Why do we need foreign investment?

Sep 02, 2014 News

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By Janette Bulkan and John Palmer

Guyana scores poorly on almost all the international scoring systems for human development, in spite of having relatively abundant natural resources of forests, mineral ores and fisheries. Countries which became independent from colonial rule at about the same time as us are now far ahead even though they have fewer natural resources. We are not generating a comparable and equitable standard of living because –

1. We have one of the highest rates of loss of human capital through emigration of educated people.
2. Emigration plus a tradition of unenforceable unwritten agreements mean that we lack conventional business skills.
3. So our businesses are deemed to be a high commercial risk for credit loans.
4. And a combination of continued heavy government intervention in the economy, non-transparent and selective procurement, intense bureaucracy, and floods of cash from the black (underground) economy make legitimate business difficult or unprofitable.
5. The technologies which we use for harvesting and processing our natural resources are inefficient, poorly maintained and produce mostly low-value products, which we then fail to market adequately.

So we need outside investors to bring new ideas, skills, capital, technologies and business practices. And those investors need incentives to come to Guyana. Those incentives are packets of concessions offered by national and regional governments (RDCs). The incentives plus what is being offered by the foreign investors are negotiated to produce a foreign direct investment (FDI) agreement.

What we should demand in FDI agreements?

There is no shortage of international advice on what should go into FDI agreements. The OECD Guidelines for Multinational Enterprises and the United Nations Global Compact are easy to follow. We have local or regional offices of the international finance institutions such as the World Bank and the InterAmerican Development Bank which are very familiar with our predicament. At the very least, FDI agreements should require incoming investors to –

1. Comply fully with all our statutory laws, regulations, valid administrative procedures; including accountancy and business audit norms.
2. Install, operate and maintain new technologies which we do not have but which are suitable for processing our resources into high-value products ready for retail sale. Installation and operation against a tightly monitored schedule to make sure that it is really happening.
3. Select, train, qualify (certificate) and up-skill Guyanese to master the technologies and run the businesses themselves.
4. Provide English-speaking operators and trainers on a declining timeline basis to get the businesses started and enable Guyanese to take over as soon as possible.
5. Produce regular reports to GO-Invest and the National Assembly on progress against the agreed investment schedule using independently verifiable progress indicators of performance; that is, indicators of real achievement, not about processes.   Thus ‘we produced and sold 5000 pieces of export-grade garden furniture in the last quarter’, not ‘we participated in a series of discussions about how we might make furniture’.
6. Provide regular evidence that transfer pricing is not being practised, in either products or services.

What should we offer?

Clearly we cannot offer less to foreign investors than GO-Invest offers to domestic businesses. If there are special incentives for investing in Region 10 or in gold mining, the foreign investors must have access to those incentives equally. What is important is transparency; both investors and civil society in Guyana should see exactly what is being demanded and offered, and what goes into the final agreements. When enterprises are raising capital on international stock exchanges, they have to reveal a great deal of information which Governments in Guyana have traditionally considered to be commercially confidential. Without the information on the Hong Kong stock exchange in 2007 we would never have known about the illegalities of operations by Malaysian-owned Barama and Chinese-owned Ja Ling. Remember that inward investors have been writing FDI agreements for thousands of years. According to the Bible, when Hiram, King of Tyre, was responding to King Solomon’s request for cedars of Lebanon to build the temple in Jerusalem, Hiram insisted that the tree felling and transport would be by workers of Tyre, not of Israel. Compare that with the log sorting yard at Bissaruni photographed by Kaieteur News and reported by Chris Ram in 2014.

The following are very conventional government offerings in FDI agreements:

1. Protection of inward investments against government expropriation.
2. Right to move capital inwards and outwards, but with safeguards against decapitalisation (running down the factory, like Barama’s unwarranted closure of the plywood mill for eight months in 2010-2011, while still claiming maximum tax benefits).
3. Duty-free imports of machinery, spares and consumables not available in Guyana; but no right to loan, lease or sell any of those imports to other companies within five (or more) years from the date of import. In other words, not to use the FDI arrangement simply for mercantile trading without value addition.
4. Tax holidays – freedom from corporation and property taxes for a defined period, usually five years.
5. Assistance with obtaining government permits and licences to establish and operate a business. But, again, not more favourable than is offered to Guyanese nationals.

Note that duty-free imports of fuel often figure in FDI agreements, but when Guyana benefits from the Petro-Caribe arrangement with Venezuela, how does this make sense? But it is widely said that the duty-free fuel for Asian loggers helps to give them an unbeatable 30 per cent cost advantage over Guyanese loggers. Any such arrangement should be only for own verified consumption, not for onward sale to contractors or subsidiaries (again, like Barama to IWPI in 2006).

But what have we actually allowed in the past?

Unlike, many other countries, FDI agreements have traditionally been considered to be Cabinet secrets even though public money is involved, in cash supplied or taxes foregone. The only FDI agreement which has been leaked into the public domain is that written by the Malaysians themselves for Barama in 1991, a dreadful display of incompetence by Government negotiators, repeated in the successor agreement(s). We can do much better than that.

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