Guyana: Open for Business - Building a free market Guyanese brand
By Peter R. Ramsaroop, MBA
This column explores initiatives to improve the business climate of our nation and make Guyana- Open
Business December 24, 2004
Stabroek News
December 24, 2004
Taking the side of innovation and expanding our economic base is key to developing the success of Guyana's young people and our private sector. In previous columns, different ideas were explored that could help make the slogan - Guyana - Open for Business, a reality. Today we examine the nature of comparative advantage and the necessity of maximizing shareholder value.
Recently, the possibility of a foreign takeover of major Guyanese company Banks DIH has generated a great deal of public comment and almost universal hostility. While pride in Guyana's top companies is admirable, the economic nationalism and the perverse manner in which some have argued that some companies can be bought - but not our really good ones - leaves the international investor confused and dismayed. Free markets and the spirit of free enterprise means that the best companies will attract interest. Banks DIH is an example of a limited Guyanese business success that could potentially grow as part of a bigger entity, thus creating more jobs and more opportunities for Guyanese employees.
I've mentioned before in several settings that Guyanese expatriates often do very well in the competitive markets of the United States or the United Kingdom. My fellow Guyanese that have succeeded abroad know that this is a result of hard work and persistence. Yet, we don't see that many Guyanese companies succeeding on the world stage let alone becoming regional players. Why? One answer is the relative lack of scale that is achievable in the local market.
Michael Porter, a leading scholar and author of the 1990s landmark work on globalization "Competitive Advantage of Nations", argues that small markets often produce undervalued companies and industries that when brought into the larger global marketplace create more value for shareholders and their local economy. Guyana certainly has companies in the drinks industry with value on the international stage, yet the brands still remain in the minor leagues compared to other products. This lack of return on investment and underperforming brands has two major impacts on the Guyanese economy: first, an undervalued asset trading publicly limiting performance of the public stock exchange, and second, an organization that is not growing capacity and therefore being the stimulant to job creation that it otherwise could be.
It has been said in the press that by trying to save a small number of management jobs, many more jobs will be lost as a result of the negative impact this will have on other potential foreign investors. This is undoubtedly the case. Guyana should be actively courting international investors, not scaring them away. The small "win" of protecting one brand from being subsumed into a larger Caribbean entity, could bring a larger "loss" of an emerging free market Guyanese brand.
When I travel abroad, I always look for Guyanese products and rarely see them. Why? Could it be that our own organizations, as Porter states, aren't accessing international distribution channels to reach broader markets? Could it be that in protecting our own we lose much more?
Protectionism and the unthinking outcry regarding the Banks issue points to a fundamental misunderstanding of economics. Guyana should be open for business, including the ability to acquire companies with something more to offer the world. Clearly, Banks has something Ansa McAl wants and thinks it can do something more with. Companies purchase other companies to add value for their stockholders. Banks has been successful in many ways, and undoubtedly Ansa McAl believes it can do even more with the Banks brand. This should lead to increased production and further investment and more likely than not - more jobs.
Previously in this space, we talked about turning Guyana into the "tiger economy" of the Caribbean. One key characteristic of "tiger economies" is their openness to foreign investment. A reactionary Guyana, where protectionist tendencies hold sway, will certainly not be attractive to investors.
An open Guyana as a hub of economic activity serving to link the Caribbean with the Americas, the breadbasket of the Caribbean, with a diversified industrial base, an educated workforce, low unemployment and rising standards of living is an achievable dream. It will not be achievable, however if the spirit of protectionism defines the Guyanese brand.
Another key characteristic of "tiger economies" is the understanding of shareholder value. Organizations, whether they are manufacturing, services, or financial businesses have shareholders. Publicly held companies have different concepts of shareholder value than privately held companies by design. For a publicly-traded company, shareholder value has a large number of potential meanings, from "public good" type values such as jobs and community involvement to "financial good" values such as return on investment for those who own shares. Banks DIH, a publicly-traded company, speaks to both types of values. The question comes though, can an independent Banks DIH, maximize shareholder value of either type or would a broader Caribbean entity such as Ansa McAl grow value beyond what the current management has been able to do?
As a businessman with multiple shareholders and investor relationships, I'm well acquainted with discussions of shareholder value. As a former controller at a publicly-traded international company, our success and longevity depended on creating value for our shareholders. This is a good thing! Corporate accountability to its shareholders is a fundamental element of keeping the markets and business people honest and focused on creating economic successes. To attempt to "protect" Banks DIH is in effect a veiled attempt to reduce or eliminate such accountability and will only harm Guyanese jobs and investment in the long run.
Another important consideration for Banks DIH is their limited access to global markets at present. The global drinks industry has seen significant brand consolidation in the last twenty years and one thing is clear: small niche brands rarely succeed without being part of larger organizations. Carib beer is sold in over 30 countries, while Banks is barely known outside of Guyana and a few small Caribbean markets!
Guyanese are rightly proud of Banks DIH and other companies that have achieved a measure of success, yet the desire to "protect" any publicly traded company does not appeal to the best of the free market spirit. Our national focus and the focus of private sector organizations should be on growth and attracting more investment both foreign and domestic. One alternative is why not a Banks/DDL merger? Well, that's a topic for another column!