Mixed signals

Feb 16, 2019 Features / Columnists, Peeping Tom

While the limelight is now on the impending constitutional crisis, there is brewing another more worrying development. The economy is experiencing signs of stress which if not addressed can trigger economic turbulence.
Mixed signals are forthcoming from within key sectors of the economy. These signals can lead to investor caution and a loss of new investments.
Yesterday, reports began circulating about bauxite workers employed by RUSAL expressing concerns about the wage increases offered them. At the same time, a new investor in the sector is promising significant investment into its operations, which is said to be highly promising because of the discovery of almost ‘pure’ bauxite ore.
On the one hand, there are promises of good prospects at a virgin mine and, on other hand, there are concerns that the traditional mines may not be generating the type of returns to allow for a reasonable increase in workers’ wages.
The government’s projections about bauxite have generated some confusion. While the government anticipates only marginal increases in aluminium prices in 2019, it believes that the price of ore (which Guyana exports) will increase.
In fact, the Minister of Finance in his Budget presentation, projected that the sector will benefit from increased aluminium prices and was expected to grow by 8.6%. Interestingly, despite this growth, the earnings from bauxite were only pegged at 4%.
In the face of these mixed signals, the government needs to provide clarity. Obviously, the government cannot control the international environment but at the same time, it should be mindful that if the global environment is unfavourable then the proposed new investment in the sector may not materialize.
Guyana earns its foreign currency principally from the sale of its bauxite, gold, timber, sugar and rice. Two-thirds of Guyana’s export earnings are derived from the sale of gold.
A few years ago, the government claimed that it was rebalancing the economy. However, it seems that little has been achieved, in this regard, on the production side. If anything, the deliberate decision to downsize the sugar industry has made the economy even more imbalanced.
What this means is that should the gold industry experience a downturn before first oil, the Guyana economy can crash. If you subtract the export earnings from gold, the economy will be reduced to one third of its size.
Given the imbalance in the country’s production structure, Guyana cannot afford a major shortfall in export earnings for gold. Right now, some strange signals are being received from the gold mining sector. One large company is being restructured and this has already said to have affected production.
Guyana’s balance of payments, already showing signs of distress, could end up deteriorating further. The Bank of Guyana assures us, however, that earnings from our principal exports have not been reduced.
But that is beside the point. The more germane question is what is the gap between imports and exports since the wider this gap, the greater pressures it will place on the foreign currency market.
And this can lead to a devaluation, which will hurt the savings and earnings of the poor. Already, one analyst has urged persons to protect the value of their savings.
A further deterioration in the economy will increase unemployment. It will make a bad situation worse.
The government, in full election mode, has promised Lindeners – major constituency of the PNCR – more jobs. The government plans to spend $60M to rehabilitate a call-centre in that community in order to provide 200 new jobs by 2019.
However, the government is not saying who will be the client or clients for which the call-centre will be providing services. Unless there is a client, it makes no sense rehabilitating the call-centre. It will only end up being a white elephant.
Lindeners have had a bitter experience with the previous call-centre, which was closed months after the Coalition government took office, with close to 100 persons losing their jobs.
The local outsourcing industry is experiencing some spasms. One major call-centre has laid off some of its workers. On the other hand, a major player seems to be expanding its operations in Georgetown.
This is another example of the mixed signals, which the economy is being generated with the economy.
The government has to address these mixed signals. Otherwise, investors will become extremely cautious about investing in Guyana and that will only mean greater hardships.

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Mixed signals

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