Some `good news' signals in Guyana economy
-- PSC unit says
by Abigail Butler
Guyana Chronicle
November 7, 2002

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THERE are a few "good news" signals in Guyana's economy despite the persistent structural problems and deep-rooted pessimism in the business community, the Private Sector Commission's Economic Policy Unit has concluded following its latest quarterly economic review.

Among the improvements noted in the review released yesterday was poultry production and diamond output which have "risen strongly", and seafood, which the unit said has become a prominent industry.

The sugar industry is also expected to exceed earlier production targets and see record output levels but officials said it will still post a further financial loss this year.

The unit said that improvements in these and other sectors, along with better global economic conditions, should enable the country to approach the two per cent growth in Gross Domestic Product (GDP) projected in this year's national budget.

It, however, cautioned that there remain major concerns about the long-term "health of the economy", noting that Guyana is one of the poorest countries in the hemisphere, remains heavily indebted and is ill-equipped to compete in a world increasingly characterised by global corporations.

It said the economy remains far too dependent on a handful of export-oriented commodities and has far too few 'value-added' industries.

In terms of investments, Chairman of the Private Sector Commission (PSC), Mr Peter DeGroot, yesterday told reporters that it would be very hard for Guyana, in its current situation, to attract new foreign investments - not only due to the crime wave but also the perception of a nation that is politically unstable.

"No one is going to come to a country with the perception of it being politically unstable and the implications of our current crime wave with the drugs trade and everything like that. They would not want to willingly come to Guyana to invest certainly if they have options of going elsewhere", he pointed out.

He noted that in competing for foreign investments, Guyana is up against countries like Jamaica and Trinidad all of which have similar crime and drugs problems, though the political climate of the latter two is on a more solid footing. DeGroot pointed out that the political climate is a critical factor for both foreign and local investments.

Chief Economist, Mr Don McIver added that political stability and personal security might be a precondition for investment though there may be many other reasons why investments might not flow into a country.

He said others might include the lack of infrastructure, shipping difficulties, and even the migration of business people, whom he said may not return whether or not the issues are resolved.

Asked how the GDP is likely to increase given this scenario, McIver noted that two or three per cent growth with a significant number of human resources implies that the underlying economy is even stronger and that this figure is just a base level from which Guyana is moving and is still pretty small.

"When you start off with US$700 per capita GDP, two per cent growth does not make you rich," he said.

Giving a practical example, DeGroot said if one should look at rice production in the early 1990s, one would hear year after year of the dramatic increases in rice production but upon checking prior to 1990, one would not realise that the industry at one time had produced a lot more rice than in the 1990s. He explained that the industry had declined and was then emerging from the deep hole it had fallen into.

He said a two per cent growth is not nearly enough for Guyana to come out of the "hole" it is in.

In terms of investments in Guyana that the Go-Invest agency had earlier referred to, DeGroot argued that an analysis of the data provided, must differentiate between potential and actual investments.

Economist, Mr Mark Bynoe explained that in terms of aquaculture, approximately US$1.2M has been invested in this area for the year thus far. He said there have not been large investments considering it is an area that is now getting off the ground.

He said the unit worked with Go-Invest in terms of actual investments but DeGroot said US$1.2M invested is insignificant from a national perspective though it is a movement in the right direction. He added that what is needed are investments of the magnitude of Omai Gold Mines Limited.

He, however, acknowledged that Go-Invest does not have an easy task attracting investments for the nation at this time.

It was, however, concluded that Guyana has performed creditably in terms of new investment and re-investments into the economy so far with new investments seen mainly in the information technology, poultry, wood products, aqua farming, and tourism sectors.

These investments, the unit said, created more than 300 new jobs directly and ploughed in excess of US$20M into the Guyanese economy.

Re-investments were particularly seen within the tourism, and textiles and garment sectors where more than US$15M was spent, mainly in infrastructure, machinery and the provision of worker training. These have created a further 800-odd jobs and established a variety of linkages with other productive and non-productive sectors, according to the unit.

In terms of the rice industry, which traditionally has accounted for about 20% of agricultural earnings and about 8% GDP, the unit reported that production is on the decline. Less than three-quarters of available land was prepared for the second crop, it said.

It was noted that while critical to the strength of the local economy, Guyana is a small player in the international rice trade with exports amounting to about one half to one per cent of world exports, has virtually no influence on prices and must remain hostage to the vagaries of world markets.

Also noted was that among the factors contributing to the under-utilisation of the land is the abundance of small holders, many of whom have experienced financial difficulties in recent years, inadequate infrastructure - poor irrigation, drainage and road access, and paddy bug infestation.

It was projected that this sector will not meet the 3.6 per cent growth predicted in the last national budget.

Now accounting for the same value of export earnings as the rice industry is shrimp.

And based on the Bank of Guyana report, for the first six months this year, rice exports were valued at US$22.9M while fish and shrimp were US$31.7M.

The unit said this development reflects not only the astounding expansion of shrimp production but slower rice production and weak prices for that commodity.

Forestry output during January to June was predominated by log production that officials said represented about 90% of the total. Round wood production indicated a significant increase due to rural expansion programmes and the demand from the telecommunication and electricity sectors.

Trade accounts also showed improvements and according to officials, during the first half of the year, the merchandise trade deficit contracted by almost 50% compared to the same period a year earlier - reflecting stronger exports and weaker imports. This, the unit said, along with increased remittances from abroad led to a substantial improvement in the current account.

Over the 12 months ending in August, all standard measures of monetary growth showed significant gains.

The unit noted that while in previous times this was indicative of economic activity and potential inflation, "portfolio switching between alternatives of money or near-money instruments make analysis of these movements of doubtful utility".

It was found that commercial bank lending activity remains very weak.

According to the unit, business loans are more than 10% below year-earlier levels and notable weakness is evident in both the manufacturing and distribution sectors.

It said that while large manufacturers may have access to out-of country or alternative domestic financing that could account for reduced demand for bank loans, smaller concerns and retailers who have traditionally relied on bank lending to finance inventory, are less likely to have access to such funds. It said that given the significant weight these sectors represent in bank portfolios, the weakness is a matter of some concern.

The financial position of Central Government improved during the first half of the year, it said.

The unit reported that a small surplus on current account was experienced which it said was more than offset by a deficit on the capital account. It said in consequence, financing requirements of some $1.4B were necessary - a decline from the same period a year earlier and roughly equivalent to that required in the first half of 2000.

Inflation was reported as being erratic. Officials said that at mid-year, the Georgetown Urban Consumer Price Index stood 6.1% above the level one year earlier and that for the first six months of the year, the average index level was 4.1% higher than for the corresponding period in 2001. Transportation and utility are among the faster growing components.

The recently released data for September indicated continuing pressure on fuel costs which helped push the overall index up 5.9% above its year earlier level, officials said.

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