Public policy analysis


The analysis of the individual performance of the commercial banks that are part of the Lucas Stock Index (LSI) will conclude when the 2014 annual report of the Guyana Bank for Trade and Industry (GBTI) becomes available. In the meantime attention will turn to other entities that operate in the Guyana economy. This week consideration is being given to the activities of the National Industrial and Commercial Investments Limited (NICIL). NICIL is no stranger to inquiry and discourse since its behaviour and several of its activities have given rise to vexations about the relevance, rationality and legitimacy of the policy positions of the government. The soundness of decisions made by the officials of NICIL has also caught the attention of political, economic and financial analysts who believe that the social, economic and financial values that could be derived from its investments are often subordinated to the narrow political interests of the government. This article examines the financial profile of NICIL and its links to the long-term investment policies of the government. Such a public policy analysis of NICIL enables one to develop a balanced perspective of the performance of the company. It also enables the analysis to start from the point of view of the government and to rely on the data of the entity to form judgements about its performance and the rationality of its investments.




NICIL was created in 1990 under the Companies Act to hold and manage the assets of the government. The policy focus at the time was to wean Guyana off the mercantilist policies that had resulted in the accumulation of substantial economic power in the hands of the state. At the time of NICIL’s formation, many public corporations were under the direct control of the government. These entities had buildings and other assets which had to be disposed of. Through an economic recovery programme which was developed under the Hoyte administration, Guyana sought to reallocate the greater share of productive resources to the private sector. This course of action was also part of an understanding with the World Bank and the IMF to liberalize the Guyana economy. At that time also, NICIL was given the responsibility of disposing of the property of those organizations which had been identified for privatization. Some of the organizations had large holdings of real assets (land and buildings), equipment and other assets including financial assets. The financial claims that arose from the disposal of the assets or where government retained an ownership interest were held by NICIL as were the lands and other property that were not intended for sale. NICIL also had the responsibility of setting dividend policies for the companies over which it had control.




20130728rawle's business pageIf NICIL was a regular private company, it would be described as a conglomerate. It is involved in a variety of sectors of the economy. NICIL has its hands in the oil, mining, electricity, shipping, real estate, media, financial, pharmaceutical, retail distribution and hospitality industries. Up until 2011, it was also in the telecommunication and Berbice Bridge management business.

But NICIL is not a regular type of business. It started out as a holding company and is now the largest investor in Guyana. Even though it might be governed by the Companies Act, NICIL does not compete with any other entity for customers. Therefore, it is not held to the same standards as other private companies. If it were, it could not be engaging in capital investments without timely feasibility studies and sound capital budgeting practices. It reallocates national resources in a very unscientific manner as was recently done with the creation of Skeldon Energy Inc.

Moreover, NICIL does not operate in a market environment where the assets under its control must be used efficiently if it wants to stay in business. The government alone decides whether it stays in business or not. It has a Board of Directors which are all political servants of the government. Consequently, the responsibility that NICIL has for managing the resources under its control is not dictated entirely by the profit motive. It is dictated also by the political interests of its sole shareholder – the Government of Guyana. NICIL therefore can behave in any manner that it wants and often shows very little regard for the financial and other assets that it holds for the people of Guyana. That is not good behaviour of any single company that controls as much as one-fifth of public investment without parliamentary approval.


Political significance


LUCAS STOCK INDEX The Lucas Stock Index (LSI) fell 0.07 per cent in trading during the final period of March 2015.  The stocks of four companies were traded with 18,830 shares changing hands.  There were no Climbers and one Tumbler.  The Tumbler was Banks DIH (DIH) whose stock fell 0.53 per cent on the sale of 100 shares.  In the meanwhile the stocks of Caribbean Container Inc. (CCI), Demerara Distillers Limited (DDL) and Demerara Tobacco Company (DTC) remained unchanged on the sale of 1,000; 17,710 and 20 shares respectively.
The Lucas Stock Index (LSI) fell 0.07 per cent in trading during the final period of March 2015. The stocks of four companies were traded with 18,830 shares changing hands. There were no Climbers and one Tumbler. The Tumbler was Banks DIH (DIH) whose stock fell 0.53 per cent on the sale of 100 shares. In the meanwhile the stocks of Caribbean Container Inc. (CCI), Demerara Distillers Limited (DDL) and Demerara Tobacco Company (DTC) remained unchanged on the sale of 1,000; 17,710 and 20 shares respectively.

From the preceding perspective, the financial statements being produced by NICIL carry more political significance than financial value. Further, these financial statements do not contain any serious analysis of the use of resources and the future plans for the use of the assets of the company. To do so would be to expose the political and development strategies of the government ahead of the time that the government wants Guyanese to know about its business. The only value of the financials to this writer is to see how the policymaking by NICIL reflects the long-term investment strategy of the government and to use it to validate assertions about how the government intends to finance that investment.

From an examination of the investment structure of NICIL, it is quite clear that NICIL is being used to execute the long-term investment policy of the government. There is no other rational purpose for structuring the long-term financing of the company the way it is currently. This writer was able to obtain data from the 2005 to 2012 annual reports of NICIL which enable one to see the relationship between the long-term investment and long-term financing policy of the government with respect to the activities of NICIL. In 2005, NICIL had long-term investments of $6.4 billion. By 2012, the money that NICIL had tied up in long-term investments amounted to $15.8 billion. Since NICIL is owned by the government, in effect, one could say that the government consciously more than doubled its investment in Guyana through this enterprise in an 8-year period.


Further review


A further review of the long-term investment in working capital and productive assets reveals a conscious effort on the part of the government to take advantage of NICIL’s assets without parliamentary scrutiny. It appears too that the government wants to hold on to as much money as possible to carry out its long-term capital spending without restraints. This disposition creates a conflict with the obligation to deposit excess money into the Consolidated Fund. An examination of the long-term investment in working capital brings this point out clearly. NICIL has a positive balance of about $3.7 billion in its working capital account for each year in the review period. This means that NICIL is able to cover all costs in its operating cycle and still have a cushion that is nearly twice as much as its annual short-term financing needs. Further, the long-term external debts of NICIL which are the only other obligation that NICIL carried during the review period can easily be covered by its excess working capital 100 times over. The implication of all this is that NICIL could have easily released the excess equity in its possession to the Consolidated Fund. The excess equity averaged about $5.1 billion per year from 2007 to 2012.


Excess money


The question that arises from this reality is why would NICIL refuse to hand over regularly the excess money to the Consolidated Fund? The answer lies in the public policy interest of the government and what appears to be its unwillingness to submit its policy ideas with long-term implications for development to parliamentary debate and oversight. The posture takes on a profile of indiscipline and contempt for public opinion. This is a serious indictment of any minority government when one considers the impact of an adverse outcome on the national economy from an improperly or insufficiently vetted policy idea. The Specialty Hospital deal comes to mind and so does the road to Amaila Falls. The net effect of this refusal is that a substantial part of the capital budget of Guyana does not benefit from sound ideas and broad stakeholder advice.




This failing is no light matter when one examines the NICIL data over the eight-year review period and its repercussions for the Guyana economy.   According to data in the annual reports of the Bank of Guyana, the investment spending by the government started at $42 billion in 2006 and reached $78 billion in 2012. When NICIL’s data is added, the investment spending increases from $49 billion in 2006 to $94 billion in 2012. This represented a 20 per cent annual growth rate from 2006 to 2012 in comparison to the 10 per cent growth of private investment. NICIL’s share of the investment amounted to about one-fifth of the national investment by the government.

Remain dominant

As indicated earlier, NICIL’s spending needs could easily be met from its operating revenues. Yet, the government insists on holding on to the equity with no justification and keeping it outside of the Consolidated Fund and the parliamentary approval process. This attitude indicates the extent to which government wants to remain dominant in the economic space of the country and in determining the allocation of resources at the expense of the more efficient free market. This self-serving policy is not good for economic progress.

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