Timber

The accuracy of data on GDP has always been questionable and because the economy is so small, one factory breaking down can skew the figures for a particular sector which may instead be doing well. The PSC report quotes figures from the Forestry Commission showing production in the timber sector dropped sharply from 217,595 cubic metres in January to May of 2001 to only 133,376 cubic metres this year. The Bureau of Statistics has figures showing an increase of 194,541 cubic metres at the end of April 2002. The decline in output is attributed to heavy rainfall and unsustainable debt burdens which have forced a number of companies including Willems Timber into receivership. Barama Company Limited, a major contributor also closed its Port Kaituma operations. Overall the industry has failed to develop value added production, and as such is beholden to commodity prices in a market becoming increasingly strict on environmental issues. Precision Woodworking is the notable exception with exports of top quality garden furniture. Guyana Furniture Manufacturing is also now finding a market for its doors and other fittings in Jamaica.

Fisheries

Of all the sectors, the fisheries industry has been a bright spot over the last few years.

Exports have seen a three-fold increase since 1994 reaching almost $6.5B in 2000. Pritipaul Singh Investments has sunk over US$15M since 1999 into its plant at Houston and with over 1,000 employees leads the industry in total exports of seafood. B.E.V. Processors pioneered the seabob industry back in the late eighties and recently came out with an impressive looking line of retail products, Fisherman’s Choice, which is also being sold locally. Then there is Noble House, Georgetown Seafoods and the recently established B.M. Enterprise Ltd. A whole host of other smaller entrepreneurs are now renting processing units and shipping products out to the Caribbean and to Guyanese markets in North America.

Direct employment in the factories is in the region of 3,000 and when you take into account some 2,000 small time fishermen and then other related industries such as boat building and net making, the whole industry must employ over 10,000 and generally provide salaries above those in other agricultural sectors. A lot of the recent growth has been in processed fish including snapper and bangamary. Prior to 1999 exports of catfish to the U.S. were around 200,000 lbs per month. PSI alone now exports that amount per month and other companies such as B.M. are also getting into this market However there are signs that resources are under strain - in particular seabob. The main participants are agreed that a 6 to 8 week moratorium on seabob should go into effect this October or November a time when it is believed the shrimp tend to be spawning. This would have to be coordinated amongst the various companies and preparations such as creating a buffer stock which could supply the export market in the interim period. There may be some hardship by the companies but the feeling is that this will be outweighed by the increased catches after the moratorium. Companies are now looking to Europe which has an annual trade deficit of some 2.7 million tons of seafood products, worth about US$7 billion. Guyana as an ACP member falls into the duty-free scheme as part of the Lomé Convention, giving some advantage over other countries although tariffs on seafood are not generally high.

Poultry is another sector seeing strong growth (46%) as DIDCO and Shivraj both established hatcheries. It is expected that by the end of this year Guyana will be self sufficient in chicken.

Mining and quarrying

Bauxite production for the period January-April 2002 was 17% lower than the same period last year. This was due to the continued slump in bauxite prices brought on by the worldwide economic slowdown and the withdrawal of ALCOA from the Aroaima Bauxite Co partnership which left the company searching for new markets. The proposed merger with Bermine will bring cost savings to the new company primarily from its access to Bermine’s reserves which are closer to the surface and there will be considerable savings associated with the laborious transhipment procedures. Linmine’s future remains uncertain.

Gold production, or one should say, declaration slipped 13.6% for the first half of the year due to the bad weather conditions in the interior. But the growth in diamond declarations increased by 123%. Once again the figures may not be an accurate picture. There are signs that the recent increase in gold prices has boosted production with miners now returning to concessions or expanding operations. The gold price has increased from a low of $255 in April last year to $327. It has since slipped back to under $310. But with continued global political instability and fragile equity markets gold’s price should remain firm in the near future.

Money laundering

Many are now wondering what effect money laundering is having on business and the economy. Overnight, large well-stocked businesses have started up in the retail sector. There have also been suggestions money laundering is now affecting the purchase and export of diamonds as well as having some influence in the rice industry. The Guyana dollar has been relatively stable in the last few years despite the economic slowdown and a negative balance of payments. A 22% increase in private sector deposits in the last two years would also indicate that money is coming into the country through unofficial means.

Large drug busts while not resulting in convictions indicate that narco-trafficking is an industry in its own right and that the profits from it would need to be legitimised through the purchase of real estate or the establishment of businesses which can wash the funds.

The effect on legitimate businesses can be devastating given that the competitor is not primarily concerned with running a profitable company and is getting financing interest free.

But perhaps the most overlooked factor affecting the economy is remittances or money sent by Guyanese abroad for their relatives. Estimates on the actual amount vary but a recent Multilateral Investment Fund survey showed Jamaica had remittances of US$959M or 13% of GDP in 2001. With emigration rates similar if not higher from Guyana, remittances could be US$200M annually or 25% of GDP. The survey shows that 40% of families in the Dominican Republic receive remittances. The average remittance for Latin America and the Caribbean is $1,400-1,600 per year.

Undoubtedly any fluctuation in remittances would have to impact on the Guyana economy. What is noticeable from the survey is that the more recent an immigrant is, the more likely they are to send money home. Those earning less than US$20,000 are more likely to send than those earning over $40,000. It could well be that as Guyanese abroad become more affluent and they are assimilated into their host society, they feel less obligated to support family members back home.

Taxes

The survey conducted by the PSC’s Economic Policy Unit indicated that consumption taxes have the most detrimental effect on business. The recent IDB sponsored study said the present consumption tax system was distortive and anti-growth because of the exclusion of a large part of the service sector from taxation, wide dispersion of consumption tax rates and widespread exemptions. The high rates on consumption tax also result in high rates of evasion thus defeating effective revenue collection. The study suggests a Value Added Tax be applied to retail sales instead, although it would be hard to see the Guyana Revenue Authority having the capacity to install and run such a system. De Groot hopes that the government will move quickly to reform the tax system before the yearend. Tax reform is needed if only because the Free Trade Area of the Americas scheduled for 2005 will greatly reduce revenues from tariffs.

Conclusion

The future continues to remain uncertain for Guyanese business. In December NBIC made provisions of $600M in anticipation of what it saw as continued problems with its loan portfolio. Those companies which have weathered the storm of the last four years will however have realised the importance of sound financial management and most crucially saving for the inevitable rainy day. The long term viability of Guyanese companies will also depend on their ability to retain skilled labour and to access overseas markets. This will not be achieved without a prolonged and genuine period of political stability and progressive policies to encourage private sector investment. (Back to top)

The business of crime and its effects on businesses

Introduction

Mr Norman Mc Lean, former President of the Guyana Manufacturers Association (GMA), and now Human Resources Officer of Omai Gold Mines Limited continues our series of articles by leading members of the Private Sector.

1. Introduction

Guyana has been seized in the grip of a grave and serious crime wave. One has to be naive not to link the crime wave with the very daring and dramatic escape from the Georgetown Prison by five “prisoners” on the day Guyana celebrated its 32nd Anniversary as a Republic”. From then to now, a matter of six months, we have witnessed the following:-

* 9 policemen killed
* 17 policemen injured
* 3 security guards killed
* 7 security guards injured
* 5 businessman killed
* 75 businessmen injured
* 689 armed robberies
* 73 car/hijackings
* 4,826 indictable crimes

This record has had a devastating impact on police and public morale. The death of so many policemen and their being targeted is unprecedented in our history. Indeed, it seems to be growing by the day. What we have seen is a blatant disregard for law and order, life and property and the breakdown of the norms of a decent society.

If we accept the theory and the principle of the “Social Contract” in which we give up some of our freedoms, and expect the protection of the state, the state as represented by the Government has a major responsibility for peace and good order. Without peace and good order, there can be no development. It was appropriately stated by an Old English author Southey that:

“Order is the Sanity of the Mind,

The Health of the Body

The Peace of the City,

The Security of the State”

In my humble opinion, the State, the Government and its agencies, or arms, i.e. the Police, Guyana Defence Force and other institutions including the Prison Service and the Court system have all failed to discharge that fundamental requirement of any State - There is no security; nothing to ensure the sanity of mind of its citizens, the peace of the city and the security of the State. As far back as 1640, Thomas Hobbes in his celebrated book “Leviathan” wrote as follows on such a situation:

“There is no place for industry; because the fruit thereof is uncertain and consequently no culture of the earth, no navigation, nor use of the commodities that may be imported by sea ... no arts; no letters; no society; and which is worst of all, continual feare and danger of violent death; and the life of man, solitary, poore, nasty, brutish and short.”

Guyana is now in the grip of such a state of fear and violence. There truly is no business that can thrive in this climate, the fruit therefore is uncertain. This is a grim foreboding and is an ill wind, both for people of all races, businesses, industry, the police and ultimately our leaders. Is this what we want for our Guyana El Dorado? I am sure the answer is no, but let us ask ourselves the question - why? Why have we reached this state of lawlessness and complete disregard by a few, for the life and property of the many?

2. Root cause of the problem

To return to the question of why, we have seen our society gradually spiral down in terms of civics, basic discipline and respect for what we understand to be the norms of society. The things we took for granted that were built on the strength of the home, family, school, church and society, where our values and behaviour were honoured, have all been eroded on the altar of modernity - for example

Respect for time

Respect for law and order

Respect for Authority in general

Respect for People

Respect for Self.

There is no pride in belonging, no pride in work, no pride in standards, etc. We have witnessed a breakdown in “old fashioned values”. It is probably why we return for reunions in nostalgia for Tutorial High, Bishops High, Berbice High, Queen’s College, etc. The new generation are now committed to money and immediacy, nothing else matters - education and learning are seen as irrelevant, and the sole aim seems to be the accumulation of money and the good life at all costs. The work ethic is gone and our attitudes to service are extremely poor and we seem to have lost our way.

Mikhail Gorbachev - former President of the Soviet Union in addressing a gathering of Rotarians at their Annual Conference in Barcelona Spain this year received a standing ovation for his statement to World Leaders - advising them to deal with the root cause of crime, drugs, terrorism and AIDS, which he felt was poverty.

In Guyana, the root cause is not just poverty but great frustration, especially in politics and opportunities for growth and development, hence our economic concerns, as well as the feeling by one side that the systems of governance are stacked against them and they are being marginalised. Perception can be reality and Government has to address this as they govern for all the people.

3. Poverty - the root of the problem

Therefore whilst applying plasters and interim treatments to salve the immediate effects of poverty, manifested by crime, robberies, shootings, car hijackings, etc, the objective, which is noted by the collection of weapons as a means to an end, and money, as well as some form of retribution, targeting the police for past misdeeds and ills and silencing real or imagined informants, depicts how lawless our society is.

Government has recently allocated relatively large sums of money to the police and is allocating sums to the families of those members of the force killed in action. However, without casting blame, it seems that if we follow the chain of events, our police force has not kept abreast of recent technology to aid the police in their fight against crime and do not seem to enjoy the confidence of the public. The same can be said of our judicial system, where magistrates and judges are too few and seem not to work assiduously to address the problems and finally the penal system, which is in a deplorable state. What we need is a total overhaul of the entire system from education to penology.

4. Government strategy

Government must establish a strategy to address the issue of poverty. The Poverty Reduction Strategy Paper is but a blueprint, which has to be implemented, if it is to address that issue. That in itself is not a panacea and in any event will take some time to bear fruit so that going side by side with poverty reduction and alleviation must be a strategy to establish an improved business environment. Business and in particular private business is the vehicle for creating growth, jobs and stimulating the economy to produce a “multiplier”, which would lead to greater consumption, markets, confidence and more jobs. Our people want to work and do not want to be debased by being beggars and getting involved in criminal activity. Give them jobs, work and the opportunity for a better life - that must be government’s duty.

5. Environment

The challenge to the government is to create that climate or environment for businesses to flourish and grow and help to provide the jobs, work and opportunities.

* We cannot be consumed by fear.

* We cannot be limited in our scope to providing for our existence from day today and mere survival.

* We cannot spend hard earned money just to secure our businesses and homes.

* We cannot live behind iron grills and metal screens.

* We cannot be suffocated by the criminal elements under the banners of “freedom fighters”.

* We cannot have foreign and local investors looking to go elsewhere for a more stable environment.

This climate is one which can only be deemed as being destructive of businesses and a disincentive. This climate is dictated by fear and apprehension. Production and productivity are consequently impaired by a wary, ever watchful, shutter mentality. All people are suffering; all businesses - tiny, small, medium and large are being consumed. Look at the headlines daily in the newspapers, taxi drivers, shopkeepers, small vendors, cambio operators, gas station operators, butchers, dentists and other professionals to name a few, are being robbed, killed, beaten and assaulted. Is this a conducive climate for businesses?

6. Effects on businesses

What we are now witnessing is a consortium with a difference. The criminals whether deportees, escapees, drug traffickers, or just ordinary copycat criminals, if such a word can be used, seem to have joined forces and taken the upper hand in a campaign of crime and terror.

Given the recent record, this cannot be denied. The Commissioner of Police recently at the Crime Consultation confirmed the increase in armed robberies, using firearms, as well as other crimes. However, the firearms are not just pistols, revolvers and that type of handgun. We are seeing machine guns, AK-47 Rifles and other weapons being used by criminals.

Armed guards who are being shot and killed for their weapons are now being disarmed by security providers. The policy of increasing the calibre of weapons to licensed firearm holders, whilst it sounds good, could backfire and we could end up giving higher calibre weapons to the criminals. Some of these firearm holders are poorly trained and do not have the stomach to shoot anyone and will end up being relieved of their weapon, thus better arming the criminals. Let us rethink this policy.

In this business climate, who will want to go to a bank to raise a loan for development, expansion, etc, who would be looking at new businesses? This is the time for orders to be placed for Christmas. I am sure many businessmen are thinking hard on what to do - to buy, or order - not to buy, or order is the question. Businesses are not holding cash lest they be robbed. Equally, I am sure other key and important decisions on business, production, markets, etc are being reviewed and the prevailing theme is to “wait and see”. The only growth in business seems to be security, cash-in-transit, personal protection, etc. The government must protect its citizens and businesses or face valid criticism on “What are you doing?” Even if businesses wanted to protect themselves, it seems they may not be able to do so effectively, given the prevailing climate. In addition, we come to the issue of where to draw the line on the cost of production - a value for money service.

7. Police Service/Force

A rose by any other name will still have thorns. Businesses are desperate for solutions and quick ones. These are functions for the police and are in keeping with their motto “Service and protection”. We need their protection. The police cannot blindly go after criminal behaviour, it would amount to shooting without knowing what you are shooting at, and why. In the Army and the Police Force, you need to have sound information on what, where, how and in what strength.

8. Intelligence

Without good intelligence, we would be shooting in the dark. There was recognition of this need by a British Consultant to the police, - Mr Paul Mathias, who had recommended in his report that

“given our limited resources, we should seek to improve and intensify our information and intelligence gathering capability to infiltrate, undermine and penetrate criminal activity.”

This has to be one of the strong points of police performance, given a Guyanese culture of gossip and rumour, which they should exploit. The police must establish a network to infiltrate and penetrate. However, the criminals themselves recognise this disposition, hence their desire to silence any informants through acts of intimidation, fear, burning of property, etc. This is where money, other resources, technology and appropriate training need to be applied. I have heard about an Intelligence Task Force and I hope it is in place and will be effective - it has not been up to now.

9. Public Confidence

Finally, the police have to win back public confidence and support. People have to be reassured of respect for the principles on which the police were established over its 163 years. People must know that the police stand for protection and not power and killing. They must know that the Police respect law and order and are accountable for their actions. It is a tall order, but that is the new dispensation for the Minister and the new Commissioner and his officers and men. The bad eggs have to be removed and the police purged of their reckless elements. That is where the Minister has his most crucial role to play, to support the Police in the re-establishment of Police respect for law and order and the issue of accountability.

10. Conclusion

The police have to demonstrate that they have a strategy and are prepared to translate that strategy into effective tactical operations. That is not for the Minister, that is for the police. In addition, and most important is that they - the police must have the will to succeed and face the dangers. This is not a money or salary issue. No amount of salary, equipment, radios, vehicles, protective gear, weaponry, etc. can succeed without the will to do so. They have to want to do so, not just wish to do so. Although rocked by allegations, whether extra-judicial killings, the Carroll scandal, et al, the police have within their midst, as the US Marines say - “A few good men”. Let them do their work. We, a collective we, decent citizens and decent policemen - community police can do it.

Businesses will ride out this period, but will be the poorer, but certainly wiser. (Back to top)

Money laundering galore but Act still to be enforced

By Gitanjali Singh

The recent US visa sale case in which a former officer at the US embassy was jailed for 22 years is an eye opener on the scale of illicit financial transactions but the money laundering act aimed at curbing this is still to be activated.

Former Economic Affairs Officer Thomas Carroll admitted to federal prosecutors that he had sold US visas, which officially cost applicants US$45 at the time, for US$10,000 and US$15,000. And when his ill-gotten gains were totted up, it was found that he had managed to move around US$12 million out of Guyana over the course of his operation.

Once the case broke, it became apparent that Carroll and his co-accomplice Halim Khan had used a number of local businessmen to get the money out. Names were called linking these businessmen to the money-laundering arm of that operation. But even if evidence of this were secured, it would be difficult to prosecute because of the nature of the scam and the loopholes in the Money Laundering Prevention Act of 2000.

And Carroll and Khan did not invent the visa sale ring; it has been going on for years, perhaps on a different scale. Their revelations, therefore, are just the tip of the iceberg.

The sale of illegal drugs is another operation for which money laundering is needed and there has been a noted increase in the prevalence of drug finds and related offences, which give an indication of the magnitude of the operations here. Guyana has also long been listed as a major transshipment point for illegal drugs.

Tax evasion, tax avoidance, smuggling, bribery and corruption in the tendering process, as well as a host of other illegal activities which take place in the formal and informal sectors of the economy spawn wealth which is a direct result of sanitising dirty money.

One banking source says that the scale of money-laundering activities is enormous given that it was the informal economy which has kept the national economy afloat for a long time. The source said that some years ago, he had estimated the informal sector to be equal to the size of the formal sector if not larger and that despite liberalisation, it remained large today. He put its current size at around 30% of the formal sector if not greater.

That official noted that despite the economy shrinking, consumer spending has not been on the decline at the expected scale and the wealth in some sections of the society was unexplained, given what was taking place in the formal sector. The official pointed to the expensive cars, huge buildings and even the sophisticated and costly weaponry being used by bandits in their current rampage as evidence of the large sums of money, which goes unaccounted for in the national income accounts and on which no tax is collected. The source said that the turf war currently underway would affect the economy seriously, as it would have a negative impact on the informal sector. The source also said that tax compliance has been used as a weapon in Guyana but if companies’ balance sheets were analysed year after year and attention paid to companies’ assets and these were revalued, the findings would not gel with what takes place in the formal sector.

Khursid Sattaur, head of Inland Revenue, says his department is empowered to go after tax crimes but has not brought any court action under the Money Laundering Prevention Act, which carries a maximum penalty of S$1 million fine and a seven-year jail term. Sattaur says almost every tax return is understated and his department has two units to track down tax avoidance and understating. However, when the number of persons prosecuted for offences under the Income Tax Act is compared with the amount of questionable wealth in society, the findings speak for themselves.

The Money Laundering (Prevention) Act of 2000 broadly defines money laundering as “engaging directly or indirectly, in a transaction that involves property that is the proceeds of crime, knowing or believing the same to be the proceeds of crime; or receiving, possessing, managing, investing, concealing, disguising, disposing of or bringing into Guyana any property that is the proceeds of crime...”

Proceeds of crime mean any property derived or obtained through the commission of an offence, whether in Guyana or elsewhere and property means money, investments, holdings, possessions, assets and all other property movable or immovable, including things in action and other property wherever situate (in Guyana or elsewhere) and includes interest on such property.

The offences covered under the act are false accounting, forgery, fraud, illegal deposit taking, robbery and theft involving more than $20,000, insider trading, blackmail, counterfeiting and drug trafficking and related offences.

Attorney-General, Doodnauth Singh, says there is nothing to preclude the tax department from bringing charges, which fall under the scope of this act to seriously deter tax crimes.

Only this month, prosecutors in the US, in a bid to snare former chief financial officer of Enron, Andrew Fastow, had his chief lieutenant, Michael Kooper plead guilty to money laundering and fraud charges. Kooper had helped Fastow run shadowy Enron-related partnerships that hid billions in debt, inflated profits and sparked Enron’s slide into bankruptcy last December.

On the local scene, tax evasion and avoidance are entrenched even in sectors of the formal economy. Turnover and investment spending are understated because of the fear that the income tax department would clamp down on businesses because of understated income.

Despite the Money Laundering Prevention Bill’s passage on February 10, 2000 and its coming into force on March 29 of 2000, to date, the Supervisory Authority has not been fully established to pursue enforcement of the act.

A Financial Intelligence Unit is still to be set up within the Bank of Guyana and technical assistance sought for its institutional strengthening. Membership of the Caribbean Financial Action Task Force (CFATF) was only sought recently and Guyana’s acceptance will be discussed for acceptance in October. CFATF would allow for technical assistance for Guyana to implement its legislation.

Attorneys-at-law Khemraj Ramjattan (private) and Shalimar Ali-Hack of the Director of Public Prosecutions’ Chambers, both hold the view that if the current act is inadequate to address the specific nature of certain crimes committed, then it would need to be amended.

Ramjattan noted that laws usually develop as a result of court rulings and the arguments used by attorneys to circumvent provisions of an act. He said if the Carroll visa ring was operated in such a way that there is no way a charge could be brought under the Money Laundering Prevention Act then the act would have to be amended to ensure that such loopholes are covered. He found it disappointing that two years after the act was assented to, it could not be implemented and questioned why this was the case as the political dialogue process was not holding up this piece of legislation.

Under the act, commercial banks are supposed to report suspicious transactions to the Supervisory Authority (the Bank of Guyana in this case) but Stabroek News understands that not a single suspicious transaction has been reported to date.

No one from the Bank of Guyana was available to speak on the implementation issues and Head of the Presidential Secretariat, Dr Roger Luncheon, was unavailable to speak on the issue as well. The commercial banks were also unavailable to speak on implementation issues.

The act allows for the BoG to get a court order to obtain bank records in pursuit of its investigation. The BoG could also go after banks for failing to comply with the legislation. The legislation allows for the freezing of property of persons to be charged or charged with a money laundering offence.

As it stands, though there is the widespread belief that Guyana is increasingly becoming a transshipment point for alien smuggling, because of the lack of security for its vast borders, systems have not been institutionalised to curb the illegal activities that arise, including money laundering. (Back to top)

Corporate Scandals in the USA

Mr Thompson is a Member of the ACCA and holds a B.S.c+ Accountancy (Honours) degree. He is a management accountant of the DDL Group