That 5.9% Half-Year GDP Growth
Read by Gerhard Ramsaroop, AFC Executive
Introduction
Finance Minister Ashni Singh reported that Guyana’s GDP grew by 5.9% in the first half of 2011. The Minister went to great lengths to emphasize the non-sugar sector aspects of economic growth. We can understand this given the fiasco associated with the new Skeldon factory that has consistently failed to meet its production and employment targets. The Minister gave us the growth rate of several sectors of the economy. Notably absent is the weight of each sector of the economy.We know that the Bureau of Statistics has rebased the GDP statistics to 2006. One implication here is new weights would have been used for the various sectors of the economy when calculating GDP from 2006. If we play around long enough with the weights we can get higher growth rates without there being any change in the actual output of the sectors. However, this is another issue for another day.
It is important to note that Guyana did not historically publish quarterly breakdown of GDP as several of our sister CARICOM countries – Trinidad and Tobago, Belize, Barbados and Jamaica – have done. It is interesting that Guyanese are offered up these half-year estimates in an election year. We find it strange that the Bureau of Statistics has not been reporting the quarterly GDP statistics. For the Minister to be able to come up with a half-year estimate these numbers must be available. Even the Bank of Guyana does not report them. As a matter of fact, the Bank of Guyana’s monetary policy functions will be better served if the Minister can release these numbers on a quarterly basis. The Minister might need to consult President Jagdeo before this becomes a reality.
The Jagdeo Rate of Growth
The average rate of real GDP growth under President Jagdeo has been 1.95% from 2000 to 2010. This is hardly spectacular. Even if we assume a 5.9% rate of growth for 2011 we will achieve an average rate of growth from 2000 to 2011 of 2.3%. The PPP has a habit of telling Guyanese how well Guyana is doing in spite of the global crisis and problems. What it does not want to face up to is the fact that when the world economy achieved a boom from 2000 to 2007, Guyana grew at a meagre 1.45% in the pre-crisis period. Why has this been the case? Below this release will explain some reasons for this mediocre performance.
Private Investments
A country must have investments if it is to continue growing. Growth, in turn, is critical because it leads to employment creation for citizens. If investments are zero then there will be no growth. We particularly value private investments given the private sector’s ability to generate growth. When analysing private investments we must take the private investment rate (PIR), which is calculated as the dollar amount of private investments divided by GDP. If we look at the PIR since 1992 it has declined continually. It continues to decline into 2010. Therefore, it is a mystery how growth has picked up given Guyana’s declining PIR.
Government investments have however increased while PIR is declining. Government investments have two main aspects: (i) a non-tradable aspect such as construction of roads, schools, bridges, etc; and (ii) a tradable component such as investments by GuySuCo and GuyOil – notable state-owned enterprises. The problem is government investments have been very inefficient to date. The Skeldon sugar factory is a disaster while infrastructure works continue to break up after a few months of being constructed. It is therefore a mystery how Guyana can achieve 5.9% growth with grossly inefficient public investments and falling domestic private investments.
Jobs
While the Minister appears keen to report half-year GDP we still do not have regular statistics on the Guyana labour market. The unemployment rate continues to be a mystery and it is a number typically subjected to political abuse. We also need to know what the rate of labour force participation is, which is calculated by dividing the labour force by the population. Regular labour statistics are critical for the proper management of the economy. In the United States, for instance, they even know the ethnic and gender profile of unemployment. The AFC will be a government of transparency and every effort will be put in place to see these data get collected and reported regularly.
Underground Economy and Remittances
These two have served as an important source of consumption. Guyana receives approximately 40% of GDP in remittances each year. This is one of the highest percentages in the world. Remittance inflows are stable and altruistic. Even when the North American economies enter into recession, Guyanese abroad still remit funds home. Remittances have served as an important pressure valve and have propped up family consumption for years. The inflows have also created a false sense of success among government Ministers. From an economic growth perspective, remittances could contribute to a reduction of labour supply and willingness to work. Remittances is the dual of migration of Guyanese – itself a symptom of the failed policies of the PPP since 1992.
The illegal underground economy has been particularly destructive in terms of security and has made it difficult for legitimate businesses to compete. Drug trafficking and money laundering lead to corruption of at all levels of the society. The WikiLeaks are bringing these out clearly. However, we must note that these illegal activities do not contribute favourably to long-term GDP growth and prosperity. Drug dealing increases the cost of doing business among legitimate business investors.
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