Clearing away some of the old impediments to investment and growth in the economy, Guyana’s new government is introducing a broad program of economic diversification and added value to move away from its primary commodities and avoid over-reliance on its massive oil discovery earlier this year. Finance Minister Winston Jordan explains the winds of change sweeping through the country’s governance and its welcome to investors targeting sectors such as renewable energy, ecotourism, infrastructure, agriculture, minerals and ICT.
Guyana is facing a historical year and its people have elected a new government after a 23-year grip on power by the PPP. Therefore, Guyana is now facing a new era under the leadership of David Granger who has promised to be a good president for all the people of Guyana. Can you please share with us your views regarding this new Guyana that will come under this new leadership?
The elections of May 11, 2015, heralded a new day for the Guyanese people. As I said in my budget presentation in August, the Guyanese people exhaled and started to breathe again, after it was announced that the coalition, led by David Granger, had won the elections and given a mandate to form the new government.
Since that time, we have gone to work for the people. The opposition has not made it easy for us; neither has the number crises we have had to attend to on the domestic and international fronts, especially the border controversy with Venezuela. But, in all cases, President Granger has shown the discipline and mettle, a calmness and level of maturity, that were visibly absent in the past 23 years of the last administration. Very early in his presidency – indeed, at his inauguration – he made it known that he was a president for all Guyanese, and he was astute in asking for a rapprochement with the opposition.
We are using a fresh approach to governance. This is essentially governance that people can associate with, that can resonate with them. A leadership that people can view that is for them really, and we are working for all the people, not some of the people. Previously, governance was characterized by little or no access of people to government officials – a top-down instead of bottom-up approach – and broken government structures. This allowed for a few well-connected people associated with the government who were richly rewarded.
What we want now is broad-based governance. What we want now is inclusive governance. What we want is to hear the voice of the people and those voices informing policy formulation. Overall, this fresh approach that we are talking about is inclusive, accountable governance, transparent governance that was so sorely lacking over the last 23 years.
Guyana has positioned itself as one of the fastest growing economies in Latin America and the Caribbean with an annual average growth rate of 4.6% in the last eight years. However, the mid-year report showed that the economy had declined by 2.5 percentage points in the first half of the year compared to figures of 2014. How do you assess the economy for this 2015? What is the expected growth for this year and the upcoming 2016?
Growth in the economy has principally been associated with the production of a few primary products – sugar, rice, bauxite, gold, timber – with little value added. The economy has grown on average 4% over the last five years, mainly as a result of the buoyancy in the prices of gold and rice (special price obtained under contract from Venezuela). With slumping gold prices and political instability, brought on by the closure of the parliament by the previous government so as to afford a ‘no confidence’ vote, in 2014, the economy started to exhibit signs of slowing down. This was confirmed when the economy recorded 3.8% growth, the first time in the last five years that growth had slipped under 4%.
What tends to happen is that knowing the political climate deteriorates around elections, investors, both domestic and foreign, tend to withhold investment decisions. I think in many countries like ours, people play a wait-and-see game. This stance tends to have an effect on growth.
But compounding this is the fact that Guyana is a resource-endowed country. We sell essentially just primary products that have little value added. As such, we are uncompetitive in terms of world market prices, and depend heavily on special arrangements, such as was the case of sugar sold into the American and European markets, and rice sold into the Venezuelan market.
Then you have gold prices. Guyana is just a primary producer of gold, not a major one, but significant in terms of our exports. Gold prices have fallen over time and so that would have affected production. We had a little bit of a respite in the sense that a new gold mine owned by the Canadians have now come on stream. They have been able to fill some of the void.
Generally, all these changes have had an effect on production and growth. Even remittances, which account for as much as 25% of GDP had fallen in 2014.
When you take all of these negative trends into account, it was not unexpected that the first half of 2015 would have seen a sharp decline in the growth rate. But we feel that in the second half, there would be some recovery. This premised on the return to political stability with the ascent of the new government; the putting in place of the national budget, resulting in the acceleration of spending, which was curtailed in the first half. While we will not completely make up what we lost in the first half, we believe that growth will be somewhere in the region of 3 to 3.4%.
Guyana is the only English-speaking country in South America, and along with Suriname is one of the only two countries that are members of both Caricom and Unasur. What role does Guyana play in the region, and how can it serve as a bridge between Caricom and Unasur?
Well, Guyana has always played a leading role in Caricom. In fact, we are a founding member. We have always sought to maintain our cultural affinity with the Caribbean. Geographically, though, Guyana is a part of South America, and we are sandwiched by two giants, Venezuela and of course Brazil, the fifth largest country in the world.
Because of our colonial past, we have never really had strong links with South America, even though, as I just said, a giant neighbor sits right on our doorstep. As such, few commercial and trading links were established.
But given shifting and evolving trading arrangements and agreements, we have begun to diversify our markets. In our fresh approach to governance, we will be focusing on economic diplomacy; as such we will be re-shaping our external relations and policies to ensure that Guyana stays on a growth path. We will continue to maintain, strengthen and enhance links with our traditional trading and diplomatic partners, like the United States, UK, Canada, European Union and the Caribbean. However, we will be looking outward to Central and Latin America, and Africa.
As a member of Caricom, we can give access to other Latin American countries and investors who are prepared to invest in Guyana, whether in the natural resource sector, forestry, agriculture, manufacturing or services (eco-tourism, ICT). Such goods can enter Caricom and the wider community because of our membership.
One of the key goals of this government in its first five years is to link the coast with the hinterland. The bulk of the population lives on the coast; however, the wealth of the country is in the hinterland.
Despite the fact that we’re called the land of many waters, we have very little water links with the rest of our country. Most of the connections to the hinterland are through rugged passages or tracts or by air. The focus now is to construct roads, refurbish airstrips and upgrade river transportation.
It is a fact that we’re trying to build a road from Georgetown to Lethem. A road exists between Georgetown and Linden. We’re trying to build one from Linden to Lethem. This will complete the leg of the Pan-American Highway. We could drive from Guyana straight through to Brazil and keep going all the way to North America. The Takutu Bridge linking Guyana and Brazil is already there. As part of our decision to continue go south, we would like to have that road and a deepwater port where Brazil can have access. At the same time, it will help us in diversifying our trading links.
Commodity prices have driven emerging market economies, especially those depending on commodities. However the world commodity crisis is making governments look into diversifying their economies into other sectors. How is Guyana working on diversifying its economy and attracting FDI into other sectors?
Because we are just a primary producer of a few commodities, our pace of development is affected. But our program over the next five years will focus on diversifying the economy to reduce its vulnerability to external shocks. There are existential challenges, including the poor state of the infrastructure and the high cost fossil fuels that we use to generate electricity.
One of the sectors that we are most immediately looking at is renewable, clean energy. Of course, Guyana has just found oil; ExxonMobil has found oil and is hoping to begin exploitation of that resource in another three to four years. That will bring a substantial boost to Guyana’s economy, helping us to finance the diversification of which we seek. Again, though, this is another natural resource that is being exploited.
To avoid the “Dutch disease” syndrome, we intend to establish a sovereign wealth fund so that future generations can share in the bounty of the land. Part of the oil proceeds will be used to build up and modernize the infrastructure because our road system, our transportation, deepwater facilities and so on are either non-existent or in bad shape.
We have lots of rivers, making it possible for us to advance the agenda of clean energy through hydropower development. We are concentrating on developing small to medium-sized hydro facilities, unlike the previous government which attempted to construct a single large hydropower facility on the Amaila Falls. But that venture had to be held in abeyance because of a number of reasons, including cost and environmental. Our focus will be on small to medium-sized hydros which will target specific communities. We are also looking at developing solar farms as well as other forms of clean energy such as energy, wind, and bagasse (–a byproduct of sugar production.)
Then we have eco-tourism. We have some of the most unspoiled forest, filled with lots of flora and fauna. I know that many people are still unaware of Guyana, but an aggressive program to sell our eco-tourism product will ensure that they will hear about Guyana. We are looking to develop a sustainable ecotourism venture so that it can make a meaningful contribution to our gross domestic product.
We also have the fledgling ICT sector. Guyana, as you know, has a highly literate population, with English being our first language. Those are some of the pluses that we can sell. Guyana is open for business: we want to attract the kind of investment that would us in diversifying the economy in a major way.
Some level of diversification has taken place over the last 10 to 15 years such that services, for example, have overtaken manufacturing and agriculture as a percentage of gross domestic product. Yes, that is part of our philosophical outlook and vision as to where we want the economy to go. For too long we have depended on the primary sector. We need to move on to diversify the economy. To diversify, we need to get rid of some of the impediments to investment and growth in the economy.
Well although Guyana has had a steady growth over the last years, its financial sector still remains relatively small. Guyana ranks 123 out of 183 countries in the World Bank’s Ease of Doing Business Index. How can Guyana work on improving these ratios and create more confidence for international investors?
We are aware of that ranking, and as you said, one part of course to doing business in Guyana has to do with the state of the infrastructure. Another has to do with the level of bureaucracy. Yet another pertains to corruption and governance issues.
Efforts have been made over time to tackle many of the impediments. What we need is another generation of reforms to modernize the financial sector, improve our laws relating to, for example, acquiring and transferring land investment and investment promotion. In other words, trying to give the investors the confidence or trying to woo investors based purely on a transparent incentive investment legislative regime. These are some of the activities we will be pursuing to improve the ranking.
With US exports accounting for almost 30% of the total exports of Guyana and imports 20%, the US is Guyana’s top trading partner. How important is it to Guyana to have such a big partner like the US and how does the financial sector benefit from this relationship? What do you reckon are the sectors more interesting for US to invest in?
That percentage will definitely increase once ExxonMobil goes into production of oil. The US is an important trading partner. Indeed, a large part of our diaspora population lives in the US. So, we will always see and treat the relationship with the US in a beneficial manner.
There are a number of sectors that would be of interest to investors in the United States. I have already identified renewable energy, especially hydro and solar. I also expounded on the opportunities in the ICT sector and eco-tourism . There is also much scope in agriculture. Guyana has an abundance of agricultural land that is available for growing any of the exotic crops that people use these days. Also, plantation agriculture could be encouraged for growing oranges, corn, soya bean, and so on. The sugar sector is currently the subject of an inquiry to determine its future. But even without the results of the inquiry I believe that considerable interests would be generated in privatizing the entity. The US’ investors should seize the opportunity, given America’s long association with the growing of sugarcane.
The mineral sector holds an abundance of opportunities. There is heightened interest in gold and diamonds and bauxite. However, in recent times, we have had strong proposals to exploit other minerals such as manganese and rare earth metals. These are a few of the areas in which US investors might be interested.
Remittances can be a serious engine for economic growth as evidenced by countries such as Turkey or the Philippines. Remittances in 2014 amounted US$341 million. Some studies suggest that remittances can generate a multiplier effect of 1.7 on GDP. We are reaching out the largest diaspora of Guyanese which is the US. How are you working to harness this power?
Remittances have been a mainstay of Guyana’s economy, as I said earlier. However, most of what is received in the form of remittances is really consumption oriented. A small bit has been for investment. We are trying to harness the resources of the very large diaspora population to invest in the development of the country and, in this regard, a government team has just returned from Canada where they interfaced with a number of Guyanese who expressed great interest in investing in a range of projects.
We have set up a diaspora unit in our Ministry of Foreign Affairs. We have also established what we call ‘economic diplomacy’ so that our Ministry of Foreign Affairs has to go there and sell Guyana and bring investors. Part of their mission is to harness the talent and the resources of the diaspora to invest in Guyana and help with the rebuilding of the country.
There are six commercial banks in Guyana, and in spite of the economic data we were mentioning before, the reports say that this year there has been an increase in accessibility to credit. Banks are lending more to the private sector and are performing considerably well. How does this reflect the banking sector in Guyana, and is there space for increasing the number of banks operating in the country?
We won’t want to deny a new entrant from entering into the banking system. Competition is always good as it would drive down lending rates and lead to the creation of new banking products. Currently, in spite of the number of banks in the country, interest rates are still reasonably high and the spreads are still wide, though they have come down in the past five years. Once a credible institution wants to enter the banking sector, we will examine the application and make a determination.
I believe that in terms of deepening our financial system, the banks have to have a better approach to credit lending. Right now, it is too collateral driven. This approach excludes a fairly large number of potential borrowers. We are trying therefore to establish a functioning credit information reporting system. A credit bureau is in place for the past two years but it has been having problems of acceptance and use. This will be corrected soon when the necessary amendments are made to the legislation.
2016 is a historical year for Guyana and it will be celebrating its 50th anniversary of independence. How would you like the American audience to perceive Guyana and what would you highlight are the opportunities of the country? How would you like to vision Guyana in another 50 years’ time?
In another 50 years, I hope Guyana is a diversified, well-developed country that can compete successfully internationally and has people who are socially cohesive. I say this because while we live as a united people for most of the time, our differences tend to be exacerbated during election periods. I hope we will have a more diversified population and our population will grow rapidly, unlike what has happened over the past three decades, as we seek to modernize and industrialize the country.
What I want Americans to know is that Guyana is open for business. Yes, we might be small relative most of the other countries in South America, but we are an important bridge between the Caribbean and South America. Add to that our historical links to North America and we have a country that is ideally situated and suited for investors.
Guyana is like a mini United States. It has all of the physical and natural resources but with a population of under one million people. Because don’t forget, for America’s size, the population is still small. It’s not a China nor India.
Guyana also has a fairly large landmass and sea space; it contains almost every resource that you could think about. Whether it’s oil, bauxite, manganese, rare earth metals, gold, diamonds, extensive forest, rich agricultural land, or warm hospitable people who speak English as their first language. We have a fiscal incentive regime that is highly competitive, highly attractive and so on. We welcome investment of all kinds to help us develop these resources and, ultimately, our country.
This is a new government, a friendlier government, a friend of the United States and all the peace-loving people of the world. We would like to encourage all American investors, and non-investors, whether they are coming for tourism and so on to come see what they have been missing.
Yes, we admit that our infrastructure still needs to be upgraded and transformed, but at the same time, Guyana offers as compensation its friendly people, non-hostile climate, easy accessibility and so on.
Guyana still remains an undiscovered gem, a paradise in the making.