Tweet
IDB points out barriers to Ja's economic development
published: Sunday | August 6, 2006
The report by the Inter-American Development Bank (IDB), entitled Jamaica, A Private Sector Assessment, marks a significant contribution to understanding some of the barriers in the development of the private sector and ultimately, to the nation's growth and development.
Its central focus is on the issues that affect entrepreneurship, innovation and investment in the private sector. The seven short chapters cover themes such as Jamaica's legal institutions, property rights, the role of the financial sector and incentives for investment.
The IDB report itself is not novel in its recommendations and this it accepts. However, it does help to focus more narrowly on the problems faced by businesses and particularly small businesses in Jamaica.
Authors Paul and Sarah Holden are of the view that, although a huge section of the economy operates informally (estimated at 40 per cent of GDP), "bringing this area in" will not do much to change the perception of underperformance of the Jamaican state.
However, given the size of this sector, it is difficult to write off its value and potential bearing on overall growth. Instead, there is need for more in-depth analyses aimed at understanding this sector and its composition in order to assess its full and potential contribution to the Jamaican economy.
Incentives important
The report goes a far way in highlighting some of the reasons behind and ways of dealing with this large and growing informal sector.
Particularly relevant here is the importance of incentives in inducing behaviour along given lines. Numerous writings and reports by both academics and practitioners have pointed to the significance of incentives.
This IDB report reiterates that point, acknowledging that a perverse incentive structure currently exists for businesses in Jamaica.
This relates to the lack of access to capital and loans (particularly, for small and medium-size enterprises), lack of contract enforcement and the high transaction costs involved in business registration and taxation.
The result of such a structure is that a large number of businesses are 'forced' or choose to operate in the informal sector in order to avoid contact with the state and its apparatus.
Where there is a real (or perceived) incentive for operating in the informal sector, then the government faces a huge task in bringing these businesses into the formal economy.
This has been one of the key findings of the ongoing research being carried out by the Institutional and Administrative Capacity group (IAC) in the Jamaican Economy Project at the University of the West Indies.
The IAC group has acknowledged that the size of the informal economy has significant implications for the government's ability to increase its tax base.
benefits of formalisation
The group also noted that the government's ability to bring businesses into the formal economy will have some bearing on its revenues to fund development and provide an enabling environment not only for businesses but also for all its citizens.
But while cognisant of the need for formalisation, the IAC group also acknowledges that the government needs to avoid the perception that promoting integration into the formal sector is simply to allow businesses to be taxed. Rather, businesses must come to recognise the benefits of formalisation.
One of the main thrusts of the IDB report is to offer recommendations for how barriers to businesses can be removed and in turn, how they can be encouraged to become formal enterprises. Among the solutions are calls for the design of new legislation and for improvements in the legal framework governing business practices. These would simplify and reduce the costs for arbitration and paying taxes as well as open up and increase access to loans. The report also notes the need for improving the system of land rights to free up dead capital which could be used as collateral for small business owners and individuals in rural communities. All this is with a view to increasing incentives for joining the formal sector while increasing the costs of avoidance. Such recommendations hold the key to building a culture where tax paying is accepted as a more palatable aspect of citizenship in the Jamaican state.
But while the IDB report highlights the role of legislative and legal barriers to businesses becoming formalised, there are also other factors that must be taken into account. Among these are the nature and origin of many small enterprises that grew out of groups which have not necessarily been aware of the channels or legal requirements for forming a business. In other cases, there is not much awareness even of a need to assume this status. This may be due to lack of knowledge of the existence of relevant laws. As such, small enterprises may be totally unaware that they are in fact breaking the laws of the land, much less to engage in a discussion on the complexity of the legal structures governing businesses.
This points to a need for education and information awareness on the legal and practical processes involved in business registration, as well as more general business advice. Essentially, such advice should also highlight the benefits that could be derived from being in the formal economy and make a link between individual action at this level and its impact on the macro-economy.
In general, while regulatory and legislative reforms are crucial, there is also a need for 'cultural' change/ or change in the mindset of the public bureaucracy as well as within businesses in both the formal and informal economy. A part of this change is the movement away from a business culture where incentives (e.g. tax breaks) seem geared towards big businesses and specific areas such as tourism-highlighted in the report. Such practices create the perception that the contribution that small businesses make to the economy are being ignored.
In summary, the legal and regulatory reforms suggested in the report hold the potential for addressing some of the major problems faced by businesses in Jamaica. Overtime, these technical reforms may help change some of the negative aspects of the existing business culture in Jamaica.
Errol Thompson (right), general manager of Tools for Development (Jamaica) Limited, shows off some of the equipment and machinery sold by his company to Aston Barnes, a director of JN Small Business Loans Limited (JNSBL). Occasion was a JNSBL town meeting at the Mandeville Hotel to increase public awareness of loan facilities available to small and micro entrepreneurs through the company. Tools for Development is a subsidiary of JNSBL and has on sale equipment and machinery which may be purchased with loans obtained through JNSBL.
More News
E-mail this story
published: Sunday | August 6, 2006
The report by the Inter-American Development Bank (IDB), entitled Jamaica, A Private Sector Assessment, marks a significant contribution to understanding some of the barriers in the development of the private sector and ultimately, to the nation's growth and development.
Its central focus is on the issues that affect entrepreneurship, innovation and investment in the private sector. The seven short chapters cover themes such as Jamaica's legal institutions, property rights, the role of the financial sector and incentives for investment.
The IDB report itself is not novel in its recommendations and this it accepts. However, it does help to focus more narrowly on the problems faced by businesses and particularly small businesses in Jamaica.
Authors Paul and Sarah Holden are of the view that, although a huge section of the economy operates informally (estimated at 40 per cent of GDP), "bringing this area in" will not do much to change the perception of underperformance of the Jamaican state.
However, given the size of this sector, it is difficult to write off its value and potential bearing on overall growth. Instead, there is need for more in-depth analyses aimed at understanding this sector and its composition in order to assess its full and potential contribution to the Jamaican economy.
Incentives important
The report goes a far way in highlighting some of the reasons behind and ways of dealing with this large and growing informal sector.
Particularly relevant here is the importance of incentives in inducing behaviour along given lines. Numerous writings and reports by both academics and practitioners have pointed to the significance of incentives.
This IDB report reiterates that point, acknowledging that a perverse incentive structure currently exists for businesses in Jamaica.
This relates to the lack of access to capital and loans (particularly, for small and medium-size enterprises), lack of contract enforcement and the high transaction costs involved in business registration and taxation.
The result of such a structure is that a large number of businesses are 'forced' or choose to operate in the informal sector in order to avoid contact with the state and its apparatus.
Where there is a real (or perceived) incentive for operating in the informal sector, then the government faces a huge task in bringing these businesses into the formal economy.
This has been one of the key findings of the ongoing research being carried out by the Institutional and Administrative Capacity group (IAC) in the Jamaican Economy Project at the University of the West Indies.
The IAC group has acknowledged that the size of the informal economy has significant implications for the government's ability to increase its tax base.
benefits of formalisation
The group also noted that the government's ability to bring businesses into the formal economy will have some bearing on its revenues to fund development and provide an enabling environment not only for businesses but also for all its citizens.
But while cognisant of the need for formalisation, the IAC group also acknowledges that the government needs to avoid the perception that promoting integration into the formal sector is simply to allow businesses to be taxed. Rather, businesses must come to recognise the benefits of formalisation.
One of the main thrusts of the IDB report is to offer recommendations for how barriers to businesses can be removed and in turn, how they can be encouraged to become formal enterprises. Among the solutions are calls for the design of new legislation and for improvements in the legal framework governing business practices. These would simplify and reduce the costs for arbitration and paying taxes as well as open up and increase access to loans. The report also notes the need for improving the system of land rights to free up dead capital which could be used as collateral for small business owners and individuals in rural communities. All this is with a view to increasing incentives for joining the formal sector while increasing the costs of avoidance. Such recommendations hold the key to building a culture where tax paying is accepted as a more palatable aspect of citizenship in the Jamaican state.
But while the IDB report highlights the role of legislative and legal barriers to businesses becoming formalised, there are also other factors that must be taken into account. Among these are the nature and origin of many small enterprises that grew out of groups which have not necessarily been aware of the channels or legal requirements for forming a business. In other cases, there is not much awareness even of a need to assume this status. This may be due to lack of knowledge of the existence of relevant laws. As such, small enterprises may be totally unaware that they are in fact breaking the laws of the land, much less to engage in a discussion on the complexity of the legal structures governing businesses.
This points to a need for education and information awareness on the legal and practical processes involved in business registration, as well as more general business advice. Essentially, such advice should also highlight the benefits that could be derived from being in the formal economy and make a link between individual action at this level and its impact on the macro-economy.
In general, while regulatory and legislative reforms are crucial, there is also a need for 'cultural' change/ or change in the mindset of the public bureaucracy as well as within businesses in both the formal and informal economy. A part of this change is the movement away from a business culture where incentives (e.g. tax breaks) seem geared towards big businesses and specific areas such as tourism-highlighted in the report. Such practices create the perception that the contribution that small businesses make to the economy are being ignored.
In summary, the legal and regulatory reforms suggested in the report hold the potential for addressing some of the major problems faced by businesses in Jamaica. Overtime, these technical reforms may help change some of the negative aspects of the existing business culture in Jamaica.
Errol Thompson (right), general manager of Tools for Development (Jamaica) Limited, shows off some of the equipment and machinery sold by his company to Aston Barnes, a director of JN Small Business Loans Limited (JNSBL). Occasion was a JNSBL town meeting at the Mandeville Hotel to increase public awareness of loan facilities available to small and micro entrepreneurs through the company. Tools for Development is a subsidiary of JNSBL and has on sale equipment and machinery which may be purchased with loans obtained through JNSBL.
More News
E-mail this story
Comment