Business Page – August 31, 2003

Investment Bill delayed - again

Introduction  

The Investment Bill which has been in gestation for close to four years has to wait a while longer before it becomes law.
Having been referred to a Select Committee of the National Assembly for further consideration, the Bill must now wait until after that body’s eight weeks’ recess before it can be voted on.
Compared with the more controversial Fiscal Enactment Amendment (No.2) Bill 2003, this should have been a shoo in since it has effectively been cleared by the Private Sector Commission (PSC) and would almost certainly have been supported by the main opposition party, the Peoples National Congress Reform.
The Investment Bill was the initiative of the PSC and began in October 1999 when the President had the first and only Annual Presidential Summit with the Private Sector. In April and May 2000 International Investment Specialist Donald LeCraw, in a consulting assignment funded by the United States Agency for International Development (USAID) which later brought on board Senior Counsel Bryn Pollard, met groups from both the private as well as the public sector out of which a draft Guyana Investment Act was prepared and circulated for discussion. A number of questions, suggestions and recommendations came out of the further consultation process following which Mr LeCraw prepared a commentary on the feedback.
The government responded by pouring cold water on the idea and instead circulated in the National Assembly an undated, unparented Investment Code whose status is to this day rather uncertain. That appeared to be the end of the PSC’s efforts until about two years later when surprisingly and suddenly the private sector was told that the government was prepared to talk about the Bill although at least one Minister cautioned against optimism. The PSC appointed a committee chaired by its Treasurer Paul Cheong to review the original draft against the tabled Investment Code, the result of which was a second draft with which it felt the government would be more comfortable.

Compromise

The President and the PSC then convened a meeting in May 2003 at the Hotel Tower where a number of outstanding issues were resolved with an agreement to meet again shortly to address the outstanding issues. The Bill that was tabled in the National Assembly represented a compromise to which the committee had agreed, although not without the expression of reservations by some members. We now look at some of the provisions with which there is still some discomfort and which it hopes parliamentarians will carefully review before it is voted on.

Domestic investor

The Bill includes in its definition of ‘domestic investor’ citizens of other member states of Caricom ostensibly because of our regional obligations. Without being insular, why should we confer a right on Caricom nationals when there is no reciprocal arrangement for Guyanese? Why not put such a condition in the Bill? And have we considered that more than a few countries of Caricom sell their citizenship to Asians, among others, who under the provisions as drafted would qualify as nationals? While as a country we must not put too many hurdles in the path of investors, we should not place too many ambiguities in the law whereby judgement has to be applied. Our tax laws include residence rules which may be useful in the application of other laws such as this one.
Investors can invest in just about anything, including a co-operative which enjoys tax-exempt status, but they cannot operate “investment enterprises prejudicial to the national culture.”
Will the private sector please explain what this means? Foreign investors may also establish under the Business Name Registration Act which seems particularly dangerous because of the loose nature of such a (non)entity.
And do they really mean that only companies incorporated under the Companies Act are an acceptable business form and not a branch of an external company? And while the bill recognises co-operatives as an investment enterprise there is no such recognition of joint ventures, perhaps the ideal model for our country.

Dollarisation

One particularly interesting clause - 22 - provides that foreign personnel employed in investment enterprises are subject to all the tax laws, but section 23 is also interesting for a different reason. If the Bill is passed then investors will be able to open foreign currency accounts which is likely to see a flight from Guyana dollars and dollarisation of the investment sector of the economy.
The Bill also sees the restoration of the provision that there be published in the Gazette "information regarding all fiscal incentives granted pursuant to this [the Investment] Act.” While this appears a significant concession by the government which has resisted any attempts to curb the liberal granting of fiscal incentives to those whom it favours, the ambiguity about the incentives that need to be gazetted should be removed. After all, it is not under this Act that tax holidays and various forms of waivers are granted, and it is not difficult for the unsuspecting person to believe that this will curb the excesses, notwithstanding the provision of section 38 that the incentives granted to an investor under this or any other enactment be audited by the Auditor General.
In fact, not only will the cynic wonder why section 37 limits the publication of incentives only “under this Act” and not any other enactment, but there is a subtle but significant change between what the private sector wanted and what is now provided.

Influence and control

The private sector should also explain why it has agreed that the Minister can designate the four private sector organisations from which the private sector members of the Investment Promotion Council will be drawn. A legislative framework which gives the President and Ministers autocratic powers is obviously the model preferred by this Government.
Under the Bill, Go-Invest is assigned responsibility for administering the fiscal incentives investment system, though it is difficult to reconcile this with the powers of the Minister of Finance under the various tax acts.
The government has also rejected the attempts to put into the legislation a provision which will force prompt decisions on requests for incentives, but again the PSC appears to have taken the position that we are fortunate just to have any Bill.
They seem to forget that this is one of the commitments given by the government to the international community in exchange for debt relief, and that it is in the country’s interest to have truly effective provisions for encouraging investments.
Yet, one hopes that Go-Invest will demonstrate more openness and transparency in its operations, be freed from political controls and become truly autonomous.
On the other hand the private sector and indeed the country should welcome the reinstatement of the requirement for interest on monies due on any compulsory acquisition of property and the reinstatement of the provision against governmental interference in investments which were major bones of contention. But does the Bill’s provision regarding compensation and interest apply to all privately owned property or only invested assets?

Conclusion

The Bill is a vast improvement on the Investment Code which remains an embarrassment to all concerned. Despite agreement from the private sector, there is significant room for improvement, too many ambiguities and opportunities for abuse. The Select Committee must be able to do a better job to ensure a well drafted piece of legislation which the Bill in its current form is not.
An Investment Act is no guarantee that investments will come rushing in if other factors do not exist. What it does, however, is bring some certainty and order to the investment approval process which has so far been largely politically driven and for this and other reasons has not been very successful.
The Stock Exchange and a more transparent incentive approval process superimposed on a more civilised political culture may be just what the country needs to move forward. Over to you, MPs.  (Back to top)