Category: Business and Economic Commentary

September 21, 2024

The deadweight of bureaucracy

The bureaucracy in Guyana can at times – and in different places – be stifling, overbearing, frustrating and totally unproductive. No place is spared as I recently learnt in an indirect encounter with the Guyana Police Force, concerning a recommendation to an individual who was applying for a firearm licence. It was with a mixture of amusement and bewilderment that I was requested to produce both a Tax Compliance Certificate and an NIS Compliance. I should have asked  whether the latter was for me as an employer or an NIS pensioner, or the relevance of my tax compliance to my recommendation!

This episode reminded me of two Letters to the Editor last year complaining about the processes in both arms of the Deeds and Commercial Registry last year. What appears to be happening is that arbitrary rules are put into use not only with little or no statutory authority or rationale by persons who see systems from only one side of the counter. Most of them have no experience in the private sector and have not had to be on the other side – except trying to open a bank account, which is itself a nightmare.

In the case of the Commercial Registry the issue was about a declaration of the ultimate ownership of companies by individuals controlling 25% or more of the issued shares in a company. What the Registry was requesting was a statement that includes every shareholder, information that is completely useless and which in any case is supplied with the Annual Return which must be made by every company. It took the intervention of the Attorney General to have the requirement set aside.

More recently, a request for a Tax Compliance Certificate for a property owner wishing to sell his property was met with a request for the buyer to produce a Taxpayer Identification Number. Worse, since the buyer was a company, the officer of the GRA insisted that a TIN was required for each of the directors. When I pointed out that directors can change at any time, the overenthusiastic officer said that the GRA would have to be notified on each occasion! Again, and to his credit, the Commissioner General addressed and resolved the issue immediately.

Then there is the case where an application for a Work Permit on behalf of a company was made to the Ministry of Home Affairs for an expatriate. The Ministry’s immediate response was that in order to process the application, they required copies of GRA and NIS compliance certificates for both the employer and the employee. They seem unaware that part of the wider process, the GRA has to be satisfied that the tax laws are complied with. The Ministry it seems is totally unmindful that requesting superfluous, unnecessary add cost, not value.

Then there is the NIS which is expected to deliver from a system which has been historically defective and deficient. The number of new employees has increased significantly but with no corresponding increase in human, physical or technological resources. There is indeed significant bureaucracy which the Government and the Scheme’s Administration seem unwilling to do anything about. Lots of the frustration which the public experience is derived from old, outdated laws, inadequate processes and a Board that seems incapable of appreciating the frustrations of the public.

I am not targeting these entities but only using examples of which I have personal experience. No doubt, others have similar experiences with other agencies, and it would be interesting to learn about these and how the public cope with and overcome them. And it would be unfair to suggest that the staff at these entities are unsympathetic or unhelpful. In fact, while some of them exploit the bureaucracy for less than honourable ends, there are others who are themselves hobbled by the bureaucracy.

As the country continues its unprecedented growth across all sectors, regions, agencies and activities, administrative reform and the elimination of bureaucracy is an absolute necessity. The path forward demands not just technical solutions but a fundamental shift in governmental culture to a results-based solution. I have conveyed my experiences and frustration to persons in authority but have met with another problem – inertia, at the political level. Of course, a process and culture which was birthed under colonialism will not be easy to root out and any solution requires a paradigm shift – an examination of the nature and purpose of systems and controls which are sometimes conflated with bureaucracy.

I have suggested the establishment of a dedicated Task Force under the aegis of the Minister of Business, or the Minister of Public Service, charged with the systematic identification and elimination of processes that serve no purpose beyond their own perpetuation. This Task Force should have terms of reference, timelines and be representative of key stakeholders without being too cumbersome.

The challenge is formidable, requiring a confrontation with inertia and entrenched interests, thus requiring courage and authority. It is hard not to be cynical whether those in authority are willing to break free from the tyranny of bureaucracy for bureaucracy’s sake. Fortunately, responsibility for the public service falls under the President himself. He has at his command the resources including the advisers, ministers, consultants and staff to lift the deadweight of bureaucracy hanging over and impeding an efficient public service.

September 14, 2024

The Overgenerous Investment Act: 20 Years Later

Recently, in a discussion with some businesspersons, the issue of foreign ownership of land in Guyana came up for discussion. Surprisingly, many felt Guyana needs to consider some form of control over real property. Views will differ, but it’s hard to blame foreigners for taking advantage of the ease with which they can acquire property in Guyana. As Caribbean businesses come and “eat our lunch,” it’s time to reassess our two-decade-old Investment Act.

Historical Context and Regional Comparison

Beginning in the 1990s and through the first decade of this century, Caribbean countries introduced Investment Acts, reflecting a gradual shift towards formalizing foreign investment frameworks. Trinidad and Tobago led in 1990, followed by Barbados in 1992. Belize and St. Lucia introduced theirs in 2000, Jamaica in 2002, and others followed, with Grenada being the most recent in 2014.

Guyana’s Investment Act, passed in 2004, was part of this regional trend but stood out for its particularly generous provisions. The Act formalized practices that had previously been subject to ministerial discretion, marking a significant shift towards transparency and consistency in investment policies.

Key Provisions and Unique Aspects

The Guyana Investment Act pledges that any compulsory acquisition would only occur under specific, non-discriminatory conditions, with due process and prompt, adequate compensation including interest. This stands in stark contrast to the often-challenging process faced by Guyanese whose lands are compulsorily acquired.

Unlike many Caribbean nations with restrictive alien landholding policies, Guyana’s Act grants investors the freedom to lease or purchase land with minimal restrictions. It also provides operational freedoms such as minimal government intervention in management and pricing, and the right to import and export products freely, with some exceptions.

Other key provisions include:

• Right to determine profit distribution
• Employment of skilled foreign personnel when necessary
• Facilitated immigration processes for investors and their families
• Financial flexibility, including opening bank accounts in local and foreign currencies
• Freedom to transfer funds abroad, subject to tax obligations.

As the market for foreign exchange faces challenges, one wonders whether this last item is simply too generous.

Implementation and Economic Impact

Over the past two decades, the impact of this Act has been profound and visible. Our high streets, forests, mines, and commercial and financial sectors are increasingly dominated by non-Guyanese entities. While this has brought in foreign investment, it has also raised concerns about the control of key economic sectors.

The Act’s implementation has faced challenges, particularly in balancing the need for foreign investment with the protection of local interests. The absence of restrictions on activities that arguably should be controlled by Guyanese has led to a situation where foreign businesses can easily operate as registered business names, partnerships, companies, or cooperative societies.

Public Reaction and Debate

When first introduced, the Act was met with mixed reactions. Proponents argued it would boost foreign investment and economic growth, while critics worried about the potential for exploitation of Guyana’s resources. The parliamentary debate highlighted concerns about the timing of the Act, with some arguing it should have been introduced earlier to capitalize on investment opportunities.

The opposition, though absent for the final debate due to other political issues, had initially raised concerns about the broad powers granted to foreign investors and the potential impact on local businesses.

Need for Review and Amendment

After more than twenty years, and particularly in light of Guyana’s recent oil discoveries, the Investment Act cries out for amendments and stronger obligations on foreign investors. Key areas for potential revision include:

1. Introducing some restrictions on foreign ownership in strategic sectors
2. Strengthening requirements for technology transfer and local content
3. Enhancing environmental protection clauses
4. Updating dispute resolution mechanisms to reflect current international best practices
5. Revising the role and powers of Go-Invest to better serve Guyana’s current economic realities

Conclusion

While the Investment Act of 2004 played a crucial role in formalizing Guyana’s investment framework and attracting foreign capital, it’s clear that the economic landscape has changed dramatically. As we witness the transformation of our economy, particularly with the advent of oil production, it’s imperative that we revisit this legislation.

The challenge now is to strike a balance between maintaining an attractive investment climate and ensuring that Guyana’s resources and opportunities benefit its citizens first and foremost. This requires not just amendments to the Act, but a comprehensive review of our economic policies and a national conversation about the kind of development we want for our country.

The Government, Go-Invest, and private sector bodies need to take this Act and its potential revision seriously. Only through thoughtful, inclusive dialogue and careful policymaking can we ensure that Guyana’s economic growth is both robust and equitable, benefiting all Guyanese for generations to come.

September 6, 2024

Introduction

Today’s Commentary returns to the saga of the Banks DIH Limited and its share exchange which has roiled the market, creating a huge problem for insurance companies, commercial banks and pension schemes. Meanwhile the company displays hubris, disdain and contempt for its shareholders, almost inviting them to go to court. Like the politicians, Banks claims that it “has the votes”, less than ten percent of shareholders by number – but with four shareholders accounting for 82% of the votes cast – to compel all shareholders to exchange their shares in a company that has operated successfully for 68 years to become a shareholder in a shell holding company.  

The manner in which the Company has gone about this Scheme of Arrangement is amateurish, without a proper understanding of the law, and violative of every element of transparency, shareholder relationship, basic communication and good corporate governance. In its haste to disenfranchise its shareholders, the company appears to have overlooked the definition of a shareholder to include “a person who agrees to become a shareholder and whose name is entered in the company’s register of members.” [s. 535 (u) (i) of the Companies Act[.

As if that were not bad enough, the company did not address in its application to the Court, or at the Special Meeting of the shareholders, the requirement of section 219 (1) ( e ) for provision to be made for any persons, who within such time and in such manner as the Co directs, dissent from the compromise or arrangement. It is regrettable and unfortunate that the Court did not appear to consider this vital minority shareholder protection in giving its approval of the Scheme of Arrangement. This oversight was compounded by an ex parte application from which the regulator, or any person acting on behalf of the minority shareholders, was excluded. Was this an accident, an oversight or a recognition that such a scheme, properly interrogated, had little chance of succeeding and its only recourse was this awful option.

Emboldened by its victory over unsuspecting shareholders, the company is now on a campaign of coercion to have shareholders exchange their shares in Banks DIH Limited for shares in a company of which they know nothing, and which is no more than a shell. But there is a truly consequential matter of law which the company appears not to know or understand: and that is that for the acquiring company, the pre-acquisition profits of a subsidiary are capital and not revenue. By allowing themselves to be duped into the share exchange, shareholders are giving up some $53,400 Mn. of distributable profits.

Alphabet/Google vs. Banks DIH/Banks DIH Holdings 

A couple nights ago, on a Private Sector Commission group chat, there was circulated, without comment or identity, the following:

‘Alphabet Inc. will replace Google Inc. as the publicly traded entity and all shares of Google will automatically convert into the same number of shares of Alphabet, with all of the same rights. Google will become a wholly owned subsidiary of Alphabet. Our two classes of shares will continue to trade on Nasdaq as GOOGL and GOOG.’

Whether this is a case of a “little knowledge” can only be speculated, but it seems that another PSC former official was the purveyor of the post. Surely context matters and Delaware, USA laws applicable to  cannot Alphabet/Google cannot be assumed to apply to Guyana. In fact, it is inapplicable. Here are some of the principal differences. The Alphabet and Google 2015 transaction was no sham restructuring, but a genuine separation of Google’s core businesses from its other more risky ventures and projects, such as self-driving cars. If not by design, but surely in effect, the only change is that pre-SoA Banks DIH shareholders are cancelled and become shareholders of a new holding company, a separate legal entity hiding behind what lawyers call a veil. Other than this unequal exchange, there is no restructuring with Banks DIH continuing to hold its subsidiaries, including Citizen’s Bank Limited and Banks Automative and Services Inc.

Another reason for the Alphabet/Google exchange was to increase transparency. In the case of Banks DIH Limited, the motive is the very opposite. No more would shareholders be able to ask questions about Banks’ procurement policies, or the logic of transactions passing through Florida on their way to Europe, or question the role of its directors, independent and non-independent. Under the new Arrangement, a handful of directors, including Banks DIH Chair and CEO, will form the entire Board of the holding company.

Regulatory oversight

The Alphabet/Google restructuring was subject to rigorous regulatory scrutiny by the U.S. Securities and Exchange Commission (SEC). Alphabet’s Form 8-K filing was highly comprehensive, with detailed financial disclosures, governance changes, and segment reporting. The regulatory filings included risk factors, pro forma financials, and extensive information to ensure transparency and protect shareholder interests. The Form had over one hundred Exhibits, full particulars of the directors and officers, compensation plan, Code of Conduct and Transfer Restriction Agreements with Directors.

Banks DIH went surreptitiously and directly to the Courts, bypassing the Regulator, not once but twice. And the only document of any relevance is a report used as the basis for the action which is hidden from shareholders because it is confidential. Again, I ask whether the battery of advisers is aware of section 140 of the Companies Act. Maybe it realises that compliance would require recognition of dissenting shareholders. Whatever it otherwise is, this is a clear case of contempt for shareholders and disregard for corporate governance.

Transparency  

Alphabet provided investors with detailed disclosures, including segment reporting and, likely, pro forma financial statements to help investors understand the financial implications of the new structure.

Banks DIH has offered none. Shareholders did not have any information to make an informed decision and those who supported the resolution were taking a shot in the dark, a leap of faith in a company whose share price slid from $300 in March 2022 to $108 in April 2024.

While the Scheme of Arrangement states that the new exchanged share will be listed at the price of DIH shares at the time of delisting ($180), the SOA states that those shares have been valued at $1 each! Maybe the directors will explain why a share valued at $1 will be listed at $180.

Retained Earnings

When Google restructured into Alphabet, Alphabet was not subject to any restrictions on retained earnings as is the case in Guyana. No wonder then, as the SOA has volunteered, the shares in the new holding company are valued at $1 per share.

Conclusion

Meanwhile, there is no trading in the shares of Banks DIH Limited while Thirst Park tries its best to persuade shareholders to exchange their shares, and to get the belated approval of the Guyana Securities Council. As other companies which have sought to privatise public companies, including J.P. Santos Limited and Guyana Stockfeeds Limited, Banks DIH Limited will never be able to reduce the number of its shareholders below 50, the “private company” requirement under the Securities Industry Act. So, there will be two public companies, Banks DIH Limited and Banks DIH Holdings Inc., one which is traded on the Stock Exchange, and the other not traded.

Did these companies not consider this possibility as well? Or will they now seek another Court Order by the ex parte route? One wonders whether in his sunset years, Chairman Clifford Reis and company will be able to fix the worst company law/corporate governance fiasco in Guyana’s history, all of their own making. Directors have two principal duties – a fiduciary duty to the company which encompasses its shareholders and employees as well as a general duty of care. It would be a colossal tragedy if these are sacrificed on the altar of anyone’s ego.

July 12, 2024

Court woes for Banks DIH Limited

Court setback

Banks DIH Limited and its newly minted holding company Banks DIH Holdings Inc. (BDIHHI) had a setback of some significance in the courts in an action brought against the Guyana Securities Council. (See Stabroek News of Wednesday 9 July). Dissatisfied with the failure by the Securities Council to give speedy blessing to their efforts to restructure Banks business, the two companies, through a strong legal team, approached the court for judicial review. It was over the Council’s delay in endorsing a plan which would see the iconic company ceasing to be a public company and now to be owned by a newly created holding company. That plan involves shareholders in the long-established company exchanging their shares for the uncertainty of a newly minted, ill-defined holding company.

The decision by the court must have come as a total surprise to the companies which enjoyed a rather easy ride, obtaining a stage one approval without even notifying, let alone engaging, the Council. It was even easier at the level of the shareholders who offered overwhelming support for a scantily defined and hardly understood and communicated plan. A booklet circulated to shareholders selling the idea offered information that was at best unclear and imprecise, and worse, inadequate and troubling. As I think about it now, that document was as important as a prospectus but was subject to none of the stringent conditions of a prospectus.

The essence of the assurance to shareholders was that the move was part of a broader strategy to streamline the company’s corporate structure and meet evolving financial regulations. To achieve this objective, the directors of Banks DIH Limited would make the company into a private company, shielding its tons of retained earnings from shareholders. To do this, the directors needed the approval of the Securities Council to deregister the much-loved company. And that is when the problem started.

Ruling on favour of the regulator

The GSC’s position it seems was “not so fast”, asking the company for more information. It seems that this displeased the directors who approached the courts, arguing that the GSC’s actions were unreasonable, an abuse of power, and contrary to law. The court ruled that the Securities Council was indeed subject to judicial review, a process which involves an examination of the legality of the decision-making process, but not the merits of the decision itself.  Except for that small mercy, the court rejected the arguments of the companies and refused to grant the several orders sought. Accordingly, the court found that the GSC’s request for additional documentary evidence was both lawful and necessary, and found no evidence that the GSC failed to consider the applications or acted in bad faith.

The companies are now required to provide the Council with the information it needs within seven days after which the Council has a further fourteen days to decide on the application. I have deep concerns about the adventurous move by the directors and hope that the company will reconsider its decision. This is a poorly conceived plan and there is no doubt that quite a few shareholders are hoping that the directors are courageous enough to walk away from this extravagant idea.

Running out of ideas

Readers will recall that the very Council which the directors have vigorously challenged in court, was recently requested by the same directors to investigate the poor performance of the company’s shares on the Stock Exchange. Maybe the price fall is less about manipulation or small shareholders and more about matters which cause more than a little concern among shareholders. Maybe there is a link between the share price and the serious questions about the composition of the company’s board of directors – many of whom are not independent of the Chairman -, the routing of transactions with Europe via Florida at great cost to the company, the expensive, inflated share buyback in 2016, and the appearance that the company has run out of ideas.

With respect to the great plan, it would be useful for the directors to share their understanding and impact of the following provisions of the Companies Act dealing with dividends and retained earnings. .  

52 (5) “Where a particular company becomes the subsidiary of another company, any dividend paid to the other company out of profits of the particular company, acquired before it became a subsidiary of the other company, shall be treated as capital, and not as profits of the other company.”

53 “Where a company acquires all or enough of the shares of another company to control all of the other company’s activities, the pre-acquisition profits of the acquired company shall be treated as capital of the acquiring company.”   

Conclusion

Banks DIH Limited, once respected for its civility and decent conversation, seems no longer interested in open and respectful exchanges. Indeed, the decision by the Court included what it referred to as a postscript in which the tone of the exchanges, particularly by the company, was harshly criticised. But hubris is no substitute for good corporate practices. Banks as a company needs some serious reflection and retreats (pun intended). It needs a more enlightened and informed approach to management in the third decade of the twenty-first century. The structure has served the company well. If it ain’t broke, don’t fix it. Business is far more about business than it is about structures.

This project will have far more unintended consequences than the directors can imagine. This is no time for such risks.

June 22, 2024

Banks DIH’s call for a suspension in trading in its shares

Introduction

Banks DIH Limited, a blue-chip company on the domestic scene, has asked the Securities Council of Guyana to suspend the trading of its shares on the Guyana Stock Exchange. While I am not aware of any precedent for such a request in Guyana, the request is often justified where there are concerns about unfair trading or market manipulation. In a circular to its thousands of members, the company’s Board of Directors expressed concern that there is a continuing pattern of an unusual reduction in the price of BDIH shares involving very small trading. It notes that for the period 2019 to 2023, revenue increased by 48.8 % and profit after taxation increased by 79.7 % but yet the Company’s share price declined from $300 per share in March 2022 and to $115 per share in May 2024. The Circular added that “such a comparison of the price of shares going down at the same time that profits are going up defies any logical explanation” and raises fundamental questions as to the integrity of the Stock Market. Even more strongly, the Circular added that “[A]ny reasonable person would consider that the Stock Market in Guyana cannot be taken seriously!”, with an exclamation mark.

An accusation of market manipulation is a serious one indeed, particularly coming from one of the country’s best-known public companies. What is worse is that the company appears to have formed its conclusions, even before calling on the Security Council to undertake an investigation of the reasons for the price movement and to “rectify the present state of affairs.” To put the small shareholders at some ease, the fall does not affect them and others who do not intend to sell their shares, but only traders, brokers, pension schemes and similar entities which are forced to recognise the loss in value.

There is another side to the question of the share price of the company which this columnist has raised before. The significant increase in the share price over the period 2019 to 2023 was correspondingly much greater than its increases in profits, as reflected in the Table below, previously published by me as a letter to the Editor. (S/N 02 -02- 2024). Seeing their results as much as a public relations issue as a statement on their performance, companies take credit when their share prices increase but seek to avoid responsibility when they fall.

Source: Annual Reports of Banks DIH and GASCI website

The company should also address the historical, low dividend yield arising from the ownership of its shares and to offer an explanation and justification for the company’s policy of hoarding cash at the expense of shareholders. A small holding in the company is hardly worth the transaction cost for the modest dividends paid to its multitude of small shareholders, in three separate tranches. At the time of writing, I have on my desk three Banks DIH share certificates, one for 135 shares, one for 90 shares and the other for 910 shares, all issued by the company which the owner is offering for sale. Shareholders obviously have a right to sell their shares and if the company wants to stop small trades, then it needs to amend its by-laws and/or carry-out a large scale buy back of such small holdings.

Share price performance also reflects other variables. For example, the directors recently persuaded its shareholders to support the adventurous idea of converting itself into a holding company while making this iconic company into a private company. To borrow from the Circular, that step “defies any logical explanation,” but despite grave questions being raised, there is no indication that this move will not take place.

Observers are aware too that this company has been lukewarm at best on an effective Code of Corporate Governance and not only holds to a single person being the Chairman and the CEO, no succession plan and a majority of directors who are employees of the company and the Group. No wonder then that in relation to the ordering of goods from Europe through a company in Miami, the directors have opened themselves to charges of a breach of fiduciary duty to protect the best interest of the company. While one cannot be sure where this gross breach is on a scale with the accusation which the company is making against anonymous persons, to ignore such concerns only compounds the absence of responsible and proper governance in the company. For the company to be taken seriously, it must be willing to urgently review the governance and procurement practices of the entire group and to discontinue wasteful practices.

One final thought. While the company calls for the suspension of trading in its shares, it advises shareholders that their shares can be transferred at the Banks DIH Shares Registry, which would seem to be an avenue of share trading which is no more transparent than the issue being complained about.

Conclusion

It is true that the company has increased turnover and profits substantially over the years but its inconsequential revenue from exports shows the absence of any serious strategies and policies over those very years, or for the future. Investors in Guyana long for investment opportunities and look to the existing as well as new companies to offer fresh ideas and possibilities. Hopefully, the company will cooperate fully with any investigations by the Securities Council and the Stock Exchange. It must be prepared to share information on share activities by its own Share Registry and to actively support the efforts of the Securities Council to put in place a modern Code of Corporate Governance and Social Responsibility.