Guyana’s local content law is likely to achieve the opposite of what was intended by its creators

Jun 25, 2022 Letters

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Dear Editor,

National news outlets, including this distinguished newspaper, have been documenting problems that are emerging as a consequence of the Local Content Act, which was passed by Parliament in late December 2021. Companies, such as Ramps Logistics Guyana, the largest logistics company servicing the oil and gas sector has apparently been denied access to the local content register.
Timothy Tucker, President of the Georgetown Chamber of Commerce and Industry (GCCI) has been quoted saying that “rent-a-citizen” tactics run counter to the local content law. Finally, Vice President Bharrat Jagdeo has recently voiced that the government is having difficulties with companies trying to circumvent the Local Content Act.
For me as a non-partisan observer in the Guyanese diaspora, these negative developments were foreseeable from the beginning. Similar laws might work in countries like Ghana with a population of 32 million people. However, implementing a stringent local content legislation in a country with less than 800’000 people was calling for trouble. “Renting-a-Guyanese” schemes and fronting tactics were about to happen sooner or later in my humble opinion. As a reminder, here are the central provisions to be considered a Guyanese company as defined in the Local Content Act 2021:
1) A Guyanese company is defined in the Local Content Act as a company incorporated under the Companies Act, and cedes ownership of at least 51% of it to Guyanese nationals.
2) The company must have Guyanese nationals holding at least 75% of executive and senior management positions and at least 90% holding non-managerial and other positions.
Given the already existing shortages on the Guyanese labour market, the above cited provisions force companies to become “creative” in order to meet the stringent rules of the local content law. The primary intent of the law was to give Guyanese priority in filling new job opportunities in the rapidly expanding oil and gas industry.
Making sure that Guyanese people get jobs, irrespective whether it is with a locally owned or foreign company is however done much more effectively by regulating access to work permits and visas for foreign staff. For example, companies (local or foreign) would only be allowed to obtain those, if they can prove that they could not find a Guyanese to take the job within a period of 30 or 60 days. Job openings would have to be advertised on a government run website.
Promoting local entrepreneurship was a further goal of the legislation. Rather than setting up protective fences to lock out unwanted foreign competition, local entrepreneurship can be boosted by granting better access to low interest loans, by favourable taxation rules (e.g. taxing only company profits), and by removing bureaucratic hurdles to register and incorporate new companies. Furthermore, the government could provide low-rent incubator space for start-up companies in technology parks that offer access to fast internet connections as a first measure to foster a start-up ecosystem in Guyana. These are just to mention a few ideas to promote local entrepreneurship, many other measures are possible.
Importantly, the Government should however not get into the business of financing local companies. This typically leads to nepotism, corruption, and bad business decisions. Government bureaucrats are bad investors, as they do not have skin in the game. These activities should be left to the private sector. Private investors and business angels will do proper due-diligence as their own money is at stake and hence they balance their risks better. Furthermore, Guyana may want to consider developing the fledging Georgetown Stock Exchange towards becoming the primary stock exchange for the CARICOM region. This would require introducing stringent regulations that prevents insider trading and ensures that companies disclose financial information according to the best standards in the international finance industry. Collectively, this would ensure that private and institutional investors gain confidence to invest local and regionally via the Georgetown Stock Exchange.
In my opinion, the current local content law was crafted in reality to protect local business people in the private sector from foreign competition. Insulating the domestic market from completion by erecting high barriers for foreign competition invariantly leads to bad services, inflated pricing, loss of choice for consumers, and lack of technological innovation as entrepreneurs become lazy and complacent in absence of foreign competition. This has been demonstrated over and over again in the past in other countries, such as Argentina, Venezuela, and India. Is this really what the Government of Guyana wants to happen in Guyana, too? By contrast, let’s have a look at the success stories, such as Singapore, Taiwan, Switzerland, Denmark, and the UAE. These countries have small domestic markets, harbour export-oriented innovative industries and services, and function as open economies.
President Ali does not spare any opportunity to call for Guyanese companies to grow and become players on the world market. I dare to predict that this will not happen as long as the current local content law is in place.
Sincerely,
Andre Brandli, PhD
Professor
Ludwig-Maximilians-University of Munich
Munich, Germany

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