Guyana should halt log exports and push for value-added production

Tuesday, March 27th 2007

Stabroek News
http://www.stabroeknews.com/index.pl/article?id=56517028

Dear Editor, Mr. Trevor Atkinson's defence of Barama, a logging company in Guyana for many years in his letter captioned "Omai also made no profit" (07.03.17) attempts to justify Barama's zero profits. This is precisely the kind of rationale one gets from understating the real income and expense in the export of Guyana's crude - logs and low value added semi-finished products in the logging industry. Both Barama and Omai have more than 'zero profits' in common. They have benefited substantially from Guyana's list of concessionary line items granted to Barama or Omai: - Zero cost of each log - Zero cost of crude gold ore - Zero cost of other species cleared or dam- aged collaterally - Zero cost of forest regeneration following harvesting - Zero cost of replanting of harvested or other species - Zero cost of new forests - Zero corporate taxes - Zero imputed tax on gross receipts or net income - Guyana's loss of local value-added in using natural resources to produce finished or semi-finished goods for domestic use or exports with 100 percent of timber harvested, etc. - Fixed fees based on Guyana dollars instead of a global currency unit - Non-market exploitative pricing of raw materials unrelated to finished goods prices Forestry lease payments to government are hardly sufficient to cover monitoring and transportation costs in government's forestry management programme. The resources at the disposal of Government are thin, while the benefits to Guyanese are pitiful with zero profits and 'no price or zero price of crude,' logs and raw gold. Barama and any future Omai's investments should disclose its value-added processes and distributive shares of their operations to the public, not just its zero profit and certification achievements. Guyana's loss of value, rather than Barama's losses should be assessed. With losses any investor can claim an indefinite period for its investment recovery over an indefinite number of zero profit years. A no-profit methodology is neither good economic accounting nor long-term financial prudence for Guyana. Well-known international lenders encourage countries to increase their share of tax revenues from crude oil and gas production and exports as in the case of Trinidad and Tobago (Country Assistance Strategy: http://web. worldbank.org/..). They also discourage subsidies and concessionary contract terms to the private sector when government must itself borrow at going market rates or when government is making a case for concessionary loans. During the Fall of 1996, it was recommended by well-known international agencies that Guyana should revisit the terms of its past contracts related to the production and sale of its crude resources in timber and gold. This position arose not only because of the low value-added arising in the domestic economy from export of raw gold or timber, but because those contracts arose under non-market and impoverished circumstances that Guyana faced at that time. As Guyana is weaned off concessionary finance, it must itself seek market pricing and tax revenues from its limited natural resource base. With Guyana's debt write-off the situation today is more demanding for better terms under non-renewable natural resource production contracts. Avoiding future debt could be achieved by raising the share of tax revenues from value-added production activities using Guyana's logs or raw gold production and exports. Such a strategy could be supported by halting log exports and requiring a greater percentage of value-added in finished and semi-finished goods production arising in the logging industry than the current low value-added, zero profit outcomes A known amount of Guyana's forest cover for commercial exploitation, with replanting and discretionary regeneration should be utilized profitably and taxed. Raw gold exports could be discouraged with tax, while the tax on jewellery could be lowered in order to encourage higher value-added in the jewellery industry. On Barama's technical expertise in harvesting logs, that is admirable, but it is hardly any consolation for depleting Guyana's non-renewable resources for zero profits and nothing to tax. Less resources to government means less funding to monitor and manage the logging sector itself and for unleashing revenues for building and maintaining Guyana's flood prone environment. The exporting of crude timber or logs will keep Guyana as a primary producer until the logs run out. There are other attitudes toward the environment beyond low value, zero profit logging. The Canadians have seen much of that in Nova Scotia, New Brunswick and in British Columbia. Up north attitudes are changing and assessments of the forestry sector look beyond technical efficiency in cutting trees and selling them abroad for private gain and zero profits on the crude logs. New goals are not to harvest the forest as quickly as possible, but rather to develop alternative high-end uses of the forest through conservation and tourism etc. In Bhutan, with a $765 or less national income (Guyana, US$1,010), the constitution protects the forest; with the country keeping 60 percent of its forest cover intact forever (http://www.fao.org/DOCREP/005/AC805E/ac805e08.htm). The idea is to practise both forestry and risk management solutions. "Currently, all commercial harvesting is based on cable logging systems. Cable logging, using fixed skylines, was first introduced in the early 1970s. Gradually, other equipment was introduced such as skidders, mini-tower yarders, hydraulic loaders and backhoes (for road construction)." Barama's forest harvesting and replanting new forests or species should be compared with other countries for a full assessment on the technical efficiency front. On the value and profitability front, Guyana should end all zero-profit and negative-returns concessionary and wealth transfer activities by seeking a satisfactory share of liquidated wealth (economic rent as in the World Bank's advice to Trinidad and Tobago) from its 'crude' through profitable value-added activities arising within Guyana's borders. A production share or market share is not a new concept when we are dealing with crude ore, such as fossil fuel oil that has a high market demand like timber and gold. The process of enhancing Guyana's development could benefit by halting all log exports and taxing value-added on finished or semi-finished goods under a level playing field for all logging firms' in their country-wide high valued production operations. This would signal a new thrust in industrial development, along with more efficient use of Guyana's scarce non-renewable resources. Yours faithfully, Ganga Prasad Ramdas