Nov 2010 Financial News

Jamaica poised for investment in real economy

Nov 11, 2010

Douglas Orane, one of Jamaica’s top business executives, has lauded the improvement in the island’s investment environment this year following the decision by the government there to implement a debt exchange; a decision which saw the island replacing 350 high-priced government domestic bonds with 24 new issues, at much lower rates of interest. The debt exchange, called JDX, was a precondition of the US$1.25-billion standby facility that Jamaica received from the International Monetary Fund. Before the JDX, Government of Jamaica debt was very attractive to companies and individuals because it paid rates in excess of 20 per cent in some cases. After the JDX, that debt became less attractive because it pays a lower rate of interest.

Orane, the chairman and CEO of the Jamaica-based conglomerate Grace, Kennedy, was speaking in Port-of-Spain after delivering the feature address at Tuesday evening’s opening ceremony of the 37th Annual General Meeting of the Caribbean Association of Indigenous Banks (CAIB) at the Hyatt Hotel. The meeting, which was scheduled to take place in St Lucia, had to be relocated to Port-of-Spain because of the impact of Tropical Storm Tomas. “What JDX has done is that Jamaican people got together and said that we can’t continue this way, we have got to change it. It was changed in four weeks and the effect was to reduce interest rates by a third. The spillover effect of that is that inflation rates have come down and are now in single digits.

“The exchange rate has done something that people thought was impossible, which is, that the Jamaican dollar has revalued and having revalued it has remained stable at the current rate for an extended period of time. What it is telling us is that the fundamentals are working at creating an environment for going back to basics which is investing in the real sector.” The improvement in the investment environment has created “so many opportunities” for a company like Grace, Kennedy. He referred specifically to the company’s new, modern 245,000 square foot distribution centre, which has given it much more efficiency in being able to distribute at a lower cost. The distribution centre has facilities for chilled storage which has allowed the company to get involved in a joint venture with the Government of Jamaica for the production of pepper sauce.

In the feature address at the conference, Orane called for a regional stock exchange that would help streamline the financial sector in the Caribbean. “Putting on my hat as the chairman of a listed Caribbean conglomerate, I want to see one Caribbean stock exchange in the future for the benefit of the investment public as well as the clients of the current stock exchange of the region, mainly the business companies.” Orane said that moves are being made in this direction. “Our local stock exchanges are taking steps in that regard with the establishment of the Caribbean Exchange Network. From a private sector perspective this is a welcome move and a necessary first step for the establishment of the capital markets of the Caribbean.” Orane said that the regional banking industry ought to explore how it can increase the competitiveness of the regional financial sector through similar co-operative activity.

“Another opportunity is in the area of educating our customers of compliance requirements. It is becoming more and more expensive to meet good international compliance. What we need to do is to find a way where we are able to share information with each other for a maximum effect. “This is not to say we should not be offering separate products and services to our clients. We can continue to innovate in the design of the different products and services we bring to the market.” He said the financial sector can be important in the regional integration movement. “Even as Caricom Governments continue to move to a single market and economy, I believe the financial sector can be a leader in this regard. We have the benefit of a regulatory system that would facilitate mitigating the risks to our clients while providing them with greater investment opportunities.”

Despite the small size of the region he said regional banks have survived the international crisis. “About our regulators, it has become somewhat fashionable to gripe about them over the years but I think it’s important to reflect on the fact that our region made it despite not having the sophisticated financial instruments that caused the crisis in 2008. Our regulators have been very conservative in their approach and it is time one recognises the benefits of prudent regulation.” He said the region needs to work with regulators to ensure that oversight works as efficiently as possible to ensure that all of the region is interconnected.

“It’s an exciting time for the regional banking industry and we have the opportunity to reinvent ourselves and offer different types of products and services that would support the aspirations of our people. We need to be wary of the thinking that our products are small and because we are the Caribbean we cannot get by.” He pointed to accomplishments of the region that could serve as a launching pad for other areas of growth. “St Lucia has produced Nobel laureates, Barbados R&B artistes, Jamaica produces world’s fastest athletes. We have built world-class names in the field of financial services and underwriting in several territories in the Caribbean. The point is: small size has never prevented us from creating brand names.”


Reporting by Raphael John-Lall


Source:
Trinidad Guardian
Thursday November 11, 2010

http://guardian.co.tt/business/business-guardian/2010/11/11/jamaica-poised-investment-real-economy