– Part 2
Introduction
In the previous column, I examined several common features of President Jagdeo’s economic policy framework. I argued that the policy framework focused on mini enterprises and non-tradable economic sectors like housing and retail stores. I noted that the financial forecast of the Low Carbon Development Strategy (LCDS) was unrealized. Since the Copenhagen talks, the international community has moved on. Australia has its own carbon tax and the Chinese plan to plant trees on land the size of Norway. The Americans are bitterly opposed to cap and trade and there is a serious attempt there at exploiting natural gas through fracking. The first flagship project of the LCDS – the distribution of laptops – is premised more on political rather than economic returns. The second – the Amaila Falls Hydroelectric Project – is turning out to be a monument of incompetence and a dubious contract awarding process.
Suddenly appearing statistics
As the election draws close, critical macroeconomic statistics are emerging from the closet. The first one is the much publicized half-year GDP growth rate of 5.9 per cent. The second is Minister of Labour Manzoor Nadir’s unemployment rate of 10.7% down from 11.7%. Mr Nadir noted in a recent GINA report that this decline was an indication of progress although the number is still high. These data points are all part of a well-orchestrated plan for election politics.
The first thing to note is, if available, the half-year GDP growth data means we have the capacity to produce quarterly GDP statistics like Jamaica, Barbados and Trinidad and Tobago. In Guyana GDP growth has always been reported annually. My question is why have quarterly data never been reported before? Particularly since quarterly GDP is crucial for the Bank of Guyana to implement monetary policy. Neither the Bank nor the Bureau of Statistics ever reported quarterly GDP and its components. Nevertheless, Minister of Finance Ashni Singh was able to produce the data three months before the election. Never mind Minister Singh was in charge of the management of the economy and never relied on them before. If these numbers are indeed available they should be made public and, of course, the Bank of Guyana will better be able to purse its monetary policy agenda. Yet again political and propaganda concerns appear to trump the scientific management of the economy.
The next mystery number is the unemployment rate which seems to gain media attention at election time. Minister Nadir wants to send the signal that unemployment is getting better. However, there is no regular labour market survey in Guyana; therefore, we cannot figure out the true rate of unemployment, and the gender and ethnic profile of the unemployed. This type of survey is a regular feature of other countries. This is a critical piece of information that any serious government ought to produce several times a year. Moreover, we do not know what is the rate of labour force participation, which is calculated by dividing the labour force by the population. The participation rate will measure the degree to which workers are becoming discouraged and stopped looking for work.
Growth and private investments
Guyana’s GDP grew at an average rate of 1.95% from 2000 to 2010, the Jagdeo years. This rate can be termed the Jagdeo rate of growth. This is at best a lukewarm growth performance spanning a period of global boom and turmoil. In my previous column, I noted that President Bharrat Jagdeo’s economic policy appears geared towards small scale non-tradable businesses. This type of strategy will not produce high growth, but it will tend to insulate the economy from adverse external shocks. I have a serious problem with the strategy that basically keeps the masses at subsistence rather than lifting them out from subsistence in faster time. Those who are comfortable seem content with this slow growth. The rich can wait 50-plus years, but is it fair to ask the majority to wait that long. I have no doubt Guyana can grow at around 7% per year and when that occurs the poor will find themselves doing better much sooner.
One of the critical reasons for the Jagdeo rate of growth is the falling rate of private investments. We will term this the private investment rate (PIR), which is the level of private investment divided by GDP. This rate has declined continually since 1992. In past columns, I presented a chart showing this fact. While the PIR has declined, the rate of government investments (GIR) has increased. It is not so much of a mystery why there is a negative relationship between GIR and PIR.
Oligarchic redistribution of wealth
There is redistribution of wealth on massive scale in Guyana.
I also see potential investments like the Marriott hotel along this line. First, the Marriott is going to be subsidized by tax payers’ money in an economy which already has low hotel occupancy. Second, the proposed hotel is seen as a means to destroy Pegasus. The contract to build the access road to Amaila made very little logical sense. Why offer the contract to someone who did not build roads before? My answer: this is yet another example of the redistribution of the people’s wealth. Furthermore, this control of the business sector led to the declining PIR. In the past, I have argued that Guyana has evolved from party paramountcy to elected oligarchy – one bad state to another with the same effect of the perpetuation of underdevelopment.
Inefficient public investments
As noted above, government investments have increased. Therefore, why has economic growth not been higher? I believe it not only has to do with the oligarchic control I referred to above, but also the inefficient nature of government projects. Many schools, roads and bridges are disintegrating soon after construction. So far the media did an excellent job highlighting many cases of inefficient public projects. Then there is the issue of overbilling for projects. Poorly done infrastructure have to be done all over again, thus adding a greater burden on those who have to pay taxes. There is a serious cost associated with these inefficiencies – that is the funds that have to go into redoing the work could have been spent on other needed projects.
Two large projects – the Skeldon sugar factory and Amaila access road – are good examples of the inefficiency of government projects. These will require more spending and borrowing to fix what should have been done properly in the first instance. We should also keep a keen eye on who will get the contracts to fix the problems that should not have been there. The potential for two-stage overbilling is very high. The masses, of course, bear the burden because poorly done projects – or those deliberately done poorly – take away funds that could have been spent on other crucial projects to lift everyone faster out of subsistence and poverty. We should not be surprised therefore that the Jagdeo rate of growth was a mere 1.95%. Inefficiencies will engender low growth and a perpetuation of underdevelopment.
In the next column, I will answer the question of why the economy remained stable during the Great Financial Crisis of 2007-2009.
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