Friday, September 26, 2008

Global meltdown may require domestic investors to put up cash for public works

Published: Friday September 26, 2008

Economist Dennis Morrison has warned that the recent collapse of several financial powerhouses in the United States will make it more difficult for the country to raise capital to fund local infrastructural projects on the international market.

He suggested that some big Jamaican public work projects may in the future have to be packaged and placed before local investors for financing who have to be enticed into putting up their cash.

"… The international environment for private sector investment has changed profoundly in the last week," Morrison told a forum to discuss the United Nations' latest report on foreign direct investment.

"It is no longer going to be that easy to go overseas to raise capital, whether it is for the central government or investments," Morrison said.

Stint at the opm

Morrison, a recognised authority on the bauxite/alumina industry, recently completed a stint at the Office of the Prime Minister as director general of a unit dealing with development.

His prognosis of what is to be expected in the capital markets and what Jamaica will need to do to compensate came in the face of the fall-out from the sub-prime credit crisis and America's attempt to fashion a $700 billion rescue package for its troubled banks. This is in addition to the billions of dollars already put up by the American central bank, the Federal Reserve, to bail out firms.

"... Two things are going to have to be followed up," Morrison said. "One, the projects that we take have to be packaged in a way that you can sell it in what is going to be an increasingly competitive environment to attract capital here."

But in the context where the domestic capital market is not warm to investing in local projects, Morrison suggested a study "to get to the bottom of what it is about our situation that keeps our private sector investors shy of investment in this area".

Ruth Potopsingh, group managing director of the government's Petroleum Corporation of Jamaica (PCJ), concurred that it was difficult to attract Jamaican investors to large development or infrastructure projects.

Attempt at finding partners

She highlighted the experience of her organisation's recent attempt to find partners domestically for the doubling of the PCJ's 21 megawatt Wigton windfarm in Manchester.

A dozen potential investors showed interest, she said, but none came aboard.

Outcomes like the PCJ experience, Morrison stressed, underlined the need for Jamaica to understand why Jamaican investors stay out of domestic infrastructure projects and seek to address the concerns.

"... We need to study very carefully what you think that needs to be done to make our local private sector more willing to take the risk in this kind of endeavour, because we are not able to proceed on the old assumptions," he said. "And in any case, the Jamaican Government is heavily indebted."

Source: Jamaica Gleaner

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