A baby in a world of giants

January 27, 2015 | By KNews | Filed Under Features / Columnists, Peeping Tom, Source - Kaieteur News

The local private sector is not up to the task of developing Guyana. It is too miniature, mired in small-mindedness, short of entrepreneurial and risk-taking drive, and ineffectual in mobilizing resources for large-scale investments.

It suffers from high capital rents, infrastructural constraints, poor labour productivity, transportation and communication inefficiencies, poor domestic demand, and an inability to penetrate foreign markets amongst a host of other limitations too numerous to mention.

While there have been improvements in all of these areas over the past years, Guyana is hobbling towards the goal of a strong and, dynamic private sector with the talent, skills and wherewithal to move the economy into another gear.

While over the past few years there has also been a phenomenal increase in the number of small businesses that have sprung up, very few of these are providing exportable. Most are servicing the domestic market with the result that for every one new business formed, another is most likely to go bust sooner or later.

The private sector in Guyana does not have the resources or the risk-taking ability to drive growth forward in the future. It is doing well for the moment and can justifiably be considered the engine of growth, given its overall contribution to GDP output.

Be it rice, fisheries, forestry, mining or banking and financial services, it is the financial sector that is driving the growth that Guyana has attained over the past six years when sugar’s importance to the economy began to decline.

In certain services, such as health and education, there are signs that private sector growth will eventually outstrip public sector growth in these areas, but it is doubtful that the private segment of these sectors would ever match the contributions of the state.

Also, much of the private sector growth in Guyana is dependent on government spending. Government spending has been the stimulus that has generated private sector growth.

Foreign direct investment, except in certain sectors such as mining, has not been healthy. And there are just reasons for this. Why would any investor want to take one million United States dollars and sink it into an economy like Guyana when there are places where labour is more productive and cheaper, where there is better infrastructure, where the cost of capital is less prohibitive and where the domestic market, which is so critical in the early stages of development, larger?

Why would anyone want to bring their money here when there were periods when the opposition loses an election, refuses to accept defeat and decides to have its supporters take to the streets? Why would any serious investor come to Guyana when it sees unions agree to one thing and when it is time to formalize the arrangement, call for negotiations? Which investor with options is going to put up with that sort of situation?

Guyana has not had the sort of foreign investment that could have allowed for double digit growth. That opportunity was lost because of both domestic and international circumstances. A genuine attempt was made when the physical infrastructure was in a shoddy state to attract foreign investment.

There were, for example, very large South East Asian logging companies lining up to invest in Guyana ’s forestry sector. One of the investors also planned a massive five star hotel. Then the Asian crisis hit and put paid to those hopes.

It was not just Asia that suffered when the bottom fell out of its financial markets. Countries like Guyana which had plans for large-scale foreign direct investment also suffered. But to a great extent it was fortunate that those investments did not materialize because when the bottom fell out from those investors, local workers would have borne a heavy burden. Thousands would have been out of jobs.

There is a sawmill lying in crates in the jungles of Guyana. That may seem like a bad thing but with hindsight it is a good thing that the sawmill was not unpacked because when the Asian crisis hit, that sawmill would have become a white elephant.

Guyana also lost opportunities for foreign direct investment not because of government policies but because of internal strife. Between 1997 and 2004, the country went through a difficult period, politically, and in terms of security, and therefore failed during that period to attract certain investments that may have materialized in normal circumstances.

Having lost that moment, courting foreign investment is not going to be easy anymore. The only FDI coming here is that which is looking to making a huge windfall, relative to the investment.

This is not to say that Guyana has not attracted any significant foreign investment. Relative to the size of the economy and the labour pool, one does not expect any single investment to be greater than US $200M.

There is simply not enough workers, not enough skills, not enough energy and not enough a lot of things for any single investment to be greater than this sum. But there have been large investments in telecommunications, for example, which can be considered significant considering the size of Guyana’s economy and its stage of development.

The big investor has however been the state. And this perhaps is the route that must be examined. It is public spending that is pushing private sector growth; it is public spending such as in the new sugar factor and packaging plant that is boosting national development.

It is public investments in projects and housing that is boosting the private sector’s contribution to the economy. It is public/private partnerships in projects such as the Amaila Falls Hydroelectric Project that will generate a significant portion of the short-term growth in Guyana and therefore it is to the state that everyone should be looking for signals about the investment climate.

The private sector can claim to be the engine of growth, but that engine is being lubricated by public spending, without which the private sector would be just a toddler trying to walk in a world of giants. Without the government, Guyana’s private sector would be helpless.