Pipe Dream
As Guyanese consumers absorb the implications of the 2010 budget on their lives, they must also get used to hearing the country talk much about diversifying the economy and achieving very little. The expectation that Guyanese have about diversification is that new industries will emerge and bring jobs with them. They expect too that, as a consequence of diversification, the country will have an even broader range of products to export and wider consumer choices as a result of domestic production. They anticipate too that the number of countries to which Guyana sells its goods and services will increase.
When that starts to happen, diversification will stop being a pipe dream and will have real meaning to Guyanese for they will have jobs and will earn money. Instead, Guyanese are witnessing the increasing reliance by private businesses on foreign suppliers to fill their inventory orders to meet household and investor choices. With this emerging trend, the intent of the diversification strategy is not quite clear and its expected outcomes are not likely to be quick.
Hard Time
International trade is not new to Guyana. Nor was it ever unimportant to the survival and development of the country. Ever since gaining independence in 1966, Guyana has depended on the outside world for many of the products that it consumed and used in its production activities. With a relatively small internal market, international trade helps to increase production possibilities and to expand consumer choices by making available goods that are not produced at home. In 2009, money from exports made up about two-thirds of Guyana’s revenue and helped to fund about 40 percent of its domestic expenditure. The diversification program, which got underway a few years ago, is likely to have a hard time changing the extent and scope of that emerging reliance on foreign suppliers.
Trade Protocols
The range of products that Guyana exports now, though not expansive, symbolizes the importance of international trade to the Guyana economy and the country’s relations with its trading partners. Such importance was often underscored by the numerous special international and bilateral agreements that the country has signed over the years with several countries and trading blocs. Many Guyanese are familiar with the special trade regime within the Caribbean Community and Common Market (CARICOM) and the many trade protocols that gave products like rum, sugar and rice special treatment in the European markets for a very long time.
Many of these arrangements have supported Guyana’s development and helped to sustain its industries, several of which were inherited from the colonial power and other foreign investors. Most of these special agreements were designed to bolster the exports of Guyana while recognizing the limits to which it could reciprocate the special favours or open its markets to the exports of its benefactors. Special arrangements, like those found under the Lome Convention and subsequent Cotonou Agreement with Europe, favoured production and employment in Guyana and are responsible for a significant share of the jobs in the economy. Within its current diversification program, the country is expected to continue exploring more ways to increase the volume of current exports and to find new products to export. With negligible investment and job creation, the diversification program, which was launched about three years ago, does not seem to have gotten very far.
Disputes
Despite stalled trade discussions in the World Trade Organization (WTO), the domestic diversification program might be encountering the headwinds of globalization and the trade liberalization that accompanies it wherever it goes. Guyana is not the only country encountering these headwinds. Trade disputes are erupting all over the world on account of WTO rules and the defence of trade liberalization. Just this week, it was disclosed that the WTO ordered the European Union to stop providing Airbus, a European manufacturer of airplanes, with subsidies. The subsidies have been deemed illegal.
Difficult Task
This decision holds as much relevance for Guyana as it does for the litigants in the case. Trade rules must be observed and defaulting countries will be punished. In recent years, private businesses in Guyana have increasingly come to rely on the sale of imported goods to fulfil customer needs and to increase their profits. The shift away from domestic production has been as dramatic as it must be discouraging to the advocates and promoters of diversification. The enforcement of trade liberalization rules could help keep the trend towards imports going and make diversification an urgent but more difficult task.
Profits
Earlier in the decade, private businesses in Guyana obtained about 14 percent of their profits from the sale of imported goods. Hopes of building up the economy on a trend that favoured diversification must have been very high with the bulk of private sector income coming from domestic production. Today, the share of profits from imports has jumped to 38 percent. In a country where profits seem to matter more than pride and people, the trend towards imports of consumer goods was unlikely to slow down. Part of the reason is that imports make up a larger share of the goods that Guyanese are buying. In the period 2000 to 2004, imports made up 9 percent of the value of items purchased by Guyanese. Within the last five years, that figure jumped by 200 percent and now accounts for 27 percent of household consumption.
Shift
As is to be expected, the shift in spending pattern is showing up too in the composition of imports, at a time when Guyanese should least expect it to be happening. From 1999 to 2003, Guyanese were basically spending an equal amount on consumer goods and on non-fuel intermediate goods on an annual basis. While encouraging, spending behaviour that favoured diversification started to emerge from 2004. Guyanese were buying an increasing amount of non-fuel intermediate goods. This behaviour suggested that Guyanese were emphasizing domestic production. It offered the possibility too that Guyanese consumers would be able to substitute foreign-made consumer goods with domestic alternatives where possible. Things seemed that way until recently when the imports of consumer goods started to overtake the import of non-fuel intermediate goods.
No Definitive Role
It is not clear how long this emerging trend will last but the strategy for diversification identified in the 2010 budget appears unlikely to arrest that trend any time soon. The strategy articulated in the budget seems to hinge on intensifying investments in agriculture and upgrading the infrastructure that supports some preferred agricultural activities. Some tribute is paid to the useful role that tourism and other-crops production in agriculture can play in the diversification effort. No definitive role was expressed for the manufacturing sector which appears to have been left to its own devices.
Conflict
On the other hand the greatest emphasis seems to be placed, once again, on the matured products of sugar and rice. These two products are being relied upon to carry the innovation torch in Guyana. Guyana is a price taker in both of these products in world trade. To become influence players, Guyana would have to increase the output of rice and sugar dramatically. To do so would most likely require bringing forested land under cultivation and such a move would conflict with the low-carbon development interests of the administration. This is not a prospect that the administration would like to countenance at this time, leaving one to wonder about the usefulness of its strategy on diversification.