OUTLOOK FOR 2001/2002

New Growth Areas

The Ex-Im Bank has targeted new growth areas with export potential consistent, with the National Industrial Policy.

For its 2001/2002 financial year, the Bank intends to focus on:

i) Ornamental fish farming and

ii) Information Technology

These sectors, have been highlighted as sectors which represent a significant platform for building continued growth insofar as their markets continue to be growing sectors of global trade'.

The Bank has already started a programme of support for the Agro-Processing Sector through the Co-Pack facility which addresses the working capital needs of the sector. The Bank is however aware that there is further need for support in the areas of re-tooling and upgrading and intends to follow through and further cement its support for this sector which has demonstrated growth potential.

Export Factoring of Receivables Programme

In a direct response to calls from the marketplace for a diversification of financial products available to exporters, the need for a programme of export factoring of receivables being one such product, the Bank in the first quarter of its 2000/01 fiscal year introduced its export factoring scheme. The programme has started rather slowly but is expected to pick up.

Cuban Line of Credit

This facility continues to perform both below its potential and its capacity. In full recognition of the importance of this Line of Credit, the Bank continues to explore all feasible avenues to accelerate its pace of utilization. Although disbursements made under the line during the financial year totalled US$200,000, the Bank is of the view that greater levels of utilization can be achieved.

 DEVELOPMENT BANK OF JAMAICA LIMITED

Madame Speaker, the Honourable House is being asked to recall the decision which I took in late 1999 to merge the two leading Government-owned development banks - the National Development Bank of Jamaica Limited (NDB) and the Agricultural Credit Bank of Jamaica Limited (ACB).

The reason for the decision, Madame Speaker, was in keeping with the ongoing efforts of the Government to rationalize public sector institutions with the objective of achieving greater levels of operating efficiencies, cost effectiveness and client satisfaction.

Today, Madam Speaker, I am happy to report that the merger of the NDB and the ACB, was effected on April 1, 2000. The new name of the merged entity is the Development Bank of Jamaica Limited and combines the operations of its two predecessor institutions.

The DBJ now provides under one roof, funding primarily through the wholesaling system, to all of the productive sectors of the Jamaican economy - agricultural, agro industry, tourism, mining, information technology, manufacturing and services.

The process of the merger in most respects were successful. There are however, a number of outstanding personnel related issues which are to be resolved.

The combined staff complement of both banks prior to the merger was one hundred and twenty one (121). Fifty (50) individuals/posts were the subject of redundancy, either voluntary or involuntary, as a result of the merger of both institutions.

The staff complement of the DBJ as at March 31, 2001 was seventy-four (74) permanent.

For the first full year of operations to March 31, 2001, the DBJ has performed creditably as indicated by the following preliminary, estimated and unaudited figures:

Total Jamaican currency loans approved during the first year of operations of the DBJ increased by approximately 238% from J$441.9 million - the combined total of both the NDB and the ACB in the previous financial year, to One Billion, Four Hundred and Ninety-Five point Nine Million (1.495 Billion).

Of this amount committed during the year, J$147.6 million were loans provided to approximately one thousand small farmers through the network of the People’s Cooperative Banks.

1. J$62.6 million or 42.4% were loans to 471 sugar cane farmers;

2. J$33.2 or 22% were loans to 76 poultry farmers

3. J$15.4 million or 10.4% were loans to 49 coffee farmers and

4. $10.1 million or 6.86% to 128 small farmers in the domestic food crop sub-sector.

J$1347.4 million were loans approved to the medium and large scale borrowers through commercial banks, merchant banks and private sector development banks and through the bank’s direct lending window.

Of this amount;

1. $339.5 or 25% represented loans approved to eighteen (18) projects in the agricultural sector

2. $233.2 million or 17.3% representing loans to eight (8) projects in the agro processing sector.

3. $159 million or 11.8% were loans to eleven (11) projects in the manufacturing sector, and

4. $543.2 million or 40% were loans approved to fifteen (15) projects in the tourism sector.

Foreign currency loans approved for the year totalled US$4.84 million compared with the US$5.4 million combined total approved by both the NDB and ACB in the previous financial year.

Disbursements by DBJ for the financial year ended March 31, 2001, under its Jamaican dollar facilities, totalled One Billion and Fourteen Point One Million Dollars (J$1,014.1 Billion).

This represented an increase of 51% over the $699.4 million combined total disbursed by both predecessor banks in the preceding financial year.

Gross Income earned was 1.1 billion, representing a marginal decrease compared with the combined figures for the NDB and ACB as at March 31, 2000.

This resulted principally from repayment of a number of large loans during the year.

Operating expenditure for the year was $228 million, a reduction of approximately 40% compared with the combined expenditure of the NDB and ACB of J$375.25 million for the preceding financial year.

Staff costs decreased by approximately 30% during the year compared with total staff costs of both banks for the preceding year.

The Net Profit after extraordinary items for the year ended March 31, 2001, is estimated at $439.3 million, an increase of approximately 50% over the combined figure for the NDB and ACB for the preceding financial year.

The DBJ at the end of its first financial year, recorded total assets of J$11.4 Billion with a net worth of J$2.5 Billion. The DBJ, with this healthy financial profile is, therefore, well poised to mobilize funding for its various lending programmes.

Madame Speaker, the facts given above are positive proof of the benefits resulting from the programme of rationalization and modernization of the public sector being undertaken by this administration.

DEVELOPMENT BOND

Madame Speaker, the Honourable House will recall that we took the decision in September last year to reduce the Cash Reserve Ratio of Commercial Banks and other deposit-taking financial institutions from the then existing 15% of deposits to 12% over three quarters - a reduction of one percentage point per quarter. This reduction was estimated to release approximately J$2.8 billion to the financial institutions.

The financial institutions under the umbrella of the Jamaica Bankers Association agreed to a proposal which I made for them to utilize 50% of the funds released over the period, to subscribe to Development Bonds issued by the Development Bank of Jamaica Limited. The proceeds of this would provide funding for the DBJ itself which provides medium and long term loans to the productive sectors and to the EXIM Bank which provides pre and post-shipment short term financing to exports.

The Bonds carry a coupon rate of 5.5% per annum; the funds are on-

lent in turn to the financial institutions, via the wholesaling mechanism, at 6.5% per annum and final borrowers receive their loans at 9.5% per annum which is fixed for the duration of the loan.

All viable projects in the agricultural, agro-industrial, manufacturing, mining, tourism and services sector of the economy are eligible for funding from the Development Bonds.

As at March 31, this year, the financial institutions have subscribed to J$896.8 million of the Development Bonds. The third and final movement which was planned for December 2000 was delayed until the first quarter of this year.

Of the Bond funding received by the DBJ, as at March 31, 2001;

• J$633.9 million or 70.5% of the resources have been approved for twenty-four (24) projects in the productive sectors.

• Eleven (11) of the projects had loan amounts of J$10 million or below.

• Ten (10) had loan amounts of between J$11 and J$50 million, and

• Three (3) had loan amounts of J$100 million, the maximum available under the development funding to any single project.

• Five (5) of the projects were in the agricultural sector

• Four (4) were in agro-processing

• Seven (7) were in manufacturing

• Six (6) were in tourism , and

• Two (2) in servicing.

• J$150 million or 17% was onlent by the DBJ to the EXIM Bank to fund the latter’s lending operations.

Madame Speaker, this broad-based initiative which includes all the deposit-taking financial institutions and the Government, through the Ministry of Finance and Planning, is a clear indication of the high level of cooperation and understanding which has developed between the private and public sectors as together we strive to advance economic growth and development in the economy.

I wish to, personally, commend on this occasion, the financial institutions who have subscribed to the Bond in this partnership for economic progress and I look forward to continue working with them to develop and implement other measures and funding mechanisms aimed at placing Jamaica on the path of self-sustaining growth.

PC BANKS

Madame Speaker, my presentation on the activities of the Development of Jamaica would not be complete without some mention of what a former Chairman of one of the PC Banks - Mr. J. H. D. Parchment of St. Elizabeth - stated in a letter to the editor of one of our daily papers as a "quiet revolution" which has been taking place in the PC Banking system islandwide.

Since 1994/1995, the AC Bank, now the DBJ, embarked on a programme aimed at upgrading the PC Banks, in all major respects, in order to bring these community, cooperative, rurally based institutions into the mainstream of providing, in an efficient manner, a range of financial services to the rural communities and small farmers specifically.

Since then significant strides have been made in a number of critical areas.

I will now outline a few:

• Prior to the start of the programme, savings in the approximately one hundred and sixteen (116) PC Banks totalled a mere J$900,000.

As at the end of March, the savings in the revitalized PC Banking System totalled Three Hundred and Eighty-One point Nine Million Dollars ($381.9 million) - a significant and commendable achievement by the 56,816 small rural savers on record in the PC Banks as at that date.

• The value of the shareholders equity by the 156,001 small shareholders in all of the PC Banks was estimated at $46.3 million as at March 31, 2001.

• All the PC Banks are now fully computerized in the areas of loan and general accounting.

• A number of new bank buildings have been erected and several have undergone substantial refurbishment. Newmarket, Newell and Malvern in St. Elizabeth, Port Antonio in Portland, Browns Town in St. Ann, St. Dorothy’s and Point Hill in St. Catherine, Chapelton and May Pen in Clarendon, Montego Bay in St. James, Grange Hill in Westmoreland and Mandeville in Manchester have been the sites of new or significantly refurbished PC Bank buildings.

• There has been significant upgrade in the personnel of the PC Banks at all levels - a result of extensive training and retraining programmes as well as recruitments.

Madame Speaker, this ‘quiet revolution’ taking place in the PC Banking System as referred to by Mr. J. H. D. Parchment, is a clear indication of the impact of Government’s policies and programmes on raising the economic well being of the ordinary Jamaican. I commend the Chairmen and the various Committees of Management of the PC Banks, the staff of the Banks, the shareholders and savers in these grassroots institutions for the confidence they have placed in their own abilities as they strive through cooperation to become masters of their own destinies.

The focus of the PC Banks has now turned to improving their operating and financial performance, coupled with the strengthening of its prudential policies. A programme of further mergers of individual PC Banks is currently underway.

2001/2002

Madame Speaker, having completed a successful first year, both in terms of loan approvals and disbursements and commendable operating and financial performance, the Development Bank of Jamaica for the current financial year;

• Will continue to provide medium and long term funding to the productive sectors in an efficient manner. For the financial year 2001/2002, the DBJ projects to approve J$1.598 Billion in Jamaican Dollar loans and US$6.5 million in foreign currency denominated loans.

• It projects to disburse J$1.27 Billion on its J$ loans and US$5.0 million on its foreign currency loans.

• The DBJ will also continue its non-core intervention in a number of areas, primarily those in the agricultural sector such as assisting with the repair of farm roads, mainly in sugar producing areas; tillage services for small farmers and support to various organizations and institutions involved in the promotion of projects in the productive sectors of the Jamaican economy.

GDP GROWTH

As is known and has been repeated on many occasions over the past several years, there has been no growth in the Jamaican economy. In 2000 there was modest growth, but growth nonetheless and an important turn around. The figure was 0.8% positive growth.

• But for the severe drought, which affected agriculture (down by 11.2%) and continued negative effect of the explosion at the Gramercy alumina plant in Louisiana, that affected bauxite exports, the growth figure would have been much bigger.
• Even if those two sectors - Agriculture and Mining had remained flat, relative to 1999, growth would have been in excess of 2%.
• Nonetheless, all the other major sectors showed positive outturn. For the first time in six years, manufacturing grew, suggesting that the restructuring process is beginning to bear fruit.
• Construction seems to have bottomed out and showed slight positive growth.
• In terms of the services which now account for over 60% of GDP, all sectors except for Government grew. Financial services grew by 10.6%, which follows the 18% growth in 1999.
• This turn-around in the financial services sector is directly attributable to the actions taken by the Administration through FINSAC.
• Basic services including energy, transportation, communication achieved growth rates of 6.7%.
• The outturn for 2000 demonstrates that the services sectors have coped better with the period of adjustment whilst the goods producing sector have been slower to respond to increased competition but are also more susceptible to shocks such as droughts and floods.
• The challenge for the year 2001 is to maintain the expansion in the services sector - in tourism, financial services, basic services, water, electricity etc, even whilst concentrating efforts on the goods producing sector in particular agriculture and manufacturing.
• The outlook for mining is extremely positive as it is expected that the Gramercy plant will be back to full production, thus ensuring growth in the bauxite alumina sector.

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