JAMAICA: MARCH ECONOMIC REVIEW

UNCLAS SECTION 01 OF 02 KINGSTON 000269 SIPDIS SENSITIVE STATE FOR WHA/CAR (ACADIEUX) (VDEPIRRO) (WSMITH) WHA/EPSC (MROONEY)(FCORNEILLE) EEB/ESC/IEC/EPC (MMcMANUS) INR/RES (RWARNER) SANTO DOMINGO FOR FCS AND FAS TREASURY FOR ERIN NEPHEW USTDA FOR NATHAN YOUNG AND PATRICIA ARRIAGADA OPIC FOR ALISON GERMAK E.O. 12958: N/A TAGS: ECON ENRG SENV ETRD TRSY OPIC OAS IBRD XL JM SUBJECT: JAMAICA: MARCH ECONOMIC REVIEW REF: A) KINGSTON 223 B) KINGSTON 97 C) 08 KINGSTON 1016 D) 08 KINGSTON 1028 E) 08 KINGSTON 867 ¶1. (SBU) SUMMARY: -- Representatives from the U.S. Export-Import (Ex-Im) Bank conducted a site visit with Emboffs to a USD 225 million wharf redevelopment project to bring Genesis-class cruise ships to the city of Falmouth; -- U.S. Treasury provided technical assistance to help the Government of Jamaica (GOJ) set up a large taxpayer office in Kingston; -- The GOJ held a pre-bid meeting for its Waste-to-Energy project; the effort received technical assistance from the U.S. Trade and Development Agency (USTDA); -- The GOJ reopened divesture plans for its former sugar parastatal after Brazilian firm Infinity Bio-Energy failed to secure the funds needed to close the deal; -- The U.S. Embassy participated in the first meeting of the Biofuels Task Force in Jamaica to develop domestic ethanol production on the island; -- The real estate sector is continuing to slow, with rising interest rates and fears of great job losses; -- Poor performing loans are on the rise as businesses face lower revenues; -- GOJ registers 0.8 percent inflation in February. END SUMMARY. Tourism/Cruise Line - Ex-Im Bank Project -------------- ¶1. (SBU) Emboffs joined Ex-Im representatives Annette Maresh, Director - The Americas Group in the Trade Finance and Insurance Division and Michael Sams, Senior Electrical Engineer in the Engineering and Environmental Division, on a due diligence assessment of the Falmouth wharf redevelopment project on April 1-2 (reftels). The total project cost will be USD 225 million to include a new 17 acre wharf that can accommodate Genesis class cruise ships. Expected to open in April 2010, the site will add to the existing cruise docking wharfs in Montego Bay and Ocho Rios--both of which currently accommodate two cruise ships. This project will strategically tie in the north coast tourism belt by locating between Ocho Rios and Montego Bay. ¶2. (SBU) The project will create a new focal point for cruise visits and transform the city by adding restaurants, retail shops, commercial office space, and an ocean front boardwalk. The plan preserves the historical integrity of Falmouth, and in fact will include rehabilitating several historical landmarks. The project is expected to create at least 700 jobs and lead to a range of new investment in the city. Ex-Im received an application through HSBC Bank seeking nearly USD 110 million in loan financing. The loan would be to the Port Authority of Jamaica with a sovereign guarantee from the Ministry of Finance and Public Service. Royal Caribbean will invest 102 million and secure a long term lease of the site. Tax Reform/ U.S. Treasury -------------- ¶3. (SBU) Richard Teed, Tax Administration Advisor from the United States Treasury - Office of Technical Assistance, provided two weeks of on-site technical assistance (March 15th-28th) to senior management officials of the Jamaica Tax Authority (JTA). Teed assisted the Large Taxpayer Office Planning Committee with a business process review for a new Large Taxpayer Office (LTO) which opened on April 1. The LTO plans to serve the 450 largest tax paying entities on the island through sector experts and increased customer service. The OTA's assistance is in partnership with the U.S. Embassy and USAID to help the GOJ reform the tax system and widen the tax net to improve collections (reftels). Energy - Waste To Energy -------------- KINGSTON 00000269 002 OF 002 ¶4. (U) The Petroleum Corporation of Jamaica (PCJ) held pre-bid meeting on March 19 for a major waste-to-energy project on the island. Several bidders from the US private sector were in attendance. PCJ's Senior Research Officer in Renewable Electricity, Hopeton Heron, took the opportunity to specifically thank the U.S. Embassy and U.S. Trade and Development Agency (USDTA) for their technical assistance on the project. USTDA financed an orientation visit for three Jamaican officials to visit waste-to-energy sites in the United States and provided technical assistance to PCJ in drafting the request for proposals. The proposals are due April 30 for the project. Energy -- Biofuels/Ethanol -------------- ¶5. (U) After a breakdown in the divestiture plans for the former sugar estates (five sugar factories and sugarcane lands) with Brazil's Infinity Bio-Energy the GOJ has had to regroup. A second divestment tender reaped 14 bidders including another attempt by Infinity, which won the previous tender but, given the global credit crunch and falling world oil prices, was unable to raise the money by the January 31 deadline, thus forcing the GOJ to end the deal and reopen the divestment process (reftels). ¶6. (U) Minister of Energy, Clive Mullings, along with Minister of Agriculture Christopher Tufton, launched the Biofuels Task Force on March 10. The Task Force is responsible for creating an appropriate policy framework and a legal regulatory regime for the new industry. The Task Force is a collaborative effort between the two Ministries, several industry stakeholders, the U.S. and Brazilian embassies and multilateral agencies including the Organization of American States (OAS) and the World Bank. Mullins said," we will continue to explore various means of energy diversification and other strategies that will create a sustainable energy sector. He went on to list other renewable energy projects including the expansion of the Wigton wind farm (reftels) and a potential project for solar panels to Jamaica's hospitals. Econoff participated in the Task Force. Real Estate Slowdown Continues -------------- ¶7. (U) The world slowdown in real estate sales and construction has not spared Jamaica. Reynold Scott, owner of Geon Group construction firm and president of the Jamaica Developers Association, told the Gleaner newspaper on March 22 that rising domestic interest rates have had a devastating impact on the sector. The high end market above USD 400k appears to be contracting, although demand still exists for homes below in the USD 130k. The Jamaica Mortgage Bank (JMB) announced in March that it intends to offer concessionary rate for loans to builders of housing developments that have units priced below USD 170k. The program hopes to keep activity flowing in the already weakened construction sector. Fear of job losses, coupled with rising costs of borrowing money, are likely to further depress demand in the sector. Non-performing Loans Rise -------------- ¶8. (SBU) The Bank of Jamaica reports that non-performing loans across the financial sector stood at about USD 110 million (JD 9.7 billion) in December 2008--about 3 percent of total loans. Commercial banks registered a 65 percent increase from last year. Financial analyst Dennis Chung suggests that part of the loan failings are due to the collapse of alternative investment schemes and the revenue streams they had provided (reftels). Christopher Zacca, President of Private Sector Organization of Jamaica (PSOJ), told reporters of the Financial Gleaner on March 20 that Jamaica is not immune from the global crisis, adding that as businesses face reduced sales and less revenue they will have a difficult time paying debts. Inflation -------------- ¶9. (U) The Statistical Institute of Jamaica reports a 0.8 percent increase in inflation for February, including a 0.1 percent increase in food prices. HEG