Wed | Nov 21, 2018

Paul Golding | Jamaica, China and neo-colonialism

Published:Sunday | October 28, 2018 | 12:00 AM
Paul Golding
Foreign Direct Investment and Approved Work Permits.
Construction in full swing on the overpass in Three Miles, St Andrew. Chinese investment has been crucial to much of the major infrastructure work in Jamaica over the past decade.
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Jamaica was invaded in 1655 by the English, who captured the island from Spain. England was emerging as a world power and challenged the hegemony of Spain. The purpose of the invasion was for commerce and political influence.

Fast-forward to 2010, nearly 360 years later, to modern Jamaica. China is emerging as a global superpower seeking commercial and political influence, and it has an interest in Jamaica. The methodology for gaining hegemony has changed (no need for colonisation); however, the objectives remain the same.

The moral of the comparison between the years 1655 and 2010 is when a superpower comes with gifts - whether with an armada and cannons or loans, for infrastructure development - it is not likely to be ignored.

Jamaica has shown a healthy appetite for Chinese loans and, consequently, Kingston is currently a construction site with several major infrastructural projects occurring simultaneously.

The World Investment Report 2018 indicates that Jamaica has had the greatest foreign direct investment inflows regionally since 2012. Jamaica attracted more than US$4.2b over the six-year period, by far the most in the region.

The figure does not entirely represent Chinese investments in Jamaica but accounts for the vast majority. Unsurprisingly, the number of Chinese nationals being granted work permits has also risen over the period from less than 200 in 2012 to more than 2,000 in 2017. This represents more than a thousand per cent increase.

China's investment goals in Jamaica and other countries are clear. It wants to secure access to markets and raw commodities and to generate sufficient employment for its population to reduce poverty and enlarge its middle class. The terms of China's loans, although not all published, can be discerned from its actions.

China has a high-risk tolerance based on its loans to countries like Chad, Eritrea, Congo, South Sudan, Zimbabwe, and Venezuela. These countries are considered as high risk to default on loans. However, China is flexible on its repayment terms as it will accept physical commodities in lieu of payment. Jamaica has given up prime real estate in lieu of payment already. This particular approach has fostered a school of thought that some countries, including Jamaica, may be gorging on debt and could soon choke.

China has declared that its foreign policy includes mutual respect for sovereignty and territorial integrity, mutual non-aggression, non-interference in each other's internal affairs, equality and mutual benefit, and peaceful coexistence. It does, however, have at least one political caveat that recipients recognise the People's Republic of China as the sole and rightful government of Taiwan.

For all intents and purposes, China has so far been faithful to its foreign policy goals in Jamaica. In addition, China's investment in infrastructure in Jamaica provides the potential for excellent opportunities. Good infrastructure investments can help achieve more inclusive growth, attract more foreign direct investments, and create more jobs. There is also the potential for Jamaica to export goods and services to China and for Jamaica to become a destination for Chinese tourists.

There will be structural and operations hurdles to cross to achieve these potentials, but the opportunities are there.

There, however, are major challenges that we must overcome. The first is that while China's goals are clear and are seemingly being achieved, Jamaica's strategic position remains murky and vague. In bilateral bargaining, the burden is on each party to negotiate well. Currently, Jamaicans are not clear on the terms of the loans and if some of the loans are necessary for growth and development.

Recently, Sierra Leone cancelled a US$400m Chinese-funded project to build a new airport outside its capital, Freetown. The Sierra Leone aviation minister commented that the new airport wasn't necessary and that the current international airport should be renovated instead. This suggests that each country ought to know what is in its best interests as some investments can lead to increase in debt, potentially limiting other spending as debt service increases and creates balance-of-payment challenges.

China also uses low local labour and material content. The claim is that local labour doesn't have the skill set to deliver projects of the magnitude being executed. Remember, however, that one of China's investment goals is to provide employment for its population, and that applies anywhere in the world.

What this low-labour, low-content policy does is it limits the multiplier effect of the investment on the economy, decreases knowledge and technology transfer, stifles employment, and creates social tensions between Chinese and local labour.

A more troubling issue is the absence of transparency and the lack of information regarding the terms of the loans. The terms of engagement between the National Works Agency (NWA) and China Harbour Engineering Company (CHEC) are not clear.

The Chinese business model also creates a dilemma for Jamaica. The company is the government and the government is the company, and the Government gets concessionary rates, which the company also gets because the company is the government, which also competes with other local contractors that are not government entities. You get the picture.

The absence of transparency goes deeper than defining if CHEC is a government or a country. The Inter-American Development Bank has argued that transparency, accountability, and full appropriation of benefits are overarching goals in any bilateral relationship. When these elements are missing, as they are to the Jamaican public, the distribution of benefits may be skewed to political elites or fail to be realised.

The rule of thumb is the larger the contracts, the higher the propensity for corruption, especially in procurement. The quintessential example occurred in 1966, four years after Independence. In 1966, independent Jamaica received one of its biggest loans, US$9.5m, from the World Bank to build new junior secondary schools. The subsequent DaCosta Commission of Enquiry Report is a case study in how this project became mired in corruption.

Not much has changed in our capacity for corruption since 1966. Maybe we have become better at it, and with China's penchant for ignoring transparency, the risk of moral hazard increases exponentially.

The investment by China in Jamaica has tremendous promise. However, there is the spectre of a debt trap. For this to be avoided and for greater transparency, there needs to be a deliberate departure from the leader-centric approach to government and an embracing of the critical, active and consequential role that we, the public, must play in ensuring democracy, good governance, and the achievement of prosperity.

- Professor Paul Golding is dean of the College of Business and Management, University of Technology, Jamaica. Email feedback to columns@gleanerjm.com and pgolding@utech.edu.jm.