Rawle Lucas is a Guyanese-born Certified Public Accountant and Assistant Vice President of the Lending Services Division.
Mr. Lucas has agreed to serve as a columnist with the Stabroek Business and will be contributing articles on economic, financial and development matters.
By Rawle Lucas
Value Added
Despite the noticeable hustle and bustle in the downtown streets of Guyana, at the airport, at the wharf, and at the shops and bars across the capital city and the countryside, the private sector in Guyana (everything except government and sugar) appears to be mired in self-doubt and political uncertainty. Projections of the private sector performance in the 2008 budget of the administration differ from the experience displayed by many parts of the private sector over the last 5 to 10 years. It is not easy to obtain up-to-date and substantial information directly from most private businesses in Guyana except from the few companies that prepare and release information in their annual reports. Those companies should be lauded, if only, for continuously fulfilling their reporting obligations.
Evidence emanating from the Bureau of Statistics points to a private sector that has been struggling to expand and to create jobs and opportunities for Guyanese in the process. An important metric in measuring private sector performance is the value added by the resources used by private businesses in producing their income. In the absence of individual company reports, the gross domestic product (GDP) at factor cost, compliments of the Bureau, serves as a crude but useful measure for assessing the private sector. This figure does not tell us how profitable the private sector is but it helps us to understand why resources are being reallocated among industries within the private sector. These resource shifts, for example, have caused the transport and communication industry to depose mining and sugar as the top income earners in the Guyana economy. Sugar is no longer king in Guyana and rice has become just another agricultural crop.
Contribution to Factor Income
Based on available data, the private sector accounted for 74 percent of factor incomes in the Guyana economy in 2007. This is the share of income that contains company profits and is used to meet expenses such as wages, utility bills and freight costs to mention some costs, and to hedge against domestic and global risk factors. The performance in 2007 marks the first time in 10 years since the private sector’s contribution topped 70 percent of the economy.
It previously exceeded 70 percent in 1998 when the private sector’s share of factor incomes stood at 72 percent. Since then, it has been struggling to reassert itself.
The contribution of the private sector fell by 8 percent to its lowest level of 66 percent of GDP in 2003. It regained some strength but never enough to exceed 69 percent and to recapture the impact on the economy that it had made in earlier years. It found itself through these years competing, without much aggressive protest, with the government for the scarce resources of the country. The more favourable position of 74 percent of GDP that the private sector reached in 2007 is not entirely of its own making. A 23 percent decline in the output of sugar enabled the private sector to record a more flattering performance in 2007.
Medium and Long Term Trends
The evidence also points to a private sector that appears unable to take advantage of the fiscal incentives available to it and one that remains woefully unprepared to compete globally to meet international obligations.
The medium and longer-term growth trends for the export sector are equally unimpressive. Two key export-oriented industries, rice and mining, were only able to grow by 2 percent annually since 2003. Over the longer-term, rice declined by an annual rate of 2 percent while both mining and forestry could only put together 2 percent annual growth since 1998.
Compared to such industries as transport and construction, which managed double-digit growth, the manufacturing sector mustered 7 percent annual growth in factor income since 1998 and 16 percent growth since 2005. The manufacturing sector achieved this impressive growth in income even as demand for its goods showed zero annual growth since 1998 and under 6 percent growth since 2005. This clearly demonstrates that the higher income is influenced more by higher prices than by expanding sales or output. Despite being aware that the sector is not improving production significantly, the administration unjustifiably recommends a 12 percent growth in income for this sector in its 2008 budget.
Similar oddities can be seen in the sectors of mining, livestock and fisheries. The administration projects that demand in the mining sector will increase nearly 6 percent. It also projects an increase in consumption of 3 percent in fisheries and 2.5 percent in livestock. These projections contradict both the medium and longer-term trends in these industries. In the medium-term, consumption has been declining by 8 percent in the mining industry and growth has remained under 1 percent in the livestock and fisheries industries.
The longer-term trends have not been entirely favorable either. Since 1998, consumption in the mining sector has fallen 4 percent each year while it has fallen by about 2 percent each year in the livestock industry. The divergent trends in consumption and incomes bring to the forefront concerns that both the administration and the private sector should have about production efficiency. From all indications, the 2008 budget of the administration does not include initiatives to help the private sector address this recurrent issue.
Sustained Passion and Energy
These notable shortcomings raise serious questions about how much useful discussion about improving the Guyana economy takes place among those to whom it should matter. Resources have already shifted from the underperforming sectors to the more lucrative ones over the medium and long-term. Manufacturing, mining and livestock are among them.
Nonetheless, these sectors remain relevant and vital to the success of the economy and they can now only recapture the lost resources at higher cost.
This is a real problem especially since Guyana continues to lose highly skilled human resources and the effects of inflation have now descended upon it without mercy.
Be that as it may, it is not enough for the private sector to complain in annual business surveys as if it is helpless. With nearly 75 percent of the economy in its hand, the private sector has as much responsibility as any other entity for the lives and economic wellbeing of Guyanese and it needs to start behaving that way. By creating good paying jobs, its employees will benefit. By creating exciting products and services, its customers will benefit. On both counts, the private sector will benefit. Consequently, it must be willing to raise its voice with sustained passion and energy to ensure that proper and realistic conditions are created for it to thrive and benefit. This is a responsibility of the administration that the private sector must insist on. After all, the private sector is too significant and important to keep passively accepting whatever morsels the administration may throw its way as a sop to its conscience.
