The Government of Jamaica (GOJ) considers foreign direct investment (FDI) a key driver for economic growth and in recent years has undertaken macroeconomic reforms that have improved its investment climate. However, the reform program was stymied by measures implemented to contain the impact of the COVID-19 pandemic. The Jamaican economy is estimated to have contracted by a record 12 percent during fiscal year (FY) 2020/21, underpinned by a near collapse in tourism and travel and weaker disposable incomes. The country also lost around 130,000 jobs, wiping out the almost 100,000 created in the last four years. With revenues declining and the debt to GDP ratio rising, the government contained expenditure and suspended its fiscal rules. The debt to GDP ratio increased by 16 percentage points to 110 percent due largely to the fallout in GDP, as the nominal debt remained relatively flat. Despite the fallout, inflation was within the four to six percent target range and the current account deficit remained close to the three percent of GDP level. The stock of Net International Reserves (NIR) ended 2020 at USD3.1 billion or 38.81 weeks of goods and services imports.
Jamaica has continued to pursue fiscal consolidation to reduce its debt to GDP ratio. Expenditure will remain flat for the FY 2021/22 and the primary surplus will more than double to 6.1 percent to achieve the debt to GDP target of 100.7 percent by March 2022. This is expected to put the country’s debt to GDP on track to reach the 60 percent target by FY 2027/28. The economy is widely projected to rebound in FY 2021/22, growing by a relatively robust 5.2 percent, while inflation will remain within the four to six percent range. A successful vaccine roll-out program will be critical to the achievement of the targets.
On March 18, 2021, Fitch Ratings Agency affirmed Jamaica’s Long-Term Foreign Currency Issuer Default Rating (IDR) at ‘B+’ and assigned a stable outlook. Fitch reported that Jamaica’s ‘B+’ rating was supported by, among other things, a favorable business climate and moderate inflation and commodity dependence. The Ratings Agency explained that the strengths were balanced by the country’s susceptibility to exogenous shocks and high public debt and the exposure of the foreign debt to exchange rate movements. Fitch said Jamaica’s stable outlook was supported “by our expectation that the public debt level will return to a firm downward path post-pandemic, which is underpinned by political consensus to maintain a high primary surplus, the resilience of external finances, and stronger economic policy institutions.”
Jamaica received USD665 million in FDI in 2019 (latest available data), a USD110 million drop over the previous year. Despite the decline, data from the 2020 UNCTAD World Investment Report, showed that Jamaica was the highest FDI destination in the English-Speaking Caribbean and the Small Island Developing States (SIDS). China and Spain were the major drivers of FDI in 2019, contributing about 60 percent of the total. Up to the onset of COVID-19 tourism, mining and energy led investment inflows into the island. Though hard hit by the global pandemic, tourism and mining continued to drive foreign investment. There is a significant host government commitment for mining, tourism and airport development, which could resume when economic conditions improve. Business process outsourcing (BPO), including customer service and back office support, continued to attract local and overseas investment. Investments in improved air, sea, and land transportation have reduced time and costs for transporting goods and have created opportunities in logistics.
Companies have reported that Jamaica’s high crime rate, corruption, and comparatively high taxes inhibit its investment prospects. The country’s corruption perception ranking, by Transparency International, improved marginally from 74 (2019) to 69 (2020) out of 180 countries. Despite laws that prescribe criminal penalties for corrupt acts by officials, there were still reports of government corruption in 2020, with a minister and another public official facing several criminal charges. Measures implemented to address crime continued into 2020, including the continuation of States of Emergency and Zones of Special Operations in several high crime areas of the island. While these efforts resulted in lowering serious crimes, the measures did not significantly impact the murder rate, and Jamaica continues to have one of the highest homicide rates in the world.
With energy prices a major component of the cost of doing business, the government has instituted a number of policies to address the structural impediment. In early 2020, the government published its Integrated Resource Plan (IRP), outlining the country’s electricity roadmap for the next two decades. The document has projected 1,164 MW of new generation capacity at a cost of USD7.3 billion, including fuel cost and the replacement of retired plants. Renewable sources are projected to generate 50 percent of electricity by 2037, with Liquified Natural Gas (LNG), introduced in 2016, providing the lion’s share of the other 50 percent. The increased investment in new generation is expected to increase efficiency and reduce the price of electricity to consumers.
|TI Corruption Perceptions Index||2020||69 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||71 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2020||72 of 131||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2019||USD 145||https://www.bea.gov/data/economic-accounts/international|
|World Bank GNI per capita||2019||USD 5,320||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|