Introduction
Lesson 2 in the present series of SN columns was presented in two parts over successive weeks; the main content of which was summarized in two schedules carried in last week’s column. The first schedule displayed, what is termed in the literature on this topic as the “basic steps”. To be very clear these basic steps should not be mistaken for best practice; indeed they are the bare-bones or must-have rudiments of any well-functioning public investment management regime. The second schedule simply highlighted those adjustments to the “basic steps” I am recommending for Guyana.
In the absence of an effective investment management regime today’s lesson (3) indicates the major types of project failures and weaknesses observed in Guyana’s public investment during the 2000s. While it is hoped that this lesson would have broad diagnostic value, it is also intended to aid in focusing on areas where specialist effort is most needed.
Since I cannot properly cover in a single column all the numerous observed project weaknesses/failures I will be selective, while hoping to capture two features of these weaknesses/failures. One is their unusually wide variety; and the other is that some of these weaknesses/failures are common to projects everywhere, while some are quite specific to the circumstances found in Guyana. It is true of course that all the weaknesses/failures presented in this lesson are mediated in Guyana’s investment environment. Despite this some are Guyana—specific, in that they originate from the country’s unique legal and institutional environment. In what follows the observed failures/weaknesses are discussed, firstly by examining the Guyana-specific ones in today’s column and the more common types next week.
Types of project weaknesses/failures
Two types of Guyana-specific project weaknesses/failures are considered in this section: those originating from NICIL’s public investment spending and the class of troubled public investment projects that I previously labelled, “opportunistic”.
1: NICIL’s investment spending
National Commercial and Industrial Investments Limited (NICIL) is the single largest location for public investment project weaknesses and failures in Guyana. Established in 1990 under the Companies Act designed for private corporations, Government still remains the sole shareholder. It appoints the Board, which comprises state officials, chaired by the Minister of Finance. This clearly facilitates the primacy of government’s political interests in NICIL operations.
Recall, NICIL was established back in 1990 to manage those state assets scheduled for privatization under the Economic Recovery Programme (ERP) jointly designed by the Government of Guyana (GoG), donor countries, and the IFIs (mainly the IMF and World Bank). Although NICIL is registered under the Companies Act, its investment spending on public projects is not subject to those commercial criteria typically applied in private corporations.
Slush Fund
Given this legal structure, two immediate consequences ensue from NICIL being a state-owned and operated enterprise. First, its finances should have been integrated into the governmental regulatory and financial controls systems of the state and oversight of the National Assembly. Amazingly, this has not happened thereby facilitating the use of NICIL as an investment slush fund. This type of slush fund is found in questionable economic jurisdictions where corruption, public investment inefficiency, and plunder of state assets are the norm.
The second consequence is equally crucial. The facts reveal that since 1990 NICIL has morphed from a holding company/agency designed to facilitate privatization into a formidable conglomerate investment enterprise, which is now a very major player in Guyana’s public investment spending.
Thus over the past decade NICIL has become responsible for about 20 percent of Guyana’s total public investment spending! By the end of this year this total investment spending could represent as much as G$100 billion, of which G$20 billion would be controlled by NICIL.
Therefore the inference is straightforward. The absence of an effective public investment management regime for Guyana together with NICIL’s ability to avoid those commercial rigors routinely faced by private corporations in private markets results in NICIL’s public investment spending being wide open to political direction with little or no concern for commercial tests of market efficiency or public tests of economic efficiency.
2: Opportunistic public projects
NICIL has also facilitated the emergence of a class of troubled projects in Guyana, which I have classified in earlier writings (including this column) as “opportunistic”. By this I refer to those projects, which cannot be identified as originating in the investment strategy of any source documents indicated last week. As indicated those source documents contain the “revealed preferences” of the GoG. Since I have earlier presented two case studies of this, namely: public funding provided for the Marriott Hotel and the Presidential Spectrum Allocation, I will not repeat any of that discussion, except to recall I had shown in some detail that neither of these projects have discernible origins even in the Poverty Reduction Strategy Paper (PRSP) of 2011-2015, the same period in which these two public investment projects had emerged!
There are four key features that characterize opportunistic public projects in Guyana. First, as a rule there is very restricted public information available on these projects, outside of government promotional literature designed to solicit investors to indicate their interest. After an investor indicates initial interest the rules of strict commercial/ private market confidentiality apply as typically a Public-Private-Partnership (PPP) vehicle is created (usually through NICIL) to manage the project. This confidentiality applies independent of the level of taxpayer’s financial involvement in the project.
Second, combined with this circumstance, there are little, if any, opportunities for independent scrutiny of the methodology involved in selecting the project in question even though it is to be financed substantially with public funds. Third, the above underscores that these projects are steered by the GoG to avoid parliamentary scrutiny. Fourth, all too frequently the structures of the Public- Private- Partnership (PPP) reveal that the burden of risks is disproportionally carried by the GoG while it frequently remains last in the queue of financial claimants on the project if unfortunately it fails!
