Introduction
In last week’s column on the sugar industry I had ended with the presentation of a table on GuySuCo’s expenditure on two key items, namely, “employment costs” and “materials and services” for the years, 1990, 1995 and the decade of the 2000s. The 1990 data was intended to indicate the situation as it existed just prior to the takeover of the government by the PPP/C administration.
The 1995 data showed a similar situation early on in the life of the new government. The 2000s data further revealed the pattern of expenditure readers have become familiar with over the past decade.
The table showed that while in 1990, expenditure on “materials and services” exceeded that on employment, by 2000 this situation had been reversed, with the gap between the two continuing to widen throughout the decade. Thus, between 1995 and 2009, expenditure on employment costs had doubled.
Most of the increase occurred in two periods: between 1990 and 1995 (a nearly four-fold increase) and between 1995 and 2000 (where the increase was just over 57 per cent).
The decade of the 2000s ended with expenditure on employment costs equalling $15.6 billion (2009). This total was about one-quarter greater than the level that obtained in 2000 ($12.4 billion). Indeed, looking at the trend in the data, expenditure on employment costs in 2009 represented a decline of about $2.0 billion below the average, which obtained for 2007-08 ($17.5 billion).
Several persons have queried me about what was responsible for this spike in employment costs. The answer I gave is that both an increase in the numbers employed and a rise in the wage rate are the main explanatory variables.
Unfortunately, the information available to me from GuySuCo does not allow me to fix the separate contributions of these two variables.
However, the common assumption I have found among those who have discussed these data with me is that both factors have contributed to the outcome for the period under study. Surprisingly, that assumption does not seem to hold in light of some data on employment at GuySuCo, which I came across for the period 1995 to 1999.
For that five-year period GuySuCo reported that its employment fell from 23,819 employees in 1995 to 18,839 in 1999; this represented a reduction of more than one-fifth in the number of persons employed by GuySuCo (4,980 persons).
Readers would have observed from this discussion how severely constrained public debate is because of a lack of information.
Without basic data an intelligent assessment of GuySuCo and the sugar industry is difficult, if not impossible. Fortunately, because of the internet, all the information cannot remain suppressed all the time.
Performance indicators
These observations provide for a useful introduction to a discussion of GuySuCo’s performance. There are a large number of performance indicators which should be applied to GuySuCo, but again the availability of information constrains my choices in this regard.
The key performance indicators would seem to include, but are not limited to: 1) net profitability (profits after taxation and depreciation); 2) the internal rate of return (revenues from the sale of GuySuCo’s output minus full opportunity costs of the productive factors it employs) at time discounted values; 3) the productivity of the separate productive factors, particularly labour and capital (as determined by the measurement of input-output values); 4) agricultural land productivity (as determined by the output of tonnes cane per unit of land utilized – hectares or acres); 5) factory productivity (as determined by the tonnes cane required to produce one tonne of sugar); and 6) overall agricultural land and factory productivity (as expressed by the tonnes of sugar produced by one unit of land – hectares or acres).
Net profitability
As the shareholders of GuySuCo, Guyanese already know that the corporation is hopelessly unprofitable. To the extent that, remarkably, its 2009 Annual Report (under the caption Results and Dividends) blandly states: “In accordance with the policy of the corporation for many years, no dividends are declared as payable” (my italics).
We can therefore conclude from this that net profitability as a performance indicator takes a back-seat as far as GuySuCo’s management is presently concerned. Next week I shall discuss this situation further.
For now, I note that when GuySuCo’s high cost of producing sugar is taken into account alongside the current and likely price for sugar over the foreseeable future, it would seem impossible for the corporation to return to sustained profitability any time soon.
As if to underscore this prediction, at present the corporation is unable to meet even its tax liabilities to the Guyana Revenue Authority (GRA). The Auditor General’s Report on its financial statements for 2009 under the caption Emphasis of matter, points out that 1) the corporation is indebted to the GRA for unpaid taxes in the sum of $2.3 billion; 2) the corporation had proposed, and the GRA accepted, for the corporation to discharge its present tax liabilities over the 5-year period, 2011 – 2015; 3) the corporation had also requested a waiver of penalties and interest on its outstanding indebtedness; and 4) a settlement on this request had not yet been reached, so that at the time of the audit the auditors were not aware of the exact terms of the proposed settlement.
Additionally, as far as I can tell total borrowings of the corporation at the end of 2009, both current (that is, less than one year) and non-current (over 1 year and mainly over 5 years) had totalled about $26 billion at the end of 2009.
Next week I shall continue this discussion on the available performance indicators for GuySuco.
