developing a bioindustry cluster in jamaica: a step towards building a skill-based economy

Developing a BioIndustry cluster in Jamaica: a step towards building a skill-based economyAuthor(s): Anthony ClaytonSource: Social and Economic Studies, Vol. 50, No. 2 (JUNE 2001), pp. 1-37Published by: Sir Arthur Lewis Institute of Social and Economic Studies, University of the WestIndiesStable URL: http://www.jstor.org/stable/27865231 .

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Social and Economic Studies 50:2 (2001) ISSN: 0037-7651

Developing a BidIndustry cluster

Jamaica: a step towards building

skill-based economy1

Anthony Clayton

ABSTRACT

With increasing competition, small countries like Jamaica may find it dif

ficult to maintain a presence in traditional export markets. There has been

much debate about trading arrangements, but the more fundamental prob lem is the long-term decline in commodity prices. This trend will accelerate

as average resource-use efficiency rises, as this will weaken demand for

virgin materials. Jamaica should therefore now use emerging market op

portunities to drive the development of knowledge-based business/indus

trial clusters, and thereby restructure and transform the economy before current export markets are lost. One of the most promising opportunities is the market for a range of biological extracts and derivatives: for flavour

ings and essences, industrial crops, and nutraceuticals and functional foods, as this could be used to support the development of a strong Biolndustry cluster.

Introduction

There has been controversy recently about the process of

globalisation; the progressive removal of barriers to international

trade. It is important to note, therefore, that we are still at an early

stage in this process. At present, only 20% of world output is con

testable, which means open to both international acquisition and

1 I am grateful to a number of colleagues for their comments on early drafts of this

paper. In particular, I would like to acknowledge Dr Amoldo Ventura, the Chief

Scientific Advisor to the Prime Minister of Jamaica, Professor Neville Duncan

and Dr Pat Northover of the University of the West Indies, Professor Roland

Clift and Dr Walter Wehrmeyer of the University of Surrey, and two anonymous reviewers. The final form and content of the paper, and any errors, are the sole

responsibility of the author.

Pp 1-37



2 SOCIAL AND ECONOMIC STUDIES

competition in the supply of goods or services. If the political diffi

culties can be resolved, however, that segment will grow. Micklethwait (1999) recently predicted that by 2030 some 80% of world output will be contestable. With increasing competition from

larger entities, small countries like Jamaica may find it difficult to

maintain a presence in some of their traditional export markets. Attention has focused, recently, on the Cotonou accord, the

ACP's residual preferential trading arrangements with the EU, the

planned transition to regional free trade areas, and on the recent EU

decision to allow tariff-free access to the 48 least developed coun

tries (CETN 2000).2 This is understandable. It is certainly true that

Jamaica's sugar and banana industries, for example, currently rely on the protection afforded by the preferential trade arrangements with the EU, and will therefore be vulnerable when these trade ar

rangements are phased out.

However, in one important respect, much of the current de

bate about trading arrangements is irrelevant, as these can only pro vide temporary solutions. The more fundamental problem for many

commodity-exporting nations is the long-term decline in commod

ity prices.

Declining commodity prices

The Economist recently noted that their industrial commodities in

dex lost 80% of its value between 1845 and 1999 (Economist, April 1999). As a result, the industrial commodities price index for 1999

was about 50% below the price level reached in the depths of the

Great Depression of the 1930s.

The World Bank index of non-oil commodity prices shows a

similar pattern. Over the course of the 20th century, the index lost

2 The European Union (EU) recently proposed to assist the world's poorest coun

tries, the Least and Less Developed Countries (LLDCs), by allowing them duty free and quota-free access to the EU market for all products with the exception of

armaments. This has caused concern amongst the Africa, Caribbean and Pacific

(ACP) nations that have been the traditional beneficiaries of the preferential trade

terms from the EU, as some of the LLDCs are likely to be able to supply com

modities such as sugar and rice in greater volume and at lower cost than the

ACP suppliers and may therefore supplant the ACP suppliers in the European markets.



Developing A Biolndustry Cluster In Jamaica; 3

over two-thirds of its value (in constant terms, relative to the prices of other goods during that time). If the reference point is taken as

the peak in non-oil commodity prices at the time of the first world

war, then the index lost about three-quarters of its value by the end

of the century (World Bank GCM 2000a). The aggregate value of traded commodities has increased mark

edly in recent decades, which may appear to contradict these find

ings. The apparent real value of production of a group of 22 major commodities compiled by the World Bank, for example, rose by 59%

(an increase of US$481 billion) between 1970/71 and 1996/97. In al

most every case, however, the growth in the value of production resulted from the very large increase in the volumes of commodities

being produced and traded, as the real price of nearly all the com

modities fell sharply over the period. For example, rice production doubled over the period, while the price of rice (in real terms) fell

by half (World Bank GCM 2000b). The extent to which commodity prices have fallen is remark

able, given other changes over the period: The population of the planet increased from 1.65 billion

people in 1900 to 2.55 billion in 1950 and to 5.97 billion

people in 1999, thus more than tripling the number of pro ducers/consumers over the period (US Bureau of the Cen

sus, 2000). Per capita output also increased over the same time, par

ticularly over the last fifty years. Brown et al. (1997) note

that Gross World Product was $4.9 trillion in 1950, which

equated to $1,925 per capita (in 1995 dollars). By 1995 GWP

was $26.9 trillion, which equated to $4,733 per capita, and

has continued (Brown et al. 1998) to increase at the same

apparently exponential rate.3

Over the last half of the 20th century, therefore, both the number

of producers/consumers and their average level of per capita out

3 World output grew by some $7 trillion between 1986 and 1996, which means

that the growth in that decade was substantially more than the total growth over

the rest of human history.




put more than doubled, generating a nearly six-fold increase in ag

gregate output and thereby increasing average levels of disposable income and per capita consumption. Clayton et al. (1999) note that these increases in global industrial production have been strongly correlated with increases in the consumption of resources. Graedel

and Allenby (1995) point out that the rate of global consumption of

fossil fuels, for example, has increased about 50-fold since 1900. Be

tween 1950 and 1997, the world fish catch increased five-fold, grain

consumption tripled, fossil fuel consumption quadrupled, the con

sumption of timber tripled and the consumption of paper rose six

fold.4

Given that some key commodity resources are non-renewable and therefore finite, while others are renewable but also (in some

cases) vulnerable to semi-permanent depletion, costs of exploration, extraction and processing might have been expected to increase (as richest, lowest cost reserves are generally extracted first), thereby causing commodity prices to rise. In practice, however, the reverse

has happened. Over the same fifty-year period, commodity prices fell in real terms by nearly two-thirds.

It is clear, therefore, that the forces acting to drive down com

modity prices are extremely powerful, as they have overcome strong

countervailing pressures. The relative changes in demand, volumes

and prices make it clear that, at least to date, the pace of change and

development with the various factors that have helped to drive costs

down has significantly exceeded the rate of growth in demand caused

by the increases both in total population and in per capita consump tion.

Technology driving change

Precise circumstances vary across different sectors, but in general

commodity prices have been driven down by the dynamic interac

tion of a number of factors: improved scientific understanding,

4 Bonifant and Ratcliffe (1994) have pointed out that the per capita consumption of paper is particularly strongly correlated with a nation's level of industrial de

velopment; the primary uses of paper are in communications and packaging, and both of these activities increase significantly as economies develop and service sectors expand.



Developing A Biolndustry Cluster in Jamaica: 5

mechanisation, incremental technical improvements, new technolo

gies and structural technological change, the discovery and exploi tation of new sources, increased volumes of production and conse

quently greater economies and efficiencies of scale, improved logis tics and better supply chain management, increased competition, and, in some cases, substitution (Clayton 2000).

Technological development has transformed the oil industry, for example, making it possible to extract previously (economically) unrecoverable deposits, thus expanding reserves and creating a

source of downward pressure on the price. New technologies also have implications for patterns of demand. For example, the transi

tion to fibre-optics, opto-electronics and mobile rather than landline

based communications will increasingly dilute the demand for cop per. A number of related developments are in the pipeline. Takehashi, for example, notes that reconfigurable semiconductors

should reach the market by 2002 or 2003 (Takehashi 2001). This will

allow the development of 'universal devices', which will reduce the

demand for a range of plastics and metals. Similarly, recent devel

opments with carbon nanotubes and graphite-reinforced polymers hold out the promise of a new generation of strong, light materials, which may eventually displace aluminium and other metals in aero

space engineering, car body parts and other engineering and con

struction applications. Hydrogen-powered fuel cells may displace

petroleum-powered internal combustion engines in motor vehicles, thus reducing demand for oil, while the transition to mass use of

hydrogen-powered fuel cells may in turn enable much greater use

of alternative base energy sources, for example, geothermal power from countries such as Iceland, thereby displacing other power sta

tion fuels such as coal. As the last example illustrates, many of these

technological developments stimulate or enable further technologi cal developments, which further accelerates the pace of change.

The next phase of development is likely to be driven by a com

bination of economic and environmental pressures to simultaneously reduce costs and control environmental impacts, and the relatively new concepts of cleaner production and industrial symbiosis are

increasingly seen as offering a solution to both problems (Clayton 1999). These are strategies that focus on raising energy and resource

use efficiency in business and industry, typically by minimising or




eliminating wastes at source (by process or product redesign) or by

using wastes as inputs into other processes and thereby converting them into auxiliary products. This approach offers significant

potential gains: a series of studies by von Weizs?cker et al. (1997)

suggests it should be economically feasible and technically possible to increase average energy and resource-use productivity by a fac tor of four, which holds out the promise of an effective doubling of

global wealth while simultaneously halving resource use.

This effect has already started to become visible in various sec

tors, including the markets for metals such as steel and aluminium.

The EU now recovers and recycles about 30% of its aluminium, for

example, while the USA recovers and recycles about 60%. Recycled aluminium costs about 15% of the price of aluminium from ore,

reflecting the cost of the energy required to mine, process and trans

port bauxite and alumina, so there are strong incentives for increas

ing these recovery rates further, towards the technical-economic

limit, which in the US and EU could indicate an eventual 90%

recovery rate. World demand for aluminium is currently growing at some 3-5% per annum, so further increases in the level of

recycling are not expected to impact immediately on the market for

bauxite-alumina, but once industrial and domestic recovery loops for aluminium are fully established in the major markets any fur

ther increase in demand could then be met via increased recovery rather than increased bauxite production. Some scenarios suggest that world demand for bauxite could stabilise below the current level,

with the aluminium market in the developed nations increasingly based on closed-loop production-consumption systems in which the

material content cycles continuously.

Developments such as these represent steps towards what

Stahel (1987) has termed the dematerialised economy, an economy in

which the process of economic development is progressively

decoupled from environmental demand, with a transitional period in which resource-use efficiency rises faster than growth in GDP, thus achieving economic growth on a basis of declining resource

consumption.

Sheikh Yamani, the former Saudi oil minister, indicated in a

recent interview that the rate of economic growth had already started to decouple from the consumption of oil, for example, and that the




importance of oil in the world economy had already diminished as a result of this development:

In the past...for every one percentage point rise in the rate of growth, there would be another one-point rise in the oil consumption. Then that factor [the energy co-effi

cient] came to 0.5 to 1. But in Europe in the year 1999/ 2000 you have a rate of growth averaging around 2.5 per cent and the rate of energy growth is below zero. In the US they had a rate of growth of 4.9 per cent with con

sumption up only about 50,000 bpd.5 There is a related but even more profound transition underway.

Genetic engineering, itself a technology of extraordinary potential,

represents a step towards a yet more powerful new technology: molecular engineering. Drexler (1996) has noted that molecular en

gineering, or nanotechnology, will allow the construction of repli

cating molecular assemblers and disassemblers, which will in turn

allow the construction of virtually anything that can be designed, from a wide range of source materials, thus resolving most remain

ing physical constraints.

The full impact of nanotechnology still lies some years ahead.

The general trend, however, is clear. It is likely that, in future, in

creasing value will be attached to the knowledge component of a good or service rather than the physical component. In electronics, for ex

ample, the physical content of metals and polymers is being con

tinuously reduced, and could in principle fall by perhaps another

two orders of magnitude even on the basis of existing technology. What matters, of course, is the knowledge embodied in the assem

bly. Similar principles apply in biotechnology. Microfabrication

technologies offer much more extreme examples, as there is a very clear penalty attached to mass, and nanotechnologies will virtually eliminate the significance of the physical inputs.

It is possible, therefore, that we are at an early stage in a deci

sive transition from an era of materials-based economies to a new era

of knowledge-based socio-economic systems.

5 Interview with Sheikh Yamani reported in the Observer, 14 January 2001




Implications for commodity prices

As cleaner production systems are further developed and deployed, and as promising new semiconductors, microfabrication techniques and biotechnologies mature and come to market, average resource use efficiency will rise, which will generate a range of economic and environmental benefits. Studies indicate that most of the immediate economic benefit, however, stems directly from reduced input vol umes and costs, which will weaken demand for virgin materials and

thereby further accelerate the historical decline of commodity prices (CEST 1995a and 1995b).

The economic and environmental benefits of this transition will therefore largely accrue to the consuming nations, while the imme diate prospect for some commodity exporting nations is a loss of

export revenue. For many developing countries, therefore, the pro

gressive dematerialisation of major sectors of the world economy will present a number of serious transitional difficulties. Further falls in commodity prices are likely to squeeze out the remaining high cost producers, leaving low-cost producers with the remaining mar

ket. In the case of bauxite-alumina, for example, most future price scenarios suggest that Australia, with the lowest production costs for oauxite, will be able to continue to export this commodity

profitably, but countries such as Jamaica, with relatively high pro duction costs, may be vulnerable. The recent decision by Alean to

expand their operations in western Australia and divest their plant in Jamaica reflected this growing disparity: their overall costs of

production in Jamaica were almost 50% higher than in Australia.6 These developments will have a particular impact on regions

such as sub-Saharan Africa, where commodities still account for

6 In 2000, the world average cost of production was about $US130/tonne. The av

erage cost of producing alumina in Jamaica was $140-150/tonne, compared to

$100-110/tonne in Australia. Production costs of $150/tonne and a market price of $175/tonne gives an operating margin of $25/tonne, compared with the mar

gin of $65-75 achieved elsewhere. In addition, it is in principle necessary to re

tain about $20/tonne for the level of re-investment required to maintain existing assets. Actual expansion requires further capital retention. Operating costs of

$150/tonne and a retention of $20/tonne for maintenance gives a total cost of

$170/tonne, which leaves a margin of just $5/tonne.




about three-quarters of export earnings. As these countries also have

limited human, capital and technological resources, it will be par

ticularly difficult for them to develop higher value-added alter

native exports.

The problems of managing commodity export-dependent economies

In the medium term there will, of course, continue to be marked

fluctuations in the prices of most commodities. Many prices have

now recovered from the trough of early 1999, and further increases

are expected in the short term.7 Largely as a result of these higher

commodity prices, economic growth rates in sub-Saharan Africa have

again started rising. However, these higher growth rates will be tran

sient in proportion to the extent that these economies continue to be

primarily dependent on commodity exports, as they will then also

tend to follow commodity prices back down.

For the foreseeable future, it is likely that the general baseline

trend of falling commodity prices will not just continue, but will

accelerate, partly as a result of the new technologies already in the

pipeline. As a result, the World Bank is currently predicting lower

real prices for most commodities in 2010 than in 1997 (reported in

the Economist, 1999).

Any nation that depends on commodity exports for a high per

centage of foreign revenue will be vulnerable to this continuing de

cline in commodity prices. There are, unfortunately, several addi

tional factors that make the task of managing the economy of any such nation (including any strategy to reduce dependence on com

modity exports) particularly difficult.

Commodity market cycles

Prices have been depressed recently by increases in supply. These

increases in supply result from increases in capacity that were

planned when commodity prices picked up in the early 1990s, but

7 Reuter's annual poll of metal price forecasts of January 2000 suggested that the

price for aluminium, for example, was set to increase for the next two years (re

ported in the Financial Times, 12 January 2000).




which have only recently started to come on stream. This highlights another important feature of commodity markets: the inherent lags involved in increasing the production of most commodities typi cally impose a large, cyclical fluctuation on prices. It takes at least one growing cycle to increase crop production, and years to open a

new mine, build a new ore processing plant or find, survey and de

velop a new oil field. High commodity prices encourage investment, but there are usually significant delays before these investments can

generate results. Eventually, the investments will result in increased

production, which will then bring prices back down. If demand has

slowed or fallen in the meantime, of course, the market may then be

oversupplied, which will depress prices further. A sustained pe riod of Jow prices will deter investment, force inefficient producers out of the market, and lead to the closure or mothballing of some

plants, thus reducing supply. This will tend to push up prices (espe

cially if demand also picks up again), thus starting a new cycle. As a

result, production levels for many commodities will track market

prices, with a lag that ? as Tustin (1952) and Bellany (1997) have

pointed out ? effectively guarantees relatively large oscillations.

Extraneous factors

There are therefore two relatively predictable underlying variables

driving the market price of many commodities: the long-term trend

decline associated with the introduction of new technology and struc

tural change in the industry, and the commodity price cycle. There are also, however, more short-term and less predictable extraneous

factors, some of which can superimpose sharp fluctuations on mar

ket prices. The explosion in the Gramercy alumina processing plant in the US on 5 July 1999, for example, temporarily removed capacity from the market and reduced exports of bauxite from Jamaica over

the following year. Similarly, an outbreak of qvil unrest might force multinational corporations to shut down their production in the

country concerned, or a producer cartel such as OPEC might decide to force up prices by reducing production. Natural events also shape

markets: an unusually cold winter, for example, will increase de

mand for fuels. Alternatively, new environmental constraints might be imposed. Growing concerns about global warming, for example, might lead to government action to reduce carbon emissions, which




would then impact on the price of hydrocarbon commodities. Thus (pseudo) random shocks can be superimposed on the

trend rate, which makes the task of managing the economies of coun

tries that are overly dependent on commodity exports particularly difficult (Clayton 2000). In the most extreme cases, where a coun

try's foreign revenue derives largely from the sale of one commodity (Guinea, for example, derives some 85% of foreign revenue from

exports of raw bauxite, while countries such as Libya and Iraq are

largely dependent on exports of oil) the economy tends to work on

a 'stop-go' basis, with general business activity slowing markedly when the market price of the key commodity falls and foreign rev

enues decline.

The aluminium industry provides a recent example of several

of the above effects. The former CEO of Alean recently reviewed

some of the factors shaping the market:

Despite all the ups and downs in the world economy, Western World aluminum consumption has continued to rise, increasing by about 25% ?- from about 20 million tonnes to 25.5 million tones between 1990 and 1997. That

works out to a compound annual growth rate of 3.5% for aluminum consumption, versus growth of only 2.5% for world GDP over the same seven-year period. Looking ahead, current forecasts call for overall Western World

consumption to rise from the current level of 25.5 mil lion tonnes to 32 million tonnes by the year 2004. That

would translate into compound annual growth of 3.3% for aluminum -

exceeding the annual growth rate of 3% forecast for world GDP between now and 2004. So over the next seven years, we expect our industry to outstrip the global economy in terms of growth

- just as it did

over the past seven years. [But] those reasonably posi tive statistics.. .don't tell the whole story of aluminum in the 1990s. Beginning in 1991, with Perestroika and the

subsequent collapse of the old-style Soviet economy, massive shipments of Russian metal began pouring into the international aluminum market. Aluminum was the

single Western industry most hard hit by the Soviet up heaval. Exports from Russia and other members of the Commonwealth of Independent States (CIS) zoomed from practically zero to a level of about 2.5 million tonnes ?more than 10% of the market. Not surprisingly...the sudden influx disrupted markets, resulting in a steep decline in prices as inventories increased. Specifically,




from 1990 to 1993 average aluminum prices fell over 35% in real terms. Can you imagine if that sort of jolt occurred in your line of business ? and at a time when much of the Western World was in recession?8

The implications for Jamaica

As indicated earlier, the long-term decline in commodity prices

represents a serious problem for a number of developing countries, as all but the most efficient, low-cost producers will eventually be

squeezed out of the market. Several of the current trends pose seri ous transitional problems for Jamaica. Jamaica's bauxite-alumina

production costs are now significantly higher than in western

Australia, banana production costs are more than double those in

Honduras, and sugar production costs are now over four times

higher than those of efficient producers elsewhere and about three

times the actual market price.9 This means that Jamaica must either

reduce production costs of these commodities to competitive levels, or accept the eventual loss of these markets to more efficient

producers. The negotiations with regard to the Cotonou accord, the

remaining preferential trading arrangements with the EU and the

increased competition from the LLDCs may provide a short-term

extension of market access,10 but this will not provide a solution to

the basic problem of uncompetitive production costs.

At this stage, it seems unlikely that costs will be reduced to the

point where Jamaica could again be fully competitive in the

8 Speech titled "The Roller Coaster of Change: Looking Back, Looking Forward"

by Jacques Bougie, President and Chief Executive Officer of Alean Aluminium

Limited, to the Board of Trade of Metropolitan Montreal, Montreal, Canada, 27

January 1998.

9 Industries cannot normally survive when the costs of production exceed the value

of the product, at which point they become net destroyers of value. Jamaica's

sugar industry has survived, however, at least to date, because it is a major re

cipient of EU and domestic subsidy. As the subsidy also exceeds the value of the

output, Jamaica's sugar industry has effectively become a mechanism for con

verting EU and domestic tax revenue into a number of largely low-waged, low

skill jobs in an industry that does not appear to have a future.

10 The EU's support for preferential trade arrangements has been undermined by their perceived failure as a stimulus to development. An EU green paper in 1997 notes that:




commodity markets. The cost structure, labour issues, market con ditions and other circumstances vary for each commodity, but

Jamaica's mining and agricultural operations are small by world

standards, with relatively high costs, low per capita productivity, and consequently slender margins. It would, of course, be possible to make improvements in these areas, but this would not be suffi cient. It would be necessary to improve more rapidly than compet

ing suppliers, who ? in an intensely competitive environment ?

are constantly expanding, innovating, and reducing costs. At the

moment, many of the productivity and cost disparities are actually widening, which suggests that Jamaica is falling further behind and

may eventually be supplanted in the commodities markets by lower cost producers.

Even apparently negative changes in the external environment can be productive, however, albeit perhaps in the longer term, by spurring the development of new industries and the (overdue) switch out of declining industries. A sustained fall in the price of sugar, for

example, was an important factor in Brazil's decision to encourage the development of an ethanol industry. This created a downstream

market for sugar as an industrial crop, thereby providing a viable alternative to increasingly uneconomic production for consumption.

The important point about the current changes in the external environment is that they are being driven by a powerful confluence of economic and technological developments, which means that the

pace and extent of change are likely to continue to increase. It also

ACP share of the EU market declined from 6.7% in 1976 to just 3% in 1998.

Just 10 products accounted for 60% of total ACP exports to the EU. Per capita GDP in sub-Saharan countries covered by the trade terms grew by just 0.4% per annum over the period 1960-1992, compared with 2.3% for the

developing countries as a whole. There is therefore little evidence that the trade terms have either (a) enabled

ACP countries to increase their share of the European market, (b) helped ACP countries to diversify their economies or (c) assisted in the creation of a positive dynamic for growth. It has been suggested recently that the preferential trade terms have had the unintended effect of encouraging countries to persist in eco nomic activities in areas in which they had no real competitive advantage, dis

couraged diversification and allowed over-manning, thereby postponing the in evitable accommodation to market reality to the point where the adjustment will now be more painful.




means that there will be many significant discontinuities in the years ahead, with the array of market opportunities and constraints con

tinuing to transform as new technologies are developed and dis seminated.

The critical task facing Jamaica and other developing coun

tries, therefore, is not to manage a difficult transition to a new set of

stable trading arrangements, but to foster a culture of change and to

build the capacity to respond to change, as this represents the best

strategy for surviving and thriving in a rapidly evolving external environment.

This will in turn require a number of interlinked changes in

current political, business and institutional cultures and structures, some of which are reviewed below. The management of this process

must itself be both dynamic and flexible, as the nature of the task

and the associated priorities will themselves change over time. In general terms, the market trends and technological devel

opments reviewed earlier suggest that the future for small island

nations such as Jamaica must be based on:

Supplying niche markets (characterised by low volumes,

high margins, and competition on the basis of quality), rather than commodity markets (characterised by high volumes, low margins, and competition on the basis of

price). Product and service differentiation, to establish a clear role within those niche markets.

Capturing an increasing share of the total value by add

ing value to goods and services before export. This is, of course, an obvious conclusion. The difficulty, as

usual, lies in implementation. Implementation (especially when a

significant switch in strategy is entailed) often requires overcoming

organisational difficulties and inertia, raising capital, remedying skill

deficits and shortages, acquiring contacts, building new infrastruc ture and so on. Product and service differentiation adds an addi

tional level of complexity to this process, as it requires sophisticated market analysis, particularly with regard to tracking and anticipat

ing market trends, and an equally sophisticated analysis of current

capability and potential obstacles to progress. This is because op tions for product and service differentiation are not necessarily




equally available to all; some will inevitably be better positioned than others to access particular market opportunities. Good timing is also vital: products can fail by being too far ahead of their time as

well as by being too far behind. This is one reason why product and service differentiation can provide significant first-mover advan

tages; there may be few rewards for the procrastinators or over

cautious once the first movers have established their brands and

secured the contracts to supply.

Building a skill-based economy

In some sectors, Jamaica already has a strong basis on which to build.

Tourism, a classic service sector activity, is now Jamaica's dominant

industry, bringing in over half of all foreign revenue. The industry does require significant investment, rejuvenation and repositioning, and has to address a number of serious social and environmental

issues, but all of these problems are ? in principle ? solvable. Pro

vided that the immediate problems are solved, the industry is clearly

capable of considerable further expansion. What is proposed in this paper, however, is rather more pro

found: that Jamaica should look to develop skill-based activities across all major sectors in order to restructure and transform the

economy.

This will require addressing a number of issues simultaneously.

Clayton (1997) notes that any economy is underpinned and imbued

by social values, codes of behaviour and ethics, which are in turn

reflected in the structure and functioning of public sector institu

tions and private sector firms. If Jamaica is to develop a skill-based

economy, therefore, it may be necessary to adopt a number of meas ures as part of an overall strategy to remodel the key economic, social and institutional factors that will be required to provide the

necessary underpinning. There are several possible models. The South East Asian

nations, for example, have substantially restructured their econo

mies. Several have moved decisively into high value-added,

high-technology sectors, and the majority have ? even taking the recent world financial crisis into account ? demonstrated high, robust economic growth rates.




The Nordic countries provide another possible model. They are all relatively small countries, in terms of population. Some ?

such as Norway (population 4.4 million) ? have significant natural

resources, but others ? such as Denmark (population 5.3 million) ? do not. They all, however, have an economic philosophy that has

certain key features in common: high wages, an emphasis on high

quality production, high skills and high levels of trust in the

workplace. These factors are mutually reinforcing. High wages, for

example, create high levels of disposable income, which support the level of consumption required to absorb high quality (and ex

pensive) consumer goods. These countries also tend to have high levels of taxes, but these support high levels of investment in educa

tion, public infrastructure and social welfare. The Nordic economies are generally successful and interna

tionally competitive, in spite of their high labour costs and high taxes.

They represent just 6% of the population of Europe, but they are

home to 10% of the biggest and most successful European compa nies (Financial Times FT500 survey, 2000). For example, the largest manufacturer of mobile phones in the world ? Nokia ? is based in

Finland (population 5.1 million), while the third largest ? Ericsson

? is based in Sweden (population 8.9 million). The competitive success of the Nordic economies, with their

high labour costs and high taxes, is based on a small number of key factors. Of course, high levels of social cohesion, low rates of crime, a strong legal framework and stable macroeconomic policy are very

important, and provide a general underpinning. One of the most

important specific factors, however, is the existence of industrial clus

ters in economically significant areas. Finland, for example, hosts not just the mobile phone manufacturer Nokia, which is currently the third biggest company in Europe, but also Sonera, a mobile phone operator, which was first listed in 1998 but is already the thirty sixth biggest company in Europe. These clusters tend to be geographi cally concentrated, and have a strong emphasis on research, learn

ing and development and high levels of inter-company information

exchange.




The importance of clusters in economic development

Many recent studies of economically successful regions and coun

tries have emphasised the importance of clusters as the engines of

economic growth. Clusters typically consist of a geographically close

group of companies, the majority working in the same sector. The

effect of a strong cluster is to accelerate innovation, the formation of new businesses and economic growth rates. The success of the Sili con Valley cluster around Stanford University in informatics, the

City of London in international share dealing, hi-tech entrepreneur

ship in both Massachusetts in the USA and Baden W?rttemberg in

Germany, Switzerland in pharmaceuticals and the north of Italy in

precision engineering are all examples of this effect.

There are also examples of clusters in developing nations, such

as the petrochemicals industry in Trinidad. Starting with natural

gas, satellite activities developed in the production of ammonia,

methanol, urea, and liquefied natural gas, while low-cost energy

permitted the development of smelters. The successful development of a very strong information technology and back office function

cluster in India is even more remarkable, as India has been notably successful in moving down the value chain, starting from basic back

office functions, and moving into top-end high margin activities.

The industry has been expanding at approximately 50% per annum

for over ten years, and there is large and as yet untapped human

capital to permit future expansion. A recent review in the Economist

(2001) notes that estimates as to the eventual contribution to national

development range as high as an effective tripling of India's GDP,

although most estimates are more modest.

India has clearly established the necessary critical mass of hu

man, financial and technological resources and business contacts to

form a dynamic cluster. The developments in India also highlight the process by which leads, once established, can become locked in

and stable. As the industry goes from strength to strength, it will

inevitably set a higher and higher standard for any potential com

petitor, thereby making it harder to potential new entrants to tap into the same market, while established firms in India are already

seeking to protect their position by erecting additional barriers to

entry.




The majority of clusters in developing nations are relatively small-scale, however, albeit economically vital: such as cottage in

dustries in Indonesia, garments and fishing in Kenya, clothing in

Peru, footwear in Mexico, India and Brazil, knitwear and tannery

products in India, and surgical instruments in Pakistan (various stud

ies reported in World Development, 1999). Clusters work, essentially, because they bring together the key

players in economic development. A successful cluster consists of a

dense local network of venture capitalists, entrepreneurs and tech nical innovators. Geographical closeness (especially in conjunction with a range of diverse business and leisure meeting venues and

opportunities) allows numerous, frequent interactions between these

players, in many different social and business combinations. Handy has pointed out that of the top 30 Internet entrepreneurs in the UK, for example, 25 live within half a mile of Notting Hill, in London.11

This dense clustering means that anyone with a good techni

cal idea is no more than one handshake away from both an entre

preneur and a venture capitalist ? and vice versa. This creates a

fertile breeding ground for new business start-ups. The 'boutique' environment is important, as it fosters, for example, venture capi talists who have detailed, specialist knowledge of particular lines of

enquiry, know the individuals concerned, and are therefore able to

spot potential commercial winners at an oarly stage. The success of

the Silicon Valley cluster can be attribute d, in part, to the willing ness of the venture capitalists there to take equity stakes on a long term basis and to retain a close involvement in the commercial de

velopment of software concepts, frequently with a mentoring role.

The number of formal and informal interactions provides a

rich information environment. Important technical and market in

formation and ideas can be gleaned, checked and cross-checked from a range of different sources, and can be assembled into creative new

opportunities for projects. Clusters also represent a wider 'gene pool' of skills than can

be located within any one company. This is especially important in

11 Charles Handy, in Alex Hunt, "Visions of Business in the 21st Century/' BBC, 1 November 1999.



Developing A Biolndustry Cluster ?n Jgmaica: 19

technology-driven, rapidly developing markets, as the economic

terrain within which companies have to operate is particularly fluid. A new opportunity

? or challenge ?

might oblige a company to

acquire new skills at short notice. In a successful, dense cluster, these new skills may also be no more than one handshake away, which means that they can be rapidly traced and bought in.

As clusters become more successful, they tend to become mag nets, drawing in an expanding group of people with similar ideas

and ambitions. The Silicon Valley cluster, for example, had a small

original nucleus at Stanford University, but has now expanded enor

mously and spread widely across California and Oregon. As clus

ters become centres of excellence, developing and extending their

lead over other areas, their wealth, infrastructure, technical ability and sophistication multiply accordingly, thus widening the gap still

further. Thus leads, once established, can become relatively locked

in and stable.

The City of London provides a good example of this effect. As

of November 1998, the value of the domestic market on the London

stock exchange was very similar to that of Tokyo, at ?1.3 trillion.

This was only just over one-fifth of the value of the domestic market

on the New York exchange, which was worth ?5.4 trillion. The situ

ation on international markets, however, was completely different.

In that year, London turned over ?722 billion in international share

trades, about two and a half times the volume in New York. In fact, London had a larger market in international share trades than the

rest of the world's major bourses (New York, Chicago, Nasdaq, Frankfurt, Paris, Hong Kong, Tokyo and so on) put together. The

relatively small domestic market of the UK is no longer a limiting factor, as the City has transformed itself into a dominant global

player. This success can be attributed largely to the cluster effect, as

the reason why many financial firms with significant international

market trading operations prefer to trade through London is simply that the other financial firms with significant international market

trading operations are also represented there.

To remain dominant, however, clusters must retain their dy namic drive to innovate, staying at the cutting edge of their sectors.

This means, in practice, that they must be able to constantly re-in

vent themselves. The City of London, for example, in spite of its




dominant position on international markets, was relatively late in

adopting electronic share dealing systems. As a result, the London

Stock Exchange is currently considered to be potentially vulnerable to take-over.

Within a successful cluster, there is usually both competition and cooperation. In a number of cases, successful firms that

compete aggressively with each other in some areas will trade, par

ticipate in joint ventures, share experiences and technologies and

otherwise cooperate in others. In many cases, cooperation can

generate clear mutual benefits in reducing the risks involved in in

novation. Any research strategy will fail, on occasion, with firms

obliged to write off capital invested in aborted projects. A broader

search strategy therefore represents a hedge against risk. No one

firm, however, may be able to mount a sufficiently broad search

strategy. The innovation model adopted in Japan, therefore, involves a defacto division of labour between separate firms, coordinated by the Ministry of International Trade and Industry, with failure for one firm in one endeavour being compensated by success in another.

On a less orchestrated basis, Boeing and Airbus ? for example ?

compete aggressively on sales, but co-operate and pool information on safety engineering.

The strategic approach

The starting point in the formulation of any long-term strategic plan for national development must lie outside Jamaica, in an assessment

of the changing nature of global markets. It is particularly impor tant to examine the way in which key sectors of the global economy are currently being restructured, to review new technologies and assess emerging market opportunities. In that way, it would be pos sible to devise a plan to insert Jamaica into this process by building a new role as a market supplier (and possibly market-maker) in a

high-growth sector. It may thus be possible to develop a lead, then

to translate that into a strategic position of competitive advantage. The strategy for Jamaica's transition to a skill-based economy

should be based, therefore, on the identification of clear external

market opportunities which would allow the development of knowl

edge-based business/industrial clusters.




Emerging opportunities

There are several such opportunities. One of the most promising is

the market for a range of biological extracts and derivatives. These

include:

The existing markets for flavourings and essences.

The potential market for industrial crops. The emerging markets for nutraceuticals and functional

foods.

These overlapping markets are reviewed in more detail below.

1) Flavourings and essences

The major customers for bulk flavour concentrates are predominantly food and beverage manufacturing and processing firms. Demand is

growing, and the market is becoming more sophisticated and di

verse. The relatively rapid growth in the Hispanic consumer market

in the USA, for example, is generating increased demand for fla

vour concentrates from tropical and sub-tropical plants (currently used in a range of fruit drinks and food products).

A number of Jamaican fruits and vegetables are noted for their

intense, complex flavours, which indicates a relatively high ratio of

flavour-endowing ingredients to water in the plant juices, with a

wider range of flavour notes. Rather than compete directly in the

fresh produce market, therefore, a better strategy might be to go down the value-added chain by extracting and exporting, in a

low-volume, high-value concentrated form, the various flavour

ingredients.

2) Industrial crops

'Industrial crops' refers to the managed production of biological materials for industrial processing into non-food products. There

is, of course, a long history of development in this field; timber has

been an important construction material since the dawn of civilisa

tion, and remains so today. Flax, cotton, rubber and many other

materials have similar traditions. The next phase of development, however, is likely to involve a number of very significant quantita tive and qualitative changes.




Recent research and development work by Mercedes-Benz do

Brasil, for example, involved manufacturing car parts from a

mixture which included natural fibres. The first phase involved

pressing back walls, pillars and door panels from jute fibres (from

recycled sacks), using polypropylene (also from recycled sacks) as

the binding agent. Mercedes-Benz do Brasil now use rubber as a

binding agent for coconut fibres in headrests and seat backs, and

sisal, jute and cotton for interior panels. Mercedes-Benz in Germany are now making rear shelves and insulating mats from shredded

cotton, and upholstery from coconut fibres and latex. The interior door panels in the Class C cars have, since 1994, been made from

flax-sisal mats covered in epoxy resin (they are 20% lighter than the

original panels, and perform better in crash tests because they do not shatter).

The Plastics and Elastomers Department in Mercedes-Benz Ma

terials Technology Centre are now moving beyond the use of natu

ral cellulose fibres as fillers to use them as substitutes for glass fi

bres as reinforcing fibres.12 Natural cellulose fibres are an attractive

option for a number of reasons:

The world's plants produce some 10 trillion tonnes of them

each year, enough for any likely amount of use.

They cause less wear in processing machinery than glass fibres, and they do not have the same association with res

piratory and other health problems. Their tubular structure provides both good insulation

against heat and noise and active humidity regulation, ideal

for upholstery. Some natural fibres exhibit tensile strengths that exceed

that of steel cable, while remaining extremely flexible, a

12 It is the combination of natural fibre and plastic matrix that determines the prop erties of a component, and the key technical task is integrating the two. This is

quite difficult, as natural fibres are heat-sensitive; lignin (which binds the cellu lose chains) degrades above 230?C. There are currently two solutions to this prob lem; one is to use a pressure-setting plastic (such as polyurethane) which can be

processed into rigid foam components at low temperatures, the other is to use

thermoplastics (such as polypropylene) with additional bonding agents to assist

integration. The first route is limited to rigid products with little impact resist

ance; the second route is more promising but requires changing processing pro cedures in order to avoid thermal stress to the natural fibres.




highly desirable combination of characteristics. Ramie (an Asian nettle) has the strongest plant fibres, and is currently used in the manufacture of parachutes and bank notes. Flax

is considerably weaker, at only half the strength of fibre

glass, but it also has only half the weight of fibre glass, which means that flax-based components can be made that are as strong as glass fibre counterparts on a weight for

weight basis.

They can in some cases be recycled and re-used without

significant deterioration in quality. Thus the next phase will be to produce parts entirely from re

newable sources. Mercedes are already manufacturing brake hose

out of polyamide 11, which is manufactured from castor oil. It is not

yet clear, however, whether it will be economically viable to manu

facture polypropylene or polyurethane from plant-seed oil, but the

vision now is of eco-composites; natural fibres in a biological matrix

derived from plant starches or tree resins (Daimler Benz High Tech

Report, 1995). Several research programmes are already underway. The Uni

versity of Delaware, for example, has developed a process to re

place existing petrochemical-based polyester, epoxy and vinyl ester

resins and composites with resins and composites manufactured

from soya oil. Parts engineered from soya oil give equivalent strength for about 25% of the weight of parts manufactured from petrochemi cal resins. Corn oil appears to have a similar potential as an

engineering material. The Delaware project employed glass fibre as

the reinforcing matrix, but the intention is to replace this with plant fibres as well. It may prove possible to scale up to produce even

structural engineering components entirely from plant fibres and

resins.

The use of natural fibres, oils and resins as eco-composite

engineering components offers completely new prospects for agri culture. There is an immense potential market for such industrial

crops, many of which could be advantageously produced and

processed in tropical and sub-tropical regions. This will in turn

allow farmers to expand beyond their traditional role at the base of

the food industry and evolve into increasingly skilled phyto-techni cians as they become part of a larger industrial complex.




3) Nutraceuticals and functional foods

One of the most significant current changes in the restructuring of

the global economy is reflected in the wave of consolidations and

mergers ? in the aluminium, iron and steel, cars, chemicals, food

and pharmaceuticals sectors, amongst many others ? as economic

logic compels companies to scale up to deliver their goods and serv

ices on a truly global level (sometimes by merger and acquisition of

the smaller players). For example, the Economist (2000) notes that

just three companies now dominate the world's iron-ore business.

Similarly, just six volume car manufacturers now control 70% of the

total world market for cars (the remaining 30% is divided up amongst over 30 smaller players), and this percentage is predicted to increase

further.

A similar logic is driving the consolidation of the pharmaceu tical industry. A pharmaceutical company will typically start assess

ing approximately 10,000 molecules for every one that finally gets

brought to market as a product. Parlange (1999) has pointed out

that - as a result of the need to assess many possibilities for each

viable product - a new drug takes, on average, 12 years and costs

$300-400 million to develop. There is an enormous 'hidden' cost,

therefore, for the R&D required to develop a given new product and get regulatory approval, which only the largest companies can

bear - which is why pharmaceutical companies increasingly feel that

they have to become even larger to survive.

One development of particular interest in this regard is that

there are early signs of a partial fusion of interests of the food and

pharmaceutical industries, which may open the way to even larger cross-sectoral mergers and acquisitions. This particular development is particularly promising, in that it also holds out the promise of new economic development opportunities for countries such as

Jamaica.

Leighton (2000) has noted that the global food and pharma ceutical industries are being transformed by a series of simultane ous events:

One is the growing strength of the consumer culture, which

is now driving political, social and economic changes around the world. The market for foods and pharmaceuti cals is, as with other sectors, increasingly being driven by




consumer lifestyle needs. It may seem surprising that this

should be true of the pharmaceutical industry, which is

traditionally associated with health care, but among the

biggest selling drugs today are those designed for lifestyle enhancement, such as Prozac (used for mood enhancement, as well as dealing with stress and depression) and Viagra (used for sexual enhancement, as well as redressing erec

tile dysfunction).

Demographic changes (increasing life expectancy and a fall

in family size) are causing a rise in the average age of the

population in Europe, North America and Japan. As a re

sult, there is an unprecedented move amongst consumers

in the world's three largest markets towards fitness, self

care, better nutrition and a more preventative approach to

managing the age-related degenerative diseases. At the

same time, these consumers have adopted a fast-paced and

demanding lifestyle, and are not prepared to compromise on this in achieving their new health goals.

Many of these consumers in the USA have, to date, had to

go outside the mainstream in order to meet this need.

In 1996 US consumers spent $15 billion on general practi tioners, but spent $80 billion on alternative medicines, in

cluding dietary supplements. This is forcing the food and

pharmaceutical industries to respond, as they have noticed

that in general, anything that gives the consumer more

control and more ability to self prescribe markets well.

As a result of both the demographic changes and rising consumer expectations, there is growing economic pres sure for a move to a more prevention-based healthcare

model. The US healthcare system cost taxpayers over $1 trillion in 1996. In 1998, retail pharmacy prescription drug sales alone totaled $102 billion, an 85% increase in only five years. It has also become clear that (a) promotion of healthier life

styles can improve and extend lives while reducing healthcare costs, and (b) improved nutrition is one of the

keys to more effective prevention. For example, one study noted that a daily dietary supplement of vitamin E could




save an average $578 per patient by significantly reducing the incidence of non-fatal heart attacks. This indicates the

extent of the potential savings per patient and on aggre

gate, as a year's supply of micronutrient supplementation will typically cost less than hospitalisation for one day. The net result of all of these changes and trends is the emer

gence of the nutraceuticals and functional foods subsector, which is where the distinction between foods and phar maceuticals is becoming increasingly blurred. Increasingly, consumers (with high pressure lifestyles, but concerned

about their health) are looking to enhanced food products to deliver preventative health care, improved health status and increased life expectancy. There is a rapidly growing market for such functional foods, defined as those

purchased primarily because they deliver an additional

health or nutritional benefit. Sales of functional foods now

exceed $80 billion worldwide, with an additional $10 billion or more spent on nutraceuticals and other dietary

supplements in medical formats. In the USA, nearly $15 billion was spent on functional foods in 1997, and the rate

of growth is now over 12%13 (Datamonitor, 1997). Similar rates of growth obtain in other major markets (Datamonitor,

1998). This compares very favourably with the relatively

sluggish 3% growth for traditional foods. Some projections

(assuming an increasing CAGR) indicate that the global market could be valued at some $240 billion by 2005.

These factors represent a very powerful combination of drivers

forcing the pace of development of a new, global market for

nutraceuticals and functional foods.

Definitions

Nutraceuticals and functional foods are new industries based on

recent advances in medical science and improved understanding of

human nutrition. There are a number of molecules, known as

13 Between 1992 and 1996 the functional foods sector in the USA grew by an aver

age CAGR of 12.9%.




actives, which are now thought to be able to significantly improve health status. Most of these actives are currently derived from food

plants. Many leading researchers in this field now believe that it should be possible to give effective protection against heart disease, stroke, dementia, osteoporosis and many types of cancer, for exam

ple, with a diet that contains elevated levels of these actives. These actives can be extracted from plants and given in medical formats

(nutraceuticals) or used as food additives in standard food products (functional foods) as a highly cost-effective way of raising the health status and average life expectancy of a population.

This should not be confused with traditional herbalism, for several reasons. One is that most of the plants of interest are actually food plants, not herbs. Another is that the new industry has a rigor ous basis in science, not tradition. A related reason is that the new

industry uses ultra-refined doses which contain nothing apart from the desired actives, whereas traditional herbalism uses materials with little or no processing and which therefore contain unknown quan tities of desirable (and undesirable) actives.

There are a number of both ingredients and finished products that could be advantageously produced and supplied to this new

market from the tropical and sub-tropical regions of the world. For

example:

Ginger contains flavonoids that have anti-inflammatory, vascular stabilising and anti-platelet effects. They can be used in the treatment of rheumatoid and osteo-arthritis, and they are likely to be cardio- and stroke-protective. Turmeric contains flavonoids that are anti-inflammatory, and also block tumour necrosis factor alpha. They are likely to find a use in the treatment of arthritis, asthma and ul

cerative colitis, and their properties also indicate that they will be cardio- and stroke-protective.

Sugarcane contains trimethyl glycine (betaine), which pre vents the build-up of the toxic amino acid homocysteine and thus protects against heart attack and stroke. This effi

cient methyl group donor also offers protection against cancer, liver damage and central nervous system degen eration. High levels of betaine are found in sugar bagasse, which is currently regarded as a waste product.




Banana contains various phospholipids, some of which may reduce the risk of heart disease, asthma and allergic rhinitis

conjunctivitis, especially when used in conjunction with

betaine. The highest levels of phospholipids are found in

the skin of the banana, which is also treated as a waste

product.

Kava Kava is already a commercially important source of source of actives with anxiolytic and anti-addiction prop erties. It is currently grown mostly in Hawaii, but could

probably be grown well in the Caribbean.

Preliminary estimates14 suggest that the potential share of world

market for standardised extracts from sub-tropical plants in the

Caribbean region could be in the range of 1-5% of the global ingre dients market, while the potential share of the world market for fin

ished nutraceutical and functional foods products could be perhaps 0.5%. The maximum value of these shares by 2005 would be $1.8

billion; approximately equivalent to the total foreign revenue gen erated by Jamaica's tourism industry and bauxite/alumina industry combined (these figures are purely illustrative, as it is likely to take at least 10 years to build a 5% market share).

A move to establish a solid presence in the new market place could therefore transform Jamaica's economic circumstances and

development prospects: The agriculture sector, which is still a major employer, is

in decline. The new export opportunities could help to

arrest and reverse this decline.

Diversification out of traditional agricultural areas into pro duction for high-value products such as nutraceuticals and functional foods would allow existing uneconomic crops to be replaced by crops with a higher economic returns, and create employment opportunities in a form of agri cultural activity for which there is a real and expanding

market as opposed to the protected and subsidised mar

ket for certain traditional agricultural exports. Instead of

exporting bananas for ripening, for example, it would be

14 Sources: Commercial and technical data, assessments and reports from Univite, Nutrinova (Aventis), the Leatherhead Food Research Institute, Danish Food

Group Consulting, Promar International Consulting, and Datamonitor.




possible to process the bananas in Jamaica, extract various

value streams (such as phospholipids for the pharmaceu tical industry, flavourings and essences for the food and

cosmetics industries and so on), and sell these extracts into

high-value, lucrative niche markets. The value of the ex

ports would be significantly higher while the weight would

be significantly lower, thus improving value to weight ratios, largely eliminating the transport cost penalty of

island production and greatly increasing profit margins. The potential customers in, for example, the nutraceuticals

and functional foods industry, typically require oleoresins or other processed fractions, standardised and refined to a

very high level of purity before export. This means that

both primary (production) and secondary (extraction)

stages would be based in Jamaica, thus capturing more of

the value-added. In the long term, it also may be possible to capture another value-added stage by expanding into

the finished products market.

Establishing a competitive position in the nutraceuticals

market

The nations of the Caribbean have certain natural advantages ? a

long growing season, high rainfall and consequent rapid rates of

plant growth offer favourable conditions for certain tropical plants with high levels of desirable actives ? but these conditions would

not, by themselves, be sufficient to guarantee a competitive posi tion. India, Africa and China are already suppliers to the

nutraceuticals and functional foods industry, for example, and will

in some cases be able to compete in the same product lines.

There are a number of species that are endemic to Jamaica, some of which may prove to contain valuable actives. Other species are not endemic, but may still contain unusually high levels of valu

able actives. The local variety of ginger, for example, is noted for its

pungency, which indicates a high flavonoid content. Either situa tion could give Jamaica a valuable lead time advantage, but this

would probably prove to be temporary as other countries could

replant with cultivars of the plants and varieties concerned.




The higher costs of production in Jamaica, however, would not necessarily be a serious impediment, as the ingredient cost in a

finished nutraceuticals product is typically less than 1% of the final consumer price. Thus India can produce ginger, for example, at about

1/7 of the Jamaican cost, but this advantage becomes less important (in comparison to other factors) when it has relatively little impact on the final price.

Thus the primary determinants of competitive advantage, in this case, are likely to be agility and marketing.

Agility It will be essential, in a dynamic and rapidly evolving field, to be

fully abreast of both the biomedicai research and the various factors

shaping the emerging market, so that the nascent industry can re

spond in a pro-active manner to anticipated consumer demands. This requires the development of a 'culture of change', in which the

industry is prepared to exploit a niche until the competition becomes too intense, then to move on rapidly to new outlets and products. This also requires that farmers, for example, must be advised to plant on the basis of forward market projections, a radically different dis

cipline from the traditional 'on a cart to market' model.

Marketing

Actives from Jamaica will, in most cases, be chemically identical to various actives produced elsewhere. In a consumer-driven market, however, this factor is usually less important than image (consider, for example, the 10-fold price difference between leading brands of

training shoes and otherwise identical clones). This highlights the crucial importance of branding, and of building on the Jamaican

image to establish a strong consumer demand for the Jamaican prod uct lines.

More generally, the process of product identification, devel

opment and marketing is fundamentally important, as it is with most consumer products. Markets must be identified and assessed, pro totypes developed, consumer reaction gauged, prototypes sifted and

modified, and so on, in an iterative process that eventually leads to the launch of a new (or modified) product.




Thus the key factor in securing and maintaining a competitive

position in these new markets is to develop strong relationships with

customers, brokers, and biomedicai research institutes. Product de

velopment and marketing is a two-way, interactive process. The

precise formulation of each product must be determined in close

collaboration with both the technical and marketing divisions of the

client firms. On the production side, it is essential to develop a mar

ket entry strategy, target a market share, secure a client base and

distribution channels, determine the optimal product mix, and agree

policies on branding, pricing and volume. With food ingredients, in

particular, both the reality and the image of product purity are vital.

Thus quality control and product consistency are of paramount im

portance, as well as reliability with regard to delivery schedules.

Developing a Biolndustry cluster in Jamaica: a step towards build

ing a skill-based economy

The market opportunities in flavourings, industrial crops and

nutraceuticals outlined above suggest a real opportunity to build a

Biolndustry cluster in Jamaica. Much of the infrastructure required (in terms of growing, handling, processing and storage facilities)

would overlap, as would some of the scientific and management skills, industry contacts and so on. This offers a range of potential

synergies, with the development of firms specialising in the differ ent market opportunities, competing for some contracts but cooper

ating across others to minimise their capital outlay and research and

investment risks.

These market opportunities could, with good management, be

used to demand-pull a process of economic restructuring that could

allow Jamaica to raise the skill level in the workforce, attract and

retain human and financial capital, and make a decisive move down

the value chain, thereby escaping from the 'commodity trap'. There are important practical issues, however, as to how to

stimulate, then lock-in this transition to a skill-based economy. The

skills, infrastructure, capital, market knowledge and contacts that

would be required to build a Biolndustry cluster are all either present in Jamaica, or can be fairly readily accessed. However, these factors

of production are currently dispersed across a number of different




institutions and firms. The problem, therefore, concerns the organi sation of existing assets.

Building a skill-based economy

Universities and research institutions are, typically, the main con

centrations of relevant knowledge and skill, especially in develop ing and transitional nations, and therefore have a crucially impor tant role to play in supporting and enabling a transition to a skill based economy. They cannot, however, drive this process. The dis tinction becomes clear when considering the failure of traditional

strategies for education and training, which have tended to focus on

increasing the supply of skilled and educated people into the

workforce. This approach has been criticised recently, on the grounds that there is little convincing evidence that the process of economic

development can be supply-pushed by education. An oversupply of over-qualified graduates in an economic recession can lead, in

stead, to a situation where many university graduates are unem

ployed or underemployed, and consequently disaffected, or driven to emigrate in search of better opportunities overseas.

rhe evidence suggests, rather, that education is demand-pulled by economic development. As economies strengthen and diversify they assume the inverted pyramid shape of a mature economy (in

which tertiary service sectors increasingly dominate secondary

processing and manufacturing sectors, which in turn increasingly dominate primary mining and agricultural sectors). As this happens, the demand for a widening range of increasingly diverse, specialist and sophisticated skills expands, which thus expands the range of

opportunities and demands for educational courses.

There is a more fundamental issue, therefore, as to how to en

courage entrepreneurship in knowledge- and service-based eco nomic activity, particularly in countries with a thin skill base in those areas. Classically, low business start-up rates tend to be associated with particular problems in translating ideas and interest into ac

tion. These problems can include a lack of the necessary skills and

resources, difficulties in obtaining finance, and a lack of personal or

business confidence. Such factors can make starting a business or

undertaking a new business venture less attractive both to entrepre neurs and to potential investors.




To change this pattern, it may be necessary to change attitudes towards entrepreneurship and private sector action more generally, to encourage more companies and individuals to become less risk averse and more entrepreneurial by making advisory and logistical

support more readily available, to increase the provision of venture

capital, to encourage and facilitate business start-ups, and to pro mote enterprise and wealth creation through the educational sys tem.

Financial institutions have a critically important role in this

process, and it is particularly important that they are well managed, have a strong professional ethos, and a clear set of long-term strate

gic goals. In a situation where countries are heavily indebted, and

governments are engaged in a constant struggle to meet their obli

gations, many otherwise attractive investments may be squeezed out by high-interest government bonds. Financial institutions may well prefer to deal in government paper, rather than tangible in

vestments, unless the investment can offer an unusually high and

rapid rate of return. This can starve the real economy of investment

capital, while simultaneously encouraging endemic short-termism, in which inherently riskier and more speculative ventures are pre ferred over relatively dull but worthy investments offering lower

returns. This pressure, in conjunction with weak or absent supervi sion, can foster a dysfunctional business culture and a "casino

economy" mindset, in which insider trading, conflicts of interest

and more direct forms of corruption become increasingly common.

Thus governments must take steps to ensure that public sector fund

ing requirements do not crowd out private sector investments, that

the financial services sector is properly regulated and supervised, and that firms adopt appropriate international standards with re

gard to corporate accounting and reporting procedures. There are also implications for corporate structure. Traditional

firms tend to have hierarchical models of organisation and job de

sign. They generally invest little in human resource development and training. The chain of command and the flow of ideas are

usually one-way. Skill-based firms, by contrast, tend to have flatter, more devolved management structures, invest significantly in hu man resource development and training, encourage various forms

of participation and entertain ideas from the different levels in the




company. Unfortunately, many Jamaican companies are currently

handicapped by a combination of poor labour relations, under-in

vestment, and a lack of strategic management skills, and do not cur

rently have good personnel and human resource management poli cies (Carter 1997). This suggests that a number of changes will be

required of management, the workforce and the unions in a transi

tion to a skill-based economy. The transition may be particularly demanding in a situation

where trade unions are generally reactionary, inflexible, resistant to

change, and quick to defend existing job demarcations, and where

the majority of members are low-waged and low-skilled. In such

circumstances, particularly in an economic downturn, unions will

tend to resist modernisation and mechanisation, being primarily con

cerned with the immediate job losses rather than the longer-term

potential economic gain. The situation may be further entrenched

when the union itself is not liable to pay benefits to workers on strike.

If the union representatives are insulated from the effects of their

decisions, they are more likely to call for a stoppage before fully

exploring other options. This implies that management must become more sensitive to the perceptions, needs and concerns of their

workforce directly, without the mediation of the union, and that

governments must assume a more focused role in educating unions as to the implications of liberalisation, changing technology, and increased competitive pressure.

The macroeconomic context is also important. Potential entre

preneurs also tend to become less risk-averse, and more willing to

engage in a business start-up, if the risk and consequences of mass

unemployment diminish. Different countries have adopted various

combinations of a more stable economic environment and a more

supportive welfare system in order to try to encourage this process. There are a range of similar issues concerned with social and

political stability, levels of corruption and the maintenance of law

and order, all of which bear directly on investment decisions. Insta

bility entails a risk that projects cannot be pursued to completion,

high levels of corruption are associated with high hidden costs ?

especially where dysfunctional public institutions create a constant

incentive for expeditious arrangements to bypass bottlenecks ? and

frequent or systemic failures of law enforcement leave investors




vulnerable to extortion or more subtle pressures to take on unneces

sary labour or pay 'social taxes' in order to prevent sabotage, the alternative being to absorb heavy costs for additional security. For

eign investors routinely take such factors into account, so that coun

tries can no longer compete on the basis of low wage costs alone.

Thus governments of developing countries, particularly those with

out significant reserves of strategic natural resources, must also take

steps to ensure that they can offer a reasonably safe, stable environ

ment for business development. There are even deeper issues as to the nature of a country's

political culture and the quality of its business management and

political leadership, and as to the extent to which a country is thereby able to shape its own destiny. The remarkable post-independence

development of Singapore demonstrates the vital role of political

integrity and capacity, and of determination, consistency and focus, in creating opportunities, attracting and utilising people of ability and talent, and creating a positive dynamic for development (Yew

2000).

Conclusion

In summary, therefore, a set of wide-ranging changes would be re

quired in order to foster and support a transition to a skill-based

economy. It would be necessary to develop a strong science base, an

entrepreneurial private sector and supportive government policies. This would be a challenging process. The alternative for countries

such as Jamaica, however, may be economic decline, environmental

degradation and social disintegration.

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