Introduction
In recent Sunday columns, I have divided Guyana’s public investment management programme into four sequential phases. So far I have focused on the first phase; that is, the articulation of the investment strategy, which is being pursued. In the absence of a Ministry of Planning or other centralized planning unit or authority in the public sector, this phase has been treated separately from the systematic identification of specific projects, which flow from the guidance offered by the investment strategy.
Readers should observe that when there is a centralized planning body, the first phase typically includes both the guidance provided by the indicated investment strategy and the selection of projects to go along with this.
To recall, in Guyana the public investment strategy/guidance flows from several source documents, which the PPP/C in its Manifesto for the November 2011 national elections had acknowledged as such.
These are the National Development Strategy (NDS); the July 2011 Poverty Reduction Strategy Paper (PRSP); the Low Carbon Development Strategy (LCDS); and, the National Competitiveness Strategy (NCS). To these I had also added the PPP/C Manifesto referred to above, and the strategy plans of sector ministries and the major state-owned enterprises, like GuySuCo and Guyana Power and Light.
Phase 2
This week I proceed to discuss the second phase of the management of Guyana’s public investment management programme, which is, the identification of specific projects along with their sequencing for implementation. At this stage cost-benefit analyses, feasibility studies, and project evaluations are systematically undertaken.
It should be observed up-front that, if the investment strategy is not filtered through these economic analytics, the selection of the projects, no matter how well conducted or articulated the investment strategy, will be little more than guesswork, or put another way, working in the dark.
It is for this reason I had highlighted in my two previous columns that the Marriott Hotel project and the presidential spectrum giveaways show no reasoned economic analysis behind them.
They have indiscernible connections to the government’s articulated investment strategy.
Based on the above comments, it follows that a well-developed investment strategy does not guarantee the selection and implementation of sound investment projects. The extent to which good strategy is followed by sound project choices depends on how well the second phase of the public investment management programme is managed. It is important for a sound appreciation of the economic assessment of government spending therefore that readers note this observation. To reinforce this I draw attention to a recent example, which might further help to elucidate the observation.
GCCI survey
The media have recently reported on a survey conducted by the Georgetown Chamber of Commerce and Industry (GCCI) among its members. They were asked to prioritize projects from a list of government projects provided by GCCI. As it turned out the Amaila Falls Project is reported as having achieved the best score. While indeed most economists would rate low carbon sustainable energy supplies among the highest priorities for Guyana’s development; this conclusion is completely different from going on to claim that, because of this, the Amaila Falls Hydro Project qua project is the most preferred of the projects, government is currently pursuing. The truth is that, in the absence of results from the second phase of the management of the investment strategy, no businessperson is in a position to rank ongoing projects.
In sophisticated business environments, businesspersons regularly confront these issues and would most likely not answer such an ill-designed question, as that reported in the press.
Failed projects
The importance of the above observation is further reinforced when we recognize that in Guyana there is considerable evidence that an increase in public investment does not translate into an appreciation of the country’s capital stock.
The litany of failed public projects attests to this. Such failed projects include large ones (like the US$200-250 million Skeldon Sugar Factory) through medium ones (like the wharf that floated away shortly after construction) to relatively small ones (for example providing roads, bridges, culverts, repairing drainage and irrigation structures, schools, health units and community facilities). In all these instances we see glaring manifestations of government spending not being matched by the intended appreciation in the country’s capital stock.
In addition to those losses identified above, one would also have to add the wastage which occurs in the construction phase of government’s project spending. This stems from corruption, pilfering of public assets, and mismanagement and indeed often continues into the later project periods (operation and maintenance).
Based on worldwide experiences the irresistible conclusion can be drawn that poor public investment retards economic growth and impedes overall development. If increased government investment is converted into the increased appreciation of the country’s capital stock, this increases growth (depending of course on the nature of the country’s public capital-output ratio).
Further, in instances where government investment (say in infrastructure) complements private investment, this could even generate an increase in total investment (that is, both government and private). Bad public investment, however, can lead to the direct opposite by crowding out private investment and thereby reducing total investment by more than the loss of effectiveness in public investment.
Conclusion
Thus far readers can draw three main lessons from the discussion of the management of Guyana’s public investment management.
These are: 1) Articulating the investment strategy (Phase 1) should provide analytic guidance for choosing specific projects and programmes (based on the development priorities of the government); 2) only projects and programmes that are filtered through Phase 2 (which concentrates on cost-benefit analyses/feasibility studies/project evaluations) should go forward to the third and later phases of project implementation, monitoring, review and auditing; and 3) failing to systematically link (1) and (2) is a certain recipe for economic inefficiency.
Next week I shall extend these comments further and later go on to illustrate the significance of these observations with reference to the Amaila Falls Hydro project, which, as I have indicated above, the GCCI survey has listed as being the most desirable among its members from among ongoing public projects.
