JAMAICA: SEPTEMBER ECONOMIC REVIEW

UNCLAS SECTION 01 OF 03 KINGSTON 000867 SIPDIS SENSITIVE STATE FOR WHA/CAR (ACADIEUX) (VDEPIRRO) (WSMITH) WHA/EPSC (MROONEY) SANTO DOMINGO FOR FCS AND FAS TREASURY FOR ERIN NEPHEW E.O. 12958: N/A TAGS: ENRG EAIR EINV ECON ETRD IADB IBRD IMF TRSY XL JM SUBJECT: JAMAICA: SEPTEMBER ECONOMIC REVIEW REF: A) KINGSTON 770 B) KINGSTON 704 C) KINGSTON 703 D) KINGSTON 570 ¶1. (SBU) SUMMARY: -- The GOJ's USD 4.5 million deal with American Airlines to guarantee airlift to the island has faced criticism in the press; others see it as an important hedge against the failing national carrier Air Jamaica. -- Air Jamaica appears to have found a new CEO after the one selected by the board failed to take the position in September. -- USTDA supported an orientation visit by a three-person GOJ team to look at waste-to-energy technologies in a United States. -- A U.S. Treasury Department six-person delegation met with the Ministry of Finance, IMF, World Bank and the private sector to assess the potential for widening the tax base and improving tax administration. -- The Minister of Finance and the Minister of Tourism fear problems in the U.S. financial sector could hurt future tourism revenues. -- Jamaica has launched its first real estate investment trust with the purchase of several luxury apartments in Trinidad. -- Prime Minister Bruce Golding said the Inter-American Development Bank (IADB) will provide USD 50 million in funding for infrastructure repairs including a new bridge that was washed out by Tropical Storm Gustav. -- Finance Minister Audley Shaw said his inflation could reach 16 percent by the end of the year, well above the target of 9 percent. -- Jamaica has slipped in the Transparency International annual rankings, indicating higher levels of perceived corruption. -- The flow of Foreign Direct Investment (FDI) in Jamaica fell from USD 882 million in 2006 to USD 779 million in 2007. AVIATION -------------- ¶2. (U) A deal between Government of Jamaica (GOJ) and American Airlines has faced controversy in various press articles during the month. Under the plan, Jamaica could pay up to USD 4.5 million as a guarantee to maintain flights from three US cities (Dallas, Fort Worth and Chicago) in the event the seats are not filled. Minister of Tourism Edward Bartlett has repeatedly defended the move in the press, saying on September 18, that a key reason for signing this deal was the access to the feeder markets that American Airlines affords with over 200 flights daily. Last year, over 40 million people traveled through its Dallas hub, and over 20 million through its hub in Miami. He added that he wants to access these feeder markets to build the tourism business in Jamaica. The deal with American Airlines will guarantee more than 2,000 additional seats to the island. ¶3. (U) Keith Collister of the Gleaner newspaper wrote on September 10 that in economic terms, the USD 4.5 million is a small price to pay as an insurance premium to 'insure' Jamaica's tourism industry against the dangers of insufficient airlift. He points out that the payment is small and insignificant when compared to Air Jamaica's loss of over USD 170 million last year, which he said may be exceeded this year. He also criticized the GOJ's failure to grant low-cost airline Airone (reftels) a license to operate out of Jamaica, a move he believes would have increased airlift to the island for tourists, fueled future tourism growth through low-cost fares and reduced the need for the American airlines deal. ¶4. (U) Edward Weigel, the American citizen selected by Air Jamaica to be the new CEO starting September 1, declined the position for personal reasons a few weeks after failing to arrive. Press reports indicate that Bruce Noble, the former President of Air Jamaica, may return as CEO. Noble was CEO over four years ago when the airline was under the control of the Butch Stewart-led Air Jamaica Acquisition Group, prior to being taken over by the GOJ. ENERGY -------------- ¶5. (U) The U.S. Trade and Development Agency (USDTA) has financed an orientation visit for six Jamaican officials to visit KINGSTON 00000867 002 OF 003 waste-to-energy sites in the United States and to meet with representatives from the Overseas Private Investment Corporation, the Environmental Protection Agency and the World Bank. The visit from September 28 to October 3 is to help the GOJ develop its plans for investments in the waste-to-energy sector. TAX REFORM -------------- ¶6. (U) A U.S. Treasury Department six person delegation from the officer of overseas technical assistance met with the Minister Shaw, tax and customs officials as well as IMF, IADB, World Bank and the private sector to conduct an assessment on ways to shore up tax compliance in response to the recent tax amnesty (reftels) and to look at ways of widening the tax net on the island. The visit was held from September 28 to October 3. TOURISM -------------- ¶7. (U) Ministry of Finance officials fear the worsening downturn in the U.S. financial sector could affect tourism. Citing the collapse of investment bank Lehman Brothers, Minister of Finance Audley Shaw told reporters from the Gleaner newspaper on September 16, "I don't see any immediate impact, but there could possibly be a direct implication on the tourism industry because a lot of persons have lost their jobs." ¶8. (U) Minister of Tourism Edward Bartlett echoed Shaw's fears during an interview with the Financial Gleaner newspaper on September 21 saying that although Jamaica is the only country in the Caribbean that is "still showing some growth in arrivals." He said he expects "continued growth because in August we ended at 3.6 per cent and year to date of over 5 per cent which is significant." He added that the three key indicators that guide Jamaica's market position are the general economy, the airlift availability and the weather conditions. The president of Jamaica Hotel and Tourist Association (JHTA) Wayne Cummings less optimistic saying what is happening in the United States will have serious implications for the sector. REAL ESTATE -------------- ¶9. (SBU) Jamaica launched its first real estate investment trust (REIT) on the Jamaican stock exchange on August 5. The Carlton Savannah REIT was formed by Leo Williams a former managing director of the respected Jamaica Money Market Brokers to purchase real estate holdings in Jamaica and abroad. Williams met with econoffs on September 12 to discuss is business. He said his June IPO raised USD 5.6 million, he originally hoped for USD 17.4 million, but said he thinks the public response was lower, because this is the first time a REIT has been formed on the island so the concept is new to many investors. His first investment was the purchase of seven luxury apartments in Trinidad that are rented out as hotel rooms in the Carlton Savannah hotel which is scheduled to open at the end of October. He is now looking at commercial real estate opportunities in Jamaica for his next purchase. Williams is also an American citizen who worked for many years at General Electric, before returning to Jamaica. INFLATION -------------- ¶10. (U) In a speech to the House of Representatives on September 23, Finance Minister Audley Shaw, said his inflation target for the 2008/2009 budget was "somewhat overambitious." He said inflation could reach 16 percent by year end, well above the Bank of Jamaica initial projection of 9 percent inflation. He said, however, that the BOJ has gone back to the drawing board and has come up with a projection of 16 percent, which he believes will hold true. INFRASTRUCTURE / MULTILATERALS -------------- ¶11. (U) Prime Minister Golding announced on October 1 that the Inter-American Development Bank (IADB) will help finance a new bridge between Kingston and St. Thomas Parish which was washed out by flooding from Tropical Storm Gustav (reftels). Following recent meetings in Washington D.C., Golding said he received a commitment from the IADB for a USD 50 million loan for infrastructure rehabilitation in the wake of Gustav. CORRUPTION /TRANSPARENCY -------------- KINGSTON 00000867 003 OF 003 ¶12. (U) In the 2008 annual report from Transparency International, Jamaica has slipped 12 places on corruption index, indicating that corruption has increased over the last year. In the report released September 24, Jamaica fell from a rank of 84 to 96 out of 180 countries. The ratings are based on a scale of 0 to 10, with 0 indicating the highest levels of perceived corruption and ten, the lowest level. Jamaica received a score of 3.1. Jamaica is in the same category as countries such as Gabon, Benin, Guatemala, and Mali. INVESTMENT -------------- ¶13. (U) The 2008 United Nations' World Investment Report was released on September 24 showing the flow of Foreign Direct Investment (FDI) in Jamaica fell from USD 882 million in 2006 to USD 779 million in 2007. At an event to announce the findings, Robert Gregory, President of Jamaica Trade and Invest (JTI) said tourism accounted for about 65 percent of investment. The bulk of investment in the sector came from Spain, ahead of more traditional investment partners Canada and the United States. Manufacturing was in second place at 16 percent. HEG