Guyana in the Investment Wilderness Business Page Stabroek News December 10, 2000 Introduction In this newspaper on Friday December 8, Mr Clarence Ellis, a former Deputy governor of the Bank of Guyana wrote a lengthy but extremely well reasoned letter on the relationship of fundamental weaknesses in the export sector and the exchange rate. In his letter he identified the alumina plant, Omai and Barama and other forestry investments as the only significant investments in the export sector since the 1950s. He also pointed out that these investments played a significant role in strengthening the balance of payments. Replacement investments He further stated that when those investments peaked their role in balance of payments support was not as meaningful since there were no replacement investments in the pipeline. The observations made by this brilliant Guyanese should be noted with concern by our political leaders on all sides since (somewhat like the United States) we are not sure of who our President will be after January 17, 2001. The point is that whoever is in power must ensure that this situation does not persist. Ambitious The timing of Mr Ellis' analysis is almost serendipitous since during the past few weeks the private sector has embarked on a series of countrywide discussions on a draft Investment Act. This is an ambitious, laudable and necessary project and Mr. George Jardim and his associates in this venture must be commended for recognizing its importance for the development of Guyana and the raising of living standards of all Guyanese. It should be noted that investment in this instance is not necessarily limited to foreign investment and this draft document addresses that. Inequities Over the years many in the private sector have justifiably complained that investors coming into Guyana have been given unfair advantages by the various administrations. The issue has been the duty free concessions, tax holidays and other benefits which have been granted to foreign entities while local businesses competing in the same industries are left out in the cold. The intent of the Investment Code is to eliminate all the inequities arising out of the various dispensations of ministerial and even Presidential discretion which have produced mixed benefits. Role of government Given the results of the Government's attempts in participating in or influencing the direction and level of activity in industry, Guyanese would probably instinctively prefer to see no government role in an industrial policy. Let the market decide businesspersons will say on one hand while demanding this tax holiday or that tax concession in the same breath. This indeed implicitly acknowledges the role of Government as being necessary, limited though that role may be. That role must be rooted in the more fundamental goal of any Government - to raise the nation's standard of living, and that Guyana really needs. Resource deployment This objective can only be achieved by much better deployment of all resources giving rise to increasing productivity. As Michael Porter, one of the world's foremost authorities on competitive strategy points out "This requires relentless improvement and innovation in existing industries and the capacity to compete successfully in new industries" While the Investment Code is necessary, a starting point for the politicians and the businesspersons is whether we can respond to Mr Porter's challenge. One issue immediately comes to mind: this lunacy of mandatory retirement at age 55 in a country that is suffering form a severe shortage of human resources. Migration Most persons of this age are in good health and still have many productive years remaining but our archaic practices from colonial times past when life expectancies were much lower dictate that they be put out to pasture. Over the past few years we have witnessed declining numbers in the public sector, decreased demand for some of our commodities and increasing difficulties. This has resulted in horrendous pressures on living standards which have contributed to large numbers engaging in both legal and illegal external migration. Some employers and the Elections Commission are also finding out that there is also significant internal migration in search of jobs. Major test This is the direct fallout from the absence of new investments to create new jobs for school leavers, replace jobs from declining sectors and to take advantage of the opportunities and productivity gains offered by new sectors. The recent spate of foreclosures will be a major test of whether whichever the Government in power is motivated by political considerations or the long term good of the nation as a whole. It must be recognized sometimes that it makes no economic sense to support and preserve industries and entities where productivity is falling. Long-term cost The concern of Government and everyone else is understandable and Business Page sympathizes with the problems faced by these businesses but efforts to help them tend to be more costly in the long run. Where will the money come from? Borrowing or taxation will ultimately drive up the cost of doing business driving out or discouraging other more productive enterprises. Measures by Government to increase competitiveness and productivity have to be designed with a longer term view. Achievements When we look at what needs to be done, what we have achieved so far is not insignificant but falls well short because of the low level from which we are starting. The privatisation of many state owned entities except for a few is almost complete. The trade and exchange control regime have been liberalized and regulations for banking, insurance and money laundering have been enacted although resources for enforcement are lacking. These have been significant achievements but there is still much to be done. Environment The Investment Act cannot operate in a vacuum and cannot itself dictate policy. Government has the responsibility for articulating clear policies in all areas and must recognize the interrelationship of its various actions. The able Mr. Jardim has expended a tremendous amount of energy in moving the process along but his efforts will be frustrated if the institutional framework does not create a conducive environment. It is time for government to decide that there are no shortcuts or short-term solutions and define its economic goals in terms of long-term productivity growth. Resources Education policy, tax policy, fiscal and monetary policy, regulatory policy and almost every other Government policy cannot be separated from any discussion on economic development. It should be borne in mind that both the quantity and quality of resources are important if any significant development is to be achieved. Human resources are the most important of these and if policy directions are not taken that are geared towards developing people then everything else becomes irrelevant. Conclusion In setting national policies and goals government will do well to pay heed to Porter's guidance. It is the country's firms and not the government that will generate and sustain advantage and therefore investment. Even if we had the luxury of talented civil servants it is most unlikely that our interventionist political culture will permit the right decisions whether in industries to develop, geographical areas to invest in or research and technology to pursue. Government's role should be to create the context and structures within which businesses must operate, never to direct them. The commissioning of a draft Investment Act is a good idea and the Private Sector Commission must be commended for advancing it to its current stage. It has so far had little or no policy inputs from either of the major political parties. Labour too has not yet been consulted although this is understood to be more a matter of timing rather than exclusion. The final version of this Act will benefit considerably from their contribution. Follow the goings-on in Guyana in Guyana Today