October 11, 1996 DRAFT
II. General Constraints That Guyana's Development Must Overcome
B. International Markets
D. Public Sector Performance
E. Human Capital
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The renewed economic growth experienced in the past four years has brought our country to the threshold of a new era. At this stage in its economic history, it may be said that Guyana has righted a ship that was listing badly. The most onerous period of repairs - that of structural adjustment - has been endured. Now the challenge is to give the ship continuing propulsion and to guide it in a fruitful direction.
The long decline into an economic twilight exacted a high cost, social as well as economic, and the initial stages of the reform period aggravated those costs. However, the dynamism of the economy in recent years has affirmed the underlying strength of the economy, provided that the policy environment is appropriate for unleashing its potentials.
Notwithstanding the encouraging recent trends, the process of recovery is far from complete, and new challenges will arise. The momentum to growth could potentially falter for many reasons. If we are not watchful, it could happen, for example, because Guyana loses its main preferential rice market after the year 2000, which appears likely to occur. It also could happen:
If preferential sugar prices weaken substantially; or
If key fisheries stocks become depleted; or
If the country's infrastructure does not improve sufficiently to support further economic expansion; or
If the labour force does not measure up to the new demands for skills; or
If accessible stocks of high-value timber species are not sustainably managed; or
If access to production and investment finance does not improve sufficiently; or
If the economy doesn't diversify out of a few primary products that are vulnerable in international markets; or for myriad other reasons.
In addition, there is the ever-present concern that growth could possibly occur without bringing with it a significant reduction in poverty, or a measurable increase in living standards for the majority of Guyanese. A similar danger lurks in that economic activity could conceivably progress without necessarily improving the populace's access to potable water and sewerage systems, health services and housing, all of which are basic to our well-being.
These dangers and concerns are very real and they are illustrative of constraints to the growth process that could arise, some of them in the near future, if they are not properly anticipated and if appropriate policies are not put in place. The various chapters of the Strategy review these issues carefully and develop comprehensive policy programmes to deal with them. For these particular examples, the reader is kindly referred to the following chapters, respectively, The Sugar Industry (no. 33); Fisheries Policy (no. 31); the three chapters on infrastructure in Volume V (nos. 38 - 40); Labour and Employment Policy (no. 35); Forest Management (no. 30); Banking Policy (no. 15) and Policy Framework for the Private Sector (no. 36); Other Agriculture (no. 27) and Manufacturing (no. 34); and Health Policy (no. 19) and Urban Development and the Housing Sector (no. 23). It can be seen that many of the solutions developed necessarily involve reforms in the ways that we are accustomed to carrying out our daily business - in respect of institutions and regulations and policies. It cannot be otherwise in view of the magnitude of the challenges.
These examples represent only a few of the potential constraints that our national development process must confront and resolve. Nevertheless, they are important ones, and they signify real concerns precisely because they represent extensions of trends that are currently observable. In this same spirit, the individual chapters of the Strategy identify the most important constraints in their respective areas. In the remainder of this chapter, constraints of a more general nature are reviewed.
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Guyana faces two classes of constraint that arise out of its geographical situation. One tends to limit the potential for integration into the international marketplace, and the other tends to restrict the effort at national integration. Appropriate policies can help reduce the impact of these constraints, but in order to do so the constraints must be clearly identified.
Guyana is located at the southern extreme of the Caribbean and on a remote corner of South America. This circumstance has the following disadvantageous implications for economic growth:
1) The Caribbean islands are its nearest trading partners, in terms of transport time, and they do not represent large or rapidly developing markets.
2) Central America and some parts of the Caribbean, especially the island of Hispaniola, have more favourable transport links to the major market of North America; and other islands, such as Barbados and Trinidad and Tobago, have better links to European markets.
3) There are no road links to Guyana's largest land neighbors, Brazil and Venezuela, and the population centres of Brazil are distant indeed.
These constraints are inherent in Guyana's location on our planet, but nevertheless their effects can be reduced through appropriate policies and programmes, especially in the transport area. In at least one respect, a geographical disadvantage can be turned to our advantage, viz., making Guyana into a location for entrepot trade. Some of these initiatives are as follows:
These initiatives and related policies are discussed for the most part in Chapter 38, and the export processing zone is also analyzed from varying perspectives in Chapters 34, 35 and 36.
Geography also is a constraint from a standpoint of national integration. Our population and economic activity are concentrated in a relatively small swath of land and our hinterland terrain inhibits the development of land transport and maintenance of its infrastructure. Policies to overcome the force of this constraint include the following, with references to the chapters in which they are discussed:
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International markets represent one of the best hopes for overcoming underdevelopment, through exporting, and indeed export promotion is one of the key orientations of this Strategy (see the next chapter). Nevertheless, they have characteristics that can make an export drive difficult at times.
The first problem that international markets sometimes present is volatility. This is particularly true of primary products, including minerals, lumber and agricultural products. The implication is that the producer and exporter have to be prepared to suffer one or more years of depressed prices from time to time, in order to survive economically and prosper from the better years. Also, the more an economy is diversified, the better it can ride out fluctuations of prices of a few commodities. Diversification is another one of the basic orientations of this Strategy.
The second problem is a generally downward secular trend in primary product prices, in real terms. This pattern has been observed over a period of many decades, and it requires continual increases in productivity on the part of the producer in order to maintain profit margins. Many experts feel this pattern will not hold for timber and wood products for the coming decade or so, but it still may be true of most other primary commodities.
A third problem arises out of the particular structure of Guyana's export markets. Rice and sugar exports have been heavily dependent on preferential markets abroad, and there are many indications that those preferences will weaken substantially after the year 2000, and perhaps even sooner. Sugar prices in the quota markets already have retrogressed significantly in real terms over the past decade, and that trend will continue and perhaps accelerate, owing to changing attitudes in Europe about the Common Agricultural Policy. The implication is that Guyana's sugar sector needs to be restructured, especially as three of the eight estates are already losing money, and the rice industry needs to disseminate much more widely the improved varieties and new technologies of production. These issues are some of the biggest challenges our country faces in the next few years, and they are discussed at length in Chapters 26, 28 and 33.
In effect, international markets present great opportunities and important constraints at the same time. The keys to realising the opportunities and overcoming the constraints are adaptability on the part of producers and workers and vision and decisiveness on the part of policy makers.
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The deteriorated state of the nation's infrastructure is a major bottleneck to growth. It has been evident everywhere, from seawalls to roads, bridges, aerodromes and harbours, and from electricity generation and distribution facilities to hospitals and water supply and sewerage systems. Considerable progress has been made in recent years in reversing the trend toward deterioration, but there is much ground yet to cover.
Upgrading the infrastructure to the required degree involves raising investment levels, and therefore raising national savings rates if the external indebtedness situation is not to be aggravated again. It also requires new and more effective contracting procedures (Chapters 40, 41), and in some cases will require concessions to the private sector for BOOT operations.
If the need for rehabilitation of the nation's physical plant is not to recur on a large scale, it will be absolutely essential to strengthen mechanisms for maintenance of works. In this regard, fiscal sustainability principle of this Strategy is vital, and that in turn implies a strong need for cost recovery mechanisms at the sectoral level. Creative proposals for cost recovery for sea defences are put forth in Chapter 40, and for partial cost recovery in health and education in Chapters 19 and 20. The same principle is applied to some aspects of the transport network in Chapter 38. Additional references to the same approach, for other sectors, are found throughout the Strategy.
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It has been amply recognised that the weakened state of government has become a constraint to Guyana's development prospects. Over time there has been a hemorrhaging of top-level talent in the public sector, and at the same time many urgently needed reforms in legislation and policy simply have not been promulgated. Public service salary scales have dropped so much in real terms that, at the lower end, they have worsened the poverty problem. The very organisation of the public sector needs updating, along with improved procedures for resource allocation and staff recruitment and evaluation.
Chapter 13 presents an extensive analysis of the situation of the public sector and offers a comprehensive programme of reform, some elements of which already have been initiated. The importance of this programme for the success of the entire development effort cannot be too strongly emphasized.
In addition to the specific reforms of an institutional nature, this Strategy offers a more focussed view of the role of Government: concentrating its activities in its areas of competence, thereby providing the quality of leadership needed for national development, and stepping out of areas where it does not have natural competence, such as in the ownership of the means of production.
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Thirty years ago Guyana was a leader in the Caribbean, indeed in the entire developing world, in regard to human capital, above all in indicators of educational attainment and health standards. Sadly, those achievements have deteriorated badly, and that has been one of the reasons for the outflow of human talent from the country over the past two decades. Nevertheless, the Guyanese abroad still is respected for his or her skills and willingness to work, so the potential to restore those standards to previous levels clearly exists.
As we move in the direction of a more diversified economy, and as we attempt to upgrade the quality of management in the Government, the lack of sufficient skills in the labour force is increasingly becoming a constraint to further development. For that reason, the reforms in education, with emphasis on the primary level but not neglecting the other levels, which are mooted in Chapter 20, and the new approaches to worker training and teacher training which are laid out in both Chapters 20 and 35, are essential preconditions for our country's development. The same may be said of the reforms in the health care system (Chapter 19), in approaches to providing housing, clean water and adequate sewerage systems (Chapter 23), in policies that will enhance the role of women in our economy and society (Chapter 21), and in policies designed to improve the well-being of our Amerindian citizens (Chapter 22).
Ultimately, the key factor in economic development is the human factor and, more to the point, economic development is about improving the quality of life for our citizenry. Hence the importance of this Strategy's people-centred approach cannot be overstated, and the reforms developed in the above-mentioned chapters deserve the highest priority.