A response to the assertion by Prof. Brandli that Local Content will inhibit the growth and competitiveness of the local private sector

Jun 26, 2022 Letters

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Dear Editor,

I read, with great interest, a letter carried in the June 25th, 2022 edition of the Kaieteur News in which a Professor in the field of natural sciences, by the name of Andre Brandli, sought to make an assertion that ‘as long as the current local content law is in place’ Guyanese companies will not grow and become competitive in the international environment. The opinion proffered in this piece, whilst prima facie, appear to follow a logical flow is subjected to several failed attempts by the author to concatenate concepts which are absent of correlation and glosses over important dimensions of local content.
The first three (3) paragraphs of the letter was dedicated to commentary on Vice President of Guyana, Bharrat Jagdeo, President of the Georgetown Chamber of Commerce & Industry, Timothy Tucker and adumbrating the litmus test for what constitutes a ‘Guyanese company’ under the letter of the Local Content Legislation (LCL). In these first 3 paragraphs, the author interjects commentary, intermingling fact with his opinion. He asserts that ‘negative developments were foreseeable from the beginning’ and that ‘implementing a stringent local content legislation in a country with less than 800,000 people was calling for trouble.’ The author highlights that ‘rent-a-citizen’ and ‘fronting’ tactics were inevitable to occur, a concept which he ties to the country’s population size.
It is difficult to understand the mechanics behind the author tying local content, with the population of Guyana and ‘fronting’ and ‘rent-a-citizen.’ Countries, irrespective of their population size, face this issue. The incentive to cheat on the legislative requirements of LCL bears no correlation with the size of the population. It is profit-maximizing behaviour of an economic agent that the regulation is curtailing; with a view for the development of the sovereign.
The letter then digresses into stating that the primary objective of the LCL was to ‘give Guyanese priority in filling new job opportunities in the rapidly expanding oil and gas industry.’ This is a uni-dimensional view of local content and, if viewed in this fashion, has the potential to gloss over other important benefits which accrue as a result of the LCL; benefits which have been demonstrated over the long trajectory of history with countries undertaking similar forms of growth promoting instruments. LCL can be taxonomical viewed as covering the following dimensions: 1. Employment opportunities; 2. Supply and procurement opportunities; 3. Technology transfer; 4. Workforce development; 5. Monitoring and enforcement of penalties and; 6. Enhancement of the international competitiveness of the Guyanese private sector.
As the letter continues, the author gives a scant recognition of a ‘further goal’ of the legislation as being to promote local entrepreneurship. In actual fact, four (4) of the six (6) aforementioned dimensions serve to improve the state of enterprise in Guyana and, by logical extension, the state of the Guyanese economy. The author makes some suggestions on how the state of the private sector can be improved. I take no contention with some of the recommendations made but the insertion of this was at intellectual incongruence with the thrust of the letter as per the captioned title. The existence of an LCL does not mean that the government or the business support organizations (BSOs) work ends in its quest to improve the state of the private sector in Guyana. As such, I shall not venture to examine merits and demerits of the policy suggestions. This can be the discussion encapsulated in a subsequent missive.
The most important shortcomings of this letter however by Professor Brandli are included in the penultimate paragraph where he articulates that the LCL was ‘crafted in reality to protect local business people in the private sector from foreign competition.’ As I have demonstrated earlier, there are six (6) important dimensions to the LCL instrument – a point which the author does not take into consideration in his postulate. As such, the ‘reality’ of LCL being crafted to protect local enterprise from foreign competition is an assertion with a logic leap that lands at an overly simplistic conclusion. It becomes pellucid that there has not been a thorough intimation with the LCL by the author since the reality is ignored that the LCL only circumscribes percentage procurement to be done from Guyanese enterprises in 40 service areas, when there are in excess of 175 service areas existing in the petroleum industry to which service can be offered without a local partner. Therefore, approximately 80 percent of the service provision in the industry remains completely open to international investment without the use of a local partner. The author also ignores the reality that the LCL is only applicable to that circa 20 percent of service provision in the petroleum industry. All of the dozens of sub-sectors, many of which grow concomitant with the petroleum industry, remain completely open and supported by an accommodating Investment Act (2004). Additionally, the author ignores the fact that even in the situation that a service must be procured from a Guyanese company, this does not eliminate the participation of a foreign investor; it only circumscribes that the foreign investor must participate as a 49 percent owner and director of the venture.
The most flagrant violation in the penultimate paragraph, however, is the author’s assertion that Guyana should follow a similar development path of ‘success stories’ such as ‘Singapore, Taiwan, Switzerland, Denmark, and the UAE.’ He cites that these countries ‘have small domestic markets, harbour export-oriented innovative industries and services, and function as open economies.’ It perhaps may be an ignorance of economic history on the part of the goodly author that he cites these examples as though these countries exist devoid of their historical context. Both Singapore and Taiwan – commonly referred to as part of the East Asian Tigers – employed ‘industrial policy, in the form of infant industry protection and export promotion, in order to even the competitive playing field with the more advanced economies.’ (UNCTAD, 1996). Switzerland during the 1990s employed a series of instruments including Sanitary and Phyto-Sanitary (SPS) requirements, the ‘prise-en-charge,’ amongst others, to support and promote their domestic industries. (WTO, 1995). Denmark infamously protected its local dairy industry (Henriksen et. al, 2012) and its wind turbine sector (UNCTAD, 2014). The UAE does have LCL which is used to great effect for the promotion of the local industry and to great effect in the Middle East and North Africa (MENA) region. This has been the subject of many papers including (Elborai et al, 2018) and (Olawuyi, 2017).
We, the Guyanese, will be well served as a nation in ensuring we continue to strike the balance between promoting domestic enterprise and fostering international investment. The two are not mutually exclusive, but rather, as both history and theory has demonstrated, constitutes part of a strong approach to economic development.

Yours sincerely,
Richard N. Rambarran, B.Sc., M.A., M.B.A., M.Sc.
Specialist, Business, Economics, Finance & Public Policy
Lecturer, Department of Economics, University of Guyana
Lecturer, School of Entrepreneurship & Business, University of Guyana

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