Let the chips fall where they mayDelinquent conduct

Over the last two weeks, Guyana’s forests attracted much media attention not because of any scientific discovery or technological breakthrough, but because of the economics surrounding their use. The sustained attention was generated by suspicions of illegality, deception, and incompetence regarding the management, allocation, control, production and export of Guyana’s forest assets. These concerns were initially prompted by the apparent delinquent conduct of two foreign companies operating in the forestry sector in Guyana, but have garnered further attention from discrepancies in the data on production and export of timber presented by the government in its half-year report that was released on August 9 of this year. As further information about the confusion and incompetence of government’s handling of Guyana’s forest assets are revealed, the contentious data on the production and export of forest assets in the half year report takes on greater significance.

The companies, Bai Shan Lin, a foreign investor from China and Vaitarna Holdings Private Inc, a foreign investor from India, 20130728rawle's business pagewere alleged to be in breach of their investment agreements with the government. Bai Shan Lin, it was reported, had at least two commitments. One commitment was to complete an environmental assessment of its concessions granted under State Forest Exploratory Permits (SFEP) before commencing full-scale logging operations and the other was to set up value-added wood processing operations in the country. Apparently, after seven years, these commitments have not been fulfilled. In the meanwhile, Bai Shan Lin formed joint ventures with local producers enabling it to gain access to timber resources which it is also exporting. It was also disclosed that Vaitarna, the other company, was also required to set up processing operations and there too nothing has happened over the ensuing period. To the surprise of many, the violations of which the companies are accused were taking place in full view of the government.

 

Startling reality

The startling reality is there is no evidence that the government attempted during the period to hold Bai Shan Lin and Vaitarna accountable for their delinquent actions and to secure the benefits that Guyana was expected to receive from their investments. From the media stories presented, it appears likely that the government is in breach of its own fiduciary duty to the people of Guyana and does not seem too concerned about it. As far as one could recall, the oaths of office taken by various public officials with oversight responsibility for natural resources have not been suspended since their appointments. Their actions or inaction ought therefore to come under scrutiny too in relation to their handling of the public’s interest in these matters.

 

Accountability and reform

Indications have been given by some members of the legislature that they will exercise the authority vested in them to get to the bottom of the matter. Among the things that should be examined are what the actual size of the concessions of the respective companies are, access to tax benefits without fulfilling performance obligations, whether the legal requirements for forming joint ventures in Guyana were fulfilled, and whether the government made sufficient efforts to get the foreign investors to honour their commitments to value-added production. It offers an opportunity too to get an updated assessment of how effectively the Low Carbon Development Strategy is working. As such the decision to inquire by the legislators is important and should be welcomed by Guyanese with one accord, especially if the efforts have accountability and reform as part of their intent. It should not be difficult to appreciate how useful such an exercise would be in bringing positive economic reforms to this country.

In recent times, the economic welfare and financial interests of this nation have been held hostage to political predilections and not enough to economic justification and competition. The failed Amaila Falls hydropower and the Skeldon Sugar Factory projects are prime examples of the subjugation of the economic interests of this nation to political partiality. The economic value to Guyana of a robust legislative inquiry goes beyond the short-term benefits of stopping and reversing financial losses and saving the money of the taxpayers. It will help to focus attention, once more, on the need for better governance and to heighten awareness of the significance of managerial responsibility over public spending and the protection of the country’s resources. In addition, an inquiry would help to clear the good name of those public officials who now find themselves under a cloud of suspicion. There are additional reasons for supporting the legislators’ efforts to shed more light on the investments of Bai Shan Lin and Vaitarna.

 

Mutual benefits

It must be kept in mind too that the incident involves foreign investors. The presence of foreign investors in the country represents an understanding that mutual benefits could flow to the contracting parties, the investors and the host country, Guyana. The goals of the two parties to the agreement are normally not the same. The foreign investors are usually looking to reallocate capital to a country where it could gain competitive advantage and earn maximum returns on its capital. In order to make the decision easier for the investors, the host country helps to boost the returns for a fixed period of time by reducing or deferring tax receipts on profits of the investors. Those conditions set limits on the expectations that the investors should have from the agreement. In exchange, the host country normally expects to increase employment, boost household spending and acquire new knowledge about built technology and production processes. Like its monetary policies, however, the pursuit of foreign direct investment no longer seems to focus on bringing employment to Guyana. Host governments encourage Greenfield foreign investments since they create jobs. By allowing Bai Shan Lin to hold up a Greenfield image but engage in a joint venture, the Guyana Government enables it to escape the need to create the number of jobs promised.

 

Joint ventures

A joint venture is a legitimate form of foreign investment and the investment laws of Guyana do not inhibit its use. However, one would think that Bai Shan Lin would have needed the permission of the government to engage in such collaboration even if it was to ensure that it was not monopolizing the market for logs and other forest products. But by presumably buying into the operations of four raw material producers, Bai Shan Lin made its preference for horizontal and not vertical integration of its operations quite clear. One has to ask the question why didn’t the government insist that one or two of the integration initiatives be vertical?   A refusal or unsatisfactory explanation by Bai Shan Lin would have been an obvious indication that the foreign investor was reluctant to honour the value-added component of the agreement with Guyana. One needs to know if the joint venture was facilitated by government since Guyanese need to know if the government itself is engaging in misleading the people of Guyana.

 

Flexible implementation

The additional problem that Guyana now has stems from the seemingly flexible implementation of the agreement with the two companies. Even though foreign investors are dealt with on a case-by-case basis, the concessionary attitudes reportedly exhibited towards Bai Shan Lin and Vaitarna could become precedent setting. This means that similarly flexible behaviour could be demanded by current and future foreign investors if the infractions of the two companies and the apparent management lapses of the government were not dealt with openly, swiftly and condignly. Confidence-building measures are needed to reassure sceptical foreign investors that they will receive equitable treatment under the investment rules of Guyana. They must know that the outcome of their investment does not hinge on the whims and fancies of public officials, but on market behaviour and laws that could be followed and whose effect could be reasonably predicted. Future deals could be so flexible that it could become difficult to value accurately the benefits for Guyana of any future foreign investment or to hold investors accountable.

 

Image of Guyana

Guyanese must remain concerned about the image of Guyana and the perception that other nations have about the integrity of the people of this country. These concerns hold true whether one is operating in the capacity of a member of a household or a member of the business community. The roles do not matter since the issue goes to the heart of who the people of Guyana are. Already, Guyana is ranked relatively low on Transparency International’s Corruption Perception Index and is slipping lower in the World Bank’s Doing Business Index. Also, diplomats from Canada, the United Kingdom and the United States of America have already observed the risks that corruption poses to Guyana. Yet, the private sector bodies show no public spirit in fighting these matters and penalizing the government in the interest of the nation, but, instead, seem rather willing to let this type of behaviour continue unchecked and unchallenged.

 

Welfare of the nation

A failure to seek answers and hold persons to account would make it appear as if Guyanese have accepted the right to public officials in Guyana disrespecting them and violating the laws with impunity. It would continue to send the message that public financial management and the proper management of Guyana’s resources are unimportant. In other words, productivity and maximizing the welfare of the nation in the best interest of all are irrelevant.   If there is not a serious inquiry, what could one say in response to someone who contends that honesty is the best policy but dishonesty is the road to prosperity? The answer should be clearer than it is now. So, have a serious inquiry and let the chips fall where they may.

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LUCAS STOCK INDEX
The Lucas Stock Index (LSI) remained unchanged in trading in the fourth period of August 2014.  The stocks of three companies were traded with 53,314 shares changing hands.  There were no Climbers or Tumblers.  The value of the stocks of Banks DIH (DIH), Demerara Distillers Limited (DDL), and Demerara Tobacco Company (DTC) remained unchanged on the sale of 37,614; 14,600 and 1,100 shares respectively.

 

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