Shaping policy to support the growth of the manufacturing sector

By Louis Holder

The young and particularly unemployed in Guyana are frequently advised to become entrepreneurs and to gravitate to the agro-manufacturing sector for their ‘salvation’ and as a means of gainful employment.  These words of encouragement, however, are not supported by conditions on the ground.  Markets are an important component of any manufacturing success but those available to Guyanese manufacturers are too small to allow for large-scale processing and thus competitive pricing, and are prone to cultural preferential biases, costly regulatory requirements, and lack of sponsorship.

The local market is already small and when coupled with consumers’ preferential biases and retail outlets’ display-penchant for favouring foreign products, it is not conducive for large-scale production.  At this level of production, assets are underutilised and unit costs are high.

Expanding markets to CARICOM countries has its own challenges including shipping when the volume is less than container load, handling of Guyanese products by agents in those countries, and high advertising costs to get products established.  Extra-regional market penetration is even more daunting.  For example, the US FDA requirements are quite stringent and generally foods must be certified to international standards.

But the sky is not falling and manufacturers should not despair.  What is needed is for Guyana’s policy-makers to be more proactive.  Manufacturing in Guyana can have a favourable impact on labour employment with government intervention and support.  This does not require government resources except for enforcement.  What follows are a number of measures the government should adopt mainly through legislation, which if done, would make manufacturing the engine for growth here in Guyana.

Buy-Local Legislation

In 1933, the United States Government passed a Buy-American Act requiring its government purchasing-practices to give preference to American-made products.  In other words, tax-payers revenues could not be used to buy foreign-made products when local ones existed.  This was obviously responsible for the vast expansion of American industry since then.  Although there have been some amendments along the way, the Act has basically maintained its objectives.  And now, with growing protectionist measures by the Trump Administration, a new Buy American Bill of 2017, HR 904, seeks to further enhance buying local commodities and reducing waivers.  This is not surprising as Mr. Trump defined his Make-America-Great-Again policy as “hiring only Americans and only buying made-in-America”.  If the mighty America determined that it has to support local manufacturing through legislation in order to grow and survive, why would countries such as Guyana think otherwise?  Undoubtedly, channelling government funds to procure locally-made products has positive effects on the overall economy and will definitely increase labour employment and foreign currency reserves, both positive outcomes.

Local-Content Legislation

To date, the discussion of local content legislation has been limited to one company, ExxonMobil, and its affiliates.  But there have been other foreign companies in Guyana exploiting its resources in the areas of bauxite, manganese, timber and gold.  There is no justification for singling out one company.  All are using inputs in their production processes and Guyana has to ensure that it is getting its fair share of supply of those inputs.  So local-content should not be limited to the supply of services but include manufactured goods.  This should also apply to the local contractors of these companies as they can avoid accountability by contracting to local companies who may not abide by the legislative requirements.

Local-Display Legislation

With few exceptions, retail outlets tend to give proportionally more shelf space to foreign-substitute products.  One exception that comes to mind is Roy Beepat of Giftland Mall, who has been quite supportive of locally made products by making space available in his mall for their promotion and shelf-space for their sales.  For the others, local products are given inadequate space and are tucked-away in some obscure corner unseen by shoppers. But the time for pleading with these foreign-minded retailers, and which has had very little success, is over.  The world is changing and when we buy foreign products only because we can’t find the local substitutes or are not aware of their existence due to retailers’ unfair practices, we are providing employment opportunities in those foreign countries and not here.  As reasoning is not a feature of the decision-making at these outlets, legislation which requires local substitutes to be given no less prominence than foreign products, is a must in the promotion of manufacturing activities.

Buy-Local Consumer Campaign

There is some evidence that exhibitions of local products sponsored by businesses and Government are changing perceptions about the image of these products.  For example, in a report by the Editor of Stabroek News Business Weekly on the UnCapped Expo, recently held at Providence, he expressed the view that the local market “appears to have given a thumbs up to the effort of the agro-processors”.  As a participant at these events, I would agree with this assessment.  But there is still much more to be done.  Although the most effective way to change consumer biases is through testing/sampling of local production as takes place at these events, it only reaches a small portion of the population and those that are already inclined to buy-local.  At the Providence UnCapped, it is estimated that 3,000 consumers turned up, still a small segment of the population.  What is needed to supplement Expos such as this one is an intense information campaign using bill-boards and media advertisements to educate consumers of the benefits of supporting local production. These campaigns can be financed jointly by Government and the Private Sector.

Focus of Country’s Diplomatic Missions

One of the primary purposes of maintaining diplomatic missions in foreign countries is to promote the national interest.  And what national interest is more important than gainful employment for its citizens.  But despite the vast resources the tax payer expends on these missions, the outcomes are dubious at best.  Missions should be providing samples of local products to distributors and other influential movers in those foreign countries. The Guyana Government needs to establish clear objectives, including the promotion of Guyanese-made production, for its foreign embassies and to report annually on the performance of those embassies.

Tax Incentive to Utilise Local Raw Materials

Manufacturing is the activity that gives added value to raw materials.  The problem is that most of this country’s raw materials used in manufacturing is foreign-sourced.  Can local raw materials be substituted?  Sure they can but again, appealing to manufacturers to do so is a waste of time as they are focussed on the bottom line and actions that have no effect on this are readily dismissed.  There is no penalty for using foreign raw materials, so to change the current behaviour, the country’s tax regime needs to change by providing a benefit to manufacturers using local inputs and an incentive to those who switch.

Conclusion

Governments have an obligation to put in place measures that grow the economy and provide useful employment for its citizens.  This is done by establishing the environment by which businesses grow and employ people.  As wages in the world economy stagnate due to past indulgences by governments through the debasement of their currencies and racking up of massive public debts, workers are becoming fearful of the future and their leaders are responding by offering protectionist measures.  Some of these measures include retreats from globalisation to prevent production moving to lower-cost countries; attacks on migration to avoid increasing the workforce; imposing trade tariffs to restrict imports; adopting policies, backed by legislation, that support local production; and in general, scapegoating the most vulnerable in society.

In this environment, it cannot be business as usual.  The Guyana government has to understand the disruptions that the world will be soon grappling with and put measures in place, using the force of law, to stay abreast and mitigate these disorderly forces.  The measures identified above, and which will have minimal impact on government resources, are a start.  CARICOM members could be included in the definition of “local” but only if there is reciprocal action on their part.

Louis Holder is the CEO of Amy’s Pomeroon Foods Inc.

 

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