The purpose of this column is to propose a non-exhaustive list of possible solutions for the crisis facing the sugar industry, a crisis mainly brought about by several political decisions over the years. As a matter of context, we should acknowledge the crucial moments when the roots of the present day crisis were planted. Firstly, nationalization in the mid-1970s was the first blow to the industry by the political establishment. Nationalization, of course, was proposed by Mr Burnham and willingly supported in the name of ideological fervour by Dr Jagan. Nationalization not only caused the country to lose scarce foreign exchange as some of the surplus sugar funds were paid as reparation to Bookers, but also it had the more lasting effect of burdening the scarce management pool of the country. Management that could have been deployed into other sectors of the economy had to be placed into the sugar industry. The bauxite industry also faced the same problem, and by extension other sectors of the economy suffered as management was drained from the other areas. The foreign managers had the global social networks that gave them substantial marketing reach. A more glorious revolution would have seen Guyanese being slowly inculcated into the global social networks.
The second crucial blow to the industry was the decision to construct the Skeldon sugar factory after it was obvious that under the new World Trade Organization (WTO) rules of the mid-1990s the preferential access African, Caribbean and Pacific countries (ACP) had to Europe would come under challenge. One wonders whether the early PPP had analysts observing these global developments; perhaps not as the party is known for marginalizing dissenting views within its structures. Other developing countries – some with good left-wing credentials – challenged the preferential access the ACP countries enjoyed and won; hence, today we have the Economic Partnership Agreement (EPA). Not only did the PPP decide to construct a new sugar factory, instead of diversifying the product mix of Guysuco, but also it built a seriously flawed one that cannot meet its production and employment targets. Many were befuddled why the particular contractor was given the contract to construct the factory instead of another from a country with sound track record in sugar production and management.
The problems facing the sugar industry cannot be fixed with tweaking accounting conventions. Cash flow is not the central problem, nor is it about accounting profit. The industry can once again make an accounting profit by producing only sugar, but its revenues will not be stable in a globalized world. Therefore, Guysuco has to innovate in terms of its product mix. As a state-owned enterprise, Guysuco cannot only think in terms of accounting profit, but must also think in terms of economic profit. That is, are the land, management talent, physical capital and finance best allocated in making only raw sugar? What are some alternatives that Guysuco could produce that will give it a diversified portfolio of products that can dampen global shocks? So, for example, when the price of bulk sugar declines does the price of dairy (milk and cheese) and/or ethanol increase to smooth the stream of future revenues? What about coconut water? How is its price correlated with sugar, ethanol and dairy? I also believe that Guysuco should think more about growing crops that are suited to several industrial applications. Indeed numerous agro-industrial products, energy and organic fertilizer can be derived from growing sugar cane, cows and coconut trees.
Therefore, in addition to diversifying the product mix, I would outline a few other specific proposals that could possibly enhance the industry over the long-term. The second policy tool is to promote partial, but not complete, privatization of the aspects of the industry. Privatization should be done through the eventual sale of shares that could be listed on the local stock exchange. The stock market, also, would be a good disciplining mechanism for the state-owned company and also would help to promote transparency (I am assuming NICIL and the Minister of Finance would have a preference for transparency and good governance). The government must maintain majority ownership, however. Guysuco cannot be privatized in full because there is a major public good component to the industry. The fact that the coastal plains are below sea level, and Guysuco maintains an elaborate drainage system, implies the industry has a crucial social role to play, in addition to making the private good, raw sugar. Therefore, the industry cannot only strive for accounting and economic profits, but must also aim to maintain its social returns. A single private investor might not want to assume this responsibility and would shift it to government; hence, the government and people of Guyana no longer own the industry (and the profits it make) but now have to subsidize the private investor by maintaining the drainage system. That cannot be a Pareto (or Kaldor-Hicks) improvement for the country as a whole.
The third policy proposal would be a temporary halt to housing development on fertile coastal lands that could be used for agriculture. This should be temporary until a serious analysis is done to calculate the opportunity costs of the land diverted into housing development. Perhaps housing development might turn out to provide better economic returns; but at least I believe the government owes the people an explanation on whether the land could be better deployed for agriculture and whether alternative land should be used for housing.
Fourth, Parliament should declare a national renewable energy policy. The essence of the policy is a portfolio of renewable sources of energy. An E10 policy (mixing 10 per cent ethanol with gasoline) should be part of the framework. It implies that Guysuco has a captive market for ethanol production since imported gasoline has to be blended with Guyanese made ethanol for a maximum of 10 per cent. Present vehicles can operate using E10 and there is no need to alter engine configuration. My regular car runs perfectly okay on E10 all the time. With a captive market in place, private investors would be more willing to jump in, thus creating the opportunity for public-private partnership. This could be one area where the political establishment could work together to atone for past deeds that have brought the industry down to where it is today.
Comments: tkhemraj@ncf.edu
