Business Page January 27th, 2002


The Shaping Of The Investment Code?

Introduction

"An investment code has been prepared and will be enacted into law as soon as all the consultations are completed. The Act will clearly define the various areas of interest and concern to potential investors, including the incentives structure." These are the words used in Budget Speech 2001 by then Minister in the Office of the President with responsibility for Finance Mr. Saisnarine Kowlessar. Mr. Kowlessar was subsequently confirmed as Minister of Finance following the 2001 elections. And one month later, Chief Executive Officer of the Guyana Office for Investment (GO-INVEST), the Board of which is headed by President Bharrat Jagdeo repeated the intention to "enact the Investment Code into law". Guyana had also committed itself in its undertaking to the IMF and the International Development Association in November 2000 "to tabling the Investment Law in Parliament." (Page 21 of Decision Point Document of November 1, 2000).

This latter obligation alone should have made the enactment one from which the country could not have excluded itself. We appear to have forgotten too that this was a commitment made to the private sector of Guyana. The six-page document circulated in the National Assembly in August last year would therefore have been both surprising and disappointing to a large number of Guyanese including several in the private sector.

Confusion

To compound the confusion are the statements made by a number of prominent political leaders seeking to justify the meltdown of the code to a level at which its very status is now in doubt. Minister Kowlessar appears to have reversed himself certainly in respect of concessions when he said "that such concessions etc. should go in an investment guide - otherwise you would have to change the code each time the concessions/ incentives changed" Minister Kowlessar appears to have been very badly advised on this issue. Taxes including their rates can only be changed by legislation, which includes both primary legislation enacted by Parliament and supplementary legislation (regulations and orders) which the principal legislation empowers Ministers to make subject to either negative or affirmative confirmation by Parliament.

President Bharrat Jagdeo has downplayed the deletions and in fact claimed that he had the agreement of the leaders of the Private Sector Commission in the changes. No one from the PSC has contested this assertion although former head of that body, Mr. George Jardim during whose tenure the draft law was prepared, told the Catholic Standard that he had not seen the version of the Investment Code which was circulated in Parliament. Mr. David Yankana, the Secretary to the PSC is quoted in the Stabroek News as saying that the private sector was unhappy that the Code was not legally enacted. If it all sounds very confusing, that is because it is.

The Changes

Today in Business Page we look at some of the sections which have been deleted and their significance.

Section 2 dealing with Objectives has removed the two objectives of streamlining the existing procedures for investment and establishing the structure and authority of the Agency responsible for investment. The reason for the deletion is hard to understand since one of the problems investors face is a proper institutional framework and the absence of a one-stop shop for potential investors, matters which have been publicly recognised by the Government.

In Section 4 dealing with fields of activity open to investors, financial services have now been excluded which seems to suggest that the Government is satisfied that the economy is sufficiently served by the existing financial services providers or that any application has to go through the torturous case-by-case process. The same section had provided for certain sectors to be reserved, but this too has been removed.

The draft of Section 11 had provided for the government's right to own some or all of the shares in specified industries. This specification has been removed while maintaining the government's right to own some or all of the shares in an investment.

In Part 2 of the Draft Law dealing with the Rights, Guarantees and Obligations of investors, Section 13, while continuing to guarantee the prompt payment of adequate and effective compensation, has had removed any obligation to pay interest from the date of acquisition or taking possession of the investment enterprise or asset. The right to interest on money forgone is an economic reality and should not have been removed.

Section 15: non-intervention by government is one of the really indefensible areas of deletion since it is hard to understand why a government would wish to intervene in the management of a business, particularly given that the Draft had allowed for such intervention in the pricing of services provided by utilities.

As with Section 15, Section 16 which sought to guarantee free export and import has also been deleted in its entirety.

Sections 18 and 19 providing for equal treatment and the granting of Most Favoured Nation treatment of all investors have been deleted in their entirety. While the Government's position on these are understandable, it will soon have to recognise that international commitments under trading agreements such as Caricom and FTAA as well as bilateral investment treaties and the rules of the WTO will make such equal status treatment mandatory.

Section 24 permitting existing and new investors to operate foreign currency accounts in Guyana has been deleted, no doubt in part because of its implications for the Guyana Dollar. Section 28 which sought to confirm intellectual property rights under various existing legislation was deleted also in its entirety.

Fiscal Incentives & Administration

The Draft Law had a number of sections dealing with the subject of taxation including tax remissions and tax holidays. Anyone familiar with the widespread abuse of tax remissions and tax holidays by successive governments would have welcomed the proposed changes designed to bring order and transparency into the process. Regrettably for the most spurious reasons conceivable a number of these provisions were dropped leaving a situation where the politician can decide on who benefits from any concessions and reliefs without any obligation to advise Parliament or the nation.

Section 23 had provided for investors, their foreign personnel and family members employed in Guyana to pay taxes to which Guyanese are routinely subject. This Section has been deleted in its entirety for reasons not apparent. Section 34 which had similar objectives to Section 23 but in respect of the investor has been amended by deleting the taxes to which the investor would be liable. Section 35 which sought to guarantee stability in tax rates has been deleted.

Section 36 dealing with the conflict of laws and which sought to interpret all laws in favour of the investor has been deleted in its entirety.

Part 3 dealing with investment priority categories and fiscal incentives has been deleted in its entirety. The retention of this part would have removed much of the uncertainty and the discretionary powers accorded to politicians under the current system. Section 44 would have required the government to "publish in the Gazette full information regarding all fiscal incentives granted to specific investment enterprises and to specific investors".

Part 4 dealt entirely with administrative structures and procedures about which GO-INVEST's CEO made a song and dance in The Chronicle of Friday July 13, 2001. That Section has been completely erased once again leaving uncertain and hanging the role of GO-INVEST in promoting investments in Guyana.

Conclusion

The Draft Law was the work of a wide cross-section of the Guyanese business and professional community as well as government officials. Legal luminary Bryn Pollard provided the legal input while the writing was done by international consultant Dr. Don Lecraw. This effort was unfortunately diminished by the PSC's agreement to the relegation of the document from one having legal force to one of at best a mere policy restatement.

Given the legal down-grading of this document as well as the substantial deletions from the original draft without a more comprehensive explanation from the Government, it is hard to see nay fundamental policy shift by the Government or specific features that will gain the confidence of potential investors.