The GUYSUCO question, oil revenues and the challenge to pursue smart policy models

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Dr Desmond Thomas is a retired international economist based in Guyana and Florida. He has served as Inter-American Development Bank (IADB) economist, professor at The University of the West Indies, Trent University and Florida International University, and Economic Adviser (actg.) to the President of the Cooperative Republic of Guyana.

By Dr Desmond Thomas

Among the many issues confronting the Guyana government, few are more pressing than the need to resolve the future of the Guyana Sugar Corporation (GUYSUCO). Resolution of this matter demands that government take a fresh look and adopt innovative models that match the challenges facing the sugar industry. Decisions regarding the future of GUYSUCO will have far-reaching importance, directly impacting the lives of thousands in communities in Berbice and Demerara.

They will also have implications for fiscal management, agricultural policies countrywide, models of public/private sector partnership and environmental management. Increased revenue from oil can make a big difference by expanding the policy options available to the government. However, achieving optimal outcomes for the communities, the industry and the country as a whole will call for willingness on the part of the government to pursue prudent and innovative policy approaches.

The position of GUYSUCO at this time (based on available data) is one of declining output and efficiencies. Sugar production declined from 331 thousand metric tons in 2002 to 184 thousand in 2016. Falling production has drastically slashed revenue resulting in annual losses arising from G$5 billion (US$25 million) in 2008 to G$17 billion (US$85 million) in 2014. By all indications, these losses have continued to escalate and are now much higher than the 2014 level.

Declining output has been accompanied by continuous losses and escalating debt, resulting in large injections from the Government being constantly required to keep operating. Being strapped for resources, maintenance and investment have been under-resourced, contributing to declining efficiency and performance. The situation is clearly unsustainable and unacceptable. It calls for resolution, and soon.

A fundamental reality of GUYSUCO is the fact that it is government-owned. An inevitable question that arises is, what is the government doing producing sugar? Government ownership in this industry has come to be accepted as normal when in reality the Guyana government has owned GUYSUCO only since 1976 when it was nationalized. Previous to that, the sugar industry had been in private hands for over 200 years.

Public attention at this time is focused on the question of reopening the estates that the previous government closed. The new government has committed to reopening three of the four sugar estates that were closed, Skeldon, Rose Hall and Enmore. It has decided that Wales cannot be saved. What is at stake are the broader questions of whether the Government will 1) continue to prop up the sugar industry with public funds, 2) privatize (assuming that interested investors on acceptable terms can be found), or 3) embark on a process toward the eventual closure of the industry altogether.

The Commission of Inquiry that the previous government appointed in 2015 to investigate the industry recommended privatization. Bharrat Jagdeo, then leader of the opposition, is reported in 2016 to have rejected the idea of privatization as potentially a strategic mistake, arguing that not only does the industry sustain thousands of families through employment, but it also provides drainage and irrigation for East Coast, Demerara. Privatizing the industry would, he argued, jeopardize the continued provision of employment and critical services.

This is a specious argument because to the extent that the government has to keep bailing GUYSUCO out financially, it is the government, and not GUYSUCO, that is standing the cost of the drainage and irrigation and other services. It would be interesting to see what difference it would make to GUYSUCO’s profitability to transfer these costs from the company’s balance sheet to the government accounts where they belong.

At stake are a number of questions about the appropriate economic development model for Guyana. This has been a perennial question for Guyana ever since Independence with outcomes that we cannot be cheerful about. In the context of a mixed economy, what is the appropriate level of public sector involvement? What model of management and regulation does the government need to adopt to foster development and efficiency, and combat corruption? How does the public sector strike an appropriate balance between enabling private sector investment and growth, and ensuring that gains are shared equitably by all citizens?

These are crucial questions for Guyana to address especially for a country where the economy is largely driven by natural resource industries (including oil, bauxite, gold, and timber). In this context, we must pay special attention to safeguarding the environment and the livelihoods of those communities that have been its guardians for centuries.

But there is also a wider context for consideration of the future of sugar in Guyana. GUYSUCO is the largest landowner and agricultural enterprise in the country. Ultimately, the decisions must be consistent with the goal of sustainable agriculture, in income and quality-of-life, as well as environmental terms. Decisions must observe the need to preserve the land and take account of environmental impacts while generating livelihoods. Diversification is a buzz word these days that is more easily said than done, but this is an inescapable element of a sustainable agriculture strategy.

Restructuring the sugar industry is a massive undertaking given the way it is embedded in Guyanese history and society. Even though an objective is to achieve efficiencies and viability, it is inevitable that transitioning to a different model will bring increased short-term costs for long-term gain. This is one example where increased revenues from the oil industry can be used effectively to lay the basis for a more diversified economy.

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