Dear Editor,
Where is the business argument for a US$26 million mall located in the suburbs of Georgetown?
Giftland Mall is beautiful and technologically advanced resulting in a world class shopping experience for the Guyanese masses. My question is, where is the business case for such a significant investment in retail given the socio-economic standard of the middle class?
The minimum wage is a little over US$1 per day. The ultra-wealthy shop in Miami or New York City or online. The only viable business case to operate this mall, is that revenues are expected to be derived from a significant portion of the US$400 million in annual remittances. Besides, annual maintenance and capex for such a facility can easily top between US$2 to US$5 million, a conservative figure because of the high tech machinery such as escalators, power plant, etc. All parts will have to come from overseas.
Any due diligence would conclude that returns on investment have to be above the following floor: interest at the bank if you deposit the initial $ investments plus operating costs including debt service. In addition, forex volatility should be modelled into the projections. It would take a lot more than seasonal shopping such as back-to-school to cover operations. Then there are sales and income taxes.
With barely 300,000 working citizens, and thousands of competing retail stores, it would be an enormous challenge. For this reason, I admire the bold vision of the owner. However, I could see the ‘hedge’ funds or the competitors including the regional group of companies waiting to buy the property for pennies on the dollar from the bank, if Guyanese don’t increase their consumption at a hyper rate for cheap goods made in China.
On the other hand, I would have advised the investors to invest their US$26 million in a modern healthcare centre with MRIs and other high tech equipment, or an advanced medical lab. Moreover, there would be the reverse, visitors from the Caribbean and other nations would seek medical services from such a modern facility. There is no bargaining when you are sick; people desire the best medical treatment and would pay either out of pocket or through medical insurance. Medical services are inelastic, ie, there is no substitute or economic cycle adverse impact.
Now that the mall is built, I suggest the owners still think about turning it into medical tourism ‒ plastic surgeries, dentistry, detox, etc.
There is still hope, according to Bloomberg financial news; Exxon estimated its find of oil and gas off Guyana at nearly US$400 billion. As a result, the country should become one of the richest countries in the world with regard to GDP per capita. The law of comparative advantage would have Guyana import sugar as a result the aforementioned wealth effect. Moreover, the valuable lands used for sugar cultivation would be released for high tech manufacturing, affordable housing, and a modern centrally located, international airport.
There is a very slim possibility that the mall would be able to survive the wait for the crude to come out of the ground or sustainable electricity to run the high end appliances it wants to sell. Then there is the constant flooding that destroys consumer goods. I still believe a world class medical facility is a better investment. Gold is also a solid investment.
Yours faithfully,
Keith Bernard
