Jan 08, 2017 News
By Kiana Wilburg
For a period of almost ten years, Guyana’s economy recorded praiseworthy growth rates, which averaged
from 3.4 percent to 4.5. Today, the economy with a history of such “impressive” growth figures is diversified and years from being resilient.
What is worse is that some of the nation’s traditional sectors are facing grave hardships. This is the economy that the Government inherited. It is going to require more than policies to turn the economy around. And Finance Minister, Winston Jordan will perhaps face one of the most challenging tasks of his career.
It will be to prevent the economy from sliding further down the growth scale and more importantly, to transform it into one that is no longer utterly reliant on the traditional sectors. This will not happen overnight. The weaning process is not going to be without the need for social or political implications being considered. It will require hard-hitting decisions.
When the Government assumed office, it made an assertive decision to get the economy running on a clean path by chipping away at the corruption that has become so entrenched in some sectors.
Take a look at the forestry sector, for example. A forensic audit into the Guyana Forestry Commission by Chartered Accountant, Anand Goolsarran, exposed the firm grip corruption had on the vitals of the sector.
The administration faced immense pressure to evacuate a few of the big, questionable players in the sector. But this came with immediate effects on the sector. The industry has since seen a decline in production. The future for the forestry sector in this regard does not seem encouraging.
In fact, in his 2017 budget, the Finance Minister said, the forestry sub-sector is expected to contract significantly by 33.3 percent, principally as a result of Barama halting the production of logs and the UK’s restriction on greenheart logs originating from Guyana. The latter has since been eased.
How the Government intends to revive and retool this sector is left to be seen.
For the time being, Jordan has revealed that in 2017, the Government, in collaboration with the private sector, will be working on a suite of measures to strengthen and improve the forestry sector’s performance, including: the reallocation of expired concessions that reverted to the State in 2016, the promotion of value-added products, and support to the private sector for the expansion and diversification of export markets.
He said that the implementation of these measures is “expected” to aid in restoring robustness to the sub-sector, improving productivity, and reducing the vulnerability of the economy to external shocks.
The economist said that the industry will continue to promote sustainable forest management principles, with the Forest Training Centre Inc. set to train at least 300 loggers in various areas of sustainable forest management. He noted that the Government will also explore opportunities for non-timber uses such as conservation value, carbon value, non-timber forest products, etc.
Even before the Government came to office, this sector was classified by Professor Clive Thomas as a ticking time bomb. The economist said that while the rice market may be booming in production, certain factors affecting it leave the industry poised for a dispiriting future. His premonition has come to pass. The Venezuelan Rice deal with Guyana is no more and Guyana is on the hunt for markets that will give us a reasonable price for our produce.
Additionally, the Finance Minister in his 2017 budget said that due to continued uncertainty in the rice industry, output was expected to reach 600,000 metric tonnes in 2016, representing a decline of 12.8 percent from the levels achieved in 2015.
He noted that the El Niño weather phenomenon and the loss of the lucrative Venezuelan market contributed significantly to the decline in production level.
Nevertheless, the Government continues to encourage both farmers and millers to move towards more value-added products. In this regard, during 2016, Jordan said that 300 acres of aromatic rice variety was planted for the first crop and over 3,000 acres for the second crop, compared to less than 100 acres planted for both crops during 2015. He said that two millers are actively engaged in this venture and have already secured markets, in the US, for their produce.
The sugar industry is probably the worst of them all.
As currently structured, the Guyana Sugar Corporation (GuySuCo) said that the industry cannot be sustained as is. If the status quo remains, subsidies exceeding $18B and $20B would be required in the next two years and thereafter.
In short, GuySuCo’s board members have come to terms with the reality that the price to turn sugar around is too high. A high level team has since communicated this to Cabinet. But the sector’s future still remains undetermined.
The Finance Minister in his 2017 budget speech said that despite an encouraging recovery in 2015, sugar in fact, was projected to decline by 18.7 percent in 2016. This was around 188,000 tonnes. He attributed the low production to the El Niño dry spell experienced earlier last year which resulted in lower yields, combined with late planting and the frequency of strikes, during the second half of 2016.
Jordan opined that based on the allocation for sugar in the 2017 budget, government has indeed started the process of reducing the billion-dollar bailouts to the sector.
He said, “When we started in 2015, we started with $12B; then 2016 we had $11B going towards the sector; and for 2017 we have $9B. So there is a process of reduction that is taking place.”
At the end of the day, when it comes to the sugar industry, the Finance Minister and his Government will face a tough decision. Will they do what is economically important for the prosperity of the nation by cutting back on large scale production and pursue instead, the diversification of the industry? Or will they seek to continue with sugar as is, in order to stave off the social and political implications?
It is an inescapable decision.
In the meantime, Jordan has to be diverting billions of dollars to the sugar industry; an industry that is in such a messed-up state that it is unable to repay its loans for the beleaguered US$200m Skeldon Sugar Factory or even pay its workers. With such a freeloading sector, Jordan must now race to find other means of propping up the economy.
The manufacturing sector is definitely not one of the means he would be turning to, as it is projected to contract by 7.1 percent, as a result of the dismal performances in sugar and rice, as well as a small decline in other manufacturing.
With this picture, it is no surprise that the economy recorded a 2.6 percent growth rate.
OIL – AN ECONOMIC SAVIOUR
While we wait to see whether or not Government has the guts to pull the plug on the sugar industry; it is believed that an economic saviour is on the way.
While the gold industry has done an outstanding job in keeping the economy above water somewhat, the Government is preparing for the coming of ‘black gold’ in the form of oil.
According to Jordan, Guyana stands on the precipice of being a significant oil producer within the next five years, if all goes according to schedule. Following the discovery of oil at the Liza Well, Jordan said that two additional wells were dug in that area.
He said that on November 16, 2016, ExxonMobil made discoveries confirming that the Liza Well is of commercial interest and that Guyana can look forward to the production of oil, for the first time ever, within the next five years.
Jordan said that currently, other companies are proceeding with exploration works on their various concessions, including Mid Atlantic/Esso, Tullow Guyana B.V., and Eco (Atlantic) Guyana. Additionally, new venture interests, with respect to the ultra-deep water and shelfal areas, are being examined.
The Finance Minister said, “The infusion of oil revenues could fund substantial industrial and social development in our country, moving it from a primarily commodity-driven economy to a regional trade and services hub, with substantial value-added production potential in our main commodity sectors.”
He continued, “With substantial oil resources in the region – and given the geopolitical challenges faced by our neighbours, Guyana, with the right amount of investment and technical expertise, can become a regional oil and gas services hub. This would create a substantial number of skilled and semi-skilled employment opportunities for our people.”
The economist added, “With the aim of ensuring maximum local participation in the oil and gas sector, the Government has been seeking guidance and studying various policy approaches. We intend to kick start our development agenda by investing heavily in critical infrastructure, power, transportation, and logistics, among other areas.”
Additionally, the Finance Minister said that Government has developed a three-year programme, 2017 – 2020, that will cost approximately $650 million, to build capacity in various fields and disciplines, including petroleum engineering, fiscal accounting and analysis, petroleum and revenue management, and national income statistics.
He revealed that the Government will be embarking on a nationwide outreach programme to enlighten citizens on the implications of the Liza discovery and to present policies and legislation pertaining to the various aspects of the burgeoning oil and gas industry.
Apart from covering all ten administrative regions, he said that this outreach programme will engage, also, the private sector, youth, and the Diaspora, among other stakeholders.
With this proposed “economic saviour” along with the Government’s plans and polices, it is left to see if it will be enough for Jordan to accomplish the monumental mission before him.
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