GUYANA has the second largest land space designated as productive arable land within CARICOM (Haiti has 1 million hectares vs. Guyana’s 0.42 million). Although only a fraction of its potential arable land is exploited, the country produces a highly diverse array of agricultural goods.  Of this lot, raw- sugar production remains the largest formal employer in the nation after some 50 years of independence.     

Today, the sugar industry sustains the lives of some 69,000 people directly and indirectly. Although sugar has contributed less to the GDP over the years (pegged at fewer than five percent of GDP in 2014 compared to 16 percent in 1993), it still contributes vital foreign currency to the nation’s coffers.  In 2014, sugar contributed some US$88 million to the Treasury.  Before 2012, developments in the sugar industry were literally determined by the preferential price provided by the EU that accounted for just less than 90 percent of our sugar exports. However, since the end of 2012, Guyana can only now sell into that market at world market prices, free of duty.  This is our new reality. The world market price for sugar is around 13 cents, so we can expect something marginal for our exports into the EU markets.  Guysuco’s production cost is more than double the average sale price for our exports – hence the necessity to transfer G$12 billion in 2015 into the industry.

Guyana under the Jagdeo administration, embarked on a plan to modernise the industry to raise output and reduce production cost. As a result of them bungling the entire process since 2007, output declined and production cost skyrocketed. And they are gallivanting all over the country promising a return to power.  To do what exactly? Officially bury the nation and its people? The biggest joke is Team Jagdeo’s attempt to lecture the people that the sugar industry is in a mess.  Because of whose policies?  Certainly not the four-month old Granger / Nagamootoo Government.  The Guyanese people did not attend school on a Sunday only; they know who are the real culprits.

On top of that the Jagdeo and Ramotar administrations have not accounted to the taxpayers (especially the sugar workers) for the G$25 billion that the EU provided to the sugar industry between the years 2007-2013 to partially fund this transition project from preferential prices to world market prices.  During this period, the Jagdeo and Ramotar administrations spent some G$57 billion on a modernisation project that failed.  As a result of the sugar modernisation plan, the unit cost of sugar was pushed from US$0.21 per pound in 1995 to US$0.40 in 2014.

One of the most significant challenges that remain in the industry is how to make the Skeldon Factory more efficient.  The leaders in the Jagdeo government chose to pay more to engage Chinese builders rather than Indian builders, although the Chinese builders had zero experience in building a sugar factory.  In Latin there is a saying: “Celari vult sua furta Venus” meaning “Venus desires her theft to be concealed.”  Who the cap fits, let them wear it.  That is why any utterance today that the Skeldon Factory has achieved its highest production since October 2012 can be classified as loose talk and has to be looked at with much suspicion, since we have not established a trend of above average production.  Let us see the annual production for the Skeldon Estate at the end of 2015 before we start blowing the conk-shells.

But if one re-looks at this entire construction of the Skeldon Factory, it is characterised by mass acts of project incompetence, which was complemented by gross managerial weaknesses and local engineering supervision oversight.  If that was not maladroitness squared, the board then found the merit to appoint one Dr. Raj Singh to the CEO position, who had a track record of not being able to turn around a cake- shop much less a sugar industry. There were also pockets of inefficiencies being tolerated in the industry along with intense labour disputes.  From day one the “Turnaround Project” was doomed to failure. When GAWU and the AFC were highlighting some of these facts, the ghost writers at the then Office of the President launched the “carnival of defamation” against them. But the truth shall never die.

First of all, the Gopaul board was just not prepared to take the hard decisions required to restructure this industry.  It is hoped that today the Thomas board will face the challenges head-on and engage talented outsiders to help them analyse and structure the decision after intense scenario analysis.  Over the years, the merit of the argument that insiders at Guysuco know best has lost its sucrose potency. Guysuco’s challenges have to be faced head-on with massive intervention by outsiders, not more insiders.

When I was a restructuring specialist at Barclays in the UK in those difficult financial days of 2008-2010, one of the first things that was done on portfolios of failing businesses, was to help the leadership of those companies cleanse themselves of insiders who were stuck in their ways.  Outside technicians who understood cash flows and how to work the cash flows in a turnaround environment, were brought in to marshal the process through the turnaround period. The new team at the top will have to be empowered to act and must use financial analytics to make decisions after consulting with the technicians at the front end of the business – the workers, the soil scientists, the agronomists, the field supervisors, the factory supervisors, the agricultural engineers. There is no other option.

I am deeply concerned that all I was getting from the leadership both last year and today are more enunciations on the problems with little focus on the solutions. All of Guyana is fully aware that Guysuco is technically insolvent, owes a ton of debts and is selling sugar at less than half of what it cost to produce the stuff.  What is new? It is time to move on to the solutions. Where is the business-turnaround blueprint?

But in framing the solutions we always have to factor in that Guysuco serves a bigger purpose to the Guyanese society than economic.  For one, the sugar industry is in the forefront of the battle to keep water off the land on most of the coastal plains. In fact, the sugar industry subsidises our flood-control cost to the tune of billions annually by maintaining most of the coastal waterways between the backlands and the sea. Secondly, large numbers of rural folk earn their livelihoods because of the sugar industry.  In the absence of the sugar industry whole villages will become ghost towns leading to socio-economic meltdown with its associated negative consequences.  Just ask anyone on Linden, Kwakwani or Ituni how life has changed for them as a result of a meltdown in the bauxite industry.  We cannot repeat those mistakes again. Then there is the training component.  Many of our top agricultural and engineering talent came out of the sugar belt because of the quality of exposure and training they received at Guysuco. Therefore, assessing the needs of the sugar industry requires more than sugar technicians or sugar academics. It requires outside-the- box, “turnaround business leadership” that properly understands the socio-political environment of the industry.  It requires leadership that is totally focused on the future and who are prepared to take tough business decisions without upturning the socio-political apple cart.

In this sugar series, I plan to “flesh out the issues not from a “problem tree perspective,” but with a focus on possible solutions and outcomes.

Let us please continue next week with analysing the practical solutions.