After three successive years of storm damage — Emily in 2005, Dean in 2007, Gustav in 2008 — the 2009 Atlantic hurricane season passed Jamaica with barely a tremor. The respite was not merely meteorological: it gave the island’s battered infrastructure and exhausted emergency services a season of uninterrupted operation, allowed highway construction to advance without storm-driven interruption, and removed at least one category of catastrophic risk from a government already managing a fiscal crisis of historical proportions.
Key Highlights
- 2009 hurricane season passes Jamaica without major impact, welcome relief
- Tourism summer numbers stabilise; still below 2007 peak but decline slowing
- IMF Stand-By Arrangement negotiations approaching final stages
- Highway 2000 Phase 1B pavement works progressing through St. Catherine
- Global financial markets recovering; Jamaica sovereign spreads narrowing
- Air Jamaica restructuring discussions intensify; Caribbean Airlines option emerging
The 2009 hurricane season, which meteorologists had predicted would be moderately active, proved significantly quieter than expected. The passage through July, August and September produced named storms that tracked through the Atlantic basin without making meaningful contact with Jamaica: storms that curved northward, weakened over cooler waters, or dissipated before reaching the Caribbean. The practical effect for Jamaica was a construction season on Highway 2000’s Phase 1B that ran without the weather interruptions that had slowed work in previous years, a tourism season that was not compounded by post-storm cancellations, and an NWA road maintenance programme that could allocate its reduced budget to planned improvements rather than emergency response. In a year of unrelenting macroeconomic difficulty, the absence of a major storm was genuinely valuable.
The tourism sector’s summer performance — the July-to-September period that represents the second peak season after winter — suggested that the steepest portion of the recession-driven decline may have been passing. Visitor arrival numbers for July and August, while still below the equivalent months of 2007, were showing year-on-year declines of five to six percent rather than the twelve percent drops that had characterised early 2009. Hotel operators along the Montego Bay and Negril strips reported that occupancy rates had stabilised above the level at which operations were economically viable, and that forward bookings for the winter season — the crucial November-to-April period — were showing modest improvement compared to the same period’s forward booking position in 2008. The improvement was too modest to generate celebration, and the structural damage to the US consumer’s spending capacity would take years to repair; but the rate of decline was slowing, and in a recession, that is sometimes the most that can be hoped for.
Sangster International Airport processed the summer’s traffic through its improved terminal with the operational ease that had become routine since the new facility opened. The airport’s management was also engaged in conversations about whether additional airline operators — attracted by the improved terminal standards and the sustained demand for Jamaica access from the eastern US market — might add seasonal or year-round services that could partially compensate for any reduction in Air Jamaica flying. Several US carriers were assessed as potential new entrants to Jamaica routes that had historically been underserved by non-Air Jamaica options; the conversations were preliminary but real.
Highway 2000: Asphalt and Anticipation
Through the summer of 2009, the Highway 2000 Phase 1B programme advanced with the methodical consistency of a project that had survived financial crisis, commodity price shocks, two major hurricanes and a change of government without losing its fundamental momentum. Paving operations were moving through sections of the alignment in St. Catherine where the structural preparation had been completed and the drainage infrastructure had been commissioned. The familiar sight of the asphalt paving train — the slow, heavy machinery that lays the black surface in one continuous pass — was visible from the adjacent old road in several sections, a tangible reminder that completion was not theoretical but physical, measurable, approaching.
Property market interest in the Phase 1B corridor was intensifying as the pavement works became visible. Real estate agents working in Old Harbour, Linstead and the St. Catherine south coast communities were fielding more frequent inquiries about land and commercial property along the highway alignment than they had seen since the pre-recession years. The investors asking these questions were of two types: residential developers calculating the demand for new housing that improved road connectivity would generate in communities currently regarded as distant from Kingston, and commercial investors identifying service locations — fuel stations, fast food outlets, logistics facilities — at the junctions and interchanges where new highway access would create captive customer flows. Both types of inquiry were premature in the sense that the highway was not yet open; both were rational in the sense that the preparation-to-opening sequence for major infrastructure creates a window of advantageous acquisition that closes once the infrastructure is operational and its value impact becomes universally understood.
IMF Programme: Approaching the Finish Line
The negotiations between the Golding government and the International Monetary Fund, which had been under way in various forms since late 2008, were entering their final phase by the third quarter of 2009. Both parties had a clear interest in concluding an arrangement: the government needed the external financing anchor and the market credibility that a programme provided; the IMF needed a completed programme with a government committed to the fiscal adjustment path that justified the Fund’s financial support. The structural issues that had complicated the earlier stages of the negotiations — the pace of fiscal adjustment, the approach to the public sector wage bill, the sequencing of tax reform measures — were being worked through in technical discussions whose complexity belied the directness of the underlying requirement: Jamaica needed to spend less than it raised in revenues, consistently, over an extended period.
For the infrastructure sector, the approaching IMF programme had practical implications that were largely constraining in the short term. A programme of fiscal consolidation would necessarily cap the government’s discretionary capital expenditure — the resources available for new road construction, water infrastructure expansion, public housing programmes and similar investments. Projects already contracted, like Highway 2000’s Phase 1B, would continue; new commitments would be subject to the strict prioritisation that a primary surplus target imposed. The effect would be felt most acutely in the parish road rehabilitation programme, which had already been scaled back through the recession and would face continued pressure under a programme framework. Infrastructure maintenance — the unglamorous but essential work of keeping existing assets operational — was typically the first casualty of fiscal consolidation, creating a long-term deterioration cost that was frequently underweighted in short-term budget decisions.
The global financial market recovery that was well advanced by September 2009 — equity indices had recovered substantially from their March lows, and credit markets had reopened for investment-grade and many sub-investment-grade issuers — was beginning to provide Jamaica with an improved external financing environment. Jamaica’s sovereign bond spreads had narrowed from their post-Lehman peaks as investor appetite for emerging market debt returned; the prospect of an IMF programme, which would provide a multilateral backstop to Jamaica’s external financing, further reduced the perceived risk premium that the market demanded for holding Jamaican government bonds. This improvement in financing conditions was itself a form of infrastructure investment — not in the physical sense, but in the sense that cheaper and more reliable access to external capital was a prerequisite for the sustained investment programmes that Jamaica needed to maintain.
Air Jamaica: The Decision Point Approaches
The question of Air Jamaica’s future was moving toward a conclusion that had been deferred for many years. Caribbean Airlines — the Trinidad and Tobago-based carrier that had grown from BWIA Caribbean Airlines into the region’s most commercially viable network airline — had emerged as the most credible potential acquirer or operator of Air Jamaica’s routes and assets. The outlines of a deal that would see Caribbean Airlines take over Air Jamaica’s operations, while preserving the air connectivity to Jamaica’s key North American markets, were being discussed at senior levels of both governments. For Jamaica’s infrastructure and tourism communities, the prospect of a restructuring that placed Air Jamaica’s routes under the operational management of a commercially viable regional carrier, while ending the fiscal drain on the Jamaican government, was broadly positive — provided that the connectivity outcomes could be preserved or improved.
What This Means for Property and Investment
Homeowners found in Q3 2009 a quarter that offered modest relief on several fronts: the hurricane season spared them storm repair costs; electricity bills remained below their 2008 peak levels; and the macro environment, while still difficult, appeared to be stabilising rather than actively deteriorating. The household financial stress of the preceding twelve months had not lifted, but it had stopped intensifying.
Buyers with a medium-term horizon were becoming more active, particularly in the sub-J$15 million residential segment where NHT financing provided a reliable credit foundation. Cash buyers watching the Kingston and St. Andrew market found a selection of motivated sellers that would have been unusual in the 2006-07 environment, and acquisition prices that represented a genuine discount to replacement cost in some categories of residential property.
Developers and investors along the Highway 2000 corridor were positioning for what an increasing number of analysts described as an inevitable uplift event — the highway’s opening — whose timing was uncertain but whose directional impact on land values was not. The corridor from Spanish Town through Old Harbour toward the south coast had been identified in several research reports as the single location in Jamaica where infrastructure-led property value appreciation was most clearly signalled by the physical evidence on the ground.
Tourism property investors drew modest comfort from the summer’s stabilisation. The north coast development pipeline that had been deferred through the worst of the recession remained viable in concept; the question was the timing of the demand recovery that would justify resuming construction commitments. The winter season ahead would provide important signal data.
Diaspora investors were reassessing their positions as the worst of the US recession appeared to pass. Those who had been liquid through the difficult period found that they were now in a position to consider Jamaican property acquisitions at prices that compared favourably to the peak-of-boom valuations of 2006-07. The remittance flows that support family consumption and home maintenance were recovering modestly as diaspora employment stabilised.
Outlook: October 2009 – March 2010
The final quarter of 2009 and the opening months of 2010 will be defined by two pivotal developments. The first is the IMF programme: its completion, if achieved in the coming months, will provide Jamaica with the external financing anchor and fiscal framework that the recovery period requires, at the cost of the public spending discipline that any credible consolidation path demands. The second is Highway 2000 Phase 1B: an opening in this period, or in early 2010, would be the most consequential infrastructure event in years, with property market and commuter implications that span a wide arc of St. Catherine parish. The hurricane season, safely past for another year, has given Jamaica the margin to focus on these defining transitions without the distraction of emergency response. The challenge now is to make the most of it.
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