Dear Editor,
Regardless of political affiliation, it is important for us to have a civil, honest and inclusive conversation about the future of Guysuco and Guyana’s economy.
The bottom line is that further downsizing or closing Guysuco would amplify the current economy slowdown, taking Guyana’s economy into a crisis that would mirror the economic collapse of the 1980s. Once the crisis is set into motion – many would argue this has already happened – the economy would tumble like a driver who has lost control and is headed off a bridge. Thousands of jobs more would be lost as businesses cease operations and took their capital into foreign lands. Many families would fall back into poverty, some into destitution. Decades of social and economic progress would be reversed, adding an unnecessary and painful burden to the current and future generations of Guyanese.
Considering the decaying conditions of the economy and the economic and social risks associated with further economic disturbance, the rationale behind the government’s insistence to dismantle Guysuco is at best unclear. The government’s insistence on closing or further downsizing Guysuco seems to be more of a political objective than an economic or financial one. Most Guyanese would agree there are real problems affecting Guysuco, including production challenges, low productivity, high cost of production, lack of competitiveness, and arguably the worst forms of management corruption. However, most Guyanese would also agree Guysuco is the backbone of Guyana’s economy. Currently, Guysuco is the largest employer of roughly 18,000 employees, one of the major sources of foreign currency, and a major provider of community healthcare services. Most importantly, Guysuco is the source of billions of dollars in household income and economic impact at the local and national level. Closing or further downsizing Guysuco puts in jeopardy not only the livelihood of the 18,000 hardworking employees and their families, but the entire economy, which would be at risk of collapse.
History is full of examples of how governments have successfully turned around industries or companies in crisis. Some of the most successful global companies today were subsidized for prolonged periods by the government before turning a profit. For example, Toyota was subsidized by the Japanese government for almost 40 years before attaining financial independence. The same is true for Nokia, Boeing, General Motors, and many others. Currently, many of these companies still receive massive subsidies through various tax exemptions and credits. Key to the success of these interventions was accompanying the subsidies with constant reforms to ensure the companies were adapting to a changing business environment and global competition. The point here is that public support, along with the necessary reforms, is key to transforming financially stressed but vital economic industries to developed capacity, acquire competitive advantage through brand loyalty, cost, product diversification etc., to attain financial independence.
The level of subsidy required by Guysuco is a meagre amount compared to the benefits Guysuco provides. An unbiased cost-benefit analysis has two sides: costs and benefits. The argument that “Guysuco is a strain of government resources” is misleading, as it focuses only the cost side of the argument, and completely ignores the benefits. Annual subsidies, by rough estimate, range between $5 billion and $9 billion, less than is usually requested by the Guysuco. This level of subsidy is between 0.8 percent and 1.4 percent of Guyana’s GDP and 2 percent and 3.6 percent of the government’s budget. Even if we doubled the level of subsidy, it would account for between 4 percent and 8 percent of the government’s budget.
Let’s look at the benefit side of the story. The million-dollar question is: how much tax revenues does Guysuco generate for the government? Every Guysuco worker pays income taxes and value-added taxes. Many also pay license fees, gas taxes at the pump, other traffic and road fees, and countless other government charges. On a macroeconomic level, every dollar a Guysuco worker spends generates more than a dollar in economic impact through a multiplier effect. While no official estimates of what all revenues total, we are willing to bet it is significantly greater than the small subsidy required to keep this economically vital industry alive. The revenues alluded to earlier do not include tax revenues the government collects directly from Guysuco from value-added tax paid on purchases, export and import fees and duties, and other government charges. Most Guyanese would willingly agree to their tax dollars being used to keep Guysuco alive. This is not surprising since taxpayers are the ones who enjoy the benefits Guysuco provides including billions of dollar in household incomes and economic impact, aiding a stable exchange rate, health services, job opportunities etc.
The government’s action relating to Guysuco defies economic thinking, making it more difficult for the company to achieve financial independence. One of the biggest problems facing Guysuco is the lack of competitiveness due to its high cost of production. Thus, Guysuco cannot compete with other major sugar-producing countries on the world market. One way to achieve competitiveness is by reducing production costs. One way to reduce production cost per unit is by increasing production through expansion – referred to as economies of scale – the exact opposite of current government consideration. Another way to reduce cost is to lower the cost of energy. As a manufacturing company, the cost of energy is a huge burden for the company. Thus, finding a cheaper source of energy the overall cost of production makes economic sense. Accordingly, when the government abandoned the Amaila Hydro project, it undermined any chances of the industry to be successful.
The idea that dismantling the sugar industry would be easily replaced by fishing or some other forms of economic activity simply lacks foresight. There is nothing wrong with wanting to create new industries; in fact, this is part of economic development. However, the creation of new industries should be pursued side by side with sugar, not replacing it, as new industries take time to create, become fully operational and go through a similar process as Guysuco to acquire competitiveness.
Making policy decisions based on unrealized oil revenues from an industry that is still in its infancy stage is dangerous. The discovery of oil is not a substitute for sound macroeconomic policies and transparent and accountable economic management. Without a doubt, the discovery of oil would aid Guyana’s development, if and only if the oil industry and revenues are managed in a transparent, accountable and productive manner. Otherwise, the discovery of oil and revenues can result in worse outcomes from more corruption, economic mismanagement, and economic and social retrogressions.
Guyanese are under no illusion that Guysuco has major problems and needs urgent fixing. These are necessary if Guysuco is to achieve competitiveness, financial independence and long-term sustainability, and can create more good-paying jobs and contribute to economic prosperity. The argument that Guysuco is a burden to taxpayers is simply ill-informed, misguided, and more of a political talking point. Moreover, dismantling Guysuco is poor economic policy that would almost certainly lead us to one of the worst economic crises in our history. From an abundance of caution, the government should halt its current efforts to dismantle Guysuco and carefully rethink the economic and social consequences of its decisions.
Yours faithfully,
Dhanraj Singh
Economist
Stephen Kissoon
Economist
