Jamaica - Industry

Jamaica - Industry

In spite of its relative decline, during the 1980s mining remained the most important sector of the economy in terms of foreign exchange (see fif.___, Mining and Related Activities). Bauxite was by far the most dominant mineral and subsector in the economy. The mining of bauxite had generated over 50 percent of export earnings since the 1960s. Nevertheless, bauxite production was declining and output in 1985 equaled 6 million tons, only half of the 1980 level (see table __, Bauxite and Alumina Production and Exports (1980-1985), Appendix A). As bauxite exports declined and receipts from tourism increased in the 1980s, it seemed possible that tourism might replace bauxite as the greatest foreign-exchange earner.

Although a large foreign-exchange earner, bauxite production represented only 5 percent of GDP in 1985 and employed under 1 percent of the labor force. The very capital-intensive nature of the industry made it a controversial subsector because of the high rates of unemployment on the island. Likewise, the large presence of North American aluminum companies extracting the ore was also a prominent issue.

Bauxite was first produced commercially in Jamaica in 1952 by Reynolds Metals Ltd. In only six years, Jamaica became the largest producer of bauxite in the world. It retained this position until 1971, when it was surpassed by Australia. In the late 1980s, Jamaica ranked third in worldwide production behind Australia and Guinea and accounted for roughly 13 percent of world output of bauxite and 7 percent of alumina. During the first half of the 1980s, Jamaican bauxite production declined drastically as half of the six North American companies ceased production or left the island completely, and world prices for bauxite entered a prolonged depression because of oversupply. The departure of foreign companies encouraged the government to buy into the bauxite industry, and by 1986 the government-run Clarendon Aluminum Plant was the most successful producer on the island.

Jamaica's bauxite reserves are large, exceeding 1.5 billion tons. At the present rate of extraction, reserves could last another 150 years. Jamaica's bauxite is not extremely alumina pure; one ton of Jamaican bauxite contains only about 0.4 tons of alumina. The island's bauxite comparative advantage lies in the easy extraction of the metal ore as a result of its close proximity to the surface.

Although generally beneficial for the economy, Jamaica's bauxite industry must import large amounts of caustic soda and heavy machinery to mine and export the ore, making the industry highly import intensive. Likewise, the mining of the ore has raised environmental concerns over bauxite by-products discharged in highly visible red lakes.

Jamaica also has significant reserves of several other commercially viable minerals, including limestone, gypsum, silica, and marble. Limestone covers about 80 percent of the island, making the total estimated reserves of 50 billion tons virtually inexhaustible. Certain limestone reserves are of very high quality. Nevertheless, limestone production has been rather small and extremely dependent on external market forces. Although 83,000 tons of limestone were exported in 1984, none was exported in 1985, and estimates for 1986 were placed at close to 100,000 tons.

Gypsum, mined in eastern Jamaica since 1949, was the second most important mineral in the 1980s. Reserves of at least 80 percent purity amounted to over 4 million tons out of total reserves exceeding 40 million tons. Some gypsum was used in the local manufacturing of tiles and cement, but over 90 percent of the mineral and its derivative, anhydride, were exported unprocessed to the United States and Latin America. Jamaica normally produced roughly 180,000 tons of gypsum a year.

Manufacturing

For a small developing country, Jamaica had quite diversified manufacturing. Sugar, condensed milk, rum, edible oils, cloth carpet, cigarettes, and shoes were some of the more basic manufactured goods. Production also included heavier industrial goods, such as sulfuric acid, detergents, fertilizers, gasoline, petroleum, batteries, and steel. The sector accounted for 15.7 percent of GDP in 1985 and employed 127,000 workers, or 12 percent of the labor force.

During the 1980s, the manufacturing sector underwent its first major changes since independence, reflecting the government's structural adjustment policies, which emphasized labor-intensive, export-oriented light manufacturing. As a result, a growing percentage of manufactured goods, particularly nontraditional items, were produced solely for export. Apparel and sewn products, mineral fuels, and miscellaneous manufactured goods experienced the fastest growth rate.

The manufacturing sector was historically linked to agricultural processing until World War II, when general shortages encouraged import substitution industrialization (see Glossary) in such areas as clothing and footwear. From 1950 to 1968, the sector's growth outpaced all other sectors of the economy, expanding 7.6 percent annually, including over 10 percent growth in the last five years of this period. The growth of domestic industries also relied on generous government import protection in the form of quantitative restrictions beginning in the 1960s and an overvalued exchange rate starting in the 1970s. Chemicals, cement, furniture, and metal products were the most important subsectors to emerge as a result of the import substitution policies.

Two general types of manufacturing firms operated in Jamaica after World War II. The first type was generally foreign owned, capital intensive, and export oriented, usually operating under the Export Industries Law. Some of these firms, however, were labor intensive and commonly called "screwdriver" industries because only a small percentage of the value added was performed in Jamaica. The second type of firm was typically locally owned, generously protected, and domestically oriented. Many of these manufacturers were quite inefficient but did serve to integrate certain subsectors of the national economy.

In an attempt to reduce previous price distortions, the manufacturing sector undertook structural adjustment reforms from 1982 to 1985. The adjustment measures included numerous currency devaluations, unification of the two-tier exchange rate, relaxation of import licensing, reductions in quantitative restrictions, encouragement of foreign investment, and export promotion to thirdcountry or hard-currency markets. During the structural adjustment process, many less efficient producers reduced output or closed altogether. Factory closings were particularly common in 1982. Declines in investment and output were most frequent in the metal, chemical, and domestic apparel subsectors. In 1985 traditional manufacturing's output was 30 percent less than 1984 levels. At the same time, however, investment in new export-oriented industries increased quickly, helping to keep the sector afloat.

As noted previously, the Seaga government defined seven "priority subsectors" in the early 1980s, emphasizing them in terms of investment, factory space, and financing. Of all the priority subsectors, only garments and agro-industrial products had achieved any real success by 1987. In 1985 garment and processed food exports increased 15 percent and 11 percent, respectively, over 1984 levels. Garment factories in particular skyrocketed, totalling 148 companies by 1986, with fifty-six new 807 type firms established from 1981 to 1986. Although roughly 50 percent of these new firms were small and employed fewer than 50 people, 6 companies had over 500 workers. The great majority of production in these priority areas was destined for third-country markets, primarily the United States. Third-country markets' share of exports rose from 47 percent to 74 percent between 1983 and 1985. Simultaneously, manufactured exports to Caricom decreased by 50 percent.

Regarded as the engine of growth under the structural adjustment policies, manufacturing received renewed government attention in the 1980s. Several government-sponsored agencies or activities were introduced or reorganized to provide technical assistance, financing, export promotion, and marketing assistance. New efforts to improve technical assistance to exporting manufacturers were offered by both the JNIP and the Jamaican Industrial Development Corporation (JIDC). In 1985 the Technical Assistance Fund for Exporters was created to provide further aid in new product development. Institutional support for financing exports was available from the National Development Bank, the Trafalgar Development Bank, the Export Development Fund, and the Jamaican Export-Import Bank, all newly organized or reorganized. Export promotion and marketing assistance were provided by the Jamaica National Export Corporation and the JNIP.

Construction

In the early 1980s, the construction industry had yet to recover from the short- and long-term decline experienced during the 1970s. Construction had increased during the initial expansion of the bauxite and tourist industries, because both required a great deal of physical infrastructure. Construction stagnated in the 1970s, however, because of aggregate declines in investment, downturns in tourism, and the peak in bauxite mining. By the 1980s, the most common construction activities were new factory space, tourist hotels, and residential housing.

Construction recovered in 1982 and 1983, but real production declined in 1984 and 1985 by 5 percent and 14 percent, respectively. Construction's share of GDP dropped from 6.1 percent in 1982 to 5.4 percent in 1985. Total output in 1985 equaled US$171 million, with virtually all activity dedicated to the local market. Only 745 housing starts and 1,867 completions were registered in 1985, down sharply from 1984 levels of 3,114 starts and 3,132 completions. Private-sector construction operations decreased by over 50 percent in 1985 alone. A 29-percent increase in the Ministry of Construction expenditures helped to stabilize the sector's downfall; the JIDC's national factory building program was important in this regard.

Many of the materials used in the construction industry were produced locally, although imports of iron, steel, and wood remained significant. Cement production reached 240,000 tons in the mid-1980s. All cement was produced at the Caribbean Cement (I.C.) plant in Kingston, of which government shares were sold to a Norwegian company in 1987. Steel, produced by the Caribbean Steel Company and BRC Ltd., stood at 18,300 tons by mid-decade. The Jamaica Mortgage Bank and the National Housing Trust were the key financial institutions in the construction sector.

Energy

Jamaica has no known oil reserves; as a consequence, the island was about 90 percent dependent on imported oil for energy generation in the late 1980s. Most of Jamaica's oil imports came from Mexico, Venezuela, Trinidad and Tobago, and the Netherlands Antilles. Over 30 percent of imported petroleum imports were destined for the oil-intensive alumina subsector. Oil resources and imports were managed by the state-owned Petroleum Corporation of Jamaica (PCJ). In 1985 the PCJ accounted for 73 percent of the imported petroleum, with private bauxite companies directly importing the other 27 percent. Total oil consumption averaged nearly 13 million barrels a year in the 1980s.

The island's only oil refinery, located in Kingston, had a refining capacity of 36,000 barrels per day. Formerly owned by Exxon, the refinery was purchased by the government of Jamaica in 1982 for US$55 million. Subsequent to the refinery's sale to the government, PetroJam, a subsidiary of the PCJ, managed the plant's operations. The Kingston refinery was considered strategically important to Jamaica because of the country's great dependence on foreign oil and the high oil intensivity of the economy. For example, the per capita energy consumption of Jamaica in the early 1980s exceeded that of Brazil or the Republic of Korea (South Korea), mostly as a result of the bauxite industry.

Ethanol, an octane enhancer, was produced for export for the first time in 1985. The first ethanol plant was established in the early 1980s by Tropicana, a subsidiary of a California-based firm. Representing an investment of about US$23 million, the plant was easily the largest investment that had entered Jamaica or the Caribbean under the CBI by 1987. Even though the plant had not completed a full year of production in 1985, output still reached approximately 75 million liters of anhydrous ethanol. The ethanol was exported solely to the United States market. In addition, in 1987 the Jamaican government arranged with Belize to process ethanol from sugarcane there.

Demand for electricity grew with the country's aggregate growth. In the mid-1980s, roughly 90 percent of all energy generated was oil based. Hydroelectric power and bagasse (sugarcane residue) fuels made up most of the balance of energy generation. Government energy policy in the 1970s focused on increasing rural access to electricity. Before 1975 only about 10 percent of rural areas had electricity. In 1975 the government of Jamaica, in conjunction with the Inter-American Development Bank (IDB), launched the Rural Electrification Program, which improved rural access to electricity. By 1987 general access to electricity was greater than in most developing countries, about 54 percent, with access in urban areas reaching close to 100 percent.

Power outages were very common until the mid-1980s, when the sector was upgraded and expanded as part of physical infrastructure improvements in the new industrial strategy. The island's installed capacity increased from 680 megawatts in 1980 to over 700 megawatts by 1983. Government electric policy, implemented by the Ministry of Public Utilities and Transport, focused on efficiency, conservation, and alternative energy sources in the 1980s. Work on developing alternative energy sources focused on hydropower, peat, coal, bagasse, and others.

In 1983 approximately 70 percent of total electricity was generated by the government-owned Jamaica Public Service Company whereas the remaining 30 percent was produced by private industry in alumina, sugar, and cement factories. Electricity was produced primarily by steam plants (83 percent), although hydroelectric systems (11 percent) and gas/diesel plants (6 percent) were increasingly being used. At least 60 percent of electricity was consumed in the major urban areas of Kingston and Montego Bay. Total commercial energy consumption was equivalent to 11.2 million barrels of oil in 1985. The electrical transmission system included 864 kilometers of 138-kilovolts and 69-kilovolt lines in addition to some 8,000 kilometers of primary distribution lines at a voltage of 24 kilovolts and below. Oil prices and electricity rates became political issues in the 1980s, as oil prices remained above market prices and electricity rates increased very sharply.

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