Privatization of sugar estates is the only feasible option

Dear Editor,

A tragedy is unfolding in Guyana. The government has suddenly and dramatically begun the closure of GuySuCo, the largest single employer in Guyana outside of the public service. Thousands of jobs are being lost; thousands more are in jeopardy. The Afro-PNC-ites have praised the courage of the government to make this ‘difficult but necessary’ decision. They say ‘Sugar is dead’, suggesting that sugar production cannot be economically viable. The Indo-PPP-ites condemn the heartlessness of the decision made without concern for the social havoc which will result, and accuse the government of an attack on a large segment of the PPP electorate.

As usual, the blind faithful make no attempt to ascertain the facts and form intelligent conclusions; support of one’s party and condemnation of the opponent is more important.

In fact, there are too many variables involved for anyone to simplistically say ‘Sugar is dead’, notwithstanding the blind loyalty of the supporters. Although trends are toward more healthy diets and therefore less sugar consumption in the West, the increasing affluence among the middle classes in the very populous areas of India, China, East Europe and the Middle and Far East has created an unexpected demand for sugary luxuries like chocolate, sweets, candy and sodas in those parts of the world. A 2016 US Agricultural study predicts that total world sugar trade is projected to increase by 8.3% from 45.8 million metric tons in 2014 to 49.6 million metric tons in 2024. Imports by most importing countries (except China) are predicted to increase during this period. Imports by Egypt and Algeria are predicted to increase by 22.4% and 33.0%, respectively.

On the other hand, Brazil, the world’s largest producer, presently directs nearly one half of its cane harvest to ethanol. It can surely adapt to meet any growing world demand. In addition, we are all familiar with the issues of European beet sugar and the end of Lomé.

There are more variables to consider. The Demerara brand is world famous, and the marketing advantage given to us through that geographical position should not be ignored and can be exploited. Further, the demand for sugar in the Caribbean, where we have a tax advantage under Carifta, may give us access to Caribbean markets which have closed their own sugar factories.

In the end, the most clear litmus test must be that the government’s invitation of expressions of interest by prospective purchasers of the estates has received several dozen responses from private investors. If those investors are willing to spend their money to produce sugar in Guyana, chances are that it can be done profitably. What is equally certain is that a government run corporation has failed and will continue to fail; a privatization process is the only feasible option.

Unfortunately, this reality does not seem to have registered in government. Information leaks out that some bureaucrats prefer divestment instead of privatization. Clearly, they have not learned from past as well as recent experiments with dairy (Lidco) or rice, both experiments ending in utter failure. Government cannot run a business; the estates and the sugar industry should be privatized.

But if we are to infer from government’s invitation of expressions of interest its intention to privatize, the question then arises how best this process is to be done. To be as seamless as possible, the estates should be transferred as going concerns, with as many workers as possible remaining in their jobs, and as much of the land and equipment as possible continuing to be used in the course of production. For some of the estates, that ship has sailed. Workers have been fired en masse. The estates have closed, and their factories are idle. Fields apparently were not planted during the last season in anticipation of these closures.

To move forward from this unfortunate beginning, government has informed the public that it has now belatedly retained a firm to value GuySuCo’s assets, presumably for the purposes of negotiating sales. This valuation process will be protracted. Meanwhile, every Guyanese knows what happens to equipment left idle and to land left untended in our rainforest environment. Everything metal will rust and decay; the bush will overrun everything else. Valuable assets will soon be reduced to junk and scrub.

There should be action now, and that action should try as far as possible to minimize the harm which has already started.

Any privatization process should take into consideration the benefits which are derived from GuySuCo, and try to preserve those benefits so as to minimize fallout. GuySuCo provides employment direct and indirect, its operations include maintaining miles of drains and canals on the coastland. It supports other companies from whom it buys fertilizer, machinery, equipment, and fuel. Its sugar supplies local beverage industries and ordinary households. Its health centres care for villagers. Its molasses byproduct is used in the local rum industry. It supports small farmers who cultivate cane for sale to its estates.

In order to reduce fallout, a draft contract should be prepared for the privatization of the estates. The contract should stipulate that the land is given by lease for a stipulated period of 20 or 25 years, and that the investor must utilize all the land leased and may not use it for any purpose other than cultivation of cane or the lease is forfeit. The contract should stipulate that the investor must maintain the factory in good condition during that period, and provide for a minimum number of employees to be taken from the surrounding area. The contract should stipulate that the investor may not alter the drainage scheme without consent of government, and must maintain those drains and canals, as well as staff and maintain the medical facilities on the estate. In exchange for this, the rental rate per acre should be modest. The draft contract for each estate should be made public, and investors should be invited to bid for the contracts: the highest price bid will be the investor selected to enter the contract with the government.

This should be done quickly. The longer the government waits, the more the asset will deteriorate, and the greater the social fallout will be from the present lay-offs. No protracted valuation of the assets is necessary.

Yours faithfully,

Timothy Jonas

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