THE economy had experienced nine consecutive years of growth at the end of 2014, buoyed by high commodity prices, foreign direct investment and expansion of private-sector credit.
The chance of a 10th straight year of growth is very high, but the size of the growth is heavily dependent on whether GO-INVEST wakes up or not, since commodity prices will not recover in 2015 and confidence in the economy is not at its regular levels. Because all three of these simulators of economic growth have been under stress since 2013, the rate of growth has declined. To compound this economic situation, the underground economy has been on the run since the 2015 elections as the drug dealers and the hustlers took a lunch break to observe the law enforcement landscape under the new government. This translates into money, whether legitimately or fraudulently earned, not circulating as fast as it usually would.
But can we expand this economy without significant funds from the narco-trade, smugglers and money launderers? The answer is yes, but it requires political will and a collection of sensible, business-friendly investment policies in government; something that was in short supply for the last decade. With new and clean private investments come value-added products, increased productivity, expansion in private-sector credit and most importantly, better-paying jobs. Thus, I was more than flummoxed when I read from the former head of GO-INVEST that a minority of investment passed through his former agency prior to May 2015. This situation has to be fixed under this new dispensation.
But what has been done to GOINVEST since? The argument that we are a new government is now old news. Going forward post the 100 days (now expired) require public ventilation on a new investment policy, strategy and its associated work plan. If this lethargy at GO-INVEST continues, Guyana will catch an economic pneumonia by 2016; one commentator called it “economic flat-line.”
But to illustrate the real state of affairs today, one can start looking at the 2015 figures. The Private Sector Commission (PSC) may be on to something when it made the statement that it is “deeply worried” about the decline in economic activities. However, they did not state which sectors experienced decline, the reasons for their conclusion, and what actions they are prepared to take as a collective to add confidence in the economy. This is a partnership and the engine of economic growth remains the private sector, not the State. I will be blunt – most of our local businesses, save and except for a few cases like DDL and the Ogle Airport Team, come across as lacking adequate levels of innovation and business drive. Most of their advocacy on the issues is packaged as a big hustle for some kind of a handout from the State. This kind of mentality has to be checked, since it only makes them weaker and subject to manipulation from unscrupulous politicians. For the private sector to take its rightful role it has to focus more and build their finances on sound business models. Any serious private-sector player will seek their fortunes as an exporter of value-added products. Producing exclusively for the small Guyanese market is just not feasible unless you want to be a small-time player all of your life. This mentality of entrepôt mercantilism is not sustainable and will not make Guyana a great nation. We have to have more innovation, have a commitment to engineering excellence and be producing stuff that the consumers in the Caribbean and farther afield crave. But let us look at one of the economic simulators to take stock of where we are in 2015 – expansion in private-sector credit.
Net Domestic Credit
Net domestic credit from the banking system increased by 0.2% between January and June 2015 to G$155.2 billion. If one compares this to the same period in 2014, net domestic credit to the banking system grew by 14.6%. In absolute numbers, net domestic credit from the banking system increased only by G$0.4 billion between January and June 2015 compared to G$18.1 billion for a similar period in 2014. But to truly understand why this contraction is happening, we need to look at credit to the private sector and public sector.
Credit to the Private Sector
Loans and advances to the private sector grew at a much slower rate in the period January to June 2015 at 1.5% compared to a similar period in 2014 when it experienced 2.9% growth. This was mainly due to material decline in a few areas, but mainly the distribution sector. There was some level of decline in the portfolio of loans to the other services sector (including security services and IT services), loans for other household purposes and the purchase of private motorcars and minibuses for transportation. But of note, all the traditional sectors held their level of credit solidly between January to June 2015, including mining, rice and timber sectors. What story does this tell? During the elections season, the financial institutions streamlined their businesses by confining their exposure to the mainstream sectors, which can withstand electoral disruptions if it occurs. Start-up businesses, especially in central Georgetown, would have faced financial hell in securing credit during those first six months of 2015. Miscellaneous loans to purchase household items also faced a period of tightening up, as consumer confidence waned in the run-up to elections. The motor vehicle trade took a beating in the first half of the year as both the private and public sectors held their new investments in the run-up to the elections. With the government expected to spend G$39 billion on capital expenditure with some G$620 million of that being on vehicles in the period September to December 2015, the motor vehicle trade should see some up-tick to close the year with more respectable sales figures.
This decline in the distribution sector however can be seen as a good thing since it can free up more credit resources for projects in real manufacturing, real construction and real agriculture. We cannot grow an economy for the long term on consumerism, but more innovation, manufacturing, agriculture and engineering. So the real question to ask – is it so bad if less motorcars, minibuses, milk powder, tinned foods, luxury goods and tobacco products are imported? Would it not be an excellent idea if a new Milk Plant was developed to produce box-milk to slowly replace powdered milk from New Zealand and Holland?
Net Credit to the Public Sector
At the end of June 2015, the public sector continues to be a net depositor in the local banking system. Over the six months to June 2015, net deposit to the banking system increased by some G$2.2 billion to G$28.1 billion. This was an extremely foolish financial strategy from the previous government. That is why I agree totally with Minister Jordan to reduce this portfolio in a phased manner. But reducing this portfolio means putting this money to work by using it in a venture such as a State Development Bank. It makes no sense that the State earns as little as 1.3% on these deposits in the banking system and then have to turn around and fork out as much as 2.3% in interest payments on treasury bills to fund the gaps in their central government operations. There is only one phrase for that kind of business – financial insanity.
CONCLUSION
What really needs to happen now is that our private sector has to become more innovative, more productive, more export oriented and start re-tooling their businesses to position themselves as true exporters. Greater confidence in the economy has to be restored and GO-INVEST and the Ministry of the Presidency have a major role to play in this transition. In the final analysis, the economy is not where it ought to be at this time if it wants to transform the lives of our people socio-economically. Thus at minimum, much is expected from the new Granger / Nagamotoo government in terms of public policies that will set the course for putting more bread on the people’s table. But the private sector has to play its rightful role as the engine of growth. Next time I shall be continuing our conversation by sharing my views on this propaganda war between the government and the opposition and how it is harming the poor and the working class in Guyana. (sasesin1@yahoo.com).