Readers of this column would recall that last week’s article was more of an introductory feature to this topic. In that article, I posited that the decision to downsize the operations of GuySuCo would have serious repercussions to the economy at large.
Moreover, the direct adverse impacts would be intensified in the sugar producing communities; and in the interest of recent historic correctness, Wales Sugar Estate (West Bank Demerara), about six months ago, was once a sugar producing community.
If I am to describe this situation with a metaphorical analogy, I would say it is equivalent to an atomic bomb exploding within these communities. The devastating effect of that explosion would be felt nationwide in due time and for all time.
Perhaps some may argue that this is being overly exaggerative, but it is necessary to use such an analogy in some cases, especially when countering a statement such as “GUYSUCO BLEEDING COUNTRY”, made either deliberately or inadvertently, ignoring so many other critical elements on this very sensitive subject matter. For example, blatantly disregarding the plight of people resident in these communities. What are these people supposed to do when one estate is already closed and policymakers are still scrambling to come up with a plan to find employment or some other income generating venture for them?
Having said that, I shall now narrow my focus on the other factors which last week I argued were ignored. Focusing on that contention, we have already established that about 10,000 persons are going to be transferred from having a stable, decent employment and a financially healthy standard of living to unemployment and a bleak, devastatingly uncertain future, but with almost absolute certainty of transforming into livelihoods engulfed in poverty. It should also be noted that more than 48,000 — approximately 80,000 — dependents will be adversely affected immediately. Hence, to some degree, these known facts have quantified the magnitude of damage that would potentially be done to the economy, and thus there is seen the importance of sustaining the industry and reinforcing the far-reaching financial and economic dynamism which the sugar industry holds on the economy.
GUYSUCO’s annual payment of wages and salaries amounts to approximately billion, and it can be safely assumed that about billion find its way back into the national treasury in the form of income tax (P.A.Y.E). In fact, up to April 2015, according to the report stemming from the Commission of Inquiry (COI), GuySuCo had .3 billion for ‘P.A.Y.E’ and .5 billion for NIS payments recorded as amounts owing.
To further strengthen my position and simplify this piece of statistical information, it means that billion, on average, go back into the economy annually, both directly and indirectly. A portion of this sum would be utilised for consumer spending. Consumer spending fuels economic growth; it sustains the livelihoods of businesses such as retailers, the fisher man, the taxi driver, hire car drivers, minibus operators, the vendors on the streets, the village shops, and the wider retail and distribution sector, in addition to spending in their own village economies, and the list goes on. Assuming that billion are spent, the other or billion go into the banking system as savings. In economic terms, this sum is referred to as withdrawals from the economy, and consumer spending in economic terms is referred to as injections into the economy.
Simply put, in order for an economy to experience sustainable and progressive growth, spending needs to be encouraged in an economy. Governments therefore need to formulate and implement policies that are designed to boost and increase consumer spending.
The other portion — say billion which find its way into the deposit portfolio of the banking system — in turn forms part of the liquidity profile of the banking system, which is then channelled through lending to firms in the form of commercial loans. Firms or businesses borrow to invest and expand their operations, and in doing so, employment is created. Commercial banks also engage in retail and consumer lending. All of these activities together contribute towards the growth of an economy.
The banking system facilitates the multiplier effect – this is the process by which the money supply of a country increases via loans and advances – which also means the aggregate wealth of a country increases. For the sake of illustrating how the multiplier effect works, this is what happens: hypothetically, we have established that approximately billion goes into the banking system. We know that there are six commercial banks in Guyana, and in reality this sum will be shared among all the banks; so, again for the sake of the illustration, we have to create a scenario. To be continued next week.
