Brightening prospects

Introduction

Today’s column draws heavily on the Business Outlook Survey 2010, an annual survey which Ram & McRae has been carrying out for sixteen years. While the overall coverage of the press conference announcing the results of the survey was, as usual, good, I was surprised at the number of media who offered the mild criticism that the event clashed with a sitting of the National Assembly. One of them even suggested that the firm should shift the time of the press conference! I hope this is not an indication that parts of our media do not have the barest of resources to cover more than one event simultaneously.

In its introductory comments on the survey, the firm noted that the survey was taking place in a year that began with the world confronted by real fear of another Great Depression, the possibility of a return to protectionism and the collapse of the world’s increasingly globalised financial system. Armageddon was averted, and according to the publication, World Economic Situation and Prospects (WESP), a joint product of the Department of Economic and Social Affairs, the United Nations Conference on Trade and Development and the five United Nations regional commissions, the global economy began to recover from the second quarter of 2009, aided by massive fiscal stimuli and intervention by governments that seem suddenly to resurrect Lord Keynes. WESP noted, however, that the recovery, which is still taking place, has been uneven and that conditions for sustained growth remain fragile.
Unsatisfactory
Here at home, despite the huge sums from our donors specifically to rebuild the statistical and financial capacity of the relevant agencies, national financial and economic statistics remain unsatisfactory. This column over the past few weeks has been at pains to point out the considerable confusion caused by conflicting statistics published by the Bank of Guyana and the Ministry of Finance. The Bank of Guyana has now quietly amended its own figures on its website by way of a footnote in its half-year report, but which now introduces an inconsistency with its conclusion. It is ironic that even as the Bank does this, it received from the survey respondents the highest number of ‘excellent’ ratings among public sector entities.

The agreement on a decline in the economy’s performance in the half year seems to suggest that the decline continued into the second quarter of the year, unlike the rest of the WESP recovery countries. Let us hope it will not take several more years before Guyana joins the rest of the modern world in offering quarterly economic statistics including labour data and regional activities.
Copenhagen fails
As the 2010 survey was being carried out, the world’s – and Guyana’s – attention was focused on Copenhagen, Denmark where the world’s leaders were haggling over a solution to a phenomenon with potentially devastating consequences for the environment. The report noted that signs coming out from that conference were not good, a view that has been confirmed by the failure of the more than one hundred leaders to arrive at meaningful and necessary action to protect the environment and secure the future of planet earth. No amount of diplomatic acrobatics or linguistics by Ban Ki-Moon, the UN Secretary General, could mask the huge failure that Copenhagen has turned out to be. Ram & McRae had noted that no amount of fiscal stimulus could substitute for the tough economic and political decisions which a solution demands, decisions which China and to a lesser extent the USA were unwilling to make. Having said that, Copenhagen represented a failure of leadership, preparation and execution all around.
The good, the bad and the…
The survey’s introductory remarks included a reminder that Guyana was spared a repeat of the Bartica-Lusignan type murderous attacks of the previous year. Businesses were not prepared, however, to give the security forces much credit for this and indeed, the Guyana Police Force and its supervising Ministry of Home Affairs were rated poorly in terms of effectiveness among public sector entities. The government however was far more generous to the security forces, not only in terms of huge budgetary increases but also in the payment of bounties, a dangerous policy if ever there was one.

Not surprisingly, the Low Carbon Development Strategy as a concept received a highly favourable rating, as did the new prevention of money laundering legislation and the repeat of the proposal for a credit bureau. Not only Guyana but the world agrees with some form of LCDS – which essentially calls for simultaneous development of the economy and the protection of the environment. It is not hard to understand too why the respondents supported anti-money laundering legislation. Those engaged in tax evasion, money laundering, corruption and who dominate the criminalised sector have a huge advantage over those who run reasonably honest businesses. Previous money laundering legislation did not work, and I do not think it is too early to fear that, as presently organised, the new arrangements are going to be any more successful.
Confidence levels
The survey report noted that confidence levels in the business sector had fallen significantly in recent years, and in the 2009 survey, none of the respondents was confident that the economy would improve and sixty per cent were positively not confident about the country’s economic prospects. The percentage of respondents who are now less pessimistic than the year before has fallen by 9% to 51%, the same level as in 2008 but still far from the levels of confidence reflected in the 2006 and 2007 surveys. After the re-election of President Jagdeo in 2006, only 17% of the private sector had expressed pessimism about the economy. That percentage has increased two-fold, in contradiction to what the leaders of the private sector have been singing to the government over the past couple of years.

A summary of the responses is as follows:

One feature of the annual surveys has been that whatever their outlook of the economy might be, respondents always were more confident about their own operations, management and prospects. None of them plans any contraction of their business and they expect – in percentages unprecedented in recent years – increases in turnover and profitability. In its comment on these expectations, Ram & McRae expressed the hope that the increasingly confident business community, including the cash-rich financial sector, would provide the investment the country badly needs to generate employment, foreign exchange and taxes, to help in the development of the country.

Self-confidence

Public/Private Sector performances

For the first time since the firm initiated a Business Outlook Survey sixteen years ago, it asked respondents to rate twenty-one public sector entities with which businesses interact and to rank them from poor (ineffective) to excellent (very effective). Respondents were given the option of not providing a rating for any of the entities, an option taken up by an average of eleven respondents – either opting out of the question or not having done business with the body.

Getting high ratings in order were the Ministry of Agriculture, the Bank of Guyana and the Ministry of Labour, with GPL rated the poorest. Of concern is the NIS which was rated eleventh in a group that includes the Guyana Police Force, the Ministry of Home Affairs and the Office of the Commissioner of Insurance and, of course, GPL. The Commercial Court was rated higher in terms effectiveness than the High Court.

Of the ten NGOs, the two trade union umbrella bodies were rated lowest in terms of effectiveness, with the Trades Union Congress slightly ahead of the Federation of Independent Trade Unions with thirty-seven respondents (80%) and thirty-six respondents (84%) rating them as ineffective or marginally effective, respectively. Neither received an ‘excellent’ rating from any respondent.

At the other end of the scale, the Institute of Chartered Accountants of Guyana and the Guyana Manufacturing and Services Association were rated highest with fourteen (33%) and ten (22%) rating them as effective or very effective respectively. Interestingly the private sector organisations the Guyana Manufacturers Association and the Georgetown Chamber of Commerce received considerably higher ratings than the Private Sector Commission, which more often than not claims to speak on behalf of the private sector.
Conclusion

All the indicators and informed projections point to a retreat from the free-fall in world trade, industrial production, asset prices and global credit availability which had threatened to push the global economy into another great depression in 2009. Since the second quarter of 2009, economies across continents have been improving at varying rates of growth. International trade and global industrial production have also been recovering noticeably, with an increasing number of countries registering positive quarterly growth of gross domestic product (GDP). That revival has been driven in no small part by the effects of the massive policy stimuli injected worldwide since late 2008, and by strong cyclical inventory adjustment. But as the UN World Economic Situation and Prospects (WESP) 2010 notes, the recovery is uneven and conditions for sustained growth remain fragile. Credit conditions are still tight in major developed economies, unemployment is still high and businesses are still wary of expanding the productive capacity until more certainty and stability appear.

At home, despite serious warning signs in agriculture, bauxite and manufacturing, the Minister of Finance predicted a significant turn around in the second half of 2009 while the President seems over-enthused about the economy’s prospects with some US$30 million coming to the country next year under the Guyana-Norway LCDS Memorandum of Understanding.

In the report’s conclusion, the firm expressed its continued conviction in the usefulness of the survey despite the apparent disregard by the government of the wider views of the private sector expressed in confidential, independent and professionally compiled reports. I am convinced that the government’s failure to treat with meaningful tax reform has contributed to the continuing, widespread and massive tax evasion. It has failed to incorporate into the formal economy the huge parallel economy and it has demonstrated neither the will nor the capacity to deal with the criminalised segment of the economy, corruption, and white collar crime. Unemployment and under-employment are officially non-issues, even as the country laments the loss of professional and other skills to migration.

Noting that the short-term political advantages gained by allowing these issues to be driven by electoral considerations are far outweighed by the long-term economic costs, the firm was not hopeful that these issues would be addressed in a year preceding important general elections.