Bravo GMA Business Page By Christopher Ram Stabroek News October 17, 1999 Introduction Once again the manufacturing sector, so often written off as peripheral to the Guyana economy, boldly demonstrated its capacity and potential to play a major role in the country's economic development. The Guyana Manufacturers' Association (GMA) which is the official voice of manufacturers held a hugely successful exhibition at the Sophia Exhibition Centre last weekend. There is now in the GMA a mood of renewed faith and confidence which was further strengthened by the reassurances to the private sector by President Jagdeo. Anyone visiting the exhibition would be surprised to learn that manufacturing accounts for less than 5 per cent of the country's Gross Domestic Product if we exclude the contribution of rice and sugar. On display were a range of food products, furniture, beverages, paints, plastic and marble and engineering products. The exhibition was a vindication of the 'buy local' campaign which former president, Mrs Janet Jagan had initiated but which received so little support from the public with a couple of notable exceptions including MFK Trading. As a people we seem to have lost pride and faith in our country and are obsessed with everything foreign. We behave as though by definition everything foreign is automatically superior to the local equivalent, a behaviour that places our manufacturing sector at a tremendous disadvantage. Regrettably our two largest manufacturing companies themselves have fallen victim to this type of thinking significantly altering their product mix in favour of foreign brands. The exuberance and optimism of the private sector leaders will only be justified if as a people we make a determined effort at every level to support not only our manufacturers but service providers as well. In what must be considered the irony of the week the newly formed organisation "Guyana First" chose the only foreign-owned hotel in Guyana as the venue for a symposium to promote the defence of our national borders. Our people and our government must support local entrepreneurs and manufacturers not out of blind patriotism but enlightened self-interest. The cost of living which is directly influenced by the exchange rate is one of the major problems facing this country. We have it in our grasp through sugar, rice, tourism and manufacturing to bring about a transformation of our economy. What we need at this stage is a fundamental review of our economic strategy and a re-configuration of our incentive regime to support sectors considered critical to the economy rather than pandering to those who make the most noise. The exhibition Some participants were truly outstanding with the most notable being Chin's Manufacturing and A Gafoor & Sons Limited. Clearly much thought and effort was put into their booths and the GMA may wish to offer prizes for outstanding effort. Guyana Furniture Manufacturing Co and IDS Holdings had on display quality products which could no doubt compete with the region's best. The success of the exhibition could have been enhanced if a number of our leading manufacturers including Twin's, Precision Woodworking, Vinelli and Ideal had participated. It would also have been heartening to see the Institute of Applied Science and Technology and the Guyana Technical Institute showcasing their skills. There were some companies that appeared to have made only a token effort at participation perhaps because the objective of the exhibition was not clear to them or they simply did not see any great financial benefit accruing to them. What appeared to have been missing were buyers particularly from overseas who usually attend with their order books. Visitors to the site would have found a site map helpful whilst the companies might have gained from some better-prepared brochures and order forms with prices quoted. Exhibitions are a great marketing opportunity and need to be approached accordingly. The organisers themselves might have gained from this experience to enhance future efforts. A more logical arrangement of the booths would have also have enhanced the event. Perhaps in the future they may offer a clearer focus and promote the event not only among our Caricom neighbours but among buyers from all our major markets. The challenge Despite the excitement which the exhibition aroused, the sector has a very long way to go to realise its true potential. In manufacturing cost is almost as if not more important than quality. Indeed many manufacturers particularly in the Far East never pretend to go for quality in the market for toys for example. Cost however is a pre-occupation if not an obsession. Niche markets seldom remain so for long and in any case such markets demand top quality. For every other market it is volume that matters and a large market is everything. With a population that is well below a million our manufacturers must find it very difficult to cover their fixed costs and struggle therefore to make a profit. Caricom as an economic grouping appears to have no particular focus or strategy and as a result inter-regional trade is declining with the entire region ending up as losers. This is a matter which President Jagdeo may wish to introduce to the agenda as the region plots its course for the medium to long term. Perhaps it is time for us to recognise that our economic destiny lies not north in the Caribbean but in the mega-markets of South America. Brazil and Venezuela have huge populations and can easily absorb everything that we produce. Our manufacturers need to prepare themselves for the road to Brazil and to capitalise on the enormous potential which it offers. Tax allowances Manufacturers often complain about the inadequacy of tax allowances. They perhaps overlook the fact that under the Income Tax (in aid of industry) Acts plant and machinery in a large range of businesses qualify for a first year allowance of sixty per cent. The problem appears to be more associated with the movement of the exchange and inflation rates rather than allowances per se. In practice, the tax allowance is inadequate in real terms since the total of these allowances is considerably less than the replacement cost. It is time that we adopt a system of indexation to preserve the real value of the allowances. Bias in the tax system Exports of non-traditional products to extra-regional countries benefit from extremely attractive tax allowances which can reduce effective tax rates on corporate income to less than ten per cent. Our tax system fails to recognise that import substitution is almost as important as exports. Instead of offering comparable tax benefits local manufacturers are liable to consumption tax which does not apply to exports. Consequently there are positive deterrents to import substitution in favour of exports with the result that a number of our manufacturers are either unwilling or unable to offer their products on the local market. It is worth noting perhaps that the bias in the tax system applies not only to import substitution vis-a-vis exports but also to earned income relative to business income. Any income earned abroad by one of our consultants and remitted to Guyana is taxable without any rebate. President Jagdeo needs to ensure that he does not add to these biases despite the appeal which they may have for the private sector. Dumping Dumping is notoriously difficult to prove but our Ministry of Trade needs to be on guard to protect our manufacturers against this unfair practice which completely distorts the playing field. This should be a principal concern of CARICOM but there is considerable doubt whether it is equipped to deal with the problem. Government support The Government is the largest single consumer in the country and can therefore help to make or break a company. The evidence suggests that Governments are notoriously ambivalent on supporting their own. One of the persistent laments of the soon to be privatised GPC is the total lack of support it received from the Ministry of Health. The usual excuse is quality but there is nothing to prevent a buyer from specifying the standard which it would accept. Marks & Spencer, Jordache and others do it all the time. Financing The absence of sources of longer term funds is perhaps one of the greatest challenges facing the manufacturing sector. The Government must use its influence to create the necessary infrastructure to encourage the provision of venture and other forms of equity capital. Already we have one of the most investor friendly tax system relating to dividends and the Capital Gains Tax Act also encourages public companies. It has to be conceded that it is difficult to predict how our army of family controlled businesses would respond to the establishment of a Stock Exchange or the introduction of the Securities Industry legislation. Technology Business writers love to point out the blurring of the lines between manufacturing and services with their favourite example being the motor car, the service content of which now exceeds fifty per cent. As Mike Singh pointed out in a recent letter in this newspaper the Government needs to formulate a policy on technology education and not simply give tax incentives which might be counter-productive. Tax relief should be directed at research and development and the higher education system should undertake applied research designed to add value to those areas in which we are resource rich. Very particularly we must be able to turn to valuable use what is now waste generated in the processing of our major products: rice, sugar, bauxite and wood. Conclusion The GMA must now capitalise on the benefits of this exhibition. With the financial support from the Government and the participation of our embassies we should now go on the road and market the sector in major trading countries. Internally the GMA should seek the active involvement of all manufacturers in the organisation and should become more visible as it advocates the interests of its constituents. Manufacturers must become paranoid about quality and strive for excellence which has its own rewards. They should work with the technical schools and the University of Guyana to improve their products even as they seek to reduce cost. We obviously have the talent, what we need now is a coordinated national effort to market our skills aggressively both locally and overseas. A © page from: Guyana: Land of Six Peoples