Overview:
In modern times, the only times Governments are involved in private sector operations and revenue generation, other than taxes, are in the few remaining socialist, communist, or dictatorial countries. Recently we have seen President Chavez taking over many of the private oil companies and taking away farmland from the Venezuelans. In the 1970s we saw President Burnham nationalizing most of the major industries in Guyana, with many of these industries still in government hands such as sugar and in other areas such as agri-processing and now the selling of major products.
The rice issue
Over the last year, we have seen the cost for rice increase from $300.00 a gallon to approximately $960. There are many factors for such an increase. One of the main reasons for this increase is the added cost of VAT to the supply chain and the overall increase in other costs such as fuel. A rice farmer explained to me that with many items he buys to go from seed to rice there was the extra cost of VAT. He even explained that when his accountant did his taxes at the end of the year, there was 16% added to his fees. The wholesaler that then buys the rice from the miller said that many aspects of the supply chain was now taxable at 16% added to the increased cost of fuel to transport it to the retailers. By the time the rice gets to the retailers the cost had skyrocketed to current prices. The taxes collected along the supply chain ultimately are passed on to the consumer.
Guyana Government Inc. will put
Bourda Market vendors out of business
Recently, the Minister of Agriculture directed the New Guyana Marketing Corporation (NGMC) to go directly to a few rice millers and buy rice at the wholesale price then sell the rice direct to the consumer at no mark up. Does the Government pay VAT to itself on the sale of the rice?. The reason NGMC can sell the rice at such a low price is because the government has eliminated the supply chain issue. At the end of the day, the Bourda vendor said it is impossible to compete against the government supply store that does not have to worry about all the tax issues involved in the supply chain. Each day NGMC reports about $300,000 in sales. How many jobs along the supply chain, are now lost?
My personal experience: RoopGroup
versus Guyana Government Inc.
In 2004 when we first visited Go-Invest’s office with our intention of developing a modern agri-processing and packaging facility, we were told that once the private sector demonstrated they have the capacity to take over the industry, the Government will get out of the government run business of agri-processing. We then invested multi-millions in such an operation, only to find out that Guyana Government Inc. had taken taxpayers’ monies and rehabilitated their facilities to come up to our standards. The charge then to use the facility was at a price where we could not have competed with a government subsidized facility. At this point after our substantial investments, we could not compete with a government facility using taxpayers’ monies. Many farmers told me that they were told by a senior government official, “that they will never let us succeed because we will use the profits to fight them in 2011.” My experience continues to be very painful,(I have only exposed one part so far) but I can now feel the pain for the small retailers having to compete against Guyana Government Inc.
Summary and Recommendations:
“Economic freedom is an essential
requisite for political freedom.”
Free to Choose, 1979, Milton
Friedman, Nobel laureate.
What then are key steps that the government could take to encourage growth in the private sector and the enhancement of economic freedom for all Guyanese? I would argue that there are several important steps that could be taken:
Support a real property market through reform of the registry system, derelict property schemes, and land sales in the interior of the country.
Eliminate trade barriers and excessive import/export taxes to encourage trade and local entrepreneurs.
Engage all relevant local and international organizations conversant with our educational system to invest in the capital of today – our young people’s skills and knowledge.
Divest all state run revenue generating businesses.
The development of economic and political freedom as inseparable prerequisites for Guyanese prosperity. One of my political heroes, US President Ronald Reagan, put it this way when speaking about our region:
“Today the pivotal relationship between freedom and economic progress is becoming ever more apparent. The root cause of stagnation in the developing world, clearly, is not a lack of resources, but a lack of freedom