This research paper outlines one of the major economic problems that is currently facing Jamaica; this economic problem is, the major effects of the global recession on the bauxite industry in Jamaica. The economic theory which will complement this issue will be the supply and demand theory. This paper will also outline concepts or recommendations that can help to stabilize the bauxite industry as well as the Jamaican economy. This is done with the aid of sources cited from different websites and books that are illustrated in the reference or bibliography at the end of the report.
The Declining Bauxite Industry and its Effects on the Jamaican Economy Due to the Global Recession
Bauxite and alumina is one of Jamaica's major earning sector or industry, it provides foreign exchange and investment into the country but the industry began to decline in the 1980s until present due to the global recession and other factors.
The bauxite industry has been declining due to less demand for aluminium products which contribute to the manufacturing of car and other metals, therefore when the recession occurred people stop demanding for by-products hence a reduction in the supply of aluminium which further resulted in a slide of prices. Because of this problem producers are forced to cut back on production, staff and as a result a closing down of some aluminium plants in the country.
In Jamaica two of Windalcos'and Alpart plants had to be closed in order to stop the excess supply of alumina to Jamaican international trading partners according to the Gleaner news paper. Because of these closers our foreign exchange fell dramatically and the Jamaican exchange rate has been in deep waters ever since, our dollar has been sliding and the US currency has been sky rocking.
Another reason why this is considered a serious economic problem for the country is that it affects employment on a large scale. According to the Gleaner news paper published on Wednesday April 8, 2009 "Job cuts are to be expected due to plant closures and the bauxite communities in St. Elizabeth, Manchester, Clarendon and St. Ann will be affected."Hence grocery shops, hardware stores, transportation(taxi and bus) which facilitate employment for community members will be affected drastically, even the local programs in the community that were funded by the bauxite company such as STETHS Football and Cricket programs has seen a drastic fall in funding due to this issue.
According to the article other factors that were affected were government revenues, corporate income tax, PAYE income tax, statutory reductions and other revenues that were paid to the government. All of these taxes contributed in building new infrastructures for the country and paying debts owed by the country. Therefore with the closure of these plants parts of the tax and debt system is at a standstill until there is a reopening.
The Best Economic Theory that could be Applied to this Issue is the Theory of Supply and Demand
Demand is said to be the relationship between quantity demand and the price of a good when all factors remain constant. Whereas for supply it is said to be the relationship between the quantity supply and the price of a good when all factors remain constant.
With this theory it states that if supply increases the price of a good will fall and if demand increases the price of the good increases vice versa. But in this case the demand for bauxite declined, hence the supply of alumina had to be decrease, therefore the price is that factor that suffered the most.
This is macro issue that affects our national economy on a global scale; therefore the government has to pay keen attention to the economy in order to build it back. This theory can be applied to Jamaica declining bauxite problem; according to an article published by the Gleaner Company on Wednesday April 8, 2009, it states "the demand for aluminium has fallen therefore producers were force to cut back on excess supply of aluminium to the world market." It further states that "there is a 50% fall in bauxite production to eight million tonnes.....which resulted in low aluminium prices."Therefore it can be seen that a drastic change in quantity demand of bauxite causes the demand curve to shift inwards which resulted in a change in price of alumina.
It can be said that a significant factor which affected demand was the global recession which cause international buyers to turn to scrap metal as a substitute good which is at a less expensive price than bauxite. The metal is already there so it only needs compressing and then melted down to make the finish product.
Whereas for the supply of bauxite it has decrease drastically to accommodate the declining demand and high production cost plants have to incur in order to export. The article states "the companies had to rationalize their production by closing more expensive capacity, Jamaica's alumina plants which among the higher cost capacity.....already two Windalcos alumina plants have closed."Therefore it can be seen that there is a change in supply (decrease).
Economic Concepts that could Remedy the Declining Bauxite Industry in Jamaica
Recommendations
The causes of the decline in bauxite in Jamaica is due to lower growth rate for aluminium, energy availability and cost to produce, the decline of North America as a major aluminium partner in producing aluminium by products, a surplus of aluminium on the world market and the different pricing policies of this product.
One economic concept that could be considered is investment, according to the Oxford Dictionary investment is putting resources in to something and expecting great returns from it in the long or short run. On the other hand according to John Sloman sixth edition, Economics, 2006 page 387; the government has to focus on increasing demand by show potential output, introduce development measures, innovation and training so that international firms can invest. It can also allow for these private firms to flourish by designing policies which complements a free market; new investment tends to lead to new technology. Investment in training tends to raise productivity levels hence demand matches supply which equals growth for the economy.
Another intervention that could be applied to this problem is technological change or advancement. Advances in technology increases productivity, new inventions helps to keep up with competition and it will also stimulate growth for the economy. Technology is a process of invention, innovation and using technology is the best possible way in order to achieve growth and maximum output in the bauxite industry.
Using alternate energy sources to operate the plants will cut production cost, fuel prices among others. A less expensive energy source was identified by UC Rusal a Russian company, according to the Gleaner news paper published October 5, 2012; "UC Rusal is building a new coal- fired power plant at Kirkvine and Alpart which will generate 30 Megawatt to operate these plants more efficiently. This will enhance Jamaica's competitiveness in the global bauxite industry. With this joint venture between UC Rusal and the Jamaican government these plants can maintain current staff levels and hiring nearly 1,000 more persons when the new plant is completed in 2015" stated by Minister Phillip Paulwell. Finally by implementing these concepts you can expect growth for both the Jamaican economy and bauxite industry.
Benefits of Applying Economic Concepts or Interventions to the Jamaican Economy
There are many reasons why economic concepts or interventions should be applied to a country's economic problem, like Jamaica; these may include increased capital and revenues into the country. By doing this we need to expand our economy by introducing new investments in areas such as the information technology sector and also manufacturing, but for this to happen we as a people and the pioneers of the country would have to make our markets look attainable for these investors.
Another benefit of implementing economic concepts is, it can improve unemployment and the minimum wage rate amongst the Jamaican people, it has been said that unemployment has risen since April of this year. According to the Sunday Gleaner Business section, published October 3, 2010; "Jamaicans work J$4,070 per week at that time. That amount of money can only cover a few basic items, these low income earners survive otherwise off loans, relatives abroad or financial aid from the government." Also expanding our human capital, if more Jamaicans are educated we would have a better qualified, skilled work force hence productivity and economy will increase. If the right economic interventions are applied to this situation we would surely see growth.
Also by using economic concepts to stabilized our economy we could see an improvement in our education and infrastructural sectors. By investing in our education system in places such as the nutrition and setting firm educational bases for our children we will have a bright future ahead for Jamaica, according to the Sunday observer published January 1, 2011, it stated that, "the Ministry of Education is giving thought to making budgetary provisions for a breakfast programme in primary and all age schools where some students have to go without that crucial first meal of the day, given their low socio- economic status." Another article stated that Jamaican parents should start setting aside financial aid for their children tertiary education, by doing this they are setting a firm bases for their children education. Therefore with the right interventions these ideas can and will work for the betterment of the country.
Finally another benefit would be, keeping our inflation rate at a steady pace. With the right economic interventions we can keep our inflation and other rates down such as mortgage rates insurance and loan rates. According to an article published on Wednesday, September 12, 2012 by Steven Jackson a Gleaner reporter, Bank of Jamaica states that the country's inflation target is to hit single digits, it further states that inflation for the first year hit 1.1 per cent compared to 2.8 per cent in 2011. Therefore if we review our budgetary plans, get lower crude oil cost and have adequate measures put in place for natural disasters we could keep our inflation rate down and have a vast growing, healthy economy.
Conclusion
In concluding, to best resolve our economic issues that are facing the country the pioneers should implement policies, interventions and concepts that best suit the need of the people; this will not only increase and grow the economy but will resolve other social issues along the way. These issues may include cutting poverty among the lower class, ensuring environment sustainability, achieving better education for the young of the country, empowering our old young and middle age people through better health services, better insurance policies, lower mortgage rates among others, also with a strong, stable, and viable attractive economy Jamaica can create global partnerships which will enhance global trade and aid for the country.
