Diversification of Jamaica’s Energy Mix Must Not Be Delayed

In an article in Jamaica’s Sunday Gleaner dated 21 April 2013 titled: “More Lessons from the Past – Missed EnergyOpportunities”, William Saunders, Energy Consultant, outlined Jamaica’s failure to act upon initiates to diversify its energy mix from 1978, when Jamaica formulated its first energy plan. 

In a much earlier article in Jamaica’s Sunday Gleaner dated 30 March 2008 titled: “Jamaica’s Energy Challenge – part III”, Zia Mian, a retired senior World Bank official and international energy consultant, stated that: “Jamaica’s economy is relatively energy intensive”. 

Jamaica has one of the highest rates of energy consumption in Latin America and the Caribbean region.  This is mainly due to heavy usage by the bauxite/alumina sector.  The oil consumption per sector from 2004-2011 is shown in table 1.

Table 1: Jamaica's Oil Consumption per Sector (‘000BBLS)
SECTOR:	2004	2005	2006	2007	2008	2009	2010	2011
Transport	6,076	6,248	6,373	6,080	5,835	6,403	5,648	6,012
Electricity	6,226	6,555	6,390	6,654	6,275	6,662	6,578	6,529
Bauxite/Alumina	9,444	9,799	9,552	8,808	9,392	3,494	2,885	3,753
Shipping/Aviation	2,161	3,203	5,224	5,904	4,404	3,882	3,768	3,514
Other	1,629	1,521	1,625	1,281	1,212	1,157	1,139	1,195
TOTAL =	25,536	27,326	29,164	28,727	27,118	21,598	20,019	21,003

Source: Data derived from Ministry of Science, Technology, Energy and Mining (click here)

in an article titled: “Energy Cost and our Economic Future – Future of Alumina Sector Hinges on Energy Cost”, in the Mona School of Business Nov/Dec 2011 issue, Carlton Davis, former Cabinet Secretary and chairman of the Jamaica Bauxite Institute, stated, that:

 “Given the importance of the cost of energy in the production of alumina and the consensus that oil will be more expensive over the long-term than natural gas or coal it is incumbent that oil is replaced by one of these two fuels... (and) Government has a lead role in affecting this transformation.”

The cost to import fuel into Jamaica from 2008-2011 is shown in table 2.  Fuel is by far the largest expenditure on imported goods.  With the exception of 2009 and 2010, the cost of importing fuels was greater than half of the returns from exports.

Table 2: Trade in Goods  & Services [J$’000]
Year:	2008	2009	2010	2011
Exports:	418,360,800	367,316,800	361,232,600	383,865,600
Goods	180,630,391	116,355,584	116,449,101	139,533,852
Services	237,730,409	250,961,216	244,783,499	244,331,748
Imports:	714,509,600	558,285,200	571,607,900	668,087,200
Fuels	226,802,098	124,996,495	147,081,190	209,816,388
Other Goods	361,461,471	161,141,521	174,444,804	312,036,055
Services	126,246,031	272,147,184	250,081,906	146,234,757

Source: Data derived from the Statistical Institute of Jamaica

Jamaica has a serious trade deficit, and oil is a major contributor.  Devaluation normally boosts exports, but not in Jamaica. An assessment of Jamaica’s exchange rate policy from 1962 onward appears in an academic paper by Dr. Michael Witter’s titled: “Exchange Rate Policy in Jamaica: A Critical Assessment”. 

He concluded that devaluation had the effect of inflating the value of imports significantly over that of exports. Cheap oil imports which prevailed in the 1950s through to the OPEC action in 1973 factored in Jamaica’s economic growth.  But, oil prices are projected to reach US$150 – US$200 in the near future. 

Prior to the global recession in 2008, consumption in the shipping/aviation sector has also risen. As the global economy recovers and Jamaica completes its logistical hub, in preparation for the widening of the Panama Canal, this sector could easily overtake the electricity sector in its use of energy.

Promising signs on the horizon need to produce tangible results. Construction of the 381 MW, LNG-fired power plant is one of them. The Private Sector Organization of Jamaica (PSOJ) needs to consider Jamaica’s history of missed opportunity and reconsider their involvement in this project.



Paul Hay is a Jamaican national, founder of PAUL HAY Capital Projects: a consultancy, based in Kingston Jamaica, with a vision of providing strategic planning and implementation services to organizations for non-residential facilities in the Caribbean.

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Choose your Architect/Engineer Team to suit your Project – Strategic Facility Planning for SMEs

In "To Build, or not to Build", I dealt with the feasibility of undertaking a construction project. I assume you have completed that activity, and decided to proceed with the project. Now, you need an architect/engineer team. A building project actually involves four phases: commencing with planning, through to design, construction, and terminating at the operation and maintenance phase.

On large jobs, separate teams may undertake the planning and design phases, especially where planning requires highly specialised expertise.However, a single architect/engineer team generally undertakes both stages in smaller jobs. Even though you may not be billed for planning, do not assume the stage does not exist: design cannot commence without first having determined the project requirements.

In "Consider Image Carefully", I recommended that you be intimately involved in this planning process. This is especially true if the project is to be particularly complex or innovative.As the owner, you should initiate the process because there is a better likelihood that you will determine the criteria to judge the selection of an architect/engineer team appropriate for your job.It is not uncommon for an architect/engineer team to be changed even during the construction stage, so having a firm grasp of what is required from this team will facilitate an appropriate selection, though this is not guaranteed.

At the very least, you should determine the nature of the project - whether innovative, complex, or routine - and your priorities with regard to cost, time frame and quality of the work. The reasons will be apparent in shortly. The selection of an architect/engineer team generally takes two forms: either direct negotiation with a specific team or a process involving the pre-selection of a number of teams, creating a short-list, and then selecting the most appropriate team. The latter is typically used for large projects, so we assume the former is used: though the selection process to be outlined will be instructive to both.

The Coxe Group Management Consultants (Seattle) surveyed 100 design firms of varying sizes, markets and organizational formats. They classified these firms by their "technology" - what they do best - and, their "values" - the goals of the firm.

With regard to the former, the Coxe Group identified three categories of firm technologies: the "strong-idea", "strong-service", and "strong-delivery" firms. A "strong-idea" firm delivers expertise or innovation to unique projects. It adapts to any project and typically depends on a few outstanding individuals. A "strong-service" firm delivers experience and reliability particularly on complex projects. They provide comprehensive service to clients that are actively involved in the process. A "strong-delivery" firm provides efficient service on similar or routine projects to clients seeking a product, rather than a service. It repeats successful solutions for technical cost and schedule compliance.

In this case, the nature of the project will indicate the appropriate team. You need to determine if the project is to be unique, complex, or routine. Having made this decision, the short-list of technology-oriented firms will be self evident. Knowledge of the projects undertaken, or physical inspection of these, will be instructive.

Within these technology sets, the Coxe Group determined that the firms have values that are either "practice-centred" or "business-centred". The "practice-centred" firms emphasize quality: serving their clientele and satisfactorily representing their discipline. "Business-centred" firms are profit oriented. Therefore, cost and time are emphasized.

If you prioritize your needs based on quality, cost and time, you can eliminate firms with inappropriate values. "Practice-centred" firms can also be judged on knowledge of their previous projects, or physical inspection of these. "Business-centred" firms can be judged on their performance on the above. Discussion with previous project owners will likely be needed for due diligence. In the case of new firms, this evaluation will have to be done on previous projects by the principals and team members, prior to founding/joining the firm being considered.

You may intuitively realize that "strong-ideas" firms will gravitate towards "practice-centred" values, while "strong-delivery" firms gravitate to "business-centred" values. But, especially small firms may lack focus and not be easily classified; while, highly focused firms will most likely disqualify themselves from discussing your project if it is not compatible. Nevertheless, this procedure will serve to guide your selection of an appropriate architect/engineer team for your project.

Other than routine projects, the projects evaluated need not be the same but should be similar in nature contemplated: that is, uniqueness and complexity. The teams' respective performances on the projects evaluated with regard to quality, price and time should then be compatible with the manner you expect your project to be handled. It should now be apparent that when you choose particularly an architect based solely on work you may have seen, without thought to the performance on that job, you will likely end up with a "practice-centred", "strong-ideas" firm, which may not be suitable for your project. So, you need to consider both, and choose an architect/engineer team to suit your project.


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To Build, or not to Build? – Strategic Facility Planning for SMEs

As I pondered upon my next blog post, I realized that I had not dealt with a fundamental question: whether to build, or not to build.  The first two posts dealt with the issue of image: the first warns about improper motives to build, and the second on creating an image that suits your business.  But, do you really need to build at all?  That is the question.

As has become customary, two cases are presented; one good, and one bad.  Both preceed the turn of the century: a very trying time in Jamaica.  In his book Jamaica Meltdown: Indigeneous Financial Sector Crash 1996, Wilbern Persaud stated that “Jamaica’s indigeneous financial sector crash was, to date, … estimated by the World Bank review of forty-two banking crises to be third”.  Our first blog post, “Consider Image Carefully – Strategic Facility Planning for Small and Medium-Sized Businesses”, described one failed financial entity as an example of poor strategic facility planning.  In this post, we examine one of its subsidiaries, a banking group, as  a good example in deciding not to build.

But we shall start with a case from Persaud’s book, another banking group, as the poor example which decided to build.  As Persaud states: “… at the height of the euphoric credit and real estate boom” this group “embarked on construction of a set of luxury apartments“ in an upscale community billed as “Kingston’s soon-to-be most prestigious address”.  The venture generated much interest, but the boom and accompanying inflation led to ever escalating costs.  To salvage the project, it was redesigned to become a hotel: thus taking advantage of the government’s tax incentive to the tourism sector, at the time.  As a business-type hotel, the venture was doomed to failure: it was too far from Kingston’s business district, too far from other facilities associated with the tourist trade, and in a local plagued with traffic congestion.  So after a relatively short period, the hotel did fail and was subsequently converted to apartments, under different owners.

By comparison, our other banking group owned a multistory building that was originally designed and constructed as apartments but later converted to government offices: though little refurbishing works seem to have been done.  This group also considered converting their building to a hotel.  But, it had all the advantages the former lacked.  It was in the heart of Kingston’s business district, between three successful hotels.  It was anticipated that at the very least the hotel could take referrals from the adjacent hotels.  So, a feasibility study was commissioned.

The consultants of the parent company were commissioned to undertake this feasibility study.  It was fortuitous that the same consultants had also been responsible for the construction of the building they were to examine.  After careful study of the cost for the conversion, against demolition and rebuilding the building, the banking group wisely decided to sell it.  It was sold to another established hotel also located in the area, though some distance from the site.  They were the ones to refurbish the building.  They sold their original premises and relocated to this new location and continue to operate from the location today.

The building was not in the core competence of the banking group.  It was in the core competence of its new owners.  It is not certain whether the new owners did any studies of their own, but the bank would have pitched it to them as being appropriate for a hotel.  Whenever a building project is contemplated, this should always be considered as any other investment: the options need to be considered, evaluated, and compared to determine the likely outcomes.  If this banking group can be criticized on any aspect of the sale, it would be that they failed to consider what could have happened when the hotel relocated.  The original hotel was located opposite one of the bank’s major branches.  When they relocated, a major competitor bought the land, demolished the hotel, and constructed a new facility on the site.  This competitor was previously engaged in putting up a new branch in the resort city of Montego Bay, but when the opportunity presented itself, they suspended the design of that building and seemed to have concentrated their effort on this new venture.  Who could have envisioned such a scenario?  

Image that matters - Strategic Facility Planning for SMEs

While studying at the University of California, Berkeley, we as architecture undergrads would jokingly remark that "there's no place ‘worster' than Wurster".  We were referring to the building in which our school was located: which was called Wurster Hall.  This should not be inferred that the building was poorly designed.  On the contrary, I recall the lecturers expounding on its design and construction attributes.  We just did not like the image.  We did not like being trained in a building we considered the ugliest on campus.  It was bad for our image.  But, one lecturer explained that the building was specifically designed not to influence our creativity.

Recently, I came across an article in The Globe and Mail entitled "For Google, the Office is Key to Worker Success".  In the article, Canadian-born Google executive, David Radcliffe, was interviewed regarding his role of locating urban spaces that would become "hip headquarters and design them to spark creativity, play and collaboration".  He described this as "Googlïness" - creating environments that support culture, transparency and collaboration: facilities which allow staff to excel.  In other words, Google wants their building to stimulate creativity.

So, which of the two seemingly contrasting philosophies is correct?  It should be realized that the administration of the School of Environmental Design also wanted their staff and students to excel: they just did not want the building influencing their designs.  They did not want any aspect of the building's design reproduced or be held as the standard to which others would be judged.  This is understandable.  So, the appropriate image for any organization really depends on the objectives it seeks to achieve.

Strategic facility planning involves four steps: understanding the values and goals of an organization, analyzing its long-term objectives, planning for its long-term needs, and acting on the plans.  The mission, vision, firm culture, and possibly balanced scorecard, of an organization first need to be understood.  Organizations in creative industries, for example, prefer flexible organization structures, such as organic or matrix organization structures.  So, an institutional look and feel, as well as heavily enclosed office spaces would be inappropriate.  But, the needs of all stakeholders should be understood.  The need of architecture students to have a building they are proud of and one which impacts positively on their self-image is also important.  Our choice of motor vehicles is not only for their functionality but also intangibles, as prestige and ‘sex-appeal'.  Why should we expect any difference in our choice of buildings?

Analysis can utilize SWOT analysis, scenario planning, brainstorming, etc.  An organization's mission or vision may span over the five year limit of a strategic facility plan.  And, it is unwise to create unrealistic expectations in our stakeholders.  So, long-term objectives need to be SMART.  At this point, it will be apparent whether the organization's image needs to be addressed at all.  In the service industry, for example, an organization's tangible assets are used to assess the quality of its service.  Image could be critical, especially if their building is inferior to their competitors'. 

The selection of an appropriate architect and/or interior designer will be critical in establishing a design team to execute the plans.   Vision likely translates to a marketing plan which will guide the selection of an image.  Marketing plans will, no doubt, be innovative, imaginative and resourceful.  They will detail the use of an organization's effort and resources towards a desired end.  Do not entrust your image to a team you have not communicated your vision.  It has been my experience in the Caribbean that only banks, embassies, hotels and hospitals provide this guidance.  I assume the design team creates the image for the others, and I doubt they are carefully selected to deliver on the required objectives either.  The image presented by an organization will be present for decades, it should not be left to the discretion of anyone who may not understand their client, nor follow any rigor in analyzing their objectives and plan for their long-term needs.    Where image matters, it should not be left to chance.

Chinese Initiative a Game Changer for Jamaica’s Logistics Hub

To date, I have written three articles about different aspects of Jamaica’s Logistics Hub. This makes my fourth. Frequent readers of the Caribbean Journal may only be aware of three, counting this one. The first, “The Logistics Hub Project and Jamaica’s Development” explained the opportunity the logistics hub presents for Jamaica’s development. The second “What History means for the Jamaica Logistics Hub” illustrated Jamaica’s established strength in such maritime endeavours. By now, some may have already realised that these articles were not arbitrary, but part of what is known as a SWOT analysis: SWOT being an acronym for Strength, Weakness, Opportunity and Threat.

The third article “Preparing for Competition – Strategic Facility Planning for Small and Medium-Sized Businesses” is posted on my blog, and uses the logistics hub as an example in assessing threats: the threat in this instance being the Panama Logistics Hub. So, the astute will now realise I have to date not touched on the hub’s weakness, at least not directly, nor had I intended of do so at this time. But, recent events have prompted me to conclude this series, even though details of the initiative have yet to be made public. Recent pronunciations particularly by public officials have shown a glaring ignorance of the precarious nature of this project, and acting on such ignorance could jeopardize the initiative.

Following my first article, Sheldon Rose – Supply-Chain and International Logistics Professional – pointed out a number of these weaknesses to me. I had mentioned that the logistics hub initiative would be constructed across four of Jamaica’s south-coast parishes. Sheldon pointed out that legally these nodes could not be separate from each other: legislative changes are required to facilitate the transportation of in-bond goods between the respective nodes of the hub, especially without the direct supervision of the customs department. Equipment for transhipment ports have to be custom-built and take years to fabricate. Provision needs to be made for handling hazardous materials, including oil-spills. Also, the hub would significantly impact the bio-diversity of its surroundings, so hydrological and environmental studies were needed to analyze the environmental impact.

The Logistics Hub involves the parishes of Kingston, St. Thomas, Clarendon and St. Catherine.  Starting next year, the Kingston Harbour is to be dredged, and additional berths installed west of the existing piers at the Port of Kingston to accommodate the super-sized vessels that will start coming through the expanded Panama Canal in 2015. Next, a bunkering and commodity transhipment port will be built in St. Thomas; and a dry-dock port, along with cargo and passenger airport built in Clarendon.  However, an industrial park – the Caymanas Economic Zone (CEZ) - is also proposed to be built in St. Catherine in the initial stage: only 200 acres being allocated for the park in the first instance but intended to be expanded to 1,000 acres after subsequent developments.

The expansion of the Port of Kingston later incorporated Fort Augusta, in St. Catherine. Minister Anthony Hylton had initially pitched the merger of the port expansion and CEZ to China Harbour Engineering Company (CHEC).  But, Prime Minister Portia Simpson later disclosed in her contribution to the 2013 budget debate that lands at Fort Augusta were insufficient for CHEC plans. Then, Ronald Mason’s article in the Sunday Gleaner of 18 August 2013 titled “Environment vs. Job, Economic Development” made mention of a US $1.5 billion investment by the Chinese into a development of which Liu Qitao – president of the CHEC parent company, China Communication Construction Company (CCCC) - referred to as the Portland Bight Industrial Park.

The location in question, the Great and Little Goat Islands, are located off the coast of St. Catherine. They are the second and third largest islands in the Jamaican archipelago: being 600 and 300 acres respectively in area. Peter Espeut explains in his Gleaner article “Selling our Birthright”, dated 23 August 2013, that the Goat Islands are connected to each other and to the mainland by mangrove wetlands. The mainland itself is “fringed with hundreds of acres of mangroves” and forms the Galleon Harbour with the Goat Islands.  This area has been declared a fish and game sanctuary by the government: being “one of the most fecund fish nurseries” in Jamaica, and a “habitat to thousands of birds”.

Construction is proposed to commence in 2014. The 100 m high hill on the Great Goat Island is to be “pushed into the sea to cover the wetlands” and create a huge peninsula on which the logistics centre will be built. A further 2,000 acres of land on the mainland is also to be developed, and the seabed dredged to accommodate the super-sized vessels: thus removing coral reefs and shoals in the process. This Chinese initiative consolidates the industrial park and port facilities, so in-bond goods initially will not have to be transported outside the area. As a matter of fact, this new port is now closer to the prospective cargo airport than was previously envisioned; but, having a toll highway to presently connect the various nodes of the Logistics Hub is not satisfactory. Rather than focus only on the ecological concerns though, it should also be appreciated that this Chinese initiative offers the logistics hub benefits it never had, including increased size, and should not be taken glibly, especially in the context of Panama’s offerings.

Panama also has ambitions to be the fourth global logistical hub, and it is far advanced in this regard. The Panama Pacifico Project, which has a duration of forty years, has allocated 3,500 acres of land for its industrial park. Panama’s Colon Free Trade Zone (CFTZ) has been operational since 1947 and now comprises three major ports and an airport, all linked by highway and railway: not to mention the 154 companies that already reside in this logistics park. Panama has two different organizations managing its ports and has made provision for a third: the operator of Singapore’s Logistics Hub. The Goat Islands alone is no match for this. The original hub initiative alone is no match for this. They complement each other. If not the Goat Islands, what alternate green field site does Jamaica have to offer the Chinese?

But, let me not leave my readers despondent: thinking the initiative is a lost cause. It is good that Jamaica realise that Panama’s Logistics Hub is a threat to its becoming the fourth global logistics hub, but it should also be realised that the Nicaraguan Canal is also a threat to the Panama Canal. Jamaica’s strength is in its central geographical location and it is the only hub that can consolidate freight for both canals, as well as tranship freight from either of these canals.  The Chinese initiative cannot be easily dispensed with. It is critical for the success of Jamaica’s logistics aspirations. Jamaica is off to a late start, it cannot afford to drop the baton now. It must decide whether it wants to enter the arena of global trade or be ever satisfied with its meagre tourism, bauxite, and remittance earnings.

Leadership for Vision 2030 Jamaica

One line of the Jamaican National Anthem reads: “Give us vision lest we perish”.  Vision 2030 Jamaica provides a national development plan for making “Jamaica, the place of choice to live, work, raise families, and do business”.  

Michael Porter, of the Institute of Strategy and Competitiveness, Harvard Business School, states that competitive advantage of nations accrues from distinguishing itself from competing nations and developing on differences in history, infrastructure, institutions, culture and factors involved in the ways people live and do business.

Porter’s framework for achieving this strategic advantage requires government to play a purely facilitatory role.  But, Dr. Densil Williams, co-author of Competitiveness of Small Nations: What Matters? disagrees: stating that government needs to play a pivotal role in small developing nations, like Jamaica.  

This needs to be clarified if Jamaica is to achieve its Vision 2030 objectives: especially since “transformational leadership” is one of the guiding principles on which Vision 2030 is based.  I would recommend that the government seek the path of partnership, which happens to be another of Vision 2030’s guiding principles: partnership internationally, regionally, and locally: as well as inter-ministerial collaboration.

Jamaica needs these guiding principles in operation right now to achieve Vision 2030.  As an illustration, I will now refer to Jamaica’s proposed logistics hub, which promises to be the logistics hub of the Latin America and Caribbean [LAC] Region, as well as the U.S. Gulf and East Coasts.  When complete, it will be the fourth global transhipment logistics hub: the others being located in Singapore, Dubai, and Rotterdam.  

Dr. Williams’ book presents the performances of Singapore, Jamaica, Barbados, Trinidad and Tobago as recorded in “The Global Competitiveness Report” over the last five (5) years and he concurs that Jamaica seems to have a competitive advantage in port infrastructure.  An ideal location midway between North and South America, in close proximity to the Panama Canal contributes to this advantage.  

The Panama Canal will be widened by 2015 to accommodate wider ships and Jamaica hopes to capitalise on this by expanding its port facility and affiliated infrastructure spread over four south coast parishes: namely Kingston, St. Catherine, Clarendon and St. Thomas. 

An IDB (2010) study on the productivity of the LAC region concluded that “ports and airports are grossly inefficient.  Dr. Williams’ book also points out weaknesses in Jamaica’s current port infrastructure that needs to be addressed by the Ministry of Industry, Investment, and Commerce [MIIC] and the Port Authority.  

He states that it takes twice as long to export a shipment from Jamaica compared to Singapore; and it costs four (4) times more.  Bear in mind that Singapore is the reputed leader in port infrastructure since 2003, and its scale of operations is significantly larger.  But, this indicates partnership with international expertise should be explored to correct these weaknesses: be it inter-governmental or with the foreign private sector.

To MIIC’s credit, it has recognised that the logistics hub will generate 10,000 jobs and has formed a human resource working group with stakeholders the Ministry of Education in its logistics task force;  this group being headed by Dr. Fritz Pinnock – Executive Director of the Caribbean Maritime Institute.  

Speaking at the recently concluded stakeholders-consultation at the Shipping Association of Jamaica, the MIIC Minister Hon. Anthony Hylton emphasized that Seventy percent (70%) of employees at the Dubai logistics hub are foreigners, but “we want to train our people to fill the jobs and vacancies that are here”.  However, two (2) years is not enough time to train the amount of people needed.  Even though this is an example of inter-ministerial collaboration, regional and international assistance is required.

The previously mentioned IDB study pointed out that the poor performance of LAC ports and airports was partly to blame on inadequate physical infrastructure but, more importantly, on support activities involving the movement of cargo and inefficiencies due to inadequate regulations, lack of competition for services, and deficient operation procedures and information systems.  

Furthermore, Dr. Williams states that “high transportation cost for moving goods in Caribbean countries has been cited as one of the major drivers of low levels of productivity”.  This begs the intervention of the Ministry of Transport and Works.  Jamaica also has no railway network, and this could be helpful in connecting the four parishes over which the logistics hub is spread.  Possibly partnership with regional concerns could also prove beneficial here.

Dr. Williams also notes that “Jamaica is highly uncompetitive in the supply of electricity”.  This needs to be addressed by the Ministry of Science, Technology, Energy and Mining, electricity providers, and the Port Authority themselves.  No single ministry can accomplish all that is required and, with limited resources available, partnerships with other governments and the private sector is inevitable.  The World Bank Group has already endorsed the establishment of the logistics hub and has “pledged to help find funding”.  

The MIIC Minister has also been to Europe, Asia and Panama to promote the logistics hub, as well as the Jamaican Chamber of Commerce.  Nevertheless, Porter instructs that everything is important for competitiveness, and Dr. Williams states that countries with a colonial past that have achieved high levels of productivity have adopted not only their political, but also their legal and economic institutions to the reality of their environments.  So, much more remains to be done.


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Could Jamaica's Past Foretell Its Future?

Could Jamaica's Past Foretell Its Future?

In my Op-Ed "The Logistics Hub Project and Jamaica's Development", I indicated that Jamaica's Logistics Hub initiative intends to make use of the island's strategic geographic location to attract larger ships that will be able to ply the Panama Canal from 2015 onwards.  No doubt there are skeptics that question Jamaica's ambition to build the fourth global transshipment logistics hub.  However, energy use in Jamaica's shipping/aviation sector has increased 268% in the four years prior to the global recession in 2008.  This has fallen 59% in the following four years, but will no doubt rise again as the global economy recovers.

However, reports indicate that Jamaica's larger neighbours to the north, Cuba and the Dominican Republic, are also preparing for these larger ships.  So, what competitive advantage does Jamaica have by comparison?  Michael Porter, of the Institute of Strategy and Competitiveness, Harvard Business School, states that the competitive advantage of a nation accrues from it distinguishing itself from competing nations and developing on differences in history, infrastructure, institutions, culture and factors involved in the ways people live and do business.  Here, we will look at history as a source of Jamaica's strategic advantage.

Most accounts of English activity in the Caribbean between the 16^th and 17^th centuries mention privateers and pirates.  In referring to the privateering trade, Sir Thomas Modyford - Governor of Jamaica - is recorded as saying "More frugall, more prudentiall, more hopeful in laying a good foundation ... for the great increase of His Majesties dominions in these parts".  This statement inspired an essay by Nuala Zahedieh entitled "A Frugal, Prudential, and Hopeful Trade: Privateering in Jamaica, 1655 - 1689", reprinted in the book West Indian Business History: Enterprise and Entrepreneurship.

Rather than looking at the "glamour and excitement" of privateering, Zahedieh emphasizes the business aspects of the trade.  He states that: "Given Jamaica's strategic location ... and the island's capture, it is not surprising that the first settlers, many from the conquering army, enthusiastically took to plunder".  The primary target was the Spanish Empire "... and the prominence of privateering in early English Jamaica derived first and foremost from the island's geographic location in the heart of the Spanish Indies convenient for the major ports and straddling the principal trade routes".

According to the website of the Jamaica National Heritage Trust, Port Royal was first used by Tainos as a fishing camp when only a sand spit.  The Spanish used it for cleaning, refitting and caulking their ships.  But, the English realized its "strategic importance" and fortified it.  Records of business life in Port Royal during the 1660's clearly indicate the importance of privateering.  In fact, the privateers "spent much of their money in Port Royal, which had the most convenient harbour, best supplies and best market for prize goods in the Caribbean". 

The modus operandi of the privateers was to commandeer ships with cargo with minimal confrontation.  But, land expeditions were more profitable.  Between 1655 to 1671, privateers sacked 18 cities, 4 towns and over 35 villages.  These expeditions are testimony to the island's strategic geographic location.  In fact, records indicate that the very nations mentioned earlier were targets of such expeditions.  Chrostopher Myngs raided Cuba in 1662; smaller towns in Hispaniola and Cuba were repeatedly plundered; and, Sir Henry Morgan captured Panama in 1671.  In the 1680's, privateers even crossed Panama's isthmus to the Pacific Ocean, and "caused havoc up and down" its coast.

"Whilst the returns to those serving aboard the privateers was often relatively paltry, men in the port made great gains.  Not only investors and creditors benefitted.  The influx of men with money were so great that repercussions rippled right through the Port Royal economy".  In 1668, Sir Modyford explained that the exploits of the privateers created "excellent opportunities" to any with money in Port Royal: opportunities for profit far greater than existed in England at that time. "We often ... double nay treble our money without any hazard".

Port Royal was destroyed by an earthquake in 1692, by which time it had become an important economic centre.  In the following century, the merchants moved across the harbour to settle in Kingston, the present capital of Jamaica.  Though Port Royal would again become a famed British naval station, today it has reverted to a quiet fishing village overlooking the bustling port of Kingston. If history were to repeat itself, could the port of Kingston lay "a good foundation ... for great increase" for Jamaica?

Could Kingston become that important economic centre Port Royal had become?  On the face of it, the sad response is no.  But, on closer inspection Kingston, probably by serendipity, seems to be preparing for such an eventuality.  According to the article "Hylton to Press Ahead With Offshore Centre", appearing in the Gleaner dated 17 February 2012, Don Wehby - then Minister without portfolio in Jamaica's Ministry of Finance - "identified the Kingston Waterfront as the intended base of the International Financial Services Centre".  An act was passed in February 2011 to create this new statutory body; the board has been appointed and is presently serving a two year term, ending on 26 February 2014.

In addition, the Planning Institute of Jamaica [PIOJ] has published a document titled "A Growth-Inducement Strategy for Jamaica in the Short and Medium Term", dated December 2011.  It lists three development projects planned for Kingston: Downtown Kingston  Redevelopment, West Kingston Commercial Lifestyles Centre, and the logistics infrastructure.  Commenting on the "Kingston Lifestyles' market brand", PIOJ states that it "would be based on a strategic clustering of the economic, cultural, historical, social and geographical assets, and business opportunities, that competitively advantages downtown Kingston as a commercial zone".  It would therefore seem that, if these projects proceed as planned, the only question that needs be asked is if history will indeed repeat itself.

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Preparing for Competition – Strategic Facility Planning for SMEs

Prepare for Competition – Strategic Facility Planning for SMEs

The “Strategic Planning for Small and Medium-Sized Businesses” series is meant to illustrate lessons learnt from larger businesses that could benefit smaller businesses.  Initial posts used examples that were intentionally anonymous because information shared was not common knowledge.  In my last post – “Taking Note of the Business Environment and Learning from Mistakes” - I broke from this tradition because the information used was common knowledge, though the conclusions were not.  This post continues in this vein, though it has not been decided if this shall be the trend of things to come. Nevertheless, our present example is being played out in the global arena between sovereign states.

The Jamaican Logistics Hub Project

To date, I have written two articles on Jamaica’s Logistics Hub, both being published in the Caribbean Journal.  The first – “The Logistics Hub Project and Jamaica’s Development” – introduced  Jamaica’s Logistics hub initiative as an effort to capitalize on the opportunity being created by the intended doubling of the Panama Canal’s capacity in 2015 to establish the world’s fourth logistics transshipment hub.  The second – “What History Means to Jamaica’s Logistics Hub” - established the historical precedent of Jamaica’s strength in regional maritime activity.  This post looks at the threat of Panama’s logistics hub.

The Panama Logistics Hub Project

In an article entitled – “Jamaica trails Panama in Logistics Hub Race” – appearing in the Jamaica Gleaner dated 6 February 2013, an emerging market specialist, Dr. Walter Molano, is recorded as being skeptical  of Jamaica’s initiative, and makes reference to the Masters thesis of Daniel Munoz and Myrian Rivera entitled Development of Panama as a Logistics Hub and the Impact on Latin America.  In that document, reference is made to the widening of the Panama Canal as the final leg of Panama’s two-part strategy, which began in 2007, to develop a regional logistics hub like Singapore or Dubai.

The first leg of the strategy involves the development of a logistics park on 3,500 acres of land, which began in 2009 and is scheduled to be completed in 40 years. The Colon Free-Zone has been in place since 1947.  It now comprises three major ports, a free trade zone, and an airport: all linked by highway and railway.  154 companies already occupy the free zone.  Two ports – Balboa and Cristobal – are located on the Pacific Coast.  The third – Manzahillo – is located on the Atlantic coast.

Balboa and Cristobal are owned by Hutchinson Port Holdings: owner of four of the seven largest ports in the world, including Rotterdam.  Manzahillo is operated by SSA Marine, which also manages ports on the Atlantic and Pacific coasts of the United States. The United Nations Conference on Trade and Development [UNCTAD] recognized Manzahillo as the “most important transshipment port in Latin America; and, there are plans to expand Manzahillo in 2015.  The 2008 Maritime Review listed Manzahillo and Balboa as key transshipment hubs, along with Freeport in the Bahamas, and Kingston in Jamaica.

The Munos and Rivera thesis benchmarked the Panama transshipment hub against the logistics hubs of Singapore and Dubai and determined performance gaps which needed to be addressed for Panama to develop its own logistics hub.  It also compares the performance of the transshipment ports of Freeport and Kingston.  It concludes that Panama has the greatest connectivity to top global shipping routes and should leverage it against its competitors: adding that ports will cooperate against others if their profits will be higher in doing so.  More specifically, it indicates that the short-term effect of growth of transshipment in Panama will affect Freeport and Kingston; and, that diversion will be due to proximity to main trade routes not capacity.

Effect on Caribbean Transshipment Ports

On implementing the Panama Logistics Hub project in 2007, both Bahamas and Jamaica dropped in the UNCTAD rankings of port activity by countries in the Latin America and Caribbean region:  Bahamas dropped one rank to eighth, and Jamaica similarly fell one rank to fifth.  After the global reduction in port activity in 2009 due to the recession, both ports dropped a further two ranks: to tenth and seventh respectively.

On closer inspection, the “Containerized movement of Latin America and the Caribbean Ranking 2012" revealed that Freeport held the tenth rank; but contrary to Jamaica’s overall activity, the port of Kingston was actually ranked twelveth.  Even more interestingly, the Freeport container port is operated by Hutchison Port Holdings – the owners of Panama’s Balboa and Cristobal Ports; and according to Munos and Rivera “Freeport provides cheaper costs than Panama and can maintain its position as transshipment hub for routes South-North America and Europe-South America and the Caribbean.

Threat to Jamaica Logistics Hub

Jamaica has significant hurdles it needs to clear.  Its ambition to become the fourth global logistics hub is contingent on Panama completing the widening of its canal.  But, Panama has been first out of the blocks establishing its logistic capability and multi-modal transportation services.  In doing so, it has secured foreign “anchor” companies, which is a critical component of logistics hubs.  To top it off, the company that owns two of Panama’s ports also controls Kingston’s competitor Freeport and its other operator manages U.S. ports along the Atlantic coast.  So, they could potentially divert traffic away from Kingston.

Threat to Panama Logistics Hub

However, an environmental scan also reveals hurdles in Panama’s path.  On 29 August 2012, the Jamaica Gleaner published an article entitled “Gordon Cay Project to be tendered in September” which stated that the dredging of the Port of Kingston would commence by March 2014 to be completed by April 2015, the deadline for completion of works on the Panama Canal.  But more importantly, U.S. east coast ports of Savannah, Jacksonville and Charleston did not have sufficient draught to accommodate the larger ships.  The CEO of the Panama Canal – Alberto Aleman Zubieta – has even criticized authorities in the United States and Canada for not preparing their ports. Dredging is now scheduled for harbours on the U.S. eastern seaboard, but this will not be completed before 2020: five years after the widening of the Panama Canal. 

The Nicaragua Canal

If Panama even contemplated delaying completion of the canal, a new competitor has arisen to challenge the canal itself.  There is a proposal from a Hong Kong based developer, HKND Group, to construct a canal across Nicaragua, starting in 2014 and scheduled for completion in 2020.  This proposal includes a “dry canal” freight railway, an airport and two duty-free zones.  Whereas the Panama Canal has been designed to allow passage of ships up to 65,000 tons in capacity, the Nicaraguan Canal will allow ships up to 250,000 tons: thus allowing LNG tankers to pass through, en route to China.  So, the viability of the Panama Canal itself is being threatened, because there is currently not enough business to support both canals, unless world trade significantly increases by 2020.

Prognosis for Logistics Hubs

There is no upside for Panama.  This development not only challenges its logistics hub, but even its core competence: the Canal.  However, there are several advantages in Jamaica’s favour.  Jamaica will be able to receive larger ships than are expected from the Panama Canal.  It could start offering LNG bunkering service from the LNG tankers expected through the Nicaragua Canal; it will have the unique ability to transship and consolidate cargo destined to or from either of the canals. This is of course a long-term strategic advantage.  But, investors will bear this in mind when deciding on the free zone they will occupy.

In the short term while feasibility studies are being completed for the Nicaragua Canal, Jamaica will commence work on its logistics hub, and the race will be on in earnest. We have already noted that Panama cannot afford to delay completion of its canal. But, there may also be no practical advantage to fast-tracking either this completion or the expansion of its Atlantic port.  Few ports will be able to receive the large ships earlier; and, the demand for added port capacity may not exist. Many investors will take a wait-and-see posture and suspend or postpone plans to utilize the Panama Logistics Hub, as they await word of the Nicaragua Canal studies.

Conclusion

Panama will therefore not get the lead it had planned, when Jamaica starts its logistics hub.  So, Jamaica will have less ground to cover from its late start. Risk-averse investors may favour it, because it can handle cargo to or from either canal.  In the mid-term when it is certain the Nicaragua Canal will be built, investors - like those transporting LNG - who need to use the largest ships will be established in Jamaica.  These larger ships will also increase Jamaica’s container throughput.  This Jamaican initiative does have weaknesses it needs to work on.  But, Panama’s logistics hub strategy is contingent on it having the greatest connectivity to global shipping routes, and that is now uncertain. 

Furthermore, an article entitled “Chinese, Port Authority sign deal”, in the Jamaica Gleaner dated 5 February, indicated that the Port Authority of Jamaica had signed a memorandum of understanding with a Chinese Shipping line to undertake a feasibility study of developing Jamaica’s transshipment terminal and logistics centre.  Results of that study were never published; but, the Chinese company is China Ocean Shipping Company [COSCO]: Asia’s largest operator of containerships, sixth largest in the world in the number of containerships, and ninth in aggregate volume. It also offers services in logistics, ship building and repairing, and terminal operations. If they are still involved, it is unlikely the Nicaragua Canal will impede their operation.


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