As indicated last week, today’s column is the last in the series of columns that I started on January 5, 2014 aimed at appraising the crisis state of Guyana’s sugar industry. This column will consider the four remaining steps, which undergird my proposal for a way forward in the industry. In the interest of full disclosure, I should let readers know that the series of columns I have presented so far is based on a chapter scheduled to be published in a forthcoming book on Guyana’s development challenges (The State of Guysuco’s Sugar Industry in the mid-2010’s). The book is expected to be available by the first quarter of 2015.
Readers would recall that thus far I have briefly described only two of the six steps embedded in the proposal that I am putting forward. These have been 1) deconstructing or unbundling the assets under the control of GuySuCo, and 2) creating a detailed portfolio of these assets in the form of business ventures, which are then put up for negotiated sale.
Step 3: Carve-out from asset re-bundling
However, despite my call for the creation of a diversified portfolio of assets based on those presently controlled in Guyana there should remain in principle a carve-out from GuySuCo’s assets to facilitate the supply of raw and value added sugar for markets, in which Guyana can reasonably expect to earn remunerative returns. At present, these markets include the local market, Caricom, and the United States’ tariff-rate quota market. It should be recalled that the European Union (EU) quota market is scheduled to end in 2017.
As earlier columns explained (see October 9, 2011) my proposal is founded on the ready acknowledgement that the investments which have been already made under the Skeldon Sugar Modernization Project (SSMP) (and which are above US$200 million, at 2011 prices) can be considered at this stage to be sunk costs. If so, these should not be fully costed in business profiles of sugar operations going forward under an entirely new regime.
As is well known in sugar industry circles, the agro-geographic features of the SSMP area have significant potential for making this region easily the lowest unit cost producer of raw sugar in Guyana. If this potential can be realized in significant measure and if the markets listed above can become practically accessible while remaining remunerative, my proposal envisages this region as a carved-out area from GuySuCo’s package of re-bundled assets that are put up for sale. In other words, it can remain devoted to continued raw sugar production.
Furthermore, as was pointed out earlier, the SSMP was originally designed to produce about 167 thousand tonnes of raw sugar annually, with cane production at 1.1 million tonnes. This amount would more or less service the markets identified above. As a further reminder, originally the SSMP was flexibly designed to incorporate, if required, further low-cost expansion of sugar via a modernized, expanded and refurbished complex in the adjoining Albion-Rose Hall area.
As has emerged over the years, due to mounting problems with the SSMP, the Strategic Plan for 2013-1207 has envisaged sugar output at just above 81 thousand tonnes for Skeldon in 2017; Albion at 66 thousand tonnes; and, Rose Hall just above 45 thousand tonnes.
Step 4: Business profiles
It cannot be over-stressed in this presentation that, the preparation of clusters/bundles/units of GuySuCo’s assets with which to form the government’s portfolio for sale should be circulated in the form of clear and attractive business-friendly business profiles (reinforced where possible with pre-feasibility appraisals). These should be widely disseminated in the electronic and print media and indeed designed to maximize their appeal to the widest possible investor and entrepreneurial audience. It cannot also be over-emphasized that such a task requires the engagement of a highly professional enterprise/agency/consultancy.
As an aside it can be observed that, even at this early stage, a significant number of business profiles readily come to mind, given the rich mixture of assets, properties, buildings, recreational/leisure sites, and artefacts, which GuySuCo owns. There are also GuySuCo’s well drained and irrigated coastal lands, which are presently serviced by an extensive and sound network of waterways.
Step 5: Potential investors
After preparing a list of varied and attractive business profiles based on the deconstruction of GuySuCo’s assets, the government cannot afford to be laid-back expecting investors to turn up in large numbers to acquire these. To the contrary, a vigorous marketing exercise has to be devised to encourage a rich variety of investors and entrepreneurial talent to respond. At this stage, and largely in the interests of diversifying the pool of potential investors, a special marketing effort, with appropriate incentives, should be aimed at present stakeholder interests (such as private cane farmers in the Wales area, worker and community-based organisations) both inside and outside the industry, as well as the wider public (even if mainly as shareholders/bondholders in enterprises developed from the business profiles). This latter would require special financing incentives and new legislation aimed at broadening Guyana’s capital market.
Step 6: Final
The final step is to bring the other five steps under the purview of the National Task Force on Restructuring the Sugar Industry. As I have stated above this constitutes an essential pre-condition for moving the sugar industry out of its present predicament. All proposals (including mine) should be evaluated by the National Task Force even as the Task Force seeks to devise a long-term strategic vision to govern the way forward for sugar. It goes without saying that, such a Task Force should include a broad spectrum of experts and stakeholders as well political-social interests. It is imperative that the Task Force is publicly perceived as not only well-endowed with expertise, but is also national in its composition and outlook.