Latest update May 10th, 2024 12:59 AM
Dec 12, 2008 Features / Columnists
INTRODUCTION:
The current global economic performance continues to look bleak and it seems to be getting worse with every passing day. The implications for economies like Guyana are astounding because there is no way we can isolate the country, businesses and individuals from the vagaries of current markets. How serious it would be, is only my guess. There is no way one can comfortable predict that in the next couple of months, the “Obama effect” will turn things around so drastically for the US and the world.
Many countries, including our own is experiencing declining or stagnant growth. The biggest plus from this is the benefits which will accrue to our economy from reduced costs in the acquisition of fuel. This will free up funds for government financed programs which will become necessary as a result of declining domestic incomes.
THE USA IMPACT:
When the US economy sneezes, we in Guyana catch a cold. I have heard term like ‘provincial economy’ and ‘creating firewalls’ used to describe seemingly well thought out policy strategies. Despite our lack of active participation with the mainstream globalize financial system, when the economies of the Guyanese Diaspora falter, we can expect to see adverse impacts at home. We have already heard about a slow down in transfer of remittances as reported by the companies in the business of money transfer. Let’s see what this means in a very simple description for the government, businesses and people.
A slow down in remittance means less disposable income available to the individual who will react by adjusting the amount of goods and services bought on a monthly basis downwards. This means that private sector businesses would remain with huge inventories on hand, which is a cost, a depleted cash flow exacerbated by a tightening of overdraft facilities at the commercial banks. The business owner can do nothing more than reduce inventories by calling a sale (to reduce overheads associated with inventories) and downsizing their operation by mainly retiring staff, hoping to ride out the slow down as least cost to the business. The government looses import revenues, income from business taxes and income taxes from the workers. And not forgetting declining revenues for the VAT.
So we see that just one impact of a slow down of remittances to relatives in Guyana from their relatives in the Diaspora is likely to have an adverse effect on the economy. I expect the people who will loose jobs in the first instant are those at the low level service areas, such as, retail shop clerks and so on.
Indeed, the financial institutions are risk averse and a further tightening of the local credit system will invariably affect small, size businesses more so than the large scale businesses. These businesses will not be able to finance their current operations and will not be able to seize opportunities for expansion.
RESTARTING OUR ECONOMY:
Here is an example to how crucial it is to effectively manage an economy with wonderful potentials. Take tourism, I have seen tourism officials argue about the need for a comprehensive tourism policy. This is quite an opportunity but how can we grasp it when there is no support mechanism in place to carry some companies. Yes, I am advocating that the government ‘assist’ some of the operators who have a great produce already in place. With incomes falling world wide, the competition for cheaper holidays becomes an opportunity for low cost destinations like Guyana. What do we need to do to attract low budget tourists to our ecotourism? The government can surely provide forms of growth incentives in a partnership effort to capitalize on an emerging opportunity. No one is going to spend huge sums of money on a family vacation for a long time to come and let’s capitalize on this opportunity before Barbados and some of our high priced Caribbean destinations down size a large part of their market to the new realities of tourism. The private sector need to stop depending on the government to think out strategies and come up with feasible ideas so that there can be a genuine transparent partnership and not “hoch poch” arrangements, begging for a little duty free concession here and a little there.
One simple growth incentive is a credit guarantee scheme for selected operations where the government offers commercial banks guarantee on loans by some companies; a credit package which will help businesses to keep their doors open and slow the rate of laying off staff. I trust that they both (the government and private sector) understand the implications of their policy choice.
CONCLUSION:
We are not running the government as yet; (I am just sharing some of my progressive views with you) these are my views. Tourism might not be a priority area but surely, the example provides a certain logic which can be adopted by any thinking policy leader. What we do know is that we in Guyana will have to swim with the rest of the world on this one and we have to make some strategic decisions on how were going to pull up our boots strap and make some progress. Repeating cliché like “our macroeconomic fundamentals are sound” would not get us above water; we have to creatively grasp the opportunities provided by “this sound macroeconomic fundamentals” environment. Do we know how to do it? My answer is a resounding yes. Do we have the political will to do so? I’ll continue to search for the answer. On the other hand, I am confident, however, that our major private sector financial companies will not collapse like their US counterparts. Until next time “Roop”
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