Impact of Crime on Business
and the Investment Climate
in Jamaica
January 22, 2004
Overview of Presentation
 Motivation
for study
 Business victimization survey
 Quantifying economic costs of crime
 Policy options
Why Estimate the Impact of Crime?
Most frequent issue in business and
individual discourse
 Third highest homicide rate in world (33 per
100,000)
 Negative impact on investment climate:
 Security costs, diverts investment, less
than optimal operating strategy
 Losses from looting, arson, theft,
extortion and fraud

Why Estimate the Impact of Crime?
(cont.)
Negative impact on investment climate
(cont.):
 loss of output (nightshifts, workdays lost)
 loss of output from injury/murder of labor
 shut-down or relocation of firms
 Also, erodes development of human and
social capital, and diverts public resources
away from productive uses

High Crime– a Drag on Development
Jamaica' International Ranking, Selected Governance
Indicators 2002/2003, Average Rank (80 countries) =100
200
150
100
50
0
Bureaucracy Quality Law and Order
Jamaica
Dominican Republic
Crime Costs
Infrastructure
Trinidad & Tobago
U.S.
Selected Dimensions of Crime
Young males (14-24 yrs) most likely
victims as well as perpetrators of violent
crime
 In 2001, of those arrested for major
crimes, 98% were males, and 53% were
16-25 years old
 Parish of Kingston and St. Andrew
accounted for 57% of total murders over
1984-2001, yet formed only 27% of total
population

Selected Dimensions of Crime (cont.)
High and increasing level of homicides,
especially over 1990s, driven by increasing
drug trans-shipment and distribution of
drugs, leading to “gang wars”
 Contrasting evolution with NY of murder
rate (per 100,000)
Jamaica NY
Ratio
1970
8.2
7.9
1.0
2000
33.7
5.0
6.7

Estimating the Impact of Crime

Approach:
 Business Victimization Survey of 400
firms
 Quantifying the economic costs of crime
 Econometric analysis (determinants of
crime)
 Case studies of firms
Business Victimization Survey

Methodology:
 Face-to-face interviews with 400
Jamaican firms (2002)
 Firms chosen by economic activity (12
types) and size, based on quota sample
 Survival bias in sample
 92 items in questionnaire, some based on
UN Inter-regional Crime Research
Institute
Business Victimization Survey (cont.)

Patterns of Victimization
 65% of firms in sample experienced
criminal victimization in 2001
 27% face theft on quarterly basis, 9%
weekly
 22% experience fraud and 9% violent
victimization on quarterly basis
 5% of firms paid extortionists, 8% paid
for protection in 2001 (under-reporting)
Business Victimization Survey (cont.)
Sectoral patterns:
 Tourism: 72% of hotels reported theft
in 2001
 Agriculture: 81% of farms
experienced theft
 Financial services: 65% reported fraud
 Size: small firms appear to be more
vulnerable – barrier to entry for potential
entrants?

Business Victimization Survey (cont.)


Perceptions of Risk

42% of managers perceived a risk of
being murdered at the workplace

66% perceived that their firms were likely
to be robbed
Coping Strategies

Protective measures; adjusting the
organization of business activity to reduce
opportunities for crime; and striking an
accommodation with criminal networks
Business Victimization Survey (cont.)

Coping Strategies (cont.)

37% of firms surveyed opted to close
before dark, thereby reducing effective
productive capacity and capital
productivity

20% would increase hours of operation if
crime was lower; on average these firms
would remain open an additional 3.6
hours per days if located in safer area
Some key methodological issues in the
measurement of the cost of crime

Estimate of cost of crime is lower bound

Value of human life is more than its
contribution to the economy

Ignores value of property damaged or
destroyed during violence

Static analysis, does not include:

impact on structure of economic
activity

potential investment foregone
Some key methodological issues in the
measurement of the cost of crime (cont.)
Static analysis, does not include (cont.):

loss of potential future earnings of
those murdered/disabled

high transactions cost of replacing
skilled and experienced workers
Value of stolen goods is considered social
loss in our approach


Annual Economic Impact of Crime

Cost of crime as % of GDP:
 Medical expenses on crime related
injuries by government and individuals
 Loss of output arising from death and
injury
 Public expenditure on security
Annual Economic Impact of Crime (cont.)

Additional costs of crime:
 Private expenditure on security
 Direct business losses of firms e.g.
extortion, fraud, theft and looting
 Impact on investment, expansion, lifespan of firms
Cost of Crime as % of GDP, 2001
1.
2.
3.
4.
Healthcare costs
J$ 1.3bn (0.4% of GDP)
1.
Public health system
J$ 996mn
2.
Private Citizens
J$ 255mn
Lost Production
J$ 0.5bn (0.2% of GDP)
1.
Mortality
J$ 194mn
2.
Injury
J$ 337mn
Public expenditure
on security
J$10.5bn (3.1% of GDP)
Total 1+2+3
J$12.4bn (3.7% of GDP)
Additional Costs of Crime

Private expenditure on security, % of annual
revenue:
Micro firms (< J$5mn revenue)
Medium firms (J$10-20mn rev.)
V.large firms (> J$100mn revenue)
17%
7.6%
0.7%
Average
2%
Additional Costs of Crime (cont.)

Extortion, fraud, robbery/burglary, arson
 Micro firms/ firms rev. J$20-50mn =
9% of revenue
 Other categories = less than or equal to
2% of revenue
Additional Costs of Crime (cont.)
Losses from looting (70 firms)
57% of firms
<J$100,000
19% of firms
J$100,000-500,000
4% of firms
J$1mn – 5mn
 Avg. losses due to temporary firm closures
2001
J$ 1 mn
2000
J$400,000

Impact of Crime on Business Planning
and Prospects
51% of firms stated that increased costs of
security significantly impacted business
practice
 39% of firms indicated that plans for
business expansion were adversely affected

Impact of Crime on Business Planning
and Prospects (cont.)
37% of firms reported that plans to invest in
productivity improvement were negatively
impacted
 6% of firms expected to close-down in the
next three years (concentrated in sectors
important in GDP), 19% uncertain of
prospects, if current level of crime persisted

Policy Options
Survey: only 12% of managers support increased
corporate taxes to fund crime control, but are
more supportive to provide financial support for
specific collective solutions that directly affect
them and over which there is some direct
accountability
Policy Options (cont.)
Identifying and measuring the crime problem
Strengthen official data collection on crime
Conduct frequent victimization surveys
Improving law enforcement for crime deterrence
Upgrade investigative capacity of police
Policy Options (cont.)
Improving social and collective action
Improve the quality of the school experience
Form effective partnerships between police,
business and local communities
Build Social Capital
Applying focused interventions
Target high crime urban areas
Target youth at risk