P ReportN 0. EA-69-a Public Disclosure Authorized This report was prepared for use within the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized

JAMAICA - MISSION REPORT Public Disclosure Authorized

March 5, 1957 Public Disclosure Authorized

Department of Operations Europe, Africa and Australasia CURRENCY EQUIVALENTS

1 Jamaican = 1 f1 = U.S. $2.80 f 1 Million . U.S. $2.8 million REPOqT uF T-7 ,ISIOE TO JAURICA

Page

I. Introduction - Purpose of the .ission ...... 1

II. Political and Constitutional Position - Federation of the British Uest-Indies ...... 1

III. Economic Situation ...... 4 iain Agricultural Exports Tourist Trade Bauxite Importance of 3auxite Revenues to the 3udvet

IV. The Develolment Pro,ra, ...... 8 The Programi and the Creditworthiness of the Government

V. Possible Projects ...... 11 1. The Jamaican Governient Railuay 2. The Fort of Kingston 3. Electric -swer 4. Airports 5. Other Projects in the Developent Program 6. Import Requireaents

VI. The U.K. Colonial Loans Act ...... 17

VII. Conclusions ...... 17

Taoic Dohta

Area: 4,400 square miles Population: 1.5 million National income (1952): 906 million Income per head: N6 = ($168)

Origin of Gross Donestic Product (1952) 1 Nillion

Agriculture, (including forestry, fishing and mining) 25.8 116 Manufacturing Construction 10,3 Electricity, gas, water, etc. 0.9 5.6 Transport and communications Commerce 15.5 2.2 Banking, insurance and real estate 4.6 Ownership of dwellings 6,0 GovernDent, central and local 12.4 Services Total 94.9

& 9.6 million Net Capital Formation 19t0 1952 1955 (L million) 34.4 Total Exports (f.o.b.) 11.4 18.6 Of which, sugar 3.9 7.7 10.8 bananas 2.3 1.9 5.0 bauxite - 0.4 9.0

Imports (c.i.f.) 19M7 36.4 45.7 (1954) Volume of exports 100 115 186 Volume of imports 100 129 137 (1954) Export prices 100 134 138 (1954)

Government Budget - Estimates 1956/57 Million

General revenue 19.3 Of which customs and excise 11.2 direct taxes 4.7 Extraordinary receipts 1.3 Total revenue 20.6 Government Budget - Estimates 1956/57 (cont'd)

T Million

Ordinary expenditures 18.7 Expenditure from loans and development funds 6.2

Public Debt

I Million

External debt 11.4 Local debt 7.9 Total 19.3 76° 76°

REYNOLDS METALS CO HARBOR 1NSTALL£AT1ON CABLEWAY Falmoutth BAUX/TE PROCESS/NG PL ANT Montego BayS

s Cabe ALUMAINA JAMA/CA LTO PROPOSE NEW PLANT ...... T R E L A W N Y ..... S T A N N ST M A RY Annotto Bay

.-- ····...... So PO T L0 Por.o

Black ' ever Townvingsto Mondev.lle.ST.CATH.RINE..'---...... ---...-.. ... MAnhoone p.ish ST ANDR BAUX/E PROESSINH oll

HARBOR,T RINSTALL....TION.. 0c5 STT OM S AS M E R E N D6W PAr' c,A E LSi ZABLE ··. 8S0T Bo /HW RSho'oPers 8°- Hil.. C AS E D 41~AN RHllI'--W--S HIGHWAYSNDRE ALUM/cV JAMAeC LTDt

SPU A cAL R AIL WAY IOU r PA IS DAEE ······---- · ····

/V~~~ ~ ~~ HASO INTLAI BoI ý

MARCHV 957IC TB°2 JBRD-AIC6 REPORT OF THE MISSION TO JAEAICA

I. INTRODUCTION - PURPOSE OF THE MISSION

1. The mission to Jamaica took place as a result of two visits to the Bank in the summer of 1956 by Mr. N%.N. Nethersole, the Jamaican Minister of Finance. Mr. Nethersole wished to discover whether the Bank would con- sider financial assistance for the Jamaican development program which was then in the course of preparation by his government. The projects which he thought might be most suitable for the Bank were the improvement of the Jamaican Railway and of Kingston harbour. It was decided to send an explora- tory mission to Jamaica to study the general situation of the economy and the development program and to take a first look at the harbour and railway problems, even though it was known that the proposals for improving them might not have reached a stage when they could be examined as a basis for a loan application. The mission consisted of Mr. J. H. Collier of the Department of Operations, Europe, ?frica and Australasia, and Messrs. H.J. van Helden and T. Finsaas of the Technical Operations Department.

2. Just before the mission's departure Mr. E. R. Richardson, Financial "ecretary of the Jamaican Government, paid a visit to the Bank during which he said that the Government might have to find additional capital to finance electric power expansion. No provision had been made for this in the develop- ment program since the program is concerned only with public investment while electric power is supplied by a private company. Although the mission was n#ot to include a power expert, it was authorized to discuss this matter in general terms in Jamaica.

II. POLITICAL AN CONSTITUTIONAL POSITION -

FEDERATION OF THE WEST INDIES

3. Jamaica is a British Colony in which the process of achieving self- government is by now virtually complete. The bulk of the population of 1.5 million are negroes, but there is a small group of white residents consisting largely of sugar planters, agricultural estate owners, businessmen and pro- fessional people. In addition there is a substantial "middle class" of people of mixed ancestry who form a link between the black at one end and the white at the other. This group has supplied most of the political leaders and its members have now almost completely replaced British expatriates in the civil service.

4. The modern movement towards self-government in Jamaica began in the depression when Alexander Bustamante organized the sugar workers into the Bustamante Industrial Trade Union. Economic distress and unemployment in the West Indies was so great that the British Government established a Royal Commission to make an investigation. Its report was one of the more important factors leading the U.K. Government towards a policy of stimulating economic development in the Colonies by means of financial assistance, first expressed in the Colonial Development and lelfare Act of 1940. - 2 -

5. During the war and the postwar period economic conditions in Jamaica improved. At the same time more power was gradually handed over to the local population. Bustamante organized the Jamaica Labor Party which, supported by his Trade Union, maintained him as the most important political leader until early 1955.

6. The opposition to the Jamaica Labor Party was provided by the People's National Party led by Norman Washington Manley, a London educated lawyer. These two parties competed for a majority in the wholly elected House of Representatives. The P.N.P. is a "left-wing" party which gains much of its inspiration from the British Labour Party. In practice its policy seems to be "economic development and as much of the welfare state as can be safely afforded". This party won its first general election in early 1955 and the reaction of local businessmen towards it has on the whole been favorable. They felt that its leaders were able men who were making a sincere effort to cope with the island's problems. There has, for example, been no talk so far of nationalizing anything.

7. There is almost no "racial problem" in Jamaica. The explanation of this is probably complex but it may well be largely due to the smallness of the white population which made it unrealistic for it to attempt a monopoly of political power. Moreover, the existence of a substantial class of mixed ancestry made it impossible to draw any firm lines. This does not mean that there is no consciousness of color in Jamaica; there is, but it seems to have been transmuted into a matter of social prestige rather than a discriminatory bar. It lacks the explosive potential which so often causes unrest in, for example, Africa or even in some other parts of the West Indies.

8. This fact is probably connected with another characteristic of the Jamaican situation; namely, the comparatively minor role played by the desire for self-government. As there has been no doubt that self-govern- ment would be achieved in the end, the only question was one of the approp- riate speed and on this point no major disagreement has arisen between the Jamaicans and the British. The movement towards Dominion status now concerns the new Federation of the 'est Indies rather than Jamaica alone. Mr. Manley has talked about dominion status in five years; it does not appear, therefore, that there will be any great hurry.

9. At the present moment the authority of the People's National Party is limited only by the Governor's reserve powers and the British Government's responsibility for external affairs and defence. Just recently, with the appointment of a Jamaican to be Financial Secretary (a position corresponding to the permanent head of the Treasury), local responsibility for financial matters became complete. The two party system and the existence of a middle class has brought a large measure of stability to the Jamaican political arena. It is safe to say that Jamaica's fundamental problems are economic rather than political. - 3 -

10. The new Federation of the West Indies is to include Jamaica, Trinidad and the smaller British lest Indian islands, with the exception of the Virgin Islands. It is expected to come into operation sometime this year and the first Federal elections are scheduled for early 1958. In its early years the authority of the new Federal Government of the will be limited and it will be financed by a levy upon the units. Some idea of the initial scope of the Federation can be obtained from the fact that the first Federal budget is expected to amount to about £2 million which can be compared to a budget in Jamaica of about £20 million. Moreover, the Federa- tion as a whole will not be financially self-supporting since the budgets of some of the smaller islands will continue to receive annual grants from the U.K. Government. A scheme has been worked out whereby in future those grants will be channeled from the U.K. to the islands concerned through the Federal Government. At first there will be no Federal income tax; the ques- tion of establishing such a tax will be considered after the Federation has been in existence for five years. At the start, therefore, and perhaps for several years, the Federal Government seems likely to be smaller and weaker than its larger components such as Jamaica. III. ECO,iOlC SITUATION

11 * Jamaica is a small densely populated island; it has an area of 4,000 square miles and a population of around 1.5 million. Its national income is approximately ,100 million of which agriculture is directly respoasible for a little over a quarter. Exports in 1955 were valued at £33 million of which sugar accounted for I11 million, bauxite and aluminium for nearly £9 million and bananas for £5 million. Other exports include coffee, fruit and fruit juices, rum and pimento. The tourist trade is increasing rapidly and expend- iture by tourists last year is estimated at nearly £7 million.

12. There are no national income statistics available for Jamaica later than 1952. But the structure of the economy can be clearly seen from the 1952 figures. In that year the gross domestic product was £95 million of which agriculture produced £25.8 million and manufacturing F11.6 million. The remaining £57.5 million represented commerce, transport, utilities, government and services etc.; that is to sa,. activities where output and growth were very largely dependent upon the first two sectors.

13. It is also interesting to shou how the total of '37.4 million, represent. ing the output of agriculture and m2anufacturing, is divided between "export industries" and activities catering mainly for the home narket. The break- down is as follows:

Hain export industries £12.6 m. Other agriculture 17.3 m. Other mianufacturing 7.5 m.

Total: £37.- m.

14. In this table the "main export industries" consist of the production of the principal export crops, processing of agricultural products for exports (e.C* sugar manufacturing, production of concentrated fruit juice, etc.) and bauxite, which in 1952 was very small. "Other agriculture" is, of course, local food production and iL is interesting to see its i,::port-nce as compared to the export production. This is a sector where it is difficult to obtain information about what is happening to output since much of it comes fron small farmers. Although there is certainly considerable potential for future growth in this sector it is always difficult to increase the productivity of small scale farming. The development program lays much emphasis on improving local agricultural production.

15. Even though the income generated by the export crops is less than that of "other agriculture," they occupy a strategic position in the econony. A fall in demand for them would lead to a fall in incomes which would spread rapidly through the economy. Conversely, a rise in demand would stimulate economic development in other sectors.

The 1ain Agricultural Exports

16. Before the war bananas were by far Ja:,aica's most important export but in the post-war period they have yielded first place to sugar. The expansion of sugar production since 1938 has been very great - from 106,000 tons to nearly 400,000 tons in 1955. This has been made possible partly by increased -5-

:crl c.. 7.tio-. but partly by the gap in world supplies caused by the disapf,earance of exports from Indonesia. It has been the most important factor behind Jamaican economic growth since the war. However, expansion on the scale of the last few years cannot be expected in the future. The sugar market has been subject to official controls by the principal consumers and producers for -,any years and the formation of the Intcrnational Sugar Agreement in 1953 was a result of the growing necessity to limit supplies and support the price on the free market. Iost of Jamaica's sugar is disposed of under the British Commonwealth Sugar Agreeient. Jamaica has a total quota of 270,000 tons in the Commonwealth Sugar Agreement of which 188,000 is sold to the U.K. at a negotiated price and the remainder is sold to Canada under a preferential tariff. On top of this Jamaica has a quota in the International Sugar Agreement which in 1956 was 30,000 tons.

17. Sugar production in Jamaica shows a persiste-it tendency to push beyond the limits set by these quotas. The 1955 crop left a surolus of 53,000 tons and the 1956 crop was also greater than the quotas. However, fortunately for Jamaica, other countries in the Comfon7wealth fell short of their quotas and Jamaica was consequently able to dis;ose of both the 1956 crop and ;he carry- over from the previous year. Had this not occurred it would have been necessary to place restrictions on production for the current year. Ience export income from sugar in 1956 was exceptionally high and is unlikely to continue at that level. In the lon-- run the gradual increase in demand for sugar should benefit Jamaica but on the other hand the supply conditions of sugar are such that it always tends to be something of a drug on tne market. Although sugar will clearly remain of central importance to Jamaica it cannot be regarded as offerin,,, much scope for future 'evelopment. _eanwhile Jamaica relies upon the Common- wealth Sugar Agreement to provide a steady narket for her sugar. This Agreement is maintained for eight -,ears ahead by annual extensions from year to year and its continuation in one form or another seems assured.

18. In 1938 banana exports brought in nearly 83 million whereas sugar brought only '859,000. The collapse of banana exports between 1938 and 1946 (from 24 million stems to 6 mallion stems) was the result of banana disease. Recovery from the 1946 level has been based largely on the development of a new disease resistant banana. Production reached 10 million stems in 1953 and 11 million stems in 1955 (about 140,000 tons). This decline in exports of bananas would have been a severe blow to Jamaica had it not been for the great increase in sugar exports over the same ieriod.

19. All Jamaican bananas are exported to the U.K. They account ror some 45-50% of the U.K. s total banana imports compared to 80) in 1937. The U.K. 's imi orts have now reached approximately the pre-war level and Jamaica s share of the market has been reduced i:ainly by new supplies from the British Cameroons. There does not appear to be any large unsatisfied demand in the U.K. for bananas so that even if Jamaica produces more, there may be some difficulty in selling them.

20. 7ost of Jamaica's minor agricultural exports also have to face diffi- culties either on the production or the ::arket side. Coffee exports have been - 6 - increasing during the last few years but more could be sold if it could be oduced. An expansion in exports of fruit and fruit juices depends partly upon demand ansd partly upon efforts to lower costs in order to eet world comoetition. In general, a steady increase in export income from aLricultural products is not somethin- which Jamaica ca: count upon autoyGaticall,,. There is scope for an increase but obstacles have to be overcome a-nd this may well take time and trouble.

Tourist Trade

21. The tourist trade is the fastest grouing economic activity in Jamaica. The gross e:penditure b, tourists is estimated to have risen from .i million in 1947 to £L4 million in 1952 and d6.7 riillion in 1955. These fi ures tiem- selves are very rough estimates based on statistics of arrivals and departures; nevertheless it is clear that the rate of increase is very great. iFurthermore it is an industry where no limiting factor appears yet to be in sight either on the sup.r.ly or the demand side. Jamaica still has plenty of beaches still to be developed and there seems little question that additional tourists would be forthcoming if ti-re were more hotel space. Several hotels are under construc- tion at the moment.

22. The benefits to Jamaica of the tourist trade are substantial even though the figure of £6.7 million for tourist e-penditure is not a true measure of them. It is necessary to reduce the fiKure of tourist expenditure to allow for money spent directly on imports and for profits transferred abroad by foreign-owned hotels. Unfortunately ro estimates of the true "expenditure in Jaiaica" by tourists is available but on any reasonable fi -ure the tourist trade is still one of jamaica's largest income earners.

Bauxite

23. The mining of bauxite is carried on in Jamaica by two U.S. companies, Kaiser and Reynolds, and one Canadian company, Alumina Jaaica Ltd., a sub- sidiary of Aluminium Ltd. Exports of bauxite started in 1951 and by 195 had reached a figure of L6.8 million. This figure, however, requires some coment. In the first place, some .^3.8 million represents unprocessed bauxite exported by the two U.S. companies. This bauxite is not "sold" in the strict sense; it is merely transferred from one part of a firm to another 1art of the same firm. Hence the value put upon it is to some extent artificial. What matters to Jamaica is not the value of bauxite exports, however defined, but the expenditure in Jamaica by the bauxite companies which is considerably less than this. In other words, the effect of, for example, doubling the token price of bauxite would simly be to increase the "profit" attributable to the Jazaican operations of the company and to reduce correspondingly the "profit" attributable to the remainder of the com!any's operations. The only effect this would have in Jamaica would be to increase the income tax payable in Jamaica on the larger Jamaican-earned "1profit". But it 1-jould not have a direct effect on the Jamaican economy since it would not alter the payments made by the company for wages in Jamaica and the urchase of Jamaican-made goods. - 7 -

24. The Canadian company, Alumina Jamaica, Ltd. processes the bauxite into alumina. Alumina does have a recognized price but here again the expenditure in Jamaica by the company will only be a fraction of the value shown in the export statistics (F5 million). 7ence the bauxite companies do not really add anything like 8.8 million to the Janaican national product.

25. Their main importance lies in their effect on the government budget. The government obtains revenue from the companies in two ways; via income tax and via a royalty payment. For the two U.S. companies an agreement was reached that they would pay income tax on a notional profit of 60 cents a ton which works out, at present rates of income tax, to 1 shillin- and 6 peace per ton. The Canadian company pays income tax in the normal way. The royalty amcunts to 1 a ton for the U.3. companies and 10 pence a ton for the Canadian company. These rates do not brinc in a great deal of revenue at present but the government is now in course of negotiating a substantial increase in the royalty pa'ment. The royalty of 1 shi)ling a ton was agreed upon for an initial period of $ years and was regarded as a temporary figure while the industry was bein- established. Until the present royalty nego- tiations have been concluded it is not possible to say exactly how large government revenue from bauxite will be but the indications are that it may well amount in a few years time to something like £2 to -3 million a year. At the moment the figure is probably around £500,000 a year.

Importance of Bauxite Revenues to the Budget

26. Such a sum will be of considerable significance to the Jamaican budget, which nou balances at about £20 million. Until now it has always been dif- ficult for the Jamaican Government to set aside each year very sizeable amounts for ,ublic investment. Up to about two years ago the budgetary probleru.!as mainly one of trying to build up a so Cicient cash balance to act as a cushion in case of emerge icy. An adequate working balance is of great importance for a country in Jamaica's situation where there is no and almost no money market. In these circ7umstances an unfavorable development in che budget may force the govern:r.ent to an eal for help to the since there is no "lender of last resort" in Jamaica. This is exactly what happened after the hurricane of 151 when the U.1K. Government provided a grant of around C3 million and a loan of £1-1/2 million for rehabilitation.

27. However, during the last two years the budgetary position has much int-roved. The ceneral revenue balance has been built up from around £1 . ,illion to nearly £3 million. This change, together with the prospects of substantial revenues from bauxite, means that the government is in a much stronger position to carry out a development program tlan previously. The increased revenue snou enable the government to make larger contributions to the development program and it also provides a margin to neet the debt service arising fron accelerated borrowin-. At the sane time the govcrnment's increased liquid reserves, as well as the crop insurance funds that have .een built up) since 1951 for sugar and bananas, mean that the whole eccnomy is in imiuch better shape to face an eiurgency such as a hi:-ricane, than it was in 1951. - 8 -

IV. THE DEVELOPMENT PROGRAM

28. After the general election of early 1955 which put the People's National Party in office for the first time, the new government undertook a revision of the 5-year development program which had been prepared by the previous government. This revision has only recently been completed but the general size of the program became clear some months ago and the Minister of Finance thereupon visited the U.K. and North America in order to survey the prospects for obtaining loans.

29. The new development program covers the three fiscal years beginning in April 1957. The government's policy is to make investment plans as firm as possible for three years ahead. Capital expenditure under the plan is esti- mated as follows:

Development Program (Three years 1957/58 to 1959/60)

Subject - Million

Agriculture 5.7 Education 1.5 Tourism 1.9 Industrial development 0.9 Marketing 0.1 Railway 0.9 Roads and bridges 3.0 Airports 1.6 Other capital works (mainly government buildings) 1.3 Water supplies 1.6 Health 0.9 Housing 0.9 Local government projects 1.3 Social welfare services 0.1 Total 21.7

30. It must be noted that this program does not include any allowance for port improvement since, as is explained below, no decision has yet been taken on how to deal with this question. The program also excludes electric power because power supply is the responsibility of a private company. How- ever, as is explained in paragraphs 58 to 60, the government may find it necessary to assist the power company to obtain capital.

31. The proposed financing of this program is as follows:

Financing of Program & Million

1. Contribution from Budget Revenue 4.1 2. Colonial Development and Welfare grants from U.K. Government 2.6 3. Borrowing 15.0 21.7 - 9 -

The Government must therefore find sources from which to borrow T15 million over the three years concerned. There are three possible sources (other than the Bank) from which funds might be obtained; the U.K. market, the local mar- ket in Jamaica and the North American markets (U.S. and Canada). The Ju,aican Gov--rnment has an understanding with the U.K. Government that it will be able to borrow 4 million in 1957/58 and another 1A million in 1959/60. It is also counting upon raising 13 million within Jamaica. Together this amounts to 11 million leaving 4 million to be found elsewhere.

32. The Jamaican Government has been in contact with Wood, Gundy and Co. with the object of making an issue in Canada. It is hoped to make an issue early this year for the equivalent of 13 million. However, the proceeds of this issue will be required to m;et loan expenditure during the current finan- cial year 1956/57 which is at present being financed on a temporary basis. If the issue is a success the Government expects that it will be possible to make another of a similar amount during the next three years. In that event, the uncovered gap in the borrowing program would be reduced to only 1 million.

33. But it is clear that this is a tentative calculation. There are un- certainties on both the financing and the requirements side. For example, additional requirements for a port project and for electric power might well increase the gap to i/ or 15 million. Moreover if experience with the Canadian issue were not favorable the gap would increase even further. In that event the program might have to be reduced.

34. It is against this background that the Government has approached the Bank. As the gap in their requirements is so uncertain they do not have any specific amount in mind; they have merely indicated certain projects in which the Bank might be interested. However, their other funds (other than C. D. and which W. grants) can be used for any purpose, so that the particular projects the Bank might prefer is not a matter of first importance to Jamaica. The railway and port projects were selected as being those which might appeal most to the Bank.

The Pro:mm and the Creditworthiness of the Government

35. A conventional appraisal of the creditworthiness of Jamaica would point out that the public external debt (all in sterling) amounts to about 111.5 million and that the annual service comes to a little over 10.5 million which is about 1 to 1.2% of annual foreign exchange earnings. But this alone is not very illuminating and it is not the way in which the government estimates its position.

36. The existence of the colonial currency board system instead of an independent monetary system with a central bank, eliminates any so-called "transfer problem" between Jamaica and the U.K. It does this in two ways. Firstly it forces the economy to maintain sterling reserves which are propor- tionately high (100% of the currency in circulation) t:,us providing a large cushion in case of emergency. Secondly, it maintains a close link between - 10 -

movements of exports and imports. In any economy there are forces which tend to bring exports and imports into balance but they can be disturbed by the working of an independent monetary system. The absence of such a system in Jaiiaica imeans that the Jamaican balance of payments can never get very far out of balance (including capital movements).

37. The result of this situation is that the government itself (excluding the Currency Board) huo sterling assets of some 58 million, in the form of sinking funds, reserve funds and other investments. If to this is added all the other sterling assets which would presumably be held by a central bank if one existed, that is to say, the currency board funds and the sterling assets of commercial banks, then the total "foreign exchange reserves" would come to about T21 million. This is equivalent to almost six months imports, again a comfortable figure.

38. An estimated balance of payments for Jamaica for 1955 is given in the table (p. 20). No statement of the balance of payments by currencies is available but it is clear that, owing to the growth of the tourist trade and the bauxite industry, Jamaica is now a net earner for the .

39. From the Gov:rn:-cr1t's point of view therefore there is no difference between the servicing of its external debt and that of its other internal debt. Both have to be met from revenues. At the moment the Government's total public debt is 19 million and the annual cost to the budget of servicing this debt is ;740,000. This may be compared to a total current budget revenue of about 720 million. The proposed borrowing for the development program over the next three years would bring the total debt up to Z34million and the net annual service cost up to 1.5 million. In view of prospects of revenue from bauxite it should not be difficult to meet this additional debt charge. If a part of the debt charge were to be in non-sterling currencies, the necessary foreign exchange would be obtained from the sterling area reserves. However, the amount of exchange which would be needed would be so small as to be negli- gible in relation to the total sterling area position. Hence the Bank would be justified in participating in the development program provided suitable projects could be prepared. - 11 -

V. PO53IBLE FROJECTS

1. The Jamaican Government Railway

of inherent 40. The Jamaican Government Railway suffers from a number disadvantages. With only 200 miles of main line track, the hauls of goods and passengers are necessarily short. The rugged, mountainous terrain of the island makes operations costly over a great part of the track, and there is an extensive network of fairly good roads throughout the island which gives rise to intense competition from road transport. In addition, the administration of the railroad has left it open to political influence, resulting, for example, in overstaffing. For all these reasons the rail- way has operated at a deficit for many years. Over the last 10 years, annual earnings have fallen ZO.3-0.5 million short of total annual expen- ditures of between F0.7-1.1 million. These deficits have occurred despite freight rates which are high compared to most other railroads.

Li. All these shortcomings were pointed out by the 1952 General Survey Mission which recommended that a decision be taken to retain the railway for some 15 more years, mainly because a substantial increase in rail traffic could be expected as a result of the development program. It was also pointed out that the road network could hardly accommodate the traffic moving on the railways unless substantial investments were made for road improvements and additional vehicles. The General Survey lission also recommended that the Railway be made autonomous instead of being operated as a government department, that certain freight rates be increased and that some capital expenditures be made, mainly for renewals of overaged rolling stock.

42. During the five years since 1952, the finances of the railways have not improved in spite of a 700 increase in goods traffic resulting mainly from the completion of an alumina plant in the interior. Some freight rates have been increased during this period, but the cost of labor and supplies has probably increased even faster. The freight rates agreed with the alumina company yield little, if any, profit; although they are rather high compared to charges for similar bulk commodities on other railways, they are very low relative to the average ton-mile cost of moving freight on the Jamaica railways. For example, alumina and fuel oil, which form the bulk of the traffic carried for the alumina plant, pay about 3.0 cents equivalent per ton-mile. This compares to an average charge of about 6.0 cents per ton-mile for all traffic combined, whereas the average cost is about 9-10 cents per ton-mile, i.e. taking the deficit into account. The rate agreement between the alumina company and the railways is valid for 25 years, and can only be terminated if railway operations cease. The output of alumina is being expanded rapidly, and the volume of rail haulage for the alumina company is expected to reach about 900,000 tons in 1959.

3. The alumina traffic is a very specialized operation which affects only a relatively small section of the railway and it could be continued - 12 -

even if the rest of the system were to be abandoned. Hence the amount of profit which might be obtained fron alumina does not provide an answer to the problem of the economic gain or loss of the railway as a whole. Even if it were possible to offset the loss on other operations by profits from alumina traffic, the problem of what to do about this loss would remain.

44. In 1955-56 the total volume of freight moved by the railroads reached about 730,000 tons, of which about 325,000 tons were for the alumina company. All other traffic totaled about 405,000 tons, and con- sisted of 68,000 tons sugar, 197,000 tons sugar cane, 67,000 tons bananas, and 73,000 tons general merchandise. Since then the railways have lost practically all the sugar, which is now being moved by trucks. Moreover, rail haulage of sugar canes is certainly uneconomic since it is highly seasonal, with an average haul of only 9 miles.

45. In general, trucking costs appear to be highly competitive. Detailed information for a standard type truck (Leyland diesel, 7-ton capacity) under local conditions indicates an average operating cost of about 3.0-3.5 cents per ton-mile. This is substantially under the average ton-mile cost for rail haulage (9-10 cents), even allowing for return truck trips with no loads, or less than full loads. Moreover, the Government's annual expenditure for road maintenance and improvements does not exceed its revenues from gasoline taxes and registration fees so that there are no "hidden subsidies" in favor of truck traffic.

L6. During its stay in Jamaica, the :fission was shown an investment program for the railways totaling about 4J2 million equivalent, largely for the purchase of diesel rail cars, freight cars and passenger coaches. It was evident, however, that this program represented only the general thinking of the general manager and his advisers, and that no proper analysis or research had been made to determine the most urgent require- ments of the railways.

47. In conformity with the recommendations of the Bank General Survey Pission, the Government appointed a committee early in 1955 to work out a scheme for the transfer of the railways to an autonomous corporation. The committee presented its report in March 1956 giving detailed recom- mendations for a transfer to a Board of ianagement consisting of a chair- man and six other members, all to be appointed by the Governor-in-Council.

48. At the time the Mission visited Jamaica, it was the Government's intention to establish the proposed Board as from the beginning of the next financial year (1 April, 1957), but then only as an advisory body during the first year of its existence. However, certain important decisions may have to be taken for the railways within the next year or so. It therefore seems advisable for the Board to assume full respon- sibility as soon as possible. to the 49. Much of the information made available to the iission leads question as to whether the entire railway system should be kept in opera- tion indefinitely. One possibility might well be to curtail operations gradually, while retaining the 65 miles of main line track serving the alumina company, perhaps turning it over to the company for its own operation. In any case, the 'ission feels that this basic problem should be investigated first of all under the responsibility of the new Board, and only then should the needs for additional caDital investments be decided. Since qualified personnel are not available in Jamaica, this could only be done by outside consultants.

2. Port of Kingston

Present Situation

50. The present annual turnover of traffic in the port of Kingston is about 700,000 tons, of which about 150,000 tons are exports and about 550,000 tons imports. Of the imports about 275,000 tons are petroleum products. The annial increase in traffic is very small; the present level is, in fact, still less than that of 1938.

51. The present port facilities consist of eighteen timber finger piers of various lengths with or iithout transit sheds. Wharf operations are carried out on: (a) piers owned and operated by shipping lines; (b) piers for particular kinds of cargo such as lumber and oil; (c) piers owned and operated by private wharfage companies, of which Kingston Wharves are by far the most important; and (d) three railway piers, all owned but only one operated by the railways, the other two being leased to and operated by Kingston Wharves.

Deficiencies of the Existing Facilities

52. Improvement of the port of Kingston has been under consideration for a long time. This necessity does not arise in the first place from a substantial actual or expected increase in traffic since bauxite and alumina, the products which recently caused a considerable increase in the island's exports, are bein- shipped via out-ports.

53. The deficiencies of the existing port of Kingston are threefold, namely (a) shortage of warehouse space both near the piers and in town; (b) shortage of berthing space for larger vessels, berthing space for smaller vessels being ample; and. (c) traffic congestion and fire hazards in the port area which is close to the center of the city. The deficiency of berthing space, though causing some inconvenience and occasionally some extra waiting time, is still of little importance. However, the inconvenience will gradually increase with the trend toward larger ships calling at Kingston. The main incentives for port improvement plans have been, and still are, the shortage of warehouse space and the unsatisfactory traffic conditions in the port area. The long period of free storage for - li - exports and the extremely low storage rates for Jamaican merchants, laid down in the outdated Tharfage Law of 1895, has meant that no warehouses have been built outside the nort area. Although the law has recently been amended, setting considerably higher rates and limiting storage time, the have been built amendments cannot be put into effect until new warehouses outside the wharf area so that goods can be moved into them after expira- tion of the permitted storage period.

Plans for Improvements

port have :any reports and plans for the improvement of the Kingston Sh, the been prepared. The consulting firm Christiani and Nielsen prepared this latest in 1954, and as the Jamaican Government had sent a copy of form the report to the Bank, the mission expected that this report would basis for a project. However, upon its arrival the mission found that of the the Government had decided not to improve the port along the lines Christiani and Nielsen recommendations. Instead, it intended to proceed by improving existing facilities and by clearing the present congested port area to make room for more and better warehouses. and Nielsen 55. It was also the mission's feeling that the Christiani recommendations were too ambitious, particularly as it is not likely that all private wharf operators would abandon their own piers and warehouses would and use the new facilities. However, the mission doubts whether it warehouses be a wise decision to improve the existing piers and build new so close to the heart of the already traffic-jammed city. Kingston new Wharves had proposed that it should be allowed to build a modest and facility on a site which would fit ultimately into the Christiani be Nielsen plan. It was the mission's feeling that a solution should sought along these lines, particularly since Kingston Wharves offered all or most of the financing for this solution, if its future interests were adequately secured by the Government.

56. The Government has called upon the U.K. Ministry of Transport to pro- provide expert advice on the pending port problems and the different were expected posals under consideration, and the hinistry representatives to arrive in Kingston early in 1957. The final decision on dealing with the port will depend upon their findings.

Creation of a Port Authority

57, Although interested parties agree ITith the Government's intention yet to create an autonomous port authority, no specific proposals have been drawn up. While private wharf owners would be willing to cooperate they with, or participate in such a body, it is quite understandable that permit would not be prepared to go so far as to pool their properties and a new port administration to exercise operational authority over them. It is therefore likely that, unless the Government were to buy or expro- would priate the private interests, the authority of any port authority carry be restricted to general port matters, and presumably it would not above will out actual port operations. The U.K. port experts mentioned be asked to make recommendations also on this matter.

3. Electric Power Secretary A8t Just before the mission left for Jamaica, the Financial the of the Jamaican Government visited the Bank and informally raised question of financing electric power. He said that the Jamaica Public all the Service Company, which is the local company responsible for almost for power production in the island (other than that produced by industry it its own use), was finding great difficulty in obtaining the capital needed. The company is privately owned in Canada.

5?t The company is just beginning to convert its system from 40 to it was 50 cycles. This change has been contemplated for some time and cost one of the recommendations of the General Survey Mission. The total of the conversion is estimated to be about ;1L- million and the Government in has agreed to permit the company to levy a surcharge on power rates order to amortize this sum.

60. The Government is inclined to believe that the company takes a too modest view of future power needs as a consequence of its difficulty in obtaining capital. The Survey Kission also thought that the companyts estimates were conservative. Just recently the company has drawn up a new expansion program covering the next five years which it will discuss with the Government. The mission advised the Government that the next step should be for the Government and the company to agree upon a desirable program and then to approach the Ban1k again.

4. Airports

61, After the mission arrived in Kingston the Kinister of Finance raised the question of financing airports. He said he hoped the Bank would not refuse to consider this possibility. The mission explained that the Bank a high did not usually finance airports since they frequently did not have economic priority. However, at the mission's suggestion, the Government undertook to prepare a short memorandum on the question.

62. There are two main airports in Jamaica, one at Kingston, the capital, and one at Montego Bay, the main tourist centre. The runway at 1Iontego Bay was lengthened some years ago in order to accommodate jet aircraft which BOAC were planning to fly in from New York. The Kingston airport, however, cannot take jets or stratocruisers. It is built on a narrow spit of land which forns the boundary of Kingston Harbour and lengthening the existin- runways would require a considerable amount of fill in the harbour. At one time moving the entire airport was contemplated, but it was then discovered that it would be possible to build a new runway in fairly shallow water close to the shore. This work is now in progress. 63, The remainder of the cost of Kingston Airport will be Z1.1 million out of a total cost of about L2.5 million. At Miontego Bay some £h50,000 is required to move the terminal buildings to provide more apron space.

5. Other Projects in the Tevelopment Program

84, The agricultural prograr consists of a large number of small projects such as improvement of small farms, drainage, small irrigation projects, agricultural credit, etc. Under "Industrial Development" come loans to small industries and the erection of factory buildings. The road program is relatively large but road expenditure in Jamaica has certain special features. Work on the roads is in reality a form of unemployment relief and, as such, it is inevitably influenced by political considerations. Maintenance is an obvious necessity and from much of the road improvement program Jamaica gets value for money. But there is a question whether the same could be said of every item of road expenditure. However, one con- sequence of this situation is that Jamaica now has a very dense road net- work which seems to be in good condition. The item "other capital works" consists largely of Government buildings. Expenditure on tourism consists of the development of new beach areas (provision of utilities, etc.) in order to encourage investment in resort hotels, and Government participa- tion in a new hotel in Kingstoh.

65, In the time available to it the mission was not able to study the whole development prograyl in detail. However, in general the program appears to be economically sound. It is the result of a policy which for some years has tried to place greater emphasis on projects which will add to the productivity of the economy, as opposed to "social" projects. The importance given to agriculture reflects its basic importance to Jamaica. bome of the details may be open to criticism but the Government is, of course, not yet committed to all the proposed expenditure. For example, it may not be advisable to spend £900,000 on the railway.

6. Import Requirements

66, It seems highly likel-r that the amount of imports required for the various schemes will limit severely the choice of project and the amount which the Bank could lend, even in the most favorable circumstances. From the program as set out on page 8 then, if the railway is excluded, only the road program and the airport are likely to require any significant quantity of imports and even for these the requirements are unlikely to be high. For the roads perhaps as much as $2 million might be needed and for the airport maybe $1 million. A small port project (not included in the program as it now stands) might require another $1 million. This gives $ million altogether (Z1.5 million). Only the needs of electric power appear likely to require substantial imports. The program may call for up to .4S or 5 million. - 17 -

VI, THE U.K. COLONIAL LOANS ACT

67. The U.K. Colonial Loans Acts of 1949 and 1952 lay down the conditions under which the U.K. Government is authorized to guarantee loans by the Bank made for projects in colonial territories. They authorize the U.K. Government to guarantee loans made by the Bank to Colonial governments or to any govern- ment established for two or more territories, or for any authority established to provide or administer services common to two or more territories.

68. The practical effect of these Acts would therefore be that any loan to Jamaica would have to be made to the Government. A loan for electric power, for example, would have to be made to the Government and then relent to the power company.

VII, CONCLUSIONS

1) General

69, Jamaica has room for economic growth although there are obstacles to be overcome. There is scope for increasing productivity in agricultural pro- duction and efforts will have to be made to expand markets for agricultural exports. Industry is growing and the prospects for the tourist industry are very good.

7Z. The financial position of the Government has improved considerably during the last few years and will be much strengthened in the future by revenue from the bauxite companies. The Government is therefore in a good position to undertake its development program without adversely affecting its budget, and the additional service on the new borrowing is not likely to be burdensome. In principle, therefore, the Bank could consider a loan to Jamaica if a suitable project were presented.

2) The Railway

71. At best, any project for the railway would be a "loss reducing" project, rather than a profit making one since it is unlikely that the railway deficit could ever be eliminated altogether. The question of whether, and if so, how much, additional capital should be expended on the railway, and the more funda- mental problem of whether parts of the railway should be abandoned, are matters which the new statutory body will have to decide.

72. In these circumstances there are certain obvious objections to a Bank loan for the railway:

a) the economic benefits of further investment in the railway are doubtful;

b) even if some investment were desirable in the short run, it may well be that a policy of progressive abandonment would be advisable in the long run. - 1n -

3) The Port of Kingston

a) There is at present no port project in such a form that it could be considered by the Bank. However, once the necessary decisions have been taken, it might be possible to draw up a project which would meet the Bank's require- ments with respect to economic priority.

b) A port authority should be the body to advise the Govern- ment on the steps to be taken to improve the port of Kingston. However, several administrative and policy problems will have to be solved before a port authority can be established, and its authority and functions are not yet clear.

c) As most port operations are carried out by private business with its own facilities, it is not likely that a substan- tial project will be submitted to the Bank in the immediate future.

L) Airports

a) Until further information is received from Jamaica it is not possible to come to any conclusion on the airport question. In general it may be granted that, for an island such as Jamaica, air transport is of especial importance particularly in view of the growth of the tourist trade.

b) However, Jamaica already has a 7000-foot runway at M,ontego Bay and therefore the construction of another similar runway at Kingston requires special justification. It seems that certain technical factors played a part in the decision to build the new Kingston runway. (The exist- ing runways are built on peat and can only take a limited weight.) A judgement on the various technical and economic considerations which went into the decision to expand the Kingston airport must await further information.

5) Electric Power

P4, According to the Jamaican Government, the local private power company is unable to raise the capital which it requires over the next few years for expansion and for the conversion of frequency. Discussions are proceeding between the Government and the company in order to determine the most appro- priate future program. At that stage it is likely that the Bank will be approached again. - 19 -

6) Other Possible Projects

74. Apart from the above projects the only categories in the develop- ment program which envisage substantial expenditure of a directly produc- tive nature are Agriculture (L5.7 million), Roads and bridges (L3.0 million) and Tourism (L1.9 million). For all these items, import requirements are likely to be so low that it is doubtful whether a Bank loan could be arranged unless expenditure in local currency could be included. - 20 - Balance of Payments, 1955 (Preliminary estimate)

Credits Debits

Exports (f.o.b.) 33.9 - Imports (c.i.f.) - 45.6 Foreign travel (net) 6.7 1.1 Transportation 2.2 1.8 Insurance 1.8 2.9 Investment income 1.3 2.3 Government n.e.s. 0.7 0.2 Miscellaneous 0.5 1.6

Balance on current account -8.4

Donations (emigrants remittances and C.D. & 1. grants) 3.5 0.1

Capital movements 3.7

Errors and omissions 1.3