns and business investments, along with improved credit and financial market conditions.
What about emerging markets and developing economies?

Increases in demand in the more developed countries will help to drive growth in emerging market and developing countries. Growth in deve-loping countries, including Jamaica, is expected to improve towards the latter part of this year due to increased domestic demand, global demand and better overall market conditions arising from faster growth in the more advanced economies. Global growth will be driven by growth in the more developed countries and emerging markets, with less growth occurring in the developing world.
Growth projections, although positive, are slightly less than that predicted earlier this year due to weaker-than-expected performance in the first quarter of 2014.
What about Jamaica?

Economic projections for Jamaica remain positive towards the end of the year. Growth is expected to be little over one per cent, the usual. Based on the IMF agreement, a primary surplus of 7.5 per cent of GDP must be maintained, which limits fiscal policy as a tool to propel growth further. Doing business requirements have improved on the index. However, tax rates remain high and small businesses still face problems when trying to access credit. Overall, unless there is a permanent positive productivity shock, do not expect any astronomical increase in economic growth this year or any years to come.

Current Account And Exchange Rate Dynamics

THE 46th annual Caribbean Monetary Studies Conference is under way this week at the Central Bank of Trinidad and Tobago, under the theme, ‘Macro prudential supervision, financial stability and monetary policy’.
Every year, the conference provides a high-quality discussion forum for aspects of macroeconomics, monetary policy and international financial economics for academics, professionals and central bankers. It is held in a different Caribbean country each year, and gives researchers the opportunity to present their work and engage in meaningful discussions on regional and global financial issues. I will present today.

What is the focus of my research paper?

My research, titled ‘Current Account and Real Exchange Rate Dynamics in the Caribbean and Latin America’, analyses the current account as a percentage of gross domestic product (GDP) interacting with the real effective exchange rate in response to temporary monetary shocks and permanent productivity shocks in Jamaica and four Latin American countries; Brazil, Chile, Costa Rica and Mexico. Data on the real effective exchange rates, the current account and real gross domestic product from 2005 to 2014 for all countries are regressed in appropriate econometric models to provide useful results.

Why is the issue relevant?

The relationship between current account and the exchange rate must be investigated thoroughly, since Jamaica, for example, has recently entered a new Extended Fund Facility arrangement with the International Monetary Fund. Recommenda-tions here imply that Jamaica can improve competitiveness by facilitating a depreciation of the exchange rate relative to the benchmark US dollar.
Jamaica’s high propensity to consume foreign goods and services, with less to supply to the rest of the world, has resulted in continuous negative current-account balances. The usual policy recommendation to correct a weak current account position is to allow the exchange rate to depreciate to increase a country’s competitiveness, such that the country’s exports appear cheaper to foreigners and imports appear more expensive.

How should this work?

The increase in external prices should reduce the country’s demand for foreign currency, given less demand for foreign goods with higher prices. At the same time, exports should increase as Jamaica’s goods and services become cheaper to the rest of the world. This should gradually eliminate any discrepancy between imports and exports, resulting in an improved current-account balance. This approach, however, might present some problems if a country has inelastic demand for imports (oil, etc), if the country has high volume of imported inputs in its production process or if a country has high volume of debt denominated in foreign currency.
In this case, the price of domestic goods and debt servicing are direct functions of the exchange rate depreciation. The cost of finished goods increases as the exchange rate depreciates, mitigating any favourable price advantage it might have received.

What are my results?

For all five countries, the exchange rate appreciates over the first two quarters in response to a positive temporary monetary shock as the effect gradually disappears around the fourth quarter. As the exchange rate appreciates, the current account position improves marginally in Brazil, Chile, Jamaica and Mexico over the first couple of periods as the effect disappears after about four quarters. Costa Rica’s current account position worsens in response to a temporary monetary shock, but the effect disappeared after about three quarters – similar to the other countries.

How does the exchange rate and current account respond to productivity shock?

The real effective exchange rate showed appreciation to a positive permanent productivity shock in Brazil, Chile, Jamaica and Mexico, but depreciated in Costa Rica. Additionally, the current-account balance for Brazil, Chile, Jamaica and Mexico improved in response to a positive permanent productivity shock. Our results pose a puzzle similar to the research of Lee and Chinn (2006) who found similar results for the G7 countries, except the US. The puzzle arises since it is expected that a current account should only improve when exchange rate depreciates based on economic theory; whether the shocks are interpreted as productivity shocks or the portion of monetary shocks that affect the current account. The data have revealed otherwise. This is not so in the Caribbean, Latin America and the G7 countries. Overall, the results have highlighted that a permanent positive shock to productivity can result in an improved exchange rate, as well as a better current account position not only in Jamaica but in Latin America and the G7 countries as well.

Jamaica’s Limping Economic Growth (Technology in the Solow Growth Model)

ACCORDING TO the International Monetary Fund’s economic outlook, gross domestic product (GDP) growth in the Caribbean is expected to be 1.1 per cent this year.

GDP growth for Jamaica in particular is expected to be 1.3 per cent this year, with a corresponding inflation rate of 9.1 per cent and an unemployment rate of close to 14 per cent. Output in Jamaica and other Caribbean nations is largely based on tourism inflows. These economies are largely service-led economies, which will not get better substantially unless growth in North America and Europe improves. This state of dependency has been the situation for decades, and must rearrange if Jamaica wishes to increase growth beyond the less than one per cent average per annum it has been materialising consistently over time.

How do countries grow?

The last time we explored growth, we used the Solow Growth model to analyse how some countries are able to increase wealth and grow faster by accumulating capital, and the theory surrounding how to manage population growth.

Today, we will incorporate the impact of technological progress on growth, explore how the Government can help to promote growth, and briefly visit the empirical evidence surrounding growth theory.

What is the importance of technology?

An important factor necessary to increase growth is how efficient a country uses its labour. This labour efficiency looks at how countries’ knowledge of a production process improves as technology improves. It shows how fast a country absorbs and incorporates new technology into its production process.

The better a country is at incorporating new technology, the more efficient will be its labour employed and faster the country will grow. In this case, labour efficiency improves as technology advances. Each hour contributes more to the production process and total output increases. Jamaica has a productivity problem. Over the last two decades, labour productivity has been consistently falling, indicating that the country has not been absorbing technology very well and therefore has not been making production processes simpler on average.

In the Solow Growth model, only technological progress can cause sustained economic growth and a rise in standard of living of everyone (inclusive of growth). This means that if Jamaica is slow in incorporating technology in its production process, it will have slow growth and marginal increases in standards of living. Jamaica will be slow at converging to what we define as its long-run steady state growth path.

What is the idea of convergence?

Different countries have varying standards of living and are at different places of their long-run growth path. The world’s richest countries enjoy 10 times more income than the world’s poorest countries. If poor countries grew at a faster rate than rich countries, then gradually over time these poor countries would also become rich. The process is referred to in economics as ‘convergence’. If poorer countries do not grow faster than richer countries, then convergence will not occur and some countries will remain poorer than others with a lower corresponding standard of living. According the Solow, the factors contributing to how or why countries converge in the long run depends on the reasons that made them different in the first place. In reality, there is little convergence between rich and poor countries as different countries have different steady states. In that case, what is important is not convergence, but conditional convergence.

What is conditional convergence?

Every country has its own country-specific characteristics: different levels of technology, productivity, culture, etc. Conditional convergence occurs when a country approaches its own long-run steady state growth path given its own initial starting position. A country that is richer at the beginning will maintain this over time if it continues on the same path of technology absorption.

Countries that are poorer will maintain their own poor path as well if technology absorption does not improve. The deciding factor is the rate at which a country absorbs technology and how the Government helps to create an economic platform that will not only assist the country absorb technology, but use it efficiently to improve labour productivity. Bearing in mind that technology can exist, but if not used to improve labour productivity, economic growth cannot improve.

Economic trends

Data on global economic growth show a surprising correlation between latitude and economic prosperity. Countries farther away from the equator have higher levels of growth than countries that are nearer to the equator. Tropical countries therefore have to work extra hard and think extra smart if growth is really their objective. Data also show that countries that grow faster also have greater levels of inclusive growth and development over time.

Jamaica Gets Better At Doing Business

The World Bank’s Doing Business report summarises data on some key elements necessary for a country to effectively conduct business. The report assesses the regulative framework in a country that enhanced doing business against those that restrict the smooth flow of businesses.
The Doing Business report presents quantitative indicators on doing business and the protection of property rights across 189 countries and ranks them accordingly. The 2015 Doing Business report measures regulations affecting 10 areas of the life of a business and ranks each country based on its performance on each. These include starting a business, zoning and urban planning, dealing with construction permits, getting electricity, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Jamaica’s ranking on the index has improved significantly this year, a positive leap of 36 places moving from ranking 94th in 2014 and 58th in 2015.

Where did Jamaica improve?

According to the report, Jamaica made the requirements for starting a business more efficient, reduced the cost of getting electricity connection, improved the credit information system by creating a credit bureau and implement laws to broaden the group of assets that can be used as collateral to obtain loans and secure investment. Jamaica has the best ranking in the Caribbean and ranks fifth in the region if Latin America is included. The ranking for these countries are as follows: Trinidad and Tobago, 79th; The Bahamas, 97th; St Lucia, 100th; Barbados, 106th; Columbia, 34th; Mexico, 39th; Chile, 41st; Panama, 52nd and Guatemala 73rd. Trinidad and Tobago is among the top 10 most improved on three or more aspects of the report. As usual, Singapore tops the ranking as the best country to do business globally.

What changed this year?

Unlike previous years, the 2015 Doing Business report ranks countries on their distance to frontier score. This overall distance to frontier score is an average of the distance to frontier score of the 10 criteria assessed in the report. The distance to frontier basically measures how far a country is from achieving its best possible business environment. Each country is then assessed based on where they are on their own frontier compared to each other. This year’s Doing Business report has introduced changes in eight of the 10 indicators in two aspects.
1. Indicators measuring the efficiency of a transaction have been expanded to include the quality of the transaction and;
2. Those transactions that already included quality have been expanded to include good practices in that specific field.

What does this year’s Doing Business report add?

This year’s report has added more features on the strengths of the legal rights and depth of the credit information. It also includes more features on minority shareholders rights and a measure of the strength of the legal framework for insolvency. The report has added an additional city in the countries with population size of more than 100 million and the ease of doing business score is based on how far a country is from achieving its own objectives. The top-20 economies on the 2015 Doing Business report perform well on the doing business indicators, as well as on an international data set which captures variety of elements related to competitiveness. According to the report, economies that perform well on the Doing Business report are not those without regulations, but those whose governments have taken the time to assess the countries’ situation and put measures in place to remove hindrances to the development of the private sector.

What Doing Business report continues to cover?

More specifically, Doing Business addresses the key areas as follows: procedure, time, and cost paid in minimum capital necessary to start a business; procedure, time and cost to complete all formalities to build a warehouse, procedure time and cost to get connected to the electrical grid; procedure, time and cost to transfer a property, moveable collateral laws and credit information system, minority shareholders’ rights in related-party transactions, payment time and total tax rate for a firm to comply with all the tax regulations. Documents, time and cost to import and export via seaport; procedure, time and cost to report and resolve a commercial dispute and the time, cost, outcome and recovery rate for commercial insolvency. The Doing Business report neglects certain aspects of the business environment, including macroeconomic stability, market size, security and the magnitude of bribery and corruption in a country. Furthermore, the report does not measure all the aspects relating to the firms and investors or the overall competitiveness of the economy.

Legal Marijuana Industry Can Flourish If …

“THE ROAD to legalising marijuana in Colorado wasn’t easy, but it was worth it,” said Wanda James of Cannabis Global Initiative. It won’t be easy here in Jamaica, but it will be worth it.

The Department of Economics, Mona School of Business and Management and the Faculty of Law at the University of the West Indies, Mona, collaborated to host a forum to discuss the legal, economic and business implications of legalising marijuana in Jamaica dubbed ‘Guilty Drugs/Innocent Plant’. The forum was a success.

What are the economic implications?

We examine marijuana production from the angle of comparative advantage. We believe marijuana can replace the usual uncompetitive farming crops, including sugar cane and bananas, which have contributed to slow growth in gross domestic product (GDP), low export to import ratio and a consistently high debt to GDP ratio. With this in mind, we explore to verify the production cost, wholesale price, distribution cost and retail sale price in Jamaica compared to North America and the rest of the world.

What is the difference in cost of production?

Research by High Alert Capital Partners (HAPC) indicates that it cost on average US$177 (J$20,000) to produce a pound of marijuana in a regular greenhouse operation in the US. Our research shows that cost in Jamaica varies depending on where the marijuana is produced and the grade of the production. We have identified three different production processes, with associated cost of J$800, J$1,500 and J$3,400 per pound wholesale price, which is significantly lower than the cost in the US. Upon adding taxes and distribution cost, the HAPC estimates that the wholesale price of a pound of marijuana in the USA is US$254, compared to our three-farming process where the wholesale price, if the Government adds similar taxes, would be US$27, US$36 and US$89 respectively, way below the average price in the US. What about retail sale?

The HAPC estimates show that the retail price for a pound of marijuana in America is US$954 per pound after adding sales tax of 18 per cent and a retailer markup of 175 per cent. Our research here in Jamaica shows that retail price per pound for the three different types of marijuana produced is US$71, US$114 and US$214. This works out to roughly US$4.50, US$7 and US$13 per ounce here in Jamaica, way cheaper than the US$60 per ounce in the US. We also compared our prices per gram to global street prices estimated by the HAPC. Per gram cost in Australia is the highest at more than US$18, per gram cost in Europe and North America is the same at US$10, US$9.25 in Asia, US$1.59 in South America, US 52 cents in Africa and US 25 cents here in Jamaica. If the Government were to add 16.5 per cent GCT, the retail price in Jamaica would still be the cheapest in the world at US 29 cents.

What about the business model?

Fundamentally, all presenters agree that a legal marijuana industry can flourish in Jamaica if the business model and the legislative framework allow everyone to participate competitively. Small enterprises must be given the chance to produce and distribute similar to large enterprises and vice versa. Farming of the product will continue along the community level similar to what is happening now, the only difference is that technology will improve in the production processes if and when it is legalised such that production output increases. All the value chains will be explored and each individual/enterprise will have the opportunity to do something in the industry. The global marijuana market is so large that it can absorb all that we produce here in Jamaica and more.

What about the market?

Jamaica will close its borders; there will be no physical export of the produce. This strategy will boost tourism and contribute more to the local economy as the excess demand for the product from abroad will come here for consumption. Marijuana companies will raise funds on the stock market similar to that in the US. The Government must put laws in place to ensure that Jamaicans own 60 per cent of each business, and all venture capital coming into the country passes through the stock exchange such that the money remains in the country. Stocks purchased in marijuana firms will help to improve the profile of the Jamaican stock market, increasing our access to capital in the global marketplace. New automated technology used abroad will be adopted, helping the Government collect taxes easily and rid us of this high debt burden and finalise our foreign debt servicing in no time, thereby improving the ‘irieness’ of the country on a whole.

Guilty Drugs, Innocent Plant

GUILTY DRUGS Innocent Plant is an annual forum held at the University of the West Indies (UWI), Mona, discussing issues surrounding the legalisation of marijuana in Jamaica.

This year, the Department of Economics, Mona School of Business and Management, and the Faculty of Law, collaborate to host the forum to discuss the legal, economic and business implications of legalising marijuana in Jamaica.

The forum will be held next Tuesday at the Faculty of Law, UWI, beginning at 4 p.m.

The programme will feature Dr K’adamawe Knife, Clyde Williams, Wanda James from Colorado, among others. Admission is free and the public is welcome to the discussion.

Why marijuana? Marijuana usage for recreation, as well as medicinal purpose has been increasing worldwide. More than 5.7 per cent of the world’s population, an estimated 39 million people, use marijuana for recreational or medicinal purposes. Although difficult to calculate, economists have estimated that the total value of the marijuana industry worldwide, is anywhere from US$10 to US$150 billion.

According to a study commissioned by the American Cannabis Research Institute in 2011, the medical marijuana industry in the US was worth $1.7 billion and could rise to $9 billion by 2016.

The report also outlined that there are 24.8 million potential patients eligible for marijuana treatment, based on the current laws. Discussions on the legalisation of marijuana is, therefore, imminent in Jamaica as there seems to be potential benefits to individuals, business as well as the Government.

Why the discussion?

The issues surrounding the legalisation of marijuana should rely on the cost and benefits associated. Miron (2005) considered legalisation a more substantial policy change than decriminalisation for three reasons. Legalisation eliminates arrests on the basis of trafficking, as well as those for possession; reduces expenses related to prosecution and incarceration and allows for taxation. decriminalisation has been criticised for the emergence of an unregulated black market for the sale of cannabis, which goes untaxed, resulting in the loss of government revenue.

Easton (2004) suggested that the long-term restriction of the supply and purchase of marijuana cannot be sustained due to technological advancements. Easton links the prohibition of marijuana to that of alcohol in the earlier years of the 19th century. He sheds light on the fact that the easy production and distribution of marijuana limits government’s ability to control the substance through prohibition laws.

As such, marijuana in and of itself, fuels organised crime. Easton concluded that not only is marijuana widely produced in British Columbia, it is also widely used. But the more pressing concern was whether the benefits of marijuana production are greater than the costs of its production and consumption to the non-marijuana-smoking taxpayer.

He emphasised that legalising the production of marijuana in British Columbia would not only reduce organised crime, but it would also provide the government with a steady source of revenue to finance its many expenditures.The situation would be similar in the case of Jamaica.

What is the relevance?

Slow infrastructural development, due to limited fiscal space has prevented the country from industrialising. High and rising cost of imported inputs (oil/energy) limits the ability of private firms to expand their production processes.

In this case, a depreciating currency cannot benefit the country unless it decides to produce goods and services that are less dependent on imported inputs and is able to generate enough revenue to fuel its own industrialisation. Traditionally, Jamaica has relied on the production of crops such as sugar cane, bananas, coffee and spices. Data on global economic growth shows a negative correlation between tropical weather and traditional agricultural output. Evidence has suggested that, in some instances, agriculture is harder in the heat and tropical climate as diseases are more widespread. This is not the case for the marijuana plant. Research has shown that marijuana grows better in the tropical climate. The onus is, therefore, to produce goods and services that can yield high returns, even if produced in small quantities, relative to other countries.