My intention was to write this week about whether Guyana can evade the resource curse, which is often associated with oil and natural resource extraction. However, the continuing crisis in the sugar industry and the terrible treatment of sugar workers necessitate my seventh direct column on this issue. Recently, DDL signalled it might be willing to pursue backward integration with GuySuCo to secure molasses, which is used as input for rum production. Last week Eusi Kwayana, Andaiye and Moses Bhagwan criticized the APNU+AFC government over the sacking of thousands of sugar workers without a viable alternative. As I write this column, I am reading former President Ramotar’s sensible letter (SN, Jan 11, 2018) outlining long-term proposals for the sugar industry. The trouble with Mr Ramotar’s proposals is they should have been implemented around the late 1990s or early 2000s when his party was in power.
The genie has left the bottle largely because the PPP/C let it out; as a result, there is no more short-term solution for the sugar industry. There will be very painful adjustments and thousands of job losses because of the serious policy blunders of the PPP/C and the uncaring attitude towards sugar workers by the APNU+AFC government. The callous government of well-off upper middle-class Guyanese, which early on paid itself a 50% salary increase for doing absolutely nothing, sent home thousands of poor sugar workers without a severance package and alternative vision. For decades, the clueless GAWU has taken the workers for granted while collecting their union dues and delivering them as a reliable vote bank for the PPP/C, except for a short period when the union and some old timers had a major disagreement with Mr Jagdeo.
As early as 1945, Sir Eric Williams observed in one of his academic papers that Guyana cannot produce sugar competitively given the man-made coastal polder system. For the sugarcane to survive, and it can for another 30 years, the industry has to do three things: (i) reduce the unit or average cost of production; (ii) upgrade the product mix, while using sugarcane as a feedstock, to produce something more valuable for the Caribbean and international markets; and (iii) change the ownership structure and corporate governance of GuySuCo. These are not overnight solutions, and will take several years to bring the industry back to stability. Ultimately the industry will have to be more nimble with a smaller work force than it has now. The political class has postponed reforms by about 20 years, hence the present clumsy shock therapy.
At present, GuySuCo produces sugar – on average – at US$0.35 per pound while world market prices have averaged around US$0.15 per pound in recent years. Moreover, the preferential price that GuySuCo enjoys from the European market is around US$0.25 per pound, essentially making a loss at even the preferential rate. The country, therefore, cannot subsidize an industry that makes a losing core product. If subsidies are to be used, they must be for diversifying the industry away from sugar, but not necessarily sugarcane which is vital for molasses, possibly ethanol or bulk alcohol, and heritage tourism. Furthermore, subsidies have to be temporary and should be associated with a private-public arrangement.
In the past, I have given several probable policies which might alleviate the problems in the industry. See, for example, my essays ‘Saving GuySuCo’ (SN, April 30, 2014), ‘Sugarcane and antidesma versus sugar’ (SN, Nov 11, 2015), ‘Historical policy choices and GuySuCo’s present-day financial predicament – parts 1 and 2’ (Aug 26, 2009), and a few more. I want to emphasize two measures that can help the adjustment process.
Firstly, the ownership structure of the industry has to be carefully thought out as the government proceeds. Complete privatization of the industry is not likely to work – one reason being that the industry provides the public good of drainage service. No private investor will produce a public good unless the government subsidizes the operation or enters into a public-private arrangement. Private businesses are only better at producing private goods such as cars, smartphones, chocolate bars, fried chicken, bora, okra, coconut, etc, not public goods.
Selling an estate to a single private investor is also a bad idea. They will no doubt continue the terrible treatment of sugar workers and will more likely be interested in the land than production. The government would need an intelligent industrial policy. For instance, GuySuCo can easily fit into a coherent pro-environment development strategy whether it’s Jagdeo’s Low Carbon Development Strategy (LCDS) or Granger’s Green State Development Strategy (GSDS). Although GuySuCo could be a champion of renewable energy, the industry was never really featured prominently in either the LCDS or GSDS. Leasing the land to private investors and giving them enough flexibility for changing from sugarcane to any other agricultural product seem to be the way to go. Real estate development on the leased land must be forbidden in the contract.
In this context, therefore, DDL’s proposal to link backward with the sugar industry is an ideal opportunity for the government (and people of Guyana), which needs to do whatever it takes to get a public-private arrangement with the legendary Guyanese manufacturing company. The ownership structure could be multiple groups of private investors and government. The first category of private investors could be private cane farmers who would lease land to grow sugarcane. The second category would be a large investor such as DDL or a syndicate of large private operators to make sugar, molasses, possibly bulk alcohol and promote heritage tourism. Sugar from sugarcane is seen as superior compared with high fructose corn syrup. The sugar will go into making soft drinks, bread, sweets and other uses.
The third category of private investors would be common shareholders so as to diversify the wealth among as many Guyanese at home and promote diaspora investments in Guyana (I would buy shares if they do it properly). These shares can be floated on the local stock exchange, which needs to be deepened and developed. The government, therefore, not only addresses the problems at GuySuCo, but also promotes capital market development and deepening. Sugar workers could also be given shares as part of a compensation and wealth ownership programme.
Secondly, there must be political consensus on the way forward for GuySuCo. GAWU and the PPP/C must provide assurances that industrial action will not be used for destabilizing the public-multiple private ownership partnership outlined above. DDL and other large private investors will need stability to fully assess their risk premium. The PPP/C’s instinctive strategy is always not to cooperate (the PNCR and AFC did same when they were in opposition). However, since the PPP/C has around a 60% chance of winning the election in 2020, they have got to watch for what they are asking. They are not the only political force that can “make the country ungovernable” and raise the risk premium for investors who have to do business on the coastal plain where 90% of the population resides.