In 2008 I wrote a letter to the press that was facetiously titled `The new science of jumbienomics.’ In spite of its title, the letter raised several inconsistencies in policies of the Jagdeo Administration. One of the points made relates to the then proposed Berbice Bridge, which we now know is making a loss in spite of having a monopoly right and very high tolls. The letter notes high fees are charged so as to make the project viable. If the fees charged are around the price to cross the Demerara Harbour Bridge, then the project is not feasible. Obviously the high toll was meant to compensate for the low volumes those doing the feasibility study would have observed (by the way, the feasibility study cost US$1 mill). Therefore, the Jagdeo government had to create a monopoly and levy high tolls to fix the net present value for obtaining the 12% rate of return the investors required.
It turns out that the policy makers were presented with an alternative from the World Bank that suggested a system of synchronized roll-on-roll-off ferries instead of the bridge. The IDB also suggested that the ferry system should be improved as it would be less than the US$40 mill the Berbice Bridge cost, plus the high recurring cost of keeping a floating bridge above water. On December 24, 2008 the Stabroek News reported that Mr Jagdeo was adamant the bridge ought to be built. He proceeded with a public-private partnership. Several investors including the National Insurance Scheme, New GPC Inc., Queens Atlantic Investment Incorporated, Hand-in-Hand Mutual Fire Insurance Co. Ltd and others participated. The mobilization of these private investors and the public NIS was in itself an important achievement.
The principle of the public-private partnership is not in dispute. Nor is the idea of using the pension funds of NIS in dispute as this was done successfully in other experiences. Singapore, for example, successfully utilized the pension system for savings mobilization and then channelling these into important public investment projects. However, Singapore cultivated a very intelligent developmental state. Moreover, Singapore in 1965 is not the Guyana of 1965 or 2015. Singapore started out with a higher per capita income than Guyana’s (that Singapore and Guyana had the same average income in 1965 is a myth). It has a geographical and locational advantage and a more densely concentrated population, thus making it easier to focus essential infrastructure on a large population living in a small location.
What I dispute is whether the bridge was the best choice for public-private partnership at the time given the alternatives presented and the fee structure the feasibility presented. The same argument can be made for the Marriott mal-investment. No doubt the bridge allows for quick movement between the two sides of the Berbice River. However, it comes with costs to the society as a whole. Drivers of cars and trucks have to pay, respectively, US$11 and US$20 to cross the bridge. Those are steep fees for a low income country. Assume on average a car driver makes 225 trips across the bridge each year. This implies he/she pays US$2,475 per year in a country with a per capita income of about US$3,700. It costs US$1.25 to cross the magnificent Sunshine Skyway Bridge in Florida because of the massive volume of traffic going across daily. This investment places the country into a bind whereby taxpayers will have to subsidize the tolls with funds that could have been used in education, healthcare or better pensions for Aunty Betsy, Neighbour Rowe, Snake-eye the drunk and all the other old folks. Yes, the society as a whole will pay for the bad choices of flamboyant politicians. Nothing is free! If there is no subsidy the Berbice Bridge Company Incorporated could be bankrupted. The company has already accumulated G$1.5 billion in losses as at end 2014.
The Berbice Bridge is now a sunk cost, although it is possible to tug its parts away for use in other parts of the country – for example the Demerara River that seems to have the volume traffic for two bridges to operate (thus not everything is sunk). It should not be forced into bankruptcy in spite of the fact that this project was motivated more by politics instead of economics. It is not possible, however, to pull away the Marriott and locate it, for instance, in the Kaieteur National Park where it exists next to an airport connecting the Caribbean, Ogle and CJIA for easy access to one of the planet’s great natural wonders. The new development planners would need to calculate how much of a subsidy is required over the next 20 years.
What is the present value of 20 years of subsidy? Would it be better to take up the World Bank’s suggestion of a synchronized system of ferries in Berbice and use the present value of the subsidy to haul the bridge away to Demerara?
The Berbice Bridge project shows how difficult it would be to implement infrastructure in a large country with a small dispersed population. It should be a lesson going forward. Politicians should rely more on Microeconomics than Machiavelli for decision making. A recurring theme of this column is the geography of Guyana complicates the planning for road networks, bridges, deep water harbours and so on. The margin for growth-oriented policy errors is very slim compared with Singapore, Mauritius, Barbados, Antigua and Barbuda, St Lucia, Costa Rica, The Bahamas and many other small economies that can be considered Guyana’s peers. The bridge also has lessons for the Amaila hydroelectric project. The engineers can build almost anything, but it’s the final price the consumers have to pay that matters for welfare and national competitiveness. What assurances were there that the investors in the Amaila project would not be returning to government for increases in fees?
In addition to the challenges presented by geography, the prices of core exports are volatile, recycling has greatly reduced the demand for alumina from newly extracted bauxite (aluminium can be recycled infinitely), the savings rate is historically low given the low profitability of core economic activities, and adversarial pro-ethnic politics and voting.