Jamaica has natural resources, primarily bauxite, adequate water supplies, and climate conducive to agriculture and tourism. The discovery of bauxite in the late 1940s and the subsequent establishment of the bauxite-alumina industry shifted Jamaica's economy from sugar and bananas. By the 1970s, Jamaica had emerged as a world leader in export of these minerals as foreign investment increased.
The country faces some serious problems but has the potential for growth and modernization. Currency reserves, remittances, tourism, agriculture, mining, construction, and shipping all remain strong, and Jamaica has attracted over U.S. $4.4 billion in foreign direct investment over the past decade. However, high unemployment, burdensome debt, an alarming crime rate, and anemic growth continue to darken the country’s prospects. After years of negative economic growth, Jamaica's GDP has grown marginally year over year since 2000, but declined in 2008 on the back of the global economic crisis. Inflation fell from 25% in 1995 and then registered single digits for a few years, until returning to double digits in 2003. Inflation spiked in 2007 and 2008, reflecting the hike in world commodity prices which was soon followed by the global economic downturn.
Through periodic intervention in the market, the central bank prevents any abrupt drop in the exchange rate. Nevertheless, the Jamaican dollar continues to slip despite intervention. The average exchange rate was J$76.20 to the U.S. $1.00 by December 2008 and has depreciated by a further 17% in 2009.
Structural weaknesses, low levels of government infrastructure investment, and high interest, energy, and crime rates erode confidence in the productive sector. The government is unable to channel funds into social and physical infrastructure because of an overwhelming debt-to-GDP ratio, which currently stands at approximately 110%. Almost 60 cents on every dollar (more than total revenues) of the national budget goes to debt servicing and recurrent expenditure. Tax compliance rates also contribute to the problem, hovering at approximately 45%. On the other hand, net international reserves (NIR) were just over $1.7 billion at the end of 2008.
Jamaican Government economic policies encourage foreign investment in areas that earn or save foreign exchange, generate employment, and use local raw materials. The government provides a wide range of incentives to investors, including remittance facilities to assist them in repatriating funds to the country of origin; tax holidays which defer taxes for a period of years; and duty-free access for machinery and raw materials imported for approved enterprises.
Free trade zones have stimulated investment in garment assembly, light manufacturing, and data entry by foreign firms. However, the garment sector has literally disappeared in the last five years. In addition to the North American Free Trade Agreement (NAFTA), the demise of the sector can be attributed to intense international and regional competition, exacerbated by the high costs of operations in Jamaica, including security costs to deter drug activity, as well as the relatively high cost of labor. The Government of Jamaica hopes to encourage economic activity through a combination of privatization, financial sector restructuring, falling interest rates, and by boosting tourism and related production activities.
Information by U.S. Department of State