Today’s column examines the fourth and last of the ‘other proposals,’ which aim at finding a way forward for the sugar industry. That proposal is the recurrent call for the Government of Guyana to enter into a management contract that would allow a private firm (preferably external) to take over full operational management of GuySuCo.
This management contract would be a legal arrangement entered into by the Government of Guyana (GuySuCo’s owner), which vests control of GuySuCo in a management services enterprise, in order for that enterprise to manage GuySuCo’s operations for an agreed payment or management fee. The legal terms and conditions of the contract would be spelt out in a Memorandum of Agreement. In the specific case of GuySuCo it would be possible also for such a legal contract to permit the selected management enterprise to invest in the equity of any future business projects which GuySuCo may venture into.
Like the three ‘other proposals’ considered previously (closure, privatization and devaluation), this one also directly addresses operational issues of ownership, structure, and control. Thus, as earlier noted, closure seeks to terminate GuySuCo’s ownership and control of sugar assets; privatization delivers ownership and control of those assets away from GuySuCo to private investors; and devaluation leaves the operational ownership, structure and control intact (‘as is’) but nevertheless seeks to find a means of providing substantial infusions of funds for both GuySuCo and cane farmers.
The proposal for a management contract to take over effective control of GuySuCo’s operations is not novel. For two decades (from 1990 to 2009) there was an external management contract with Booker Tate to run GuySuCo on behalf of the Government of Guyana. This was assessed earlier in the series, but it would be useful to recap here, some of the lessons from that experience.
The nationalization and merging of Bookers Sugar Estates (BSE) and Jessel Holdings led to the establishment of GuySuCo in 1976, by the then PNC Government of Guyana as a new state-owned corporation to run the sugar industry. This decision achieved an unparalleled consolidation of those assets that had been devoted to sugar production in Guyana over the previous three centuries. And considerable operational efficiencies were anticipated from this decision.
These anticipated efficiencies were widely publicized at the time and included: 1) economies of scale in management and administration; 2) substantial enhancement in the industry’s ability to recruit technical and business skills and expertise; 3) a marked advance in the industry’s ability to rationalize the use of external and local skills; 4) economies in human resources training; 5) better focused research and development (R&D); 6) lower financing costs; and 7) achievement of marketing economies, particularly in overseas sales. This list is of course not exhaustive.
Notably, in regard to the last item, the Guyana state had already been carrying a significant share of marketing costs for export sugar through the operation of the European Union (EU)-African Caribbean Pacific (ACP) Group Sugar Protocol Arrangement, under which most of GuySuCo’s external sugar sales were taking place.
Upon nationalization, the Government of Guyana appointed local managers to run the corporation. Unfortunately for those managers the political economy of the sugar industry at the time was overwhelming. To begin with, the industry was nationalized as part of the well-publicized pursuit of a wider strategy/ideology of the then ruling PNC administration to “own and/or control 80 per cent of Guyana’s economy,” as part of a socialist-inspired development strategy. This strategy was based both on bringing external exploitation to an end and strengthening local control of the country’s resources in order to promote domestic-driven and state-led growth and development.
However, at the same time, the sugar workers and their communities supported the main opposition party – the Peoples Progressive Party (PPP). Furthermore, the ruling PNC was widely accused of rigging national elections and practising authoritarian modes of political rule as it was generally perceived that ethnic divisions in the society made it impossible for the PNC to win a majority through democratic elections.
Inevitably, GuySuCo and the wider sugar industry became an arena of intense political, industrial, and irregular struggles. Strikes, public manifestations, and illicit cane fires made it impossible for the local management of GuySuCo to harness all hands on deck in their efforts to boost sugar production and productivity.
For reasons I cannot pursue here, soon after the nationalization of sugar the macroeconomic environment of Guyana dramatically deteriorated. The PNC administration at the time was faced as a precondition for obtaining structural adjustment assistance from the international financial community, the task of reversing and/or diluting its strategy of nationalization. Under pressure GuySuCo was placed into an external management contract arrangement with Booker Tate in 1990. However, it soon became clear that GuySuCo was unable to capture the operational efficiencies presented above. This management contract lasted for two decades, until there was a public falling-out between the Government of Guyana and Booker Tate over the handling of the Skeldon factory project.
In sum, and based on earlier presentations, the potential gains from the nationalization of sugar were not realized under the management contract because of: 1) pressures from the continuous outside political direction of the corporation’s activities; and 2) the complicit behaviour of Booker Tate management in this outcome. Lamentably, the management contract came to an end amid heated legal controversy between the Government of Guyana and Booker Tate.
One might have expected that, with such a previous experience, the proposal for another management contract to have very few takers. But such has been the failure since 2009 of the appointed state managers that the call for a management contract has re-surfaced strongly. The hope is that a new one can be better designed.
I am left now with the final task in this series: outlining my own proposal. This will be addressed in the two remaining columns of the series.