Managing the country’s finances

Introduction
“The Contingencies Fund continued to be abused with amounts totaling $550.025 M drawn from the Fund and utilized to meet expenditure that did not meet the eligibility criteria as defined in the Act.”

Even allowing for the imprecise language, these words appearing in paragraph 3 of the Executive Summary of the Report of the Auditor General 2010 must be very discomfitting to Dr Ashni Singh, Minister of Finance. Not that the sentiment is new; words to that effect have appeared in every single report since Dr Singh was appointed a senior technocratic minister in 2006. But what makes the words perilous for him is that the report, which for four months has been kept secret from MPs and public alike, was tabled in the National Assembly on the same day as were two financial papers – Nos 7 and 8 – for $5.7 billion.

In each case of reported abuse in the past, the ministry gave one stock, banal response to the finding by the Audit Office: “that the Ministry of Finance continues to ensure that there is full compliance with the requirements of the Fiscal Management and Accountability Act.” No one can accuse Dr Singh of not understanding the Act and its requirements.

But perhaps he felt, like Steve Jobs, that he could bend reality at his command, or he underestimated the commonsense of Guyanese, or he did not care, assured of the unquestioned support and vote of his parliamentary colleagues and the cover of his former authoritarian boss, President Jagdeo.

Post November 28, that attitude can be fatal. Mr Jagdeo has gone, bequeathing a diminished PPP/C government, taking with him his immunity, and seemingly inured to any embarrassment. To President Ramotar, on the day he delivered his maiden presidential speech to the National Assembly, his Finance Minister tabled two financial papers that have his opponents excited and his own supporters confused. It is the Jagdeo legacy, so faithfully carried out by his protégé and appointee Dr Singh who, faced with criticism, demonstrates misplaced bravado and accuses me of “blatant distortions and misrepresentations.”

Over the next couple of weeks this column will review the report of the Auditor General but given the topicality of the two financial papers, these are addressed in this column.

The two papers
The two papers are respectively for $2.240 B of which $2.161B is for recurrent expenditure and $79.3 M on capital expenditure; and $3.471B, classified entirely as capital expenditure, although there seems to be some element of recurrent expenditure in at least one of the headings. It is probably worth repeating the elements of an occasion that would permit the issue of a warrant by the Minister for expenditure from the Contingencies Fund. Indeed, paragraph 29 of the 2009 and 2010 Auditor General’s reports reminds the Minister that the criteria require him [the Minister] to be satisfied that “an urgent, unavoidable and unforeseen need for the expenditure has arisen (a) for which no moneys have been appropriated or for which the sum appropriated is insufficient; (b) for which moneys cannot be reallocated as provided for under this Act; or (c) which cannot be deferred without injury to the public interest…”

The report adds that “where any advance is made, a supplementary estimate must be laid before the National Assembly as soon as is practicable for the purpose of properly authorising the replacement of the amount advanced.” What the report does not state is that the Minister, when seeking the replacement of funds, must provide to the National Assembly specifics of (a) the amounts advanced; (b) to whom the amounts were paid; and (c) the purpose of the advances. It is safe to say that this Minister has never provided the required information to the National Assembly. And equally significantly, the benign Audit Office never addresses the expenditure under the respective agency programme. Surely advancing the money to the expenditure agency is not the end of the transaction; the money has to be paid out.

Let us take a couple of examples. More than $200 million was spent by way of contingencies advances on Amerindian projects in 2010. There is not a single comment on the expenditure under the ministry. Similarly, $75.5 million was spent out of the Contingencies Fund on completing the swimming pool. Again, no mention under the report’s audit findings at that ministry.

And finally, $300 million was paid out of the Contingencies Fund under Agriculture for expenses described as “to assist farmers in regions 8 and 9 affected by prolonged rainfall.“ That would normally warrant some audit attention; none is suggested in the 2010 Audit report.

Let us now turn to the 2011 advances that have generated such excitement, starting with the Contingencies Fund. Some of the main headings are as follows:

Source: Financial Papers

It is incredible that the budget for national awards should be understated by 300%. The Office of the President has so often and so long operated outside of the already lax financial system that that is now part of its culture. Maybe the October awards were an afterthought of Mr Jagdeo with elections in mind. But Dr Singh, it must be remembered, presented a mid-year report in August and went to the National Assembly for money twice in September. He ought to have known then that GPL and Lethem Power would need substantial additional funds. The same applies to the security forces and their need for supplementary funds to cover additional security duties for the elections. And predictably, the Ministry of Agriculture gets supplementary funds for Black Bush and for Mannarabisi, while two Amerindian dormitories get $18 million in food and $3 million to get the children home for Christmas. Whether it was just poor budgeting or politicking is a matter for speculation.

The second paper
Paper 8 is for $3.471 billion and is made up of four items. These are:

1. Ferries from China
The paper seeks another $2,588 million for the two ferries from China for which Budget 2011 had an initial provision of $366M. There was no comment on this by the Minister in his 2011 mid year report but the capital project profile presented at the time of the Budget had a total cost for the ferries of $3,849 million, all of it to be financed by “foreign loans/grants.” The profile shows the project ending in 2011 and the entire amount should have been taken up at the time of the Budget.

2. Education delivery
The paper seeks approval for $160 million on this $8,943 million project for institutional strengthening of hinterland schools, school facilities, textbooks and child-friendly classrooms. $800M was approved in the 2011 Budget and with pre-2011 spending of $4,063 million, the accumulated sum drawn down at end of 2011 would have been $5,023 million, leaving a large sum undrawn. The project is shown as being financed by foreign loan/grants and comes to an end in 2011.

3. East Bank Demerara Highway Improvement Project
The project profile for this IDB-funded, five year (2011-2015) lane extension from Providence to Diamond shows a total cost of $4,510 million of which $450M was approved in the 2011 budget. The paper seeks another $261 million.

4. Electrification programme
This is listed in the capital profile as a two-year project ending December 31, 2012. It consists of:

● the expansion of the transmission and distribution systems;

● seven new sub stations;

● expansion and upgrading of two sub-stations; and

● installation of a Supervisory Control and Data Acquisition (SCADA) system.

The total project cost is $8,157M of which $1,395 M was spent before 2011 and $2,791M was approved in the 2011 budget. It would seem then that there will be some $1,000 million to be spent to the end of the project in 2012.

Conclusion
There is something fundamentally wrong with the manner of budgeting at the central government level. For example, “foreign loans/grants” is a term of confusion, not clarification. The information in the capital project profiles is unhelpful, and even unusual. It seems strange that the Budget would have had only a small part of the cost of the ferry when it was known that their delivery was scheduled in 2011. The reason it seems is a calculated strategy to mask the deficit at the time of budgeting. There is no reason to budget for part of the vessel – you either take the whole cost or none.

The Minister, as usual, was less than forthcoming in his mid-year report disclosures and projections. He then had another chance when he went to the National Assembly – not once but twice in September 2011. If he knew that there would be some matters of financial significance between the dissolution of the National Assembly and the end of the year, he should have sought to have provisions for those.

A senior minister can hardly admit that he was unaware about some of the party’s elections spending plans, although with Mr Jagdeo no one can be certain. Whatever it is, this Minister’s capacity for good budgeting and responsible financial management is being increasingly questioned.

And on the issue of the Contingencies Fund, his financial papers do not meet the requirements of the Act. Not only, in the words of the Auditor General, is the Minister a serial abuser of the Fund, but he shows some disdain for the National Assembly by his failure to provide it with the details required by section 41 of the Fiscal Management and Accountability Act.

At the wider level, the Jagdeo administration had engaged in a spending extravaganza, financed by borrowings.

So while the National Assembly persuades Dr Singh to bring financial papers in accordance with the law, and to stop the abuse of the Contingencies Fund, it also needs to bring under parliamentary control, our ballooning domestic and external debts.

Corporate lawlessness

Introduction
Over the past couple of weeks I have had cause to try obtaining some information on particular companies, information that those companies are required to file with the Registrar of Companies. Alas, in a number of cases, companies simply ignore the law, failing for several years to file what the Companies Act refers to as the Annual Return. Section 153 of the Act says that every company, at least once in every year, must file such a return in the prescribed form, made up to the date of the Annual General Meeting (AGM), and containing the particulars set out on the fifth schedule to the Act. The annual return must be signed by a director or the secretary of the company, must be accompanied by the company’s audited financial statements and must be submitted within forty-two days of the AGM.

My experience is that these violations are not limited to the small, family company but also involve some very prominent entities, some of which are connected with public companies. And it is not that the violation is about a period of weeks or months. Some of them have never filed any return, quite a courageous feat that has somehow managed to escape the Registrar’s attention.

The Registrar of Companies is the officer responsible for the regulation of companies and that office in turn reports to the Attorney General and Minister of Legal Affairs. During 2011 the Registrar of Companies in fact caused to be published in the Official Gazette seven Notices, striking off from the register of companies several for non-filing. That is indeed commendable, but how the Registrar has missed striking off NICIL, the 100% state-owned entity whose board of directors, chaired by the Finance Minister and dominated by senior ministers of the government, is a mystery.

Offences
The Companies Act prescribes many specific offences provisions as well as general offence provisions. It is the largest statute on the books and the offences provisions can be found throughout the Act. The general offence provision is found in section 522 and provides that contravention of a provision of the Act or regulations made under the Act for which no punishment is otherwise provided for that offence is liable on summary conviction to a fine of ten thousand dollars.

Contravention of specific provisions is an offence punishable on summary conviction to a fine of ten thousand dollars and imprisonment for six months. Here are some of the specific provision offences provided for under the Act:

1. failure to prevent falsification, loss or destruction of the records of the company, or to facilitate detection and correction of inaccuracies in those records;
2. misuse of the list of shareholders or debenture holders obtained from the company;
3. prohibited solicitation and failure to send management proxy circular to the Registrar;
4. failure to provide the information required by the Registrar in connection with insider trading, share registrants and proxies;
5. failure by a proxy holder to comply with the directions of the shareholder appointing him;
6. failure by a registrant to vote without having received instructions;
7. failure by an auditor to attend a meeting for which he was notified by a shareholder that his attendance was required to answer questions; and
8. failure by a director or officer of a company to act on information coming to his attention that a mistake has been detected in the financial statements previously reported on by the auditor.

If the offence is committed by a company, which is of course not a natural person, any director or officer of the company who either permitted or acquiesced in the act or omission to act, is liable to the same penalties as the company.

In the following cases the company is liable on summary conviction to a fine of $10,000:
1. failure by the company to send a form of proxy along to the notice sent to shareholders; and
2. failure to give proper notice to shareholders.

Other offences
The above are considered regulatory offences under the Companies Act. Other legislation which also provides for offences include the Anti-Money Laundering and Preventing the Financing of Terrorism Act, the Insurance Act, the Securities Industry Act and the Financial Institutions Act. The Criminal Law (Offences) Act and the Summary Jurisdiction (Offences) Act also provide for certain offences by officers of companies including fraudulent accounts, destruction of documents and fraudulent statements.

It is not that there are not many companies which have been complying with the requirements of the Act in relation to the filing of annual returns. But there are others who file an annual return without the audited financial statements, or with very limited financial statements. An explanation I have heard in justification of this limited submission is one of an interpretation which lawyers – grossly incorrectly in my view – put on the language of the relevant section of the Act. I have also heard criticisms of the annual filing requirement that the law is intrusive and that filing audited financial statements is giving away competitive information. That view seems very shortsighted and completely ill-informed about what being an incorporated entity means.

Benefits, but also obligations
As I said in last week’s column, a very important benefit of incorporation is that it creates an entity entirely separate from its shareholders. Even in a one-person company, the liabilities of the company are for the company alone and unless the shareholder or director has guaranteed any liability, the shareholder or director is insulated from suit for those debts. And that is not the only benefit of the company; there is perpetual succession, shares in companies are transferrable, and even the tax laws, or at least some of them, are more favourable to the corporate rather than the personal form.

But in return for those benefits, the promoters, directors and shareholders of the company implicitly recognise and agree to abide with the statutory obligations. Apart from the obligation to file returns annually, there are requirements to have audited financial statements, to maintain statutory records, to hold meetings, etc. No one denies that these carry with them both financial and non-financial costs. But having chosen the corporate form to obtain its considerable benefits, the directors cannot then elect to ignore the attendant obligations.

Our Companies Act is largely a one-size-fits-all model, based largely on the Canadian Business Corporations Act. And while subsequent to the introduction of the Act in 1995, the country passed legislation specific to banking, insurance and public companies, the 542-section Companies Act is still formidable for the small private company. They have a choice: de-incorporate or comply.

New AG
The new Attorney General Mr Anil Nandalall has brought some refreshing energy to his office. He needs to turn his attention to the Deeds Registry, the place where the annual returns are lodged and which by law are public records. I am sure that Mr Nandalall is aware of the several letters appearing in the press expressing serious concerns about the lawless state of the Deeds Registry, which I hasten to add has more to do with the political failings and hubris of his predecessor than with the staff of the Registry working under some challenging conditions.

Guyana continues to earn very poor ratings among the 183 countries in the World Bank annual assessment, the 2012 report of which has the sub-title Doing Business in a more transparent world. We need to lift ourselves from the lowly position of 114 and at least stand beside, if not ahead of, our Caribbean counterparts. To do so we need to fix a few things immediately. At this stage the Registry is without a Registrar, the position being held by an acting appointee. The entity needs to address a resource deficit including someone with the capacity to ensure that what is in fact filed meets fully the requirements of the law set out above. My experience suggests that the Registry has no accounting capability to assess whether proper financial statements have been submitted.

Mr Nandalall needs to raise his voice in Cabinet and let his colleagues know that the Deeds Registry will be applying the law without fear or favour and that NICIL, arguably the country’s most serious violator of the Companies Act, will be placed in the firing line. Neither he nor the President should accept a situation whereby a publicly-owned company that annually handles untold millions of public funds should be allowed to get away with such lawlessness.

The penalties for offences under the Companies Act are far too low and even if the law was enforced, they would hardly be a deterrent. They need to be increased substantially but also to be enforced vigorously. It seems desirable that the penalties be made automatic, like the penalties under the tax laws, without the rigmarole of court hearing which would be more costly than the fines collected. It is both an opportunity and a challenge.

Conclusion
But NICIL is only part of a wider, sicker culture. There are many other state-owned entities and statutory bodies that have consistently failed to meet their obligations under the Companies Act, or to have their annual accounts and reports laid before the National Assembly as required by law. Hopefully with a new Speaker of the National Assembly, the Clerk will find the courage to write those ministers who are required to lay reports in the National Assembly. The list of those entities is long and several ministers are guilty of non-compliance.

The violation of the country’s laws by ministers, state companies and statutory bodies tells the rest of the nation that if you can get away with non-compliance then good luck to you. Our private sector, so conditioned to anarchy, needs little encouragement to continue their lawless ways.

Sadly, I have to admit that the accounting and legal professions come close to aiding and abetting when it comes to their clients’ non-compliance with the law.

If Mitt Romney was in Guyana, his 13.9% tax rate would have been lower

Introduction
If Governor Mitt Romney, a leading candidate for the Republican nomination in the US 2012 presidential elections thought that he would neutralise the attacks by his fellow candidates by publicising his 2010 tax returns, he was wrong.

In fact, the revelation that his effective tax rate – the percentage which the tax he pays bears to his total income – is a mere 13.9%, has served to internationalise a debate on what is a fair tax.

Fairness has been regarded as an indispensable ingredient of a proper tax system even before Adam Smith wrote it in stone as one of the canons of taxation.

It is now a hot topic and is the subject of three columns in last week’s Economist. It also made the editorial of the Stabroek News on January 26. The Trinidad and Tobago government too has announced another tax reform project, following a similar announcement by President Donald Ramotar. Let us return to Mr Romney for a moment.

Poor man
The poor man is worth a mere US$ quarter billion, and together with his wife paid about $3 million in federal income taxes on income of $21.7 million in 2010. His effective tax rate of 13.9 per cent is less than half the 35 per cent top rate of federal income tax applied to any annual income over $379,150 for most top earners.

It is no consolation to the fairer tax movement that the effective rate the Romneys will pay in 2011 is 15%.

Because so much of Mr Romney’s income comes from capital gains, dividends and interest on investments he holds in funds and stocks, he greatly benefits from America’s relatively low 15 per cent rate of capital gains tax (CGT).

Despite having a Swiss bank account and investments in the Caymans under a blind trust, there is no suggestion of impropriety by Mr Romney. He went to great lengths to point out that what he, or rather his trustees, were doing was all within the US tax code that has as many loopholes as our domestic cast net. Romney’s tax rate is below that of most wage-earning Americans because most of his income comes from capital gains on investments.

And that is part of the problem. The other part is Mr Romney’s insensitivity to the glaring income and wealth disparity at a time when there are fourteen million unemployed Americans; where poverty as defined in that country is on the increase, engendering the Occupy Wall Street movement that protested what its leaders consider the unfair share of the income and wealth that goes to the 1%.

Buffet by another name
The USA is a country of data: within days of the end of a month or quarter or year, figures on just about every quantitative measure are released by some department or the other. So it did not take long for Americans to learn that the top 1% of their households earned annually an average of US$1.2 million in 2011 while the national average was US$26,000; accounted for 17% of the income earned by all Americans; or that the top 0.1% earned 8% of the total income.

What accounts for some of the disparity is how the income is earned. The richest 1% receive half their income from wages, salaries and bonuses, a quarter from self-employment and the balance from dividends, interest and capital gains.

The problem lies in the tax treatment of the various sources of income with income from employment being taxed at a higher rate than investment income. And that is where the debate gets heated, philosophical and ideological.

In terms that could easily apply to Guyana, US President Barack Obama denounced that country’s bottom heavy tax system, arguing that persons whose annual income is a million and more should pay at least 30% tax, which is the rate paid by the average middle class household in employment. President Obama likes to cite the “Buffett Rule,” whereby the Omaha billionaire and third richest man in the world pays income tax at a lower effective rate than his secretary does, largely because so much of his income comes from investments. We too have our Buffet Rule except that it goes by another name.

Bush’s views on double taxation
In 1986, the US introduced tax reform measures eliminating the gap between the ordinary and capital gains rates. But while the gap began to widen again during President Bill Clinton’s second term, it became a chasm in 2003 when the George W Bush tax cuts sliced the top rate on dividends and long-term capital gains from 28 per cent to 15 per cent. As the share of income derived from investments has increased over that time, the gap has widened to a point where most persons, including Buffet but excluding the 1%, now believe that the situation is unsustainable and indefensible.

In seeking to justify the cuts, President Bush said he proposed to eliminate the US dividend tax saying that while “it’s fair to tax a company’s profits, it’s not fair to double-tax by taxing the shareholder on the same profits.” Not many people, including economists and almost all the G20 countries, agree with him. Ironically, Guyana and a number of countries in the Caribbean do and in 1994, the PPP/C government of Cheddi Jagan eliminated the tax on dividends received by residents from resident companies.

The argument that an income should not be taxed twice defies not only principle but practice as well, with Peter Ramsaroop’s 33⅓% income tax plus 16% VAT being a politically artful but technically incorrect case. Given that Guyana has a hybrid system of taxation, the income earned from employment is taxed at source on the Pay As You Earn basis and then again is subject to a range of expenditure taxes including most popularly the Value-Added Tax (VAT). Call it what you will, the income is taxed twice.

No surrogate
Those who support Bush’s argument miss the fundamental point that a company is in law a separate legal entity and not a surrogate for its members and shareholders. It can own property, enter into contracts, commit offences and sue or be sued in the courts. Indeed some companies in a single case, take up more of the court’s time than they pay in taxes. But the courts are not the only public goods a company uses: it uses the roads and other public physical and social infrastructure; it calls on the police for protection and security and has a whole department of government dedicated to serve it. It hardly seems unreasonable to expect the company, on its own, independent behalf to help pay for the availability and use of those public goods through taxes.

But apart from those monetary benefits there is another valuable benefit which a company enjoys and that is the benefit of limited liability.

The first UK Companies Act in 1844 was a transformational measure that was immediately embraced by the capitalist class, despite the fact that it came with high corporate and personal tax rates. One hundred and sixty-eight years later, despite several rounds of tax reform, dividends are taxable in the hands of the shareholder at rates varying from 10% to 42.5%.

Here in Guyana we do have statistics. The trouble is that they are not available to the general public and hardly ever feature in any public reports or pronouncements. It is a national embarrassment that we have to rely on the periodic reports by international organisations like the IMF and the World Bank to provide us with relevant information. It is illogical, and indeed immoral, that the capital gain on the disposal of a house is taxed at the rate of 20% but the gain on the shares in public companies is exempt. It is not as if the so-called incentives of no taxation of dividends has brought about a large number of companies or shares in which the average retiree can invest.

In fact, the incentives of no tax on dividends and the exemption from Capital Gains Tax of shares in public have spanned more than a decade in which none of our public companies has offered any shares to the public, nor has any private company gone public.

Budget 2012
As we approach the 2012 Budget and supplementaries for unfunded 2011 expenditure, the political parties on the opposition benches will be concretising the generous tax cut proposals in their 2011 elections manifestos. No doubt it will be a healthy and instructive exchange with Dr Ashni Singh under whose watch the VAT was introduced.

But before the parties start their tinkering and trading over some matters of percentages and detail to satisfy those who voted for them, it would be far more useful for the country, if not for them politically, to agree on some fundamental objectives of the changes and reforms they seek.

A challenge for both sides is to stem the widening deficit we experienced under the Jagdeo administration, accustomed to debt-write off, sale of public assets and ever increasing tax revenues.

The apparent endless stream of debt write-off has come to an end, and while tax collections continue to rise, they cannot compensate for the spending over-drive into which the Jagdeo-Singh team has taken us.

Conclusion
The evidence from the Reagan/Bush years to the experiences of Greece, Italy and others is that deficit reduction has to have at least an equal mix of increased taxes and spending cuts.

Tax concessions are considered in economics as a form of expenditure. They need to be re-evaluated and reduced.

We have both central and regional systems of government. We do not need the large number of ministries and ministers.

We have a number of statutory bodies charged with responsibilities which previously fell on the ministries. Some rationalisation seems inevitable.

Jagdeo, who saw himself as the country’s economist-in-chief for nearly two decades, did so much tinkering with the tax system in matters both great and small that a more comprehensive review is now overdue. Guyana is a republic committed to equality and the rule of law but with a constitution which places one person above our supreme law.

And the two leading justices who would be expected to rule on tax cases in the courts were granted exemption from tax on their emoluments during the Jagdeo administration.

There must be other and better ways to reward all our judges. We are a republic without republicans. Mr Romney may seriously consider becoming the first.

Guyana’s election machinery is not good value for money

Introduction
Last week was not a mixed week for the nation. On one day, the front page of the Stabroek News read: ‘PPP/C addressing voter loss’ and ‘Granger says [APNU] not afraid of new elections,’ both reports arising out of press conferences by their respective parties. These followed comments made by AFC presidential candidate Mr Khemraj Ramjattan that suggested that as a politician he was not unopposed to the existing structure of the electoral body the Guyana Elections Commission (Gecom).

Instead of the PPP/C Central Committee at its first sitting of the 2011 Regional and General Elections deliberating on how its government would pursue its economic and social agenda in the light of the changed landscape in the National Assembly, the report suggests that the high priests of the party were more concerned about the [2011] election strategy, and why it lost votes. Apparently seething from the loss of the Speakership of the National Assembly, it accused the APNU and the Alliance For Change (AFC) of defenestrating tradition from Parliament.

Interestingly, the word ‘defenestration’ is associated with not one, but two wars in the fifteenth and seventeenth centuries, in both cases fuelled by persons being thrown out of windows.

Mr Granger is reported to have said that he was not afraid about the prospects of government calling a new election and his group’s confidence in contesting such elections, since he did not believe that the vote-costing attitude of the government had changed for the better in six weeks.

While Mr Granger was reacting to a question from a reporter, I raise my own question whether any of the country’s political parties or civil society has considered the cost of elections in Guyana. This country has not held constitutionally required local government elections since 1994 – eighteen years! – making the claim of democracy less than convincing. And while most Guyanese and the independent observers are satisfied that the results declared by Gecom reflected the votes cast in the November 28 General and Regional Elections, there is almost unanimity that the playing field was not level; that the elections were not fair.

Exploding cost
But that is not the principal concern of today’s column. Rather it is about the cost of elections in Guyana and whether or not the country gets value for the billions it spends not only for the elections but in the intervening years as well. It is about the apparent comfort of the political class in burdening the ordinary citizen with exorbitant VAT and personal income tax which disproportionately hurt the poor and the lower paid employee, while making decisions on spending that completely ignore cost and value for money, and are sometimes designed to feather and further personal, political and commercial interests.

Guyana, with a voting population of less than half a million, has six commissioners, an Executive Chairman as well as a Chief Elections Officer. It also has approximately three hundred full-time staff. By contrast the Electoral Commission of Australia, with a voting population of over thirteen million has three commissioners, a part-time Chairman and one part time non-judicial member. They are supported by a deputy electoral commissioner and an electoral officer for each of the six states and the Northern State. It has about 875 staff operating out of 157 offices.

India, the world’s most populous democracy has seven hundred million voters, many of them not as literate or educated as the average Guyanese voter. Yet the professionally managed and fiercely independent Election Commission of India, with responsibility for the oversight, direction and preparation of the electoral rolls as well as election-related interaction with the Parliament, state legislatures, and the offices of the president and vice president delivers efficient and low-cost elections generally seen as free and fair. Local elections for urban and rural bodies are conducted by the various State Election Commissions. That country has a mere three commissioners, one of whom is designated the Chief Election Commissioner and all of whom are subject to term (five years) and age (65) limits, whichever comes first.

And how much is that?
Gecom is constitutionally responsible for the general direction and supervision of registration of voters and the administrative conduct of elections. These should be carried out with a view to ensuring impartiality, fairness and compliance with the provisions of the Constitution and any relevant Act of Parliament. For reasons that go outside of this column – but which include Gecom’s (and the courts, and the Audit Office’s) failure to take action to protect its own independence from the executive – the Commission since 1992 has failed to deliver on its complete mandate. To use the political parties as the excuse why some things are not done is nothing but a cowardly cop out.

Here is a summary of the expenditure by Gecom over the post-2006 election period 2007 to 2011. It shows that over the five year period, Gecom was funded from the public purse to the tune of over nine billion dollars, excluding any request which the Minister of Finance may bring to the National Assembly for any supplementary expenditure. As expected, the cost rose significantly in 2011 but even so it was only about a third of the expenditure for the electoral cycle, with some of the cost in the intervening period being attributable to the new registration exercise when new ID cards were issued.

Figures: G$’000
Source: National Estimates

Using the number of 475,000 eligible voters on the updated list, it has cost this country an astounding $19,000 per voter between 2007 and 2011. I have seen no statistics from anywhere around the world that comes close to this figure, one that clearly suggests caution as we make sounds about another round of elections. What is equally remarkable is that even in a non-election year the cost runs above two thousand dollars per person when the international average cost for elections runs much, much lower. Of course some part of that is understandable with an element of fixed cost for any elections body, regardless of the size of the electorate.

An example of overspending
But let us take a simple example of why the culture of cost control and management is so completely absent. Over the past five years each of the part-time, non-executive commissioners has earned a minimum of twelve million dollars. Compare that with the salary of the lowly teacher, the often maligned nurse or police officer who would have earned a mere two million dollars over the same five years. There seems neither logic nor justice that a part-time, under-employed commissioner often sitting there to carry out the wishes of the party, should earn more than five times the full-time public servant.

This column has been a persistent critic of the Audit Office but even they have expressed concerns over the integrity of the controls in Gecom, including financial management and stores controls and purchases of millions of dollars from untraceable suppliers. We have to expect better management of the billions made available to Gecom and which naturally come out of the same block of funds that inadequately provide for the health, education and other sectors. Think what some of that money can do for the University of Guyana or to ensure that there is an adequate supply of drugs in the regional hospitals and health centres or to enhance security.

Let us look at another table.

Election expenses as a percentage of National Budget

Figures: G$’Mn
Source: National Estimates

What this table tells us is that two out of every one hundred dollars spent in 2011 went towards Gecom for the administration of the elections. And to think that the cost of security is not included, or all the vote-buying and elections-related projects undertaken by the government, or the heavy campaign cost incurred by the parties!

Conclusion
I never feel safe making any claim for Guyana as the best or worst in the world but I can comfortably state that as a percentage of the national budget and on a per capita basis Guyana must have the most expensive election machinery in the world.

Following the elections there was much talk of reforming Gecom, talk that has subsided as APNU’s allegations of improprieties have receded into virtual silence. Something has to be done about our electoral machinery. A global survey published in June 2005 on the Cost of Registration and Elections offers some excellent insights on how we can cut down on the cost and yet deliver better results. Unfortunately Guyana was not included in the survey but one of the contributors was part of the Carter team that had recommended the 3-3-1 model for the 1992 elections.

That arrangement was intended to be temporary. It is time to bring it to an end and to introduce a cost efficient and politically effective model.

On the Line – The Banks Group

Comment
Co-incidences are rarely easy to explain. At the time of launching an award for the best Annual Report by any Guyanese company as one of the activities and initiatives for its 25th anniversary observed last year, this column carried a review of the financial statements of the two operating companies of the Banks DIH group: Banks DIH Limited (‘Banks’), the food and beverage giant, Citizens Bank Limited (‘Citizens’), a 51% owned retail bank and Caribanks Shipping Company Ltd, a dormant company.

This coming Tuesday – and regrettably belatedly – Ram & McRae will be announcing the winner of the award for the 2010 annual reports. That is as much as I am permitted to say at this time.

Introduction
Today’s Business Page looks at the financial statements of the two operating companies of the Banks DIH group. The group comprises Banks DIH Limited, the food and beverage giant, Citizens Bank Limited, a 51% owned retail bank, and Caribanks Shipping Company Ltd, a dormant company. Banks and Citizens are both public companies whose shares are traded on the Guyana Stock Exchange. The financial statements of the group also include as an associate company B&B Farms Inc, a Guyana private company, and BCL (Barbados) Limited in which Banks holds a 25% interest.

Both the public companies in the group have as their accounting year-ends September 30 and will be holding their annual general meetings later this week – Citizens on Tuesday 17 and Banks four days later.

The shareholdings in the two companies have changed little over the past year with Banks spreading just over 60% of its shareholdings among a vast network of private individuals while in the case of Citizens, four shareholders own 82% of the shares with the remainder spread among about seventy smaller shareholders. The Boards of Directors of both companies are chaired by Mr Clifford Reis, CCH, who is also the Managing Director of Banks.

In a Corporate Governance Code published last year, the Private Sector Commission boldly called for a clear division of responsibilities at the head of the company. The Code makes it mandatory that the positions of the Chairman and Chief Executive Officer (CEO) be held by separate persons. It also requires that the division of responsibilities between the Chairman and CEO be clearly established, be set out in writing, and be agreed by the Board.

Some observations
Another contrast between the parent and the banking subsidiary is evident in their annual reports; Banks’ high-quality, glossy report is designed and produced by Ross Advertising and printed by Scrip-J of Trinidad and Tobago while Citizens’ is on flatter type paper and produced by KRITI whose address is not stated.

There has been no change in the gender composition of both boards, each remaining steadfastly all-male, despite the constant chorus from progressive women like Stella Ramsaroop and Andaiye for more recognition to be given to women in Guyana. What makes the situation even more remarkable is that both entities have a large number of women staff and in the case of Citizens, six of the seven principal officers are women!

In any case, there can be no doubt that at both entities women make valuable contributions to the “exemplary growth in revenue and profit over that of previous years” reported by Chairman Reis in his report on the group. He had every reason to exude satisfaction: group profits from operations increased by 32% on a turnover increase of 16%. On the other hand, benefiting from the five per cent reduction in tax rates announced in the 2011 Budget, taxation increased by 10%, mainly from the banking subsidiary.

Banks DIH Limited

Source: Annual Report 2011

The company’s turnover (sales) increased by 15% from $16.3 billion to $18.8 billion, and its profit from operations increased by 27% while taxation at $868 million was a mere $4 million increase over 2010. As a result, net profit after taxation increased by 42%. Profit from operations as a percentage of sales which was 13% has increased to 14.3% while taxation as a percentage of net profit before tax decreased from 38.8% in 2010 to 30.9% in 2011.

Chairman Reis attributed the improved results to revenue garnered from the increase in physical sales, efficiencies derived from plant and machinery upgrades and an improved presell and distribution system. The performance was also attributed to capital expenditure of $3,142 million on major plant and machinery for the beverage, alcohol and water plants. The modern soft drinks plant which is expected to be put into use early in 2012 is expected to continue the trend of increasing productivity and profitability.

Growth
To get a clearer picture of how the profitability has changed one only has to go back to 2007 and 2008 when the profit before operations was 9.7% and 9.9% respectively, while the net tax effective rates in 2007 and in 2008 were 38.9% and 40.1%. Most impressively, two years after the company passed the $1 billion profit-after-tax mark, it is aiming to double that figure. Without taking anything away from the Guyana directors, it is perhaps more than merely coincidental that the company’s growth trajectory has been accelerated following the accidental partnership with Banks Barbados, aimed to repel an attempted take-over by Ansa McAl of Trinidad.

What is also significant is that the entire increase in the revenues of the company came not from exports but from domestic sources. Note 20 to the financial statements which gives a broad geographical breakdown of revenue, shows sales of goods and other services increasing by $2,478 million or 15% while revenue from exports actually declined by 24% to $233 million, down from $305 million.

Whether the company is satisfied with its domestic sales is not clear, but with the reputation of Guyana rum internationally, the company may wish to expand its horizons, a feature of the group since its launch in 1957, and indeed the theme for the 2011 report – the next level.

Source: Annual Report 2011

The balance sheet for the company and the group shows net assets increasing by $1,438 million and $2,149 million respectively. Payables and accruals included under current liabilities in the table above have increased from $1,538 million in 2010 to $2,625 million at September 30 last year.

Citizens Bank Limited
After a poor year in 2009 when the Bank had to make an impairment provision of $170 million for investments in Stanford International Bank and Clico Trinidad Limited – the region’s two financial catastrophes for that year – the results for 2010 were encouraging, while for 2011 they are impressive.

Profit after taxation in 2011 increased by 50.5% from $534 million to $804 million. Net Income for the year ended September 30, 2011 was $1,949 million compared to $1,469 million, an increase of 26.7%, double the increase in 2010 over 2009. Profit before Taxation was $1,279 million compared with $887 million in 2010, an increase of 44%.

Interest income increased by 32% and other income by 7.8% while operating expenses increased by 8.8%. Net Customers’ deposits had a significant 30.3% increase while interest expense increased by a more modest 8.5%.

Conclusion
The Banks Chairman was careful not to encourage too high expectations about the future. He avoided any comments about the future in the Banks DIH report while all the CEO of Citizens Bank was prepared to say – unhelpfully – was that 2012 “[would] bring both challenges and opportunities.”

It is my strong view, and indeed that of the Private Sector Commission, that companies need to enhance their communication with their members and the public. I noted a few weeks ago that Demerara Bank Limited had refused to release its 2011 annual report “until after their AGM.” I was met with a similar response when I sought a copy of the Citizens’ Bank Annual report. That is not a practice that should be encouraged by any institution, and certainly not one that has its sights firmly fixed on the next level.