The bauxite industry is a “black hole”

Dec 03, 2019 Features / Columnists, Peeping Tom

“Black holes” are cosmic spaces where the gravitational pull is so great that it gobbles up all particles within its range. In financial terms, a “black hole” is where monies disappear without a trace.
The government has described the sugar industry as a black hole. In other words, spending money on the industry is like pouring it down the drain. The monies simply disappear without any impact.
This blinkered approach, however, is not applied to the bauxite industry which, for decades, both under state ownership and private ownership, has been a “black hole”. The government has been applying subsidies to the bauxite industry by virtue of uncapped concessions on almost every conceivable input by foreign companies operating in the sector.
The sugar industry was also subsidized, including through direct transfers from the treasury. This was stopped recently, but the government was able to secure a 30 billion dollar loan, on which it is paying hefty interest. The sugar industry also benefits from tax concessions
The bauxite industry, however, enjoys concessions far greater than the sugar industry. It enjoys concessions on fuel, which is not enjoyed by some other sectors. Hundreds of millions of dollars are believed to have been foregone on revenue each year as a result of these concessions.
When one considers the number of workers employed within the bauxite industry, it is safe to say that on a per capita basis, this industry is more heavily subsidized by the government than the sugar industry, which is believed to still employ more than 10,000 persons.
The time has come to evaluate the concessions which are being provided to private companies operating within the bauxite industry. What benefits, other than the employment of a few hundred employees, are being obtained from these concessions?
The Auditor General has reported that in 2017 the government granted $64.3B in exemptions, the majority of which were to private businesses. More than 20B in remissions, which is another form of concession to companies, was granted to private companies during the first half of this year.
Taxpayers are therefore propping up these private companies, including those in the sugar, bauxite and gold mining sectors. And when you consider the value of tax concessions and the fact that, in the bauxite industry, duty free concessions on fuel are being given out, then there is a serious contradiction between the support given to these private bauxite companies and the support for the sugar industry.
It is accepted that in the bauxite, gold mining and even in the sugar industry, start-up capital costs are exorbitant. Without the concessions and without the exemptions, there will be no investment. Tax rates are far too high in Guyana to attract investors without offering them tax concessions. Rusal and Bosai would never have come to Guyana had these firms not been offered concessions. But the least these companies can do is to ensure that the country obtains fair returns for these concessions, including paying workers better and generating profits which would attract corporation taxes.
Taxpayers – you and I – should not be foregoing massive amounts of taxes to encourage foreign investors that do not show profits. These concessions granted to foreign companies should be viewed not as a giveaway, but as an investment which should be repaid many times over. The government therefore should undertake an assessment of the cost-benefit analysis of these tax concessions. It should try to determine just how many jobs are being protected in the bauxite industry by giving out these concessions?
Millions of tonnes of ore are being exported each year from Guyana and the only benefit which the nation seems to be obtaining is the employment of a few hundred Guyanese. Is it worth it?
Omai came here and is estimated to have dug out approximately 2.5 million ounces of gold. Billions of dollars in tax concessions were granted to that company which never declared a profit. The gold is gone and Guyana is no better off today when everyone should have been a millionaire.
The time has come to put an end to the massive concessions which are being doled out to foreign investors. Not only are these concessions not justified, but they often differ from what is offered to local investors.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper)

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The bauxite industry is a “black hole”

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