Saturday, January 21, 2006
The Private Sector can help Guyana bolster Free Trade
In a previous article, mention was made about the Caribbean movement towards a Single Market Economy or `CSME’. Indeed, preparations for global free trade is a process of erecting a framework to move the regional economy from protected inward looking arrangements to a system which will improve their chances in dynamic global markets, in the Western Hemisphere, Western Europe, Asia or elsewhere.
Guyana is largely dependent on foreign trade for external revenues than some of her larger, contiguous neighbours - Brazil and Venezuela. The Republic also maintains a lower percentage of international reserves and consequently, has a stronger dependence on external financing, a more liberalized trade system and a concentrated and vulnerable export structure that poses greater external risks for the country.
It is important that as Caricom countries prepare to join the Free Trade Area of the Americas (FTAA), they continue to implement macroeconomic policies and institutional changes designed to achieve low inflation rates, stable exchange rates and higher levels of saving and reserves; promote gradual processes of trade liberalisation, particularly in agriculture; implement policies and allocate resources to improve the coverage and quality of education and increase the assimilation of technology; and, in general, make a significant effort to improve their public administration.
Guyana’s private sector needs support from Government in export information for various goods and services, as well as competitive indicators on countries Guyana does business with. This type of support is very necessary in light of the pervasive influence of the North American Free Trade Agreement (NAFTA) which links the US, Canada and Mexico. This Agreement can affect Guyana’s chances of favourable access to North American markets and European markets.
Further, limited concessions offered by the developed world to non-industrialised states, bring into question whether global trade co-operation is a fair. The recent World Trade Organisation (WTO) talks in Hong Kong was an object lesson in brinkmanship where on the one hand, developed countries insisted on protectionist measures while on the other hand, the developing and emerging states, fought to bring agriculture and services to the negotiating table. Developed states that have a liberal agenda, tend to prattle free trade, but continue implementing huge tariffs on agriculture, textiles and other raw materials from developing countries. Though the provisions were inadequate however, the WTO Agreement demonstrated that Guyana can work with other nations successfully to help dismantle trade barriers, regionally and internationally.
Traditional development economists tend to argue about free trade from a purist and generalist notion without due regard for the domestic imperatives of each Member State in the Region. One of the foremost authorities on the subject in the Caribbean, is Dr. David Lewis, who threw `down the gauntlet’ at the Region’s private sector in this way. “Caribbean exporters should take advantage of Caricom’s preferential trading arrangements with Colombia and Venezuela and similar arrangements being sought by Caricom with other Latin American countries and groupings such as Mercosur. It might be possible for Caricom countries to pursue all options at once, to assure its exporters of maximum market opportunities. But this will demand extensive negotiating energies, even if there can be an effective division of labor of the various issue portfolios with various Member States and the Caricom Secretariat, as well as effective collaboration between the government and the private sector in Caricom/OECS countries.”
Guyana has a matured private sector comprising the Chambers of Commerce and the Guyana Manufacturers Association, two distinct bodies that have carved a niche of trade liberalization, creativity and the capacity for adapting to challenging, economic times. Their leadership was tested severely during much of the 1980s when Guyana’s exports were declining and an import substitution and export replacement policy was introduced to stem the flow of a declining national economy.
However, experience teaches that the vagaries of regional and extra-regional markets demand different tactics so aptly illustrated by nearly all of the Eastern Caribbean states as they struggle to save their economies from being swallowed by the financial might of the industrialized North and the burgeoning economic power of the Far East. As far as Guyana’s private sector is concerned, apart from market intelligence, global markets require operational efficiency of scale, high order management resources, adaptive organizational and institutional systems of governance and advanced negotiating skills, especially in dealing with multinational corporations or related conglomerates.
The extent to which the private sector becomes an effective co-facilitator in Guyana’s quest to access opportunities in the FTTA, will depend on the extent to which the Government invests and encourages long term strategic planning, market diversification, stronger institutional capacity, and efficient marketing for goods and services. If the services sector is anything to go by, then the trade machinery must be fully integrated to allow for services to remain the `main engines of (stable) growth’ for Guyana’s economy.
The South American Republic stands a good chance of transforming its economy through free trade in the Americas as a result of the current status enjoyed under the Association of Caribbean States (ASC). Dr. Lewis posited that the ACS could provide a "way-station" to the FTAA, but he added that “this will only be possible if the process of transformation within the ACS is so efficiently and expeditiously managed as to provide a liberalizing momentum to cascade into the FTAA. The chances of using the spur off the FTAA to persuade the "laggers" seem to be better within the familiar confines of CARICOM than in the newer and more heterogeneous ACS. For the "leaders, the ACS could provide a test ground for market opening but the timing is unlikely to be sufficiently generous for that benefit to be realized.”
So the role of the private sector is especially important in this instance. In the mid and late 1980s, as was the case with other Governments in the region, Guyana introduced a free-market system in which a reformed private sector was expected to be the engine of economic growth. In the new strategy, government was expected to concentrate on the provision of public goods (such as education, health, roads, etc.) and set an environment that facilitated private sector growth largely through an enhanced policy and regulatory framework.
Private Sector’s Role
This period saw both a whole new dimension of market forces and policy `free-wheeling’ combined with the `say-so’ of the international financial institutions such as the IMF/World Bank. As a first step, the Government had to free up the economy – selling off national assets and introduce more liberalized forms of governance. In effect, the priority was to concentrate, although not exclusively, on macroeconomic stability and structural adjustment, a key element of which was trade liberalisation. To cushion the blows at the local and national levels, the Social Impact Amelioration Program better known as `SIMPAP, was the `carrot’ used to build capacity and tackle social inequalities exposed by rigid, prescriptive economic measures.
The second phase sought to deepen reforms by liberalizing the foreign exchange market, accelerating privatization programmes and removing the barriers to domestic and foreign investment. Thus the introduction of the Cambios or the alternative foreign exchange window system in both Guyana and Jamaica brought disastrous results in the 1980s but later enabled both countries economy to benefit from increasing flows of foreign revenue. To varying degrees and different speeds, all these reforms are either being refined to strengthened to prepare the Caribbean economies, including Guyana’s, to fully participate in free trade and universal trade and investment liberalisation. A significant amount of reforms however, remains to be implemented in order to complete the adjustment-process.
The response so far to these reforms has been varied in the Region with some economies performing much better than others; while some have enjoyed relatively high growth rates over the last decade largely due to the accelerated diversification of their economies into tourism, other services and manufacturing. In part, too, this success was due to sound macro-economic management, high levels of foreign investment and the development of the human resources of the country. The Guyanese economy has shown appreciable growth in recent years, but foreign revenues are still comparatively low when one considers the huge investment still needed for its infrastructural facilities to boost production in rice, sugar and the forestry sector. Export performance has also lagged though there have been improvements in export control information mechanisms particularly for small exporters.
The Guyanese private sector is made up of firms varying between small and micro-enterprises to large foreign corporations. Micro and small enterprises (less than 10 employees) cover a range off activities and segments in industry, agriculture, construction, distribution and other services. The informal sector or the parallel market is also vital. Guyana requires huge investments in eco tourism to make this new `nature economy’ sustainable and one effective way of doing so, are possible partnerships with Caribbean and Latin American companies that have access to larger markets for consumers who are interested in either leisure tourism or in nature tour exchanges, in the case of young people from Western countries fascinated by the exotic nature of Guyana and the wider Caribbean. Traditionally, free trade is often disguised by the exchange of goods and services, but the natural environment could also be commercially optimized and exceedingly good return of investment, providing that sustainable measures are put in place to protect the natural habitat.
In almost every Caribbean country, the private sector has played a dominant role in trade liberalization policies, but fresh research has shown that in doing so many national economies have paid the price for such reform. Traditional commodities such as agriculture and textiles have been affected by price controls, business licensing, import tariffs, quantitative restrictions, absence of adequate company law, excessive controls and discretionary criteria on foreign investment, etc., all of which prevent the promotion of competitiveness and the growth of the private sector.
Experts have offered a plausible reason for this situation; some say that Caricom countries have not focused on private sector development in any systematic way because the public sector is not large and government expenditure huge to the point where credit to the public sector is seen as crowding out the private sector. Other say that fear of government increasing its taxes to finance the public sector is not a major concern in the private sector. Even though the reduction in the size of government is not a burning issue, government still needs to reduce its role in the economy by enabling a stable environment and the adequate provision of public goods.
Guyana’s President has spoken about the importance of the private sector to economic development, although critics say that in other Caribbean states, this sector is hardly debated nowadays. In order to assume this responsibility fully, the private sector must be aware of the nature of the challenges faced in today's globalised world, be able to evaluate its strengths and possibilities, and make a psychological leap that would shift it unreservedly to a more competitive mode through adjustments at the firm level. Information and quality human resources are critical factors in this equation.
Guyana can work in greater collaboration with the Caribbean Association of Industry of Commerce (CAIC) a regional institution that promotes trade and industry in the Americas although it needs to redouble efforts to improve research capability in data collection on growth sectors among Member States of Caricom. The regional chamber should provide too, up-to-date information on regional and international marketing trends, industry classification standards, as well the quantity of managerial, supervisory, technical and non-technical staff in various industries in the Caribbean. The tourism strategy unveiled by the Guyana Government over a year ago highlighted the importance of these requirements.
The GMA and the Chambers of Commerce in Guyana should work towards empowering micro traders to integrate their activities into the formal economy. A thorough annual skills analysis is required to determine capacity in the private sector and also to detect changes that are necessary for better education and training provision. Current market opportunities offer the necessity for seminars, workshops, and other training sessions on a national and regional basis, as well as the provision of business advisory services in terms of studies in relevant areas, the compilation of market information, covering regional sources and markets, sources of technology, as well as trade rules and regulations.
It is hoped, that as Guyana and the rest of the Caribbean prepare for active participation in the FTTA, politicians and the business community will accommodate each other through compromise, constructive dialogue and practical steps on sensitive issues, bearing in mind that the wider agenda is about making `structural’ poverty history, rather than allow it to remain a shallow and perpetual and slogan cliché. [Next time we will examine the importance of Regional Enterprise Agencies to national reform in Guyana].
(The author is a Guyanese and Caribbean journalist and business management consultant who is currently writing the history of the Caribbean firm from a sectoral approach. He is an authority on Small and Medium-sized Enterprise (SME) policy and is a firm believer in regionalism as an appropriate instrument for wealth creation and stability particularly where there are imbalances between economically well-off and social deprived societies: Email: email@example.com or http://guycaribbean.blogspot.com and click on The Equivalent to see more features by this author)