Jamaica: Portia's burden of expectation

The latest survey of consumer and business confidence has presented Prime Minister Portia Simpson Miller with contrasting comments on her leadership offering her another reason for an early general election to seek what she has often described as her "own mandate".

Reflecting the euphoria surrounding the election of the populist Simpson Miller as leader of the People's National Party (PNP) and prime minister, the survey showed that consumers have unprecedented levels of confidence about future prospects for jobs and general economic improvement.

On the other hand the business community was very sceptical about the future with the survey showing confidence tumbling by 20 per cent over the same period that the index of consumer confidence was climbing nearly 10 per cent, taking it to a new high in the five years since the surveys began.

The figures were contained in the latest Business and Consumer Confidence Survey conducted by the Survey Research Centre of the University of Michigan as a joint project with the Jamaica Chamber of Commerce's Conference Board. They were released last Tuesday.

The survey covered the second quarter of 2006 (April-June), the period just after the prime minister was sworn-in on March 30. The consumer index for the second quarter stood at 137.2, which according to the researchers out-distanced the prior peak of 124.9 recorded in the first quarter of 2006.

In the first quarter the greatest surge of consumer confidence was in the tourist resort areas where the industry is expanding. Now the surge is in Kingston - Simpson Miller's urban power base, media reports noted.

The index of business confidence slipped to 96 in the second quarter, down from 119.3 in the first quarter and 122.8 in the second quarter of 2005.
"The largest recent gains were in how consumers judged future economic prospects, anticipating strong growth in employment and in the overall economy," said Richard Curtyn, head of the survey team.

The high hopes among consumers come on top of the most recently published opinion polls showing the prime minister's approval rating at an enviable 64%, although this was down somewhat from the stratospheric 78 per cent in the immediate aftermath of her election to succeed PJ Patterson.

The coincidence between Simpson Miller's personal popularity and the strong consumer confidence could influence her to call an early general election to ride the wave but unless she can translate the confidence into stronger economic growth there is the real risk that the popularity could evaporate as fast as it was created. And therein lies the challenge.

In analysing the challenge, we should begin with an examination of the some of the key factors behind the numbers.
A first point to note, and this was mentioned by Professor Curtyn at the press launch of the survey, is that we should distinguish between the rise in consumer confidence about the future and the present. Regarding the present, "Jamaican consumers are more pessimistic than any other," he commented.

Consumers are experiencing tough times with good jobs hard to find in an economy stuck on a low growth path. These problems are likely to take on a new dimension in another couple of months when parents are faced with the annual trauma of back-to-school expenses.

A second observation is that the decline in business confidence was due "to less favourable evaluation of current and expected profit margins as well as less favourable views on investment prospects," said the researcher.

The continued slide in values on the stock market, weak performance of companies affected by the cement crisis (building products and hardware firms) and an estimated 15-20 per cent drop in retail sales are among the indicators of the reasons behind the decline in business confidence, according to my own informal survey among several business persons in the past few days.
Outside of the continued expansion in the hotel sector, buoyed mainly by the Spanish chains, my informants were unable to point to major investment activities.

It is clear, therefore, that both business and consumers are agreed that there is little joy in the present economic circumstances. Where they differ is about future expectations.
The researchers and several pundits on the airwaves discussing the survey results on radio shows were agreed that consumers expectation is that the new political leader can improve their economic state.

This places an enormous burden of expectation on Simpson Miller's shoulders. In her speeches at home and abroad she has consistently cast herself as the poor people's champion. Her high popularity ratings and the sharp rise in consumer confidence say they believe her.

The challenge for the prime minister is how to reward the massive support levels with more jobs and robust economic growth.
Her options are limited. The budget cannot support substantial re-alignments to provide substantial sums for the government to lead the growth push through public sector investment effort. Nor can it engage in major social spending that may be partly behind the high confidence about the future.

The reported wage increase to Water Commission workers, over and above levels agreed in the second Memorandum of Understanding along with the flexing by the police, teachers, nurses and junior doctors for guideline-busting wage increases will only add further pressure to the budget woes.

Loans are not much of an option either. Indications towards the weekend were that the much promised Venezuelan loan of US$300 million inched closer towards reality following the recent visit of Minister Phillip Paulwell to Caracas.

And the prospects for getting the money quickly improved considerably with the news from the CARICOM summit in St Kitts that the region had taken a decision to support Venezuela's candidacy to the Security Council, despite US pressure for them to back Guatemala.

Indeed, from what I heard from some well-informed sources over the past week, I would not be surprised if Venezuelan President Hugo Chavez pays an official visit to Jamaica very soon. In the alternative, Simpson Miller may travel to Caracas.
Either way, the Caricom-Jamaica-Venezuela diplomatic investment should yield some dividends.

But the expectation is that the concessionary loan will be used mainly to finance the Bushy Park to Ocho Rios leg of Highway 2000, which the government has set as the new priority for the highway project instead of heading south towards Manchester.

Transport minister Robert Pickersgill indicated that the Venezuelan facility may also be used in part to replace some of the expensive debt associated with the highway with cheaper money and, if this happened, it might help the government to subsidise the toll on the Portmore leg to a politically acceptable level.

But by Friday, the minister announced a basic $60 toll for cars, twice what residents said they could afford, thereby indicating that a massive subsidy was not on.

In the real situation facing the prime minister, then, it seems that in order to deliver the expectations of the poor who are the base of her support she will have to find a way to encourage the business sector to move from scepticism to investment activity.

But, as some analysts and business people were stressing that will happen when the other shoe drops. In short, they need to see some specifics about what she actually plans to do to deliver on her promise to the poor.

In her first 100 days in office, the prime minister has not indicated what she will do. The only specific suggestion was that some one billion dollars would be made available from the National Insurance Fund (NIF) for small business development. So far, there have been no details about how this will work or when it will begin.

The prime minister has been indicating that we need to wait for her to get her own mandate but the there are risks in delay.
The longer she waits to say what she will do, the greater the chances that the euphoria among supporters will evaporate and the scepticism among the business community will change to opposition.

But getting from where we are to where we want to go is not just a matter of a new election. She will still have to get to specifics and the specifics must be such as to gain the confidence of both consumers and investors.

As professor Curtyn remarked, "The sustained surge of confidence represents a welcome rebound from last year's troubled economy. Importantly, half of those that anticipated economic gains during the year ahead based those expectations on the impact of government programmes. While the data could be hardly more promising, it also indicates the potential for some disappointment if the economy fails to produce at least some of the expected gains."

Source