Thursday, August 6th, 2015. By Richard Harrison: There is a general feeling among most Belizeans that the economy is not moving at the rate, nor in the direction, that they would like to see it go. That is because most Belizeans are cordoned off from the portions of the economy that are growing.
The vast majority continue to see the same pay check….with rising costs for most things that they purchase to live by on a daily basis…..fuel, electricity, telephone, food, rent/mortgages, cable, water, entertainment, spare parts, construction materials, etc.
Even Boledo sales are said to be falling, because of the increased pressure on family income. Through increased government spending…..a thousand new jobs may have been created in street and roads construction, and cleaning and maintenance of government properties and municipal spaces.
Most of this money go to a small pocket of well connected contractors….the workers get a menial weekly salary. This spending is mostly on cement, steel, machinery, fuel and asphalt…all of which are imported.
Through fiscal incentives, another 1000 new jobs may have been created in EPZ’s and IBC’s formed to support the shrimp investments and ICT projects. Most of these investments are by foreigners who are committed to taking out their money faster than they put it into Belize. They won’t pay any taxes for another 20 years…..by that time, they will have flown the coocoo’s nest. The Belizean workers mostly earn minimum wage.
The nature of these industries is such that they are prone to high volatility….which means they have to make hay while the sun shines….or downsize rapidly when the sun refuses to shine. We have seen the boom and bust syndrome several times in our shrimp history. The same can be predicted for the ICT projects. The seasonality of the tourism industry brings with it the usual 1000 part-time workers that will be taken on for the period November – May….and then they will be let off in June to October period. Most of the investments in tourism are foreign and they take the profits out of Belize.
The cruise tourism money is concentrated in very few hands, and will become even more so, if the general trend continues. The big real estate projects may bring short-term construction and long term menial maintenance jobs….but for now, they are basically real estate deals that use Belize land as the conduit for a cash moving from one US bank to another US bank. The primary agriculture investors in sugar, citrus, banana and papaya are not expected to take on more than 500 new employees in expansion of sugar in Cayo district and papaya in the north.
These industries are in aggregate not growing…they import most of their inputs….and will continue to stash their profits in foreign banks. The highly mechanized regulated oligopoly for corn, beans, rice, chicken, eggs, pork and cattle operations will not take on any more workers either…and most of their money go straight to Wachovia Bank in the US. Profits kept here are invested in diversification away from production industries….at scales that create new unregulated monopoly environments, for example, tire, spare parts, sheet and corrugated metal, home and garden tools, water and irrigation, pumps and motors, aluminum and glass windows and doors, pet foods and gadgets, automobiles and tractors, etc etc.
Most of these are based on importation of raw, semi-finished or finished materials….in aggregate, negative wealth creation for Belize. The petroleum sector will continue to shed workers with no new finds on the horizon. Employment has fallen from its peak of around 600, to around 300 currently. The most of their money work abroad anyway, in convoluted trusts and shell companies….far from the ambit of daily Belizean lives. So we are looking optimistically at creating around 5000 new jobs over the next three years….when our need is for 15,000 new jobs minimum.
This, while we take on another couple hundred million dollars in new debts to create very modest GDP “growth”….instead of attracting more FDI and re-investing an increased domestic wealth pool from development of domestic industries, substantially based on harvesting and value-adding our natural resources. There are two “spanners in the wheel”.
1. Belize laws, policies and practices continue to favor an import-consumption economy, as opposed to a production-consumption economy. The money goes out faster and in larger quantities than it comes in. This accumulation of deficits over the years since Independence is the primary reason for our large debts to foreign creditors….which sucks up most of the revenues from growth. So, as GDP grows, wealth by, of and for Belize is diminished. As long as this status quo remains, investment in production industries….which has the potential to create many more long-term jobs…will continue to be slow or negative…and thus the likelihood of lowering our deficits…and our debts….remain gloomy at best….frightening at worse.
2. The growth that does occur….happens in sectors that pay little or no taxes….due to the special favors of fiscal incentives, or no taxes on inputs nor outputs…. such as EPZ’s, development concession, discretionary tariff and non-tariff protection, etc. This creates growing imbalances in distribution of wealth, such that a small sector of the population is more wealthy than they have ever been….but the vast majority is seeing more hard times currently….and on the horizon. The fiscal structure continues to remain unfairly biased towards the entrenched import-based status quo.
While the Government has been trying on various, mostly monetary, fronts….by rescheduling the “super bond” to allow for smaller outflows to finance debt…by implementing banking reform recommendations by the OECD and IFI’s, which basically has resulted in making financial transactions more cumbersome and costly, and financing and refinancing more difficult…by manipulating the required reserve rate of the Central Bank….by trying to force interest rates down by dabbling in national banking and manipulating Social Security deposits….and by increasing government spending….BUT the domestic and foreign long-term investors are staying put…with excess liquidity in the financial system piling up.
These monetary measures will not work by themselves….because interest rates can go down to zero percent….but if people see their employment status as temporary, in finite government projects, or fleeting ICT projects, they will not borrow to build homes and make other investments. There needs to be more relief from refinancing home mortgages at lower rates and longer terms….and thankfully, it seems this is in the works now. Production investors will not proceed with plans even if monetary policy forces interest rates to zero, because they see the cards on the fiscal side stacked against such investments….in terms of the degree to which competitiveness and productivity (the generators of profits and wealth) is compromised by the current fiscal stance.
A more production friendly, balanced, broad-based fiscal position is absolutely required. Elsewhere, I have summarized the principal fiscal changes that are appropriate. By taking measures to correct No. 1, Belize would be increasing its wealth generation. By taking measures to correct No. 2, Belize would improve its distribution of that wealth, creating a robust middle-class, which is where most Belizean lives would be positively impacted. Most Belizeans want to see more wealth generated….and better distribution of that wealth.
They want the freedom to work for and build our own….not to be pawns in the game of big foreign investors who are here today….gone tomorrow. The bottom line is….Belize needs to make the decision to shift from an import-consumption economy, to a production-consumption economy. Based on that, it needs to implement the laws, policies and practices….both fiscal and monetary….to achieve this objective.
What the current government is trying to do….is to prove that we can develop the economy with a services bias, using mostly monetary tools….without the need for growing production to substitute imports and generate new and more exports, and the more difficult fiscal adjustments that require. At the same time, they are convinced that the industrial private sector is not going to make the investments necessary to bring about major shifts in production earnings….and that is why they have concocted so many government spending initiatives…..to hopefully give time for their services agenda to mature.
This strategy is all hedged on keeping the entrenched old-money status quo of import-consumption in place….with the hope of trickle down for the masses. We have been there before, with the previous governments “stimulus” in housing based on massive imports…..without the investments in production to offset the rising imports….while taking on more and more debts to close the gap….it is unsustainable.
This current strategy has a small chance of working, if even for a time…..especially if the Almighty bless Belice with another major oil find. So….will our future be determined by grace alone? We can do better by, of and for ourselves!!!’
This article was written by Richard Harrison, Belizean investor in production and services businesses in Belize. He holds a Masters in Business Administration degree from Lancaster University.
The views expressed in this article are those of the writer and not necessarily those of the Belize Media Group.
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