Friday 24 May, 2019

More firms should use the capital market to grow - Patterson

Former Prime Minister PJ Patterson listens as Barbados Prime Minister Mia Mottley makes a point at the JSE's Regional Investments and Capital Markets Conference.

Former Prime Minister PJ Patterson listens as Barbados Prime Minister Mia Mottley makes a point at the JSE's Regional Investments and Capital Markets Conference.

Former Prime Minister PJ Patterson has suggested that more Jamaican companies should seek to access the capital market in order to expand their operations.

This he said, in turn, would lead to greater job creation and economic growth.

The former finance and planning minister in the Michael Manley administration, who himself went on to serve four terms as Prime Minister from 1992 to 2006, was speaking Wednesday at the Pegasus Hotel in New Kingston.

He was addressing the 14th Regional Investments and Capital Markets Conference hosted by the Jamaica Stock Exchange.

“Companies that access the capital market have expanded their operations significantly. They have retired expensive debt and used low cost equity to make strategic investments in physical assets. These are making significant gains in terms of revenue, growth and profitability,” Patterson noted.

Former prime ministers of Jamaica (left to right) Edward Seaga, PJ Patterson and Bruce Golding made an appearance at the JSE conference.

Patterson highlighted the progress made by three firms – Lasco Manufacturing, Paramount Trading and Derrimon Trading -  that have in recent times turned to the capital market with outstanding results. Patterson noted that all three companies, having accessed the capital market, expanded their operations, created additional employment while growing their profit margins.

But, even as he encourages companies to embrace the capital market, the former prime minister said closer attention must be paid to what he described as the onerous ownership structure of corporations that would allow for more public participation.

He said this should be done within the context of a deepening global capital market institution where most corporations in the Caribbean are owned by a family, a business group or the state.

In fact, Patterson highlighted that of the 540 largest publicly traded corporations in 27 of the major economies in the world with strong capital markets, 30 per cent are owned by a family. Another 18 per cent are state-owned and 15 per cent by financial and business groups. “That means only 37 per cent are owned by the general public,” Patterson observed.

“Given that different owners have divergent objectives, the question becomes, what rules and institutions must be established in the economy to ensure that ownership of corporations via the capital market is done in such a way to benefit the economy and not merely enrich a dominant group and perpetuate the flow of capital from within our region to borders outside of the Caribbean,” Patterson stated.

He suggested that policy makers within the region should consider rules to govern three areas of the capital market:

1.     Who owns its major corporations

2.     The structure that is used to control such ownership

3.     The implications of the ownership structure on the operations of corporation.

And Patterson told JSE representatives in the packed audience that “We need more listings on the Jamaica Stock Exchange in order to increase wealth, investments in strategic assets to fuel business expansion and growth, and to create jobs, jobs, jobs.”

In the meantime, Patterson said the Small and Medium-sized (SME) sector is ripe for targeting as most of the firms there (70 per cent according to World Bank data) are underserved by the formal banking sector.

“The capital market will provide and must provide a strong source of mobilizing a strong source of additional resources to give this sector the oxygen which it needs to grow,” said Patterson.

He also made a pitch for more workers to get involved in the capital market. “We must change the mindset of workers who give, to workers who invest and therefore become owners in the enterprise,” he said while urging the JSE to use public education as an important tool in doing so.

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