Posts

Posted on

The death of an I-con – Steve Jobs

Introduction
“The world has lost a visionary. And there may be no greater tribute to Steve’s success than the fact that much of the world learned of his passing on a device he invented,” US President Barack Obama said in a statement.

Lest I offend anyone, I will not call any names. But I do believe that among the 125 billion or so people who have lived on this earth, only a handful would have impacted the lives of others as much as Steve Jobs – technologist and culture shaper – who passed away this past week. Steve Jobs was a giant not only of his time but of all times. The unbelievable story of his adoption, his brief time as a college (university) drop-in and drop-out, his firing from the company he created (Apple), his capacity to re-engineer himself, his creative genius, his address at the Stanford University 2005 commencement, the unique products he created and his legacy are sure to be the subject of books, research and analysis for years to come.

Whether one’s interest is his story-book beginning, his technological brilliance, his marketing genius or the marvellous products he created, the sadness of his life cut short by cancer was as palpable as that experienced with the recent passing of Michael Jackson. Lest we forget he created the Apple Macintosh, iPad, an iPhone and iPod products, products which others can only copy, proving that imitation is the sincerest form of flattery. For the spiritually minded his embrace of Buddhism and his vegetarian lifestyle would attract a special affinity and emotion. His death has generated a viral explosion of email across the world and we now are reminded that when he stepped down as CEO and President of the most valuable company in America, his annual salary was $1 per year.

Dots, love and loss and death
In his Stanford commencement speech, Jobs spoke not of the great products he had created or the big ideas he had but only of three simple everyday things – connecting the dots, love and loss, and thirdly, death.

In 2004 Jobs was diagnosed with an incurable type of pancreatic cancer that could end his life in three to six months. Despair turned to joy when his doctors thought, somewhat prematurely that the strain of cancer was in fact curable, leading Mr Jobs to state one year later that he was looking forward to living for a few more years. That was, sadly, not to be and all he had was five more years.

He told his audience in 2004 that “Death is very likely the single best invention of Life. It is Life’s change agent. It clears out the old to make way for the new … time is limited, so don’t waste it living someone else’s life,” he advised the young people.

Failure
Who was this man Jobs and what was so special about him? So profound and respected was Jobs that one day after his death, he was on the cover page of that other iconic publication – The Economist – which said in its Obituary page that Jobs “stood out in three ways – as a technologist, as a corporate leader and as somebody who was able to make people love what had previously been impersonal, functional gadgets.”

That Jobs failed academically is simply a demonstration of how non-typical and revolutionary he was. He proved that there are other things besides degrees and education: ambition, vision, energy, focus and resilience. Education for some people only is a hindrance.

Jobs liked to see himself as a hippy, permanently in revolt against the establishment, but ended up being hailed by many of those corporate giants as one of the greatest chief executives of his time. He used the limitation of not being an engineer to great advantage. Not for himself but for millions of persons around the world who were not mere consumers of his inventions but adoring followers. His obsession with product design and aesthetics, and with making advanced technology simple to use was legendary. The genius in him allowed him to transform a technical idea or some half-invention into a user’s dream.

Those who have used his product simply could not understand why others would deny themselves the privilege of owning or using one of his products – whether it is a digital music player, the smartphone or the tablet computer. While the traditional players in the industry may have been riled with the audacity of his ideas, they all marvelled at the way he transformed music, telecoms and the news business.

Surviving and succeeding from failure
He lived by some simple precepts including the one about the dots. “You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future,” reflecting how a casual course in calligraphy led to the exciting fonts introduced into the Mac Apple was designing.

His philosophical outlook was also extended to the loss of the job at the company he created. He was only thirty at the time, riding on the crest of the wave of success from the release of the Macintosh, described by Jobs as Apple’s greatest invention. Not that he did not take the firing hard at the time; he said he felt he had let the previous generation of entrepreneurs down. But he then used that disappointment to turn getting fired from Apple into the best thing that could have ever happened to him. Success at Apple had come early, but at a heavy price. The break in his relationship with Apple made him into a beginner again – free enough to allow him to enter one of the most creative periods of my life.

The return of the master
He started the company named NeXT and then Pixar which went on to create the world’s first computer animated feature film, Toy Story. Pixar became the most successful animation studio in the world and in 1996 Apple bought NeXT and with it Steve Jobs and NeXT’s technology that was at the heart of Apple’s renaissance.

His achievements after his return are an inspiration to any businessperson whose career has taken a turn for the worse. The way in which Mr Jobs revived the company he had co-founded and turned it into the world’s biggest tech firm, (bigger even than Bill Gates’ Microsoft, the company that had outsmarted Apple so dramatically in the 1980s), is the story of fiction, except that it is true.

Adoration
But what was perhaps most astonishing about Mr Jobs was the fanatical loyalty he managed to inspire in customers.

The users show off his products by bumper stickers, have fan clubs and see themselves as part of a community, with Mr Jobs as its leader. There was that bond or relationship that came from his obsession that he was only concerned about what his users wanted: simplicity, functionality and elegance.

Steve Jobs had been ailing for some months and had handed over the reins of the company to his deputy. During the last few months of his life he was regularly in pain, too weak to climb stairs.

Yet he wanted his children to understand why he wasn’t always there for them and commissioned a biography that is destined to be a bestseller.

‘I want them to know me’
“I wanted my kids to know me,” Jobs was quoted as saying by biographer Pulitzer Prize nominee Walter Isaacson, when he asked the Apple Inc co-founder why he authorized a tell-all biography after living a private, almost ascetic life.

“I wasn’t always there for them, and I wanted them to know why and to understand what I did,” Jobs told Isaacson in their final interview at Jobs’ home in Palo Alto, California.

I started this column with a tribute from President Obama the politician. Here is Microsoft’s Bill Gates speaking of Jobs: “For those of us lucky enough to get to work with him, it’s been an insanely great honor.”

Posted on

A nonsensical analysis

The Guyana Chronicle on Tuesday, September 27, 2011, under a caption ‘Lies Exposed’ carries a statement in full by PPP Executive Committee member Mr Robert Persaud, “debunk[ing] recent statements issued by PNC’s APNU, et al on Guyana’s development.” Taking aim at former Finance Minister Mr Carl Greenidge, Mr Persaud said that Mr Greenidge “ignores the fact that in 2010, the Guyanese economy (at current prices) was more than fifteen times the size it was in 1991 when he was at the helm.”

Mr Persaud might very well be accused of engaging in some lies of his own. I assume he knows that there are two measures of the size of an economy – Gross Domestic Product and Purchas-ing Power Parity. Size ‘at current prices’ is not a meaningful concept, and GDP at current prices is not used by economists for making the type of long-term comparisons Mr Persaud undertakes. Real GDP would have been more appropriate, because it makes allowance for inflation which accounts for the bulk of the higher values we see. It seems that Mr Persaud engaged in some simplistic exercise creating a table comparing 1991 GDP with that of 2010 at current prices. In grade-three style, he then divided one into the other to arrive at the figure of 15! Surely there must be someone who could and should have told Mr Persaud that he was holding himself up to amusement since this is not even apples and oranges, but more like apples and chalk.

The politician in Mr Persaud probably wanted to suggest that the economy grew 15 fold (1500 per cent!) since the PPP/C came to power. That is absolutely and obviously nonsense, requiring an annual growth rate of 15.3%. In fact the average annual growth rate as reported by successive Ministers of Finance for the past eighteen years and disputed by other observers was 3.26%. Cumulatively then, in real terms the economy has grown by only 78.11% at best since 1992, hardly the kind of growth one expects from a resource-rich economy coming from a horribly low base (ie, it has not even doubled in close to 20 years).

The other point worth noting is the arbitrary date that Mr Persaud has chosen – 1991 – when we all know that Mr Greenidge was Finance Minister for a full three quarters in 1992. I suspect the reason for the choice of the year 1991 rather than 1992 is that it suits Mr Persaud’s purpose to project the PNC and Mr Greenidge in the worst possible light and thus show the PPP in the best possible circumstances, albeit false and contrived.

What Mr Persaud wanted to hide was the fact that in 1991 the economy grew – using the non-bogus yardstick real GDP – by 6.1% and in 1992 it was 7.7%, levels not achieved since Mr Bharrat Jagdeo became Finance Minister in 1995.

But Mr Persaud’s distortion goes to inflation as well. Mr Persaud refers to the inflation rate of 70% in 1991 without acknowledging that this was due almost entirely to a devaluation of the Guyana Dollar relative to the United States Dollar from G$45 to $101.75, more than 125%. The rate continued to decline in 1992 reaching G$125 to the US Dollar by October 1992 when Dr Jagan pledged to reduce it. It is now $204 to the US Dollar.

Mr Persaud also selectively relies on an IMF quote in 1988 – before the introduction of the Economic Recovery Programme (ERP). Is he not aware that on April 28, 1992 Mr Lewis Preston, the President of the World Bank, wrote the IDA Board of Directors in the following terms concerning Guyana: “Few countries have moved as far as Guyana in terms of implementing a comprehensive adjustment programme… and eliminated its arrears to international financial institutions.”

It is a sad testimony of the PPP and Mr Persaud that he would seek to ridicule Mr Greenidge for facing up to the truth about the state of the pre-ERP economy while he (Mr Persaud) can indulge in cheap distortions.

May I add that Mr Persaud might not know or wish to admit that before his administration signed on to the ERP, then President Hoyte invited Dr Cheddi Jagan as leader of the Opposition to attend a Cabinet meeting at which Dr Jagan grilled Mr Greenidge about the ERP.

Many Guyanese, including me, did not support the ERP either on ideological grounds, or because they did not think the ERP would succeed, or because of the programme’s immediate harsh social impact while its compensating ameliorative measures were slow in coming. But at least we have to credit the PNC and its finance team led by Mr Greenidge with courage, honesty and integrity, concepts that are largely alien in this era.

Posted on

Another corporate governance code for Guyana

Introduction
The Council of the Private Sector Commission (PSC) of Guyana on April 7, 2011 accepted a Code on Corporate Governance which could have some transformational effect on the way Guyana companies are managed. The code has its origins in the National Competitiveness Council and was identified among eight priority matters at a meeting in 2007. The indications are that organisations representing attorneys-at-law, bankers, accountants, internal auditors, the Deeds Registry and the Guyana Securities Council participated in the preparation of the draft led by an “expert on Corporate Governance.” There is no indication whether the public companies were consulted by way of a draft for discussion or participation in any forum.

There is no effective date for the code suggesting that its principals assume that it is to take immediate effect. Perhaps its authors are unaware that compliance will require some companies to amend their existing by-laws. The sixteen page document contains three sections and an introductory part referred to as the ‘Basis for the Code.’ Not quite correctly, the code describes itself as the “first version” of a Corporate Governance Code for Guyana.

Securities Council
In fact, many years ago, the Securities Council published in 2004 Recommendations for a Code of Corporate Governance in Securities Markets. Unfortunately, those recommendations were ignored by many public companies and the Securities Council was never able to translate the recommendations into a binding code. But not only were the recommendations ignored by many but they were actually challenged by a senior executive of Demerara Tobacco Company Limited, Mr Chandradat Chintamani, now a director of Demerara Distillers Limited, one of Guyana’s premier public companies. Mr Chintamani, echoing the public sentiments of his then boss Mr Michael Harris, wrote in 2004 that he was “unaware of the requirement for a public company to provide a statement on Corporate Governance.”

Bank of Guyana
More recently, the Bank of Guyana, acting under the authority of the Financial Institutions Act of 1995 (FIA) and the Bank of Guyana Act issued Supervision Guideline 8 – Corporate Governance. That guideline which came into effect on January 14, 2008 covers a variety of governance related issues.

I do not recall any occasion on which the Bank of Guyana has expressed concerns about non-compliance with the guideline, no doubt because both bank and non-bank financial institutions require a licence from the Bank of Guyana in order to operate. This is a very useful if coercive tool that almost certainly guarantees full compliance.

Banks, DEMTOCO and DDL
The Chairman of the PSC is Mr Ramesh Dookhoo, who is also an executive of Banks DIH while Mr Chintamani is, (or was up to recently), a member of the executive of the PSC. Would Mr Dookhoo and Mr Chintamani ensure that the companies with which they are associated comply with the code they now recommend? This question is relevant because the PSC’s code does not constitute mandatory or enforceable principles. As the code itself says, it provides a list of the main principles of what is commonly agreed to be good corporate governance practice. Ironically, the PSC code has no more authority than the Securities Council’s recommendations, and it would be interesting to see whether the PSC’s leading members, acting in their company capacity, will take their new code seriously.

The code encourages companies to report on how they apply relevant corporate governance principles in practice, and also to be responsible enough to give an explanation to the shareholders of the reason(s) if they deviate from the code. This is sometimes referred to as ‘comply or explain.’ The code also calls on companies to provide information on their corporate governance policies and principles at the request of shareholders for further evaluation, the very things DEMTOCO said they would only provide if the law so required it.

The PSC code
Let us now look at some of the code’s main provisions that appear to warrant attention.

Section I: The Board of Directors
This section contains eight principles and runs to eight pages.

Principle 1 paraphrases the provisions of the Companies Act 1991 with respect to the powers, functions and duties of the directors. One new and interesting feature is the requirement that the annual report “set out the number of meetings of the board and those committees and individual attendance by directors.”

Principle 2 boldly calls for a clear division of responsibilities at the head of the company and makes it mandatory that the Chairman and Chief Executive Officer (“CEO”) be 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.

This separation of the CEO and the Chairperson has been widely discussed in these columns before. The ‘big man’ culture in Guyana is for a unification of these functions into one holder. Guyana has larger-than-life incumbents in these positions at Banks DIH and DDL, but with the lead persons in the PSC directly associated with those two companies it seems reasonable to assume that those companies are in agreement with the rule.

Interesting too is Principle 3 ‘Board Balance and Independence’ which distinguishes between executive, non-executive and independent directors. In fact the code suggests that there is a rebuttable presumption of non-independence in several circumstances including if the director has been an employee of the company or group within the last five years; participates in the company’s share option or a performance-related pay scheme, or is a member of the company’s pension scheme; has close family ties with any of the company’s advisers, directors or senior employees; holds cross-directorships or has significant links with other directors through involvement in other companies or bodies; represents a significant shareholder; or has served on the board for more than nine years from the date of their first election.

Reinforcing these stringent conditions, the code requires that at least half the board, excluding the chairman, shall comprise non-executive directors determined by the board to be independent, applying the tests and conditions set out. If applied strictly, this is revolutionary.

Appointments to the Board must be done by way of an Appointments Committee which itself must make available its terms of reference, explaining its role and the authority delegated to it by the board. The terms and conditions of appointment of non-executive directors shall be made available for inspection. The letter of appointment shall set out the expected time commitment.

Principle 5: ‘Information and professional development’ requires among other things that the Board ensure that directors, especially non-executive directors, have access to independent professional advice at the company’s expense where they judge it necessary to discharge their responsibilities as directors.

Principle 6: ‘Performance Evaluation’ is no less important. This principle requires the board to undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors. At least every three years, this evaluation should be externally facilitated.

Principle 8: ‘The Level and Make-up of Remuneration’ requires that a significant proportion of executive directors’ remuneration shall be structured so as to link rewards to corporate and individual performance. Of course the risk here is the manipulation of results to earn higher levels of remuneration.

Interestingly, the code does not address the issue of disclosure so that shareholders will have to assume that everything is alright.

Section II: Disclosure and Accountability
Just when the code was heading in the direction of becoming truly progressive, it begins a dramatic downward slide. Much of what is stated under this section – except for a mandatory Audit Committee – is required by the Companies Act. The section is a misnomer since none of the three principles under the section addresses disclosure. In fact, they address financial reporting, internal control, and audit committees and auditors (barely).

Section III: The Relationship with Shareholders
This section contains three principles: communications with shareholders, constructive use of the AGM and shareholder voting. The code superfluously requires non-executive directors to attend all shareholders’ meetings, a requirement of the Companies Act.

Conclusion
It is a pity that the bankers did not draw the code’s architects’ attention to Supervision Guideline 8. While there are some progressive principles in the PSC’s code, it is not mandatory and there are a number of major omissions from what would be considered a modern Corporate Governance Code.

In these days when everything is about the environment, it would have been encouraging to have seen some nodding acknowledgment to sustainable use of resources and respect for the environment. Risk management, compliance with the law and disclosure are areas which are under-addressed.

The PSC has not indicated whether it will monitor companies for compliance. It should.

Posted on

Elections year mid-year report

Introduction
Today I conclude the review of the mid-year report for 2011, a statutorily required report under the Fiscal Management and Accountability Act 2003. In doing so I also draw attention and comparisons with the half-year report of the Bank of Guyana which while using the same data seems less inclined than the Minister of Finance to put a political spin on the numbers. Readers may find it of some interest that in this election year and with so much at stake, it is the first year since the Act was brought into force in 2004 that the mid-year report has been presented within the two-month deadline, hence the title of this column. Guyanese who have become quite cynical may not have been too surprised, given that the same treatment was accorded the Guyana Prize for Literature which was held this year after last being held around the time of the 2006 elections.

No wonder then there are many Guyanese who half seriously wish for annual national and regional elections simply for their practical benefits: the fixing of roads, clearing of garbage, completion and dispatch of pensions books to the living and the dead and the prompt announcement of a 5% Christmas gift to public servants under the unilateral collective labour agreement which the government has adopted for its employees. It would also mean that the Minister of Finance would not have to be misleading about the date of release of the mid-year report or the Bank of Guyana hold its hand on the truth.

I now turn to some of the other important indicators.

Balance of payments
The higher production of the major commodities referred to last week and coinciding with higher world market prices resulted in an expansion in export earnings in the first half of 2011 by 34.6 per cent to US$533.1 million.  Earnings from sugar increased by 32.4 per cent to US$50.1 million, reflecting a 30.4 per cent increase in quantity shipped to 99,738 tonnes, while rice export earnings expanded by 35.1 per cent to US$92.6 million, mainly attributed to a 26.4 per cent increase in average export price to US$551.4 per tonne, coupled with a 6.8 per cent increase in export volume to 167,945 tonnes. Gold continued to benefit from prevailing conditions in the global marketplace, and the average export prices witnessed a 29.1 per cent increase to US$1,370.3 per ounce, contributing to a 56.4 per cent increase in export earnings to US$229.5 million in the first half of the year. In addition, the bauxite industry earned US$65.2 million, 15 per cent more than in the corresponding period in the previous year due to higher production levels at both bauxite operations, with export volume increasing to 864,570 tonnes compared to 620,776 tonnes.

These significant increases more than off-set the 25.7 per cent decline in the value of timber exports due to a decline in export volume as plywood operations ceased, coupled with a fall in other timber exports.

On the other side of the account, the value of the country’s merchandise imports expanded by 25.7 per cent to US$859.5 million. The main factors contributing to this were: a) a 51.9 per cent increase in the value of fuel and lubricants imported; and b) an increase of 15.8 per cent in other imports with capital and consumption goods increasing by 48.8 10 per cent and 9.7 per cent, respectively, while imported non-fuel intermediate goods contracted by 2.2 per cent.

The overall deficit in the balance of payments at the end of the first half of 2011 was described by the Minister of Finance as a “modest” US$19.6 million but sufficient to warrant a revision of the originally projected surplus for the full year from US$24.4 million to an overall deficit of US$36.1 million by the end of the year.

Net payment for services amounted to US$74.4 million from US$36.6 million for the corresponding period in 2010. The outturn was due to a 43.1 per cent or US$19.4 million increase in payments for non-factor services. This reflected higher payments for freight and travel, which increased by 27 per cent and 252 per cent, respectively.

On the financing side, the Bank of Guyana reported that net current transfers increased by 20.0 per cent to US$216.0 million. This improvement was due to higher inflows to the private sector in the form of other current transfers which increased by 204 per cent or US$68.6 million to US$102.3 million. The Bank reported receipts from bank accounts increasing by 299 per cent or US$72.7 million to US$97.1 million and that the main sources of outflows were workers’ remittances and remittances to bank accounts, which amounted to US$94.0 million and US$53.6 million, respectively.

The Minister of Finance reported an increase in foreign direct investment of 9.2%, concentrated mainly in the energy, telecommunications and mining sectors. However the Bank of Guyana records the nuanced position that short-term private capital recorded a higher net outflow of US$21 million from US$4.5 million for the corresponding period in June 2010. This outflow reflected a rise in foreign assets being accumulated by commercial banks during the reporting period.

Monetary developments
The banking sector saw deposits by private and public individuals and entities and non-bank financial institutions increasing during the review period by 7 per cent to $253.2 billion. Private sector deposits which accounted for 77.9 per cent of total resident deposits increased by 8 per cent compared to the 4.6 per cent expansion in the corresponding period in 2010, attributed to an 8.5 per cent increase in business deposits to $35.5 billion and a 7.9 per cent increase in individual customer deposits to $161.8 billion.

Private sector credit at end June 2011 amounted to $119.8 billion. The main sectors of increased lending were agriculture (20.3%), real estate mortgages (10.3%), distribution (9.4 %), other services (7%) and mining and quarry sector (4.7%). The public sector remained a net depositor of funds with the banking system at end June 2011.

Foreign exchange market transactions grew by 19.2 per cent to reach US$2,861.7 million. Transactions at the cambios and the Bank of Guyana grew by 23.5 per cent and 27.5 per cent, respectively. The Guyana dollar vis-à-vis the United States dollar retained its path of stability, depreciating marginally by 0.25 per cent.

Shocking employment numbers
A few days ago the Minister of Labour shocked the nation with the announcement that the country’s unemployment rate had fallen to 10.9% (he made sure it was not 11%) but nowhere did he say where he pulled those figures from, or what the last official rate was. Interestingly, there is no mention of such numbers in the reports by the Minister of Finance and the Bank of Guyana. Indeed the Bank of Guyana reported a downturn in employment within the central government of 1.67 per cent. Without stating its source the Bank of Guyana did however report that preliminary estimates indicated improvement in private sector employment especially in the growth sectors. The wholesale and retail, construction and other services sectors showed increased employment.

A few days later Barbados announced an unemployment rate of 12.4% which must have made the Minister blush that Guyana could be doing so well! And with all of this the registered number of employed and self-employed persons under the National Insurance Scheme stubbornly refuses to increase.

Inflation and falling medical cost
The Bank of Guyana reported that the year-to-date change in the Urban Consumer Price Index (CPI) for June 2011 is registered at 2.97 per cent. The Bank sought to explain this level of inflation as due to price increases in the food category and unstable fuel prices “occurring from conflicts in the Middle East.” It reported price increases in transport & communication, housing, footwear & repairs and miscellaneous goods & services, which rose by 10.1 per cent, 1.1 per cent, 1.9 per cent and 1.5 per cent, respectively. In addition, education and furniture recorded a small price rise of 0.9 per cent and 0.6 per cent, respectively. Amazingly, it reported that the price index for medical & personal care and clothing categories decreased by 14.5 per cent and 0.3 per cent, respectively during the review period.

Apart from the fact that the reports seem to find it convenient at times to speak of year-on-year indicators and at other times – as in the case of the rate of inflation – of year-to-date rates, the average member of the public would have to ask which planet the Bank of Guyana could be referring to that had a 14.5% decrease in the price index for medical and personal care.

Debt
There was a 7% increase in the country’s total external public debt, from US$1,042.7 million at the end of December 2010 to US$1,110.9 million. These arose from new disbursements of US$69.3 million from the IDB and Venezuela. External debt service payments totalled US$18.4 million compared to US$12.3 million for the same period in 2010, a 50% increase.

On the other hand, the Bank of Guyana shows the movement of the debt year on year, which reports that the stock of domestic and external public debt increased by 9.1 per cent and 15 per cent, respectively from end-June 2010 level. The level of domestic debt at June 30 2011 was $103,390 million making the country’s total debt well over $1.6 billion. The Minister of Finance clearly felt that he should disguise these numbers.

Fiscal position
The non-financial public sector registered a deficit of $149.6 million during the first half of 2011 with central government revenue for the first half of 2011 amounting to $61.5 billion, 12.8 per cent higher than in the corresponding period for 2010. Tax revenue collections for the period amounted to $57 billion, 11.4 per cent above 2010 collections. As a result of these developments, projected current revenue for 2011 has been revised upwards to $119.7 billion from $112 billion.

But the troubling side is with expenditure. In the first half of 2011, non-interest current expenditure amounted to $38.3 billion, an increase of 16.2 per cent. Already the Minister has been going to the National Assembly for supplementary funds to meet expenses for what could effectively be deemed vote-buying. On the capital side the Guyana Power and Light Inc continues along with GuySuCo to be major financial burdens with hardly any light visible at the end of the tunnel.

Conclusion
For all we know about the illegal and criminal economies and the attendant tax evasion and money-laundering, these matters receive no mention in either reports. Key indicators seem way out of line with reality, particularly with respect to certain components of the consumer price index and those relating to employment which admittedly came from Mr Nadir and not the Bank of Guyana or the Minister of Finance. But it is on the financing side that this will not be a good year. With continuing uncertainty about the receivability of the Norwegian funds the rest of the year will see increasing expenditure financed by a growing debt burden.

Posted on

Election year politics?

Crazy columnist
This columnist has not gone mad, at least not yet. I am just mesmerized that Dr Ashni Singh who Manzoor Nadir of the PPP/C/TUF rates as one thousand times better than Peter D’Aguiar as Finance Minister, has finally met the statutory deadline for the annual mid-year report. (For the younger among us Peter D’Aguiar, the first and only [T]UF member trusted with the portfolio of the finance ministry was used and discarded by Burnham.) Singh’s achievement about the report vindicates the surprise I openly expressed last year to the now forgotten call by the Economics Affairs Committee of the National Assembly for an extension of the deadline for the report. Au contraire, Dr Singh proves that he could comfortably live with a shorter period!

More than being timely, the 2011 mid-year report, according to the President, who has traversed the globe in a shorter time than Jules Verne could have imagined, is among the best performing economies in the world with an annualized growth rate of 5.9% and an unemployment rate within striking range of the USA, according to Manzoor Nadir.

The remarkable growth comes, not from the powerful narco-sector of the economy as the doomsayers would have us believe, but mainly from the politically sensitive sugar and rice sectors which prove that even agriculture responds to election year politics. Indeed it shows what any MBA 101 course – citing the Ministry of Agriculture as a case study – would tell us: politics triumphs over incompetence.

Sugar and rice and all things nice
According to the Minister, in the first half of 2011, the Guyanese economy achieved real economic growth of 5.9 per cent with the non-sugar sectors growing by 5 per cent. It was sugar and rice however that were the star performers. Suggesting that after billions of dollars we can get back to the performance levels of 2004, sugar production in the 2011 first crop was 106,871 tonnes, a 30.5 per cent increase over the first crop of 2010, with a little help from an extension of the crop period. While this may affect the quantity of cane available for the second crop, the government seems optimistic that the full year 2011 target of 298,879 tonnes is achievable, perhaps with a procrustean extension of the year.

Rice too has done well with first crop rice production of 207,514 tonnes, 23.3 per cent higher than the corresponding period in 2010 and the highest first crop in the industry’s history. Taking part credit for the sector’s performance, the government claims that the growth in production was attributed mainly to significantly improved drainage and irrigation as a result of government investments, the development of a new and more tolerant rice strain by the Guyana Rice Development Board, higher yields and, most importantly, a higher acreage of paddy planted.

I witnessed some damage to rice along the Essequibo but the Minister of Finance was confident enough to revise the 2011 full-year growth in the industry from 4.9 per cent to 12 per cent.

Grow more pig tail
The Minister reported increased overall production levels in the livestock industry by 2.7 per cent, with increased production “evident” in areas of poultry meat, table eggs, mutton and beef while pork production declined. When one boasts of such sterling performance words like “evident” tend to raise doubts about the reliability of the data. Two other comments before we move on: while the Minister was exulting about sugar, the supermarkets were complaining to the press that they were getting no supplies, a matter about which the Guyana Sugar Corporation appears to have had no knowledge. The second is that while we have an active Grow More Food campaign run by the Ministry of Agriculture, the supermarkets which are springing up at just about every corner of Guyana stock mainly foreign items. My friend Raymond likes to complain that he cannot get local pig-tail and cowheel and is forced to buy those items which are imported from Canada. That surely makes no economic or policy sense and some explanation would normally be warranted.

The fisheries sector seems to be in some decline and recorded a negative growth of 2.2 per cent during the first half of the year, compared with a target of 0.4 per cent over the production performance of 2010. As a result the industry is now projected to contract by 4.7 per cent in the full year.

Green and gold
The forestry sector had a negative growth in the industry of 30.3 per cent as a result of contraction in the production of logs, lumber and roundwood. As a consequence, the sector is now projected to contract by 19.9 per cent by year end compared to an earlier projected contraction of 1.4 per cent.

There are two significant segments to the mining and quarrying sector – bauxite and gold and diamonds. Production of bauxite in first-half 2011 reached a total of 815,505 tonnes, an increase of 38.6 per cent compared to the same period in 2010. However because of the composition of the industry’s output, a higher proportion of lower grade to higher grade product, converts into a sub-sector growth of 13.8 per cent.

Total gold production in the first half of 2011 was 163,413 ounces, an increase of 14.9 per cent over 2010 which was itself an outstanding year. With the incentive of ever higher gold prices, gold production for the year is now projected to reach 320,000 ounces. On the other hand the diamond sub-sector declined in the first half by 19%.

Manufacturing and water
Mainly driven by, but not entirely on account of sugar and rice, the manufacturing sector is recorded as having grown by 10.6 per cent, Given that rice and sugar were expected to grow significantly in any case, it is not clear why the target for the year has been revised upwards from the budgeted 7.7 per cent to a now expected 9.4 per cent.

Owing to significant investments in the electricity and water sector by the government, the sector is estimated to have grown by 2.6 per cent for the comparative half-year. With more planned government investments, the Minister has revised upwards the sector’s projected annual growth rate 0.4 per cent to 2 per cent.

The Minister reported that while the wholesale and retail sector had been projected to grow by 4.4 per cent, the actual for the first half of the year was 21.7 per cent, attributed to him as “buoyed by the growth in sugar, rice and light manufacturing which have fuelled the availability of supplies, increase in imports of food for final consumption, beverages and tobacco, fuels and lubricants, textiles and fabrics, and building materials.” This is a truly remarkable growth and suggests a level of spending power that many would consider beyond the economy’s capacity.

Complementing the other sectors of the economy, the information and communication sector is estimated to have grown by 5.5 per cent in the first half and as a consequence the 2011 budget projection of 5 per cent is retained. Similarly, the Minister estimates that at the end of the first half, the finance and insurance industry had recorded a growth rate of an incredible 16 per cent, with much of this driven by expansion in activity by the commercial banks. Of all the substantial claims made, I would say that this “estimate” is more than mildly exaggerated.

To complete the story of sectoral growth, the education and health and social services recorded estimated growth of 3 and 3.4 per cent respectively for the first half. In his 2011 Budget Speech the Minister did not announce the growth projected for these sub-sectors but in his mid-year report he announced that their budget growth projections for the full year have been revised to 1.5 per cent and 1.9 per cent, respectively.

Next week we will look at the balance of payments and some of the monetary environment in which the economy performed.