Of critical importance is the underlying fact that the exchange rate of a country is a proxy as to how valuable a country is relative to other countries. The most notable thing in the above chart is that Jamaica's value has been decreasing at an increasing rate (See - Jamaica Country at Alarming Economic Risk). What is more critical in all of this however is the major factors behind the continuous devaluation of the country. Here I will examine just a few and highlight some others.
Productivity Keeps Decreasing
Factor number one. Productivity keeps declining. Productivity of the country can be viewed from two perspectives. Total Exports or GDP, both of which have been under-performing. Exports over the last 10 years have been stagnant to experiencing a small downward trend. GDP have largely been stagnant. The major source of productivity has been the Tourism Sector which has been continuously trending up. Another way to view productivity is inversely through imports which continuously increases. If consumption is stagnant but imports continuously increase then we inevitably must be producing less and hence increase in our imports is only a sign of our steady decrease in productivity. One piece of data of note states that Jamaica import bill stood at US$5.9 billion in 2011 while we only earned US$1.37 billion from exports.
Transportation and Energy Sector
A second major factors contributing to the downward spiral of the dollar has been the Transportation and Energy Sectors. Both of which Jamaica cannot survive without. Jamaica fuels and oil imports is approximately 80,000 barrels of oil per day and in 2008 this contributed to an Oil Import Bill of over US$2.7 billion whilst in 2011 a bill of US$2.4 billion. 2013 bill is expected to be in excess of US$2 billion. This represents a critical drain on the Foreign Exchange reserves (the Net International Reserves - NIR) which by the way has been on a steady decline over the last two years.
Source: Energy Economics and Planning Unit, Ministry of Energy and Mining, 2011 |
- Jamaica import bill stood at US$5.9 billion in 2011.
- 2011 Fuel and Oil bill was US$2.4 billion.
- Approximately 30% of Fuel and Oil bill is used for land transportation representing US$720 million.
- This is consumed by over 536,000 vehicles within the island.
- Millions of US dollars are spent on the importation of New and Used vehicles into the island annually.
- Millions are spent on the many parts required on a yearly basis to repair and maintain the over 536,000 vehicles both old and new. Considering Jamaica's road condition wear and tear on a vehicle results in increased repair and maintenance cost.
- As noted earlier approximately US$720 million is spent on the fuel required to power these vehicles annually.
- Thanks to the Transportation Sector the country also has to import meaningful quantities of asphalt raw materials required to pave the over 22,000 km of new and repair old road ways.
Now nothing is wrong with owning a car, the problem lies with the fact that all things surrounding the sector has to be imported. Without realizing this translates into higher cost of doing business in Jamaica is transferred to the Jamaican people. Now, we need the transportation and we need energy but it is imperative that as a people everyone gets smarter about the way the resources are consumed or prepare to live with the consequences.
Brain Drain and the ensuing Remittances
Now I don't have empirical figures on the emigration patterns of the country but observations suggest that meaningful portions of Jamaicans leave the country to take-up residence in other countries annually. This act continuously rob Jamaica of the many really educated and capable people who are able to contribute to its development. Whilst this has the benefit of resulting in higher incomes the resulting remittances barely cover the investments in education and loss of value to the country in the form of development. The chart below highlight a small downward trend in remittance that may have started to turn up again. This however is not enough to stem the tide in the exchange rate devaluation.
Now there are other factors that contribute to the rate of devaluation such as:
- Demand for food as we are unable to feed ourselves and our visitors.
- Electricity cost that impact production cost and business cost. (See - The Illusion of Reduced Electricity Prices in Jamaica).
- Crime, politics and corruption, (Notable in the police force and publicly owned transport service).
While I have not delved much into the contributors above they are critical and change is necessary for the survival of the country. Sooner than later the education, health and security services will be horrendous, roads will get worse, water supply will be less consistent, energy cost will be unbearable and garbage collection will be more sparse than it already is in certain communities. Let's not make Jamaica another Zimbabwe or Haiti .
My hope in all of this, is that we Jamaicans who claim to love this Jamaica will soon seek to contribute more meaningfully to the proper development of the country and multiply the success of the few (See - Jamaica's 7 Amazing 2013 Moments). As a country we all need to contain the destructive patterns of negligence and corruption. Let us begin the transform in 2014.
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