Dear Editor,
My interest was piqued by a letter from Mike Persaud in Stabroek News, February 06, 2021. In that letter, under the caption, `Local bakeries will face heavy competition from new Surinamese bakery’, Mr Persaud claimed that many of the local bakeries will come under severe pressure, even go out of business, consequent upon the entry into the Guyanese market by a Surinamese bakery. He reasoned that this is the case whenever “a large, better funded foreign company enters a small developing country.”
In the instant case, “the large, better funded foreign company” is not the world famous Costco, BJ’s or Home Depot of the USA, but a bakery owned by the relatively unknown Fernandes Group of Suriname, a CARICOM country that is Guyana’s closest neighbour. Mr Persaud admits that the local market for bread is saturated, a fact that has not daunted the Fernandes Group.
So, how do they intend to run a profitable operation in such a highly competitive market? The answer lies in the utilisation of a US$4 million loan, which the Group obtained from IDB Invest, to finance a bakery that will have the latest technology. The product of lower unit cost together with modern management and customer relations’ practices is expected to be superior product, in terms of quality, variety and price. Ultimately, increased market share should guarantee profitable returns on the investment.
Rather than feeling trepidation at their forthcoming entry into the Guyanese bakery market, I want to congratulate the Fernandes Group for this bold move. Their ability to access funding from IDB Invest is worthy of note and should be emulated by the local private sector.
As Minister of Finance, I worked tirelessly to get IDB Invest and IDB Lab to engage the private sector in Guyana, to seek and fund bankable projects, especially in light of our nascent oil and gas economy. A short introduction to both of these financial institutions will be helpful at this stage.
The IDB Invest, formerly known as the Inter-American Investment Corporation (IIC), is the private sector arm of the Inter-American Development Bank (IDB) Group. The IDB Invest aims to partner with the private sector in Latin America and the Caribbean to finance projects to advance clean energy, modernize agriculture, strengthen transportation systems and expand access to financing. Financial solutions offered by IDB Invest include trade and supply chain finance, blended finance, guarantees, equity and loans. In 2017, the IDB Group rebranded IIC into the IDB Invest, following the IDB Group’s expanding private sector focus and its goal to reposition as the solutions bank for Latin America and the Caribbean.
Between 2016 and 2018, seven projects were approved for the Caribbean: The Bahamas (3 projects; $8.5 million)); Jamaica (1 project, $17 million)); Suriname (1 project, $0.5 million)); and Trinidad and Tobago (2 projects; $44.4 million). It is obvious that Guyana did not feature during those 3 years. I pushed for this situation to be redressed quickly. Thus, by 2019, the newly-appointed Investment Officer had made contact with more than 50 local companies, resulting in 10 projects being identified for financing in the sectors of Agribusiness, Manufacturing, Financial and Energy. To date, Demerara Distillers has been a successful recipient of funding from IDB Invest.
Interestingly, having visited a bakery on the East Bank of Demerara, being impressed by the operations and learning of the owner’s expansion plans, I lobbied IDB Invest to examine this project. I was pleased that they did, but I was saddened that the financing was not forthcoming.
Guyana’s economy is made up largely of micro, small and medium enterprises (MSMEs), which may not have the capacity to access IDB Invest financing. This is where the IDB Lab can play a critical role.
The IDB Lab, formerly known as the Multilateral Investment Fund (MIF), works with local, mostly private partners, to help fund and execute projects. The IDB Lab provides grants, loans, guarantees, equity and quasi-equity as well as advisory services to business associations, non-governmental organisations, foundations, public sector agencies and financial institutions and, in some cases, private sector firms to support projects that benefit the poor – their businesses, their farms, and their households. As of 2019, IDB Lab had a portfolio of 6 projects in Guyana, totaling approximately US$3.2 million. Two of the projects were approved in 2018.
The Fernandes Group’s investment in Guyana is another wake-up call to the local private sector. Making use of cutting edge technology, embracing innovation, accessing financing and self-motivation are needed to exploit the endless potential in Guyana’s economy. Both IDB Invest and IDB Lab are well-positioned to bridge the financing lacuna faced by Guyana’s private sector. In this regard, the Guyanese private sector needs to be better sensitized on offerings- instruments, terms and conditions- of these two financial windows, and be emboldened to use them.
Second, there needs to be a synergistic approach between the IDB Invest and IDB Lab in Guyana. The IDB Invest appears to have difficulties finding bankable projects in the private sector. Among the factors contributing to this is the state of the infrastructure, which impacts the productivity of the private sector, thereby posing high-risk factors for investment. However, IDB Lab can play a key role as an innovation lab for new ideas, which can then be groomed and scaled up via IDB Invest.
Yours faithfully,
Winston Jordan
Former Minister of Finance
