A better functioning market might be needed (cont’d)

Market works wonders

In our first piece, we began the inquiry into the functioning of markets in Guyana noting that the members of the private sector-households and the business community-were inextricably locked in a dependent relationship of mutual survival. Yet, too many things seem to be wrong that leave both sides suspicious of each other, and not looking out for each others’ interests in what should be a relationship of mutual interest. The market is where all the transactions between the two economic agents come together and it is where the inquiry continues.

In the perfect world, the market works wonders. It allocates re-sources between buyers and sellers. It establishes the quantity that sellers are willing to make available to buyers. It also establishes the amount that buyers are willing to purchase. Because of competition, perceived or real, it leads to the availability of better products and services that cater to the convenience and comforts of households and businesses. The instrument that makes the market work well is price which itself is supposed to settle at a point that provides satisfaction to both sides. When the amount that households demand is equal to the amount that suppliers provide, the market is said to be in equilibrium. But price is not the only thing that makes a market work well.

Size of the market

LUCAS STOCK INDEX The Lucas Stock Index (LSI) declined slightly by 0.14 per cent in the second week of trading in March 2013.  Four stocks traded with Demerara Bank Limited (DBL), Demerara Tobacco Company (DTC), and Guyana Bank for Trade and Industry (BTI) recording no change and Banks DIH (DIH) recording a loss of 1.16 per cent.
LUCAS STOCK INDEX
The Lucas Stock Index (LSI) declined slightly by 0.14 per cent in the second week of trading in March 2013. Four stocks traded with Demerara Bank Limited (DBL), Demerara Tobacco Company (DTC), and Guyana Bank for Trade and Industry (BTI) recording no change and Banks DIH (DIH) recording a loss of 1.16 per cent.

While this piece is referring to the domestic market, it is well known that a domestic market is made up of several market segments because of geography, demography and behaviour. Therefore, other conditions must exist for a domestic market to perform as efficiently as it should. One of those conditions is the size of the market. A market must be substantial enough to be profitable, and must have a large number of buyers and sellers to make it a competitive one. Except for the distributive trade and transportation, there is hardly any other market in Guyana that could be considered competitive.

Income is another factor that influences market size. In its Rural Enterprise Agricultural Develop-ment programme, the administration noted that a sizable number of households in rural communities live on less than $300 per day.  Such low levels of income are hardly capable of rendering any market in Guyana profitable. Instead, it only makes an already small market smaller.

Foreign markets

The data show that some of the major employers in Guyana rely more on the foreign markets than on the domestic market for their revenue. While the numbers might differ from prior years, official reports indicate that over 90 per cent of the production of rice, sugar, bauxite and gold was exported in 2011.  No effort seems afoot to increase the domestic value-added of any of the four products mentioned above. At least rice, sugar and gold have the potential for doing just that, but the promotion of investments in the three products is not an obvious part of any current economic strategy.

On the supply side, the size is also a factor as is reflected in the concentration of industry. Activities that involve intensive capital equipment restrict the number of persons who can participate in the manufacture of sugar or pharmaceuticals for example. As a result, every major manufactured product is dominated by one or two big producers.

Pharmaceuticals, alcoholic beverages, household cleaning products, paint and foods like biscuits, margarine and edible oil come to mind. Medical services too are concentrated in the hands of a few. So the supply side of the market has few participants in very critical areas.

Insufficient information

The rest of the products that are produced and sold locally suffer from insufficient information about the price and quality of the goods and services in the market. Marketing strategies tend to segment the markets deliberately.  Yet, each market has the need for full information about price and the quality of goods to operate efficiently. Advertising is very important in this regard; first, to promote brand awareness and achieve market penetration and second, to share information about the price of the goods and services. National newspapers and radio have played that role for a long time. Word-of-mouth marketing is a very credible and effective way to provide information about goods and services. The means of doing this have been enhanced by television and more recently by the internet.

Merely a word

With the introduction of the internet, separation by geography is no longer automatic. For services which end product could be delivered via the internet, geography is merely a word. Things change when products have to travel over distance and time. The tight control by the administration over television therefore might be hurting competition and hence market growth. Television advertising does not improve the functioning of the market in Guyana when everyone does not have equal access to information that could make a difference in their economic circumstances. By restricting the access of some communities to the content provided by the National Communication Network, the administration is in effect restricting competition and weakening the effectiveness of markets in Guyana.

Further, there is tight control over information about the features of some of these businesses. The lack of access to pertinent information makes it impossible to assess the size, the structure of the competitive nature of these markets. The unwillingness is exhibited both on the side of business owners and the government. To function efficiently, a market needs information and without access to relevant information, it becomes extremely difficult to undertake a proper study of the markets in Guyana, and say in what ways they could change for the better.

Peace of mind

While a market in equilibrium might bring peace of mind, it might not bring much joy to many producers or suppliers. The cost of doing business might just make it impossible for some to enjoy profits and therefore make it necessary for them to leave the market. A similar story repeats itself on the demand side of the fence. Market equilibrium does not always mean participation by all households. To households, the level of income with which to buy the goods and services is just as important as the price at which the goods and services are selling. Businesses and households must feel satisfied with their earnings. The producer needs the surplus to stay in business and to meet current and future personal needs. The consumer needs the surplus to meet current and future personal needs.

(To be continued)