IDB Report reveals…Electricity, high tax rates, corruption most serious obstacles to local businesses

Mar 07, 2019 News

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By Kiana Wilburg

The private sector is touted as the engine of growth in Guyana. Yet, it continues to face significant constraints which hinder its potential.
According to a report by the Inter-American Development Bank (IDB), ‘Constraints Affecting Guyana’s Private Sector: Survey Results,’ electricity, high taxes and corruption are ranked the most serious obstacles to local businesses.
With respect to electricity, the IDB said that this was deemed the most serious obstacle to businesses in Guyana. The institution said that this is not surprising, since it takes approximately 104 days to obtain an electrical connection. The Bank highlighted that this is significantly above the average of 62 days for obtaining a connection in the Caribbean.
The Bank said that the firms surveyed also indicated that they experience an average of eight power outages per month with an average duration of three hours. This, the Bank pointed out, is also the highest when compared to the rest of the Caribbean.
Further to this, the IDB said that the estimated loss from power outages for firms in Guyana exceeds the levels incurred by their counterparts in the Caribbean. In fact, the Bank’s data indicates that the estimated loss approximates 1.6 percent of annual sales, compared with a regional average of 0.7 percent of annual sales.

CORRUPTION
Corruption, the Bank noted, was the second highest-ranked constraint identified by businesses. The Bank said that 34.45 percent of the firms surveyed view corruption as a major obstacle while 43.7 percent consider it a very severe obstacle.
Notwithstanding the claim that corruption is a major or severe obstacle, the IDB said that a relatively small percentage of firms surveyed indicated that they were expected to pay a bribe to obtain an operating licence, electrical connection, telephone connection, import licence, water connection, and construction permits.
Based on the survey, the Bank said that approximately 6.7 percent of the firms indicated they were expected to pay a bribe to obtain the contract, while 3.3 percent of the firms claimed they were expected to pay a bribe to tax officers.
Further to this, the financial institution noted that the cost incurred by businesses in Guyana related to making informal payments (or bribes) to ‘get things done’ is higher than the amount paid by their counterparts in the Caribbean. In this regard, the Bank noted that the bribe paid for various government services is approximately four percent, significantly higher than the regional average of 1.8 percent. It also stands out as the highest in the Caribbean. The Bank also noted that the cost of the bribe is relatively higher for businesses in the following sectors: machinery and equipment, fabricated metal products, and wholesale.

HIGH TAX RATES
With regard to high tax rates, the IDB noted that local firms ranked this as a significant obstacle to their operations.
It said, “Indeed, tax rates were ranked third as the most serious obstacle…This may be attributed to the fact that Guyana has one of the highest corporate tax rates in Latin America and the Caribbean. Some studies have found that the high tax rates motivate businesses to operate in the informal sector…”
Notwithstanding the relationship between high tax rates and the size of the informal economy, the IDB said that most of the firms surveyed paid their required taxes. In fact, the IDB data revealed that approximately 13.3 percent of the firms paid less tax than required by law, while the remaining 86.7 percent of firms paid their fair share of taxes.

COMPETITION
Apart from the aforementioned, the IDB said that competition in the informal sector was noted as an issue of concern.
The IDB said, “The practices of competitors in the informal sector were ranked as the fourth most serious obstacle for businesses operating locally. The survey revealed that approximately 94.4 percent and 88.9 percent of the firms consider this factor as a serious constraint because their counterparts in the informal sector can circumvent rules and regulations and are not subject to rules of entry, respectively.”

ACCESS TO FINANCE
Another issue of concern for local businesses was access to finance.
In this regard, the IDB’s survey revealed that 6.7 percent of the firms regard this factor as the most serious obstacle for doing business. It said that most firms that view access to finance as a major or very severe obstacle are small and medium-scale enterprises. It also stands true for medium-scale firms.
Expounding further, the Bank said, “Most firms that consider access to finance as a major or severe obstacle are privately owned. These include: sole proprietorship (24.4 percent major obstacle, 28.9 percent very severe obstacle), partnership including limited liability partnerships (18.8 percent major obstacle, 12.5 percent very severe), limited partnership (9.1 percent major obstacle; 18.2 percent very severe obstacle), and shareholding company with no traded shares (22.5 percent major obstacle).”
The Bank also noted that locally owned firms are most affected by access to finance.
(See link for full report: https://publications.iadb.org/en/publication/12965/constraints-affecting-guyanas-private-sector-survey-results)

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