Development Watch
By Tarron Khemraj
Introduction
The National Competitiveness Strategy (hereafter NCS or the strategy) paper was completed in 2006 (see website: http://www.summit.org.gy/ncs.html). The strategy aims at achieving a balanced role between government and the private sector in diversifying the Guyana economy and making the traditional sectors more competitive. However, the strategy does not define precisely what it means to be competitive. Nevertheless, given the policy proposals and suggestions contained in the strategy, the government appears to view competitiveness as the ability of Guyana’s companies to compete with foreign companies – especially competition presented by CSME.
Tarron Khemraj
It is important to note, however, that enhanced competitiveness could mean increasing output per worker, which is the same as rising productivity. The increase in output per worker could emanate from using better technologies in existing industries or from producing alternative products by an existing industry. As the strategy emphasised, it could also come from building new industries such as information technology and aquaculture.
I believe it is important to highlight the rising output per worker (productivity) as a judge for enhanced competitiveness. Thinking about the problem in this manner also produces a different but complementary set of policies to those outlined by the NCS paper. In addition, rising productivity is at the heart of increasing the living standard of the nation in a sustained manner. For example, as our firms and industries become more productive, they are able to pay higher wages, which in turn allow the government to collect more taxes while keeping the tax rate constant. Government can also use its higher tax revenues to spend on vocational and technical training, modernising the university, funding research and development, etc, to further enhance productivity. Thus rising productivity engenders sustained long-term growth and a virtuous cycle that cause the nation to upgrade itself continually.
In addition, the NCS paper announces that the policy proposals are intended to “deliver on the goals of the National Development Strategy” (page 6). In many ways, this strategy is superior to the LCDS, which is largely dependent on the rich countries transferring large sums of money to Guyana for keeping the standing forests. The NCS, therefore, should be the main strategy and the LCDS should be just a sub-strategy. The LCDS is seen as the channel through which funds will be raised for Guyana’s development and for executing some of the policies outlined in the NCS. However, as was noted by my column on the LCDS (September 16, 2009), the funding are uncertain and if realised will flow in long after the Copenhagen summit. The question, therefore, of financing the NCS is still outstanding.
First principles
The NCS recognises the difference between comparative advantage and competitive advantage. This is by no means a trivial theoretical point that is made by the strategy paper. It is quite important. Comparative advantage is static and is based on logics that could make a nation specialise in being poor. For example, in spite of the massive investment into the new sugar factory in Skeldon, it will not really enhance the living standards of the people who live there. On the other hand, competitive advantage is dynamic and it recognises that a nation has to continually upgrade its production structure through active policies to overcome inherent market failures.
Nevertheless, the strategy seems a bit ambivalent on the nature of competition; I do not believe the strategy paper has worked out this matter clearly in spite of some sensible proposals. Let’s examine further the issue of competition. Are Guyana and the Caribbean going to have a monopolistic firm (single producer) or oligopolistic firms (several producers interacting strategically) dominating a given industry? Can Guyana and the region really break up its industries to encourage the entry of many participants?
Let’s take the banking industry as an illustration. The financial liberalisation thesis argues that the banking sector should be open to entry by foreign banking firms and local investors. Guyana did exactly that starting in the early 1990s. However, not many new banking firms entered. Three totally new banks were created (Scotia Bank, Citizens Bank and Demerara Bank Ltd). These are examples of greenfield investments. On the other hand, Republic Bank bought over NBIC and therefore it is an example of a brownfield investment. The reason for this is because the size of the economy precludes entry of many more banks that could operate profitably (at the margin – this means the risk adjusted cost of setting up business plus lifetime cost of doing business is less than the lifetime or future revenues). There are just not enough real sector economic productive activities that could justify the entry of other banking firms.
Therefore, the size of the economy acts as a natural barrier to entry and therefore necessitates that we will have an oligopolistic banking sector where just a few commercial banks will dominate. As the economy expands, the existing banks would benefit from economies of scale (benefits of being a large producer) or space will be created for new financial firms/banks to enter and be profitable on the margin. All future policy planning has to factor this in. In a related matter, moreover, if the size of the economy determines financial growth, then it is the real sector which drives finance and not the other way around. Attempts around the world to break out from this binding constraint on financial development have produced financial speculation, the creation of financial products that do not necessarily engender growth, and massive debt accumulation – which eventually lead to a crashes and panics.
The same principle holds for building the manufacturing sector in a highly underdeveloped economy such as Guyana. As a matter of fact, the nascent manufacturing firm would need some amount of sustained monopoly profits so as to keep future investments going. It is one of the things that a well crafted industrial policy would have to ensure (the NCS paper seems to realise the importance of industrial policy, but is still unwilling to call it that; we will get more into this in the next column). However, the firm (s) that are given the monopoly rights must be subjected to performance criteria. This right must not be taken for granted as though it will exist indefinitely. Also, monopoly right does not mean a firm will get the ability to price gorge consumers. Monopoly right, furthermore, does not imply a new firm obtains the right to produce a poor quality product as eventually the firm has to demonstrate to the policy makers that it can win market shares in Caricom and other places. This is where government industrial policy and regulation come in to play. The point is a competitiveness strategy, if not properly crafted, could box in a country into perpetual underdevelopment – especially if this strategy is motivated at the ideological level by the European competitiveness strategies, which reflect European experiences.
It is for this reason I believe that issue of bringing in a new telephone company into a geographically fragmented country (in terms of the population spread) might not have been an optimal policy. Yes, the current GT&T was badly negotiated by the Hoyte administration. However, what could have been done differently to make sure this company spreads out the communication network faster and to the benefit of consumers and more importantly the potential Information and Communication Technology (ICT) sector? My conjecture is either GT&T does the job all by itself or the company is totally replaced by a new one. It is not necessarily a good idea to fragment an industry when it requires massive capital investments. Ultimately the unit cost (and thus unit price) is higher.
There should be a study into whether telecommunications in Guyana can be served by one firm (natural monopoly but a regulated one), two firms, or more than two firms. Page 65 of the NCS briefly outlines the government’s position on telecommunications. There it is noted the government prefers liberalisation of this sector.
Conclusion
In many ways the NCS presents a better developmental vision than the LCDS for the future. It recognises the very important role of creating competitive advantages of industries and firms. It is competitive advantage – rising productivity – which drives future economic growth and higher wages. In the next column, I will outline some of the policy proposals; I will also provide my take on some of the obvious omissions of this strategy.
Please send comments to: tarronkhemraj@gmail.com
I am just taking a moment from my very hectic day to read this newspaper after a being away for a couple of weeks .I promised I would look in from time to time but will not blog again. This article has caught my eyes and forced me to comment.
I think Mr. Khemraj is making a very valid point on the importance of industry competitiveness in an economy. However, my concern with his assessment and maybe the strategy paper he is referring to is that while both rightly see the need for internal development of Guyana both are perhaps unwilling to acknowledge that the core problem with Guyana is that its economy is import biased when it should be export biased. For a country like Guyana, this scenario perpetuates poverty hence making the country a place where no one sees real and future value in the customer. I believe that poverty alleviation must be a prerequisite for the creation of an industry competitive local environment. As of now, the telephone system (I still believe the GT&T investment was/ is wise), banking systems and similar infrastructure (for now, I prefer not to call them sectors) should be looked at as initial investments there to launch growth rather than as profit centers charged with leading economic growth. After the population’s living standards rise along with its disposable incomes there will be many more firms wanting to enter the Guyana market and compete to offer more products and services to a more sophisticated and demanding customer base. Here the competitiveness is created (or enhanced) and with it pricing pressures. One way Guyana’s growth and economic structural adjustments (economy needs to turn outwards) could best be achieved is by the country offering itself as a low wage manufacturing/assembling destination. With reasonably high literacy rates, in the western hemisphere, english speaking, easy access to seaports, a workforce of in excess of 400K, an exchange rate of 200GYD=1USD and very low per capita GDP<$2500.00 it is hard for one to understand why Guyana can’t position itself to be the place where Levi jeans are sewn, sneakers are made or entry level cars are assembled and as a means to lift the first generation out of poverty. The children of the workers of the pioneering generation with better education and living standards, courtesy of their much better paid parents, will then move beyond the manufacturing and farm labor economy into the more high tech and sophisticated economy. I just sense we are all trying to skip the first step.
Guyana’s best resource is its cheap and desirous labor force and not its forest, its agriculture or other underground minerals as some might argue. Government policies should be geared to take advantage of this.At this point and for the foreseeable future, the “traditional sectors” of Guyana’s economy have limited to no world value and the government might want to reevaluate how much energy they put in them. (For the record I still believe the traditional sectors can play a part but of less prominence)
I will read any responses by week’s end.
Back to work now.
Cummins,
I am happy to see that the column pulled you out from exile. Please stay as your comments on the SN blog are valued. The points you made are valid. However, I did not argue that Guyana should lock itself into an import-biased strategy. The whole point of the NCS is to seek ways to make Guyanese firms more competitive in export markets. I am trying to say that would require increasing output per worker.
Great article again Tk and excellent comments Cummings…great to have you back.
Let me start this way. It makes no sense having a whole set of ’strategy document’ without a vision…and that has been Guyan’s problem. Second, because the NDS articulates a national vision it is a superior document to its ‘new colleagues’. Third, both the NDS and the NCS were directed to Guyana by the donor and international ‘development managers’ while the LCDS is a ‘brain child’ of Bharrat so he is pushing this so call strategy…well Ramjattan has told us how Bharrat stole the LCDS ideas. Further a sustainable environmental development is articulated in the NDS. I have mentioned before that the LCDS is a financing tool, that’s all.
Maybe because I have graduate qualifications in economics, public policy and planning I take a different approach to matters of government. After all governments articulate and implement public policies to promote the well-being of its citizens. So for me the main business is the knowledge transfer piece from knowledge research to implementable plans with a management frame work as the logical model.
Here goes,if we take a strategic approach to development, then we have to understand that public policy management and administration is the most important part of the process, yes process. But while management is so important, visionary leadership which can adumbrate missions relative to points in time of the development process is critical. We do not have visionary leadership nor the public management capacity needed to chart Guyana’s development course, thus these various pieces of ’strategies’.
This in not theoretical to the extent of being academic but the setting of a framework of a applied and practical discussion to ’streamline’ how we do business and mitigating risks.
If the current government had articulated a firm consensus path based on genuine consultation and partnership with all stakeholders, then we could have has a very highlevel vision statement developed from where other processes will frow. Many progressive countries have a document called something like ” Vision 2025″. Please correct me if I have missed that Guyana has such a consensus document. Those of us with public policy management skill would know that the mission flows from there…while the vision will remain the same for 15-20 years, the mission changes based on a number of criteria including where we are along the spectrum, the strategic objective(s), strategic goals and THEN A STRATEGY OR FRAMEWORKS (bundles of strategies/initiatives). Programs, projects and processes support the achievements of strategies/initiatives. Boring and mundane stuff? I think not!
From the above you can see that we lack a structured and or strategic approach to development which is why we are jumping around from one strategy to the next with no disernable linkages. This is our weakness…having an all powerfulleader with eyes to see he cannot see, not that he chooses not to see but just plain cannot see….incompetent.
Anyway this nonsense has to stop; it will change soon….yep, I looked into the crystal ball.
Evan,
Thanks for the comments. What you say makes sense. Indeed the country needs a unifying strategy. But the environment has to be the main focus in the unified strategy. LCDS is highly unlikely to realize the amount of foreign exchange to develop Guyana. I say let renewable energy form a key component of any unified framework.
Hey Tarron…some very valid points.Kalesh here from d days of CABSS.
I look forward to reading,if you do include,an assessment of the bauxite industry here in Guyana, in your subsequent parts of this highly meaningful topic….especially with the need to move on to creation of finishd products from the aluminium
Kalesh,
Nice to hear from you. Will do something on bauxite soon. Please email me to we can touch base.
Of the National Competitive Strategy TK Wrote, “The strategy aims at achieving a balanced role between government and the private sector in diversifying the Guyana economy and making the traditional sectors more competitive.”
While expressing his doubts about what is meant by ‘competitive’ saying “the strategy does not define precisely what it means to be competitive”, TK noted that “the government appears to view competitiveness as the ability of Guyana’s companies to compete with foreign companies – especially competition presented by CSME.” The writer further focused on the comparative VS the competitive. All of this augers well for a real NCS to fulfill the objectives of the National Development Strategy.
My layman’s instincts clearly sees “competitive” to mean that Government would promote local business to match the standards (quality) and cost of production (unit costs) with Value added products to compete with their external counterparts to vie for the CSME markets.
However, the Economist TK goes on to theorize on the issue of competitiveness and productivity, higher wages, more revenues etc etc. This he presumes enhances the standards of living of the workers. He wrote, “In addition, rising productivity is at the heart of increasing the living standard of the nation in a sustained manner. For example, as our firms and industries become more productive, they are able to pay higher wages, which in turn allow the government to collect more taxes while keeping the tax rate constant.”
I say theorize because the modes of operation in capitalism today are not always reflective of the Text Books’ given outcomes or expectations. As such Capitalism never did show the great humanitarian propensities to bequeath benefits which should accrue to the workers en masse as suggested TK. Here and there a few did shine like Banks DIH, but this is not reflective of all and sundry businesses in the nation.
Firstly, as an aside let me remind the readers that before the great economic Melt Down, the Capitalists were at the heights of their greed concentrated within the inner circles of Board of Directors CEOs CFO and the whole gang of conspirators. Did not this scenario somewhat reflect the local market place?
There are a number of private business ventures which did expand, but let us do a census to show how beneficial they are to the workers. Big bucks paid out to Senior Management Staff (to keep them quiet) did not trickle down to the line workers. Many staffers were just kept an increment or two above the minimum wage level as they give their lifeblood to maintain the top-heavy top level management. This mind-set mirrors what happens within Corporations everywhere, which are not government controlled. Does every worker benefit TK?
Secondly, to enhance their sustained bonuses and six digits salaries the Capitalist Magnates went on a spree of “downsizing” over a decade ago. This did not mean they scaled down their Corporations profitability; they actually scaled down their staffing by the thousands with one man requiring to do the job of ten, while maintaining the profits for the top heavy Board of Directors and their cronies.
Thirdly, there is no state control of business under the free capitalist economics as opposed to the Chinese control of such business. This means the Government could not exercise any form of mitigation to scale down the greed and hefty (bonuses/salaries) payouts to the Top brass. The controls and checks were removed conveniently to facilitate the grabbing that goes on without due rewards to the workers. This was what President Barak Obama referred to as “sharing the wealth” and for this he was promptly branded a Socialist by the right wing Capitalist constituents.
Fourthly we are dealing with two scenarios which are unconsciously based on morals and ethics. In both the NCS and the LCDS we are looking at the morals and ethics of the players. Of this economic analyses are often void of comments. On one hand the morals and ethics of the Corporations (Big Business) are under scrutiny as they move to garner profits. On the other are the morals of the International Northern community disposition to promptly pay for the services which are rendered by the Southern rainforests to the world community. This is simply put purely a case of reciprocity.
TK noted, “In addition, the NCS paper announces that the policy proposals are intended to “deliver on the goals of the National Development Strategy” (page 6); and “The NCS, therefore, should be the main strategy and the LCDS should be just a sub-strategy. The LCDS is seen as the channel through which funds will be raised for Guyana’s development and for executing some of the policies outlined in the NCS. However, as was noted by my column on the LCDS (September 16, 2009), the funding are uncertain and if realized will flow in long after the Copenhagen summit. The question, therefore, of financing the NCS is still outstanding.”
All of this funding from the NCS of course is still based on the assumption that CSME works as much as the Revenue from Outside for LCDS is based on certain assumptions. We see that CSME is virtually powerless as far as the very member states are concerned, who breached protocols at a flash. Now for TK to say which is better for the people can be quite another instance of the economist profoundest manipulation of the figures.
Seopaul,
Productivity is relevant to socialist and capitalist economies alike. Please note that all economists were not made alike – I did most of my training at the New School School for Social Research and at the Bank of Guyana. At the end of the day, however, one has to quantify things – when one can measure things we tend to get a better picture.
Our competitiveness strategy is visionless…roger porter’s book….the competitiveness of nations ..dhould have been a mandatory read for the consultany=ts that came up with this strategy…..the private sector and the government dominate the structures that implement the competeitiveness strategy….here is a fundamental folly….without an educated workforce ….we cannot compete…productivity, new technologies etc….yet there is othing in this strategy that deals with this topic…the asian tigers spent 12 % gdp on education…for years to become competitive……it is truly sad the way many of our key reform programs have been designed…they clearly are designed to meeet government needs…but not the needs of the nation
Eric,
Pleasure to read your feedback. Indeed, Micheal Porter’s work (the Competitive Advantage of Nations) should be necessary reading for the consultants. However, the consultants would also ned to read Ha-Joon Chang’s work on industrial strategy, Erik Reinert, Robert Wade, Alice Amsden and others. As you have mentioned the bottom line is the dearth of skilled individuals. You can only compete if you have a capable and also efficient and politically divorced public sector – embedded autonomy as Peter Evan named it!
Once againg a good piece of anlaysis from Dr TK. Good Technical Analysis by all in response. I just want to add my little salt below:
One should note that most projects in GY are improperly implemented because the Govt only pays (haphazard)attention to specific goals at the time of a due date tied to the release of foreign funding. Is the NCS another one to be treated this way? Success or Failure is in the answer.
Now,those of us living abroad know how way ahead is tech. and how rapidly tech changes each day. Can Guyana catch up? Is the university or tech colleges adequately equipped, staffed and engaged in research to produce firstly, human capabilities and then, better tech?
Guyanese prefer to buy imported products many of which are cheaper and MORE TRUSTED than those produced in GY. For ex., I would not buy a corn curl or a bottled lemonade produced in Gy over the one from Trinidad. Why? In my mind,the Trinidadian Health Food and Drugs Auth. backed by laws and research are very serious when it comes to basic food stds. WHERE ARE OUR HEALTH ANSD SAFETY OVERSIGHT INSTITUTIONS? How qualified, trained and compensated are the personnel?
Much is at stake for the Trini companies to default besides I can sue and get compensation if a product threatens my health and my case is justified. In Guyana, I will be frustrated by a slow JUDICIAL SYSTEM or will be faced with an injuction by the company or the case be thrown out because of a lack of witness long after I am beyond herafter. WHERE IS THE JUDICIAL SYSTEM?
What about using the more than projected VAT Revenues to help in the research and production of better quality Rice and a variety of rice products, Sugar and sugar products, value added premium wood products, well packaged dairy, seafood, vegetable and fruit products etc etc. Guyana should be the main supplier to the Caribbean because our food can reach these markets faster and fresher but only trust of our stds will attract and retain buyers.
Instead of spending money on Guyexpo In Guyana In Oct (why not August or Christmas when there are more visitors), the expo should be in Port of Spain, Bridgetown, St Johns, Caracas, Toronto, New York to name a few. But what poducts are we taking there, are they different? Do they have stds of production, stability of supply? Since we seem to be in the season of protecting the environment, are we still using weedicides and pesticides that are unfriendly to the ozone layer and human health?
Now do we need a NCS to implement the above? Do we need to wait on LCDS flow to do these? What are/were the policy makers suppose to be doing?
at last..there is intelligent conversation…just shows what bright minds guyana has produced…but are left outside of the process because of politics
Practicality: “What about using the more than projected VAT Revenues to help in the research and production of better quality Rice and a variety of rice products, Sugar and sugar products, value added premium wood products, well packaged dairy, seafood, vegetable and fruit products etc etc. Guyana should be the main supplier to the Caribbean because our food can reach these markets faster and fresher but only trust of our stds will attract and retain buyers.?
Practicality,
Welcome and thank you for your comments. What you have said above represents the kind of innovative choices that are necessary. I agree with them.
Ok.It is Saturday so I came back to see the responses.I like what I see here.I also read sections of the NCS.However,what bothers me about the strategy paper is that it seems to lack focus on a clear and defined objective.I did not come away with the feeling that guyana has a clear understanding of what role it wants to play in the world.Further,I was hoping to see mentions of creation of a few hub industries that could employ 20k-40K people in a structured and orderly way.This would have brought more people under the tax structure while reducing the unemployment and poverty problems of the country.It would have also contributed to the creation of many auxillary businesses further reducing the the unemployment and poverty there.The paper also gives the impression that all systems are on “go” for economic take off.The problem there though is that no investor,judging levels of investments since presentation, has seen it in that light hence I am beginning to wonder if the authors were just beating their chests and the whole presentation was a sham.
For Guyana to catch up with the world very big things must be done up front.The government needs to find a way to put at least 200K people to work in a structured and productive environment within the first 2 years.Job creation and quality of these jobs should be the main metrics the government should be concerned with.The investments might not all look attractive up front but, trust me, they will pay off big time later.This piece meal and timid approach to Guyana’s economy must stop forthwith for the down side risk of not acting is worst than making sometimes bad investment decisions.Giving away the land to an investor with the understanding that he pays the workers no less than $X.00,employs no less than Y people,gets to expatriate 95% of his profits and is exempted from the custom taxes might be wise.
Khemraj,I believe you are onto something so I will read more as you continue your presentation.
Good discussion guys.