Cost, capacity & black markets
Stabroek News
April 27, 2007
This column explores initiatives to improve the business climate of our nation and make 'Guyana Open for Business' a reality. Peter R Ramsaroop, MBA Chairman, RoopGroup
Over the last few months with the hosting of the Cricket World Cup, the topic of cost and capacity has been at the forefront of media, critics, and government officials alike. The costs were significant and many now are questioning the short term returns. Some of these investments though will require a longer term return. Sometimes, it is not as simple "putting" a price on things.
Costs vary not only with volume of output, and to varying degrees from one industry to another, but also to the extent to which existing capacity is used. An example is the cost for an airline seat. You may be sitting next to someone that paid a much lower price for the seat based on when they booked the ticket.
Unutilized capacity can cause price anomalies in many sectors of the economy. Another example is in our newly expanded hotel industry. We will find the more expensive hotels renting rooms for less than hotels that are usually much lower in price. The key will be the utilization of capacity.
In many of our industries, we have to build capacity to handle the peak volume. We were caught off guard on cement last year when no one planned for the increase in the demand. There are times where an industry will have excess capacity. The cost of accommodating more users of the product or service during the times when there is excess capacity is much less than the cost of handling those who are served at peak times. When government itself provides a good or service and charges for it, there are few incentives for the officials to charge to match the prices with the cost. We have seen that with the export facility managed by the Ministry of Agriculture.
We have long been faced with the black market or underground economy. Bolder and less scrupulous buyers and sellers make mutually advantageous transactions outside the law. The black market or underground market is the economic activity involving illegal dealings, typically the buying and selling of merchandise or services illegally. The goods themselves may be illegal to sell (e.g. weapons or illegal drugs, etc.); the merchandise may be stolen; or the merchandise may be otherwise legal goods sold illicitly to avoid tax payments or licensing requirements, such as cigarettes or unregistered firearms. It is so called because "black economy" or "black market" affairs are conducted outside the law, and so are necessarily conducted "in the dark", out of the sight of the law.
Small scale black markets may function in secrecy, but large scale black markets usually require bribes to officials to look the other way. Statistics on black market activity are by nature elusive, since no one wants anyone to know they are violating the law. Many legitimate businesses in Georgetown have complained about prices on certain commodities where the sale price is cheaper than the lowest price they can buy and ship for. The fuel smuggling businesses that have been exposed but have failed to produce any convictions yet is one example of the black market. Another example is street vendors in many areas, particularly in Guyana with no enforcement of copyright law, often selling deeply discounted copies of movies, music CDs, and computer software such as video games, sometimes long before the official release of a title. We must strengthen our laws in this arena.
Until next week "Roop"