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Its Time To Take Stock
By FRANCISCO JAVIER CIMADEVILLA
December 26, 2002
In business and the economy, just like every other area of human endeavor, the end of the year invites reflection on how we did in the last 12 months and how could we improve in the year to come.
As is customary in our last issue every year, today we bring you CARIBBEAN BUSINESS Economic Review of the Year. In our front-page story and in every beat throughout the paper, youll find a wrap up of how every major industry and our economy as a whole did in 2002. We bring you the good, the not-so-good, and the pretty bad.
And therere no two ways about it. 2002 was a pretty bad year for most businesses in Puerto Rico. Above all, it was a year of unfulfilled hopes; mostly, the hope that the long-awaited economic recovery would finally come to lift us all up.
Economists will tell you the objective conditions were all in place for the upturn to have happened at some point this year. But quarter after quarter, the recovery eluded both the stateside and local economies.
A federal economic stimulus package fell victim to partisan politics in Washington, corporate scandals, stock market jitters, and uncertainty about a war with Iraq conspired to depress investment confidence that was supposed to have fueled massive capital expenditures by businesses midyear.
Locally, the governments inability or unwillingness to roll out the much-promised massive infrastructure construction program, together with the ill-advised excise tax hike in the middle of a recession, and the lack of a coherent, consistent economic development program--or for that matter a consistent economic development team of government officials to implement it--all contributed to the economic stagnation that is palpable throughout Puerto Ricos economy.
Among the good, we find the remarkable performance of our local banking industry. Indeed, for a majority of local banks who reaped the benefits of favorable interest rates, strong capital market activity and diversified income sources, 2002 was a banner year in terms of both revenue and asset growth.
Among the not-so-good, we find the local retail, tourism, and manufacturing industries. In retail, were going to end the year with sales very close to 2001 levels and a moderate number of retail newcomers and expansions. Thats nothing to write home about, but given the economic recession, its not so bad either. Likewise, the local tourism industry has seen much sunnier skies. Hotel occupancy and bottom-line profits are both down. But in the midst of a recession and the shockwaves of 9/11, the industrys resiliency proved to be nothing short of remarkable. In manufacturing, the results of Pridcos promotional efforts amounted to nil. But a number of significant expansions that had long been planned by pharmaceutical and biotechnology companies despite the sunset of the Internal Revenue Code Section 936 era gave proof that Puerto Ricos high-tech manufacturing industry still has a bright future ahead.
The big loser this year was, of course, the construction industry. The number and value of construction permits was significantly down compared to 2001, in itself an unremarkable year. The encouraging improvement in the third and early fourth quarters of both measurements--an indication of future construction activity--will really not be felt until next year. As explained in our front-page story, the government is largely to blame for dragging its feet on the more than $1.5 billion in public-sector infrastructure projects that were supposed to have been going full steam ahead by this past summer.
More worrisome than the numbers showing the poor performance of the construction industry this year was the continued deterioration of confidence in government-issued construction permits and their validity to withstand legal challenges in court. Industry leaders have sounded the alarm. Financial institutions in particular are being very cautious as to which projects theyre willing to finance based on government approvals and permits. Unless confidence in the permits is restored, uncertainty will continue to scare investors away and make construction financing much more difficult to secure.
This Caribbean Business article appears courtesy of Casiano Communications.