The Junior Stock Market & The Keys To Unlocking Our Country’s Entrepreneurial Spirit.
Mr. President, this Bill to reinstate the tax incentives for companies that list on the Junior Stock Market (JSM) of the Jamaica Stock Exchange has my full support.
Mr. President in 2009, Minister Audley Shaw and I piloted the Bill to establish the Junior Stock Market with great anticipation that the Junior Stock Market would be one of the keys to unlocking our country’s entrepreneurial spirit. Having reviewed its performance over the last 7 years I believe that it is on track to achieving that objective. 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 Jamaican dollars.
Growing the GDP through SME Sector
The Jamaican economy has been plagued by GDP growth rates of less than 3% from as far back as 1991. In order to achieve the 5% growth in GDP by 20/20, commonly referred to as the 5 in 4, more focus will have to be placed on growing small and medium sized businesses. Junior Markets provide a capital market facility for SMEs to raise equity capital, which is extremely important for growing their business. The London Stock Exchange and the Toronto Stock Exchange are examples of the success of having a Junior Stock Market.
Mr. President, 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% of all firms, 60% of employment and 40-60% of output in most economies.
One of the major challenges that has faced SMEs is the inability to raise capital through commercial loans because they lack the necessary security and expertise.
Mr. President, lack of access to credit has contributed to the very high failure rate of the SME sector. It is estimated that 80% fail within their first three years of operations. This high failure rate is by no means solely a result of a lack of access to credit. Even where credit is available, SMEs are more prone to fail because of the following common mistakes:
- Poor initial planning including: 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.
- Lack of corporate governance.
The discipline attached with listing on the stock exchange will result in the mitigation of a number of the mistakes I mentioned. 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.
This structure and discipline has allowed the Junior Market companies to demonstrate their ability to grow the local economy by creating established and transparent businesses, jobs and ultimately, economic confidence.
Success of Junior Stock Market in growing the GDP
Mr. President, when it comes on to tax incentives the perception is that the government losses revenue. However, this is not supported by the fact that during the initial incentive period NIS, NHT, PAYE and GCT payments made by businesses which listed on the Junior Market increased substantially over time. Up to August of this year the figures are as follows:
- There was a 96.54% increase in PAYE
- NIS went up by 120.07%
- NHT payments increased by 86.79%
- And GCT payments were up by 336.80%
1297 permanent jobs were also created by businesses which listed on the JSM since its launch and there was a significant increase in their revenues up to four digit percentages.
Mr. President, the tax breaks provided for in this 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.
Mr. President, another concern with the incentive regime is that the Junior Market may be used for tax relief rather than equity expansion. Mr. President we shouldn’t 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.
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.
Mr. President, Members of this Honourable House will recall that the JSE’s number one ranking by performance- among 92 markets tracked by Bloomberg caught the world’s attention last year.
Technology and Economic Growth
Mr. President, new technologies are impacting the way we live, work and interact with one another in what has been dubbed as the early days of the 4th Industrial Revolution. Technology is changing the world in terms of business opportunities.
- The world’s largest taxi company owns no taxis (Uber).
- The largest accommodation provider has no real estate (Airbnb)
- The largest phone companies own no telecoms infrastructure (Skype)
- The world’s largest movie house owns no cinemas (Netflix)
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.
The Junior Stock Market is important for getting capital into the hands of these young entrepreneurs while creating investment opportunities for individuals.
Mr. President, 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 Mr. President my challenge to the Jamaica Stock Exchange is to double the companies listed on the Junior Stock Market to 58 by 2020.
Thank you, Mr. President.
Presentation To The Senate On The Income Tax (Amendement) Bill, 2016 By
Senator Don Wehby December 2, 2016