War and Anthrax: Jamaica’s Tourism Season Drowns in America’s Twin Emergencies — November 2001

Publication Date: 3 November 2001 | Coverage Period: 3 October–2 November 2001 | Category: Monthly Review

Month in Brief

• The United States launches military operations in Afghanistan on 7 October, targeting Taliban and al-Qaeda infrastructure: the War on Terror has moved from declaration to active combat, and the global uncertainty intensifies.
• Anthrax-laced letters, postmarked from within the United States and targeting media organisations and political offices, circulate through October: five people die; the American public is gripped by a second wave of bio-terrorism anxiety that compounds the already-devastating post-September reluctance to travel.
• Jamaica’s north coast hotels report October occupancy rates between 25 and 35 per cent — catastrophic for an island whose tourism sector is the primary engine of economic activity and foreign exchange earnings.
• The United States enters what economists confirm is a recession: GDP contracted in the third quarter, investment has plummeted, consumer confidence is at a decade low, and travel continues to be avoided by a population still processing September’s trauma.
• Jamaica’s tourism board reports forward booking cancellations for November and December running at 40–50 per cent of what had previously been confirmed reservations.
• The NHT reports a significant slowdown in new mortgage applications through October as economic anxiety suppresses the demand for major financial commitments across Jamaica’s working population.

Housing Market Overview

If October was the month that turned the September shock into sustained crisis for Jamaica’s property market, November opened with no relief in sight. The events of the preceding weeks — the commencement of military operations in Afghanistan on 7 October, the anthrax letter attacks that spread through American institutions across the month, the confirmation of a US recession that had been building since March — represent a layering of emergency upon emergency that has put the United States into a state of sustained crisis that shows no sign of early resolution. And for Jamaica, whose economic fate is more tightly tethered to American confidence than to almost any other single variable, this is a compound disaster of the first order.

Jamaica’s residential property market through October has registered transaction volumes that are deeply below any comparable month in recent memory. Not since the worst of the FINSAC-era financial sector crisis in the mid-to-late 1990s has the property market been this quiet, and even then the causes were primarily domestic. This time the shock comes from outside, from events over which Jamaica has no control, which makes planning and prediction extraordinarily difficult. The market is not merely waiting for prices to find a floor; it is waiting for the world to stabilise sufficiently that buyers and sellers can make decisions with some confidence about the environment in which they will be living.

Kingston’s residential market has essentially suspended operation above the NHT-eligible segment. Properties priced at J$7 million and above are finding no buyers; vendors are pulling listings rather than testing the market at reduced prices. In the hill communities of St Andrew — Jack’s Hill, Stony Hill, Cherry Gardens — the market has reverted to something close to silence. These communities, popular with the professional class and with returnee diaspora members, depend on a level of economic confidence and long-term investment horizon that the present moment simply cannot support.

The north coast is experiencing its deepest property market depression since anyone working in the sector today can recall. St James, Trelawny and St Ann are not merely experiencing reduced demand; they are experiencing a suspension of economic confidence that touches every sector simultaneously. Hotels are empty; staff have been laid off; the small businesses and craft markets that serve visitors have no customers; and the property market that had been buoyed by tourism-driven investment and American interest in vacation homes has simply stopped.

Government Policy

Prime Minister Patterson’s government faces the most severe external economic challenge of his administration. The policy options are constrained in every direction. The fiscal position has deteriorated dramatically from even the pre-September baseline: tourism taxes, hotel levies, airport fees and the multiplier effect of visitor spending through the economy have all collapsed in the space of two months. The government cannot easily increase expenditure to offset the shock, because its access to financing is already stretched and the BOJ’s commitment to rate stability limits how much monetary accommodation is available.

What the government can do, and what it has been doing, is crisis management: working with hotel operators to explore emergency operating support, engaging with the Jamaica Tourist Board to accelerate promotional activity in markets less affected by the September shock — notably the UK and European markets — and seeking to reassure the public and the business community that Jamaica’s fundamentals are sound even as the external environment is deeply damaged.

On housing, the government has maintained its stated commitments to the NHT pipeline, but few new announcements have been possible in a month consumed by economic fire-fighting. The Ministry of Water and Housing has confirmed that existing NHT schemes will proceed, and that no currently approved project has been cancelled. This is important: stability of commitment to an already-modest programme is the best that can be offered when the government’s attention and fiscal capacity are overwhelmed by the scale of the tourism crisis.

There is growing pressure, including from business community representatives, for the government to consider some form of emergency fiscal support for the tourism sector — payroll support, tax deferrals, or direct operational subsidies for the most critically affected operators. The government is listening but has not yet committed. The fiscal arithmetic is very tight; any support package will require either additional borrowing or offsetting cuts elsewhere, neither of which is painless.

Construction Sector

October saw Jamaica’s construction sector continue the sharp contraction that began in September. Hotel and resort construction activity — which had been a mainstay of the sector in better years — has halted entirely. The north coast operators who commission refurbishments and expansions are in survival mode, not expansion mode; and the handful of planned new-build resort projects that were in various stages of planning and permitting as recently as August have been indefinitely suspended.

Private residential construction has also slowed significantly, though not to the same degree. The NHT’s scheme pipeline provides a floor beneath which activity has not fallen, and the self-build sector — driven by diaspora remittances and household savings — has continued at a reduced pace. Anecdotal evidence from contractors and hardware retailers across the island suggests that materials purchases for ongoing self-build projects have dipped by perhaps 20–30 per cent from pre-September levels, reflecting the combination of reduced income and increased uncertainty that is affecting household decision-making across the economy.

Government infrastructure projects have provided some continuity of work for contractors who would otherwise have lost all private sector business. The road improvement and public building programmes that were in progress before September have continued largely as planned, providing a residual base of activity. This is insufficient to describe the sector as functioning normally, but it has prevented the total collapse of contractor capacity that might otherwise have occurred.

Investment Climate

The commencement of military operations in Afghanistan on 7 October has added a new dimension to the investment paralysis that gripped global markets following September 11. The war is militarily necessary in the view of almost the entire international community, but it introduces a further layer of geopolitical uncertainty whose duration and consequences are impossible to predict. Investors who might otherwise have begun cautiously testing the market are watching the developing conflict with the same frozen attention that has characterised behaviour across every asset class since the autumn.

The anthrax letter attacks, concentrated in October and targeting media and political institutions with envelopes containing weaponised anthrax spores, have added a bio-terrorism dimension to American public anxiety that goes beyond even the fear of further conventional or explosive attacks. Five deaths from anthrax-related infections have been confirmed by this publication’s closing date; investigations are ongoing; and the sense that the United States is in a state of sustained, multi-dimensional emergency has deepened materially since September. This is not an environment in which American consumers are booking Caribbean holidays or committing to foreign real estate investments.

For Jamaica’s investment community, the rational response is what we are observing: a retreat to certainty, a preference for government paper over risk assets, a suspension of capital commitment pending visibility that simply is not available. The Jamaica Stock Exchange has continued its post-September decline through October; hotel-related equities in particular have suffered further falls as the market prices in an extended period of suppressed tourism. The property sector, being largely illiquid and infrequently traded, has not seen forced selling, but its value trajectory is clearly negative given the collapse of tourism-related demand and the paralysis of investment confidence.

Diaspora Activity

The diaspora is still absorbing the shock of September, and October has given it no respite. Jamaica’s communities in New York, Washington DC and other major American cities are navigating a landscape of grief, anxiety and economic disruption that has no precedent in their experience. The anthrax attacks have been particularly destabilising for communities in the Northeast, where several of the letters were directed, adding the surreal anxiety of biological contamination to the already-present fear of further terrorist violence.

Remittance flows appear to have held, remarkably, through October, though the data lag makes precise assessment difficult at this stage. The diaspora’s commitment to supporting families in Jamaica is culturally and personally deep; it has not broken in two months of external crisis. What has changed is the confidence of diaspora members to make larger, more discretionary financial commitments — land purchases, building decisions, property transactions — in an environment where their own economic circumstances are uncertain and the future of Jamaica’s economy is unclear.

There will be no meaningful diaspora tourism return to Jamaica in October or November. The Christmas visit may also be significantly reduced from prior years, as families who might have travelled make alternative arrangements given the persistent disruption to transatlantic and Caribbean air travel. The practical and psychological barriers to travel from the United States remain high, and they will not be resolved by promotional campaigns alone.

Affordability

Jamaica’s affordability crisis is structurally unchanged by the events of the autumn, but its human consequences are deepening. Thousands of households in the tourism sector — hotel workers, craft vendors, taxi operators, tour guides — have seen incomes collapse or disappear entirely. Many of these households were among those most actively saving toward homeownership, contributing to the NHT and accumulating the deposit savings that make mortgage applications viable. For those who have lost employment, the homeownership timeline has been pushed back indefinitely.

The NHT’s mortgage rates — 0 to 5 per cent depending on income level — remain the most important single affordability mechanism in Jamaica’s housing market. But accessing those rates requires maintained employment and continued NHT contributions; households who have lost income and interrupted their contributions will face delays in eligibility that compound their already difficult circumstances. This is not a design failure of the NHT; it is an inevitable consequence of a scheme that is tied to formal employment in a labour market where informal and casualised work is common and where external shocks can disrupt employment across entire sectors.

Looking Ahead

November and December are, in normal years, the months when Jamaica’s winter tourism season begins to build momentum — when the north coast hotels fill, when Kingston’s commercial activity picks up in response to visitor spending, when the economic confidence generated by a good tourism season spills over into real estate and retail. This year, none of that is happening on anything like a normal scale. The question is not whether the winter season will be good; it manifestly will not be. The question is how bad it will be — whether the promotional campaigns being mounted by the tourism board and the government will salvage enough of the season to prevent the north coast from entering a period of sustained economic crisis that goes beyond the immediate post-September shock.

For the property market, the winter will be watched primarily for signs that confidence is beginning to return at the margin. A small number of transactions in the NHT segment, continued self-build activity, and the maintenance of inquiry levels that might eventually convert to sales — these are the modest indicators that would allow the market to begin, cautiously, to speak of stabilisation. That word, not recovery, not growth, but stabilisation — the stopping of the fall — is the most that can be reasonably hoped for as November 2001 begins.