PIOJ Growth-Inducement Strategy - Planning Institute of Jamaica

For LAC businesses, the World Bank calculates that inventory costs equal 35 percent of
GDP, compared to only 15 percent of GDP for businesses in the United States. 43 This can
be explained by the fact that beyond the roads themselves, the storage networks of many
of the region’s countries are substandard, there is a lack of effective instruments for
financing inventories 44 , warehouses lack competition and the rates of storage space rental
are higher in LAC compared to other regions.
4.2 Performance of SMEs in Supply Chain Management and Logistics
Small and Medium Enterprises (SMEs) play an important role in any country’s economy
and contribute immensely to industrial development, exports and foreign exchange
earnings, and creation of employment opportunities. However SMEs present a very
distinct problem that is particularly relevant for Jamaica and the Jamaica Social
Investment Fund. Recent research shows that SMEs generally experience higher costs
related to freight logistics and value chain optimization. This is in part due to limitations
in load size and lack of access to warehousing; and particularly the technical expertise to
understand the significant effects that sub-optimal logistics have on all businesses. Many
larger companies invest in warehousing and modify their operations to permit JIT or
optimal delivery – particularly of agro-produce. However, SMEs are likely to suffer
proportionally higher product deterioration and higher freight costs which erode their
profit margin.
Generally, across the LAC region, there is a growing shortage of warehousing capacity in
the agricultural sector, which has proven to be particularly costly for small shippers. This
is broadly reflective of the situation in Jamaica where the majority of firms fall into the
SME category and where agriculture is the mainstay of many rural communities. From
the firm’s perspective, domestic logistics costs in LAC may be the largest single cost
element of the final price of a good and these logistics costs are most sensitive to the size
of the firm. Domestic logistics costs can total over 42 per cent of the price of firms’ sales.
By comparison, larger firms spend between 15 and 18 per cent of sales on logistics. The
higher proportion is explained by factors such as lack of access to warehousing, storage
and transfer facilities and the quality of the infrastructure and trucking services that link
rural markets, smaller towns, and secondary cities to large production and consumption
centers. (Vina del Mar, Chile, 2009)
The effects of internal logistics will now be examined on two specific sectors that have
relevance for the work that JSIF is doing in catalyzing development in poorer
communities and which also demonstrates the impact of internal freight logistics on
productivity and growth.
43
World Bank report: Logistics, Transport and Food Prices in LAC: Policy Guidance for Improving
Efficiency and Reducing Costs. 2009.
44
Proposals for collateralizing inventories have been completed under supervision of the PIOJ and now
await updated legislation for implementation.
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