Jul 2004 Financial News

USAID, RBTT launch retooling loan

Jul 26, 2004

The United States Agency for International Development (USAID) is to offer J$300 million in guarantees to Jamaican manufacturers seeking commercial bank loans for projects that would improve their technologies and stem production waste.

USAID announced on Tuesday that it would partner with RBTT Bank for this programme, expected to begin within two to three weeks.

The Americans will guarantee RBTT the repayment of up to 50 per cent of any exposure it faces in the event that any of the borrowers under the project default on their payments.

Manufacturers seeking funding for what is being called 'environmental retrofitting' will be offered lending rates that are lower than current general rates, as part of the effort by the USAID to help Jamaican companies prepare for exporting into markets that will start imposing stringent environmental standards as part of their trade practices.

At the announcement of the guarantee programme on Tuesday, the president of the Jamaica Manufacturers' Association, Doreen Frankson, welcomed the help to the sector against which she said environmental standards were now being used as a barrier to trade.

"Increasingly, environmentally-sound and cleaner production methods are becoming barriers to trade - a factor we did not have to contend with in the past," said Frankson, herself a manufacturer and exporter of auto paints and finishes.

Frankson made a pitch for "more wide-scale offers of this kind" arguing that current rates of 25 per cent per annum for retooling made such projects uncompetitive.

RBTT will be collaborating with an environmental agency to provide technical expertise for the project.

Howard Batson, USAID representative told the Observer that the loan would be for a period of over six years, and that the partners were "striving for a competitive interest rate, which will be less than 25 per cent" but above the 9.5 per cent rate that was offered by Scotiabank via one of its niche programmes.

The guarantee facility is one of three pilot projects being undertaken by USAID in Central America to promote cleaner production and improve the region's competitiveness in international markets.

Tuesday's announcement coincided with the launch of the Resource Centre for Cleaner Production - a one-room facility located at the downtown Kingston office of the JMA, from advice would be offered on energy, water conservation, and eco-friendly management practices.

USAID mission director Karen Turner noted that manufacturers would be able to consult the centre during the JMA's opening hours, and that the programme could enhance company performance.

"The greening of the (business) sector saves money, especially in a country that depends heavily on tourism in which the natural resources are the major pulls," she said.

This assertion was supported by Gilbert Jackson, USAID's environmental protection specialist, who pointed to the positive cost benefit impact of the centre in providing advice that could ultimately improve the financial performance of companies.

"For every $100,000 invested, the pay-back in savings is about $100,000 in six months, and on average, the annual pay-back would be around $200,000," said Jackson.

"The US has saved tens of billions in the last decade through cleaner production practices. We've also seen this in 220 Latin American companies of which about 30 Jamaican hotels are included."

Jamaica's average pay-back time is one year compared to six months in the United States and the other Latin American countries, Jackson told the Observer.

He also provided a chart that tracks the investment and returns involved in cleaner production or waste management, in four steps in order of complexity:

. good housekeeping which involves simple procedures such as fixing leaky pipes and employing energy conservation practices - requires a small investment and gives 80 per cent returns;

. recycling and reuse - gives 60 per cent returns;

. materials substitution which involves replacing toxic substances with non-toxic or less toxic chemicals - 40 per cent returns; and

. process modification which is the most complicated and expensive step - gives a relatively small 20 per cent return.

The effort at helping Jamaica's manufacturing sector to improve its efficiency is coming at a time when the manufacturing industry appears to be emerging from a long period of decline. There is some evidence, for example, that the sector may have grown 2.8 per cent during the first quarter of 2004 - data which both Frankson and industry minister Aloun N'dombet Assamba highlighted during the launch of the centre.

Dean Peart, minister of land and environment, who also participated at the launch, said cleaner production practices was a national priority. He cited the Bureau of Standards' oversight of environmental management systems as one programme which promoted clean production policy.

Source: http://www.jamaicaobserver.com/magazines/Business/html/20040722T220000-0500_63293_OBS_USAID__RBTT_LAUNCH_RETOOLING_LOAN.asp