We continue this
article influenced by the publication of World Bank's World Development
Report 2005, released late last month. This report has both relevance and
lessons for us in Guyana since it seems to be addressing issues with which
we have been familiar and indeed concerned for a very long time. We noted
that the report had identified uncertainty of policies as one of the major
barriers to investment, as well as the three major influences which the
government exerted on the investment climate through the impact of their
policies and behaviour on the costs, risks, and barriers to competition
facing firms. It was not enough for the government to address one or two of
them - a government serious about attracting investments both local and
foreign had to tackle all three, and variations in investment climates
around the world highlighted the potential for improvement.
It only takes a
superficial look to see how government policies and behaviours influence the
costs of doing business and hence the range of investment opportunities that
might be profitable, with taxes being the most obvious example. But the role
of governments is not only to regulate the level of taxes - they must also
provide those public goods, supporting the provision of infrastructure, and
addressing market failures which no single entity can or should do, even in
a private- sector driven economy.
The supply of
electricity has been a bugbear of this country for close to a quarter of a
century, and has created severe dislocations not only in the manufacturing
sector but across the economy and the society. No business can operate with
unreliable and inadequate electricity and the cost of the back-up system has
been enormous and debilitating. This explains why this column considers any
comparison of electricity tariff with other countries completely academic.
It is not just the cost of acquisition of back-up facilities or the fuel
consumed, but also the disruption and the salaries and wages and physical
facilities which have to be made available.
considerations are indeed formidable, as, for example, road access and
potholes which do serious damage to vehicles. There are, however, the less
visible costs such as crime, corruption, statutory compliance or the
inefficiencies of the marketplace which can cause serious distortions, or
the unnecessary barriers which impede the rate at which business can enter
or exit the market. Not that we have done nothing in certain sectors, but
ironically those areas we have addressed have generally placed a necessary
cost on entities in the sectors on which some controls have been placed such
as the insurance and financial businesses.
Our court system
is riddled with problems such as contract enforcement, ownership
difficulties and the speed with which simple legal processes are completed.
Which serious country would shut down its companies' registry for months or
would allow for delays of years in settling important business issues? What
type of credible complaint mechanism exists to deal with the corrupt
official who insisted on being paid tens of thousands of dollars for a
straightforward licence? The businessperson who is an active and guilty a
participant in this illegality usually compounds it by hiding the
transaction for his auditors. It may not be in the books but it is a cost
all the same.
Noting that costs
also have a time dimension, the report notes the large variations in the
time taken to obtain a telephone line and to clear goods through customs, as
well as in the time managers need to spend dealing with officials. In the
more developed countries it takes just a couple of days to register a
business, but several months in Third World countries.
is to maintain a stable and secure environment, including protecting
property rights. It should be recognized that policy uncertainty, an
unstable economy and a decision-making process that at best appears
illogical, inhibits opportunities and chills incentives.
This is not to
suggest that governments must bear firms' risks or that the firms should not
do serious, professional and independent research. Businesses by their very
nature are forward-looking and therefore risky, but those are normal and
reasonable costs of doing business, regardless of the country. The
government's role is to see that it does not make it any more risky.
Barriers to competition
love monopoly, but barriers to competition benefit some firms while denying
opportunities and raising costs for other firms and for consumers. They can
also dull the incentives for protected firms to innovate and increase their
productivity. In this regard, the government does little to help, and even
after criticising the most generous package of incentives granted to Barama
by the PNC, the government is reported to have extended the same concessions
for another ten years.
Despite its avowed
intentions to free up the telecommunications sector, it has watched like any
helpless citizen as ATN dragged out any attempts to introduce competition
into the sector.
reflecting our own conditions, the report notes that over 90 per cent of
firms in developing countries report gaps between formal policies and what
happens in practice. The report notes the basic tension underlying this gap
because of the mismatch between the objectives of firms - both local and
foreign - and those of the societies in which they operate. This tension is
most evident in taxation and regulation.
complain about taxes, but taxes finance public services that benefit the
investment climate and other social goals. Many firms would also prefer to
comply with fewer regulations, but sound regulation addresses market
failures and can therefore improve the investment climate and protect other
Without a sound
and possibly legally-instituted investment regime, developing countries
behave as though they have little choice, and when the crunch comes the big
and influential company almost invariably gets what it wants.
must recognize that the investment climate is for everyone and the creation
of a good investment climate that balances the interests of all, including
the government is the real challenge it faces.
A process, not an event
The report adds
that no country has a perfect investment climate, and that perfection in
even one policy dimension is not necessary for significant growth and
poverty reduction. Experience shows that progress can be made by addressing
important constraints in a way that gives firms confidence to invest, and by
sustaining a process of ongoing improvements. The important thing is to
start. Minimum tasks include strengthening government capabilities,
enhancing the court system, reducing crime, improving domestic taxation as
well as regulation and taxation at the border.
Conclusion: Where to start?
persuasion over several years, the President assented to the Investment Act
2004 on March 31, 2004, the deadline for the tabling of the National Budget.
Out of this should have come an Investment Code, the designation of
investment priorities and the appointment of an Investment Promotion
Council. Abso-lutely nothing has happened since, and it is tempting for the
cynic to conclude that it was only because of the pressure from the United
States Agency for International Development (USAID) and the PR to be had
from crowing about it in the 2004 budget speech that the act was passed. We
could not have a more wrong
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