Guyana has turned the corner but a series of steps need to be taken to boost the role of the private sector, steer the economy away from primary production and resource extraction and make it more efficient, according to a senior official of the Caribbean Development Bank (CDB).
Dr Justine A Ram, Director of the Economics Department of the bank delivered the feature address at the Georgetown Chamber of Commerce and Industry’s annual awards ceremony on Wednesday.
While hailing Guyana’s progress in cutting poverty and upping economic growth, Ram contended that a precondition for creating an enabling environment for private sector development is strong governance structures and social cohesion.
He pointed out that on the Global Competitiveness Index, Guyana has performed less favourably on transparency, efficiency of the legal framework and business costs of crime and violence.
Ram urged the business sector to assume a more activist role. He said that they should advocate strongly for the implementation of reforms, as well as initiatives to strengthen and deepen social cohesion.
“Indeed, in revamping the policy framework, we need to recognise that the existing approaches for implementing reforms must also be overhauled. Current approaches to private sector development in Guyana have not always been efficient. You have not always been sufficiently consulted or asked to participate in decisions that affect you. Development partners, for our part, have often failed to coordinate our efforts effectively to avoid duplication of effort and ensure complementarity,” said the director.
Ram, whose bank has played a significant role in funding for poverty reduction here, confirmed that “the CDB will seek to promote collaboration and consultation with all stakeholders as we pursue together the development of a vibrant private sector, which we all recognise is a key engine of productivity growth and poverty reduction.”
The CDB official’s speech was entitled ‘Delivering development results through sustained reforms,’ in which he shared his perspective on Guyana’s past and future development, and sought to answer a few key questions: Where has Guyana come from? Where is the country going? How has the CDB helped and what do we intend to do? He concluded with some ideas as to the way forward for Guyana.
Ram said that Guyana has had a particularly challenging economic, social and political history.
He stated that the long period of inward-looking policies, which started in the early 1970s and was exacerbated by external shocks, resulted in a socio-economic crisis by the mid-1980s.
“Mass emigration ensued, as real Gross Domestic Product declined by a cumulative 26% during the period 1980-89 and the poverty level peaked at 65% in 1988,” he contended.
The Economic Recovery Programme (ERP) introduced in 1989, Ram said, helped to make some progress in addressing these problems. He noted that the ERP sought to restore economic growth and reduce internal and external imbalances by liberalising exchange controls; introducing a floating exchange rate; lifting import and price controls; instituting revenue-raising measures and spending cuts; encouraging private investment through incentives; streamlined procedures and reversing the earlier policy of nationalisation; and eliminating substantial payments arrears to foreign creditors with support from multilaterals including the CDB.
However, he said that despite the implementation of the ERP, Guyana’s economy remained weak in the 1990s, through the first half of the 2000s.
Sustained reform agenda
Thereafter, he said, Guyana turned the corner. A robust and sustained reform agenda, as encapsulated in the Poverty Reduction Strategy Papers (PRSPs) have certainly helped to reverse economic stagnation and enhance most of the development indicators, including per capita incomes and poverty levels.
He said that public financial management reforms adopted from around 2003 have helped to improve fiscal policymaking.
“Guyana has therefore emerged from years of economic decline and stagnation with improved macroeconomic fundamentals. Indeed, Guyana’s impressive real GDP growth rates, which averaged 4.5% during the period 2006-2012, have out-performed several of its Caribbean counterparts,” said the CDB official.
Ram observed that improved economic performance and debt relief have freed up resources for increased social spending.
As to the question where the country is going, he noted that the reforms implemented to date have been relatively successful. Poverty levels were down from 65% in 1988 to 38% in 1999 and extreme poverty declined to 18.6% in 2006 from 29% in 1992. Guyana, he pointed out, has also moved from low human development in the 80s and 90s to medium human development in the 2000s.
However, he cautioned that the country still faces critical development challenges: inadequate infrastructure; high vulnerability to natural disasters and climate change; high poverty levels and other social challenges; and economic concentration and constraints to private sector development.
He noted that a new wave of reforms is therefore being ushered in to consolidate and augment past progress, within the context of the country’s third generation PRSP, as well as the innovative Low Carbon Development Strategy (LCDS). He said that their main objectives are poverty reduction and sustainable development.
Ram related that the CDB’s past strategy in Guyana had focused on strengthening social and economic infrastructure, promoting private sector development and building capacity and strengthening institutions in critical sectors.
He disclosed that the Bank’s strategy for Guyana for the 2013-17 period, approved in March this year, maintains the focus on concessional financing for infrastructure development and grant-financed Basic Needs Trust Fund (BNTF) and Caribbean Technological Consultancy Services operations, but also seeks to address the country’s environmental, disaster risk management (DRM) and climate finance needs. CDB also aims to restructure its relationship with the private sector in Guyana in a creative way, in line with the Bank’s evolving private sector thrust.
On the way forward, Ram noted that while significant progress has been made in relation to these areas that enhance competitiveness and facilitate private sector development, there exists a need to build on these efforts.
He said that in this regard, there have been a number of specific constraints identified by private sector stakeholders, including: restricted access to, and high cost of credit for the retooling of manufacturing plants; the absence of research and development and training facilities for the manufacturing sector; the acute scarcity of managerial capacity and skilled labour due to migration; the lengthy bureaucratic processes associated with regulatory approvals for the private sector; high cost and unreliable power supply which has led most of the larger enterprises to invest in their own electricity generating facilities; high taxes on production (trade taxes added to corporate taxes); and inefficient trade logistics and inadequate port facilities which contribute to high transaction costs.
According to Ram, several of these issues are highlighted in the World Bank’s “Doing Business” Report for 2013, which ranked Guyana 115th of 189 countries overall for the ease of doing business. Moreover, the 2013-14 Global Competitiveness Report ranked Guyana 102nd out of 148 countries in respect of international competitiveness. He declared that the results of these and other diagnostic and benchmarking exercises suggest that the reform and policy agenda needs to continue apace.
Ram said that the CDB is already responding to some of the issues highlighted, but there is scope for CDB to support private sector development in other ways. He disclosed that new and innovative initiatives in the area of renewable energy/energy efficiency and climate finance are coming on stream and there is already a fund that can be used for support to the private sector to ensure their readiness for the Caricom Single Market and Economy (CSME) and implementation of the Cariforum-EU Economic Partnership Agreement (EPA).
He said, “Improving Guyana’s competitive position will require continued efforts at improving the basic factors required for such competitiveness, including continued improvements in infrastructure, institutions and basic education and health. At the same time, it will be important to address those areas that are necessary to help Guyana to transition from an economy that is driven by the basic factors of production to one that is efficiency-driven. The transition will require, among other things, a greater focus on higher education, improving the technological readiness of the economy and developing its financial markets.
“Such investments and reforms would facilitate the continued development of Guyana’s private sector and foster the economic diversification that is necessary to build more resilience and generate prosperity. Specifically, such investments would create the foundation for reducing Guyana’s concentration in the extractive industries of agriculture, forestry and fishing, mining and quarrying, which focus on low value-added, natural resource-based products for export.” He said this dependence leaves the economy vulnerable to ‘Dutch disease’ effects.
Sovereign Wealth Fund
Ram advised that in recognition of the depletable nature of some of these natural resources, it would also be ideal to explore the establishment of a Sovereign Wealth Fund to manage the windfalls from their extraction, as has been done in Trinidad and Tobago, Botswana and Norway and other resource-rich countries.
Opening his address, Ram related how the taxi driver who had been assigned to pick him up from the airport was expecting an older man since he had been mistakenly given a photograph of the premier of Anguilla.
Ram concluded with a nod to Shivnarine Chanderpaul who he described as one of the greatest batsmen Guyana and the world has ever produced, as an example of what could be achieved by staying the course, saying, “The road ahead is full of opportunity and challenges. There are challenges. However, I do know that they are not insurmountable, if Guyana stays the course.”