WHA/CAR DIRECTOR BRIAN NICHOLS GETS DOWN TO

UNCLAS SECTION 01 OF 02 KINGSTON 001363 SIPDIS WHA/CAR BNICHOLS AND BENT E.O. 12958: N/A TAGS: PREL PGOV KCRM JM SUBJECT: WHA/CAR DIRECTOR BRIAN NICHOLS GETS DOWN TO BUSINESS WITH AMCHAM REF: A. KINGSTON 1328 ¶B. 04 KINGSTON 2888 ¶C. 04 KINGSTON 3385 ¶1. Summary: On May 11, Director of Caribbean Affairs Brian Nichols, accompanied by Econoff, met with American Chamber of Commerce President Anthony Jenkinson to discuss the business climate in Jamaica. While citing the ongoing difficulties caused by the high crime levels and the GOJ's heavy debt burden, Jenkinson stated that the overall climate for doing business was very good, with the GOJ acting as a facilitator rather than a hindrance most of the time, and that the GOJ attitude towards the private sector had greatly improved since the dark days of the 1970s. End Summary. -------------- Business Climate -------------- ¶2. On May 11, Brian Nichols, Director of Caribbean Affairs, accompanied by Econoff, met with Anthony Jenkinson, President of the American Chamber of Commerce in Jamaica. Jenkinson outlined the history of the current debt crisis, attributing it to a financial crisis in the late 1990s, when all the local banks and insurance companies collapsed and were bailed out by the GOJ at great expense. The weakened financial institutions were sold off to Trinidadian interests during the recovery period, and there was a prolonged period in which there was no capital available for lending in Jamaica, constraining growth. Jenkinson stated, however, that the banks are much healthier today and that the private sector is confident and stable, mostly due to the GOJ's economic pragmatism and steadfast commitment to a balanced budget since the crisis. ¶3. Describing how the GOJ has made major reforms in its policies and practices to facilitate business growth, Jenkinson stated that the recent tax reform committee engineered a simplification of the tax structure that will make life much easier for corporations, though some observers worry that it may cause a shortfall in GOJ revenues. Overall, Jenkinson said, there is very little GOJ interference with the private sector: no exchange controls, no requirement to gain GOJ approval to transfer assets overseas, and no restrictions on having foreign business partners. In this environment, telecommunications firms, distribution companies and real estate brokers have the most potential, while manufacturing is nearly dead, Jenkinson noted. He added that tourism could be boosted by the introduction of casinos (Ref B),which are a "when", not an "if", in his view. (Note: Prime Minister PJ Patterson, believed to be one of the primary obstacles to the legalization of casinos, is expected to step down before the next elections.) ¶4. Jenkinson stated that the primary factor impacting the business climate in Jamaica was the ongoing security problem, which affects every business. Due to high crime, he argued, every company has to spend a significant portion of its operating budget on security services, which do not come cheap. Fear of crime increases recruiting costs for expatriate personnel, and demotivates both employees and investors. Despite high profile GOJ efforts to combat the situation, crime does not appear to be going away. Enforcement efforts are not addressing the root cause - poverty. Thus, crime is a factor that every business in Jamaica will have to deal with for the foreseeable future. Jenkinson also noted that the legal system is generally fair, with no sign that the "highly professional" judges are being politically influenced. However, the court system is severely overburdened and it can take years for matters to be litigated. In order to get more rapid resolution to their problems, some businesses have begun looking into binding arbitration, a practice that is beginning to gain popularity. ¶5. When asked if the positive trends would continue if the opposition party were to win the next elections (constitutionally due by October 2007),Jenkinson answered that both the People's National Party (PNP) and Jamaica Labor Party (JLP) want investment to continue. The left wing/right wing ideological battle has ended, and both parties now contend for office on the basis of their technical skills in managing government. He stated that Jamaica's Westminster election model tended to allow professional politicians and party insiders to rise to the top levels of government, rather than individuals with experience in the private sector, and that this sometimes leads the academically-minded politicians to announce policies that sound good on paper, but are unworkable in the real business world. He gave, as an example, the recent imposition of new weights and measures regulations on the petroleum industry (reftel),which may have the effect of increasing fuel costs and driving away investment. -------------- --- The Trouble With Air Jamaica and Organized Labor -------------- --- ¶6. Jenkinson commented briefly on the recent resumption of direct GOJ control of Air Jamaica, the national airline (Ref C). He stated that the current situation is a "disgrace", and that the GOJ has been "very disingenuous" throughout the whole affair. While the GOJ was supposed to be providing oversight, USD millions in losses were concealed from regulators. Jenkinson commented that Jamaica doesn't need a national airline flying routes to a variety of destinations worldwide and that other international carriers should take care of connecting service while Air Jamaica focuses on ferrying tourists from the U.S., Canada and the UK to Jamaica. ¶7. Despite the recent disputes between the GOJ and organized labor regarding adherence to the 2003 Memorandum of Understanding, Jenkinson stated that unions weren't having a significant impact on the business climate. He said that the weak state of the economy has caused union leaders to realize that there is a limit to how much they can push for increased wages and benefits. Also, the unions lack strong backing in government, as organized labor is split between the JLP and the PNP. As a result, the unions have moved away from aggressive tactics, and industrial disputes are down. -------------- COMMENT -------------- ¶8. Jenkinson's portrayal of the Jamaican business enviroment showed it as a place that is welcoming to international investors, where the GOJ has removed many of the regulatory burdens that once constrained private sector activities. However, the GOJ's ongoing fiscal crisis occasionally leads to attempts by the GOJ to implement and enforce new revenue-generation plans that have negative effects on the business community and the island's economy in general. The other key constraint mentioned by Jenkinson, the impact of crime, has also been cited by numerous private and public sources as Jamaica's number one problem. ¶9. This cable has been approved by WHA/CAR Director Brian Nichols. ROBINSON