Introduction
In assessing Guyana’s public investment strategy I have described both the Marriott Hotel project and the presidential spectrum giveaways as “opportunistic rogue investing.” Both activities reveal an abysmal absence of public information, as well as zero opportunities for independent/scrutiny of the methodology employed in their selection. For these reasons alone, the public is unwilling to give these decisions a pass, leading me to classify them also as “troubled projects.”
In today’s column I offer further reflections on these projects and the notion of opportunistic rogue investing. Hopefully this would help clarify the great extent to which these projects also reveal the absence of systematic thinking on the part of the state in its public investment spending.
Opportunistic rogue investment project
In my characterization an opportunistic rogue investment has at least one or more of the following features. First, when the project is considered under the framework of Guyana’s documented public investment strategy (as referenced by the source materials cited in previous columns) it has no discernible origins in that framework (Marriott Hotel); second, when the project (and the sector in which it is located) adopts a radically different order for sequencing its implementation than the one provided for in the documented public investment strategy (presidential spectrum giveaways).
Third, when governmental funding of the project involves the substantial utilization of unauthorised slush funds. This permits the project to escape independent public scrutiny and oversight by the National Assembly.
Fourth, when because of continuous losses, substantial government bailouts are provided to state enterprises (for periods longer than one or two presidential terms) without these enterprises being subject to an independent formal review of their operations and plans that is then reported to the National Assembly (Guysuco and GPL)
It goes without saying that these projects usually involve relatively substantial public spending; are opaque; and offer no opportunity for independent review. Furthermore, the state carries most of the project ‘risks,’ while remaining last in the queue for settlement of investors’ claims, in event of project failure.
More on spectrum giveaways
Despite the emphasis, best practice spectrum auctions place on avoidance of special interests influence on the transfer of a country’s electromagnetic resources to the private sector, one particular danger still has to be guarded against constantly. That is, tacit or implicit collusion aimed at 1) rigging spectrum auctions, 2) reducing the prices on auction bids, and 3) conferring unfair advantages to bid winners. Laws, regulations and institutional procedures are usually designed to prevent this from occurring and the penalties for infraction are usually quite severe.
Worldwide experience to date clearly indicates the disadvantages indicated above are more likely to arise where competition is weak. As a market-based approach, spectrum auctions are vested in the promotion of competition and a level playing field. And, as we saw last week, the PRSP proclaims this as the precondition for the development of the ICT sector, although state practice has been otherwise.
The authorities have advanced a notably ridiculous argument against spectrum auctions (and presumably in favour of special interests’ management of the spectrum). That is, the auction fee would be an unfair cost (and hence discouragement to investors). The truth is that the central theme of all auctions is ‘willingness to pay.’ An auction bid is not a tax on the bidder. Auctions express revealed choices by bidders who expect benefits from obtaining the bid to item exceed the cost (or price offered in the bid), when compared to other possible uses of the money involved. As readers who have been following these columns would realize this is precisely the condition necessary for an economically efficient outcome.
If the situation described above does not obtain, then no rational bidder (whether an individual or organisation) would voluntarily make a bid. To repeat, a bid is not a tax or other involuntary levy on anyone or any organisation.
Marriott Hotel
Turning to the Marriott project, I wish to recognise up-front that several issues, which have given rise to public concern, have not been addressed. One of these is that the Shanghai Construction Group (SCG) which is responsible for the hotel construction has, unprecedentedly, been given a pre-approved contractual agreement to employ an all-Chinese labour force. Another is that a black-listed United States based engineering consultancy firm, has been reportedly contracted on behalf of the Government of Guyana to superintend/oversee construction as it progresses. Third, it is not clear what tax giveaways the SCG and its Chinese employees have been given. While one may assume tax giveaways in the form of relief for income and wealth taxes as well as import and excise duties are given to the SCG, the status of income taxes and NIS payments for its Chinese employees remains unclear.
All these are important considerations, which I have not discussed. My aim, however, is to focus on the most grievous/pernicious /dangerous aspect of this project which is the absence of a direct linkage to the most recent detailed and systematic delineation of the government’s public investment portfolio.
This suggests that there may never have been a rigorous economic evaluation of this project and comparison made to others in the tourism sector or elsewhere. This also suggests that no economic efficiency test has been applied to ensure that expected economic benefits flowing from the Marriott exceed its economic costs at a greater ratio than that obtained for other projects identified for consideration in the government’s investment portfolio.
Conclusion
In conclusion, I recognise that the continuous payment of government subsidies to GPL and GuySuCo raises serious questions in regard to public spending in the state-enterprise sector. I plan to address these later. For next week, I shall address the second of the four sequential phases of public investment management in Guyana; that is, feasibility studies/project evaluations with regard to timely project selection and sequencing.
