Business Outlook Survey 2007
Highest optimism for economy in five years but uncertainty still high
January 18, 2007
The 2007 Guyana Business Outlook Survey has tapped a vein of confidence in the business community as it expressed its highest level of optimism for the economy in five years in the Ram and McRae 13th annual survey.
While this was no doubt a reflection of the stable political environment surrounding the August 2006 elections, a statement accompanying the report noted, survey respondents ranked the three most important operating issues for 2007 as fuel cost, electricity supply and security/crime. And these issues were also the top ones for 2006 in the same order. Environmental issues were the lowest ranking operating issue.
Regarding confidence in conditions for business in 2007, 32% believe that economic conditions would be more favourable while 26% believe that economic conditions would be less favourable. By comparison, however, only 7% felt 2006 would have been more favourable for privately owned businesses than 2005.
Uncertainty still high
A high level of uncertainty, however, continues to be shown with 41% (2006:52%) of respondents concluding that the next 12 months would be no more or no less favourable than the last 12 months.
In gauging their outlook on the economy, the survey put 16 national or international issues to respondents for them to indicate those they felt made them more or less optimistic about the economy. And no issue made a majority of persons feel more optimistic, while one issue, government's support for business and investment, tied for the number of persons who felt more optimistic and less optimistic (12 respondents each). But the highest levels of pessimism came from corruption (69%), evidence of criminality in business (61%), smuggling (61%), and the failure of regulators to penalize misdeeds (58%).
Moreover, 52% stated that the implementation of the Value-Added Tax and Excise Tax Acts made them less optimistic while 36% felt that this issue resulted in more optimism.
Meantime, in ranking thirty external factors most likely to impact on the success of their businesses in 2007, the issues considered likely to have the most impact on the success of companies in order of ranking based on weighted average points (maximum of five) were consumer spending power (4.32), exchange rates (4.00), fuel prices (4.30), government policy (3.94) and crime (3.90). In the 2006 survey, fuel prices were the top ranked issue while consumer spending power ranked third. But falling out of the top five were political stability (risk) and electricity supply and rates while government policy and crime have now come into the top five.
The issues which are considered to have little impact on the success of businesses were the enforcement of environmental legislation, wage negotiations, the new Excise tax, regional integration and dumping of foreign products.
Questionnaires were sent to 118 businesses and the survey elicited a 30% response rate with 35 entities responding to 115 questionnaires sent out on November 20, 2006. Of the 35 respondents, fifteen (36%) had a turnover of over $1 Bln while four each (10%) had between $100 M - $200 M, $200 M - $400M , and $700 - $1 Bln. Only one respondent didn't disclose their turnover.
The workforce of the respondents ranged from under 50 employees (9 entities or 25%), 51 - 100 employees (6/17%), 100 - 250 employees (13/37%), 251 - 500 employees (5/14%), 501 - 1,000 employees (2/6%), and there was no entity with more than 1,000 employees.
Looking at agreement with government's decisions, respondents were asked their view on the government's handling of six issues: Value-Added Tax, Commercial Court, Gambling, Berbice Bridge, Police Force reform and appointments to the judiciary, including abolition of the position of Chancellor.
The greatest area of disagreement was with the government's handling of appointments to the judiciary and planned abolition of the post of Chancellor. An overwhelming 53% expressed disagreement compared with 16% who expressed agreement. The only other issue on which more respondents disagreed with the government's decisions was in respect of gambling where 45% disagreed and 21% agreed. Overwhelming support was expressed for the Commercial Court (85%), the Berbice Bridge (79%) and reform of the Police Force (78%).
According to the survey, the issue which the respondent group would most like the government to deal with is the reduction of direct taxes (Income, Corporation, etc.) which incidentally ranked third in 2006. Other top issues include the implementation of a formal plan to tackle crime and improving the efficiency of government departments.
The survey also looked at such other areas as the most important financial issues, planning and budgeting, human resource issues, exports, competition, outlook on profitability, cutbacks, level of operations, growth strategies and sources of capital.
According to the report, "a questionnaire as wide in scope inevitably draws out both positive and negative responses and some which even appear inconsistent. Overall however it reflects the respondents' views about 2006 and outlook for 2007."
Respondents were also asked several questions surrounding their preparedness for VAT and the impact of VAT on their businesses. And 72% agreed with government's decisions with respect to VAT while 16% disagreed. Respondents were asked to rank on a scale of one to five their concerns regarding five issues surrounding the implementation of the tax. The issues were administrative cost, lack of clarity in the legislation, absence of corresponding reductions in the rate of direct taxes, inadequacy of resources of the GRA, and the rate of 16%, and the greatest concern was focused on the latter two matters. Furthermore, only one respondent felt that VAT would have no effect on prices while ten (29%) felt that some prices would increase while others would decrease. A majority of respondents (51%) felt that prices would increase and a minimal 11% felt that prices would decrease.
The report in its conclusion noted that the business community and country were investing heavily in World Cup Cricket, the multi-billion dollar Skeldon Sugar Factory and the Berbice Bridge, adding that it promises to be an interesting year. The 2007 Business Outlook, the conclusion also noted, is being presented amidst high levels of uncertainty on the effects of the implementation of VAT, concerns about casino gambling and the government's withdrawal of advertisements from the privately-owned Stabroek News.