Last month, the journal Caribbean Economics Quarterly published a report by the IDBs “Caribbean Country Department” and IDB Invest: “Finance for Firms — Options for Improving Access and Inclusion”. As Guyana begins its bold attempt to pull its moribund economy – that was hit by the double-whammy of the COVID-19 pandemic with its attendant supply-chain disruptions and the fallout of the Ukraine War in Europe – the article educates us on the importance of developing and deepening our financial sector. In the last four decades, this sector has become the primary driver of profits in the developed economies, while we languished in the doldrums by remaining as “drawers of water and hewers of wood”.
As we begin the diversification of our economy, to move away from primary products and add value to our products and exports by leveraging opportunities in agriculture, tourism, real estate development and business process outsourcing, we must take advantage of the new financial instruments and institutions that now dominate the global powerhouses.
We are reminded, “Financial institutions and markets fulfill several critical functions in modern economies, including (i) enabling transactions across space and over time, thus facilitating division of labour and specialisation in the economy; (ii) pooling savings and intermediating them to enterprises and households in need of external funding; (iii) screening borrowers and their projects and monitoring them, thus deciding where society’s scarce resources are being invested; (iv) reducing liquidity risk for savers by allowing them ready access to them in the traditional sectors, it was explained that the practice is to use mortgages in real estate.”
We have already heard concerns raised by the business community about the difficulty of accessing capital from the local financial institutions. Last year, Anthony Sinclair, Finance Specialist and Senior Advisor at the “Centre for Local Business Development” (CLBD), which had been established to coordinate new entrants to support the oil services, noted: “We have to recognise that (Guyana’s) banking system was configured for a different kind of economy and different types of sectors — agriculture, mining and different types.
The oil and gas, in particular, is a new type of sector that requires different types of financing products in order to meet the needs of the way those businesses operate.” Previously, the practice was to use mortgages in real estate. “…but in this type of economy that you’re seeking, companies have all sorts of assets, equipment, finance, inventories, and it’s very typical in a developed country to be able to use different assets as collateral for loans,” he said.
In terms of this new approach to looking at financing, the Report noted, “One standard measure of financial sector development is financial depth, often measured as credit to the Private Sector as a share of GDP. This measure has been climbing steadily in Guyana, increasing from 22 percent in 2009 to 39 percent in 2020. The average credit-to-GDP ratio for the six Caribbean countries analysed in this Bulletin is 48 percent, while the average for Latin America and the Caribbean is 59.8 percent, suggesting there is potential for credit to continue expanding in Guyana, especially in the current context.” In the meantime, Singapore was on par in the 1960s is 131!
Part of our challenge is that a large percentage of our transactions remains cash-based while the rest of the world has moved into electronic cash transactions, which accelerate the circulation of finance in the economy.
However, while Guyana is slowly including more technology in the financial system as more Private Sector companies introduce services for electronic bank transfers, online bill payment services, and mobile money accounts, there is a far way to go.
As the Report points out, “Of 155 firms surveyed in Guyana, less than half reported accepting payments by credit cards. About a third mentioned accepting bank transfers, while very small shares reported accepting payments from mobile money apps or electronic payments through a mobile phone.”
Similarly, even though D’Aguiar financed Banks in 1955 through an IPO, very few Guyanese companies raise funds by offering shares (to be continued).
