Doing Business in Guyana – World Bank/IFC Report

Guyana has improved marginally in the World Bank/ International Finance Corporation publication called Doing Business 2011 publication. Of 183 countries included in the report Guyana ranks at 100, compared with 101 in the 2010 survey. Of significance too is the fact that Guyana is listed as having three reform measures in 2010, which is better than most of the countries covered. The report also shows Guyana as one of the 85% of economies that made it easier to do business in the past five years.

Among the persons listed as local partners who would have provided information to the two international bodies are Geoff DaSilva of GO-Invest, Registrar of Companies Ms Carolyn Paul, the Public Utilities Commission, Attorneys Ms Josephine Whitehead, Ashton Chase, R N Poonai and Kashir Khan, business persons Desmond Correia, Lucia Desir, Gidel Thomside of GNSC, and accountants from PKF, Barcellos Narine & Co and Ram & McRae.

The 2011 publication is the eighth in the series that began in 2004 and investigates and reports annually on the regulations that enhance business activity and those that constrain it. Eleven areas of life of a business are covered but one which Guyanese may consider very important is not: electricity, which continues like an albatross around the necks of businesses.

Quibbles and questions

Source: Doing Business 2011

No doubt there will be quibbles over specific rankings and questions about some of the placements. For example Guyana and Canada have similar companies’ legislation with an essentially one-page Articles of Incorporation. Yet for Guyana the time to start a business is shown as 30 days while for Canada it is stated as five days. At 5.3 the index of investor protection for Guyana seems generous and indeed helps to improve its overall position.

Where we do badly is in terms of getting credit (152 out of 183), paying taxes (119 out of 183) and closing a business (130 out 183). Seventy-four for “enforcing contracts” also seems a bit generous with inadequate arrangements for enforcing judgments made in non-Commonwealth countries. As the Table shows under ‘Getting Credit,’ it is a hat trick of zeros and one hopes that the Minister of Finance will follow through on the commitment to get a credit bureau going. The mess-up made by the Attorney General over the Deeds Registry (see Business Page December 5, 2010) was fortunately not an issue at the time the survey was done.

Foreign exchange issues
In addition to the concerns in Doing Business, one issue among investors is worthy of some consideration. It has to do with exchange controls which we are told have all been abolished. But that is not quite true. Yes, the bank and non-bank cambios easily facilitate the conversion and payment of foreign currency. There are some simple, non-intrusive provisions that require declaration and these pose no difficulty for the business persons. But there are others less popular, such as the requirement in the Bank of Guyana Act that all monetary obligations or transactions in Guyana (whether imposed or authorised by a law or otherwise) be expressed and recorded, and shall be settled in Guyana dollars unless otherwise provided for by law or agreed between the parties. But such an agreement requires the permission of the Bank of Guyana after consultation with the Minister.

And under the Foreign Exchange (Miscellaneous Provisions) Act 1996, the permission of the Minister of Finance is required for any of the following:

1. The lending to or borrowing from any person in Guyana, other than an authorised dealer of any gold or foreign currency.

2. The act of any person resident in Guyana which involves, is in association with, or is preparatory to borrowing any gold or foreign currency from, or lending any gold or foreign currency to any person outside Guyana.

3. The operation of a foreign currency account. The concern among foreign investors is the time it takes to open such an account and the conditions applicable to such account.

4. The lending by a person in Guyana of money or securities to a company resident in Guyana but controlled by a person resident outside Guyana.

Guyana a long time ago repealed its Alien Landholding Act but section 333 of the Companies Act still requires a licence issued by the President for the holding of land in Guyana.

Often the concerns about doing business expressed by foreign investors are always ventilated and addressed more easily that those facing domestic businesspersons. That should stop and we need to treat with all constraints to doing business, whether local or foreign investors.

One of the fundamental problems and contradictions in the business infrastructure is that economic activities require rules and laws to establish and clarify rights and obligations. At the same time as we witness the increase in drug-trafficking, terrorism, other crimes including money-laundering, there will be stricter rules that will necessarily impede business. The challenge is to get the balance right.

Threshold Country Plan/ Implementation Project was a major failure – conclusion

Last week Business Page began a discussion on the just concluded two-year US$6.7 million Guyana Threshold Country Plan/ Implementation Project (GTCP/IP) funded by the US Government Millennium Challenge Corporation (MCC). The column argued that the assessment announced by Director of Threshold Programmes, Mr Malik Chaka, that the project had been successfully implemented was inconsistent with the actual results of key elements of the project. That announcement was made on February 17, 2010 to assembled, mainly government dignitaries, and was echoed by President Jagdeo and Minister of Finance Dr Ashni Singh.

What each of these gentlemen must have known was more than seven weeks earlier, a meeting of the MCC Board chaired by Secretary of State Hillary Clinton, was held to select the countries that would be eligible to receive Millennium Challenge Account assistance during 2010. Guyana, which was included in the lower income countries category, was not even mentioned in the release by the MCC of the decisions taken at the meeting. The countries selected were Cape Verde, Indonesia, Jordan, Malawi, Moldova, the Philippines, and Zambia.

So, before resuming an examination of the statement by Mr Chaka, I will briefly discuss the assessment by the MCC Board, and how it may have come to the decision to exclude Guyana from further MCC fund support.

The MCC decision
In determining eligibility, the Board compared countries’ performance on 17 transparent and independent indicators to assess, to the maximum extent possible, countries’ policy performance and demonstrated commitment to just and democratic governance, economic freedom, and investing in their people. Additionally, the MCC considers adjustments for data gaps, data lags, or recent events since the indicators were published, as well as strengths or weaknesses in particular indicators. From all indications, Guyana performed creditably based on the tabulated assessment, and probably did not suffer from any technical adjustments. Guyana’s failure then must have stemmed from additional quantitative and qualitative information, such as (absence of) evidence of a country’s commitment to fighting corruption and promoting democratic governance, and its effective protection of human rights.

Such additional information could include Transparency International’s Corruption Perception Index which rates Guyana among the most corrupt countries in the world; Heritage Foundation which ranked Guyana at 155 of the 183 nations in terms of economic freedom, as well as oversized government which the Foundation considers one of the biggest barriers to economic development; and the World Bank Doing Business Guide which ranks Guyana at 101 of 183 countries for ease of doing business, with 1 being the best. Then of course the United States Embassy in Guyana would prepare its own commercial and other reports on Guyana, none of which can be assumed to be particularly flattering to this country.

Broken promise
It should come as no surprise therefore, that Guyana did not win MCC’s approval, despite the President’s attempt to discredit these various reports as soon as they were published. Last year for example, he dismissed Heritage as a “conservative right-wing body” and disclosed plans to invite researchers here to dispel fictions about the situation on the ground. It is not known whether President Jagdeo brought in the researchers, or whether his subsequent silence was because their findings did not support his allegation. What it does mean is that when next Guyana complains about any such adverse report, the failure by the President to justify his allegations against these reports would certainly not help our case. Indeed, the report released by Heritage in 2010 was even more damning, demonstrating that despite the use of his bully pulpit, the President has not succeeded in deterring those who use a slightly more objective yardstick to judge the country and government’s performance.

Guyana was rated by the Center for Global Development (CGD) as having passed all the benchmark indicators although it was substantially below the average of the “3-year budget balance” among comparator countries. The median score of all countries for this indicator was a negative 1.36%, while the percentage for “substantially below” was negative 3.34%. Guyana’s score was negative 8.46%. Using the overall score, the CGD had identified Guyana from among the low income countries most likely to be selected for MCA funding. That it failed to win the Board’s approval is a measure that the modern world judges governance well beyond the construction of roads, house lots and social facilities, useful and powerful political incentives though these might be. Unfortunately, this appears to have escaped the notice of our top politicians.

As Mr Chaka had said, failure in one year is not a disqualification from participation in succeeding years. But again, President Jagdeo who demonstrates a pathological inclination to micro-manage – and to do the work of even his “bright” ministers – does not help the country’s case by building close ties with Iran whose leader seems to enjoy daring the international community to declare his country an international pariah. With corruption assuming venal proportions, the country’s biggest budget dollar deficit ever, poor governance, and further evidence of bloated big government, the prospects for Guyana being selected for MCA funding any time soon do not appear too good. So let me take up where we left off last week.

The other tasks
I had noted then that MetaMetrics, one of the project’s US-based consultants had disclosed that the project would be conducted through six tasks. Suggesting that it was against these objectives that the success – or failure – of the project should be measured, I concluded based on the evidence available to the public, the country had performed badly in relation to the first three tasks. How then did we do with the others?

4) Improve Expenditure Planning, Management, and Controls
The revelations arising from the recently concluded budget debate, including the reckless abuse of contract employees; the serial violations of the Fiscal Management and Accountability Act 2003 by ministers and officers; waste and corruption in the procurement processes both in central government and the regions; unqualified contractors; state subsidies to sugar, rice and electricity; the expending of billions on projects for which there is little or no proper technical, economic and financial assessment; the consistent weaknesses identified in the annual reports of the Audit Office; and the almost daily reports of frauds in public offices including the Guyana Revenue Authority, must more than adequately establish that we score poorly on 4) as well.

5) Empower and Create Capacity within Two Principal Parliamentary Fiduciary Oversight Committees
The two principal oversight committees are the Economic Services Sector Committee and the Public Accounts Committee. Reports are that the first has been meeting regularly to identify entities and departments it would question about their performance. Press reports indicate that the committee has met with the loss-making Guyana Sugar Corporation and the National Insurance Scheme which is appearing increasingly under-funded. That this is happening is a positive, commendable development but the information available to the public is far too sketchy to allow an objective assessment of the effectiveness of the committee’s work. It would be useful if the public were allowed to attend the meetings of this committee and its reports made public.

The better known fiduciary oversight committee is the Public Accounts Committee which has as one of its principal mandates the oversight of the Audit Office and the review of that office’s Annual Audit Report. Those reports are always late, are often incomplete and raise more questions than answers. The last report of the Audit Office for 2007 is mainly a repetition of prior years’ issues that have not been resolved and those awaiting “policy decisions.”

While the parliamentary opposition complains that their views and recommendations are ignored, the government has been showcasing the committees as inclusive governance.

The fatal weaknesses in the Audit Office need no repeating. From top to bottom the office is poorly qualified and inadequately staffed, subject to strong political influences and instructions, in violation of its own act and the constitution.

6) Business Registration and Incorporation
While MetaMetrics on their website had referred to both registration and incorporation, I do not believe that those who actually carried out the consultancy in Guyana understood the difference between the two, or that there are two laws dealing with the registration of businesses. These are the Companies Act 1991 which allows for the registration of external companies, and the Business Names Registration Act which deals with unregistered companies.

I participated in a sensitization workshop on Friday December 4, 2009 at which grand claims were made about the reforms in business registration. I was amazed at the level of misunderstanding among the consultants and what they call success. For example they spoke of 96,000 business registrations and 5,600 company registrations, even as only 700 companies file tax returns annually! It must have been the greatest act of resurrection for more than 2,000 years.

One of the lead consultants said at that forum that when the World Bank does its next Doing Business Guide, he expects Guyana to jump by about one hundred places since the time for the registration will be less than countries now in the top 10! I had to point out to him that that is one of ten criteria under one of a score of benchmarks. He did not know that.

Another example of misinformation about the success is an official website that proudly boasts that it is possible to incorporate in Guyana a company by way of the internet, and the time has been significantly shortened. That is not true. Incorporation and registration require statutory declarations by attorneys-at-law and photo ID’s while forms risk being bounced for what appears to be the pettiest of reasons. Under new money laundering rules, commercial banks would not deal with a non-resident company until it has been registered or incorporated and even residents must now produce official, unexpired proof of identity.

There has been more rhetoric than reality in the boasts about success of the project. It has had significant overlaps with other projects such as the National Competitiveness Strategy, parliamentary reform, and other consultancies. This allows several persons and organisations to claim credit for success, and to disown failures. What no one has so far done is consider objectively whether the country gets value for money, with the competitiveness strategy an outstanding example. With scarcely any benefit accruing to the country from that project, it will be the taxpayers who will have to find the money to repay the IDB the five billion dollars we borrowed from them for the project. The poor taxpayer gets poorer.