The new government will face numerous challenges. The cash flow insolvency of GuySuCo and the looming crisis in the rice belt will keep the President and the Minister of Agriculture up at nights. The gold price will eventually fall below US$1000 per ounce. The euphoria over oil will dissipate as the society realizes the headwinds facing this potential sector. If ever extracted, the oil will likely be processed in Trinidad. Environmental funds and some institutional investors are diversifying away from fossil fuel stocks and one oil giant is investing heavily in renewables. The Saudis will make sure marginal new wells don’t make a lot of money. These are challenges, but not constraints. Guyana has always faced three constraints to development. There is not much the policy makers and politicians can do to correct two of them. They will have to plan around them. However, the leaders can mitigate the adverse impact of the third constraint.

20131120watchThe first constraint is a persistent foreign exchange (FX) constraint. This constraint is sometimes loosened or tightened, depending on how well the export sector does; however, it is always there. Capital inflows like foreign investments may help to ease the constraint. Remittances have been pivotal in easing the FX constraint. This constraint was imposed on small economies at the 1944 Bretton Woods Conference. The American perspective – presented by economist Harry Dexter White – won the day over the British plan drawn up by the iconic economist John Maynard Keynes.

Essentially, the growth rate and structure of a small economy is constrained by the amount of United States dollars or euros it can earn. Every aspect of economic life has to be planned around the FX constraint. For example, a salary increase for public servants, an energy strategy, infrastructure policy, central bank monetary policy, taxation policy, foreign policy, productivity strategy, etc., have to be planned with an eye on the position or level of the constraint. External shocks and imprudent domestic policy that worsen the constraint will have implications for growth, employment, poverty rate, price level and competitiveness at home.

The second constraint was imposed on Guyana by decisions made by Dutch settlers to move from inland settlements (up river) to the coast, which is below sea level at high tide. They drained a narrow strip of land and established a polder system, which is a system of dams to keep out the river/Atlantic waters and the waters flowing to the coast from the interior. Sideline dams were also used to keep out the waters from the neighbour’s coffee or sugar plantation. In those days, the private colonial investor treated drainage and irrigation as a private good. This system requires significant non-wage cost to do agriculture. It certainly accounted for the failure of Guianese sugar to compete in a competitive global market against sugar coming from Fiji, Mauritius, Puerto Rico, India and Cuba by the 1870s.

The system of dams and canals means it is very expensive to build a road network on the Guyana coastal plain. If someone drives along one of the famous state roads in Florida (say State Road 70 or 64 or even the Belt Parkway in NY), he/she will observe there are not many bridges and canals over which roads are built. In Florida, therefore, engineers can build roads over solid ground for miles without having to bridge canals. However, this is not the case for a road running from Georgetown to Timehri. Many sideline canals exist between Georgetown and Timehri. Same occurs from Georgetown to Skeldon and elsewhere on the coast. Each bridge adds significant financial sums to the cost of a road network, compared with Florida or the pleasant prairies of the United States and Canada. Recurring tropical vegetation under the bridges blocks the flow of water, thus flooding villages easily. Each flood sets back the welfare of people and farmers.

The settlement pattern of the Dutch and subsequent Europeans was dispersed over about 170 miles along a narrow strip of coastal land. In addition, several small populations of Indigenous people are dispersed widely over a large inhospitable interior. This implies that high fixed cost of infrastructure – like road networks and electrical grids – has to be incurred for a small and dispersed population. In post-emancipation Guyana, the African peasantry and village movement faced the constraints of adverse geography and dispersed market. Since drainage and irrigation was treated as a private good, they did not have the financial resources to keep the waters out. The colonial government was also not sympathetic to their economic interests. Moreover, many of their villages existed far away from the main urban markets and there was no easy way of transporting produce to Georgetown. The small dispersed internal market exists until this day.

Internal savings simply do not exist for building the vast infrastructure like the Linden to Lethem road or a big silver bullet hydroelectric plant. It would be interesting to see to what extent the new APNU-AFC government will surrender national rights to foreign governments and investors to get these projects done. Suffice to say, Guyana’s history is replete with big projects failing to be completed on time and on budget. One example would be the Canal Polder project of the late nineteenth century that turned out to be two times over budget for about only half of the planned size.

The third and final constraint is the human resource constraint. This one is within the control of the new government and the general political establishment. First, everyone has to be mobilized for the task difficult ahead. Second, the PPP has to grow up and stop being like spoiled pickneys and get on with representing their constituency. The PPP needs to outline clearly its economic vision and vision of constitutional reform. Third, the new government has to be conscious of the alienation of people who are perceived to be PPP supporters, namely East Indians. They would need to address the problem of triumphalism and verbal abuse of East Indians.

The APNU-AFC government will have to address the mid-level managers like Permanent Secretaries and Human Resource Directors who might seize the opportunity to harass and squeeze out East Indian professionals they perceive to be PPP supporters. The AFC in particular has to be cognizant of this problem if it wants to exist beyond 2020. Fourth, the diaspora is a vast economic resource. A creative government will find a way to mobilize this resource.

 

Comments: tkhemraj@ncf.edu

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