In most economies private businesses seek out opportunities to invest

Dear Editor,

I should like to comment on an interview ostensibly on the Amaila Hydroelectric Project and related matters with the Georgetown Chamber of Commerce and Industry (GCCI) President, Mr Clinton Urling, carried in the KN of August 26.

In that interview, Mr Urling,  rather than using his office to clarify, or articulate the challenges of the decisions associated with the project, sought instead to promote his so-called “professionalism without politics” approach which was really a smokescreen for pushing the PPP line and for spurious personal attacks. For as long as the entity he represents gives him leeway to project unquestioningly that position, including trying to discredit persons not sharing PPP views, those agencies will, like Mr Urling, not be taken seriously.

First, it is perhaps a reflection of how confused some sections of the private sector are about the sector’s interests that their senior spokesmen, past and current, could be offended by a suggestion that the domestic sector be invited to invest in a major project which it supports. Private investment lies at the heart of a market economy and indeed capitalism. In most economies not only do private businesses seek out opportunities to invest but they do so in risky circumstances. Sometimes governments intervene to reduce the risk associated with the exceptionally risky investments by either reducing the risk premium (economic rent) the firms may seek or advancing the speed of implementation of what the government might regard as urgent projects. This is what the Government of Guyana (GOG) sought to do in the Amaila case. That is desirable.  Most of us believe and have shown that due to incompetence at the very least, they went too far in taking on a risk that should have been borne by the company. It was supposed to be a BOOT project. The second ‘o’ stands for own. This means that the company as owner should largely carry the risk. There should therefore have been little or no GOG equity and certainly Sithe, rather that the GOG, should have been required to carry some element of the risk.

I have heard no in-principle opposition to the involvement of the private sector per se. It is therefore astonishing to hear a private sector spokesman treat a suggestion of domestic private involvement as anathema. I should say that the other complaint of this type was voiced by Mr Gerry Gouveia who on his website related an event involving APNU MPs which no-one else in the Chamber seems able to recall.

I am not aware that up to now either the GCCI or the Private Sector Commission (PSC) opposed private sector involvement in the Berbice Harbour Bridge, a public-private partnership. The APNU does not see the local private sector involvement on that project as undesirable.  Many of us believe that the arrangement exhibits the same traits as regards risk and excessive guarantees to the private firms involved. In other words, it is too generous.  It is interesting to know what in the eyes of the GCCI makes an invitation for the local private sector to invest in Amaila an outrage while investing in the DHB is patriotic.

Just for the record, as part of the Winston Murray 2012 Lecture, I proposed that Guyana’s laws and arrangements for remittances be amended to facilitate the protection of, and enforcement of investors’, rights as regards rental housing. The group intended to benefit were domestic investors and expatriate Guyanese in particular. I heard no complaint from the private sector, and that is understandable. For a call for the GOG to make space for such investors to be seen as punitive (‘tit for tat’), is mind-boggling and shows how little of economics is really understood by some commentators.

This is the first time in my experience of over 30 years of analysis of public investment that I have heard such a position from a private sector agency and the GCCI in particular. Most of us understand that there is nothing political or unprofessional about calling for private investment or in participating in a debate on the terms of investment. It lies at the heart of economic policy, debt and investment analysis.

It is a well-established rule of thumb that success in attracting Foreign Direct Investment (FDI), to which Messrs Urling and Gouveia made reference, is significantly dependent on the local private sector’s confidence in government’s policies. In other words, if the local sector is discriminated against or has no opportunities it will send the wrong signals to foreign investors who, if they invest locally, will seek unduly high compensation – risk premium. There can be no sustained economic growth or increase in FDI unless there are sound political strategies to drive and foster a conducive business environment.  Mr Urling would be wise to take note.  Instead of blaming the opposition for government policy failures he should bear in mind what the US 2012 Investment Climate Statement had to say about, ‘Openness to, and Restrictions Upon, Foreign Investment’ in Guyana”

“The Government of Guyana (GoG) publicly encourages foreign direct investment … its long term record in attracting private sector investment is poor…Potential investors should note that GO-INVEST is the first in a long line of bureaucratic hurdles required to obtain necessary permits and tax concessions …  Sufficient legislation exists in Guyana to enable foreign investment in the country, but implementation of the legislation is sometimes inadequate… In spite of recent efforts to remove discretionary power from the various ministries, ministers still retain significant authority to determine how relevant laws, such as the Investment Act, Small Business Act, and Procurement Act, are applied … the most problematic factors for doing business in Guyana… corruption, inefficient government bureaucracy… overall economic freedom score of 51.3, remains below the world average of 59.5, and the regional average of 60.0.”

When a suggestion that the local private sector should be afforded an opportunity to invest is seen as an insult, it is clear that those protesting can really have no idea of the interests they are supposed to be representing.

Furthermore, what did Mr Urling really mean when he said, “If we could have invested directly we would have happily done so that is why we at the Chamber [has] seen the urgency for FDIs like the BlackStone Group and Sithe Global…those are FDIs with the requisite capital and expertise to pursue such projects.”

Does he mean that the local private sector was prevented by GOG or, like Mr Gouveia, that they could not find any money to invest in infrastructure?

The idea that the private sector of Guyana is penurious is ill informed. The gold industry will in 2013, even in face of a dramatic mid-year decline in gold prices, declare exports roughly 78% (US$.68B) of the total Amaila investment.  Of course, that figure represents only a fraction of the gold actually exported. A great deal of production is smuggled to Suriname and to Brazil. Annual investment by the domestic private sector alone is over 10% of the gross value of gold exports.  Finding all or a significant part of US$158M is not therefore as outlandish as the writers would have us believe. The bigger disincentive to FDI and all investment has been political and racial discrimination and arbitrary action such as failure to honour legal and contractual obligations as occurred in the 2006 default on the US$25M bauxite bonds held by 15 institutional investors.  The same may be said of the PPP regime’s efforts to put the owners of Pegasus and the Cacique Palace and Banquet Hall  (behind Princess Hotel  at Providence) out of business.

In any case, to call for the local business sector to take equity does not require that they take up the entire offering. In fact, Peter D’Aguiar as the first capitalist taking advantage of local interest in investing, sought out in the 1950s even the smallest investors in Guyana. The great secret of the equity market is that practically anyone can be an investor because shares can be bundled in small packages. If the local private sector has US$5000 at its disposal it may invest that amount. In the UK Thatcherism owed its attraction in part to the opportunity offered to small households and businesses to invest in privatized state assets, sometimes with the assistance of generous terms for the smallest investors. Actually, Prof C Y Thomas had specifically suggested that infrastructure bonds be raised to generate the needed funds. I agree with that. Similar bonds have been raised in the past here to fund local authority infrastructure and even elsewhere to fund wars. The claim that private businesses in Guyana cannot afford to invest in Amaila is silly.

In view of this one has to ask exactly why companies like DIH, GBTI, Demerara Bank and DDL all of which drew on the small market in shares can have their spokesmen voicing such uninformed positions.

Finally, Mr Urling disclosed that anything that government seeks to invest in, the private sector is by extension involved.

First, the paying of taxes can hardly be considered as a special contribution by the corporate sector. All responsible economic actors should and if indeed the corporate sector represented by Mr Urling pays taxes it is not a favour they are doing the country. It is their civic duty. On the other hand, the distinctive contribution of the private sector to economic activity in a market economy is entrepreneurship, the search for and exploitation of economic opportunities. The government’s responsibility is to facilitate investment and orderly pursuit of the economic opportunities.

In any case, the genie is out of the bottle for Amaila. As may be gleaned from the debate in the press and on the street, we have gone past arguments about the competence of critics, the finer points in the financial package or the extent of contractual irregularities and inadequacies. The concerns are now about the appropriateness of the institutions and persons who manage our business. It is about financial probity, irresponsibility, accountability and governance.

This is the realm of politics. We are here as result of the technical failures on the part of NICIL and the Office of the President and the related abuse of powers by the administration including ministers.

 

Yours faithfully,
Carl B Greenidge

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