28.I.1 The role of the private sector in the growth and development of Guyana’s economy is of the utmost importance. Since 1989 Guyana has experienced an historic process of restructuring its economy, moving away from the overly centralised approach that brought about sustained economic decline towards an open market-oriented system that has already given rise to an economic revival. The private sector has played the pivotal role in this recovery.
28.I.2 The macro-economic environment in which the private sector is meant to operate has already been described. Moreover, its activities and structures are analysed in the Chapters in this National Development Strategy which relate to its main component sectors e.g., agriculture, manufacturing, forestry, fisheries, and mining.
28.I.3 The economic activities of the formal private sector may be classified as follows: (i) the primary sector, which includes agriculture, fishing, forestry, mining and quarrying; (ii) the secondary sector, embracing manufacturing, engineering and construction; and (iii) the tertiary sector, which subsumes transportation, communication, commerce, business services, rentals and finance.
28.I.4 In Guyana, there is also a relatively large informal private sector which is primarily engaged in petty trading, although a significant proportion of the members of this group is occupied in manufacturing and as craftsmen e.g. carpenters, masons and cabinet makers.
28.I.5 It is intended in this Chapter, merely to discuss some of the developmental issues with which the private sector has to contend, to examine the constraints which currently inhibit its growth, and then to put forward strategies which would not only release the initiatives and entrepreneurial skills of its members, but would also permit it to optimise its contribution to the country’s development.
28.II ISSUES AND CONSTRAINTS
28.II.1.1 The principal issues and constraints facing the sector arise from the legacy of two decades of a declining economy and the absence of a definitive national policy on private sector development. There is, at present, no comprehensive national policy aimed at stimulating investments, industrial performance and commercial development.
28.II.1.2 Over the past decades, Guyana’s development has been concentrated on the export of a few primary commodities. As a consequence, manufacturing has been virtually neglected. The economy is therefore on a narrow growth path that is subject to the vagaries of the international markets for primary products. While not abandoning its production of primary goods for local consumption and export, Guyana should increasingly focus on those industrial subsectors that are linked to its natural resource endowment. The areas that offer immediate prospects are wood and agro-processing and the further processing of gold and diamonds.
28.II.1.3 A long-term policy for the development of the private sector should establish formal mechanisms for cooperation between the Government and the private sector with respect to such matters as the location of industrial estates; the provision of support services including investment promotion, technical assistance, managerial and vocational training, long-term financing, research and development, and adequate physical infrastructure (electricity, roads, ports and airports).
Markets, Marketing and Standards
28.II.1.4 In many manufacturing industries, specialisation is limited by the extent of the market. The domestic market size, with an estimated population of under 800,000, is too small to accommodate output levels of plant which need to take account of economies of scale. Moreover, with firms producing only for the Guyana market, the market structure is oligopolistic for many products.
28.II.1.5 Guyana’s exports are mostly earmarked for CARICOM markets. As a result, only limited inroads have been made into the North American and other foreign markets. While the intra-regional market (CARICOM) is crucial for many small and medium-sized manufacturers, finding new extra-regional markets (North American and other foreign markets) is essential if the problems of scale inefficiency are to be overcome.
28.II.1.6 Apart from expanding its market range, Guyana’s private sector needs to enhance its competitiveness. However, the potential for the production of high-quality products to compete in export markets now exists in only a small group of industries such as those which manufacture furniture and other wood products, garments, industrial diamonds, alcohol and alcoholic beverages, and non-traditional agricultural products. Because a majority of Guyanese manufacturers operate obsolete and depreciated plants, their output is generally of substandard quality.
28.II.1.7 In addition to the need for improving the quality and standards of products, the information base is inadequate in regard to external markets and market niche structures. Timely information is needed on price, quality, packaging, frequency of delivery and distribution patterns.
28.II.1.8 Less-than-cost dumping and substandard or defective goods are becoming part and parcel of the Guyana market. The National Bureau of Standards and other agencies should further intensify their efforts to control this problem. The Ministry of Trade should also engage in intelligence gathering in order to be able to judge fairly whether products are being dumped at less than fair prices.
28.II.1.9 The process of approval of foreign investments is still time-consuming and there is too large a discretionary element. Standard agreements for key sectors are not available. The process is biased in favour of the processing of primary products and other manufacturing. As a result, knowledge-based enterprises, for example, do not receive adequate treatment. Moreover, the responsibility for investment promotion has been combined with that of investment approval, when ideally the two activities should be separated. In addition, the existing rules do not seem designed to promote investment. For example, foreign investors do not have rights to the full repatriation of profits, and to maintain cash for operating purposes in offshore accounts.
28.II.1.10 Clear and simplified investment codes need to be published and widely distributed.
28.II.1.11 The existing rules for the start-up of companies are too onerous thus effectively discriminating against small firms that are potentially important sources of employment growth.
28.II.1.12 In order to compete with efficient foreign firms, most Guyanese firms must retool. This re-tooling of productive lines requires access to industrial financial assistance. However, the procurement of such support is complex, time consuming and costly. Indeed, the time lag involved in processing investment loans is, more often than not, upwards of six months. As a result, entrepreneurs frequently either abandon projects or seek funding from outside the financial intermediaries. All this while, the commercial banking system accumulates excess liquidity.
28.II.1.13 Financial intermediaries sometimes seem to prefer to give commercial loans for consumption purposes, and to invest in low risk Treasury bills, than to give credit to the manufacturing sector.
28.II.1.14 Industrial micro-enterprises are seldom considered for overdrafts or soft loans.
28.II.1.15 Real interest rates appear to be irrationally high.
Research and Development
28.II.1.16 R&D is almost non-existent in the manufacturing sector. Indeed, there is no institute in the manufacturing sector that is comparable to that which exists for agriculture. A dynamic R&D programme is mandatory if manufactures are to be induced to develop efficient production techniques, and quality control and packaging methodologies. Unfortunately, it would most likely be unprofitable to develop such facilities for a country with an industrial sector of the size of Guyana’s. The possibility of establishing a joint venture between a foreign university and UG, to do part of the work in Guyana while supporting UG’s development, should therefore be explored.
Qualified Labour Force
28.II.1.17 Manufacturers frequently fail to retain skilled labourers who have been trained at their expense. Once employees have acquired technical skills on the job, they often either migrate or initiate their own business ventures. Furthermore, graduates from the Government Technical Institute are not adequately trained to assume technical positions. In these circumstances, firms experience increased production costs in upgrading the skills of new staff. It is therefore imperative that there be a continuous upgrading of the technical education system if the human resources requirement of the private sector are to be met.
The Tax System
28.II.1.18 The inequities in the tax system, its potential brake on the development of the private sector, and the inefficiencies in tax collection have already been discussed.
28.II.1.19 The customs clearance system is unacceptably slow.
28.II.1.20 The mixed legacy of traditions in regard to land tenure, in combination with the antiquated state of the property registries, often results in entrepreneurs being unable to acquire the property rights that they need in order to justify investing in a project. This circumstance impedes the development of many kinds of activities.
The Legal System
28.II.1.21 There is a lack of adequate legal procedures for the enforcement of contracts. This lacuna introduces additional uncertainty into normal business relationships. As has been emphasized in the Chapter on Governance, the restoration of the hitherto high quality of our legal system is one of the most urgent national priorities.
28.II.2.1 Inadequate and deteriorated infrastructure (e.g., electricity, water, road, port and communication facilities).
28.II.2.2 Outdated and inappropriate technology.
28.II.2.3 Scarcity of skilled personnel.
28.II.2.4 Poor marketing capacity.
28.II.2.5 The slowness of the bureaucracy in approving investments, licensing firms and taking other necessary actions. Sometimes this slowness is accompanied by arbitrary judgements, and by demands for rent.
28.II.2.6 Inadequate air and sea transport system. Existing policy has put a cap on the number of commercial airline seats available domestically and has not encouraged competition in providing the vital international air service. Similarly, port facilities are very inadequate, in terms of depth of harbour, bulk-handling facilities and also unloading capacities, for an export-oriented economy.
28.II.2.7 Outdated legislation for quality assurance and product grading. This legislation needs to be updated as a measure to improve performance in both domestic and foreign markets.
28.II.2.8 Inadequate drainage and irrigation facilities.
28.II.2.9 Much valuable time is lost in obtaining necessary documentation and/or permission from the relevant government agencies in order to conduct business. Often there is a failure by certain government agencies to acknowledge, much less act upon, correspondence.
28.II.2.10 Matters previously dealt with at the level of Permanent Secretaries is often referred to Cabinet for decision, causing even further delays.
28.II.2.11 There is a lack of managerial capability in both the private and public sectors.
28.II.2.12 Guyana had no pre-cooling and cooling facilities to be used for the export of primary agricultural products. This situation, combined with high freight costs and unreliable air cargo services, cause these local products to be ‘uncompetitive’ in overseas markets.
28.III SECTORAL OBJECTIVES
28.III.1 The broad national objective for the private sector is that it should become the engine of growth of the economy, by increasing and diversifying production, by increasing its competitiveness, and by concentrating on the export sector, thereby reducing the incidences of poverty and unemployment, raising the standard of living of the citizens of Guyana, and enhancing their quality of life.
28.IV THE STRATEGY
28.IV.1 All the elements of the Strategy that are adumbrated below for this sector are discussed more fully in other chapters, and the methods of their implementation described in greater detail.
28.IV.2 Although the private sector is expected to be the main productive force in the economy and the predominant source of employment creation, the Central Government will play a major role in the implementation of this Strategy as facilitator. The Government will continue to provide the infrastructural support to the sector along with an appropriate policy and legal framework.
28.IV.3 Since education and training are crucial to maintaining an economically viable and sustainable manufacturing sector, the Government will focus constantly on upgrading the human resources of the economy and will contribute to and encourage the private sector to become involved in manufacturing research and development activities.
28.IV.4 The Government, the private sector, and the University of Guyana will immediately contact the donor community and foreign Universities with a view to establishing linkages, and formulating agreements which could assist Guyana’s private sector in the conducting of research that is relevant to the manufacturing processes in Guyana.
28.IV.5 Through its Embassies and Consulates abroad, the Government will assist in obtaining marketing access support to the sector as well as the mounting of trade fairs abroad.
28.IV.6 Government will upgrade the provision of such basic social services as housing, health facilities and potable water.
28.IV.7 In its role as a facilitator, the State will provide the necessary supportive networking of institutions and the institutional framework which aid, promote and foster economic development.
28.IV.8 The overall government administration will be reformed and overhauled. The trades unions and the private sector will be involved in these exercises.
28.IV.9 The State will encourage industrialisation via the provision of industrial space (e.g., industrial estates) support services (including investment promotion and marketing) and technical assistance.
28.IV.10 The State will relate more with the private sector in information sharing, and in negotiations, both at the international trade level and with international and multilateral donor agencies.
28.IV.11 The State will expeditiously pass on to the private sector information on matters relating to the availability of developmental aid and technical assistance from foreign missions and donor agencies.
28.IV.12 The State will commit fully to the involvement of the private sector as a full partner in national decision-making. This is essential to the strengthening of the democratic process. It will also afford Government the opportunity of drawing on certain resources with which the private sector is perhaps better endowed, e.g., management. To this end, formal arrangements will be made for meetings between Government and the private sector, at several levels. Schedules for such meetings will be established.
28.IV.13 Steps to broaden the tax base will be continued.
28.IV.14 The rate of income tax will be further reduced.
28.IV.15 A simple and relatively uniform fiscal incentive regime will be established.
28.IV.16 A value-added tax will be introduced to replace the current consumption tax.
28.IV.17 Export Processing Zones will be established in Berbice and Demerara.
28.IV.18 Monetary and Banking Reforms will be initiated in order to reduce Government borrowing in the open market, to make foreign exchange more easily available, and to ease the restrictions on access to loans in US dollars.
28.IV.19 The procedural and regulatory framework for the registration of more companies will be drastically simplified and speeded up. This is especially important in the registration of new micro-enterprises.
28.IV.20 Personal and business taxes will be merged for smaller firms.
28.IV.21 The approval of investments will be streamlined and expedited.
28.IV.22 The cost of revenue collection will be reduced.
28.IV.23 Greater and more intensive efforts will be expended by both the Ministry of Trade and the Bureau of Standards to ensure that there is no dumping, and no sale of shoddy and substandard goods in Guyana.
28.IV.24 The New Roles of State and Private Society
28.IV.24.1 In any economy it is the Government’s responsibility to articulate a vision of national development, foster a consensus around it, and to formulate policies and programmes to address issues that the economy is not dealing with through its own momentum. At the same time, world-wide experience of the last fifty years has abundantly demonstrated that the private sector is far more efficient in carrying out activities of production, commerce and finance, and that lack of efficiency in these areas hurts development prospects by holding back the growth of incomes and employment. Therefore a central challenge of a development strategy is to find the most appropriate ways of combining the power of market forces, as the primary impulse to development, with the role of the State in providing the development framework, monitoring the process, and providing special assistance to target groups and issues.
28.IV.24.2 Under the concept of this National Development Strategy, the following list describes well the functions of Government. It also is quite consistent with a review of international experience in all regions of the world.
28.IV.24.3 Establishing a regulatory and policy framework covering primarily the areas of finance, trade, taxation, investment, the environment and public health and safety. The purpose of such a framework is to establish clear and balanced rules of the game which protect the legitimate interests of consumers, workers, retirees and children, and depositors, investors and producers, while assuring a maximum of economic opportunities for all and safeguarding the environment.
28.IV.24.4 Defining legal jurisdictions and property rights in an unambiguous fashion, to facilitate production, investment and conflict resolution.
28.IV.24.5 Ensuring the provision of specified public goods, such as national defence, education and health services.
28.IV.24.6 Assuring the availability, directly or indirectly, of basic physical infrastructure such as transport facilities and potable water supplies.
28.IV.24.7 Developing special programmes to assist poor households, both to meet their immediate basic needs and to improve their own income-earning capacities.
28.IV.24.8 Carrying out the functions of taxation, budgeting and programme implementation for the above purposes.
28.IV.24.9 Establishing and strengthening the country’s judicial and electoral systems.
28.IV.24.10 Continuously endeavouring to improve the quality of public administration at all levels.
28.IV.24.11 Participating as a partner in selected few production activities, normally as a transition measure.
28.IV.24.12 These are examples of areas in which the community or nation may decide to act jointly, as a collectivity, through the agency or Government. The remaining areas of consumer choice production investment trade and finance are normally carried out on the basis of decisions by individuals or small agglomerations of individuals (corporations, co-operatives, association, etc.) and therefore are most appropriately left to the private sector defined in its broadest sense, including non-profit organisations and associations. Lack of clarity in the definition of the Government’s roles and policies in these areas can undermine incentives to invest and product and therefore limit the country’s economic development. Both clarity and stability over time of the rules of the game are essential ingredients of an economic development strategy, along with an unambiguous commitment that production, finance and commerce are activities in the domain of the private sector.
28.IV.24.13 The policy framework for the private sector presented in this Chapter would require a number of modifications to the existing body of legislation in order to facilitate its full implementation. In summary form, those modifications would include the following:
(i) Revision of the Companies Act to ease the registration requirements for new firms to reflect different compliance standards for small, medium and large companies and to lessen the burden of stamp duty.
(ii) New legislation for NGOs and other not for profit organisations making provision for their registration, compliance and exemption from taxes.
(iii) A new tax regime to put into effect the changes described in this Chapter, including:-
(iv) Legislation to lay the foundation for an export processing zone, with close access to deep water harbour.
(v) A new investment code for both foreign and domestic investors, including all relevant tax provisions.
(vi) An overall revision of the legislation for GOINVEST, making it an autonomous body while separating the investment promotion function from that of approval of applications. The revised approval process should incorporate deadlines with automaticity, e.g., requests of specified kinds not acted upon within two weeks are automatically approved.
(vii) A restaurant of export licensing requirements to simplify them, including the provision of automatic granting of such licenses upon presentation of proof that income taxes have been paid.
(viii) Legislation establishing rules for patents, copyrights and intellectual property rights.