Dear Readers, I am re-launching this series called Straight Talk. It will be just that – straight talk for and with the poor and the working class in mind and with a focus on giving a voice to the voiceless. It hopes to break down the complex national issues into street talk so that the common man can make his mind up on the big issues that are affecting his life.
This week I want to focus on the state of Foreign Direct Investments (FDIs), which cause foreign inflows into Guyana. There has been a sharp decline in investments due to a poorly designed and non-productive investment strategy compliments of the underperformance of the Ministry of Business and Finance respectively. This has caused FDIs to run almost dry – both as a percentage of total investment and as a percentage of GDP.
Every man, woman, and child must know that there is a strong relationship between foreign inflows and economic growth. There are several convincing reasons for this. For an economy to grow between seven per cent and eight per cent a year, there needs to be investments around 35 per cent and 40 per cent of GDP. Guyana is averaging around 26 per cent since 2015, a far cry from the rate that is needed to sagaciously grow this economy. The national saving rate since 2015 also fell short of the investment rate by some three per cent. The rational model is that FDIs should be increasing to meet this gap. In the case of Guyana, it is not meeting this gap.
As aggregate demand in Guyana slowly collapses, the sensible economic policy would have been to better mirror the budget to the capacity of the economy. Rather, we are now saddled with a partially unfunded “biggest budget ever” tagged at $250 billion. This translates into higher taxation on the local population and heavier borrowings. Both of these measures which are already in full force under Minister Jordan, has started to crowd-out and dissuade the local Private Sector from pursuing a more aggressive investment profile. So who really will be creating these jobs as the capacity of the Private Sector weakens?
This is where some serious policy decisions are needed. Minister Jordan’s strategy of political witch-hunting the Private Sector by way of this draconian VAT on electricity and water (which also affects the poor) is furthest from the real solution. This is a recipe for economic bankruptcy, not seen since the horrible economic days of 1984.
But to the analyst community, another dangerous issue was identified; how the investment portfolio is distributed. The graph below was pulled from the 2017 Budget.
This graph basically illustrates that since 2015, Guyana has depended more and more on domestic savings to finance national investments rather than foreign inflows. So the graph is telling us that in 2013 – 77 per cent of our national investments were financed by foreign inflows, 2014 – 43 per cent; 2015 – 11 per cent, 2016 – 10 per cent and projections for 2017 are – 8 per cent. The higher rate of foreign inflows in 2013 can be explained by the inward investments because of the two foreign gold mines that were incubated under the PPP. Since then Guyana has had a Siberian winter when it comes to new investment. There is no excuse for the foreign inflows only accounting for 10 per cent of the investment portfolio in 2016, when the established norm is around 35 per cent?
But this situation is expected to get worse in 2017. If one peruses the 2017 Budget, one is informed that actual FDI is scheduled to plummet to $19 billion compared to $87 billion in 2013. The real question remains, are the conditions in place to bring new foreign investments to Guyana? My immediate answer is a profound NO!
It was Candidate Granger who promised in the 2015 APNU/AFC manifesto that he will provide employment opportunities in science, technology, engineering, …. and “promote economic growth”. He has not delivered on even portions of this promise and one third of the term has elapsed. What is critical right now is progress on an actionable investment road map to tag deliverable milestones. No more WILL DO THIS and WILL DO THAT. There is no place for “Mr WILLO” in 2017, 2018 or 2019. It is time for delivery on the promises.
In the final analysis, the conditions are not in place in 2017 to attract FDIs and, therefore, the population must embolden themselves for more taxation without representation under this Granger Administration. Today, the cost of doing business is higher (more VAT), economic instability persists, there is a slothful judicial system, a crime-infested nation, widespread corruption on all fronts, and most importantly, a very inconsistent and unpredictable economic framework. Without these pre-conditions in place, Guyana cannot attract higher levels of FDIs.
