“The Jamaican economy has been plagued by GDP growth rates of less than three per cent from as far back as 1991. In order to achieve the five per cent growth in GDP by 2020, commonly referred to as the 5 in 4, more focus will have to be placed on growing small- and medium-sized businesses,” he told the Senate last Friday.
Senator Wehby was speaking during the debate on the Income Tax (Amendment) Bill, which seeks to reinstate the tax incentives for companies that list on the Junior Stock Market (JSM) of the Jamaica Stock Exchange. The Senate eventually approved the Bill.
According to Wehby Junior Markets provide a capital market facility for SMEs to raise equity capital, which is extremely important for growing their business.
“All around the world, and it is the same for Jamaica, the SME sector is a major engine of growth. Typically, SMEs account for more than 90 per cent of all firms, 60 per cent of employment and 40-60 per cent of output in most economies,” he stated.
“We must respond to the changes that are taking place by finding ways for our young entrepreneurs, who are technology savvy and have developed good business ideas, to unlock their entrepreneurial spirit and potential,” Wehby said.
“The Junior Stock Market is important for getting capital into the hands of these young entrepreneurs, while creating investment opportunities for individuals. The Junior Stock Market has been a success, and I am very proud of the achievements of all the companies that have listed on the Junior Stock Market since its inception,” he added.
However, he said that one of the major challenges facing the SMEs is their inability to raise capital through commercial loans because they lack the necessary security and expertise.
He said that lack of access to credit has contributed to the very high failure rate among the SMEs, and estimated that 80 per cent fail within their first three years of operations.
However, he said that the failure rate is by no means solely a result of a lack of access to credit, because even when credit is available, SMEs are more prone to fail because of certain common mistakes, including: poor initial planning; failure to plan cash flow needs; failure to implement proper controls; little understanding of cost and pricing of products; weak financial management, including improper monitoring and improper debt structure;. informal rather than strictly business-based client relationships; absence of specialist skills resulting in weak marketing capacity and failure to manage growth; and, lack of corporate governance.
Recalling 2009, when he and Finance Minister Audley Shaw piloted the original Bill to establish the Junior Stock Market, he said that there was great anticipation that it would be one of the keys to unlocking the country’s entrepreneurial spirit.
He said that having reviewed its performance over the last seven years since, he still believes that it is on track to achieving that objective. He noted that the 29 companies listed on the Junior Market were able to raise $5.38 billion from the market as at August 2016, and their shares had a market value of $88.2 billion.
He said that the discipline attached to listing on the stock exchange will result in the mitigation of a number of mistake affecting the growth of SMEs.
He said that businesses that list on the exchange must have a board of directors, and appoint a mentor to act as a compliance adviser to the board. The mentor must be approved by the JSE, and is tasked with advising the entity about fiscal discipline and good corporate governance.
For the purpose of transparency, annual statutory audits, quarterly and annual reports are required of each business, he added.
He said that this structure and discipline has allowed Junior Market companies to demonstrate their ability to grow the local economy, by creating established and transparent businesses, jobs, and ultimately, economic confidence.
Senator Wehby said that the tax breaks provided for in the Bill will be a win-win for the government and businesses. “The government will collect more taxes, while businesses can reinvest profits in capital expenditure,” he pointed out.
He said that another concern with the incentive regime is that the Junior Market may be used for tax relief rather than equity expansion. However, he said that there was no need to “stop a good thing, because there are risks entailed”.
“What we have to do is mitigate against the risks, by ensuring that the regulations and rules surrounding the operation of the Junior Market are effective in deterring abuse,” he said.
“The JSE has maintained a stellar record of vigilance in the enforcement of the Junior Market Rules and I am confident that they will continue to do so,” he said, recalling that the JSE’s number one ranking by performance, among 92 markets tracked by Bloomberg, caught the world’s attention last year.
“We must respond to the changes that are taking place by finding ways for our young entrepreneurs, who are technology savvy and have developed good business ideas, to unlock their entrepreneurial spirit and potential,” Wehby said.
“The Junior Stock Market is important for getting capital into the hands of these young entrepreneurs, while creating investment opportunities for individuals. The Junior Stock Market has been a success, and I am very proud of the achievements of all the companies that have listed on the Junior Stock Market since its inception.
“I commend all the stakeholders that have worked hard to make it a success.
“I would like to encourage businesses who qualify to list on the exchange to take advantage of this great opportunity to take their businesses to the next level. And, finally, my challenge to the Jamaica Stock Exchange is to double the companies listed on the Junior Stock Market to 58 by 2020,” he concluded.
The Senate approved the Bill on Friday, December 4. It was previously passed in the House of Representatives on October 18, and should now be ready to be implemented.
Article courtesy of Jamaica Observer – Business dated Sunday, December 11, 2016
