THE THREAT IS DOMESTIC

Dec 13, 2009 Features / Columnists, Peeping Tom

Guyana’s “open borders” are being seen by the President of the Guyana Manufacturing and Services Association as a reason for the decline in manufacturing in Guyana. By open border polices, he refers to the system of open trading whereby a large range of products are allowed unhindered access into the domestic market, thereby rivaling and muscling out local producers.
Guyana’s open trade policies are a contributing factor to the demise of local manufacturing and have been caused by the liberalization of the economy. However, the adverse effects of the trade liberalization process is often overstated and frequently used to excuse a sector that has traditionally underperformed in the local economy.
It is true that the liberalization of trade which took place in Guyana in the late eighties and early nineties has thrown many inefficient and small artisan producers out of business, but the manufacturing sector has since then benefitted from protection within the local economy. It has also profited from the liberalization, since it has allowed many of them to source critical supplies, and allowed almost all of them to decide what they would do with their foreign exchange earnings since there is no longer that onerous requirement that all foreign exchange earnings must be remitted to the Bank of Guyana.
Liberalization has thus helped the local manufacturing sector to retool and retain earnings while at the same time wiping out inefficient producers within the domestic market. While the process could have been introduced at a more measured pace, it has also served its purpose in the process of Guyana transitioning to a free-market economy.
The real problem with manufacturing goes beyond open trade policies. The real problem is the small size of the domestic market. When the domestic market is so small, it means that for local manufacturers to be competitive locally they have to also be export-oriented, since they need the economies of scale to bring down unit cost. So the size of the domestic market is the most serious constraint, and this is why you find that manufacturing in Guyana is dominated by three large companies, one the state-owned sugar company and two companies with interests in rum, beverages and a host of other products and services.
The latter two private companies have done well because of their capital concentration and historical positioning which has allowed them to dominate this small domestic market, while one of them has had the resources to move into value added products, thus lessening its dependence on bulk sales of rum.
These two private industrial giants, relatively speaking of course, have the resources to seek small niche markets overseas. But small manufacturers cannot do so with the same consistency, because overseas market penetration requires significant outlays for promotion and the small and medium-sized manufacturers in Guyana cannot do this to any significant degree. And without this larger external market, they are always going to be vulnerable to the limitations of the domestic economy.
The dominant manufacturers have faced competition in Guyana, but have still managed to do reasonably well within the domestic market, and thus should see increased competition by foreign goods as a challenge rather than an obstacle; as something that would allow them to improve their efficiency rather than shutting them down.
The real concern of local manufacturers right now should not be about foreign competition from imports. It should be about a small, powerful informal group of businesses which have important political strings in this country. This is where the real threat lies, because there is no guarantee that this cabal will play fairly and on a level playing field.
This cabal is doing a smart thing. They are examining all the major consuming sectors of the society and they are targeting these sectors. They have indentified the major imports and production and are trying to corner the market. They are also moving into services and are receiving favoured patronage.
Now, in a free market society, this type of predatory capitalism would be seen as part of the natural order of things. Survival of the fittest is what it would be called. The only caveat is that this cabal has advantages that make the playing field so uneven that not even the laser land leveler can fix the problem. This grouping is powerful and is growing wealthier with each day. This grouping can buy out Stabroek, Bourda and La Penitence markets with money that would to it be pocket change.
And this is where the immediate threat to the existing manufacturers lies; it lies not in trade liberalization or porous borders; it lies not primarily in high freight costs. It lies within the economy of Guyana, in this powerful business agglomerate, and its sting is that it has friends in the right places.