THE AFC AND THE BAN ON LOGS
September 1, 2014, By KNews, Filed Under Features/Columnists, Peeping Tom, Source - Kaieteur News
The AFC promises to ban the exportation of logs. I am surprised that it does not desire to ban the exportation of gold, sugar, rice and bauxite. These are all primary commodities.
The AFC wants logs banned but has not addressed the fundamental economic issue that is at the center of the controversy over the forestry sector.
At a time when primary commodity prices are high because of the demand for these products by China and India, should developing countries which have a comparative advantage in primary commodities make the most of this bubble?
Should they use this bubble to maximize their export revenues? Should they use these proceeds to diversify their economies and maximize welfare?
Or should they instead stay outside of this bubble and instead ask investors to invest in adding value to primary commodities so as make manufactured items on which there is no comparative advantage?
The history of economics has never been on the side of developing countries. Being mainly primary commodity producers, many developing countries attempted to offset this problem by encouraging industrialization so as to be inserted higher in the value added chain.
This industrialization however simply meant that developing countries became satellite stations for multinational corporations who set up shop in their countries and siphoned off the surplus value from the production of manufactured goods.
A great many economists like to point to Singapore as an example of what can happen if a developing country engages in value added production. Singapore’s success however has less to do with the fact that it promoted manufacturing (with cheap labour) and more to do with the comparative advantages that its ports accrued to that country. In other words, it is not the manufacturing that made the difference to Singapore. It was trade.
This is why I have argued before that it is one thing to encourage value added production in Guyana. But it is another thing for markets to be found for the manufactured goods.
It is the same with Chinese and Indian investors who are operating in Guyana. These investors have strategic market linkages. There is a guaranteed market for the raw materials that are extracted. Without these markets, it makes little sense to cut down our forests.
Another example from another sector illustrates the importance of strategic linkages.
When Booker Tate came to manage the sugar industry, the benefit to them (and to Guyana) was not just the management services they provided to Guysuco. It was also the fact that this company has experience in the marketing of sugar and in fact was the purchasers of Guyana’s sugar.
The Chinese and Indian firms that are operating in Guyana are not just engaged in logging. They are also linked to the export markets for logs. Without these companies, the markets simply would not be there.
Those who feel that Guyanese loggers can simply stockpile their lumber and export them had better think again. Export them where? The Chinese will buy our timber once it is coming from Chinese companies operating in Guyana and it is the same for India.
No doubt the AFC believes that we should be processing the logs in Guyana. But where is the competitive advantage of doing so? Has the AFC had a look at the prices of wood on the local market?
How come our local timber magnates have not in this era of high commodity prices found large lucrative markets for processed wood? They have not because they are not inserted into the international markets in the same way as the Chinese and Indian firms are.
What is important is not to stop the export of logs but to capitalize on the present commodity boom to build Guyana’s comparative advantage in value added forestry products. But this cannot happen without cheap electricity.
Cheap electricity in Guyana requires hydroelectricity. The AFC is however, and with justification, opposed to the hydroelectric plant which the government was planning to build.
It is not too late however to ask these same Chinese and Indian firms that are engaged in resource extraction in Guyana to construct such a facility with their own funds.
In this way, there will be no debt to Guyana and the excess energy can be sold to the grid at pre-determined prices, rather than through the controversial BOOT model which has not worked in Guyana.
Is the AFC in agreement with this or are they opposed to foreign firms operating in our forestry sector? Who knows, they may not have even considered this issue.
Source -- http://www.kaieteurnewsonline....and-the-ban-on-logs/