World Investment Report: 2001 - Promoting Linkages (Part 1)
Introduction
On Wednesday September 19, 2001 the United Nations Development Programme
launched its World Investment Report for 2001 titled "Promoting
Linkages", yet another outstanding output by the United Nations. Every
year, I continue to be impressed with the Human Development Report also
published by the United Nations Development Programme (UNDP) and wonder why
such publications do not form part of the national debate and engagements
particularly in developing countries.
Another report worth mentioning is one by the Caricom Secretariat which,
under the leadership of Mr. Maurice Odle, produced the excellent publication
"Caribbean Trade & Investment Report."
Some of these Reports are worth an array of well-meaning but often
ill-suited consultants. Organisations such as the UNDP, which continue to
support our country financially and otherwise, should strongly recommend
that our public officials be familiar with and be guided by their contents.
Such organisations should also be more pro-active in fostering discussions
on, and public dissemination of these highly relevant and extremely useful
publications. The piece on Taxing Lost Skills in the 2001 Human Development
Report ought to be compulsory reading for those responsible for fiscal,
education and economic policy and management of a country like ours which
increasingly suffers from the brain drain to the developed world.
The Other Story
World Investment Report 2001 falls in the Must Read/ Highly Useful
category of publications. Its subtitle Promoting Linkage tells only part of
the story. The liberalised trade and investment policies which drive
globalisation have seen the unabated expansion of Foreign Direct Investment
Flows. While this Report is replete with information about flows of
investment and capital, it also tells another story.
Unfortunately for Guyana, a small number of countries account for much of
the foreign direct investment (FDI) outward and inward flows. As the Report
notes the world's top 30 host countries account for 93% of inward FDI flows
while the top 30 home countries account for a staggering 99% of outward FDI
flows. Not surprisingly there is an even greater concentration among a small
number of trading blocs and within countries.
As I read the Report I looked in vain to see a mention of Guyana that
places us in a positive light. We clearly do not warrant any reference of
significance and it is important that our policy makers and private sector
understand the reasons. A review of tables 1.18 and 1.19 of the Report
dramatically reflect this insignificance. We do not appear on table 1.18
dealing with FDI inflow where the cut starts at US$0.2Bn. Table 1.19
indicates that as a percentage of Gross Fixed Capital Formation, Guyana was
less than 20% compared with 82% for St. Vincent and 53% for Trinidad and
Tobago. Bear in mind that among CARICOM countries, Guyana has a low rate of
Fixed Capital Formation. Even if we allow for the inadequacies of
international economic data, the situation is no one which makes Guyana
comfortable or proud.
Resource Rich, Poor Country
Guyana is a resource rich, poor country with a small population and
therefore an internal market of no significance. Our principal resources are
gold, bauxite, timber, fishing, sugar and rice. To serve a population of
about a three quarter million, utilities such as electricity and
telecommunication complain about high unit cost and low ability to pay by
most consumers. We have a small and relatively inefficient manufacturing
sector and a services sector dominated by a few banks and mainly domestic
insurance companies.
Against this background we compete very unsuccessfully for FDI and the
reasons perhaps are not too difficult to identify. We have suddenly been
thrust in a sea where market forces dictate economic behaviour, and where
the rules of the WTO, and multilateral and bilateral trade arrangements
deprive governments of their influence, if not sovereignty, in economic
matters. As a consequence, the space available for such matters as a
national policy on promoting and supporting linkages is limited indeed.
So convinced do we appear to be of the virtues of globalisation that it
is now a contentious issue of the timing and extent to which the government
ought to intervene to influence economic decisions whether in rice, bauxite
or gold.
The Virtues of Linkages
There is no question about the benefits which linkages between foreign
and domestic operators provide to developing countries. Invariably foreign
affiliates bring stronger knowledge and skills base, technology, brand image
and the financial resources which domestic entities often lack. Linkage also
takes place at various stages in the value chain so that there is an
infinite possibility whereby the Guyana enterprise can link with the foreign
counterpart backward, forward or laterally. So obvious are the benefits of
linkages, that it does not seem to warrant further emphasis.
Let me say however, that linkages assume two very obvious conditions:
1. That there are domestic enterprises capable of operating successfully
to international standards. 2. That international entities consider that the
host countries offer sufficient opportunities to generate returns over and
above those available to them in their own country.
Policies to Promote Linkages
The policies pursued by host countries government must therefore be
designed to create a pool of successful domestic businesses, while
attracting foreign investors to the country. There needs to be genuine
engagement between the private sector and the Government rather than each
side criticising the other. There are inadequacies on both sides and we need
meaningful engagement to remove any misunderstanding which seems to
characterise the relationship and hinder the formulation of policies to
promote private sector development.
Traditionally a number of tools were employed to encourage foreign
affiliates to link with local firms. These include:
1. Local content requirements in exchange for incentives 2. Joint venture
requirements to facilitate access to the domestic pools of funds 3. Export
performance requirements 4. As in the case of Trinidad and Tobago a
Corporate Registration Requirement
Conclusion
In the globalisation mantra, such tools are becoming less and less
popular and the question of the marriage of domestic and foreign investors
is not seen as a policy issue but one that is best left to the market, and
foreign and domestic parties. Guyana legislation does not even contemplate
Joint Ventures and leaves their management to the more general rules of
corporations and partnerships - clearly not a satisfactory situation.
Part 2 of this article will appear in next
week's Business Page.
Copies of The World Investment Report 2001 are available at the
UNDP office on Brickdam, Georgetown.
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