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. An early lockdown in the Spring of 2020 helped contain the number of Covid-19 cases but the impact on the economy was severe, with real GDP shrinking by 10 percent. To mitigate the impact of the pandemic on public health and the economy, the authorities suspended the fiscal rule for a year and swiftly implemented public health measures and a fiscal package to support jobs and protect the most vulnerable segments of the population. The downturn and the fiscal package resulted in a fiscal deficit of 3.1 percent of GDP in FY2020/21.
The Jamaican economy contracted during fiscal year (FY) 2020/21, underpinned by a near collapse in tourism and travel and weaker disposable incomes. But unlike previous shocks, the country did not experience the usual bouts of macroeconomic instability, suggesting the past decade of economic and legislative reforms are beginning to bear fruit. The Jamaican economy is also recovering from the effects of the pandemic well ahead of regional peers, with economic growth of 7-9 percent projected for FY 2021/22. Robust construction activities, a strong rebound in tourist arrivals, and record remittances, both mostly from the United States, provided the impetus for growth. The expansion in economic activity spurred a rebound in employment, with the unemployment rate falling to a historic low of 7.1 percent. The economic recovery combined with strong fiscal management allowed the government to generate the primary surplus required to reverse the debt to GDP ratio, which is expected to return to the pre-pandemic levels. The economic turnaround also contributed to a general improvement in business and consumer confidence. Notwithstanding, inflation and inflationary expectations are beginning to threaten stability, forcing the central bank to tighten monetary policy.
On March 09, 2022, 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 a favorable business climate and government efforts to lower the debt to GDP ratio. The agency explained that the country remained susceptible to external shocks, low growth levels, high public debt and a debt composition that exposes the country to exchange rate fluctuations and interest rate hikes. “The Stable Outlook is supported by Fitch’s expectation that having been interrupted by the pandemic, a downward trend in public debt-to-GDP will be underpinned by political consensus to maintain a high primary surplus,” the agency continued.
Jamaica received $366 million in FDI in 2020 (latest available data), a $299 million drop over the previous year. Despite the decline, data from the 2021 UNCTAD World Investment Report showed that Jamaica was the highest FDI destination in the English-Speaking Caribbean. China and Spain were the major drivers of FDI in 2020. 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. Mineral and Chemicals investments also picked up in 2020. There is a significant host government commitment to 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.
Jamaica’s high crime rate, corruption, and comparatively high taxes have stymied its investment prospects. The country’s Transparency International corruption perception ranking 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 corruption at some ministries and agencies. Measures implemented to address crime continued into 2021, including the continuation of Zones of Special Operations in several high crime areas of the island. While these efforts resulted in lower rates of serious crime in the attendant zones, the measures did not significantly impact the overall 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 plan, which has been delayed by the COVID-19 pandemic, projected 1,164 MW of new generation capacity at a cost of $7.3 billion, including fuel cost and the replacement of retired plants. Renewable sources are projected to generate 50 percent of electricity by 2037, with Liquified Natural Gas (LNG), introduced in 2016, providing the lion’s share of the other 50 percent. The increased investment in new generation is expected to increase efficiency and reduce the price of electricity to consumers.
|TI Corruption Perceptions Index||2021||70 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2021||29.6 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2019||USD 145||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2020||USD 4,670||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD|