Feature address by Dr. Justine a. Ram
Director, economics department
Caribbean development bank
At the Georgetown chamber of commerce and industry
Annual dinner and awards ceremony 2013
Pegasus Hotel Guyana, Savannah Suite
WEDNESDAY, DECEMBER 4TH, 2013
I feel honoured to be able to share in your Annual Dinner and Awards Ceremony, especially as you mark your 124th year of operation. Congratulations on reaching this milestone.
In the last 124 years, this organisation would have had a front seat as a particularly eventful period in Guyana’s social, political and economic history has unfolded. It is my hope that, going forward, you – the business sector – will continue to play an important role in Guyana’s development, ideally from the driver’s seat.
Yesterday I was reminded of how times are changing. The driver sent to collect me from the airport was expecting a much more elderly person given the incorrect photograph he had of me. It was in fact a photograph of the Premier of Anguilla. We both had a very good laugh! However, it brought home the point that the world is evolving and changing rapidly and from what I can see Guyana is certainly participating in that evolution together with its youthful population and optimism.
This evening, I will share with you my perspective on Guyana’s past and future development, as I seek to answer a few key questions: Where has Guyana come from? Where is the country going? How has the Caribbean Development Bank (CDB) helped and what do we intend to do? I will conclude with some ideas as to the way forward for Guyana.
WHERE HAS GUYANA COME FROM?
Guyana has had a particularly challenging economic, social and political history.
The extended period of inward-looking policies that started in the early 1970s, exacerbated by a series of external shocks, culminated in a socio-economic crisis by the mid-1980s. Mass emigration ensued, as real Gross Domestic Product declined by a cumulative 26% during the period 1980-89 and the poverty level peaked at 65% in 1988.
The Economic Recovery Programme (ERP), introduced in 1989, helped to make some progress in addressing these issues. The ERP sought to restore economic growth and reduce internal and external imbalances by: liberalising exchange controls; adopting a floating exchange rate; lifting import and price controls; implementing revenue-raising measures and expenditure cuts; encouraging private investment through incentives; streamlined procedures and reversal of the previous policy of nationalisation; and eliminating substantial payments arrears to foreign creditors, the latter with support from the multilaterals including CDB .
However, despite the implementation of the ERP, Guyana’s economy remained weak in the 1990s, through the first half of the 2000s. Low productivity was reflected in falling income and an inability to boost exports sufficiently to reduce external imbalances. The debt overhang, outward migration and infrastructure gap, as well as enduring social tensions and political challenges also remained significant impediments to stronger economic performance.
But Guyana has turned the corner. A robust and sustained reform agenda, as encapsulated in your Poverty Reduction Strategy Papers (PRSPs), have certainly helped to reverse economic stagnation and enhance most of your development indicators, including per capita incomes and poverty levels.
Notably, public financial management reforms adopted from around 2003 have helped to improve fiscal policy making.
Also, structural reforms have been implemented, geared at modernising traditional industries, as well as promoting small business development and private investments. For example:
– the Investment Act of 2004 provided the overarching regulatory and legislative framework for the protection of private investments in Guyana;
– the Small Business Act of 2004 provided incentive regimes and support programmes for small businesses; and
– the National Competitiveness Strategy drafted in 2006 was aimed at enhancing Guyana’s competitiveness in terms of reforms to institutions and initiation of policies, projects and programmes.
Guyana has therefore emerged from years of economic decline and stagnation with improved macroeconomic fundamentals. Indeed, Guyana’s impressive real GDP growth rates, which averaged 4.5% during the period 2006-2012, have out-performed several of its Caribbean counterparts.
Implementation of these reforms has been rewarded with substantial debt relief under the Highly Indebted Poor Country initiative (HIPC), Multilateral Debt Relief Initiative (MDRI) and Paris Club arrangements, which has led to a substantial reduction in debt ratios. By 2007, the external debt-to-GDP ratio was estimated at 40%, compared with a high of just over 600% in 1989, while the total debt-to-GDP ratio had fallen to the 60% international benchmark, improved economic performance and debt relief have freed up resources for increased social spending. This investment has begun to pay off:
– poverty levels were down from 65% in 1988 to 38% in 1999 and extreme poverty down to 18.6% in 2006, from 29% in 1992;
– substantial progress has been made toward the MDGs, particularly in the areas of education, gender and environment; and
– Guyana’s HDI has risen dramatically since 1980, with the country moving from low (1980s and 1990s) to medium (2000s) human development.
WHERE IS THE COUNTRY GOING?
The reforms implemented to date have been relatively successful.
The macroeconomic outlook is quite optimistic – investment, buttressed by key policy initiatives, is set to remain the key growth driver.
And there is a high likelihood that Guyana will achieve the MDGs by 2015 in education, gender and environment.
But the country still faces critical development challenges: inadequate infrastructure; high vulnerability to natural disasters and climate change; high poverty levels and other social challenges; and economic concentration and constraints to private sector development.
A new wave of reforms is therefore being ushered in to consolidate and augment past progress, within the context of the country’s third generation PRSP, as well as the innovative Low Carbon Development Strategy (LCDS).
Poverty reduction and sustainable development are the main objectives of the PRSP and the LCDS, respectively.
Both these strategies seek to guide Guyana’s development over the 2011-15 period through four main areas of focus: infrastructure development; social and human capital development; strengthening of governance and institutions; and economic diversification and private sector development.
HOW HAS THE CARIBBEAN DEVELOPMENT BANK HELPED AND WHAT DO WE INTEND TO DO?
CDB’s past strategy in Guyana has focused on strengthening social and economic infrastructure, promoting private sector development and building capacity and strengthening institutions in critical sectors.
Notably, CDB has contributed to infrastructure development in terms of roads, docks, markets and sea defences, as well as capacity building in the area of technical and vocational education and training (TVET) under this strategy.
In addition, the occurrence of natural disasters has led to the approval of previously unidentified capital projects for disaster management. The Bank has also supported Guyana’s developmental thrust through the application of concessional lending terms in financing these capital projects.
The Caribbean Aid for Trade and Regional Integration Trust Fund (CARTFund) has also provided a key modality for financing private sector development in the area of industry and trade.
Likewise, CDB has implemented various capacity-building initiatives for small and medium-sized enterprises (SMEs) through its Caribbean Technological Consultancy Services (CTCS) network. There has also been a significant focus on poverty reduction through the operations of the Bank’s Basic Needs Trust Fund (BNTF), which focus on community projects that provide basic social and economic infrastructure and capacity-building. Interventions under CARTFund, CTCS and BNTF are all grant financed.
The Bank’s strategy for Guyana for the 2013-17 period, approved in March this year, maintains the focus on concessional financing for infrastructure development and grant-financed BNTF and CTCS operations, but also seeks to address the country’s environmental, disaster risk management (DRM) and climate finance needs.
CDB also aims to restructure its relationship with the private sector in Guyana in a creative way, in line with the Bank’s evolving private sector thrust.
THE WAY FORWARD
All of the areas highlighted in the Government’s and CDB’s strategies are critical to Guyana’s future development.
Closing the infrastructure gap, building capacity and strengthening institutions have received a lot of attention from the Government and CDB, as well as other development partners in recent years.
While significant progress has been made in relation to these areas that enhance competitiveness and facilitate private sector development, there exists a need to build on these efforts.
In this regard, there have been a number of specific constraints identified by private sector stakeholders, including:
– restricted access to, and high cost of credit for the retooling of manufacturing plants;
– the absence of research and development and training
– facilities for the manufacturing sector;
– the acute scarcity of managerial capacity and skilled labour due to migration,;
– the lengthy bureaucratic processes associated with regulatory approvals for private sector;
– high cost and unreliable power supply which has led most of the larger enterprises to invest in their own electricity generating facilities;
– high taxes on production (trade taxes added to corporate taxes); and
– inefficient trade logistics and inadequate port facilities which contribute to high transaction costs.
Several of these issues are highlighted in the World Bank’s “Doing Business” Report for 2013, which ranked Guyana 115th of 189 countries overall for the ease of doing business. Moreover, the 2013-14 Global Competitiveness Report ranked Guyana 102nd out of 148 countries in respect of international competitiveness. The results of these and other diagnostic and benchmarking exercises suggest that the reform and policy agenda needs to continue apace.
CDB is already responding to some of the issues highlighted, through CTCS and TVET development, for example, but there is scope for CDB to support private sector development in other ways. New and innovative initiatives in the area of renewable energy/energy efficiency and climate finance are coming on stream and there is already a fund that can be used for support to the private sector to ensure their readiness for the CARICOM Single Market and Economy (CSME) and implementation of the CARIFORUM-EU Economic Partnership Agreement (EPA).
Improving Guyana’s competitive position will require continued efforts at improving the basic factors required for such competitiveness, including continued improvements in infrastructure, institutions and basic education and health.
At the same time, it will be important to address those areas that are necessary to help Guyana to transition from an economy that is driven by the basic factors of production to one that is efficiency-driven. The transition will require, among other things, a greater focus on higher education, improving the technological readiness of the economy and developing its financial markets.
Such investments and reforms would facilitate the continued development of Guyana’s private sector and foster the economic diversification that is necessary to build more resilience and generate prosperity.
Specifically, such investments would create the foundation for reducing Guyana’s concentration in the extractive industries of agriculture, forestry and fishing, mining and quarrying, which focus on low value-added, natural resource-based products for export, and leaves the economy vulnerable to “Dutch disease” effects.
Indeed, in recognition of the depleteable nature of some of these natural resources, it would also be ideal to explore the establishment of a sovereign wealth fund to manage the windfalls from their extraction, as has been done in Trinidad and Tobago, Botswana and Norway and other resource-rich countries.
Such resources could then be used to underwrite the types of investments and reforms that are necessary to facilitate economic diversification away from natural resource-based products and into higher value-added goods and services. There is certainly strong potential for increased activity in such higher-value-added goods and services.
Unlocking this potential will require continued efforts in making the priority investments and undertaking the critical reforms that would encourage such activity.
To be sure, the ongoing journey to sustained growth and prosperity now requires building on the strong foundation that has been established through critical investments and reforms. CDB and other development partners are ready to collaborate with Guyana in this regard.
The effort will also require a strong partnership between the private sector and the government to build consensus on the priority agenda going forward.
So substantial progress has been made, but the journey is far from over. Benjamin Disraeli, a former British Prime Minister, said “The secret to success is constancy of purpose.”
Another pre-condition for the creation of an enabling environment for private sector development is strong governance structures and social cohesion. On the Global Competitiveness Index, Guyana performs less favourable on transparency, efficiency of the legal framework and business costs of crime and violence.
Despite the identification of these as key factors in Guyana’s low overall competitiveness ranking, more must be done, it is therefore incumbent on the business sector to assume a more activist role. You should advocate strongly for the implementation of reforms, as well as initiatives to strengthen and deepen social cohesion.
Indeed, in revamping the policy framework, we need to recognise that the existing approaches for implementing reforms must also be overhauled. Current approaches to private sector development in Guyana have not always been efficient. You have not always been sufficiently consulted or asked to participate in decisions that affect you. Development partners, for our part, have often failed to coordinate our efforts effectively to avoid duplication of effort and ensure complementarity.
CDB will therefore seek to promote collaboration and consultation with all stakeholders as we pursue together the development of a vibrant private sector, which we all recognise is a key engine of productivity growth and poverty reduction.
The private sector should therefore also take the lead in ensuring that Guyana’s vulnerability to natural events is reduced and that the economic policies being pursued bring lasting and sustainable benefits to all who are willing to work diligently for this.
This is particularly important in economies like Guyana’s that are heavily dependent on agriculture and natural resource extraction. Let me reiterate this point to you. That properly measured economic growth is the return on the asset base or capital of the economy, I repeat; that properly measured economic growth is the return on the asset base or capital of the economy. Thus economic growth is really a function of the quality and stock of assets as well as productivity of the economy.
Therefore as assets are extracted and depleted, you the private sector must ensure that sufficient investment is made in other types of assets such as human capital, plant and machinery, telecommunications and infrastructure since these will be the assets that help support growth in the future. Any good business person knows that the maintenance of assets ensures a sustainable operation, the economy must also be heavily reinvested in, to ensure sustainable economic growth.
Economic history teaches us that business cycles exist, the pendulum swings, the “Economic Googlies, the Bouncers, the Yorkers” will come but we can be prepared by practicing in the Batting Nets of economic investment and fixing the “Economic and Social Roof” when the sun is shining.
Opening trade links with other regions of the world and deepening links within CARICOM will also foster growth now and in the future and improve productivity as you seek new markets for your goods and services. Once more the private sector must be the lead advocates for investment now to achieve continued and future prosperity!
I therefore implore you to save and invest for the future since this will sustain higher consumption now and for future generations. Benjamin Franklin, one of the founding fathers of the USA once said “by failing to prepare, you are preparing to fail”. So diligence and preparation are integral for future prosperity.
The road ahead is full of opportunity and challenges. There are challenges, However, I do know that they are not insurmountable, if Guyana stays the course. Every time I see Shivnarine Chanderpaul bat, I am reminded of this. In my humble opinion he is one of the greatest batsmen Guyana and the world has ever produced, he stays the course! His constancy of purpose should be our guiding light!
Ladies and gentlemen, in closing, let me reiterate just how delighted I am to have had this opportunity to participate in this evening’s proceedings. I have enjoyed sharing with you my thoughts on Guyana’s past and future development path and the respective roles of government, the private sector and CDB, as well as other development partners.
I invite you, the business sector, to also share your vision and join with CDB and other stakeholders in working toward a harmonious and prosperous future for all in Guyana.