Diaspora Investment

Following up on his meeting with American business leaders at the Harvard Club and encouraging them to invest in Guyana, President Irfaan Ali later met with an enthusiastic gathering of Guyanese in Queens Village on Thursday. In addition to bringing them up to date on developments in their native land, President Ali promised a special vehicle through which the diaspora could invest in projects, such as a fertiliser plant and a gas bottling facility at the Wales GtE complex.
He spoke of “Government-guaranteed returns”, which is an attractive invitation. But the crucial details – what investors would own, how the returns would be paid and exactly what the Government would guarantee – have yet to be announced. India, with a large and well-heeled diaspora, is frequently cited as successfully attracting diaspora investment, and we can maybe learn from its experience.
Through the State Bank of India, India raised about US$4.2 billion with “Resurgent India Bonds” in 1998 and US$5.5 billion with “India Millennium Deposits” in 2000. Both gave overseas Indians a defined five-year investment, denominated in foreign currency, with stated returns. The lesson is that attachment to home can draw investors’ attention, but clear terms and a credible institution persuade them to part with their money. India’s investors did not simply accept a low return out of patriotism. Israel also is in the game much earlier, and Israeli Bonds reports raising more than US$54 billion worldwide since 1951.
Guyana could improve on that model in promoting President Ali’s proposal, which is project-specific and transparent. An investor should be able to see, for instance, the fertiliser plant’s estimated cost, its other financiers, expected customers, risks and timetable before subscribing. The gas bottling facility should have its own accounts. An independently managed vehicle could then offer modest-sized investments alongside larger subscriptions, with audited annual statements showing precisely where the money went.
Above all, “guaranteed returns” needs a definition. Does the Government guarantee the interest or rate of return, repayment of the principal, or both? Will repayment be in US dollars or Guyanese dollars? If a plant earns less than forecast, which public account covers the shortfall? These are practical questions for a pensioner in Queens considering an investment – and for a taxpayer in Guyana who may ultimately stand behind the guarantee.
India’s bonds were chiefly a way to bring foreign currency into the country at particular moments. Pres Ali’s proposal could do something more lasting – give overseas Guyanese a measured stake in productive businesses at home. To achieve that, the Government should publish the full terms before taking accepting investments, price the guarantee openly, and report each project’s performance. Diaspora loyalty may bring people through the door, but sound projects and dependable accounts will keep them invested in the long haul.
Ethiopia offers the closest Government example in diaspora investment when it marketed bonds to Ethiopians abroad to help finance the Grand Ethiopian Renaissance Dam, a named hydroelectric project. The Development Bank of Ethiopia describes the bond as financing that dam, and the US Securities and Exchange Commission confirms that Ethiopian Electric Power offered and sold the bonds to US residents of Ethiopian descent. The example also carries a caution for Guyana: the SEC found that the US sales had not been registered as required.
In light of the foregoing, the key design choice to be made by the Government is whether each investor will be buying a claim on a particular plant’s earnings or buying a Government-guaranteed bond whose proceeds are allocated to that plant. Those are different promises: if the plant underperforms, the first puts project risk on investors, which the Government will have to backstop since it is guaranteeing a fixed rate of return and may put the repayment obligation on Guyanese taxpayers. This risk is also present with Government-issued bonds, but at least the exposure is known and limited.
To summarise, we need to specify whether a covering bond will be issued, the rate of return guaranteed in either a direct investment or a bond, currency, duration, and whether the guarantee also protects the original investment.