Caribbean Business Environment Essay Example

natural beauty, resource endowments, tropical climate, lively culture and phenomenal sporting successes. Jamaica was discovered by Christopher COLUMBUS in 1494. The native Taino Indians, named the island ‘Xaymaca’, meaning the ‘Land of Wood and Water’. England seized the island in 1655 and established a plantation economy based on sugar, cocoa, and coffee.

Under British rule, the island became knows as ‘Jamaica’ and gained full independence in 1962. Today, Jamaica operates as a mixed, free market economy and continues to derive most of its foreign exchange from tourism, remittances, and bauxite/alumina. The country has expanded its tourism, financial services and telecommunications industries and is well positioned as the hub of the Caribbean. Additionally, it is strategically located at the gateway of the major air and sea routes into the Caribbean Basin with world class port facilities, two international airports, modern shipping and transhipment services, road and highway networks.

Jamaica has not been spared from the effects of the global economic downturn. The downturn in U. S. demand for Jamaica’s major exports, a decline in remittances, and a contraction of consumer demand led to a deep recession in 2009. With an estimated population of 2. 8 million people as of July 2009 (CIA World Factbook), the country nevertheless remains an important force in the tourism economy and politics of the Caribbean today. ECONOMIC ENVIRONMENT According to the 2010 Index of Economic Freedom, Jamaica’s economic freedom score is 65. 5, making its economy the 57th freest in the 2010 Index.

Jamaica ranks 11th out of 29 countries in the South and Central America/Caribbean region. The overall freedom to start, operate, and close a business is relatively well protected by Jamaica’s regulatory

environment. Despite these positive indicators, Jamaica’s economy suffers from serious debt problems (with debt-to-GDP ratio at more than 130%), high inflation (14% as of May 2010), high interest rates, large-scale unemployment and underemployment. Jamaica's onerous debt burden hinders government spending on infrastructure and social programs as debt servicing accounts for nearly half of government expenditures.

In Jamaica’s 2010 budget 11% of recurring expenditure was allocated to National Security whereas only 9% was allocated to Health. We highlight some of the economic factors that are of concern to our company. High inflation rate means high cost of living and reduction in the spending power of both locals and tourists alike. Reduced spending power would translate into less hotel rooms being booked or being booked for a shorter period because visitors may not be able to afford the high cost of hotel rooms and all the other amenities that go along with a vacation.

High interest rates would increase the cost of doing business in Jamaica. The government’s claim on credit resources crowds out the private sector’s access to credit. Therefore, bank lending is concentrated in a few sectors, causing interest rates to rise. This would inhibit us to some extent from acquiring funding, and therefore our company would have to explore alternative sources of start-up capital.

High debt-to-GDP ratio - The government's difficult fiscal position hinders spending on infrastructure and social programs, particularly as job losses rise in a shrinking economy.

The current Bruce Golding administration faces the difficult prospect of having to achieve fiscal discipline in order to maintain debt payments. This reduction in government spending would mean less stimulation of the economy and reduction in the general level

of business activity. Our company would remain cautiously optimistic as we anticipate that most of our business will continue to be generated from tourists’ arrivals.

Social Considerations

Drug-related violence, crime and theft are among the major social challenges affecting Jamaica.

The number of murders and other violent crimes makes Jamaica one of the highest per capita homicide rates in the world. In addition, the country has been ranked among the world’s top ten countries with the highest murder rate (Appendix I). These social issues are of grave concern to our company as they have the potential to retard long-term economic growth and development and will definitely have a negative impact on the business climate in the country, particularly the tourism industry. In May 2010, the U.S. State Department issued a travel alert for visitors to the country, responding to the growing wave of unrest after the Jamaican government issued an arrest warrant for the international drug lord and weapons trafficker Christopher “Dudus” Coke. While Coke was arrested one month later on June 22, the travel alert has been renewed because of sporadic bouts of violence following Coke’s arrest and extradition to the United States. The hotel sector in Jamaica depends heavily on tourism for survival.

In addition to reducing the number of tourists visiting the island, (as occurred recently) the high crime rate in Jamaica would also have other adverse repercussions on our hotel operations.

• Crime could increase the cost of doing business and ultimately reduce profits– Our hotel may be viewed as a prime target for crime because of its size. We will therefore have to invest in adequate forms of security (security guards, alarms systems, surveillance cameras)
  

to protect ourselves from illicit entrants.

Investment in additional security would mean increased operating costs and reduced profit margins as funds would now be diverted away from investment and expansion towards strengthening security.

•  Our hotel can incur losses as a result of theft, fraud, looting, etc. – increased losses means reduced business income and ultimately reduced profitability.
• Crime could reduce the size of the labour force – making it difficult to find persons who are willing and able to work in the hotel industry as individuals may have left the labour force on account of injury or may be reluctant to work night shifts because of social unrest in the community.

Government resources would have to be diverted to dealing with crime - Resources would now have to be redirected to the Police/Security Forces, judicial system, etc. instead of being used in more productive areas that would have higher impact on social development and growth.

• Crime could threaten the survival of our hotel in Jamaica – If crime rate continues to rise, we may be forced to close operations or relocate to areas which are more conducive to hotel business. Other social factors affecting he operations of our hotel are unemployment and poverty. High unemployment aggravated the major crime problem. Poverty and high levels of youth unemployment particularly among boys and young men contribute towards criminal activities, gangs, drugs and gun related activities. The government should focus on education of these young males and job creation to provide an alternative to crime as a career as these factors have the potential to impact negatively on our hotel operations.

Political Considerations

Jamaica has had the advantage of political stability.

According to

the 2010 Jamaica Expo Report, Jamaica currently ranks 20th as an inward investment location, and 10th in terms of the ease of regulations for doing business. There is political commitment to free enterprise, and no restrictions on the movement of capital, profits, and dividends. Additionally, there are virtually no exchange controls and no approval is required for repatriation of profits and dividends. Negative factors which have the tendency to affect our hotel operations include high government spending, significant corruption and bureaucracy.

High Government Spending According to the Gleaner Newspaper, Jamaica’s debt to GDP ratio is currently ranked the world’s 4th highest at 132%!! The last budget reported that 50% of every single dollar earned in Jamaica is going towards debt repayment. The Grenada Broadcasting Network recently reported that, in an attempt to curb the high government spending, Prime Minister Bruce Golding announced a freeze on the granting of all waivers and incentives at the beginning of August 2010. According to Mr Golding, waivers and incentives have been costing the government revenue 14% of GDP.

Prior to this announcement various incentives were granted to hotels under the Hotels (Incentives) Act, the Resort Cottages (Incentives) Act which among other things provided various income tax relief and import duty concessions up to a specific period. The freeze on waivers and incentives would mean high start –up costs as well as high maintenance costs for our company going forward. Every effort would therefore be taken to curtail operating cost. Corruption Jamaica’s overall economic freedom is hurt by significant corruption. Our research indicates that many Jamaicans believe corruption to be one of the root causes of the high crime rate.

According to a report appearing in

the New York Times, ‘Jamaican politicians, no matter their party, know that their political survival often depends on the men Jamaicans call dons, inner-city emperors who hold enormous sway over their communities and pull in huge sums from both legitimate and illegitimate means’!! When crime is approved at the highest level in a country, our hotel faces the risk of being victimised/ostracised if we are seen to be not supporting those in power; we can have our business shut down, our personal lives and that of our family members can also be threatened. Bureaucracy

Bureaucratic red tape is another big issue with which businesses have to contend. According to the Gleaner Newspaper, private companies are often at the mercy of government agencies which are responsible for providing the certification and licences businesses needed to conduct their operations legitimately. The slow pace of many agencies is a hindrance to business in Jamaica and this in turn could affect the opening of our hotel in a timely manner. We will therefore seek the necessary advice legally and otherwise to overcome this hurdle in the smoothest way possible.

The Industrial Relations Climate

The Jamaica labour force has remained steady over several years. But what has been happening recently is that the older more skilled workers are retiring and being replaced by younger less skilled workers. This means that our Company would need to consider training workers, either by basic training on the job or by sending workers for specialised training. In accordance with the provisions of Section l3 of the Labour Relations Disputes Act, clear, comprehensive and non-discriminatory employment policies will be set out by our Company which will include:

• Proper
  

recruitment and selection of workers, having regard for qualifications and xperience needed to perform the job.

The Current State Of The Private Sector

Jamaica has implemented reforms to develop its private sector.

The economy scores very high in investment freedom and business freedom and above the world average in three other areas. Procedures for conducting a business are straightforward and simple. Foreign investment is welcome in many sectors, and steps have been taken to enhance the regulatory environment for the financial sector. Jamaica has a voluntary national organisation of some 330 private sector associations, companies and individuals, known as PSOJ (Private Sector Organisation of Jamaica).

PSOJ seeks to foster unity and cooperation within the private sector, lobby government for policies and programmes which will support economic growth, channel private sector resources to help alleviate the economic and social problems of the country, promote the principles of private enterprise and the free market economic system as being the most effective means of achieving economic growth. From the foregoing, the private sector in Jamaica appears to be well organised and our hotel will draw on the strength of the PSOJ in setting up and operating our hotel bearing in mind the following factors: Competition

The hotel sector in Jamaica remains very competitive with accommodation ranging from the economical to

the 5-star, attracting a high level of foreign direct investment. Market leaders such as Sandals, run a number of sites on the island, and with the additional increase in 'boutique' hotels, it is expected that an extra 10,000 rooms will be created by 2012, on top of the 24,000 already available, the Jamaica Promotion Corporation reported. Knowing the competitive environment within which we will have to operate means that we have to meet or surpass the competition if we are to remain profitable. Training, Skills and Development The private sector can assist our Company by providing training and technical assistance. Our hotel will benefit from this training since a cadre of well trained employees will be ready to provide efficient services to the forward movement of the hotel and also improve attractiveness to external funding for expansion of the hotel.

• Availability of credit Although, the government’s claim on credit resources crowds out the private sector’s access to credit other organisations have stepped in and lent their support to the Private Sector.

According to the Jamaica Information Service, in 2009, over 500 micro, small, and medium-sized enterprises across the island, benefited from a suite of technical services provided under the Private Sector Development Programme. Initiatives like these will increase our hotel’s competitiveness, attractiveness and sustainability.

Technological and other infrastructural capabilities

Jamaica is relatively well developed compared to the other countries in the Region.

The Port of Kingston, through continued expansion and upgrading of capacity to meet market demands, has remained abreast of industry trends, creating a technological, secure and well-managed facility. There are three modern, strategically located cruise ship ports across the island; two conveniently located international airports at each

end of the island provide state-of-the-art facilities for the increasing number of tourism and business travelers. The efficient road and highway networks facilitate safe, speedy and cost-effective ground transportation and have opened up new areas for investment and development.

The infrastructural landscape will augur well for our hotel business and in turn we will ensure that our company as well as employees are technologically equipped to meet and compete in the face of emerging technology. Beckford noted that most Jamaicans would like to see their society offer equal opportunities to all. He stated that this can be achieved by creating an internal culture and a technological dynamic which will serve to spread equality and benefits that sustain the economic development.

Modern, reliable utility services also makes Jamaica’s infrastructure one of the best in the Region. With excellent mobile telephone services, international voice and data services, and fibre optic capability, the sector is being expanded to include ICT parks and offshore educational facilities. Our company would ensure that personnel is trained in Information Technology as excellent communication particularly at the hotel’s front desk, is critical to passing on data room status, availability and maintenance of rooms etc.

Attempts are being made to create a more energy-efficient environment at a lower cost in Jamaica. Efforts such as the use of natural gas to help generate electricity will help remove some of the high cost associated with the use of oil and create a more environmentally friendly environment. Wind energy is also used to create electricity and solar energy to assist with street lighting and water heaters. These types of developments will be important to the hotel sector, which usually has

high energy and water usage.

By adapting these efforts widely within the hotel environment, it will not only save money but also create an atmosphere of environmental consciousness which has become commonplace within North America and Europe and hence maybe important to a prospective vacationer. CONCLUSION In conclusion, our group would like to echo the words of Dr. Densil A. Williams, who said ‘if Jamaica is to achieve sustained economic growth and development, we will have to start paying more attention to the micro foundations of the economy which is where wealth is actually created.

Having the right macroeconomic environment is necessary but not sufficient for growth and improved competitiveness of the Jamaican economy.

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