The Arrival To Revenue Ratio Of Tourist To Jamaica Is Not Sustainable From An Economic Development Perspective
It is this basic economic misalignment that has seriously placed the Jamaican economy in another round of economic crisis as Chinese funded infrastructures linked to tourism development won't have the future revenue streams to support their development. We are dealing with a very clever development partner who has effectively conned the Government of Jamaica in accepting a very long term view of the economic benefits of their investments while they reap the current or present value of the benefits in current dollars. It is essentially a debt trap we have found ourselves in again.
Even if tourism grows 3.6% on average for the next 10 years the marginal cost to subsidized tourism growth in Jamaica would be far greater than the marginal returns, as increasing price pressures resulted in lower yields which mean more devaluations. The fact still remains that if the government does not incur any additional cost and the dollar remains stable. Excluding the cost of the South-East Highway, it would take us some 30 years (2046) or 3 decades to recover the total economic cost of attracting tourism investment since 1990, estimated at US$32.0 billion. This write-down of US$32.0 billion over some twenty-five (25) years of devaluation represents the cumulative sum of US$16.0 billion in the National Debt, plus interest payments, the balance of trade deficits and some US$10.0 billion uncirculated currency held among the financial sectors and private individuals of which US$5.3 billion in stock market capitalization.
The arrival to revenue ratio will not sustain this level of debt spending from an economic development perspective, there is an urgent need to reduce the room to revenue ratio where we are relying on more and more room growth in a diminishing marginal return industry at an enormous cost to the economy since the 1990’s. If no further devaluation or spending on tourism related infrastructure occurs, it would take us some 30 years (2046) or 3 decades to recover the current level of public investments already made to attract and develop the tourism industry in Jamaica. By 2046 the total combined arrival population is estimated to be around 14. 7 million visitors which would be needed to recover the US$34.0 billion in net economic cost incurred to date.
Obviously, to accommodate 14.7 million visitors the government will have to incur additional cost which makes Tourism Development a tool of underdevelopment especially when you consider the impact on the environment and the number of working poor it employs. "Declaring that Jamaica’s tourism sector has underperformed, the portfolio minister, Edmund Bartlett, said value added earnings from tourism amounts to less than five per cent of Gross Domestic Product (GDP)."
Tourism development must be sustainable not only in economic terms but also environmentally and socially. A balance should be maintained between the degree of environmental degradation as well as the capacity of local infrastructure to support increased arrivals and the resulting population growth.
The first major thing government needs to do is to integrate the tourism sector into the local economy through farming and manufacturing in order to bring into balance the revenue to room ratio. We can no longer hire foreign consulting firms to do comprehensive planning when there is a disconnect between policy and implementation. It is for this reason we need to develop homegrown planning skills locally not just in areas of physical planning but also policy to drive growth independent of who is in government. We don't have that level of political maturity.
Reconciliation of Direct Remittance Investment Based National Accounts (Jamaica 1990-2015).
Since 1990’s the total in Direct Remittance Investment (DRI) inflows is estimated at some US$ 34.1 billion while Direct Foreign Investment (FDI) accounted for US$11.8 billion totaling some US$45.9 billion by 2015. Since 1990 the government has written off the value of the Jamaican economy by some US$32.0 to attractive FDI (Tourism Investments) through constant devaluation and have built tourism supported infrastructures to the amount of US$4.5 billion. The total subsidy to attract Tourism and Chinese driven FDI is considered to be the written-down value of US$32.2 billion only allowing for a net cumulative addition to the Gross Domestic Product (GDP) of approximately US$14.1 billion (US$45.9-US$31.8) or US$0.561 billion (561 million) annually from an estimated US$46 billion in capital inflows since 1990.
The US$10.0 billion currently held among the financial sectors and private individuals of which some US$5.3 billion is currently being traded on the Jamaican Foreign Exchange and the Jamaica Stock Exchange Markets. This estimated US$10.0 billion in private wealth with the help of the Jamaican government is adding tremendous speculative pressures on the Jamaican Dollar to force further devaluation repeating the vicious cycle of economic dependency. What it does, it creates a speculative environment in the foreign exchange market which incentivized the diversion investment capital from being invested in manufacturing, energy, and infrastructure and instead into US dollar purchases to make millions off the exchange rate spread.
"We need to put this alongside the financial crash, which brought home to people that very few individuals working in the financial sector can accrue huge rewards and that the rest of us underwrite that success and pick up the bill when their greed leads us astray. So taken together we are living in a world of widening, not diminishing, financial inequality, in which many people can see not just their standard of living, but their ability to earn a living at all, disappearing. It is no wonder then that they are searching for a new deal, which Trump and Brexit might have appeared to represent."-Stephen Hawking
The argument that the debt is a drag on growth (GDP) is false as you can see from the chart when debt decreases so do GDP. The largest single factor distorting our macro economic policies is maintaining a floating dollar. Devaluation will make us poor. Constant devaluation of the Jamaican Dollar drives up the rate of increases in the National Debt and has absolutely no impact on GDP. "Tear up the textbook. In a low-growth world, traditional assumptions about the global economy will be overturned". Governments should be enacting policies to benefit the working class and poor. Like improving healthcare, education, developing rural roads and subsiding local farmers. Demanding that hotels to pays US$ minimum wages and buy 80% of their vegetables and agri-process foods from Jamaican farmers. Linking rail, rural roads, water resources management to food production driven by demand in the tourism sector is the key to growth. Tourism development must be sustainable not only in economic terms but also environmentally and socially. A balance should be maintained between the degree of environmental degradation as well as the capacity of local infrastructure to support increased arrivals and the resulting population growth.
Since 1990 Jamaican Governments spent some US$ 4.5 billion on tourism-related infrastructure projects which equal the same amount Travel and Tourism contributed in total to the GDP in 2012. The constant devaluation to attract tourism investments cost the Jamaican economy some US$32.0 billion overall plus the US$4.5 billion in tourist related infrastructure investments. So in total, it cost the economy US$36.5 billion since 1990 to attract an industry that only recently added US$2.2 billion in direct contribution to the GDP or US$7.0 billion in total.
Over the same period, the Jamaican middle class was decimated as manufacturing fell some 36% and mining 55%. The government needs to focus on lowering the cost of energy to revive our manufacturing base and rebuild the Jamaican middle class. Just think about it, if we invest and build infrastructures to support agriculture, energy and water resources management, we are indeed stimulating tourism investment but indirectly cause as we expand job creation and growth we would have reduced the crime rate and make people feel safer.
The Minister has defined the problem but has the wrong solutions; “Declaring that Jamaica’s tourism sector has underperformed, the portfolio minister, Edmund Bartlett, said value added earnings from tourism amounts to less than five per cent of Gross Domestic Product (GDP).” Bartlett Unveils Five-Pillar Tourism Plan.
