DELIVERING DEVELOPMENT RESULTS THROUGH SUSTAINED REFORMS by Dr. Justin Ram

DELIVERING DEVELOPMENT RESULTS

THROUGH SUSTAINED REFORMS

FEATURE  ADDRESS BY

DR. JUSTINE  A. RAM

DIRECTOR, ECONOMICS  DEPARTMENT

CARIBBEAN DEVELOPMENT BANK

at the

GEORGETOWN  CHAMBER OF COMMERCE AND

INDUSTRY

ANNUAL DINNER AND AWARDS CEREMONY

2013

Pegasus Hotel Guyana, Savannah Suite

Georgetown,  Guyana

WEDNESDAY, DECEMBER 4TH, 2013

 

 

SALUTATIONS

 

 

Your Excellency, President Ramoutar

Prime Minister Hinds

Leader of the Opposition

Members of the Diplomatic Corps

Ministers of Government

Members of Parliament

Representatives of the Private Sector

President of the Guyana Chamber of Commerce and Industry

Media

Distinguished Awardees

Special Guests

Ladies and Gentlemen

INTRODUCTION

 

Good evening.

I feel honoured to be able to share   in your Annual Dinner and Awards Ceremony, especially as you mark your 124th year of operation.  Congratulations on reaching this milestone. In  the  last  124  years,  this  organisation  would  have  had a front  seat  as  a  particularly  eventful  period in  Guyana’s  social, political and economic  history has  unfolded.  It is my hope that, going forward,  you  the  business  sector  will  continue  to play an  important  role  in  Guyana’s  development,  ideally  from  the driver’s seat. Yesterday I was reminded of how times are changing. The driver sent to collect me from the airport was expecting a much more  elderly  person  given  the  incorrect  photograph  he  had  of me. It was in fact a photograph of the Premier of Anguilla. We both had a very good laugh!   However, it brought home the point that the world is evolving and changing rapidly and from what I can see Guyana is certainly participating in that evolution together with its youthful population and optimism. This  evening ,  I  will  share  with  you  my  perspective  on Guyana’s past and future development, as I seek to answer a few key  questions:  Where  has  Guyana  come  from?  Where is the country going?  How has the Caribbean Development Bank (CDB) helped and what do we intend to do? I will conclude with some ideas as to the way forward for Guyana.

 

WHERE HAS GUYANA COME FROM?

Guyana has had a particularly challenging economic, social and political history. The extended period of inward-looking policies that started in the early 1970s, exacerbated by a series of external shocks, culminated in a socio-economic crisis by the mid-1980s. Mass emigration ensued, as real Gross Domestic Product declined by a cumulative 26% during the period 1980-89 and the poverty level peaked at 65% in 1988. The Economic Recovery Programme (ERP), introduced in 1989, helped to make some progress in addressing these issues. The ERP sought to restore economic growth and reduce internal and external imbalances by: liberali sing exchange controls; adopting  a  floating  exchange  rate ;  lifting  import  and  price controls;  implementing  revenue -raising  measures  and expenditure  cuts;  encouraging  private  investment  through

Incentives;   streamlined procedures and reversal of the previous policy of nationalisation;  and  eliminating  substantial  payments arrears  to  foreign  creditors,  the  latter  with  support  from  the multilaterals including  CDB . However, despite the implementation of the ERP, Guyana’s

Economy remained weak in the 1990s, through  the first half of the 2000s.    Low productivity was reflected in falling income and an inability to boost exports sufficiently to reduce external imbalances.  The  debt  overhang,  outward  migration  and infrastructure  gap,  as  well  as  enduring  social  tensions  and political  challenges  also  remained  significant  impediments  to stronger  economic performance. But Guyana has turned the corner. A robust and sustained

reform  agenda,  as  encapsulated  in  your  Poverty  Reduction Strategy  Papers  (PRSPs),  have  certainly  helped  to  reverse economic  stagnation  and  enhance  most  of  your  development

Indicators, including per capita incomes and poverty levels.

 

Notably, public financial management reforms adopted from around 2003 have helped to improve fiscal policymaking. Also, structural reforms have been implemented, geared at

modernising  traditional  industries,  as  well  as  promoting  small business  development and private investments. For example:  the  Investment  Act  of  2004  provided  the overarching  regulatory  and  legislative  framework for the protection of private investments in Guyana; the Small Business Act  of  2004 provided incentive regimes  and  support  programmes  for  small

businesses; and the  National  Competitiveness  Strategy  drafted  in 2006  was  aimed  at  enhancing  Guyana’s competitiveness  in  terms  of  reforms  to  institutions and initiation of policies, projects and programmes. Guyana has therefore emerged from years of economic

Decline and stagnation with improved macroeconomic fundamentals.  Indeed, Guyana’s impressive real GDP growth rates, which averaged 4.5% during the period 2006 -2012, have

Out-performed several of its Caribbean counterparts. Implementation  of  these  reforms  has  been  rewarded  with substantial debt relief under the Highly Indebted Poor Country initiative   (HIPC), Multilateral Debt Relief Initiative (MDRI) and Paris  Club  arrangements,  which  has  led  to  a  substantial reduction  in  debt  ratios.    By 2007, the external debt-to-GDP

Ratio was estimated at 40%, compared with a high of just over 600% in 1989, while the total debt -to-GDP ratio had fallen to the 60% international benchmark improved economic performance and debt relief have freed up resources for increased social spending. This investment has begun to pay off: poverty levels  were  down from 65% in 1988 to 38% in 1999 and extreme poverty down to 18.6% in 2006, from 29% in 1992; substantial  progress  has  been  made  toward  the  MDGs, particularly  in  the  areas  of  education,  gender  and environment; and Guyana’s  HDI  has  risen  dramatically  since  1980,  with the  country  moving  from  low  (1980s  and  1990s)  to medium (2000s) human development.

 

WHERE IS THE COUNTRY GOING?

The reforms implemented to date have been relatively successful.

The macroeconomic outlook is quite optimistic investment, buttressed by key policy initiatives, is set to remain the key growth driver. And there is a high likelihood that Guyana will achieve the MDGs by 2015 in education, gender and environment. But the country  still faces critical development challenges: inadequate infrastructure ;  high vulnerability to natural disasters and  climate  change;  high  poverty  levels  and  other  social challenges;  and  economic  concentration  and  constraints  to private sector development. A  new  wave  of  reforms  is  therefore  being  ushered  in  to consolidate and augment past progress, within the context of the country’s third  generation PRSP, as well as the innovative Low Carbon Development Strategy (LCDS). Poverty reduction and sustainable development are the main objectives of the PRSP and the LCDS, respectively. Both these  strategies  seek  to  guide  Guyana’s  development  over  the 2011-15 period through four main areas of focus: infrastructure development;  social  and  human  capital  development; strengthening  of  governance  and  institutions;  and  economic diversification and private sector development .

 

HOW HAS THE CARIBBEAN DEVELOPMENT BANK HELPED AND WHAT DO WE INTEND TO DO?

 

CDB’s  past  strategy  in  Guyana  has  focused  on strengthening  social  and  economic  infrastructure ,  promoting private  sector  development  and  building  capacity  and strengthening institutions in critical sectors. Notably,  CDB  has  contributed  to  infrastructure development in terms of roads, docks, markets and sea defences, as  well  as  capacity  building  in  the  area  of  technical  and vocational education and training (TVET) under this strategy.  In

addition,  the  occurrence  of  natural  disasters  has  led  to  the approval  of previously unidentified capital projects for disaster management.  The Bank has also supported Guyana’s

Developmental thrust through the application of concessional lending terms in financing these capital projects. The  Caribbean  Aid  for  Trade  and  Regional  Integration Trust  Fund  (CARTFund)  has  also provided a key modality for financing private   sector development in the area of industry and trade.  Likewise,  CDB  has  implemented  various  capacity building  initiatives  for  small  and  medium-sized  enterprises (SMEs)  through  its  Caribbean  Technological  Consultancy Services  (CTCS)  network.  There has also been a significant

focus on poverty reduction through the operations of the Bank’s Basic  Needs  Trust  Fund  (BNTF),  which  focus  on  community projects  that  provide  basic  social  and  economic  infrastructure and  capacity-building .  Interventions under CARTFund, CTCS and BNTF are all grant financed. The  Bank’s  strategy  for  Guyana  for  the  2013-17  period, approved  in  March  this  year,  maintains  the  focus  on concessional financing for infrastructure development and grant financed BNTF  and CTCS  operations, but also seeks to address the  country’s  environmental,  disaster  risk  management (DRM) and  climate  finance  needs.  CDB also aims to restructure  its relationship with the private sector in Guyana in a creative way, in line with the Bank’s evolving   private sector thrust.

 

 

THE WAY FORWARD

 

All of the areas highlighted in the Government’s and CDB’s strategies are critical to Guyana’s future development. Closing  the  infrastructure  gap,  building   capacity  and strengthening  institutions  have  received a lot of attention from the  Government  and  CDB,  as  well  as  other  development partners in recent years.

While  significant  progress  has  been  made  in  relation  to these  areas  that  enhance  competitiveness  and facilitate  private sector development, there exists a need to build on these efforts. In this regard, there have been a number of specific constraints identified  by private sector stakeholders, including : restricted  access  to,  and  high  cost  of  credit  for  the

Retooling of manufacturing plants; the absence of research and development and training

Facilities for the manufacturing sector; the acute scarcity of managerial capacity and skilled

labour due to migration,; the  lengthy  bureaucratic  processes  associated  with regulatory approvals for private sector; high  cost  and  unreliable  power  supply  which  has  led most  of  the  larger  enterprises  to  invest  in  their  own electricity generating facilities; high taxes on production  (trade taxes added to corporate taxes); and o  inefficient  trade  logistics  and  inadequate  port  facilities which contribute to high transaction costs. Several of these issues  are highlighted in  the  World  Bank’s “Doing Business” Report for 2013, which ranked  Guyana 115th of  189  countries  overall  for  the  ease  of  doing  business.

Moreover,  the  2013-14  Global  Competitiveness Report ranked Guyana  102nd out  of  148  countries  in  respect  of  international competitiveness.  The  results  of  these  and  other diagnostic and benchmarking  exercises  suggest  that  the  reform  and  policy agenda needs to continue apace. CDB  is  already  responding  to  some  of  the  issues highlighted,  through  CTCS  and  TVET  development,  for example,  but  there  is  scope for CDB to support private sector development  in  other  ways.  New  and  innovative  initiatives  in the  area  of  renewable  energy/energy  efficiency  and  climate finance  are  coming  on  stream and there is already a fund that can  be  used  for  support  to  the  private  sector  to  ensure  their readiness  for  the  CARICOM  Single  Market  and  Economy (CSME)  and  implementation  of  the  CARIFORUM-EU Economic Partnership Agreement (EPA). Improving  Guyana’s  competitive  position  will  require continued  efforts  at  improving   the  basic  factors  required  for such  competitiveness,  including   continued  improvements  in infrastructure,  institutions  and  basic  education  and  health.   At the same time, it will be important to address those areas that are

necessary to help Guyana t o transition  from an economy that is driven  by  the  basic  factors  of  production  to  one  that  is efficiency-driven.   The  transition  will  require,  among  other things,  a  greater  focus  on  higher  education ,  improving  the technological  readiness  of  the  economy  and  developing  its financial markets. Such  investments  and  reforms  would  facilitate  the continued development of Guyana’s private sector and foster the economic  diversification  that  is  necessary  to  build  more resilience  and  generate  prosperity .  Specifically,  such investments would create the foundation for reducing  Guyana’s concentration in the extractive industries  of  agriculture, forestry and  fishing,  mining  and  quarrying,  which  focus  on  low  value added, natural resource-based products for export, and leaves the economy vulnerable to “Dutch disease” effects. Indeed, in  recognition of the deplet eable nature of some of – 16 -these  natural  resources,  it  would  also  be  ideal  to   explore  the

establishment  of  a  sovereign  wealth  fund  to  manage  the windfalls from their  extraction,  as has been done in Trinidad and Tobago,  Botswana  and  Norway  and  other  resource-rich

Countries.  Such resources could then be used to underwrite   the types of investments and reforms that are necessary to facilitate economic diversification away from natural resource -based products and into higher value-added goods and services.  There is certainly strong potential for increased activity in such higher value-added goods and services.   Unlocking  this  potential  will require continued efforts in making the priority investments and undertaking  the  critical  reforms  that  would  encourage  such activity. To  be  sure,  the  ongoing  journey  to  sustained  growth  and prosperity  now  requires  building  on  the  strong foundation that has  been  established  through  critical  investments  and  reforms. CDB and other development partners are ready to collaborate with Guyana in this regard.    The effort will also require a strong partnership between the private sector and the government to build consensus on the priority agenda going forward.

So substantial progress has been made, but the journey is far from over.   Benjamin Disraeli, a former British Prime Minister, said “The secret to success is constancy of purpose.”

Another  pre-condition  for  the  creation  of  an  enabling environment  for  private  sector  development  is  strong governance  structures  and  social  cohesion.   On  the  Global Competitiveness  Index,  Guyana  performs  less  favourable   on transparency,  efficiency  of  the  legal  framework  and  business costs of crime and violence.  Despite the identification  of these as key  factors  in  Guyana’s low  overall  competitiveness ranking, more  must  be  done,  it  is  therefore  incumbent  on  the  business sector  to  assume  a  more  activist  role.  You should advocate strongly for the implementation of reforms, as well as initiatives to strengthen and deepen social cohesion. Indeed,  in  revamping  the  policy  framework,  we  need  to recognise  that the existing approaches for implementing reforms must  also  be  overhauled.  Current approaches to private sector development in Guyana have not always been efficient.  You have  not  always  been  sufficiently  consulted  or  asked  to participate  in  decisions  that  affect   you. Development partners, for  our  part,  have  often  failed  to  coordinate  our  efforts effectively  to  avoid  duplication  of  effort  and  ensure complementarily. CDB  will  therefore  seek  to  promote  collaboration  and consultation  with  all  stakeholders  as  we  pursue  together  the development of a vibrant private sector, which we   all  recognise is a key engine of productivity growth and poverty reduction. The  private  sector  should  therefore  also  take  the  lead  in ensuring that Guyana’s vulnerability to natural events is reduced and  that the economic policies being pursued bring lasting and sustainable benefits to all who are willing to work diligently for this. This is particularly important in economies like Guyana’s that are heavily dependent on agriculture and natural resource extraction.  Let me reiterate this point to you.   That  properly measured  economic  growth  is  the  return  on  the  asset  base  or capital  of  the  economy,  I  repeat;  that  properly  measured -economic growth is the return on the asset base or capital of the economy.  Thus  economic  growth  is  really  a  function  of  the quality  and  stock  of  assets  as  well  as  productivity  of  the economy. Therefore as assets are extracted and depleted, you the private sector must ensure that sufficient investment is made in other  types  of  assets  such  as  human  capital,  plant  and machinery,  telecommunications  and  infrastructure  since  these will  be  the  assets  that  help  support  growth  in  the  future.  Any good business person knows that the maintenance of assets ensures  a  sustainable  operation,  the  economy  must  also  be heavily  reinvested  in,  to  ensure  sustainable  economic  growth. Economic  history  teaches  us  that  business  cycles  exist,  the pendulum  swings,  the  “ Economic  Googlies,  the  Bouncers,  the Yorkers”  will come but we can be prepared by practicing in the Batting  Nets of economic investment  and fixing the  “ Economic and Social Roof” when the sun is shining. Opening  trade  links  with  other  regions  of  the  world  and deepening  links  within CARICOM will also foster growth now and  in  the  future  and  improve  productivity  as  you  seek  new markets  for  your  goods  and  services.   Once  more  the  private – 20 -sector must be the lead advocates for investment now to achieve continued and future prosperity! I  therefore  implore  you  to  save and invest for the future since  this  will  sustain  higher  consumption  now  and  for  future generations. Benjamin Franklin, one of the founding fathers of the USA once said “by failing to prepare, you are preparing to fail”.  So  diligence  and  preparation  are  integral  for  future prosperity.

The road ahead is full of opportunity and challenges. There are  challenges,  However,  I  do  know  that  they  are  not insurmountable,  if  Guyana  stays  the  course.

 

Every time  I see Shivnarine  Chanderpaul  bat,  I  am  reminded  of  this. In my humble  opinion  he  is one of the greatest batsmen Guyana and the world has eve r produced, he stays the course!  His constancy of purpose should be our guiding light!

 

CONCLUSION

 

Ladies and gentlemen, in  closing ,  let me reiterate  just  how delighted  I am to have had this opportunity   to participate in  this evening’s  proceedings.  I  have  enjoyed  sharing   with  you  my thoughts on  Guyana’s past and future development path and the respective roles of government, the private   sector and CDB, as well as other development partners. I  invite  you,  the business  sector,  to  also  share your vision and  join with  CDB  and  other stakeholders  in working  toward a harmonious and prosperous future for all   in Guyana.

Thank you