Investment and Speculation
Stabroek News
November 3, 2006
This last week we experienced yet another GUYEXPO where we once again witnessed the rift between the public and private sector. One must wonder if the private sector is the engine of growth, why then do politicians feel they know better. For the most part, none of our major politicians has ever run a large business enterprise or experienced the complexities that come with business investment. The Value Added Tax (VAT) concerns must not be ignored by the public sector, just because many other countries have implemented it. It is about fixing the entire fiscal policy and tax system with a complete overhaul of how taxes are collected and spent in the country. Cutting personal income tax for a majority of our workers should be a major political decision in the very near future as was proposed by the private sector chairman.
A tourist in New York decided to have his portrait sketched by a sidewalk artist. He received a very fine sketch, for which he was charged $100. "That's expensive," he said to the artist, "but I'll pay it, because it is a great sketch. But, really, it took you only five minutes". Twenty years and five minutes," the artist said.
The private sector has spent many years developing their businesses; they are not like the fly-by-night politician speaking on business issues. If the earlier sacrifices and risks are ignored then the reward for what was done within the present time period may often seem exorbitant.
Oil wells can repay their cost many times over, but they must also cover the cost of all the dry holes that were drilled in the ground while searching in vain for petroleum deposits before finally striking oil. We have seen the treatment of GT&T by the public sector, ignoring all the investments made when no other company wanted to be part of the strategy in the early years. Now many will come and benefit from their hard work. It's about competition, but fair competition, without political motives and intervention, something that needs to be taught to those that set our laws and investment climate.
From a business and economic perspective, if the return on the investment is not enough to make it worthwhile, fewer people will make that investment in the future, and ultimately consumers will be denied the use of the goods and services that would otherwise have been produced. Without the right education on the VAT issue to both businesses and consumers alike, many investments will fall into this category.
As one author puts it, the repaying of the investment is not a matter of morality, but of economics. We will see consumer goods going up shortly and without an offset to them via tax cuts, their purchasing power will become more limited. The issue is not the VAT, but the lack of an integrated economic plan that involves the private sector and without uninformed politicians directing how it should function. On the other hand when consumers do not value what is being produced, the investment will not pay off, and thus we may see businesses collapsing. It is important to note that consumer expectations play an important role in the business cycle; for example, an increase in positive expectations will contribute to aggregate demand because consumption is likely to be up. We must ensure consumer confidence, as it is a household's perception of economic progress.
With an integrated economic plan that takes mainly the private sector initiatives on investment, the government can influence the disposable income of households and the net income of firms by changing the rate of personal and business taxation, thereby changing the economy's outcome. We must get away from this counterproductive behaviour by the public sector that believes businesses are bad and we are there to rip the system off. Instead, they need to concentrate on dealing with the drug cartel businesses in the city as a main priority.
Investments take many forms, such as investment in human capital, factories etc. Risks are also an inseparable part of investments. We have the insurance industry that is booming because this is one way of mitigating the risk. Education also plays a key role in investments. Our government has done a decent job in obtaining scholarships from the Indian and Cuban governments for many of our young people and this is commendable. We hope these individuals return with new ideas and investment opportunities to develop our land.
We must ensure a friendlier government when it comes to investment. We are acting the way India did between 1960 and 1989 where government bureaucracy was at its worst. During that period many leading entrepreneurs from India went outside and established leading companies. It is not until after India's vast array of government rules and micro-management of business changed that we now see a modern and progressive India. In addition, the private sector have found that because of the failure of many of our government institutions such as the police force and the transportation sector, parallel organizations have been established to fill the void, such as the many security firms which add to the cost of an investment. Another cost to investments is the many corrupt practices that take place in order for businesses to function.
Exploring for oil is a costly speculation, as millions of dollars needs to be spent before discovering whether there is in fact any oil at all. We had a golden opportunity to remove our dispute with Venezuela's claim to our sovereign land, had we lobbied CARICOM to put on the table the removal of their claim as a condition of voting for the UN seat. In this case our speculation for oil could have been explored. We should also be contemplating filing a counter claim against Venezuela for the pre-treaty land that they now occupy that was owned by Guyana. This can increase speculation that our country may have oil and thus increase its potential for that opportunity in the near future which fits into a new and broader investment and economic strategy.
Investment and speculation go hand in hand. Other components not discussed include inventories, return on investments and present value as other key factors. As we work towards a friendly environment for investments, let us push for the public sector to recognize the private sector as the leader in investments, join in partnership to ensure proper legislation and less bureaucracy is in place and to focus on the consumer as the main beneficiary of any new laws that go into effect. Until next week: Roop.