Introduction
The recent rebasing of Guyana’s National Accounts series from 1988 prices to 2006 prices has created three major areas of difficulty for a comprehensive evaluation of Guyana’s macroeconomic performance during the 1990s and 2000s. First, as I have pointed out in previous columns, the value of key GDP aggregates has increased substantially. Data based on the old series and the new series do not compare well over those years for which we have comparable data: (2006-2009). Second, the rates of growth of GDP revealed by the two series for the same years also differ. And, third there have been significant revealed changes in the industrial structure or sectoral composition of the economy.
Unfortunately, as a result, for purposes of our present inquiry into the impacts of the ongoing global crisis, which began in the autumn of 2007, this makes the study of the crisis years very problematic. Thus, for example, we already know that from this year onwards the published national accounts data will only be presented on the basis of the rebased 2006 prices!
As I summed this issue up last week, we have to await data from coming years to determine whether we are dealing with real substantive developments in the economy or whether we are caught up in a statistical illusion generated by 1) the use of different techniques of measurement; 2) different classification of economic activities; and 3) the unearthing of information which was always there, but which the Bureau of Statistics did not have the techniques to unearth.
Financial impacts
Returning to the discussion of the global crisis and its economic impacts on Guyana and the wider Caribbean, I turn next to the economic impact of the crisis on key financial flows: foreign investment, official development assistance (ODA), remittances, and trade credit. In all Caricom states, external inflows of these funds and their associated technologies have been undoubtedly key drivers of their economic growth. None of the Caricom countries can generate enough domestic savings to meet their public and private investment needs.
Consequently, as a rule during the 1980s, (although this varied from country to country) most of the foreign investment was obtained from official sources; that is, foreign governments and international financial institutions (IFIs). Readers who are old enough will recall the tremendous roles of the IMF, World Bank, and Inter-American Development Bank, along with Western and Eastern governments in the financing of various projects in Guyana.
By the early 1990s, however, foreign private inflows became a major source. As a consequence of this, foreign private direct investment flows to the region grew from US$1.5 billion as the average for 1991/1992 to US$2.8 billion as the average for the years 2003/2007. As a proportion of Caricom’s GDP these FDI inflows ranged from, on the one hand, 25 and 21 per cent of GDP (for St Kitts and Nevis and Antigua and Barbuda respectively) to, on the other hand, an outflow of capital from Suriname, to the tune of 6 per cent of that country’s GDP. In Guyana the ratio for this period was just less than eight and one-half percent of its GDP. The data also show that five countries had a higher ratio than Guyana’s and eight a lesser ratio.
The near doubling of FDI inflows into the region during the 1990s did not diminish the continued substantial presence of official development assistance (ODA). Thus cumulative lending by the World Bank and its concessional arm (spread over 240 projects) totalled US$3.75 billion up to the start of the global crisis. IDB assistance was substantially greater, reaching approximately US$7 billion by the start of the global crisis in the autumn of 2007.
Sectoral coverage
The sectoral coverage of these capital flows tells their own story. The main areas of focus have been: 1) traditional primary areas, like agriculture, mining and forestry; 2) infrastructure (airports, ports, roads, bridges, power and transport); 3) energy and energy derivatives (natural gas, petroleum, ammonia, methane and iron and steel); 4) services (tourism, financial, health, education); and 5) information and communication. Some miscellaneous funds went to the manufacturing and distribution sectors. As we look around Guyana we can readily find several examples of these beneficial projects.
Two significant later developments should be noted at this stage. One is the subsequent effort made in several Caricom countries to promote both private and ODA inflows from what may be described as “non-traditional sources.” These were mainly from the BRIC countries (Brazil, Russia, India and China), but they also have included other East Asian countries (Taiwan), the Middle Eastern countries, and South Africa. Some of this can also be traced back to the Cold War period when some countries in the region sought what might be described as ‘solidarity capital’ inflows from the socialist countries (including Cuba).
The second significant development is that the diaspora has now become a significant source of investments in their respective Caricom countries. As a rule, these capital inflows are small to medium scale and are directed to professional services, retailing, accommodation, transport and import distribution.
The first question which should be asked at this stage before we address the effects of the global crisis is: what considerations accounted for the spurt of FDI inflows to the region? In the study of the impact of the global crisis on Caricom to which I had earlier referred, I had identified six key considerations as being responsible for the increased FDI inflows.
The first of these is that there was a fundamental shift in the orientation of macro-economic policy in the region. This shift was away from the earlier emphasis on a decolonisation and anti-imperialism development path, characteristic of the 1970s, to a more outward-oriented policy stance. The earlier policy stance focused on domestic factors to promote development; fuller and more productive use of local human resources; and the encouragement and mobilisation of domestic services; as well as, the establishment of national scientific and research institutions. Typical policies included: import substitution, capital controls, self-reliance institutions (like cooperatives), nationalisation of the key productive sectors; and, the establishment of national development banks, planning ministries and so on.
This shift in policy favoured the direct opposite; that is, privatisation; the dismantling of state-led planning and development institutions; the abandonment of capital controls; and a decisive bias in favour of more openness in trade and financial flows.
Next week I shall continue the discussion from this point.