The ABC of Guysuco’s Predicament: Strategic Mis-steps and Policy Blunders

Introduction

 

20131229cliveThe serious weaknesses and massive underperformance of Guyana’s sugar industry during the past two to three decades were revealed in previous columns, through an evaluation of six standard performance measures that are routinely applied to the assessment of sugar industries. worldwide. These weaknesses have fundamental political economy explanations, one of which arises from a series of strategic mis-steps, which Guysuco has made in policy formulation and implementation. Three of these mis-steps are considered here.

 

Guysuco’s Illogic

 

Firstly, Guysuco has failed to diagnose the fundamental dynamics of the economic illogic/ contradictions indicated by the behaviour of the six performance measures. In truth, there are four separate, but integrally related elements to this economic illogic, namely: 1) the measures clearly reveal the unit cost (US cents per lb) of producing sugar for export in Guyana will long remain significantly higher than for other global sugar producers/exporters. And, if Guyana remains a substantial sugar producer, this would require it to be an exporter. This is the only rational option, given the already sunk costs in factories, field layout, and logistics.

Guysuco’s economic illogic is that imported sugar will for long remain cheaper than that it produces.

2) The already sunk costs could be rehabilitated, in theory, to raise Guysuco’s output to 450,000 tonnes of raw sugar annually. This would be possible only if the Skeldon Sugar Modernization Project, SSMP can be effectively implemented. However, even at that scale of output, sufficient economies of scale cannot be obtained in order to lower Guysuco’s unit cost of production enough to make it competitive with either other global sugar exporters (several of which are producing at 5-12 US cents per lb) or sustainably profitable over the medium to the long-term. The projected world market price for raw sugar, which was earlier examined in this series, is not comforting.

3) Introducing world sugar prices into the analysis, forces us to recall that the world price series earlier presented suggest that peak sugar prices begin at US20 cents per lb. Such previous peaks, however, have been followed by price slumps. This poses an enormous complication for a sugar industry depending on exports to the world market for its survival. More importantly, this situation signifies that if Guysuco continues to export sugar for sale at world prices, it will be subsidizing overseas sugar consumers, if in order to do so it relies on Government bailouts to remain in “business”!

4) Because of 1-3 above, Guysuco presently faces structural operational features, which are impeding its likely survival as a reasonably profitable commercial self-sustaining enterprise. Faced with this reality, Guysuco cannot sensibly entertain going forward with a “business as usual” mentality and outlook. Furthermore, it would be a grave strategic mistake for government to view its present regime of Guysuco bailouts as a temporary or transitional expedient. Given the circumstances as described here, this is likely to be a permanent prospect.

 

Guysuco’s Outside-leadership

 

The second strategic misstep has been Government’s pursuit of outside political leadership at Guysuco. The effect of this has tended to de-emphasize the primacy of commercial calculations in the industry’s operations; emphasize political considerations in its day-to-day activities; and, favour social and political externalities over economic/opportunity cost-benefit calculations.

Throughout its history Guysuco’s management has never stoutly resisted this outside political leadership of the corporation or indeed strenuously fought for commercial space and its functional autonomy. As I have posited earlier, starting with Tate and Lyle decades ago, the standard approach of management has been to try and game the Government. In other words, Guysuco managers have sought to play politics with the Government no doubt hoping to secure benefits enough to compensate for the loss of corporate independence.

 

The rise of spin and propaganda

 

The third strategic misstep is that Guysuco’s management has routinely joined the Government of the time, in deliberate efforts to promote spin and propaganda instead of the facts on its worsening plight. As previously indicated also its expenditures have become a major source of “prags and corruption” even as its management has become an ever willing resource handmaiden for the ruling political elites.

The open and blatant abuse of Guysuco’s vehicles, equipment, and facilities for political party campaigning purposes has become a political norm.

As also indicated earlier, unpublished financial reviews of Guysuco’s operations (going back to the early 2000s) had noted: “Guysuco continues to make losses [which] have eroded the capital base of the company and placed its very existence in great jeopardy”.

The reviews further observed prevailing losses were not only unsustainable, but had been occurring for several past years even before the cut in the intended Sugar Protocol price. The underlying concern was that Guysuco’s accounts were being manipulated to cover-up weaknesses!

As a case in point in a previous article (November 18, 2012), I had indicated the example where after Guysuco was allowed to keep the proceeds of the Sugar Levy, which was previously in force, the previous payments of this levy were “written back” to revenue received! The net result of this accounting procedure was that Guysuco’s overall loss of G$3.7 billion, reported in 2009 was reduced to G$844 million for that year.

 

Conclusion

 

It has been repeatedly observed in this series that Guysuco has been “spending more to produce less”. The document referred to above, had made the same observation and indeed concluded: “From whichever angle we approach the problem of achieving a viable result, all the various simulations/scenarios demonstrate that Guysuco is heading inexorably towards financial disaster and ruin” (my emphasis).

Indeed the same could be said for every year of the 2000s and 2010s thus far.

 

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