The black market and capacity

Nov 05, 2008 Features / Columnists

By Peter R. Ramsaroop, MBA

INTRODUCTION

I was speaking to a major business owner yesterday and he was contemplating getting out of business due to his inability to compete with, as he termed, “friends of the system”. Some of these individuals get past Customs while others have to pay the full duty price, therefore creating unfair competition. When I came though the airport a few weeks ago and after I was given the go ahead in the nothing to declare line, suddenly another officer ran over and told the officer to hold me. He then went back to the Director’s office and they both came out and ordered my bags to be searched.

I did not know that a Customs officer needed the Director’s approval to search one’s bags. It was obvious that I was specifically signaled out. I did not take it personally and just smiled at the petty way Government reacts to fair criticism. We are seeing certain companies that are “friends of the system” expanding into many different areas outside of their core business even though many others offer the same services but may not be toeing the line.

I consider this a form of black market since a few get concessions that others do not get. Our company had applied for a duty free generator to run our packing machine but received a letter from the GRA Commissioner that the request was not within the law.

Recently, five companies owned by a single person received concessions for many generators.

CAPACITY

Another issue with which we are faced is unutilised capacity that can cause price anomalies in many sectors of the economy. We find many of the recently built hotels now going up for sale. They all were taken down a path that most of us predicted we were not ready for.

In many of our other industries, we have to build capacity to handle the peak volume. Every Christmas we are faced with an inadequate electricity supply. One would think that it is the right business decision for GPL to purchase the extra generators instead of spending US$55,000 a month to rent. I hope they disclose who gets this contract.

By now we could have purchased quite a few and have them as back up during the year since all of us continue to experience frequent blackouts.

There are times where an industry will have excess capacity. The cost of accommodating more users of the product or service during the times when there is excess capacity is much less than the cost of handling those who are served at peak times.

When Government itself provides a good or service and charges for it, there are few incentives for the officials to charge to match the prices with the cost. We have seen that with the export facility managed by the Ministry of Agriculture.

BLACK MARKET

We have long been faced with the black market or underground economy. Bolder and less scrupulous buyers and sellers make mutually advantageous transactions outside the law. The black market or underground market is the economic activity involving illegal dealings, typically the buying and selling of merchandise or services illegally.

The goods themselves may be illegal (e.g. weapons or illegal drugs, etc.); the merchandise may be stolen; or may be otherwise legal goods sold illicitly to avoid tax payments or licensing requirements, such as cigarettes or unregistered firearms.

It is so called because “black economy” or “black market” affairs are conducted outside the law, and so are necessarily conducted “in the dark”, out of the sight of the law.

We know that small scale black markets may function in secrecy, but large scale black markets usually require bribes to officials to look the other way.

Statistics on black market activity are by nature elusive, since no one wants anyone to know they are violating the law. Many legitimate businesses in Georgetown have complained about prices on certain commodities where the sale price is cheaper than the lowest price they can buy and ship for.

The fuel smuggling businesses that have been exposed so far but failed to produce any convictions yet represent one example of the black market.

CONCLUSION

I have expanded my definition of the black market. Giving concessions and contracts to friends create a form of the black market because it takes away fair competition as we saw recently with the debate between the government and a leading private sector businessman on the issue of concessions.

We need to clean up. We all must push for transparency and accountability in the public system.

Until next time, “Roop”.

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