ChrisRam.net

The Guyana economy has performed reasonably well during the first half of the year according to Dr. Ashni Singh, Minister of Finance, and there is cautious optimism about the domestic economy for the rest of the year. This is according to the mid-year report presented to the National Assembly by the Minister on October 27, 2008. However, anyone with a serious interest in the economy and concerned about the several important omissions contained in the mid-year report should read the report in conjunction with the half-year report done by the Bank of Guyana and published on the bank’s website.

Driven by improved performances in agriculture, mining, engineering and construction, and services, the economy recorded a 3.8 per cent GDP growth during the first half of 2008, but still a sharp decline from the 5.8 per cent growth in the corresponding period of 2007. The Bank of Guyana – using that well-known oxymoron – reports that the manufacturing sector recorded negative growth, due partly to the high cost of inputs − fuel and imported raw materials, challenges to which the sector is no stranger.

Source: Bank of Guyana Half-year report 2008

Revenue and expenditure
On central government revenue and expenditure, the mid-year report presents some interesting information. Value-added and excise taxes were budgeted to increase by 12.8% from the $36.7 billion collected in 2007 to $41.4 billion in 2008. For the half-year actual collections amounted to $17.8 billion (43% of full year) compared with the $17.1 billion collected last year. On a period by period comparison these collections represented a marginal increase in value-added tax to $11 billion from $10.2 billion, although excise tax collections declined to $6.7 billion from $7 billion.
Internal revenue collections amounted to $19 billion in the first half of 2008 compared with $17.4 billion collected last year. The bulk of such revenue comes from a handful of companies, including the commercial banks, telecommunications companies and Banks DIH, DDL and DEMTOCO. Despite the many unincorporated businesses, the self-employed category pays less than one billion dollars in taxes, or just about 15% of the taxes paid by the employed persons.

While both reports indicate significant growth in key sectors, tax revenues have not risen correspondingly and one is left to wonder whether this is a case of generous tax concessions or continued tax evasion within key sectors.

But it is in relation to expenditure that the picture is particularly interesting. And while the Minister in his report did not discuss the table which contains several errors, it must now be a matter of speculation why only 38% of the full year budget has been expended in what the table itself describes as key sectors. Particular attention is drawn to the Health, Infrastructure and Agriculture sectors where only 41%, 27% and 33% respectively, have been spent in the first half of the year. Are we going to see a mad and irresponsible rush to spend during the second half of the year, simply because the money has been allocated?

Debt
The mid-year report deals very inadequately with external debt and omits completely any information on domestic debt which has been rising alarmingly over the past several years. The Bank of Guyana Report shows the stock of government’s domestic bonded debt increasing by 7.6 per cent, while its external public and publicly guaranteed debt rose by a whopping 16.8 per cent from end-June 2007.

The outstanding stock of government domestic bonded debt, which consisted of treasury bills, debentures, bonds and the CARICOM loan, amounted to G$74,223 million, an increase of 7.6 per cent from end-June 2007 and 7 per cent from end-December 2007 balance. The increase from one year earlier reflected the expansion in the stock of outstanding government treasury bills at end-June 2007.

Over the year July 1 2007 to June 30, 2008, the stock of outstanding public and publicly guaranteed external debt rose by 18.2 per cent to US$774 million. This increase reflected disbursements of US$45 million by the Inter-American Development Bank and the delivery of US$44 million credit by the Venezuela Petrocaribe agreement.

Employment
This very critical economic and social indicator once again fails to attract the attention of the Minister and again recourse has to be had to the Bank of Guyana Report which by its own admission is not based entirely on hard data. One has to wonder why the government continues to refer to labour surveys but yet the Ministry of Finance seems unable or unwilling to deal with the issue. While indicating that preliminary data indicated that public sector employment remained relatively stable, the Bank of Guyana reports some decline due primarily to factors such as resignation and retirement of employees.

The Bank of Guyana reported that while “data on private sector employment are sparse, there are indications that the growth sectors recorded higher levels of employment.” It went on to state that the mining, distribution as well as the engineering and construction sectors seem (emphasis mine) to be associated with increased employment.

It is interesting how the Bank of Guyana and the Ministry of Finance are so sure of the performance of the various sectors of the economy but cannot establish similarly reliable numbers on employment.

Inflation
Inflation has been one of the most disputed and massaged variables in the Guyana economy. Both reports indicate a 5.8% rate of inflation but again the Bank of Guyana is more informative even if no less controversial. The Minister of Finance attributes the increase mainly to food items, identifying cereals and cereal products as the principal contributors which are unlikely to be the main concerns of the average consumer. In fact in a typical food basket done monthly by Ram & McRae, Chartered Accountants, the price increase in food items over the six month period was 10.2%, compared with the Bank of Guyana figure for the food group of approximately 9%.

Conclusion
While the date on the Minister’s report is shown as September 12, in fact it was presented to the National Assembly on October 27, repeating a pattern of wrong dating by this Minister. Despite the additional time he took in presenting his report, the Minister chose not to address the serious global economic issues that surfaced in the third quarter, nor did he treat in any serious way his duty under the law to include in the report a list of major fiscal risks for the remainder of the fiscal year, together with likely policy responses that the government proposes to take to meet the expected circumstances.

Introduction
As we conclude the series of columns on the QA II privatisation, we turn our attention to the Guyana Office for Investment (GO-INVEST), an entity established in 1994 under the Public Corporations Act 1988 to replace GUYMIDA, an agency with similar objectives closed down soon after the change of government in 1992. GUYMIDA had operated a very structured process for incentives including tax holidays but as is so often the case we throw the baby away with the bath water and there is no documented evidence of the experiences, lessons and mistakes of that agency that would have avoided some of the failures we are now witnessing.  The functions of the GO-INVEST as set out in the Order creating it include the facilitation of investments though the identification of investment opportunities and providing profiles for such opportunities.

These functions were expanded in 2004 with the passage of the Investment Act that reposed in GO-INVEST responsibility for setting up and operating the Secretariat of the Investment Promotion Council (IPC). In fact it is that Act that placed GO-INVEST in the eye of the QA II storm since GO-INVEST is required to, “at least once annually, review and recommend to the Government alterations in the Priority Lists for Investment categories under section 2 of the Income Tax (In Aid of Industry) Act” – the section that allows the Minister of Finance to grant discretionary tax holidays and to “annually recommend to the Government alterations to the regime of fiscal incentives established for investment including incentives relating to tariffs and taxes, import duties and to export-oriented enterprises.”

Any amendments to the regime of fiscal concessions should therefore have emanated from GO-INVEST and the haste with which Bill # 14 was passed to restore wide-ranging discretionary concessions to the hands of the Minister of Finance was another case of the abrogation by the politicians of a function embedded in the law to be performed independently and professionally. The considerable reduction in the scope for discretionary concessions under a change in the law in 2003 was not only a condition of the multilateral financial institutions and donors but was a way to provide better and more transparent governance. That the status quo is being restored so soon after our exit from the IMF programme is surely not reassuring.

Confusion
My enquiries concerning this area of GO-INVEST’s statutory responsibility suggest complete confusion at GO-INVEST about whether or not some of its directors are even aware of, let alone, discharge this responsibility. It was simply unbelievable how difficult it was to obtain from that source a copy of the GO-INVEST Order and how confused persons are as to whether the functions of the IPC have been taken over by the National Competitive Council headed by President Jagdeo. We shall leave for later the accomplishments of that council, expenditure on expensive consultants, the usefulness of no less than six ministers sitting around discussing matters that have been fully ventilated and decided on more than a decade ago, and why we need to borrow $5.4 billion dollars on what, from occasional publications issued by the National Competitiveness Council, appears to be a complete waste of resources. Just think of the many better uses to which that money can be spent.

The executive head of GO-INVEST is Mr. Geoff DaSilva, a long-time PPP activist in Canada whose appointment as Minister of Trade ended with his replacement by Mr. Manzoor Nadir of the TUF. GO-INVEST’s acting chairman is Mr. Keith Burrowes who heads a number of other government controlled entities. Apparently because the government treated QA II principally as a privatization the role of GO-INVEST was secondary to that of the PU/NICIL headed by Mr. Winston Brassington. GO-INVEST did take a lead salesman’s role in representing the transaction and in language not quite suited to an investment promotion agency attacked “the very small cabal of self-appointed business leaders” who had called for an apology from President Jagdeo for his widely criticized response to business leader Yesu Persaud’s call for the rest of the private sector to be granted similar concessions as QA II. Repeating the language of the President, GO-INVEST described a statement by the Private Sector Commission as “reflecting ignorance of the privatisation framework.”

No head
While falling short of an apology, it must have taken some guts then for Mr. DaSilva at the PU/NICIL’s seminar on taxation to admit that “we made a mistake” in awarding tax holidays to two of QA II’s companies, an admission that none of the other players in the saga has so far had the courage to make. At the time of the seminar the misrepresentation of the $50 million per annum rent had not yet been revealed, nor was the claim about a textile mill, a misrepresentation that has so far gone unacknowledged by GO-INVEST, an agency that had described as “totally dishonest” an innuendo by the Private Sector Commission.

GO-INVEST has had no chairman for some time and the acting position is held by Mr Keith Burrowes, who is, among many other public offices he holds, the Chairman of the Guyana Chronicle, which was another entity cheerleading for the QA II deal. While the Guyana Revenue Authority is represented on the Board there has been no private sector representative since the withdrawal of Mr David Yankana several years ago on account of ill-health.

The dangers
Mr. DaSilva’s presentation at the July 29 Taxation Seminar emphasised the “investment projects of 285 companies totaling US$835M” between 2002 and 2008. He announced that these projects had attracted some 1006 concessions in the form of duty free concessions for machinery, equipment, vehicles and furnishings amounting to sixteen billion dollars between 2005 to June 2008. Mr. DaSilva’s paper did not offer any reason for giving the investment projects for one period while stating the incentives in the form of tax exemptions for a considerably shorter period. In fact not all of the 285 entities are companies and it would have been instructive for Mr. DaSilva to have indicated the value of the concessions granted to the self-employed and other unincorporated businesses that continue to deprive the country of billions of dollars of tax revenue each year. In effect these businesses get more in the form of concessions than they pay in the form of taxes or benefit they provide to the economy.

The public is understandably still concerned about the revelations of the QA II details but there is a bigger picture in which there has been exposed a massive failure on the part of key government agencies and officials to discharge a professional quality of coordination, due diligence and necessary follow-up work on concessions granted to investment projects. The entities are set up and officials are paid, often tax-free $US to do a professional job for the taxpaying public, not to act as servants to politicians.

Matching the numbers
GO-INVEST’s numbers have always attracted attention for their lack of support and in their 2006 Budget Focus, Ram & McRae commented that the GO-INVEST “seems to have its own measure of identifying projects, the investments made and the jobs created. This time [2006] it appears to have out-done itself with the minister’s statement that it [GO-INVEST] has facilitated nearly 140 private sector projects, representing investments of $68Bn which generated an additional 9,000 jobs.” Those numbers translate into an average of 65 jobs and an investment of $485M per project or $7.5M per job. Even the economic powerhouse China could not attract such investments! Focus had also noted that the Finance Minister had announced in his 2005 budget presentation that seventy-five investment projects had been facilitated by GO-INVEST which should have created 1,900 direct jobs and the firm suggested that it was unfortunate that the Minister in his presentation in the following year did not indicate how many of the 1,900 jobs were actually created.

Co-incidentally no investment or job numbers were announced in subsequent budget speeches.

Mr. DaSilva also told the seminar that only about 60% of the investments are notified or facilitated by Go-Invest. Adding the remaining 40% would put investments between 2002-2008 at US$1.4 billion or in private sector investment. How do these numbers match up with other data in the economy?

2001     2002      2003     2004     2005    2006      2007

Active employed (thousands)           121      120       115        115        117          117          118
Active self employed (thousands)     11        10           9               9               7             7            7
Taxes paid by Self-employed ($M)    725    778       887            993            919       1,030      1,243
Source of information: National Insurance Scheme & National Estimates

Mr DaSilva usually dismisses questions about Go-Invest’s numbers by questioning the effectiveness of the National Insurance Scheme but the GRA which actually grants concessions sits on his board in the person of one of its officials, some of whom have been sent on leave in relation to a high profile tax-evasion scandal. Are we to believe that the GRA is so generous and careless about the billions of dollars of concessions that it grants every year or that the NIS is still troublingly inefficient and expensively incompetent after sixteen years?

Taking a tax holiday
There is undoubtedly a high degree of underreporting by businesses to the GRA and the NIS and many Guyanese taxpayers including companies that are audited do not wait for tax holidays but take them, adding another dimension of “discretion” to them. But Go-Invest’s role is the promotion of investments not tax evasion, even as it expects the GRA to do a better job particularly since up-front concessions are given for investments that are often overstated. There is no single instance of the revocation of concessions or the prosecution of those businesses that provide false information to get concessions from the GRA.

Fanciful
A close examination of the investments for which concessions have been granted by the GRA on the recommendations of Go-Invest leads to questions about some of the information published by Go-Invest. Here are some examples obtained from comparing GO-Invest’s information with that contained in the financial reports of public companies and other verifiable sources.

Sterling Products Ltd is stated as having been granted concessions in 2004 for machinery, equipment and vehicles for an investment of $600M. According to the financial statements of the company the amount invested in 2004 and 2005 was $155 M.

The DDL subsidiary TOPCO is stated as having invested $800M in 2004 and 2005. In fact the bulk of the investment was done in 2003 while the total investment by all DDL subsidiaries in 2003-2005 was under $800 million.

Caribbean Containers Inc, another public company is shown as having invested $310M in 2004 and 2006. In fact, the company’s financial statements show capital expenditure for those years of $6.9M.

The same G&C Sanata Company Inc. that has been described by QA II as abandoned for fifteen years is shown as having invested $800 million in 2005 while CGX is shown as having invested $12 billion or US$60 million.

The same level of casualness appears with regard to private companies including clients of Ram & McRae whose investments in their books are nowhere close to those reported by Go-Invest, while in the case of the Omai/IAMGold/Bosai there seems to be evidence of double-counting with the payment by Bosai to IAMGOLD being shown as an investment.

Conclusion
QAII has been more than an embarrassment for this government. It has been a revelation of how government business is transacted, public assets are sold, tax concessions given away and the public is misled by, to use the words of Go-Invest “a very small cabal” of political functionaries and professionals who seem willing to compromise their professionalism to meet the objectives set by politicians. All of the key players involved, the President, the Minister of Finance, Cabinet, the Privatisation Board, PU/NICIL, Guyana Revenue Authority and G-Invest have been found terribly wanting.

The fact that during the revelation of this saga the law was changed to facilitate even looser action by these persons and institutions must be a great cause for concern and reinforces the view that legislation was introduced to legitimise the unlawful.

There is clearly a need to review the operations and mandate of each of these offices and functions with the requirement for considerably more rules-based decisions carried out in a system of proper checks and balances. Too much is at stake for the revenues, assets and welfare of the nation. The rest of society including the accounting profession needs to demand a greater say in these matters.

Next week we will look at the Auditor General’s Report for 2006.

Introduction
Contradicting several earlier statements about the rent the Government would be getting from the lease of 20 acres of land to Queens Atlantic Investment Inc. (QA II), Executive Head of the Privatisation Unit and the state-owned company NICIL, Winston Brassington, in an e-mail to me last week confirmed that the rent is “between 12 -17 M per annum  Yrs 2-5 and in Yr 6 (2013) it will be approximately G$45 M.”

You may very well wonder how Mr. Brassington would rent 20 acres of the most valuable land in Guyana and not know the rent by a margin of close to 50%. Having advised the Privatisation Board that the rent is $12 million only to be publicly corrected that at the rate per square foot specified in a leaked document authored by him, the amount has to be $18 million, Mr. Brassington needs to give himself ample wriggle room. This is as astounding as it is dangerous from the person who this country has placed in a position where he negotiates individually with all sorts of investors and other persons doing business with Guyana. He travelled often to Russia to negotiate with Rusal before another give-away of our country’s non-renewable resources and was mainly instrumental in the purchase of generating sets for GPL late last year costing millions of US Dollars. His recommendations are accepted by the Privatisation Board and Cabinet with the same conviction that a fundamentalist Christian would accept the Bible.

Half true
The answer about the rent came in response to persistent efforts to have Mr. Brassington confirm a number of matters that have surfaced since the tax concessions to QA II became an issue on June 5, 2008. These questions included the price and proceeds from the sale of land to Guyana Bank for Trade and Industry (GBTI) and the date of payment by John Fernandes Limited (JFL) of the sum of $320 million for land sold to that company in 2007. Mr. Brassington confirmed that GBTI paid G$201 M but in relation to the timing of the JFL proceeds he would only say that the “JFL transaction was only completed in March 2008”, which can lead to the inference that no monies were received until 2008. In fact there were two payments made by JFL in 2007 and the balance paid in 2008.

Mr Brassington has refused to answer my follow-up questions particularly about the correctness of the Privatisation Unit holding on to money that should properly have been paid into the Consolidated Fund and for information on the expenses incurred and dividends paid by the Privatisation Unit (PU). In fact all that was new from Mr. Brassington during the week was a press report of him saying that “previous privatisation processes have created ad hoc accounting processes in Guyana.” His incorrect line has been that the proceeds of privatisation have to pass through NICIL, a limited liability company which he claims incorrectly can only pay dividends into the Consolidated Fund after its accounts are audited. It seems that Mr. Brassington does not appreciate that interim dividends are permitted under corporate law and it is not unusual for companies to pay more than one such dividend during the year as Banks DIH has been doing over the past couple of years.

More abuse of the Consolidated Fund
Only monies legally due to NICIL or any of its subsidiaries would be subject to Brassington’s accounting but certainly not monies due directly to the Government such as on the sale of property including shares, land and other assets not owned by NICIL or its subsidiaries. At least some of the land sold to JFL falls into this category and the proceeds should have been paid into the Fund but are instead retained by the PU/NICIL under the control of Mr. Brassington.

Mr. Brassington refused to provide me with the names of the directors of NICIL or copies of its audited financial statements for the year 2006 while noting that the 2007 accounts are with  the Auditor General for audit. NICIL as a company operating under the Companies Act 1991 has been in breach of that Act with respect to the filing of any annual return to the Registrar of Companies as it is required to do nor are its financial statements and reports tabled in the National Assembly.

Such disregard for the country’s supreme and other laws, for good conduct, transparency and truth would in any society where the rule of law prevails, have resulted in the most severe sanctions against those responsible. The political opposition and so-called civil society including the accounting and legal professions have a public duty to act to stop this lawlessness. What is the meaning and relevance of the Constitution and the laws if professionals could ignore them if only to show loyalty and obedience to the politicians?

Deja vu
Two years ago, this column was very critical of Mr. Brassington’s conduct in its March 12, 2006 issue when it wrote about the improper means and tactics applied to corral workers’ funds of the National Insurance Scheme and depositors’ funds of the New Building Society for the Berbice Bridge. I reported then that Mr. Brassington even sought to have me postpone an article and give him time to get some necessary paperwork done by the NIS! The necessary paperwork was a letter enclosing, among other things, an irrevocable special power of attorney and requesting the NIS’s co-operation in having the voluminous agreement and four schedules signed one day later. The Privatisation Board was given the same or less time to endorse Mr. Brassington’s recommendations on the QA II deal.

Just as an aside, in that March 12 article one of the subheadings was Making the unlawful lawful as we see with the QA II tax holiday law!

For all the vast proceeds from privatization that are  now being boasted about, only $7.3 million was paid into the Consolidated Fund in 2006, $1.4 million in 2006. The manner of drawing  up the National Estimates does not allow the reader to determine how much was paid in in 2007 or is budgeted to be paid in in 2008.   Where then is the GBTI money and the JFL funds amounting to more than half a billion dollars? Is this another Lotto Fund scandal where the money is used for all sorts of unauthorized payments such as the $20 million to Courtney Benn Construction for breach of contract relating to works for the Kingston phantom hotel?

The tax seminar
Mr. Brassington obviously enjoys the confidence of the President and with his control of perhaps hundreds of millions of public funds he was indeed well-placed to organise the Taxation Seminar last month. While the Seminar scored poorly on organizational arrangements – a head table of 13, no recording and just one microphone for 200 persons – it was certainly well orchestrated and controlled. The seminar was organised for a Cabinet Day so that after the Finance Minister had left the meeting with his two colleagues from Cabinet and the Privatisation Board there was no one authorised to answer questions on policy from an audience consisting of several state executives and accountants anxious to learn the tax system. Mr. Brassington gloated over the $24 billion proceeds from privatisation since 1994 when he took over but he did not say that in the process the nation lost control of several key assets including Bauxite to Rusal which we then turn around and give a tax holiday! That is hardly how successful privatisations are measured.

Much was said too about transparency but let us not forget that had information not been leaked to the press there would have been no Seminar. In my contribution during the Question and Answer session I pointed  to an apparent conspiracy by the PU, Go-Invest and the company to misrepresent information fed to the public on the QA II investment, drawing attention to some of the statements made by Messrs. Brassington and Da Silva and how they differ from the facts that have surfaced from documents written by Mr. Brassington and agreements signed between the QA II group and the Government.

I pointed out too that Mr. Brassington’s creative explanation for the charge to JFL compared with the rent agreed to be paid by QA II, led to no other conclusion but that the PU either overcharged JFL or was undercharging QA II.

At the Seminar, Mr. Brassington lavishly praised for their contribution to the success of the privatisation programme the Privatisation Board made up of three Cabinet Ministers including the Minister of Finance who chairs the Board, and representatives from labour, business and consumers. My enquiries suggest that even allowing for the imbalance of the political influence Mr. Brassington gets the Board to arrive at a desired result by submitting to them his recommendations often with no more than a few hours notice. I understand too that the Board has dispensed with its sub-committee that had as its principal responsibility the examination of proposals and tenders and has transferred this task entirely to Mr. Brassington with whatever political input and direction that may apply.

Different rules
Astoundingly, in a recent article in the Kaiteur News Mr. Brassington is quoted as saying that “Previous privatisation processes have created ad hoc accounting processes in Guyana” and that “What you did not have was adherence under the law of how you distribute a company’s assets.”

That this statement would have been made at a Seminar to disabuse accountants of their ignorance of the tax laws was outstanding for its sheer arrogance and  uninformed ignorance! It is Mr. Brassington who does not understand the law and who created these “ad hoc” and unconstitutional arrangements that are so blatantly abused by the PU/NICIL. Has Mr. Brassington ever read the relevant sections of the Constitution or the financial rules or sought guidance on how these operate?

Where is the Auditor General?
As a non-statutory body, the Privatisation Unit is no more than part of the Ministry of Finance and so it has sought legal cover under NICIL, the state-owned company that Mr. Brassington operates without observance of the laws. Money that should constitutionally be placed into the Consolidated Fund are spent by the PU/NICIL as it now likes to call itself, to create a huge bureaucracy including legal expertise, and to by-pass the parliamentary process for authorizing the expenditure of public funds.

These are matters so significant that one would have expected the Auditor General to have paid particular attention to it and to comment critically thereon. These funds are on the same level as the Lotto Funds in that they are public monies that are required to be deposited in the Consolidated Fund under Article 216 of the Constitution. The Lotto Funds are too infamous to miss while equally huge sums of a similar nature go unnoticed by the Audit Office. In fact that Office should feel accused by Brassington’s claim of “ad hoc accounting processes”.

Conclusion – many cheques but few balances
It is clear that far from being efficient and transparent, the privatisation process is shrouded in secrecy and is managed without regard for elementary rules of good governance, the rule of law and knowledge of accounting. Much of the resources of this country have been given away in many cases for a pittance, in a process involving many cheques but few balances. This Unit and NICIL under Mr. Winston Brassington ought to be investigated by the Economics Affairs Sub-Committee of the National Assembly.

If that body fails to act, then some public-spirited citizen(s) should invoke the provisions of the Companies Act and demand an investigation of the operations of NICIL and its alliance with Mr. Brassington’s Privatisation Unit. We should not simply excuse and exonerate public officials’ improper and unlawful acts by attributing those acts to unaccountable politicians. They must be held equally accountable and culpable.

Next week we will look at the role of Go-Invest, the other partner in the saga.