Business

Despite challenges, manufacturing rife with opportunities

BY CAMILO THAME Business co-ordinator thamec@jamaicaobserver.com

Friday, January 11, 2013    

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MANUFACTURERS woke up to toxic smoke from the Riverton Landfill early last year and closed out 2012 recouping from hurricane damage.

Both events would have led to loss of production, but a heavier tax burden related to the treatment of general consumption tax (GCT) deferment for input, in particular raw material, was a bigger blow to manufacturers of GCT-exempt items.

The policy rendered those producers less competitive than imports, while the high and rising cost of energy remained atop the list of issues faced by manufacturers trying to become more efficient and viable in a global economy leaving Jamaica at a pace behind.

And now, food manufacturers are undertaking the task of becoming compliant with new rules set by the US — Food Safety Modernisation Act — to export there.

Yet, despite all of the difficulties faced by operators in Jamaica, the Jamaica Manufacturing Association (JMA), believes that the sector remains rife with investment opportunities.

Particularly in areas such as agro-processing, furniture manufacturing and other inputs to the tourism sector, packaging and labelling, aquaculture, boat building, essential oils and nutraceuticals, medical devices and value-added products from limestone.

Unlocking those opportunities, which would lead to economic growth, requires various support "from the government, industry players and consumers for import substitution, linkages, export expansion and foreign and local investment", according to the sector's main lobby group.

"Jamaica's fundamental problem resides in the fact that our import far exceeds demand for local products domestically," said the JMA's President Brian Pengelley.

There are indicators that local manufacturers have been pressing ahead with investment plans.

Two operators — Paramount Trading and Consolidated Bakeries — listed on the Jamaica Stock Exchange (JSE) Junior Market last year, collectively raising $175 million.

"Many manufacturers also expanded through re-investment as the JMA processed GCT Waiver applications for companies importing equipment valued at $300 million for the modernisation of their plants in 2012," according to Pengelley.

Commercial bank lending to manufacturing also increased significantly, with net lending to food and drink producers increasing by $2.6 billion, or more than doubling over the nine months to September.

Net lending to makers of chemicals and chemical products also doubled, increasing by $502 million.

Employment rose from 68,500 in July 2011 to 74,900 last July, although the sector declined by more than one per cent over the first nine months of 2012.

That was partly due to reduced alcoholic beverage production attributed to lower output from brewer Red Stripe, which shifted production for the overseas market from Jamaica to the US.

Jamaica's total merchandise export for January to September 2012 was US$1.2 billion.

Manufacturing traditional exports were valued at US$119.0 million over the first nine months of 2012 while non-traditional exports rose by 11.3 per cent, or US$59.1 million to US$583.7 million.

"Like other Jamaicans, manufacturers had to contend with the devaluation of the dollar which led to higher cost of inputs and in some instances, a challenge in securing funds to pay international suppliers," said Pengelley.

He figures 2013 will be a challenging year for manufacturers, even while expecting a deal with the International Monetary Fund (IMF) will help enhance investor confidence.

"The signing of the agreement must be supported by creating an enabling environment to stimulate growth, which will require tax and pension reform, reduction in costs, bureaucracy, crime and electricity rates, access to financing, strengthening of linkages as well as government buying local where possible," said the JMA head.

With energy being high on its agenda, the JMA has had numerous meetings with Energy Minister Phillip Paulwell and Commerce Minister Hylton regarding the source of Liquefied Natural Gas (LNG), in particular, securing LNG from Trinidad and Tobago at preferential rates.

"This issue remains outstanding and forms a part of the JMA's lobbying agenda for 2013," said Pengelley. "The issue of unfair trading practices between Trinidad and Tobago was very topical and is being addressed on a government-to-government level by Minister Hylton."

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