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
Personal Decision
Building wealth does not seem to be a top priority of Guyanese living in Guyana or, if it is, they are not demonstrating it very well. Maybe my observation is incorrect but I am not saying this to be flippant or to chide anyone. It is just that what I see from the information at hand makes me conclude that building wealth is not on most people’s minds; nor does it seem to be part of the administration’s policy. But I do not hold the administration entirely responsible for what individuals ought to be doing personally. After all, if the administration is not acting in the interest of the people, Guyanese ought to elect officials who would help them build the type of future they want. That is a personal decision.
Limited Options
Building wealth is better pursued in the private sector and can be done in several ways. It can be done through investment in various types of securities, including mutual funds, treasury bills and company shares. There is no choice among mutual funds in Guyana. Treasury Bills are sold in denominations of G$50,000 or multiples thereof putting them out of the reach of ordinary Guyanese. Investment in real estate can produce significant capital gains that add to the wealth of individuals. Working people in Guyana have the opportunity to save in the National Insurance Scheme and pension programs of employers. I have yet to meet someone who worked and retired in Guyana and lives well on such retirement income alone.
The stock market in Guyana is another story and, at present, does not seem to present real opportunities for Guyanese to invest with confidence. Fourteen companies are listed on the Guyana Stock Exchange; five of the companies are licensed depositary financial institutions, seven others are manufacturing companies and the remaining two are involved in some type of distribution or financial holding activity. Guyanese obtain reports in the daily newspapers on the trading activities of stocks on the Guyana Stock Exchange.
Serious investors are unable to utilize the daily reports of the stocks traded without up-to-date information on the earnings and performance of the listed companies. Earnings information is obtained from Profit and Loss Reports or Income Statements. The information contained in those reports help investors predict the amount of future cash flows and the level of risk or uncertainty associated with those future cash flows.
Financial reports of some listed companies are hard to obtain and information about the financial performance of other companies is based on outdated reports. Also, trades of some stocks appear to take place rather infrequently as if there is no real desire to have ordinary Guyanese participate broadly in this secondary market.
Income Loss
Apart from indirect ownership through the stock market, wealth can be built through personal ownership of a successful business. According to Bank of Guyana (BOG) data, private investment makes up about 20 percent of domestic spending in Guyana. The rate of increase in private investment in Guyana, though, has steadily declined from an annual average of 6 percent between 1994 and 1998 to about 4 percent since 2000. A decision to start a business is not something that people take lightly and many aspiring and established entrepreneurs weigh all the risk factors in making the decision to go forward with an investment. The downward trend in private investment is perhaps indicative of the lack of confidence in the present investment climate in Guyana and the failure of the administration to do a good job of informing individuals and companies alike of investment opportunities and benefits, despite the existence of Go-Invest.
Given its weight in the domestic economy, the decline in private investment represents a loss of nearly G$1 billion in factor incomes every year since 2000. This is income that Guyanese can ill-afford to lose but their nonchalant attitude towards the administration seems to suggest that they are satisfied with their own financial misery and the continued under-performance of the administration. The complacency of Guyanese towards their own financial condition is sharpened by their unwillingness to hold the administration fully accountable for the lack of transparency in private deals involving assets currently owned by them as taxpayers of Guyana.
Bank Savings
In the absence of a wide array of dependable investment options, the opportunities for building wealth for most Guyanese have been reduced to saving money with the commercial banks. Based on BOG data, it would appear that some Guyanese seem to think that saving money with the commercial banks was their best and most effective option. According to the BOG, total deposits with the commercial banks have risen from G$77 billion in 1998 to exceed G$176 billion in 2007. To put this level of savings in perspective, Guyanese can buy all the companies listed on the Guyana Stock Exchange 3 times and still have G$17 billion to spend on other things.
Calculations show that the annual rate of growth in deposits averaged about 11 percent since 1998. With such sustained growth, savings and time deposits continued to make up about 83 percent of the total deposits in the commercial banks during the 10-year period. The sustained growth in deposits and the size of deposits sitting in the banks suggest that people believe that there is some personal benefit to putting their money there.
The sad reality of this practice is that it is not helping to build wealth for the majority of Guyanese. Almost all savings are on a short-term basis. As at December 2007, only an average of five percent of deposits had maturity dates that exceeded 12 months. With interest rates on savings accounts as low as they are, averaging 3.11 percent at the time of writing, depositors will have to wait over 23 years, if they could, before any money that they put in the bank today doubles in value.
The interest that depositors receive from the commercial banks in Guyana is taxed at no less than 20 percent leaving them with an effective rate of interest of 2.5 percent. This means that depositors get less than three cents for every dollar that they put into a savings account. Under such circumstances, the time that it will take for money to double extends to about 29 years. Time is one of the best allies in an attempt to build wealth but such low returns would not help too many Guyanese and certainly not the individuals who have used up most of their working life and are hoping to retire in comfort on bank savings.
Even with time on their side, matters seem to get worse for Guyanese seeking to make their golden years comfortable when inflation is taken into account. The BOG has reported that the consumer price index (CPI) increased about 14 percent between December 2006 and December 2007. With that level of price increase, it means that a G$1 put in the bank at the beginning of the year was really worth 86 cents by the end of the year. When we include the interest of 2.5 cents on every dollar, adjusted for inflation, all the sacrifice individuals make by saving their G$1 add up to about 88 cents.
By saving money in the commercial banks, the money of individuals is losing value instead of gaining value.
This outcome is not the kind of financial situation that helps individuals to improve their lives. Better investment options need to be put on the table so that all Guyanese can be better placed to take charge of their own lives. A good place to start is the stock market where greater transparency and better financial reporting by participating companies are needed urgently. In addition, the administration needs to do a better job of informing all Guyanese of investment opportunities and benefits and of helping them to make the most of those opportunities and benefits.