Guyana and the wider world

Guyana and the wider world

Guyana And The Wider World
Guyana's Poverty Reduction Strategy Programme (PRSP) and the forestry sector
By Janette Bulkan
Sunday, February 4th 2007

The Guyana Poverty Reduc-tion Strategy Paper (PRSP), crafted out of nation-wide participatory consultations and published in 2001, set out the parameters of poverty in Guyana, analysed the contributory factors and detailed a road map for poverty alleviation or eradication. President Jagdeo announced late last year that "Guyana will commence negotiations with the IMF next year, with a view to coming up with a successor programme to the just concluded Poverty Reduction Growth Facility (PRGF)" (Stabroek News, December 24, 2006).

At the turn of the millennium, Guyana was still suffering from a continuing high incidence of poverty: "In 1999… Guyana completed a Living Conditions Survey… [which] indicated a reduction in poverty levels. The proportion of the population living below the poverty line was found to be 35 per cent with 19 per cent living under conditions of extreme poverty" (PRSP, p. 5). While no more recent data on poverty have been published, the Guyana economy has not grown in the ensuing years.

The PRSP set out the causes of poverty thus: "Although no one factor, or group of factors, may be singled out as the cause and effect of poverty, the evidence in Guyana suggests that low and/or negative economic growth accounted for the pervasive and persistent level of poverty in the country.

This, in turn, stemmed from (i) poor economic policies; (ii) poor governance; (iii) non-complementing growth-oriented infrastructure; and (iv) deterioration in the quantum and quality of social services" (PRSP, p. 7).

Like all other national policy documents, the PRSP celebrated Guyana's natural resource endowment. According to the PRSP, most of the poor in Guyana live in the interior Regions, coterminous with Guyana's forest cover. Today's column begins to consider the question: Why is there persistent poverty in the interior alongside the parcelling out of Guyana's best endowed forests in large-scale forestry concessions? Do the reasons for persistent poverty, as diagnosed by the PRSP, apply to the forestry sector? Today's column examines the first two causes of poverty according to the PRSP.

(i) Poor economic

policies

During the late 1960s and early 1970s the UN's Food and Agriculture Organization (FAO) assisted the Guyana Forest Department with reconnaissance inventories of forests. Compared with much of African and Asian tropical rainforests the forests of Guyana have low stocking and a high proportion of hard and heavy timbers.

Almost uniformly the FAO specialists believed that these limitations called for economies of scale, with low intensity, low cost, low impact logging at long intervals, with value added through efficient industries, undertaken by private sector concessionaires and managed with much greater technical understanding and marketing skills than the local timber industry then displayed; what might now be termed 'a knowledge economy.' FIDS also suggested provision for small-scale operators having limited capital, but the main emphasis was on economy of scale.

In the middle of these technical developments, in 1970, the then government took control of 'the commanding heights of the economy' and civil servants were appointed to run private sector operations.

As the economy faltered, massive and ill-advised ventures such as the Demerara Woods enterprise at Mabura soaked up money. Loans and credits from Canadian CIDA failed to restore profitability to the majority of private logging operations or sawmills that lacked political connections. Spare parts and working credit were so scarce that the forest industry became moribund. The almost unbelievable decision by local sawmillers to install sash gang saws (suitable for perfectly sound conifer logs but entirely inappropriate for defective tropical hardwoods) contributed to loss-making enterprises.

Liberalisation of the economy after 1985 was not accompanied by an understanding of the national safeguards for foreign direct investments (FDI). OECD guidelines for multinational enterprises and on transfer pricing were apparently overlooked when the give-away arrangement with Barama was negotiated in 1991.

Although they are not in the public domain, the later FDI arrangements for other foreign-owned loggers seem to have been equally incompetent, judging by the way in which the expatriates have been allowed to export unpro-cessed logs instead of demonstrating best practice in timber processing. The 1997 National Forest Policy (NFP) provides for operation of small mobile in-forest sawmills, but only very recently is this policy being put into practice in any notable way.

(ii) Poor governance

The second criticism in the PRSP concerns the weak and inconsistent application of law and policies. Studies for the GFC during 1994-6 showed that resource access taxes had failed to be adjusted for the falling exchange rate and for inflation and were then amongst the lowest in the world. Political lobbying has prevented correct updating of taxes, so the country is receiving only around ten per cent of the volume-based tax revenue from resource access rights compared with Malaysia. It gets worse. Even our low taxes are not actually collected efficiently by the GFC and over US$ 1 million was owed by the major logging companies up to August 2005. The NFP requires the GFC to pay area-related forest taxes into the Consolidated Fund, but external reviewers confirmed that up until 2001 the GFC had not done this. There is no report on whether the Ministry of Finance has demanded its due or whether it demanded the 20-year backlog of taxes. The 1979 GFC Act requires the Minister of Finance to tell the GFC what to pay into the Consolidated Fund but the NFP requires the GFC to take the initiative.

The 1980 national constitution and four national policies, plus the PPP/C's own 2006 manifesto, all promote in-country, value-added processing of our natural resources. However, what we see is an increasing proportion of prime hardwood timber logs being exported without processing. Of course this is the most profitable action from the point of view of personal private gain. But national policy requires our natural resources to be used for maximum net social benefit, the public good, not private gain. Until we invest in modern machinery and marketing for furniture and flooring, highest technical efficiency in transformation from timber log to furniture may be achieved by exporting logs to the modern mills in China and the ramshackle but integrated industries in India. But economic theory then requires that we tax the excess rent obtained through log exports, so that it is the nation rather than the foreign logger who benefits most.

This is not happening. The proposal of the Minister of Agriculture for "forming a ministerial committee to look at developing and advising on a log exporting policy for Guyana" in the future does nothing to solve the increasing problems today ('No evidence so far of forestry transfer pricing -Persaud,' Stabroek News, Monday, January 29, 2007).

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