Business optimism in economy jumps -- highest in five years, survey finds
By Chamanlall Naipaul
January 18, 2007
A SURVEY by a local chartered accounting firm has found that the level of optimism in the national economy in the business community is the highest in five years.
The accounting firm Ram and McRae, which conducted the survey, the 13th of its kind, reported the findings yesterday at a news conference.
It said some 54% of the respondents expressed confidence in the performance of the economy compared to 26% in the last survey it did.
Mr. Rakesh Lachana, who was principally involved in conducting the survey, said this optimism could be attributed to the stable political environment surrounding the August 2006 elections.
However, he noted that businesses listed consumer spending power, fuel prices and the exchange rate as the main issues which would affect success this year.
Lachana said the survey showed 50% of the respondents predicted that their scale of operations would increase this year with none expecting to scale back operations, while 68% and 71% believe that turnover and profitability respectively will increase.
The issues which made respondents more confident, he said, included the government’s support for business and investment, the implementation of the Value Added Tax (VAT) and Excise tax and the relationship among parties in Parliament.
On the other hand, the issues which made them less confident were smuggling, evidence of criminality in business and corruption, he said.
“Looking back to 2006, 26% of respondents reported that their businesses fared better than expected while 14% reported performance worse than expected. The operating and financial issues which were most important to businesses were costs of fuel, foreign currency and borrowing, the electricity supply, crime and cash flow management,’ Lachana reported.
The survey indicated too that 29% of the respondents stated that their business was subjected to a great deal of competition from foreign sourced products/services and 58% felt that such competition is likely to increase in 2007.
It was also observed that 77% of the respondents and the majority of those involved in exports do so with about 10% to 50% of their goods going to the CARICOM region.
On the issue of VAT, Lachana said the main concerns expressed by businesses were the rate of 16%, the adequacy of resources of the Guyana Revenue Authority (GRA) and the absence of corresponding reductions in the rate of direct taxes.
He added that 51% felt that prices would increase and 54% said it would make no difference on their ability to compete.
However, only 54% indicated that would have been fully ready for the implementation of VAT on January 1, 2007.
Turning to direct taxation, Lachana said businesses surveyed favoured a lower rate, on both income and corporate taxes.
Mr. Christopher Ram said that tax on profits reach as high as 45% and high rates of corporate taxes act as a disincentive to investment and at the same time encourages tax evasion, but the government has not addressed this issue despite a recommendation by the International Monetary Fund (IMF).
He also claimed that Guyana has the highest rate of VAT in the Caribbean, with the exception of Jamaica which is about 0.5% less than that of Guyana, but argued that effectively the latter’s is the highest because Jamaica has a wider range of goods zero rated.
He was also disappointed that the recommendations of the business community have repeatedly earned a negative response from the government.
“Every year the same wishes are made and the response is identical,” he charged.
However, Ram felt that local businesses are too “inward” in their business vision, in that they are not looking at expanding their markets to other countries and are too much concerned with competition instead of using their strengths to seize opportunities.
He noted, too, that the expansion of businesses is curtailed by a serious human resources shortage and this will be heightened with the Caribbean Single Market and Economy (CSME) whereby it would now easier for professionals to work in other countries in the region.
The survey saw 118 questionnaires sent to businesses but only 35 (30%) responded. Ram said this is low and as such is not statistically valid but is in line with general responses of such surveys internationally.
Of the businesses surveyed, 34% represented the distribution/retail sector and 23% from manufacturing companies, while 44% of those surveyed had a turnover of more than one billion dollars and 20% employed over 250 persons.
Nevertheless, the firm believes that despite the low response it is sufficient to show how business leaders view the economy, their performance last year and their expectations for 2007.
Ram believes that the timing of the survey could have been a significant contributor to the low response, as questionnaires were sent out in November when businesses were immersed in preparing for the Christmas season and VAT.
President Bharrat Jagdeo late last year said he was “very pleased” with the performance of the economy in 2006, reporting a higher growth in Gross Domestic Product (GDP) than the projected 4.35 and a reduction in the inflation rate.