THE PRIVATE SECTOR IN GUYANA

1. THE PRIVATE SECTOR IN GUYANA

2. STRUCTURE OF THE PRESENTATION • Study objectives and context • The history of the Private Sector • The structure, composition and needs of the Private Sector • Challenges facing the Private Sector • Other challenges facing the Private Sector • Recommendations • Conclusion

3. STUDY CONTEXTTHE 2012-2106 GUYANA GOVERNMENT IDB COUNTRY STRATEGY HAS 4 PILLARS. PRIVATE SECTOR DEVELOPMENT IS ONE OF THE FOUR. THE OVERARCHING GOALS FOR THIS PILLAR ARE: • An improved business climate via strong incentives for formalization of businesses, access to credit, secured transactions reform and retention of skilled labor. • To enhance the institutional and regulatory capacities of Guyana to promote and enforce standards of quality • To strengthen the capabilities of local firms to facilitate the adoption of new production technologies, as well as product and export diversification.

4. GUYANA HAS AN AMAZING PLATFORM OF RESOURCES FROM WHICH A STRONG PRIVATE SECTOR CAN BE DEVELOPED GEOGRAPHY NATURAL RESOURCES MARKET ACCESS LANGUAGE AN ENGLISH BRIDGE BETWEEN CARICOM & SOUTH AMERICA GOLD DIAMONDS BAUXITE MANGANESE WATER OIL* 15 MILLION HECTARES OF PRISTINE FORESTS MARKETS $409 B Export $2Trillion P Power Access to 311 M Consumers AGREEMENTS 15 INTERNATIONAL 11 TRADE 3 PREFERENTIAL 6 BILATERALS 200 + FRUITS AND VEGETABLES ARABLE AGRICULTURAL LANDS GUYANA IS RICHLY ENDOWED IN MANY DIFFERENT WAYS THERE ARE TREMENDOUS OPPORTUNITIES FOR THE GUYANESE PRIVATE SECTOR

5. IDB STUDY OBJECTIVES • This report was commissioned by the IDB Country Office to ascertain the status of Private Sector Development in Guyana as the IDB seeks to recommend programs and strategic interventions for a vibrant private sector driven economy. As such, the report has three objectives: 1. Improve the Bank’s knowledge of the Private Sector in Guyana. • Identify productive sectors that could become potential clients of the IDB’s private sector windows. • Identify new areas of engagement with the Government of Guyana and the Private Sector to increase Guyana’s global competitiveness.

6. METHODOLOGY THREE APPROACHES WERE UTILIZED. • Interviews with the Leadership of key Business Services Organizations, important Government actors, University professors and Private Sector businessmen and women. • A survey that was filled out by 40 key business sector influencers, large and small business owners. • Simultaneously, companies and projects were identified for IDB Non Sovereign Guarantee windows.

7. THE HISTORY OF THE GUYANESE PRIVATE SECTOR

8. GUYANA IS A COMMODITY EXPORT BASED ECONOMY AND NEEDS TO DIVERSIFY BUT THE SERVICES SECTOR HAS BEEN THE LARGEST SECTOR Source: Dhanraj R. Singh (2010) Understanding Long Term Economic Growth In Guyana: An empirical Analysis on the Post-Independence Period

9. GUYANA ECONOMIC PERFORMANCE SINCE INDEPENDENCE Source: Dhanraj R. Singh (2010) Understanding Long Term Economic Growth In Guyana: An empirical Analysis on the Post-Independence Period

10. GUYANA’S GDP SHOWS IMPROVEMENT OVER THE LAST TEN YEARS Source: Dhanraj R. Singh (2010) Understanding Long Term Economic Growth In Guyana: An empirical Analysis on the Post-Independence Period

11. BUT IS VERY LOW COMPARED TO BARBADOS GIVEN BOTH COUNTRIES RECEIVED INDEPENDENCE AT THE SAME TIME Source: International Monetary Fund, World Economic Outlook, April 2012 11

12. GUYANA, LIKE MOST CARIBBEAN COUNTRIES, HAS A FEW MAJOR EXPORTS THAT UNDERPINS ITS ECONOMY Source: International Monetary Fund, International Financial Statistics, April 2012 12

13. KEY FINDINGS

14. GUYANA HAS A RELATIVELY VERY YOUNG PRIVATE SECTOR Guyana’s Private Sector is 47 years old (Independence achieved in 1966). Guyanese businesses have operated for only 27 years in a free enterprise environment (World Bank negotiated Economic Recovery Program in 1986). The Guyana economy is mainly driven by the Government as the Master architect (LCDS ). The local Private Sector is comprised of a small companies in the global context (e.g. the largest local companies have profits of less than US$ 25M). There are several family owned groups that are very influential in the domestic marketplace. There are several foreign owned international firms operating in the extractive sector of the economy. 7. There has been an influx of Chinese and Brazilian firms in Guyana over the last 7 years.

15. GUYANA’S PRIVATE SECTOR STRUCTURE There are several family owned groups that are very influential in the domestic marketplace. The local Private Sector is comprised of a small companies in the global context (e.g. the largest local companies have profits of less than US$ 25M).

16. GUYANA’S PRIVATE SECTOR HAS NO INTERNATIONAL, MULTINATIONAL OR GLOBAL COMPANIES AS IT IS STILL EVOLVING

17. GUYANA’S GLOBAL COMPETITIVENESS PROFILE 2012-2013 SHOWS THERE ARE MANY CHALLENGES FACING THE ECONOMY Source: The Global Competitiveness Report 2012-2103

18. INTERVIEWS WITH THE PRIVATE SECTOR

19. KEY FINDINGS Meetings were held with the Leadership of Guyana’s three main Private Sector Business Services Organizations, namely: • The Private Sector Commission (PSC). • The Guyana Chamber of Commerce Incorporated (GCCI). • The Guyana Manufacturers & Services Organization (GMSA). • Several Leaders of the Banking community. • Many Private Sector owners across the entire business spectrum of large, medium, small and micro businesses

20. CAPITAL : A KEY ISSUE The Guyana Manufacturers & Services Association (GMSA) has stated the following in their 2012-2104 Strategic Plan • “The cost of financing Capital Assets has always been a real problem in Guyana due to the absence of concessionary terms of borrowing as experienced through a Development Bank. • The Commercial Banks have always lent at high interest rates and over limited periods, thus adding to production costs. • The reality of achieving significant levels of productivity and competitiveness in order to maintain export markets has posed extraordinary challenges. • The present financial difficulties have added to Guyana’s burden and it is obvious that Government assistance would now become a prerequisite for industrial survival, not unlike the “bailouts’” now common in the Developed World.”

21. CAPITAL : A KEY ISSUE THE LEADERSHIP OF THE PRIVATE SECTOR COMMISSION STATED DURING AN INTERVIEW “The IDB’s threshold lending limit of US$ 2 million is too high for Guyanese companies. There are not enough businesses in Guyana that would access the NSG products of the IDB even though the rates of the NSG products are far better than those offered by Guyanese Banks, whose upper limits are too low and rates are too high. The PSC believes the IDB should reduce its threshold lending limit and respond to the needs of its Private Sector clients in Guyana by creating new and different products given the “incipient” nature of Guyanese businesses”

22. KEY OBSERVATIONS • The BSOs are heavily influenced by the Government of Guyana to the extent that they play a “supportive “ rather than “leadership” role. • The National Development Strategy which involved significant Private Sector • involvement is not a topic of “passionate” discussion in the Private Sector or • broader business community. It is almost an “inner looking” Private Sector. • The leadership structure of the BSOs may not yield independence of “thought • and strategy “as there are many cross directorships. • CARICOM economic integration and issues such as CSME clusters are also not a common topic of discussions. • The Private Sector does not fully understand the impact of the New Chinese Business Community on their own evolution and competitiveness.

23. KEY OBSERVATIONS • There are limited economies of scale in the Guyanese private Sector. • High Levels of Immigration hinder Private Sector Development. • There is high domestic debt but this reality is obscured by the focus on external debt / GDP analysis. • The equally large Guyanese Diaspora market is highly unleveraged. • Guyana has many areas of comparative advantage (e.g. water) but this is not fully exploited by the local Private Sector. • The trust for entering new markets with new ideas does not exist as the Private Sector is still evelving.

24. QUESTIONNAIRE RESULTS

25. 40 BUSINESSES RESPONDED TO A 25 QUESTION SURVEY GOAL Ascertain knowledge of the IDB and especially its Non Sovereign Guarantee windows. Of these, there were 34 businessmen and 6business women. Banks and their employees were excluded from this process.

26. ANALYSIS OF THE QUESTIONNAIRE REVEALED THE FOLLOWING: • 100% of the respondents knew the IDB has been the principal development • partner of Guyana and leading multilateral lender for the country. • Only 5 % knew what percentage of externally financed public debt was • provided by the IDB. • 15 % knew Guyana’s debt to GDP ratio today was 60% or that it was • 180% in 2005. • 70 % knew the IDB had cancelled millions of dollars of Guyana’s • debt. • Less than 5 % knew the four priority areas of the 2012-2016 IDB Guyana • Country strategy.

27. Questionnaire results • 6. 72.5% had heard of the Multilateral Investment Fund (MIF). • 7. 21/2 % was aware of the Structured Corporate Finance (SCF) division . • 5 % were aware of the Inter American Investment Corporation (IIC) • 0% were aware of Opportunities of the Majority (OMJ) . • Those who knew of MIF had done so through knowledge of the recent GMSA or • Amerindian Community Rupununi Projects. • 11. 5% knew of the IIC’s lending relationship with Demerara Bank for agriculture. • 0 % knew the Amaila Falls project was currently at the SCF window. The general • perception is Amaila Falls is a traditional Guyana Government IDB project. • 13. 100 % of the respondents knew the IDB provided loans;100 % knew about grants. • 14. 100% knew about technical assistance and 0% knew of partial credit facilities.

28. When asked what mechanism should be the IDB use to make knowledge of their Private Sector windows known • 90 % recommended hosting seminars and workshops. • 80 % recommended having a Private Sector expert in Guyana as the • most preferred options. • Working through one of the BSOs was also recommended • GCCI =40% • GMSA =40% • PSC =10%).

29. THIS REPORT HIGHLIGHTS FIVE (5) KEY CHALLENGES FACING THE GUYANESE PRIVATE SECTOR How to establish itself as the “engine of growth”. ( A consensus blueprint). How to strategically move Guyana from a commodity export and agriculturally well-endowed economy to a more industrial and services based economy that creates jobs that absorbs graduates from the University of Guyana and which attracts Guyanese in the Diaspora. How should the Private Sector partner with the Government, Civil Society and the Media to address common areas of job creation, environmental sustainability, climate change and the reduction of poverty? A large underground economy that can threaten entrepreneurship and FDI. Access and the acquisition of affordable capital . Finance is the number one issue facing companies in Guyana.

30. RECOMMENDATIONS

31. RECOMMENDATION #1 The Guyanese Private Sector is very young and needs a structured approach to Private Sector Growth and Development given the nature of the global economy • The IDB may want to think of an approach that (1) creates more financing opportunities for medium and large entrepreneurs • (1) Through cluster formation . • (2) Building cross CARICOM partnerships, and • (3) Significantly strengthening a Business Services Organization in • Guyana to assist in this process through MIF support and technical • assistance.

32. RECOMMENDATION #2 There is a need for capital market in Guyana. • The IDB, through its International Investment Corporation unit and other appropriate NSG operations, could support the development of the Guyana Association of Securities Companies and Intermediates Incorporated (GASCI) into a more traditional stock marketwhere companies, entrepreneurial or mature, can seek risk capital.

33. RECOMMENDATION #3 The IDB can investigate the establishment of a Development Bank in Guyana An argument was made by the three Business Services Organizations that given the special needs of a young unsophisticated nature resource endowed economy that can provide food security for the Caribbean and especially its vulnerable Small States…..that a National Development Bank is needed in Guyana. This concept is one of the 20 Advocacy issues in GCCI’s Manifesto of 20 issues

34. RECOMMENDATION #4 The IDB is Guyana’s best ‘development partner” and is therefore the best positioned International organization to nurture and create sustainable Private Sector development in Guyana. The IDB needs to establish a comprehensive end-to-end process to educate the business community about its Non Sovereign Guarantee (NSG) products and services. Already the major funder of institutional strengthening and reform, the IDB can complement these strategic interventions with a targeted program to market its Non Sovereign Guarantee (NSG) windows: Structured and Corporate Finance (SCF), International Investment Corporation (IIC), Multilateral Investment Fund (MIF) and Opportunities for the Majority (OMJ) to the Guyana Business Community and to Government Agencies which are involved in the development of the Private Sector

35. RECOMMENDATION #5 SMEs will continue to have their “credit worthiness” as a barrier to obtaining credit. Data asymmetry, difficulties in screening applicants; (4) inadequate business skills and technical knowledge (5) the lack of business experience by applicants, will increase the risks of banks • There needs to be the introduction of a tool like the CariCRIS Credit Rating for SMEs so that decision makers at financial institutions, investment companies and other entities can have an independent and objective opinion regarding the creditworthiness of companies, as provided by an independent third-party source of financial information and analysis • In the meanwhile, projects like the IDB funded Micro and Small Enterprise Development and Building Alternative Livelihoods for Vulnerable Groups (GY-G1003) will help.

36. RECOMMENDATION #6 Guyana needs an Entrepreneurship and Innovation Center of Excellence to assist its Private Sector and Citizens to become more globally competitive. The local Private Sector needs more Research &Development (R&D) capabilities, more innovation, deeper technology infusion and additional entrepreneurial leadership. The IDB, through MIF, can support the establishment of a Think Tank of Distinguished Individuals or support the establishment of an Entrepreneurship and Innovation Center at the University of Guyana, now celebrating its 50th anniversary

37. RECOMMENDATION #7 • The largest domestic companies in Guyana are third generation family owned businesses. • The IDB should investigate ways in which to ensure these businesses do not follow the global trend of family managed businesses. • This is especially critical for those family businesses that are in LCDS areas as these areas are where export diversification is essential to Guyana’s economic expansion.