IDB proposal directly contradicts LCDS

Dear Editor,
You reported on November 16 that the LCDS project ‘Micro and small enterprise development and building alternative livelihoods for vulnerable groups’ will start in January 2013 (‘US$5M first phase of small business support project for launch in January’). Neither the LCDS nor the Guyana REDD+ Investment Fund (GRIF) websites carry such announcement, and SN did not give the source of its information.  We do know that the 20-day period for public comment on the proposal prepared for the GRIF by the Inter-American Development Bank also closed on November 16.

This IDB proposal, like others prepared by IDB or UNDP for the LCDS, fails to address stakeholder concerns about relevance and appropriate institutional placing; concerns which were raised at the concept note stage in September 2011.  So IDB has had a year, and US$127,476 of GRIF money for project preparation, to improve its thinking but has failed to do so.

Norway has been remarkably tolerant in not attempting to re-define or clarify the odd collection of brief ideas for projects which constitute former President Jagdeo’s Low Carbon Development Strategy.  The undated revision of page 57 in the May 2010 version of the LCDS says that “Grants will be available for small and medium businesses who have viable business propositions for generating new low carbon employment and economic value.  This will include the provision of grant support for small sustainable mining operators, to assist in the development of commercially viable businesses.  The grants will be administered through existing programmes for SMEs“; and six such programmes were then listed.

Perhaps the most peculiar feature of the IDB proposal is that it directly contradicts the LCDS.  Paragraph 1.7 of the IDB proposal says that “By promoting investment in Low Carbon Sectors, people will be incentivized to stay out of sectors such as mining: thus, every job created in the Low Carbon Sectors would mean one less job in Carbon Emitting Sectors.  This, in turn, will contribute to the overall major goal of reducing carbon emissions in Guyana.“

Could the President’s OCC and the IDB make up their mind?  The LCDS does or does not support small-scale mining?
And who are the “vulnerable groups“, “vulnerable group businesses“ or “vulnerable persons“ mentioned  in the LCDS and this IDB proposal?  There are no definitions  of what ‘vulnerable’ means in this context.  If there is concern about the welfare and livelihoods of small sustainable mine operators, the 5 per cent royalty and the 2 per cent tax on the 363,083 ounces of gold declared in 2011 would have contributed just short of US$ 40 million to the Consolidated Fund, using the year-average price of $1570 per ounce.  That is much more than the US$5 million spread over two years which is the budget of this IDB proposal.  How much of that royalty and tax was actually ploughed back into SME development by the Minister of Finance?  While the LCDS exemplified six micro-finance institutions (MFI) for the “existing programmes,“ in paragraph 1.10 the IDB proposal seeks to deprecate them: “An analysis of the MFI in Guyana found that interest rates are much higher for MSE (medium and small enterprises, better known as SMEs) (up to 35% on average) due to: (i) lack of competition; (ii) higher perceived risk; (iii) higher costs of administration; and (iv) poor credit worthiness.“

The Grameen Bank in South Asia flourishes in spite of similar issues.  And SN has reported that “Regional commercial banks show growing confidence in SMEs“ (SN, November 30, 2012).

So what does the IDB propose instead of such vastly experienced MFI as the Institute of Private Enterprise Development (IPED)?  IDB would work through the Small Business Bureau (SBB), the secretariat of the Small Business Council (SBC).  These two entities in the Ministry of Tourism Industry and Commerce have been non-functional because of the absence of budget for the Small Business Development Fund, paragraph 1.16, so it would seem that the three staff of the SBB have had no work to do.

Given the reported increase in attention to SMEs by the commercial banks and given the expertise and experience of the MFIs in Guyana, what would the SBB do?  Paragraphs 1.24 and 1.25 in the IDB proposal make the SBB the channel for GRIF funding, with the commercial banks and MFIs doing all the work to determine eligibility and arrange loans to which the SBB would give “subsequent approval.“  No criteria are listed for the SBB to give or withhold approval and it is unclear what a non-functioning and apparently inexperienced body could add usefully to the process.

However, paragraph 3.7,  “To perform its duties, the SBB will hire additional staff… [and] Due to the additional responsibilities placed on the SBB staff in program implementation, they will receive monetary and non-monetary incentives based on program work completed outside their normal responsibilities.“  But as they had had no budget to operate they had no previous responsibilities, and the parent ministry has no recognizable expertise in this area.

In other words, like another GRIF project to fund institutional strengthening of the President’s Office of Climate Change, this looks like another scam to access GRIF money from distracted Norwegians.  Yes, it would be good to make more credit and more technical support available to SMEs in Guyana, but why not use the already-primed and interested commercial banks and experienced MFIs, as the LCDS document itself intended?

President Ramotar has acknowledged the existence of corruption in his administration.  Here is a blatant example which can be nipped in the bud, an easy win for him to demonstrate that he means what he says.
Yours faithfully,
Janette Bulkan



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