In the two preceding parts of this series on the state-owned sugar entity, my focus was on the 2008 financial statements which are contained in the annual report tabled in the National Assembly in late 2009. Those accounts told a story of a company in serious trouble and in danger of terminal decline, whether measured by profitability (it had a pre-tax loss of $6.2 billion); liquidity (by its own admission it experienced cash flow difficulties requiring working capital for the fourth consecutive year from the UK based ING Bank and a lifeline of $3.2 billion from a consortium of local commercial banks); or solvency (it was practically insolvent and requires Government support to keep it afloat). In the course of the earlier parts, I touched on some of the disclosures and omissions in the annual report, the principal use of which is to tell the story behind the numbers, offer some explanations, sometimes excuses, and indicate how the directors intend to take the road to recovery.
As a state-owned entity, the corporation has filing and reporting obligations under both the Companies Act, as well as the Public Corporations Act (PCA) which requires that the accounts and report be tabled in the National Assembly within nine months of the end of the accounting year. Allowing for a few weeks delay, the reporting obligations of the corporation are met, which is more than can be said for the majority of publicly owned enterprises and budget agencies.
But the combined effect of these two acts creates for the corporation a recipe for confusion, if not disaster. Following the wave of privatisation and the new post-1992 dispensation, many of the provisions of the PCA, including the establishment of a Public Interest Committee consisting of workers, women, youth, students and consumers, have fallen into disuse. The directors’ powers and duties under the Companies Act are effectively overridden by the PCA which gives to the Minister immense powers over the corporation, and for good measure, also to the President. With such conflicting reporting obligations and so many bosses, it should surprise no one that the corporation seems incapable of dealing with the myriad of problems that cause it such massive losses and public embarrassment, as we witnessed this week over procurement in the corporation.
The annual report
For now, let us turn to the annual report. The then Chairman Mr. Ronald Alli in his report restates the mantra that sugar makes a significant contribution to the country’s GDP and is our largest foreign exchanger earner. The data do not support these bold assertions.
Measured in terms of constant prices, in 2008 sugar contributed 5.9% of GDP, placing it seventh in ranking, while in terms of export earnings it earned the country considerably less than the earnings from gold. In 2009, contribution to GDP was unchanged, but in terms of export earnings, sugar earned less than half of that of gold. With respect to taxes, sugar makes a negative contribution, receiving from the treasury a host of subsidies, exemptions and concessions. Of course, production and prices of sugar and other commodities can change the equation from year to year but the underlying trend is not encouraging and indeed, if you can believe it, in the GDP league, sugar is not too far ahead of Other Crops, which does not include rice.
The table below, taken from the 2010 Budget Speech, shows the value of exports in millions of Guyana Dollars for the five years 2005 – 2009.
It may be excusable if the statements in the annual report were made by persons with less access to information. It is perhaps merely regrettable that these statements about the greatness of sugar are made without any attempt at fact checking. But what is not excusable and is more than regrettable is that such uninformed thinking is often advanced as justification for billion dollar investments and subsidies which the working poor and the unemployed can ill afford.
The annual report devotes scarce space to describing the efficacy of the movement of inventory among estates, the procurement of goods, and the concerted efforts made by the “hard pressed staff” of the procurement department. Yet months after the publication of that report the corporation is now reporting systemic misconduct and losses in the department. Since no one in the corporation will reconcile these clear conflicts, the public will remain confused.
Here again reality confounds theory, the walk differing from the talk. The directors assert that the corporation is committed to high standards of corporate governance. Yet, neither its annual report nor its website states the names of persons heading and constituting the various governance committees. My efforts at finding out left me with the distinct impression that the corporation does not understand what corporate governance means. The office of the Corporate Secretary advised me that for the information, I should call the Chief Executive. The response from his office was that I should call the Chairman Dr. Gopaul. That was that.
I later understood that the Audit Committee is headed by Ms. Geeta Singh-Knight, the CEO of the insurance giant Clico which collapsed spectacularly in 2009. The government has resisted calls for an investigation into this collapse amidst evidence that the law – the first ingredient of corporate governance – has been breached, and suggestions that there may have been collusion between the company and some key political and other persons in the society. The resistance to such calls appears to have as its objective, the protection of those persons, and to conceal as much and as long as possible, regardless of the cost and consequences. The public’s confidence in Ms. Singh-Knight has been totally lost as a result of her direct involvement in all the major decisions of Clico up to and even after its collapse. In any other situation such a person would not be considered a fit and proper person for appointment as a director. With this government, the rules are more tolerant.
There is too a Remuneration Committee that would have approved the huge salaries and millions of dollars of expenses paid for some directors and senior staff. Yet there is no coherent wages and salaries policy in the corporation, even as industrial relations stumble from one crisis to another. The other committees established by the board are the Central Tenders Committee and a Lands Committee with responsibility for land disposals. My understanding is that this committee was side-lined in the controversial Diamond land deal in which two ministers stand accused of improper conduct in the National Assembly.
Interestingly the directors stated as their primary function the generation of “sustainable wealth for the shareholder as the key stakeholder in the business.” This rather controversial assessment is hardly likely to find agreement among the workers who have to perform the back-breaking tasks under some of the worst modern day conditions, and among taxpayers who increasingly are keeping the corporation from going under. But the directors, including one leading presidential hopeful, challenges this primary function by categorically re-stating a policy not to declare or pay dividends. It is not often that in a single annual report that one finds such contradictions. In the case of Guysuco these are on the same page. No wages policy, no return on capital threshold, and a make-no-sense dividend policy. Perhaps the directors charged with the turnaround of the company will tell the stakeholders what is the real policy of the corporation.
Political loyalty over professional competence
The disaster which has befallen the corporation is the fatal triumph of politics over business, of expediency over planning, of political loyalty over professional competence. For any turnaround there needs to be a transformation in how the corporation is run. The stages of good practice are at the basic level, statutory compliance with laws and regulations, followed by good corporate governance and later, by corporate social responsibility (CSR). As a state-subsidised entity that touches on the environment, food and finance, and that directly employs thousands across the coast, the stakeholders extend beyond the shareholders. This would normally demand the formulation and application of CSR. How the corporation moves from its pre-level 1 stage to stage three is anyone’s guess. The Public Corporations Act permits performance contracts involving the corporation. Those who are now asking for billions more in subsidies should be asked to sign such a contract before any money or further concessions are granted.
To be continued