What does GuySuCo’s spending on its inputs reveal?

Last week’s discussion on sugar in the economy focused on those long-run performance indicators, which would aid an evaluation of the viability of GuySuCo. To supplement those indicators, I draw attention today to one other useful long-run indicator of the forces operating on GuySuCo over the past two decades. That is, the revealed pattern of spending on its two main categories of inputs; namely: employment costs and materials and services.

At the start of the 1990s GuySuCo’s spending on materials and services exceeded its spending on employment. However, by the beginning of the 2000s, this relation was reversed. Over the past two decades, its expenditure on employment rose by more than eight-fold, while that on materials and services grew five-fold. For both categories taken together, expenditure grew more than six-fold. Most of this increase took place in the first half of the 1990s (they quadrupled for both categories).

The growth in expenditure during the second-half of the 1990s, however, was not nearly as great as in the first. Employment costs had expanded by only 50 per cent, and expenditure on materials and services had decreased slightly. For the most recent period unofficial estimates, which I have obtained suggest a doubling of the expenditure on materials and services between 2009 and 2011!

Closer examination
If examined closely, these spending patterns reveal important trends, not all of which are positive. For one, the expenditure of billions of dollars on materials and services across a complex enterprise like GuySuCo has created a fertile environment for the emergence of every financial irregularity imaginable. Tales abound about GuySuCo “prags,” Those familiar with GuySuCo argue that, lax controls, poor supervision, weak accounting systems, financial impropriety, fraud, corruption and nepotism flourish in this area.

The Gateway: These scouts stand at their gateway shortly before they marched to the assembly point on Friday as part of the activities to mark The Scout Association of Guyana’s 103rd anniversary

Indeed, an earlier observation, which I made (based on interviews given to the media by the executives of GuySuCo a few years ago) support this. In those interviews they refer to GuySuCo’s “outdated procurement systems,” “lack of transparency,” “questionable ethical, moral and legal standards,” “excessive use of middlemen” and “insider bias,” to name a few. More recently these executives have been endeavouring metaphorically to “close the barn door after the horse had bolted,” as nowadays they refer to GuySuCo’s ongoing efforts to institutionalize proper procurement practices.

‘Employer of choice’
Secondly, the significant rise in expenditure on labour revealed above reflects complex considerations. One is the rise in the wage rate. While I do not have detailed time series data on employment expenditure at GuySuCo, I have estimated that, at a minimum, the increase in the wage rate at GuySuCo since the PPP/C administration assumed office in 1992 has been of the order of ten-fold.

In this regard it should be noted that GuySuCo’s Strategy Review (1998) had stated: “The Corporation has often declared its intention to become and to remain the premier employer or the employer-of-choice in Guyana”.  GuySuCo had deliberately set itself the task of “continually monitoring its wage and salary levels, its benefit packages and general working conditions to ensure it remains among, if not above the best employers in Guyana.” This policy stance was deemed necessary for GuySuCo “to attract and retain the best available skills.” More specifically, the corporation had declared its “remuneration should be in the upper quartile of the market.”

To the extent that its labour productivity is increasing strongly, this type of wage and salary policy may be both desirable and feasible. Otherwise, it is not sustainable. As matters have turned out, for the five years immediately prior to the publication of its Strategy Review (1998), GuySuCo had reported “labour productivity has been progressively improving.” It went on to project from this (as it turned out incorrectly) that the trend would continue for the foreseeable future. Data I have obtained on GuySuCo for this particular period show a decline in employment from 23,819 persons in 1996 to 18,839 in 1999. This represents a decline of about one-fifth.

EU rationale
A few weeks ago (September 9, 2012) I had pointed out that the European Community (EC) had committed significant support for the sugar industry in Guyana, under the so-called “Accompanying Measures for Sugar Protocol (SP) Countries” affected by the EC’s denunciation of the SP. The rationale for the EC’s action is clearly spelt out in EC documents. This is based on the acknowledgement that the EU sugar reform would have led to significant adjustment needs in those African, Caribbean, Pacific countries that were signatories to the SP. Partly as “conscience money,” and partly also as “questionable financial inducement” the EU committed funds to an Action Plan for Agricultural Commodities. Readers should be aware that these initiatives began before the denunciation of the SP and were, in my opinion, intended to stave off any legal challenges to the EU’s action.

As was noted also in the column cited above, while the provision of EC funding was initially conceived as “compensation for sugar producers,” this later became broadened in scope and is now provided to the Government of Guyana in the form of budgetary support. This in fact explains the persistent moaning and complaints by GuySuCo’s top brass about not receiving the full value of the adjustment funding the EC provides.

Before ending this series of articles on “re-visiting the sugar industry in 2012,” I shall offer brief observations on a number of miscellaneous matters. These include private cane farming, mechanisation, the Turnaround Plan (addressing inefficiencies), marketing, and the state of the Skeldon Sugar Modernisation Project (SSMP). I shall of course, as promised, still conclude the series with a comment on the future of the sugar industry in Guyana.

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