Frontier Booms: The Lands of Opportunity in 2016

The world’s best performing stock-market last year was in Jamaica, a land hitherto known for the laid-back antics of Bob Marley and Usain Bolt. Get used to it, you’ll be seeing more headlines like this.

The Jamaica Stock Exchange doubled in value this past year, with individual companies outperforming even that remarkable growth. Take the company which produces, among other things, the popular strawberry milk powder that features on many a Jamaican breakfast table (rightly so: it’s delicious). If you’d invested $1,000 in its stock at the start of 2015, you’d be cashing out now with over $3,000.

These kinds of returns are a thing of the past in the First World. To have doubled the value of your investment in, say, the US stock market, you’d have had to invest your $1,000 four years ago. Even that was an aberration. Since we’d then just barely staved off a global financial collapse, share prices had temporarily collapsed. Smoothing out the booms and busts and looking at the longer trend, the value of US shares has taken the last seventeen years to double. In effect, to earn what you would have made over the last year in Jamaica, you would have had to have invested your money way back in the days when Bill Clinton was answering questions about stains on a blue dress.

Oh sure, there have been booms in Western markets since then, like the one occurring at that very time — and which arguably saved the Clinton presidency (since Americans told pollsters they didn’t want to rock the economic boat while the dough was rolling in). But, like the real estate bubble which followed it, those speculative frenzies have been little more than government-sponsored Ponzi schemes designed to juice markets. They are brief, and end badly. The long-term trend is for returns that take a generation to double,  for reasons I’ve written about before. The surge we just saw in Jamaica, on the other hand, points to something that could be more sustainable. Though the rate of growth in the Jamaican market may slow, the long-term potential returns remain substantially higher than those we are accustomed to in the West.

Which means that if you want to get ahead in this age of slow growth, sluggish employment, stagnating real wages and insecure jobs, you should consider moving — or at least moving your money — to the frontier of the world economy. It’s just simple maths. Being a relatively poor country, Jamaican labour costs are low. Once you import existing technology and know-how, then add it to this mix, you get stellar profits.

Does that mean Jamaica is the place to be? Well, as much as I love the island I made home for seventeen years of my life, I’d hesitate about sinking too much money into it after the last bumper year. The reason is hinted at in the phrase I used above: ‘long-term potential returns.’ Potential growth is not always actual growth. You can put high-octane fuel in a dazzling sports car, but if the driver never adds oil or grinds the gears, the car will break down. And the driver is politics. Good politics keeps economies on track, bad politics keeps sending them back to the mechanic’s shop.

When I used to lecture at Jamaica’s Mona School of Business, I used to tell my MBA students that we in Jamaica had written the textbook titled ‘How not to run a country.’ The country’s politics have looked like a car driven by a hormones-raging teenager: take it out on the motorway, drive it as fast as it can go, and when the gas runs out, walk through the night to find the nearest filling station — by which time, the car will have been stripped of everything of value. There has been a predictable rhythm to Jamaican politics over the last four decades. Governments come to office promising their supporters the moon; they find out the moon is more expensive than they ever imagined; the government’s finances eventually collapse and a few bitter years follow while the budget is repaired. And lo and behold another election comes along, and the cycle repeats itself. Jamaica isn’t exceptional in that regard. One of the old sayings about Brazil, one of the four ‘BRICs’ that it was said would dominate the twenty-first century global economy, is that it is a country that has enormous potential, and always will.

What altered the Jamaican equation in recent years was that even though the government changed hands in 2011, the incoming administration chose to continue the adjustment programme begun by the previous one. The result has been that for the first time in decades, there seems to be a consensus around the need for the government to manage its functions more efficiently — which in theory frees up resources for private entrepreneurs to expand operations. But with another election looming, the temptation to re-loosen the purse-strings in an indiscriminate manner may grow irresistible. Besides, the big-government=bad-government worldview which has driven the downsizing of Jamaica’s public sector so far doesn’t capture the things government must do to stimulate growth. Jamaica needs better infrastructure, lower crime, better schools and universities. Cutting the fat in the public sector, of which there’s a lot in Jamaica, is a good thing; cutting its muscle, which is what any straight weight-loss diet without a training regimen does, is bad. It’s not clear that the Jamaican political, corporate and intellectual elites have forged a consensus around growth-enhancing reform.

My conversations with people in the Jamaican financial sector make me think that the market will rally for another few months, after which the scenario may grow a bit murkier. But Jamaica’s recent experience goes to show what a little bit of repair-work does to an idle car. When you’re standing still, just re-starting the engine provides a lot of kick. And with the kinds of Jamaica-like policy changes many other developing countries are undertaking, opportunities will continue to beckon in so-called frontier markets.

Go south young man (and woman), because opportunity beckons in the least likely spaces.


Photo: Kingston and the harbour, as seen from Stony Hill, December 2015 (credit: Michael Branday)



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