The President’s pipe dream

Sep 17, 2024 Features / Columnists, Peeping Tom

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Kaieteur News – The effusive optimism of President Irfaan Ali in proclaiming Guyana as poised to become a major manufacturing hub demands a sober confrontation with reality. At least two newspapers have reported Ali boasting that “historically, Guyana has been competitive in every area,” as if such grandiose declarations could conjure up a competitive edge for an economy hamstrung by structural inefficiencies.

The President, with characteristic buoyancy, predicted that once the country’s much-touted gas-to-energy project comes on stream, energy costs will be halved. Supposedly, this will become the basis for positioning Guyana as one of the most attractive destinations for manufacturing investment. But, to put it mildly, the President needs to moderate his enthusiasm.

Even with the promised 50% reduction in energy costs, Guyana will still be far from competitive on the regional or global manufacturing stage. Currently, Guyanese manufacturers face energy costs that hover around US$0.30 per kilowatt-hour (kWh), one of the highest in the Caribbean. In contrast, energy costs in Trinidad and Tobago and Suriname—two of our closest economic competitors—stand at a mere US$0.05 per kWh.

A 50% reduction would still leave us at US$0.15 per kWh, three times the rate of our neighbours. How then does the President reconcile his optimism with this hard fact? Even if the gas-to-energy project materializes, manufacturers will continue to pay energy rates that will make it impossible to compete with Trinidad or Suriname, let alone giants like Brazil, Mexico or China.

But energy costs, as significant as they are, are only part of the larger issue that plagues Guyana’s manufacturing aspirations. Guyana’s manufacturing sector, historically and presently, is not competitive. Indeed, our most prominent exports—sugar, rice, bauxite—have relied heavily on preferential trade agreements or subsidies, and later on tariff protections, rather than any intrinsic competitive advantage. The preferential access Guyana once enjoyed in European markets for sugar, for example, was the product of post-colonial trade arrangements, not the result of market efficiencies. These arrangements, which gave Guyanese sugar higher prices, were dismantled and the industry has since struggled to survive without that artificial protection.

Take our so-called competitive rice industry, which benefits from CARICOM’s Common External Tariff (CET) to access regional markets. Guyanese rice is shielded from competition within the Caribbean, but that same protectionism limits our competitiveness on a broader scale. Outside of CARICOM, Guyanese rice cannot compete with lower-cost producers like Vietnam, India, or Thailand, whose economies of scale and lower input costs allow them to undercut us easily. Let us turn our attention to the more systemic obstacles that lie beyond energy costs. Manufacturing in Guyana faces a litany of structural issues that no gas-to-energy project will fix. First, the cost of moving raw materials into the country remains prohibitively high. Guyana’s ports are underdeveloped, transport infrastructure is still weak, and the cost of shipping materials in and products out adds significant overhead to manufacturing costs.

Second the country’s storage capacity is also limited, making it difficult for businesses to store either inputs or outputs on a large scale for an extended period, and to do so at a low unit cost.  No manufacturer is likely to view Guyana as an attractive option when they can set up shop in countries where supply chains are more efficient, logistical costs are lower, and proximity to major markets is far better.

Thirdly, Guyana faces a shortage of skilled labor. While the President speaks glowingly of Guyana’s “skilled workforce,” in practice, the lack of highly specialized technical workers has been a persistent drag on productivity in manufacturing. Even with attempts at upskilling, Guyana’s education system has not produced the depth of technical expertise required to drive high-end manufacturing. This deficit is not only a constraint on productivity but also a barrier to attracting high-tech manufacturing investment, which relies heavily on access to a well-trained labour pool. The “skilled workforce” to which Ali refers is, at best, a potential that remains far from being realized. Ask any employer in Guyana about the difficulties in acquiring skilled labour.

Then there’s the cost of capital, which remains stubbornly high due to the widespread between deposit and lending rates in the banking sector. High interest rates act as a disincentive for manufacturers who may want to expand operations or invest in new technologies. Additionally, Guyana’s small domestic market further limits the potential for manufacturing growth. Without the ability to scale production for export markets, manufacturers are constrained by the relatively low purchasing power of local consumers. This problem is compounded by the high corporation tax and other fiscal burdens placed on businesses, which erode profit margins and stymie growth.

Even if manufacturers can navigate the quagmire of energy costs, transport inefficiencies, and high capital costs, they still face the prohibitive expense of international marketing. Competing on the global stage requires aggressive marketing efforts, which are often out of reach for small and medium-sized manufacturers in Guyana. Worse still, our quality control infrastructure is woefully underdeveloped. Without reliable and rigorous quality assurance systems in place, Guyanese manufacturers will find it difficult to meet international standards and attract buyers in competitive global markets.

The President’s declaration that Guyana is “poised” to become a manufacturing destination conveniently overlooks these deeper, more structural impediments. His administration, like others before it, seems more interested in painting a rosy picture of future growth rather than confronting the immediate and severe challenges that continue to hold back industrial development. The notion that a single gas-to-energy project will magically transform Guyana into a competitive manufacturing hub is, at best, wishful thinking. Guyana has struggled to establish itself as a competitive player on the global stage. Our exports have often relied on trade preferences and protectionist measures, not genuine competitiveness. And now, with global trade becoming more liberalized and competitive, the weaknesses of our manufacturing sector are becoming increasingly apparent.

If Guyana is to become an attractive destination for manufacturing investment, it will require far more than a gas-to-energy project; it will demand deep, structural reforms that tackle the root causes of our lack of economic competitiveness. Until then, the President’s vision of a manufacturing renaissance in Guyana remains little more than a pipe dream.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)

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• confrontation, Guyana, Peeping Tom, project, stream

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