Business Page September 23rd, 2001


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.