Sugar’s way forward: ‘Other proposal I’ – Closure

Introduction

Starting today I shall focus on the way forward for Guyana’s sugar industry. The nationalization of the assets of two foreign plantations and their estates in 1976 not only led to the establishment of GuySuCo, but also marked the apogee of a centuries-long process of consolidating capital and productive assets in the sugar industry, which started since the late 1600s.

At the time of GuySuCo’s establishment, annual sugar output averaged 327 thousand tonnes. Further, the sugar industry was contributing about 27 per cent of GDP and 45 per cent of total domestic export earnings.

After the mid-1970s two occurrences signalled the emerging crisis in the industry. First, newer sectors emerged in Guyana’s economy (for example, tourism), while some of the then existing sectors have had exceptional recent growth (for example, gold). Second, alongside this, as we have noted, was the persistent underperformance of the sugar industry.

As a result, by 2013, the sugar industry was contributing only 3.9 per cent to real GDP (at rebased 2006 prices) and 4.1 per cent to nominal GDP, at current basic prices. Further, sugar exports were accounting for only 8.3 per cent of total domestic export earnings. And, perhaps more tellingly, in terms of absolute value, sugar output averaged over the period 2010-2013 about 100 thousand tonnes less than it had achieved in the mid-1970s. To top it off, sugar exports earned on average US$116 million over the same period, when in 1992 at the start of the present PPP/C administration, the value of sugar exports was US$134 million! As noted in previous columns the crisis in the sugar industry has been recognized for a number of years but this has become more focused during the 2010s.

Two preconditions

guyana and the wider worldThere are two preconditions for finding a successful way forward out of this crisis; both of these I had identified earlier in 2010. Although both have since gained fairly wide currency they should be re-stated at this juncture before I sketch my proposal. Additionally I shall briefly assess “other proposals” that have gained widespread currency in national debates before presenting mine.

My intention also is to exclude from this assessment sugar reform proposals that do not address issues of ownership, control, strategic decision-making, policy and business programme formulation and implementation. The effect of this is to exclude reform proposals which may have valid contributions to make towards the improvement of the performance of the industry, but as they have been presented so far do not address the issues of structure and system through which the reforms are to be implemented.

This stance is premised on the view that, articles such as those in this series (or indeed more detailed ones), are far from acceptable substitutes for a professional forensic audit of GuySuCo. I have made a call for such an audit since 2010. After nearly four decades of considerable losses, increasing public indebtedness and persistent allegations of mismanagement, misuse and abuse of state assets, complaints have reached a level of intensity which need to be addressed effectively. This therefore constitutes the first precondition attached to my recommendations for a way forward.

The second is based on my conviction that, no one individual, company, or organization has the capacity or indeed command of the issues to deliver a definitive way forward. Widespread consultation with stakeholders and experts should, therefore, inform the search for solutions and the development of a long-term strategic vision (25 years!) for the industry. For this reason I had also recommended back in 2010, the establishment of a National Task Force to prepare (through consultation) a long-term strategic vision for sugar. This task force would be expected to evaluate all known proposals, including mine.

‘Other proposals’

I shall assess four of these ‘other proposals,’ namely, 1) the closure of GuySuCo and a shift to non-sugar activities; 2) devaluation of the Guyana dollar; 3) privatization of GuySuCo; and 4) government entering into a management contract (preferably external-based) to run GuySuCo. These will be considered as a lead-in to the presentation of my proposal. Hopefully this procedure will help to make it clear to readers that my proposal which follows should not be mis-labelled or reduced to a call for either closure, privatization or a foreign management contract for GuySuCo; nor is it based on continuing operations ‘as is,’ with a massive financial injection of funds to the coffers of GuySuCo by way of a devaluation of the Guyana dollar.

‘Other proposal’ 1:

Closure

Under this caption, the call has been made for government to cut its losses, halt the bleeding of state resources, and close GuySuCo as soon as practicable. I shall assume here that this proposal envisages the orderly closure of GuySuCo. By orderly I mean that on closure GuySuCo would meet all of its legal and industrial obligations. Specifically, this would secure both debtors and employees’ financial/legal interests in GuySuCo’s property. Further, I am assuming an orderly closure because sugar performs important multifunctional roles in the economy, society and politics of Guyana. Abrupt closure would, I believe, entail cataclysmic dislocations in Guyana.

Regrettably, after the closure of GuySuCo, this proposal does not indicate, or indeed show much concern with what should be done with the sugar assets, other than securing the legal and financial interests of GuySuCo’s debtors and employees. I assume, therefore, the intention is to leave this to the workings of politics and the market to dictate the eventual outcomes.

Of note, most of the analysts who call for closure come from Caricom countries other than Guyana or the diaspora. Their proposal is often made as a region-wide call for all Caricom countries (post the European Union’s unilateral denunciation of the Sugar Protocol) to cease exporting raw sugar, as this can no longer be justified as economically efficient.

 

Next week I shall continue with the assessment of the remaining ‘other proposals.’

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