Sugar will survive

- new factory, refinery crucial

says Guysuco’s new CEO Michael Boast

The local sugar industry will survive changes in the world trading system - even a loss of its preferential access to Europe - but this hinges on the modern US$70M factory for Skeldon and a possible US$24M refinery, which China’s EXIM Bank is willing to finance.

The new factory’s cost of production will be around US 8-9 cents per pound, the expected price at which the world raw sugar market will settle if barriers to trade and subsidies are eventually removed.

All of the new factory’s 120 000 tons sugar output would be refined and sold competitively to the Carib-bean region.

Pressure is now mounting against the EU to reduce its US$1.7 billion annual subsidy to beet sugar producers and to remove the barriers to entry to its market for Brazil, Thailand and Australia, the dominant world market players. Guyana currently enjoys a part of the EU subsidy through the preferential prices it receives for its 160 000 tons quota access to this market. The world market price for sugar is currently US 6.5 cents per pound whereas Guysuco receives US25 cents per pound from the EU.

In the highly improbable scenario of free and fair trade in the international sugar market, inefficient sugar producers will be forced out of the market place and the world price will settle to the dictates of demand and supply. As it stands, the world market price reflects residual production/ demand and is subject to volatility by small increases in production and it is far below average cost of production . The world market price is not seen as the judge of how efficient a producer is given that interest rates, the cost of production and the exchange rate need to be factored into the equation.

Guysuco’s new Chief Executive, Michael Boast assures that Guyana will not feature among those industries to close in a free and fair world trading system in sugar. This is essentially because the new factory at Skeldon will efficiently utilise resources and the field operations will be highly mechanised to allow that estate to remain competitive.

But tough decisions may be necessary on other aspects of the local sugar industry.

However, this scenario of free and fair trade remains an abstract concept, an academic theory, as the politics of agriculture makes it nearly impossible for barriers or subsidies to be removed.

Rather, as Boast visualizes, the recently intensified pressure by Brazil, Australia and Thailand to force open the EU sugar market, may see some of the barriers to entry coming down but the subsidies will remain, albeit in a less direct manner. With more sugar competing for entry into the EU market, this will mean lowered prices for Guysuco’s sugar, which the local industry is gearing itself to face.

Inefficient producers will drop out

The prices for sugar in the EU market cannot fall too low because this will crush many of Europe’s beet sugar producers, which will carry serious political repercussions. Many of the governments in Europe derive a large amount of support from farm communities. It is this political risk that will allow Guyana to continue to access the EU market under the indefinite ACP arrangement.

“Few countries in the world have sugar priced internally at world market prices. Canada is one of these. But I do not see the prices in Europe reflecting world market prices for a long, long time to come. The prices will come down over a period of say three to five years, and if we can operate at US 8-9 cents per ton at Skeldon, this factory will be able to compete for a long time and where maybe the rest of the industry may not be able to,” Boast says.

“Maybe the market in Europe will become less and less attractive but I do not see Guyana losing access,” Boast says. He also does not see the ACP arrangement falling away as a result of the current pressures, pointing out that the future of the ACP depends on what the EU decides in its revision of its Agricultural Policy rather than what the World Trade Organisation (WTO) decides.

The WTO has a panel in place to hear Brazil, Australia and Thailand’s complaint that the EU subsidises its sugar exports, which depresses the world market prices and breaches the WTO rules while it imports 1.13million tons from the ACP. Brazil said the challenge is not an attempt to question the concession to ACP states.

However, last year the EU exported about 3 million tonnes of sugar onto the world market while Brazil, the world largest producer, exported over 10 million tones, three times what it did 10 years ago . Brazil is increasing its production and is accused of subsidizing its own sugar industry via its programme to produce ethanol from sugar cane. The latter programme is being cut back which releases more cane for sugar production. Brazil is seen as the one with the power to affect the world market prices for sugar and the fear is that if more markets are opened, it will only serve to increase Brazil’s production and further depress world market prices.

As it is, the 19 ACP countries, of which Guyana is a member, enjoy tariff free access to the EU market and they also enjoy high prices. Guysuco’s sales to the EU in 2002 realized US$81 million in revenues.

Boast, a South African with 40 years experience in the sugar industry, recognizes that the internal prices for sugar in the EU will be reduced over a period of three to five years but notes that while everyone wants a controlled market, no one wants free and fair trade. The question, he says, will be to free up trade within reason.

“Whether they will tamper with the volume sent in under the ACP arrangement is debatable. But as they lower the price, countries producing at non-competitive rates will fall out of the ACP arrangements. We (Guysuco) have got to get more efficient than we are now,” Boast says.

He adds that the fallout of producers within the ACP arrangement will allow the efficient producers to pick up the slack, which will include Guysuco. But if the ACP arrangement goes, Boast says that the EU is seeking to establish economic partnership agreements with the Caribbean to try and prevent the collapse of the sugar industries in this region.

Regional sugar market

In the current scheme of things, Guysuco sees itself continuing the supply of 160 000 tonnes of raw sugar to the EU market. It aims to supply 100 000 tons of sugar to the regional market, moving from 30 000-40 000 tonnes over the last 5 years; 12 000 tons to the USA; 25 000 tons to the domestic market and the surplus of the 150 000 tonnes (with the new factory) will be refined for the regional market. The region has a market in excess of 300 000 tonnes for refined sugar.

Boast points out that the local industry has a logistical advantage over other suppliers to this region and can even supply sugar cheaper to Boa Vista than Brazil itself. This is because of a transportation advantage.

However, the gradual reduction in sugar prices in the EU market will provide Guysuco with some time to implement its modernization plan to meet the challenges of these lowered prices. The collapse of the negotiations at Cancun, Mexico, is also a breather from the December 2004 deadline on new trade rules for agriculture.

Concerns have been mounting over the future of Guyana’s sugar industry in the last few months in face of the increasing attention being paid to the liberalization of sugar markets in Europe, which could have implications for the ACP trading arrangement and its preferential prices.

“I do not foresee the closure of the Guyana sugar industry. We may have to down size but will not be out of the picture. The Skeldon factory will be able to compete with a lot of exporting countries but not with Brazil on the world market,” Boast said.

Guysuco is currently undertaking an extensive market survey for refined sugar in the Caribbean and the outcome will formalize or cancel plans for a refinery at Skeldon. The Corporation is looking to have installed a refinery with the capacity to produce 160 000 tonnes of refined sugar per year. The Chinese bank has offered to provide concessional financing and the designs for the new factory takes into account a refinery as a future possibility, but again subject to it being a feasible investment.

The Exim Bank is also offering to fund the potential US$16M co-generation project for Guysuco, also pending the outcome of a feasibility study and which will be an add on component to the new factory designs, Boasts says.

The Skeldon project

In face of the trade issues confronting the world sugar market, the US$110M expansion project for Skeldon makes very good sense.

“Skeldon is crucial for the future of this industry,” says Boast. Other modernization projects also present opportunities for the Demerara Estates to reduce their costs, which are being looked at “vigorously”. The industry has begun to mechanize, having introduced Bell loaders in the Demerara Estates, which increase cane cutter output. At Skeldon the new field layouts are designed for mechanization.

“The industry has jogged along in the last few years and the gravity of the situation has not necessarily come home to everyone. We have to start now as time is not on our side. I am here to help modernize the place,” Boast says.

As it is, Guysuco plants some 50 000 hectares of land from which it got a yield last year of 331 000 tonnes of sugar with a ratio of 11tonnes of cane to a tonne of sugar. Boast, who spent 25 years managing sugar estates in Swaziland, last managed a merged estate producing 360 000 tons of sugar from 25 000 hectares of land with a cane to sugar recovery ratio of 7.5/1.

Boast says the difference in recovery has to do with climatic differences as Swaziland has much drier climate with only 600 millimetres of rain per year and a cold winter. In Guyana, there is little water shortage but the problem is drainage as the rainfall is about 2000mm. Guysuco is trying to improve its field yield by introducing a higher quality variety of cane and has also introduced chemical ripeners.

On the other hand, the factory recovery in Guyana is between 78-79% whereas the recovery in Swaziland is about 90%. The lower recovery in Guyana is largely due to the climate and also having factories over 40years old. The new factory at Skeldon will have a 90% recovery of sugar.

Additionally, Swaziland only employs 6 000 persons to realize its production of 360 000 tonnes of sugar. Guyana employs 20 000 persons. Swaziland is highly mechanized and its cost of production is US 9cents per pound and reducing. Guyana’s cost of production is 17 cents per pound and the modernization project is expected to see this go to US 11 cents per pound (industry wide average).

The new factory will be highly automated and its cost of production is expected to be around US 9 cents per pound, with its production at 120 000 tons of sugar (three of the current factories productive capacity) its overhead costs would be reduced by 33% of that of the other factory. The factory will produce quality sugar, comparable with the rest of the world.

Additionally, 4 500 hectares of new land will be cultivated and the beds will be laid out to allow for mechanization. The other beds in Berbice are laid out in the Dutch layout, which is very difficult to mechanize. Cane cutters are to be retrained in cutting cane as in most of Africa where a cane cutter cuts between 11 and 12 tonnes of cane per day. In Guyana the average is 4 tons of cane per day with top cutters achieving seven tons. The top cutters in Swaziland achieve 20 tons.

Boast notes that the method of cutting cane in Guyana is back breaking and the corporation will introduce a golf-bat like cutlass that allows cane cutters to keep their spine erect and cut canes. They will also be trained to do so in an efficient manner and to have a bell loader loading the canes instead of manual loading. Twenty bell loaders have already been introduced in Demerara at the Uitvlugt and LBI estates.

Additionally, the government is hoping to use US$25M in concessional funds to be made available from the Indian government to go beyond the initial US$110M modernization project for the corporation and to upgrade the Albion Rosehall and Blairmont Estates to allow for greater efficiency and to lower their cost of production.

In its initial schedule with the World Bank, the first phase of the modernization plan will be reviewed in 2006 to determine whether the second phase (the upgrade/modernization of the rest of the industry) will take place. This has implications for the Demerara estates which the bank had said need to be closed.

“If we can show that we are on the right road to reduce the cost structure, the future of the Demerara estates will make much more sense. We have reduced the cost differential between the Berbice and Demerara estates from 50% to 20%,” Boast says.

The challenges

Guysuco has to rationalize its staff complement by reducing its workforce from 17 500 permanent staff by three per cent annually by 2005 which will cover an estimated 1500 workers. Last year alone and so far this year 735 workers had left the industry.

As it stands, employment costs account for US 10 cents per pound of sugar of the total cost of production of US 17 cents per pound and the target is to take this cost down to US 5.5 cents per pound of sugar by 2005. However, Boast indicates that it will not be possible to meet this deadline and sees the wage cost reflecting US 7 cents per pound by 2005. He said the capital to do the necessary expansion to allow for such efficiency savings is not readily available and the corporation will have to progress at a slower pace on this front.

Guysuco has also now linked its annual production incentive to profitability rather than production targets. In the past workers were paid incentives based on targets set for production. Last year, the API amounted to 23.5 days pay.

The management contract with Booker Tate, which is due for renewal once the Skeldon project is completed, is also being revised with profitability targets set as benchmarks for incentives as opposed to production targets. The government will have to advertise internationally for a management contract when the current contract expires in keeping with World Bank procedures.

As to whether the debt burden to be borne by Guysuco will be sustainable in face of this US$110-US$150M first phase expansion, modernization, Boast said the loans are being secured at concessional rates between 1.5-2% per annum.

With the refinery and co-generation projects (if these become a reality) the total sum to be borrowed in the first phase will be US$77M with US$30M coming from the EXIM Bank of China for the refinery and co-generation project and US$21M from the World Bank and US$26M from the Caribbean Development Bank for the Skeldon project. At maximum, the debt servicing will be US$1.5M per year or $2.9 billion.

Land sales by the corporation are expected to realize US$35M for the project whereas Guysuco’s retained earnings will provide the other US$28M.

In the new scheme of things the corporation is looking to outsource some of its services such as its customs clearing services which is to be taken over next year by a group of its current staff. A number of operation on the Estates are already being outsourced such as the transport of workers to and from work, drain cleaning and even land preparation.

Currently, the Booker Tate negotiating team is in China finalizing a contract with CNTC trading for the new factory for Skeldon. This new factory will be operational by the second crop of 2005 and the refinery, if it goes ahead, will be in production in 2006. The co-generation project will also come on stream around the same time.   (Back to top)

Economy flatlines

The economy did not grow in the first half of this year, giving credence to the World Bank’s assertion that the economy has been moving “sideways” in recent years.

The Bank of Guyana’s highlights for the first half of this year say the “economy remained relatively flat” in the January - June period compared with 1.4% growth in the same period last year.

The Bank says this reflects lower sugar and gold output as a result of adverse weather conditions and supply constraints. The rice, poultry, manufacturing, forestry, bauxite, transport and communications and financial sectors are reported to have made positive contributions to the economy.

Three months after the close of the half-year, the Bank of Guyana is still to issue a half-year report on the eco-nomy. However, it has provided flyers with the economic highlights to interested persons.

Inflation at the end of June was 3.7 per cent, against 4.1 per cent for the same period in 2002. Increases in the prices for commodities such as food, housing, transport and communications and fuel placed pressure on overall price levels.

Credit to the private sector declined by 18.7 per cent compared with the first half of 2002. The Bank says this drop largely reflects the transfer of the loan portfolio of the privatised Guyana National Co-operative Bank to the National Bank of Industry and Commerce Limited.

The Guyana dollar depreciated further against the US dollar though the volume of foreign currency transactions was higher. The Bank highlights say depreciation resulted from less demand pressure on the cambios and higher levels of transactions by the Bank of Guyana. Purchases and sales remained relatively stable on the cambio market. The US dollar is now selling at $198 but there are supply constraints in the market place.

The government’s balance of payments deficit increased from US$10.6M at mid-last year to US$19.4M this year. This is as a result of a deterioration of the current account due to the rising cost of fuel imports and lower current transfers. On the other hand, the capital account improved as a result of debt relief inflows.

The operations of the non-financial public sector operations also deteriorated at the end of June and resulted in higher non-interest expenditure, especially on materials and supplies by Guysuco and Linmine. To compensate for the decline in current revenues, the government cut back on its capital expenditure and realised a smaller overall deficit.

Domestic bonded debt and external public debt increased during the first half of 2003 as against the same period for 2002. This was because of a rise in the amount of treasury bills issued to sterilise excess liquidity in the financial system and a revaluation in the Euro-dominated stock of debt to reflect the appreciation of the Euro as well as higher disbursements received under existing Euro loans.

The World Bank has noted in its recent review of Guyana’s development policy that the economy has been “moving sideways” since 1998, with economic growth only averaging 0.5% per annum as a result of domestic and external factors.

The Bank noted that while private investment had accounted for more than 30% of GDP from 1992-4, this has declined steadily from 13.4% in 1998 to 7.4% of GDP last year,

“Since replacement investment would normally require 4 to 5 per cent of GDP, this implies that very little new private capital accumulation has taken place since 1988,” the Bank said.

The Bank noted the mirror image of this in the banking sector with total loans and advances to the private sector falling from $52.2B in December 1999 to $45.8B at the end of 2002, a decline of nearly 14%.

But taking the 1990s as a whole, the Bank found Guyana’s overall growth performance as “quite respectable”.  (Back to top)

Gov’t pushing development of southern Guyana

The government is pursuing the road link to Lethem (and Brazil) as an investment necessary to open up the southern corridor of Guyana to investments and market opportunities, says Director of the Guyana Office for Investment (Go-Invest) Geoffrey Da Silva.

He says the government is cognisant of the security concerns in providing unhindered access to Guyana’s interior, as well as the potential environmental concerns associated with a heavy-duty two-lane highway proposed in the Guyana/ Brazil integration project. The government, he says, is considering these concerns in its approach to facilitating the US$200M plus project now at the stage of pre-feasibility with the Inter-American Development Bank (IDB).

A heavy-duty road to Lethem has the potential to transform the economic landscape of the southern corridor of Guyana, including Linden, but DaSilva says the government is not waiting on the integration project to have these areas developed and is moving ahead to promote development in these areas now.

He also insists that such development is not taking place in an ad hoc manner but is consistent with the policies outlined in the National Development Strategy and the Poverty Reduction Strategy Paper- two consultative processes. He adds that the necessity for a proper, heavy-duty road to Lethem is not a new concept but is contained in many studies going back for decades.

The road link cuts through the Iwokrama International Rain Forest concession and DaSilva says the agency has put up a paper to the government, advising it how to proceed in an environmentally sound manner with the project.

There have been some concerns ex-pressed that the Guyana/Roraima Integration Project is skewed heavily in Brazil’s favour because that country stands to gain with quicker access to its markets via the road link and a deep water harbour in Georgetown. The integration project also considers a hydro-electric plant in Guyana to supply both Guyana and Boa Vista (northern Brazil) as well as the use of the Americas II cable that stops at Linden to provide the south of Guyana and the north of Brazil with a link to high speed communication.

All of these projects will redound to Guyana’s benefit as they will provide access to Guyana’s southern corridor for investments, and will facilitate market access, while the corridor will be exposed to high-speed communication. These investments are already being pursued and are not awaiting the implementation of the integration project, which could materialise some years down the road.

DaSilva insists that the integration project has to be taken in the context of the larger integration of the entire South America to foster south-south trade and better position these states to deal with trade liberalisation. He points out as well that the Guyana/Roraima integration project will be entirely private sector driven. For the IDB to commit to finance the pre-feasibility and hopefully the feasibility study, there has to be economic activity taking place on both sides, DaSilva notes.

He details that small, medium and large sized investments are currently being encouraged in a number of economic areas along the corridors linking the city and Lethem and points out that the existing road is being rehabilitated by the MMC Group and a toll is being charged for its use.

In Region 8 & 9 (southern Guyana) the government is encouraging farmers to increase peanut, cashew nut and cassava cultivation, as well as cattle rearing, fishing, eco-tourism, mining, manufacturing, forestry and investments in hydro power.

DaSilva notes that Tandy’s and Omai Peanut Butter companies import 1.2 million pounds of peanuts each year from China and the USA and were earlier this year facilitated to meet 150 farmers brought together by Clairmont Lye of the Beacon Foundation and agricultural consultant, Gerry LaGra. These farmers produce annually some 300,000 pounds of peanuts, which are supplied to the local market. The farmers, DaSilva says, are willing to increase their production of peanuts to supply Tandy and Omai Peanut Butter companies.

The government has agreed to waive the 30% consumption tax on peanut-butter production by these two companies from peanuts sourced from farmers in Region 8.

Both companies are expanding their production and have acquired land at the Eccles Industrial complex. Beacon is providing farmers with the means to store the larger quantities of peanuts to be produced and so far the two companies have ordered 228,000 tons of peanuts from the farmers.

“As you can see, we are not waiting on a heavy-duty cargo highway...we are already working to develop southern Guyana and that is taking place right now,” DaSilva says. The farmers are also looking to go into cashew nut production in a big way.

In the case of cattle rearing, the Cattle Producers Association of Lethem was given permission to run the abattoir and recently purchased a canter truck with freezing facility to transport blast frozen beef to the city as well as to seek markets in Brazil and eventually export to the rest of the region.

Additionally, the government has been speaking with a number of large players in the tourism and eco-tourism sector internationally to develop eco tourist parks within the Kaieteur National Park.

“We are talking to big people who have done eco-tourist parks in the US and Europe,” DaSilva says, noting that these will materialise in the medium to long-term. However, as of now, Rockview Resort, the Savannah Inn and the Takatu Hotel are all expanding and upgrading their facilities.

In the area of forestry, DaSilva notes the enviable record Guyana holds for sustainable exploitation of its resources and says Go-Invest is speaking with Caribbean, US, Middle Eastern, European and Asian investors to become involved in these sectors. The intent is to explore high-value downstream activities and to pursue segmented markets and not mass volume exports.

DaSilva says it is clear that Guyana is not relying on any one country for investment or pursuing any one area of economic activity to ensure its sustainable economic development. As to the government’s strategy for hydropower in Region 8, DaSilva says this does not involve some massive dam, as there are studies on alternatives.

Investments in fruit and vegetable processing centres are also being encouraged for Region 8. Parts of the savannahs, DaSilva says, have seasonally different climates that can produce tomato and other fruits for exports to Boa Vista. The south of Brazil is seen as offering much market potential for Guyana. Beef and mutton processing plants are also being looked at for the southern corridor areas.

The exploitation of bauxite in the Pakaraimas is also being pursued with companies from South Africa and Russia who are currently in discussions with the government. Additionally, a top American company is reported to be interested in Guyana’s high-grade kaolin, DaSilva reports.

Fish farms are also being encouraged as well as soya bean production. Already one poultry producer plans to get involved in soya bean production.

In the current scenario, Lindeners are being encouraged to become aggressive because of the tremendous opportunities which are going to unfold. DaSilva says Linden is the natural hub for Guyana as on the south it has access to Regions 8 & 9 plus Brazil and Mercusor; on the east are the Intermediate Savannahs where a number of major agricultural projects are ongoing and on the west is Bartica linking up with the road under construction to Port Kaituma.

He sees the advantage for transportation, body shops, motels and other types of industries in Linden. Plans for a call centre for Linden are moving ahead while interests are being pursued for a wood processing plant as well. A draft economic plan has been crafted for Linden and this is currently before the policy makers for discussion. As it is, the Linden Economic Advance Project (LEAP) is working with farmers in the area to be self sufficient in their food requirements and to produce surplus to export.

DaSilva points out that IntraServe, a bus company run by Chris Correia, has started servicing the Georgetown/Lethem route three times a week. The plan is to expand this service to Boa Vista in the second phase and to Suriname and French Guyana in the third phase.

Seafood companies are also being encouraged to get on the road to sell their produce. DaSilva says Brazilians are already seeking out Guyana’s fish from the wharves for sale in Boa Vista and other trade opportunities are opening up. Rice is being sourced locally as well, as the transportation costs make it cheaper to access food supplies from Guyana than other states in Brazil.

“If we shut off the border, these developments will still go ahead, but it will happen faster if it is linked to trade with the rest of South America,” says DaSilva. He adds that the link with Brazil is a two-way street and not one way. He notes that it is expensive for Boa Vista to source some of its requirements from Brazil itself and it makes better sense for the community to secure its needs from Guyana. Goods from Sao Paulo take 17 days to reach Boa Vista.

Already some companies in the city are looking to barge goods to Linden, offload these there and then truck them to the south of Brazil. Trucks in the dry weather can carry up to nine tons of weight on the current road to Lethem. The reverse is also expected to take place with companies from Boa Vista wanting to take advantage of trucking their produce to Linden and then via barge to the city for export.

DaSilva sees the potential for information and communications technology parks in the development of the south and argues that the policy the government is pursuing is to diversify the economy and to allow for its sustainability in not depending on any one particular industry to stay alive.

Onshore oil exploration and refining is also being pursued given the discovery many years ago of oil in the Takatu basin by Home Oil and by Petrobras in 1970. DaSilva says it matters not if the production will be on a small scale, as it will assist in meeting some of Guyana’s oil needs. Barbados gets 10% of its oil from its own resources and Cuba 20%.   (Back to top)

Counterfeiting in Guyana

Where’s the funny money coming from?

By Kim Lucas

Over the last five years, there have been 132 reported cases of counterfeit notes in circulation, but local authorities have so far been unable to properly estimate the extent of counterfeiting in Guyana, who the counterfeiters are and where their operations might be.

The most recent high profile case was in July, when five persons, among them a Colombian, were arrested following the seizure of a total of four hundred US$100 bills, suspected to be bogus. This matter remains before the court.

One view is that small time drug dealers, who want quick money to buy stocks, are behind the racket, but there is no documented evidence or enough proof of this.

“We cannot identify the known counterfeiters and, as a result, it is difficult to really assess the extent of counterfeiting in Guyana...Our contact with counterfeiting comes with the finding of notes circulated in the system,” one senior law enforcer told Stabroek Business.

To assess the situation properly, investigators must first be able to establish who the counterfeiters are and where the notes are being made. But it is difficult to detect how much bogus money is in circulation, since many are too busy or preoccupied to check every bill that passes through their hands.

Several cambios in the city have reported that fake bills are on the increase, especially US$100 and US$50. Most dealers told Stabroek Business that they encounter counterfeit notes at least once or twice each week and said there is nothing they could do about it. These cambios use initials or stamps to keep track of their notes.

In past years, the police were able to retrieve some moulds, a task that appears difficult today, forcing investigators to conclude that the notes are being made outside of Guyana and then shipped here.

“We are finding just the notes in circulation. So if we find five notes this year in Georgetown, another two years you would find another set in Linden, and then three years after, you would find some in Berbice...it tells you that notes are being counterfeited and are around, but you don’t know if the notes are being made here, if they are made in Suriname or Venezuela. It is difficult to tell, unless you can put your hands on the source,” says the investigator.

Back in 1996, for example, authorities issued an alert for persons to be on the lookout for bogus $500 bills, which had started to show up, particularly in the Corentyne region. All the police could have advised at the time was to look for the macaw transparency drawing, which can only be seen when the $500 note is held up to light.

Today, the con artists are beating the system to reproduce G$500 and G$1,000 notes. Most countries continue to add security features to aid in the detection of counterfeit notes and a number of tests were designed to help, some of which include the use of ultra violet rays and the matching of note ends.

Genuine notes, unlike notes made of ‘ordinary’ paper, do not reflect or “glow” under ultraviolet light because of the special nature of the paper. The denomination of genuine notes stands out clearly under UV light, but cannot be seen with the naked eye. However, in recent times, counterfeiters are beating this system and some forged notes are also beginning to absorb the glow. Other tests now need to be developed.

Further, in the case of genuine notes, the two end features always match perfectly when joined. Very often, this is not the case with counterfeit notes. In addition, the security thread that runs through the width of the notes provide another quick check method. A close inspection of a forged note shows an “appearance” of the thread. The thread on the real note, on the other hand, has ‘Guyana’ printed on it throughout its length and can actually be pulled out.

Apart from these testing methods, investigators assured that the gold features (the shield and map) on Guyana’s $500 and $1000 bills are not easy to duplicate, and that the size of the counterfeit notes often vary. As such, if it is suspected that a note is forged, match it against a genuine note and check the size.

Reported incidents of counterfeit notes in Guyana from 1998 to present:

** Rep - Reports

** Ca - Cases

The law on Counterfeiting

Cap 8:01 of the Criminal Law (Offences) Forgery of bank notes

“Everyone who, with intent to defraud, forges, alters, or offers, utters, disposes of, or puts off, knowing it to be forged or altered, any currency note, or any note or bill of exchange of the Bank of Guyana or any other body corporate, company or person carrying on the business of bankers, whether in Guyana or elsewhere...shall be guilty of felony, and liable to imprisonment for life,” (Section 270).

“Everyone who without lawful authority or excuse (the proof wherein shall lie on him) purchases or receives from any other person, or has in his custody or possession, any forged currency note or bank note...knowing it to be forged, shall be guilty of felony and liable to imprisonment for fourteen years,” (Section 271).

“Everyone who without lawful authority or excuse (the proof wherein shall lie on him) - uses any plate, wood, stone or other material, or any instrument or device...for the making or printing any currency note or any bank note...or knowingly has in his custody or possession that plate... shall be guilty of felony and liable to imprisonment for fourteen years,” (Section 272 b).  (Back to top)

Foreign investment in Guyana averages US$53M per year since 1999

-UN report

Guyana ranks 17th in the world for inflows of foreign direct investments (FDI) between 1999-2002 - using the FDI to GDP ratio - compared with a rank of 58th in the 1988-90 period.

This is according to the FDI Performance Index contained in the United Nations Conference on Trade and Development (UNCTAD) 2003 World Investment Report. Foreign direct investments accounted for 7.5% of Guyana’s Gross Domestic Product (GDP) or averaged US$53M per year between 1991-2002 or a total of US$215M. The average between 1991-1996 was US$33M.

The FDI index compares a country’s share of global foreign direct investments with its share of Gross Domestic Product and measures activity in 140 countries.

Only five Latin American and Caribbean countries were among the 44 frontrunners in the ranking: the Bahamas, Dominican Republic, Guyana, Panama and Trinidad and Tobago.

In the case of Guyana, the foreign direct investments were concentrated in the processed food, information and communications technology, mining, wood and the services sector.

Guy Pfeffermann, Chief Economist of the International Finance Corporation in a recent article, says if one looks at FDI flows in relation to a country’s economic size, this conveys a message of hope as against looking at the sheer dollar value of the investments.

Between 1970 and 2000, Brazil, China and Mexico accounted for 50% of all FDI flows.

In his consideration of the 1997-2000 FDI index, he noted that seven small economies, which depended on mineral exports, were among the top 20 recipients for FDI inflows when compared to their GDP. They include Guyana (7.5%), Angola (20.4%), Azerbaijan (16.2%), Trinidad and Tobago (11.8%), Bolivia (10.4%), Equatorial Guinea (8%) and Kazakhstan (6.9%).

Guyana, in the 1997-2000 period considered by Pfeffermann, ranked in the 7-10% club for FDI inflows while Lesotho, Angola and St Vincent and the Grenadines (21.2%) were in the 20% plus club.

St Kitts and Nevis at 17.1% figured in the 10-20% club as well as Trinidad, Grenada and St Lucia (10.3%). Guyana is the only one from the region in the 7-10% club. Jamaica came in at 5.3% and Dominican Republic at 4.9%.

Brazil’s FDI flow to GDP came in 42nd in the index and China 45th. FDI inflows relative to their GDP were 4.3%.

Pfeffermann considers Brazil, China and Mexico to be the “lions” in the FDI market while countries with a smaller share of FDI flows are considered “sparrows”. He asserts that how much FDI goes to a particular country depends on two things: whether foreign investors find conditions there attractive or not - and the size of the country.

For instance he says it would be absurd to expect Barbados (a sparrow) to consume or eat up as much in raw dollar figures as China or Brazil (two big lions). He further says that what matters for the citizens of developing nations such as Guyana is obtaining enough FDI to make a difference. And what is enough depends on the size of the economy.

The former World Bank Chief Economist and Nobel Prize winner, Joseph Stiglitz had also argued that only a few countries benefitted from the “sizeable increase in FDI” flows in the past decade and that the majority of countries only received marginal sums.

In sheer dollar numbers of FDI flows in relation to the size of one’s economy (GDP), it becomes clear how much is actually contributed to a country’s economy via the FDI route. For example the country with the highest FDI ranking is a small South African country called Lesotho.

Its total production is worth less than one billion US dollars out of a world GDP of well over 30 trillion dollars. From 1997-2000 FDI-inflows totalled 21.8% of its GDP. Lesotho attracts investments in products such as clothing, footwear and other light manufacturing which are, according to Pfeffermann the mainstay for newly developing countries.   (Back to top)

LEAP gets off the ground

-new business advisory service established

The Linden Economic Advancement Programme (LEAP) has set up a Business Advisory Centre to provide business options for retrenched workers and training for micro and small businesses in Linden.

A statement from LEAP says over 300 persons have already been advised on starting new businesses or expanding existing ones while training has commenced for businesses in agriculture, garment manufacturing, jewellery and tropical fish farming.

Additionally, LEAP expects that its new credit scheme will be finalised next month to facilitate loans to small and medium sized businesses. The sum of $400M is available through a revolving fund, to be administered by a selected financial institution, with $120M for micro businesses and $260M for small and medium sized enterprises.

As a result of the increased demand for its advisory support services, LEAP says it has secured a new building to accommodate its staff and to set up an incubation unit for new businesses.

Around G$20M is being spent to refurbish the Guyana National Industrial Corporation (GNIC) building and to set up the business incubation unit. This unit will support the creation of new micro and small enterprises by providing temporary and affordable office space, shared office services, management services, marketing assistance and advice on access to risk capital. Work on the new building will start this month and is set for completion early next year.

LEAP is also identifying new markets in the area of furniture, general wood processing, dairy and fruits. Work has also commenced on a new road to serve the West Watooka region to open up 2,200 acres of farmland.

“This is what we have been working towards for the past 18 months. We have laid the foundation for the project, building a good team of professional advisors who have assembled a database of research and readily available information which can be used to help their clients,” LEAP’s Project Leader, Kathleen Whalen, said in a statement.

She said like all new initiatives, LEAP had suffered from teething problems but with the new LEAP centre, the team was convinced that it could achieve its objective of helping the “people of Linden to help themselves”. And while financing was important, Whalen noted that without advisory support services, many of the new ventures might not reach their full potential. “This project differs from many other investment programmes - it is not just about money but ensuring that after the project finishes, the new businesses which we have encouraged are still operational.”

LEAP, a 12 million EURO project, was launched in January 2002 with a seven-year life span but the project has been hit by several set backs. The objectives of the project have been to diversify Linden economically with emphasis on investment promotion, development and expansion of small business enterprises, training for entrepreneurs and the provision of economic infrastructure.  (Back to top)

No information private to shareholders

No information in a public company is private to that company’s shareholder, says Harry Parmesar, President of the Institute of Chartered Accountants of Guyana (ICAG).

“Shareholders are entitled to all information as part owners of that company,” asserts Parmesar.

Speaking with Stabroek Business on corporate governance, Parmesar, however, notes that in Guyana, it would be a security concern to make public the benefits and salaries of top officials of companies.

But this issue would be out of the control of companies come January 2005 when the new International Accounting Standard will mandate that all remuneration of top company officials and boards of directors be disclosed in companies’ annual accounts.

Parmesar expects that compliance with this standard will cause some initial unease because shareholders and workers may not react positively to the disclosure of the emoluments of top officials and may throw accusations of “super salaries”. This would also have a negative effect in the bargaining for wage increases by unions.

“Management will have to justify their salaries and workers will have to recognize the level of skills and responsibility placed in management to earn such packages,” says Parmesar.

He tells Stabroek Business that none of the clients of Jack Ali and Sons, with which he is affiliated, has expressed consternation about the impending disclosure requirements. Parmesar, however, sees the requirements in the long run providing for greater accountability.

For him, corporate governance covers the gamut of accountability issues and the ICAG will begin shortly, a process of sensitizing its members on this evolving concept to stimulate discussion on what model of corporate governance would suit Guyana.

Under such a model, public companies may be expected to set up remuneration committees with a non-executive director heading these as well as other committees to allow for greater transparency in their operations. As it stands, salaries are private matters for boards and in the case of directors’ remuneration there has never been a challenge to this at any annual meeting or to the reappointment of directors or even auditors.

Parmesar concedes that Guyana suffers from a very inactive shareholding population and recognises the need for shareholders to be educated. He puts the shareholder apathy down to the fact that many shareholders inherited stocks and as such, are not into the value of their stocks and see their dividend yields as a windfall rather than as a return on asset(s).

He expects that with the Stock Exchange in place and the requirement for quarterly information, more information would be made public and the education process will be started. He also expects that once Guyana adopts a corporate governance standard, it will eventually be legislated.

The ICAG with effect from August 1 adopted the International Standards on Auditing and International Audit Practice Statements. This is to ensure that all accountants practicing legally in Guyana use a common approach to auditing financial statements. In the past, different international standards were used. The ICAG is the body governing the practice of accounting in Guyana.   (Back to top)

Shares riskier than bank deposits but offer potential for higher returns

- Patrick van Beek, actuary, speaks about investments

Investments in shares offer the potential for higher returns and keep pace with inflation but carry a risk of earning nothing or little if the companies in which shares are held do badly. This risk, however, can be mitigated if one holds a diversified portfolio of shares.

On the other hand, with bank deposits, one’s capital is secured but there are no guarantees that the returns will keep up with inflation.

“In Guyana today, nearly all bank deposits are offering returns less than inflation. That means that if you make a deposit today, when you withdraw your capital and interest (in the future), your money would be able to buy less than it could buy (today),” says actuary, Patrick van Beek.

Van Beek explains that with a bank deposit (as long as the bank does not go bust), one’s capital is secure and your only return is by way of interest. Interest rates vary and depend on a number of factors including the central bank’s treasury bill rates and the demand and supply for money. Interest rates offered by commercial banks are not guaranteed for any length of time, hence the risk that your return would be reduced if the interest rate falls.

“There is no guarantee that bank deposits will offer a real return, that is, returns in excess of inflation or at least keep pace with inflation,” van Beek asserted in an interview.

However, investment in ordinary shares offers part ownership in a company and an owner is entitled to share in the profits of the company and to vote at shareholders’ meetings.

Ordinary shares are a far riskier investment than bank deposits, since the returns are tied wholly to how well the company whose shares you are holding performs. If a company fails to make a profit, dividends may be reduced or stop altogether, and if the company goes into liquidation and is wound up, shareholders are the last in line, after all creditors have been paid off, and often are left with nothing.

Van Beek explains that because of this increased risk of investing in shares, investors want better returns. He says that over long periods (over 10 years) most equity markets in the world have been the “best performing asset class” in their economies. Exceptions, he says, tend to be where speculative bubbles form and burst such as in Japan in the early 1990s and NASDAQ in 2000.

“Even allowing for the bursting of these bubbles, taken over a long enough time period, all equity markets have outperformed inflation, bonds and cash,” van Beek asserts.

However, because share prices are wholly determined by supply and demand, the price you get for your stock will depend on what the market is willing to pay at the time. This means the sale price for capital invested is uncertain. If in the long run the earnings and dividends of a company increase, the share price would also be expected to increase but there are no guarantees. But income from shares by way of dividends tends to be more stable as companies generally try to avoid cutting them.

“Shares are considered to be real assets - that is, the returns tend to be tied to inflation and over the long term, dividends would be expected to keep pace with inflation,” says van Beek. He sees shares as a suitable investment for people saving up for their retirement while bank deposits would be suitable for people wanting access to their money at short notice.

He advised that the decision to invest in shares or bank deposits should be looked at from the perspective of whether one wants to maximize one’s returns at the risk of losing some or all of one’scapital or whether security of capital is the most important consideration. In the case of the latter, investments should be in bank deposits and in the case of the former, shares.

Share prices

Van Beek asserts that it is demand and supply that determines the prices at which shares are traded. He points out that trading on the local stock market reflects this in the prices being offered for three companies’ stocks - Demerara Distillers Limited (DDL), Banks DIH Limited and the National Bank of Industry and Commerce Limited (NBIC) - which are in oversupply at the end of each trading session.

On the other hand, there is a case of chronic under supply of the Demerara Tobacco Company shares which was first traded at $31.10 and has jumped to $42 per share, a 35% increase.

The traded price for Banks DIH shares have fallen from $7.50 per share initially to $7 two trading sessions ago, while trade in DDL shares moved from $7.50 to $6.90 in that period. The Guyana Bank for Trade and Industry (GBTI) shares were originally traded at $30 and then at $25 per share. The offer for purchase is now at $25 per share.

But while there are offers to buy shares from a number of companies, there are no willing sellers. This is the case of the offer for Demerara

bids (purchase price) at $1.20 each against an original offer price (for sale) of $12 per share; Citizens Bank Limited at $10.50 per share against an original offer price of $13 each; Sterling Products Limited at $15 each, up from the original offer price of $12; and Guyana Stockfeeds Inc at $15 each.

The value that one attaches to a share has nothing to do with the par value of the share, van Beek explains. That is, the par value of a share could be $1 on which a dividend would be declared but the market could be asking $30 for the said share.

Some of the key financial indicators that persons need to look at when determining how much money they should pay for a share or at what price they ought to sell shares are listed below.

a. Earnings per share (eps): this is the after tax profit of a firm divided by the number of shares in issue. This reflects how much money each share in the company generates. There is a strong link between the earnings per share and share price, van Beek says.

b. Price/earnings (p/e) ratio: This is the share price divided by the eps. This, van Beek says, can be thought of as the amount of years that need to go before the profits of the company repay the price paid for the share. A high P/E ratio could indicate that the share is held in high regard by the market, because earnings are expected to grow rapidly in the next few years or it could mean the share is overvalued. This means that people are paying too high a price for it. A low P/E ratio indicates a share is held in low regard by the market because earnings are expected to be reduced in the next few years. It could also mean the share is undervalued (people selling at too low a price). The latest audited accounts, historical ratios (not adjusted from last year-end to 8th August) and information from trading session on August 8th, 2003, shows NBIC’s p/e ratio to be 34.88; GBTI 7.03; Banks DIH at 7.58, Demerara Tobacco Company at 1.94 and DDL at 7.22.

c. Dividend yield: this is the dividend per share divided by the share price and reflects the level of income that shares will provide as a percentage of the amount invested. Van Beek says this reflects the amount that will be returned to investors in one year if dividends remain unchanged and is an important valuation measure.

“A low dividend yield could indicate that the share is held in high regard by the market, because dividends are expected to grow rapidly in the next few years. It could also mean that the share is overvalued. A high dividend yield could indicate that the share is held in low regard by the market, because dividends are expected to reduce in the next few years and could also meant that the share is undervalued,” van Beek explains. He says the dividend yield is a good indicator to compare other investments with, such as bank deposits and treasury bills, to determine whether shares are good investments or not.

So when you are considering an investment in a bank deposit or shares, determine first whether you want to maximize your returns or secure your capital at the expense of having no real return (eaten away by inflation) and compare the returns available. That is, look at dividend yield on shares and compare these with interest rates on deposits. And bear in mind dividend yield only reflects income, and not capital growth.

Equity analysis requires up-to-date, accurate financial statements and van Beek says if you are not confident how well a company is really doing, then perhaps an investment in its shares is not for you. Publicly traded companies are required to publish quarterly financial statements and the market journal published weekly by the stock exchange provides the market prices for these companies’ shares.  (Back to top)

Layoffs are seasonal

 - Denmor

Managing Director of Denmor Garment Manufact-uring, Dennis Morgan, confirms he has sent home staff because of market difficulties but says this is seasonal and the staff will be rehired by the end of this week.

Morgan says his customers in the USA were reviewing their inventory in preparation for the Spring 2004 fashion season and were not placing their orders just yet. This delay, he says, had caused a ‘domino ef-fect’ where everyone was made to wait and he has had to send home staff.

Stabroek Business was told that Morgan lost two valuable clients as a result of changes in market conditions and has been forced to send home workers. The Guyana Office for Investment (Go-Invest) is reported to be working with Morgan to secure other markets. Denmor’s factory at Coldingen on the East Coast supplies apparel to Victoria’s Secret, JC Penny, Walmart, Sears and Russell Athletic.

Morgan confirms difficulty with two customers and says negotiations are underway to have these ironed out. He points out that his business is totally export oriented and as such it has to wait until its’ markets need supplies to produce goods. He insists it is not a question of losing markets. He also says it does not appear as though the company’s orders were being cut back. Delivery dates, he adds, remains the same.

The company still has plans to expand and is eyeing other customers. “We are setting up new clothing lines,” Morgan says, adding that the company has already received orders from two new customers in the US. Morgan says with new orders there would be the need to increase the workforce. Denmor Garments has been one of the success stories of the 1990s.  (Back to top)

Stock exchange first quarter round-up

Banks shares most traded but price slips

During the first 13 trading sessions on the stock exchange which began on June 30, a total of 3,735,703 shares changed hands for a total consideration of G$31,292,386.

Banks DIH was the market leader in terms of trades and volume with 3,245,122 shares traded in 55 transactions for a total consideration of G$22,398,170 and a weighted average price of $6.93 per share. DIH first traded during session 2 at a price of $7.5. Since then the share price fell steadily until session 12 when the price dipped as low as $6.5 before rebounding to close at $7.0. During the last session (13) DIH traded at $6.7, though on extremely thin trading.

The next most active stock was DDL with 228,494 shares changing hands in 50 trades with a total consideration of G$1,619,261 and a weighted average price of G$7.09. DDL first traded during session 3 at a price of $7.5. Up to session 11 the price was volatile with shares trading in the range of $6.9 to $7.4. In the last session the price fell to $6.50, again on very light trading.

With a total consideration of G$5,115,575, Demerara Tobacco Company was second only to Banks DIH in terms of the total value traded. A total of 124,377 shares were traded in 27 transactions at a weighted average of $41.34 per share. DTC first traded at $31.10 during session 4. The price then jumped to a high of $42.10 in session 5 before steadying at $42.

Citizens Bank Guyana Limited saw 100,000 shares traded in 3 transactions at $13 over sessions 10 and 12 for a total consideration of $1,300,000.

The Guyana Bank for Trade and Industry saw more activity in terms of numbers of transactions with 11 trades involving 30,710 shares for a total consideration of $855,380 at a weighted average of $28.02. GBTI first saw activity at $28 in session 2, reached a high of $30 during sessions 7 and 9 before falling back to $25 during session 11.

The National Bank of Industry and Commerce Limited (NBIC) saw 4 transactions totalling 7,000 shares for a consideration of $104,000. NBIC first traded at $15 in sessions 4 and 9 before falling to $14 in session 10.

Guyana Association of Securities Companies and Intermediaries Inc. (GASCI).is now live at www.gasci.com, where you can keep up to date with each week’s trading activity, together with information about GASCI, its member firms and the securities traded on the exchange.

  (Back to top)

Economic policy regime not conducive

- World Bank draft report

The World Bank says despite progress in recent years, Guyana’s economic policy regime is not conducive to private sector development and impedes the country’s competitiveness within and outside the region.

The Bank in a recent draft report alludes to the decline in private investments from a high of 30% in 1992-4 to 12% of the Gross Domestic Pro-duct (GDP) in 1997 and now down to 7.4% last year. It also notes the average US$50M (G$9.6 billion) in foreign direct investment between 1997-2001, mainly in the mining sector, and the lack of growth in short-term credit to the private sector at the end of 2001 as against 1997.

“Since replacement investment would normally require 4 to 5 percent of GDP, this (decline in private investment) implies that very little new private capital accumulation has taken place since 1998,” the Bank says in its draft report which reviews Guyana’s development policy.

The Bank repeats a common theme that the discretionary fiscal incentive regime (recently changed with the Fiscal Enactment Amendment Act) causes distortions to the playing field for businesses. It also refers to the many licenses required to start up and operate a business and which are difficult to obtain and renew. It notes as well that “impediments” in clearing goods through customs and “irregularities” in public procurement impede private initiative.

The government is currently working with the Bank so that the June 23rd draft will be finalized and its comments would be incorporated.

The Bank in the report finds that infrastructure remains a “bottle neck” to private investment in Guyana and despite three decades of public investments, the country still lacks a deep water harbour and its road and rail systems remain deficient, electricity remains unreliable and expensive and telecommunications services are limited.

Qualified workers and managers are scarce because of emigration and the Bank sees that Guyana will not have many qualified and experienced people “over the medium term”. The Bank also says slow progress in having the appropriate institutional and regulatory framework in place for privatized industries such as telecommunications, electricity and air transport limits the gains from privatization.

The Bank points out that Guyana has fared very low in the `quality of regulations’ index for 2002 in the Caribbean, coming just above Suriname, Haiti and Cuba and in the `rule of law’ index, Guyana even ranked below Jamaica and only above Cuba and Haiti.

“The main problem for business investors....is the perception of physical risk resulting from political riots in Georgetown. The inter-party warfare has impeded the reform process and dampened the investment climate. Law and order has emerged as a serious concern with the incidence of violent crime reaching unprecedented proportions in urban Guyana and now becoming the main concern of private businesses. To attract substantial new investment, Guyana needs to persuade potential investors that it is an orderly, reliable democracy,” the Bank says. It adds that investors are also deterred by the extent to which delay characterizes policy decision making in Guyana, and this, the bank says, is part by-product of the highly centralized political decision making process.

The report speaks of the need to eliminate state discretion given that decades of socialist government and ideology left an “anti-business” residue.

“Recently, government-business relations suffered a setback in drafting the new investment code. The business community preferred an automatic, non-discretionary tax regime. This clause was, however, removed by the government. While there were substantive arguments on both sides, the incident reinforced existing suspicions. Guyana’s business environment suffers from excessive government regulation and discretion,” the Bank says, noting that in the index of economic freedom, Guyana ranked 93rd out of 161 countries. In the government intervention component of that index, the Bank says Guyana ranked lowered than any country in Latin America except Cuba, Haiti and Venezuela.

“Any regulation that does not serve a public need should be eliminated and remaining rules should be automated, especially in taxation and investment. Excessive regulation and case by case discretion leads to red tape and corruption which is endemic in Guyana,” the Bank says.

However, the Bank finds that despite inadequate investment legislation, Guyana has a relatively liberal investment regime with few restrictions on entry and most sectors are open for investment. It notes that the country has no limit on foreign equity participation and foreign investors are not screened, unless they lobby for special incentives. The Bank sees the reinstatement of a non-discretionary tax regime as a bolster for the private sector’s confidence.

The government in its response to the draft report and on the investment and governance chapter took exception to the section relating to the investment code and accuses the bank of taking an “infactual” approach to the process leading to the tabling of the investment code and drawing wrong conclusions. The government says that what had been proposed was more fiscal incentives that the government could not afford and the IMF would not have approved.

The World Bank also said that despite implementation of several measures agreed to after the Presidential business summit, business leaders still complain that no real improvements have occurred.

The Bank report deals with the need to eliminate state discretion in the tax system and argues that excessive regulation and case-by-case discretion leads to red tape and corruption, “which is endemic in Guyana”. It speaks of corruption continuing in the Guyana Revenue Agency (GRA) and the inability of the GRA to dismiss corrupt officers as it had envisaged under its operating legislation. The report says this prompted former Commissioner General, Edgar Heyliger to resign. With the new law, tax incentives are now legislated, doing away with the discretionary powers of both the President and the Minister of Finance.

In the area of mining in which Guyana has received the most foreign investment flows, the Bank says there is need to remove the restriction on foreign investors to own medium scale claims between 27 and 14 000 acres. As it is, small (up to 27 acres) and medium claims are reserved for Guyanese firms only. There is also the need for security of land tenure and the redefinition of the state’s role by establishing the legal basis for public mining institutions to focus on leasing and regulations.

The new mining act being crafted and regulations are expected to provide a firm legal basis to control the “ongoing, highly destructive, informal placer mining for gold and diamonds” by requiring settling ponds to keep sediments from degraded rivers, the Bank says.

The Mining Act, the Bank says, is no longer consistent with the regulations in effect for environmental protection. It notes that a new mining act is being formulated to make the sector more attractive to foreign investment with more balance in its treatment of the environment and issues related to indigenous tribes.

“Establishment of any large new mines and associated facilities such as access roads, camps and company towns, will require careful regulation to minimize and mitigate adverse environmental and social impacts,” the Bank says.

“Overall, private sector development remains seriously hampered by the increased deterioration in the security situation, the political tensions which have been diffused only recently, corruption and state discretion in implementing laws and regulations and poor physical infrastructure services,” the Bank asserts.  (Back to top)

No smuggled fuel at our pumps

-say some gas stations in Essequibo, Corentyne

The management of the Two Brothers Gas Station at Vergenoegen, East Bank, Essequibo, strongly denies that fuel sold at this and other gas stations owned by Shiraz Alli is illegally obtained.

An official of the establishment told Stabroek Bus-iness that he was willing to disclose documents showing that their business was legitimate: “They (the authorities) have to come to us. We have all our bills,” he told this newspaper when approached.

The official said that they bought their petroleum products from Texaco and Guyoil. When Stabroek Business first spoke to this official he seemed co-operative, but contacted this week, he was less willing to speak.

He had told Stabroek Business that up to Sept-ember 25, the company had purchased 174,568 gallons of gasoline, 136,031 gallons of diesel and 54,351 gallons of kerosene from Texaco in Ramsburg, Providence on the East Bank of Demerara. He added that Two Brothers began purchasing from Guy-oil around September 25.

An official of Amin’s Gas Station at Sans Souci, Wake-naam in the Essequibo River, told Stabroek Business that all the fuel supplied to his business came from Guyoil in Georgetown. He invited the newspaper to visit the island to examine all the accounts for the fuel purchases and sales. He added that the company’s tankers transported fuel for Guyoil on some occasions.

H.N. Sugrim who runs a gas station on the Corentyne, in an earlier interview with Stabroek Business, had denied any involvement in the illegal fuel trade.

The government is cracking down on fuel smuggling and is to put in place a marking system whereby chemicals are added to the fuel products to identify their origin.

Joseph O’Lall, Chief Executive Officer of the Guy-ana Energy Agency (GEA) said that because of the large number of personnel needed to effectively police the whole country, the agency will be concentrating on the ‘trouble spots’.

Smuggling of petroleum products is believed to be widespread along the West Coast of Demerara, the Corentyne and on the Essequibo Coast.

O’Lall said too that new fuel regulations had been written and circulated to fuel importers. These are said to be in the Chambers of the Attorney General for consideration.

The fines can reach $1M with jail time ranging from three to five years, O’Lall said, adding that the revocation of licences would be irreversible.

The GEA estimates that 20% to 25% of the petroleum products on the Guyanese market are smuggled and says that the US$30M business is costing the country US$10M in annual revenues.   (Back to top)

U.G. seeks control of .gy domain

- SNDP lobbying for technical responsibility

By Johann Earle

The University of Guyana (UG) is seeking full control of the .gy domain (for use in web sites and email addresses), the technical responsibility for which currently lies with a Puerto Rican university.

However, the Sustainable Network Development Programme (SNDP) believes it is better suited to handle the technical issues related to the .gy domain and is actively campaigning for its control.

The Internet Corporation for Assigned Names and Numbers (ICANN), which is the body governing the use of the internet, in 1995 when internet was new to Guyana granted a Puerto Rican university the technical responsibility for the .gy domain. The University of Guyana was granted the administrative responsibility.

However, Guyanese businesses and persons complain that it is almost impossible to be registered as a .gy domain name because of the logistics and language barrier. Should UG or SNDP gain technical responsibility for the .gy domain, persons wishing to have the .gy domain behind their websites or email addresses will be able to expedite their registrations.

The domain name registrar is usually a non-commercial entity to allow for the impartial registration of domain names.

Each country is usually assigned a domain name, indicative of the country to which it belongs by the letters it carries. However, the administration of a country’s domain name is usually split into administrative and technical.

To secure the technical responsibility, University of Guyana Deputy Vice Chancellor, Vincent Alexander says a number of letters have been written to the ICANN indicating UG’s interest in performing both the technical and administrative functions for the .gy domain.

“We expect to see some action from ICANN before the year is out,” Alexander told Stabroek Business. He is of the opinion that ICANN will respond positively once UG makes a convincing case of its Information and Communication Technology (ICT) readiness.

ICANN must give its approval before the change of the domain name administration can take place.

Funding of the infrastructural works for the domain name technical administration will be provided under the Inter-American Development Bank (IDB) funded Information and Communica-tions Technology (ICT) project, now stalled.

Alexander expects that by the end of this academic year, the university should have the go ahead from ICANN to gain full control of the .gy domain name.

He indicates that as of now, all domain name registrations out of Puerto Rico are on hold.

Compared with 1995, the university now has the technical personnel to efficiently oversee the technical aspect of the domain name.

One local web developer, who had difficulties in registering with the .gy domain, feels Guyana’s small population with limited buying power needs to get online to take advantage of incentives the internet offers. He said the .gy domain gives the business or company a label.

“Puerto Rico had done us a favour but the registrar needs to be brought closer to home,” another developer says.

Meanwhile, SDNP is campaigning locally to have control of the technical responsibility for the .gy domain name and has submitted a proposal to that effect to UG. This proposal was prepared at the request of UG’s Pro- Chancellor, the Government and information technology (IT) private sector representatives.

SDNP currently does registration for three second level domain names .org.gy, .gov.gy and .edu.gy. The .gy domain name is the first level.

But extensions such as .names.gy, .biz.gy and .co.gy, registration must be done through the contact in Puerto Rico. SDNP had in 1999 asked Puerto Rico for administrative control of the second level extensions. As of now, UG is wary of entering into any arrangements with third parties for the technical aspects of the .gy domain because of the absence of any communi-cation from Puerto Rico and the slow pace at which ICANN responds to UG’s correspondence.

Alexander questions the propriety of SDNP in gaining control of the three second level domain extensions from the Puerto Rican contact without the approval of the present domain name administrator, UG.

To this, SDNP’s response has been that the contact at UG was not available at the time.

And Vidyaratha Kissoon, SNDP’s coordinator, says there is a UG representative on SDNP’s steering committee and as such, the university was at all times ‘in the know’ where SDNP’s actions regarding domain name registration was concerned.   (Back to top)

Design bids in for Eccles landfill

The US$9M solid waste disposal project at Eccles is one step closer with bids for the design of the landfill now being considered.

According to reports coming out of a Brazilian news agency, BNamericas, the government received ten bids for consulting services for the engineering design for a new sanitary landfill in Georgetown. These bids were reportedly submitted by Guyanese and international companies, including from the US and Canada.

Stabroek Business understands that a report had been submitted to the Finance Ministry for final evaluation and that a winner was to be announced on September 19. No such announcement was made. The timeframe for works was not specified, the report added.

The project is said to be part of the city’s solid waste disposal plan. On February 12, 2002, the Inter-American Development Bank (IDB) approved a grant for US$300,000 to fund technical services.

It is estimated that the US$500,000 will be used to execute the engineering design for the landfill, execution of topographic surveys, and to carry out environmental impact studies, creating tender documents for construction and to assist tender procedures.  (Back to top)

Performance audits give value for money

Financial and performance audits are essential to ensure accountability and ‘value for money’ within the public sector, says Andy Wayne of the Association of Chartered Certified Accountants (ACCA).

Effective performance audits, he says, can prevent irregularities by ensuring the correct systems are in place.

Wayne was speaking at a recent seminar for accounting professionals and during the presentation he examined the three main approaches to public audit; compliance audit, certification audit, and performance audit.

However, Managing Partner of Ram and McRae, Christopher Ram in an invited comment asserts that the financial or accounting officer in Guyana is not equipped for performance auditing.

“It deals with a different concept of auditing altogether,” Ram says and adds that non-accounting professionals like consultants and engineers may be involved in performance auditing. Such auditing, he says, deals with process reporting, governance systems and organisational structures.

Ram also asserts that Guyana was a far way off from performance auditing because of a resistance to results delivery. “If persons [in Guyana] would accept that performance auditing is necessary, this would be a way forward,” Ram states.

Lester Bowen, Principal Auditor at the Office of the Auditor General, however, tells Stabroek Business that performance auditing does take place in Guyana.

Wayne in his presentation ‘Finance or Performance Audit - what are the priorities?’ points out that financial audits deal with regularities, pre-payment and post-payment audits as well as legal compliance. On the other hand performance audits are geared to look at the ‘value for money’ (VFM) performance of the company or agency. VFM auditing looks at the processes involved in operations to allow for economies and efficiencies. Such audits also review the outcomes or effectiveness of operations.

Wayne explains that the audit of outcomes involves the non-financial performance indicators such as the examination results for the Ministry of Education. Review of budgetary assumptions is also a part of the VFM process and these assumptions are vetted for their feasibility.

Wayne notes the risks involved in performance auditing, such as the likelihood of the audit not providing value for money. For example, with a performance audit, the operations may be able to save money, but in the end there is little effectiveness.

There would also be the requirement for more professional staff with different skills and the auditor will not longer be required to ‘check the books’ only. He or she will have to make assessments of non-financial indicators. The ACCA, a certification body based in the UK, and the Office of the Auditor-General recently coordinated the seminar at the Cara Inn.  (Back to top)

EDITORIAL

Attitudes

The story of a young man, who three years ago earned $2500 per month and now makes as monthly sales an average $4M is told in this edition.

Like anyone of us, he had potential. But he did not let it end there. He went on to transform his potential into tangible returns in a sector dominated by larger players. He is a small fish and may remain so for some time to come but his results are startling.

Mark John did not live his life talking about his potential. He did not cry about what a bright future he could possibly have should the government create the right investment climate. He did not lament the effects the market he operates within has on his business or his small profit. Nor did he cry foul that he did not do so well in school so he should be excused for being a misfit in society.

No, he took destiny in his own hands, shaped it with his sweat and in the days when the going was tough, used the faces of his family members to make the next step. He `got up and got’ as we say.

Today, he has earned what so many of us dream of - success - albeit on a small scale. And it does not stop there. He plans to buy an envelope machine to supply the local market with the thousands of envelopes imported on a monthly basis. He too has a dream. But it did not end there. He keeps taking the necessary next step to realize that dream. Mark may not be a millionaire. But he is a far cry from the young boy with three mouths to feed who only took home $2500 per week. He has earned himself a micro-business, a vehicle and is on his way to building his own home, something he dared not dream of on his meagre $10 000 monthly income three years ago.

But he seems not to be the only one.

There is a growing incidence of micro and small businessmen and women on the rise in Guyana as can be seen in a snapshot of a few of them in two articles in this edition. They all must be commended for taking the initiative to transform their lives.

While Guyana’s destiny lies in transforming her potential and targeting the export market because of the small domestic market, such development cannot take place in a vacuum. It requires private capital and private initiative. It requires businessmen and women who are willing to go the extra mile. It requires an attitude of `we can do it’. We may choose to sit and criticise the investment climate, the incentive regime, the government or the market players. We can choose to overcome our obstacles or let our obstacles overcome us. At the end of the day, our attitudes shape our lives.   (Back to top)

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Rural fund to boost agriculture, micro-businesses

Residents in Regions Two (Pomeroon/Supenaam) and Three (West Demerara/Essequibo Islands) can access loans and grants for farming or to form micro-businesses as part of the Poor Rural Communities Support Services Project (PRCSSP).

This project provides support services to rural communities with particular focus on poor households, Amerindian communities, youths and single-woman headed households. It is funded by the government (US$5M), the International Fund for Agricultural Development (IFAD) (US10.5M) as well as the Caribbean Development Bank (CDB), which is providing US$0.5M as grant and US$5M as a loan.

At the end of July 31, G$630M or 23% of the funds had been disbursed to farmers, women’s groups and towards community projects. The Institute of Private Enterprise Development (IPED) is overseeing the disbursement of the US$2M available in a revolving fund to eligible persons under the project.

This project was approved in 1997 but only got off the ground in 1999.

For farmers to become eligible for financing, they must have a farm not exceeding 10 acres of land and their income cannot exceed US$2,600 or G$515 000 per year.

Permanent Secretary in the Ministry of Agriculture Dindyal Permaul says grant funds are also available for community initiatives and organisations through the Community Investment Fund. Funding is available for drainage and irrigation schemes and at the end of July of this year 20 D&I projects were financed. These included the excavation of new drainage and irrigation canals, the rehabilitation and cleaning of existing drains and canals and the rehabilitation of embankment and access roads and bridges at a cost of $159.4M.

The project facilitates training and applied research through the National Agricultural Research Institute (NARI) for a number of on-farm trials, including Tilapia rearing, duck rearing and cultivation of crops using organic farming methods.

How projects are selected?

Permaul explains that a regional steering committee assesses projects to ensure their viability and the PRCSSP’s steering committee gives the final approval. The project is then sent to the CDB for a ‘no objection’ vote before disbursement can take place. In such a scenario, Permaul says a project can take between six and nine months before it is approved.

As of July, PRCSSP disbursed through IPED, $152.3M and IPED has been able to collect 76% of its loan payable.

Some 4000 persons have received training under 127 training programmes executed. Training programmes were offered in the safe and effective use of pesticides; small scale fresh fish farming; calculation of irrigation rates; leadership skills; effective communication; economic uplift of women; operation and maintenance of D & I systems and others.

The beneficiaries

Philomena Stoll brought together a group of women a year ago to experiment with food products and formed the Pomeroon Women’s Small Cottage Association, which makes food condiments out of the Carambola fruit. This is a group of 14 women.

Stoll, who received G$1.7M from the Canadian International Development Agency (CIDA) to start up that association, has approached PRCSSP for financing for a new solar drier, utensils and processing equipment and to have her kitchen remodeled to increase the association’s productive capacity. This application is currently being considered by IPED.

The association manufacturers achar, pepper sauce, cherry wine and candied orange peel among others some of which are on the shelves of the New Guyana Marketing Corporation (NGMC).

Stoll told Stabroek Business that although her products are marketed in Georgetown, she is now working to have proper labels made for them. Her ‘draft’ labels are to be approved by the Guyana National Bureau of Standards (GNBS), after which she will begin supplying other supermarkets.

Stoll told Stabroek Business her business is very profitable mainly because she does not have to repay any money. She is aiming to build up her ‘working capital’ by depositing her earnings in the banking system.

“You have to have the foresight and positive approach that this is going to work,” she said.

On the other hand, the PRCSSP has contributed $1,6M to the Tapakuma Agro-Processing Unit, a group of five women, at Tapakuma on the Essequibo Coast. This unit makes cassava products such as casareep, cassava bread, cassava biscuits, starch and other products.

Donna Roberts is the acting manager of this project and a private individual Raymond Fung-Fook distributes the units’ products in Georgetown. These are sold at Nigel’s Supermarket.

Roberts said the unit is not making a lot of profit but she is confident this will change if the unit is expanded. She said the community has never had such an opportunity.

Under the PRCSSP, the unit was able to extend its building so that the women could use indoor ovens. The project has also provided the unit with a small generator and electrical appliances and services to allow for large scale grinding of cassava.

Roberts calls the facility the first of its kind in the country and she intends to employ more people when additional markets are found.

Another women’s group in Tapakuma is involved in a demonstration duck-rearing project. The Tapakuma Women’s Development Group were provided with ducklings from the PRCSSP and left on their own to complete the self-sustaining rearing project.

And not far from Tapakuma is the Mainstay/Whyaka/Red Lock Women’s Group, which started in November of 2002. This group is involved in the rearing of Red and Silver Tilapia in ponds. PRCSSP built the first pond while the group of about 12 women built the second and is considering a third pond.

Additionally, six sewing machines were acquired during 2001 to assist four women’s groups in the Pomeroon.

The beneficiaries were able to expand their range of products from teddy bears to baby shimmies, curtains, crochet works and school uniforms. As a result of this they were able to receive additional income through increased sales from the production of these items.

One such beneficiary is the Lily Dale Women’s Group of Three Friends, Pomeroon. Leader of the group Madeline Gonsalves said she was able to acquire a sewing machine for her group of five. With the machine, those in the group who knew how to sew taught the others.

The Lima/Sparta Fishermen’s Development Association on the Essequibo coast requested a fish port complex from PRCSSP and this was completed a month ago at a cost of $4M.

This will become available as soon as an ice machine is secured so that boat owners can secure rations or ice, or space to mend their nets. This association has 34 members comprising fishermen and rice farmers, according to Chairman Hardat Narine.

“We had to mend our nets in the hot sun. Doing this now will be easy and convenient,” Narine said. The association will have to cover the administrative expenses of the new complex.

Permaul told Stabroek Business that it is hoped that the PRCSSP model will be taken to other parts of the country as it has seen some measure of success.

The PRCSSP offices are located at Dem Amstel West Coast Demerara, from where the Project Management Unit (PMU) operates.

The project also has a sub-office in Anna Regina on the Essequibo Coast. The PMU is responsible for implementing, co-coordinating and monitoring all project activities. Because of the GoG funding, the PRCSSP falls under the purview of the Ministry of Agriculture.   (Back to top)