Category: Private sector

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The case for the Marriott Hotel

The government through the instrumentality of President Jagdeo, is about to enter the tourism sector as a major investor. At the same time, the government is getting out of the telecommunication sector, or at least one of its major investments in the sector. Of course these will be done in the name of the people of Guyana, without consultation, logic or justification. Not that President Jagdeo feels any reason or compulsion to consult with the Private Sector Commission, a large segment of the trade union movement, or with the National Assembly. One leader of the PSC had said that he supported everything done by President Jagdeo. One of the trade unionists has placed a halo over him. The many would-be leaders of the PPP/C are silent, perhaps unable to understand the implications of the personality culture and egomania which now shape economic decisions. Or perhaps they quietly relish the thought of leading a country where the people can be bribed with their own taxes; where state property can be disposed to whomsoever the government chooses; and where an opportunity to visit the Office of the President or dine at State House are now legal tender, in exchange for every scrap of transparency, decency, financial probity, the morality of the people and the soul of the nation.

At their most basic, the business decisions of the Jagdeo administration are not difficult to understand. A hydro-electricity power licence and a road contract to Fip Motilall, single sourcing of billions of dollars of drugs for the national health system and in the first instance illegal tax concessions to the Ramroops, land for hotel housing developer Buddy Shivraj all helped to support and enrich friends at the expense of taxpayers. All the aforementioned persons have many things in common, including class and their closeness to the government, and have succeeded partly because of the generosity of the government to them and the relationship they enjoy with its leader. They have no cause for complaint, and on the contrary would wish if things could just remain the same.

They might even be ‘third term-ites.’

Pegasus v Marriott
The problem for Robert Badal and his Pegasus Hotel is that he has been too independent, too courageous and too successful. Worse is that he not only succeeded in spite of the government, but has outmanoeuvred it at every interaction. That is a grievous fault and grievously must he pay for it. The government accuses Mr. Badal of improperly acquiring control of Guyana Stockfeeds Limited while Jagdeo lashes out at the poor service of the Guyana Pegasus and its water quality. But words are not enough to hurt the Pegasus so that sticks and stones must now be called into action, in the name of competition and tourism.

As Business Page recalls it, some years ago the directors of Guyana Stockfeeds Limited announced a rights issue of shares under which new shares were offered proportionately to existing shareholders. Under the terms of the offer, shares not taken up by any of the shareholders could then be offered to the other shareholders. Whatever may have been Mr Badal’s motive, such an arrangement is not unusual in equity transactions, and indeed was a mechanism often used by Banks DIH Limited. At the time of the rights issue, the government was not interested in further involvement in direct private sector investment and did not take up the shares to which it was entitled. Had the government taken up its allocation the shareholding would have remained unchanged. Mr Badal took up the shares and consolidated his control and management of the company.

No one knows whether the government considered the option of taking up the shares which were effectively offered at a discount, and then making a profit by selling them. No one knows too why the government did not honour its own White Paper on privatisation and ensure that 10% of the company’s shares were reserved for its employees. What we do know is that now that those failures have backfired and now that the President’s friends have failed in their bid to buy the Pegasus, it is time to take up the old fire rage and go after Mr Badal. Ironically, the charge led by the President is taken up by NICIL, the company with one of the worst governance records in the country. For more than a decade it has failed to meet its statutory obligations to file annual reports. It is a closed shop, more tightly secured than Stockfeeds can ever hope to be, despite being a taxpayer-owned company. It is a vehicle for siphoning off state assets, selling them and using public money without parliamentary approval. It operates with all the characteristics of a slush fund under the control of a handful of persons with no demonstrated commitment to accountability and the law under which they operate.

P(rivatisation)Unit
But they are powerful and can act with impunity, which perhaps is the subliminal message of their email address – punit! Having failed to file reports annually with the Registrar of Companies for all those years without suffering the statutory sanctions by the Registrar, NICIL and its CEO Winston Brassington and Deputy CEO Marcia Nadir-Sharma were able in one day last September to file and have incorporated the Atlantic Hotel Inc, which to some rings a troubling chord with the Queen’s Atlantic Inc, the company for which NICIL and the government were prepared to change the concessions laws of the country. From all appearances, Atlantic Hotel Inc will be the owner of the proposed Marriott-run Hotel that will challenge Pegasus for clientele. While Mr Jagdeo would wish us to believe that the project is a government-private sector partnership, the incorporator and sole director of AHI is Winston Brassington, the Company Secretary is Marcia Nadir-Sharma who is also its legal officer. The government, it seems, thinks it entirely appropriate for the state to operate like the most secretive private company and sees no contradiction or irony of calling out Mr Badal on governance.

Mr Ramesh Dookhoo, Chairman of the Private Sector Commission, an organisation dedicated to the promotion of the private sector was able in one breath to support the government’s decision to get involved in the tourism sector while calling for more but unspecified information. There was sufficient ambiguity in Mr Dookhoo’s statement to leave everyone guessing without incurring the displeasure of the government, one of the apparent overriding if unstated goals of the PSC.

Poor service
Over the past couple of weeks I have witnessed the poor standard of service by the country’s tour operators and domestic airlines. It is shocking to see how they treat their customers. They accept bookings for flights and then cancel because they do not have enough passengers to make the flight economic. No one visiting Guyana for a few days wants to experience the wait at Timehri while the operator decides whether or not to bother with the flight. If any person wishes to guarantee a flight to Kaieteur, then they had better charter the plane from one of these very service providers who enjoy lucrative space at national facilities financed by the taxpayers of the country.

A decade after the launch of the Tourism Authority visitors and residents alike find it impossible to access basic information on where to go, how to get there, what it will cost and what may be the facilities and amenities that are available. Visitors’ security and safety are vital considerations but it does not seem that this is evident to the government. One cannot but help noticing too that absent from all of the discussion and exchanges about the need for hotels is the Minister of Tourism Manniram Prashad, a long-time friend of the President. Mr Prashad was for several years a director of the Guyana Pegasus and both his political role and well as his experience with the Pegasus would have qualified him to make an informed contribution.

Irrational and illogical
But when decisions are taken on grounds that are as irrational and illogical as they are in the case of Amaila and the new hotel, standard policy formulation and experience become irrelevant and counter-productive to the motives that drive the decisions in the first place. No longer is there a natural role and obligation on the government to provide the infrastructure for the development of the sector, and for the private sector to invest in hardware, jobs and services, and to pay taxes to fund development. It is, like the case of the withdrawal of government ads from the Stabroek News, act first and justify later. The cheerleading band stands at the ready – all set to go. By the time the falsity of the reason is exposed, it is no longer important, and in any case, new and perhaps more sinister motives will have driven more blatantly irrational actions that arouse more but fleeting interest. And so the cycle goes on, despite changes, as in the case of the PSC.

In the days leading up to the Cricket World Cup the government successfully pushed the private sector into hotel property development. The efforts were so successful that there in now over-capacity in the sector. That makes the case for new plant hard to sell, so the President wants to figuratively knock down what exists and invent reasons for a special class of hotel. It seems logical that if such a need existed, the private sector would have responded. They have the flexibility and the profit motive. They know that in tourism the product that is sold is first the country. If someone tells you he is going on holiday s/he tells you the country of destination, not the hotel. Let us first sell Guyana and its rich eco-tourism potential in our many falls and waterways, our mountains and valleys, our flora and fauna. Put money and imagination into the Tourism Authority and the soft infrastructure in the sector. Those will be strong incentives for the private sector to invest in new plant.

Conclusion
Let us recall that the President justified the introduction of casinos as the need to attract tourists. Let him now tell us how many new tourists actually visit Guyana because of the casino and how many are Guyanese who hold foreign passports. But no, we have moved on and the spurious reasons are now irrelevant. It may not be too late for the Economic Services Sector Committee to request that the government present its case for its investment in the hotel.

Mr Dookhoo probably wants the government to present the nation with a financial justification for the [mis]/use of taxpayers’ money for the financial adventures of the President. If so, he needs to be more direct. But the PSC needs to ask a more fundamental question: what is the government’s policy with respect to entering into direct competition with businesses generally and Guyanese businesses in particular. Today it is hotels, tomorrow it is telecommunication, the next day it is agro-industry, etc. The environment becomes increasingly uncertain.

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New Building Society in breach of its own Act

Introduction
The annual general meeting (AGM) of the New Building Society (NBS) returned to Georgetown after a two-year sojourn in Berbice. Unfortunately neither the press nor the directors of the Society made any report on the meeting which had its own moments of interest. Today’s column will try to fill that void. Once again the NBS Concerned Members were present, vocal and prominent. There were from the Office of the President big fishes, including letter writer Dr Randy Persaud, and small fishes. There were also some prominent figures who, like Dr Persaud, perform political functions and work in the public service. But it soon became apparent that while it is always good to have adequate members’ attendance, quality matters more than numbers, except when a vote is called and proxies can be pulled out.

Business Page two weeks ago had reviewed the 2009 financial performance and the balance sheet. While the financial statements were a major item on the agenda of the meeting, it is not necessary to discuss them here again.

Comical
Shortly after the meeting was called to order, Mr Cyril Walker, Secretary of the Concerned Members group questioned why the Society had not responded to a request from long-serving member for a copy of the minutes of the last AGM. Chairman Eileen Gopaul ruled him out of order, and that was that. This was not the first time that the indefatigable Ms Cox has suffered the indignity of her request for a copy of the minutes of a members’ meeting being ignored.

The meeting then moved to the report of the auditors. Apparently it did not strike the board and its Finance Committee headed by former Commissioner of Police Mr Floyd McDonald that the firm presenting the audit report – Maurice Solomon and Company – was not the same firm – Solomon and Parmesar – that the members had appointed on the board’s recommendation after the previous auditors had declined re-appointment after decades as the Society’s auditors. It would be hard to imagine a more comical situation in a regulated financial business controlling close to $40 billion in public funds.

Challenged on the matter, Chairman Gopaul spoke for about three minutes without making any logical, let alone, sense. As I write, I now realise how unmemorable that response was. The issue was more than a technical change of name as Dr Gopaul seemed to think. During 2009, the appointed firm had split down the middle with the departure of partner Harry Parmesar, FCCA, taking with him several key staff members. What the Audit Committee should have done was carry out a due diligence to satisfy itself that the firm had retained sufficient expertise and experience to undertake such a major audit. With no financial expertise among the directors, maybe they never thought about it. As Ramon Gaskin pointed out, there should have been some note to this effect in the report of the directors.

Corporate arrogance
The directors had proudly boasted that the results were the best ever for the Society, describing these as a 97% increase over 2008. While the Concerned Members suggested that the comparison was misleading, and the line for line increase was 9.6%, they did not dispute the actual profit in 2009. Instead, they proposed a rebate to specified classes of borrowers and adjustment to the borrowing rates, a common practice some years ago. The Society is a mutual organisation so the profits in practice belong to the members and like any corporate entity, the members are paid a dividend. The Chairman did not allow for this to be put to the members but promised that the directors would “look at it.”

Contributing to the profit comparison was a gain on exchange losses on UK investment in 2009 compared with a $200 million loss in 2008. Called to explain why a 2009 decision of the members that the UK investments be repatriated, Dr Gopaul asserted that it was not a decision but “a discussion.” He is possibly the only person whose recollection would have led him to that interpretation, but again members are powerless in the face of this corporate arrogance. So it seems the investments stand, waiting for the usual swings that have characterised the pound sterling for the better part of the last decade.

No estoppel in tax evasion
Two other corporate governance issues attracted much attention. Concerned Members argued that whatever may have been the practice in the past, there should be no pension scheme for directors, to which the Chairman asked, apparently rhetorically, whether directors were not workers. The only problem is that workers are subject to contracts of employment and their employment is subject to an age limit. The directors may also note that there is no contractual relationship and that the same body – the members – that voted pensions can also vote to end the scheme. This is a governance issue, not a dubious claim of worker rights.

The second was in relation to remuneration. The practice of the NBS has been to split the remuneration between fees and travelling – the one being taxable and the other presumed non-taxable. Dr Gopaul’s first response was that directors use their own vehicles to do NBS business and the second was that that the practice came from the days of “Ram” which prompted Gaskin to reply that there is no estoppel in tax evasion.

Statutory breach
There was a sustained exchange between this columnist and the Chairman and the Society’s CEO that exposed how little the bosses understand the New Building Society Act under which the Society operates. I asked Dr Gopaul for the statutory reference and further explanation for his statement in the annual report that the Society was “racing near to the lending limit.” I pleaded with him that the Society had already exceeded that limit and offered to move a motion for an amendment that would have begun the regularization process. Dr Gopaul would have none of it, pointing out that his own board, its auditors and the Bank of Guyana were all convinced that they were right and I was wrong.

I have since confirmed my interpretation with a source in the Bank of Guyana and am more convinced than ever, that the NBS at December 31, 2009 had breached the lending limit prescribed by section 7 of the NBS Act by $3.8 billion, as follows:

Application of the proviso to section 7 (d) of the New Building Society Act to the financial statements for the year ended 31 December 2009:

Despite being described in the annual report as an “uninformed little group of mischief makers and pseudo intellectuals,” Concerned Members take no pleasure in being proved right when the NBS is found to be in breach of its own Act. We believe however that the tardiness of the Minister of Finance in introducing legislation to bring the NBS under the regulatory oversight of the Bank of Guyana would have saved the NBS from this embarrassment.

Expel the…
If lack of understanding of its own Act by the board was not bad enough, their support for an amendment to the rules that would permit the NBS to expel a member at any time shows how mischievous or misinformed the board members are when it comes to serious issues. Originally, rule 13 only allowed the NBS to decline “to admit or continue a member” within one month of the payment of the entrance fee. That time restriction was removed on a motion under Any Other Business, fourteen days notice having been given.

Immediately after the motion was read by the new member, the Chairman sought to put it to a vote, which was objected to by the Concerned Members who asked for a discussion. The motion was supported by all the directors, and overwhelmingly by the floor. The member who moved the motion is an attorney-at-law working at the Office of the President and is a daughter of a PPP/C member of parliament. Afterwards, I met and spoke with her outside of the meeting, in the presence of another top PPP person. She did not even understand what she had done. What was worse was that the board on which sits a Senior Counsel, did not know either.

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On the Line: 2009 Annual Reports of the Guyana Bank for Trade and Industry and the New Building Society

Introduction
Business Page today interrupts its series on the state-owned Guyana Sugar Corporation to present an overview of the annual reports and accounts of two of the country’s financial institutions which will soon be holding their annual members’ general meetings at which the presentation of the annual reports is a major agenda item. One of these is the commercial bank, the Guyana Bank of Trade and Industry which is a licensed financial institution regulated by the Bank of Guyana under the Financial Institutions Act. The other is the New Building Society Limited, which carries on a financial business but which the Bank of Guyana claims does not fall within the act and which, despite several commitments by the Bank of Guyana and the government, remains unregulated. As a result, the bank is subject to the Single Borrowers Limit and other “strong financial regulations,” as described by no less than the Minster of Finance himself, while the NBS is not.

This is not the only note of contrast. One has to look no further than the Chairman’s reports by Mr Robin Stoby SC and Dr Nanda Gopaul of the two institutions respectively to see how they reflect the backgrounds, styles and personalities of the individuals. Both of them had good reason to be satisfied about the results of their entities. But while Mr Stoby was professional and measured, even enthusiastic at times, Dr Gopaul showed how difficult it is for him to adjust his political style to dealing with the commercial world.

He had no qualms about castigating members of the NBS as an “uninformed little group of mischief makers and pseudo intellectuals”; or about praising Housing Minister Irfaan Alli who now risks sanction by the Privileges Committee of the National Assembly for misleading the National Assembly; or making claims about the economy that are at best questionable. While Dr Gopaul claims that the Guyana currency has appreciated during the year, the GBTI Annual Report – and you would expect the bank to know – reported that the Guyana dollar market exchange rate was $202.75 compared with $201.75 during 2008. He also said that the fiscal deficit was at its lowest in 10 years. Perhaps he has been wrongly advised by his Finance Committee comprising former Commissioner of Police Mr Floyd McDonald and trade unionist Mr Kenneth Joseph.

It also goes beyond the two chairmen. The directors of GBTI are all experienced, private sector persons, while those of the NBS with one exception are all connected, directly or indirectly with the ruling party. This necessarily flows through to the quality of governance which has been a major and continuing issue at the NBS, particularly in relation to proxy voting, pensions for directors, and a modern code of corporate governance.

GBTI
The annual report of the GBTI which will be holding its meeting on Monday, April 19, 2010 shows the bank continuing a remarkable run in which since 2006, net income before taxes has increased by 25.8% in 2009, 14.8% in 2008 and 23.9% in 2007, making for a cumulative increase since 2006 of 78.8%. Because of the tax effect, after-tax profits have increased cumulatively over the same period by 95.9%.

The Beharry family holds a 61% controlling interest with the remainder of the shares spread among hundreds of members, but the actual number and any other significant concentrations are not disclosed in the annual report.

Earnings per share for the year were 24.8% in 2009, marginally up from the 23.5% in 2008. With the company’s shares trading at $140, the P/E ratio, a popular investment measure, has improved slightly, to 5.6, making the security one of the most attractive in the domestic market. One area of significance is the increase in the effective rate of taxation which for 2009 is 29.7%, compared with an effective rate of 16.0% in 2008. The corporation tax charge for the year is 26.2%, compared with 13.6% in 2008. Readers are aware that the nominal rate of corporation tax on banks, commercial and telecommunication companies is 45%. As a result of the higher effective rate of tax, the Return on Average Assets and Average Equity have both declined, albeit marginally.

The interest earned on the average of net loan balances declined from 13.4% to 13.1% while the average interest paid on deposits was 2.2%, compared with 2.6% in 2008. This apparently low interest rate is in some significant measure due to the high level of non-interest bearing demand deposits which averaged more than $10 billion during the year. The bank continues to earn significant amounts from foreign exchange transactions with Exchange Trading Gains increasing from $664M or 18.4% of total income in 2008 to $733 million or 19.1% in 2009. As this column noted last year, the gains on foreign exchange alone cover the total staff costs of $612.6 million, which is a decrease from the previous year.

The continuing good run allows Chairman Robin Stoby to announce for yet another year, “the highest dividend payout in absolute terms in the bank’s long history.” At $7.5 per share, total dividends in 2009 will represent 30.3% of the year’s distributable profits, compared with 25.5% in 2008 and 25.1% in 2007. By comparison, the dividend payout ratio of Republic Bank Guyana Limited for 2009 was 41.2%.

Highlights

The bank’s deposits increased in line with the growth in deposits of the financial sector, thus allowing it to retain a 21% market share of deposits. Its market share of loans however declined from 22% to 20.3%. The bank’s financial condition remains very strong and shareholders’ funds have increased from $4.7 billion to $5.7 billion.

Mainly due to what is described as capital work-in-progress of $4.1 billion, the value of property, plant and equipment has increased from $3.8 billion to $5.6 billion. In addition to the new head office, the bank is also building a new branch at Diamond on the East Bank of Demerara. At the sod-turning in 2008 the bank had announced the cost of the new head office building at $2.6 billion. Unless there are some other capital developments that have not been announced, it seems that there has been a significant cost overrun on the head office. The financial statements also reveal that the bank had actually exceeded the Single Borrower Limit by its investment in Government of Trinidad and Tobago Sovereign Bonds, although it fails to disclose the amount of the excess.

As they receive the report of the continued successful performance of the bank, shareholders are likely to overlook these matters, as well as the sudden departure of the bank’s CEO in October 2009. The meeting should be quite a quiet affair.

The New Building Society
After a break of two years when the directors took the annual meeting to Berbice, the annual general meeting of the NBS will return to the Pegasus Hotel next Saturday at 1.30 pm. The directors will report a profit of $588 million, describing it as an increase of 97% following a write-off in 2008 of a $200 million exchange loss on its sterling investment. According to the audited Statement of Income the profit for the preceding year was $487 million, so that the increase in profit for the current year is 9.6%.

Highlights

As is evident, the increase in net income before exchange difference was 9.63% but after taking account of an exchange gain in 2009 compared with an exchange loss in 2008, the change in net income is 97.2%. Just for the benefit of the financially minded, the accounting treatment of the gain is not in accordance with the rules of accounting.

Total assets of the NBS increased by 6.6% compared with 9.3% of the GBTI while its investors’ balances – largely equivalent to depositors’ balances – increased by 5.8%, compared with GBTI 11.9%. Despite this, and due to its tax exempt status, no reserve requirement and more discretionary provisioning rules, the NBS pays higher rates of interest on deposits and yet charges lower rates on its loans.

There is no doubt that the investments in the Berbice Bridge Company Inc are attractive, even for a tax-exempt entity. The issue has been concentration. Having acquired $1,520,000 of such investments from CLICO in 2009, the total of $1,870,000 represents 34.9% of the reserves at the end of the year. As a prudential rule, the Financial Institutions Act limits any single investment by financial institutions to 25% of their capital base.

The Society’s pension fund recorded unfunded obligations of $21.8M compared to a surplus of $21.5M, a significant turnaround of over 200%. No mention is made of the cause of this decline. Accounting rules have allowed a significant larger obligation to be presented in the financial statements.

The last time the NBS had a meeting at the Pegasus, there was quite a furore. It is unlikely that history will repeat itself.

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Brightening prospects – The Ram & McRae Business Outlook Survey 2010

Introduction
Today’s column draws heavily on the Business Outlook Survey 2010, an annual survey which Ram & McRae has been carrying out for sixteen years. While the overall coverage of the press conference announcing the results of the survey was, as usual, good, I was surprised at the number of media who offered the mild criticism that the event clashed with a sitting of the National Assembly. One of them even suggested that the firm should shift the time of the press conference! I hope this is not an indication that parts of our media do not have the barest of resources to cover more than one event simultaneously.

In its introductory comments on the survey, the firm noted that the survey was taking place in a year that began with the world confronted by real fear of another Great Depression, the possibility of a return to protectionism and the collapse of the world’s increasingly globalised financial system. Armageddon was averted, and according to the publication, World Economic Situation and Prospects (WESP), a joint product of the Department of Economic and Social Affairs, the United Nations Conference on Trade and Development and the five United Nations regional commissions, the global economy began to recover from the second quarter of 2009, aided by massive fiscal stimuli and intervention by governments that seem suddenly to resurrect Lord Keynes. WESP noted, however, that the recovery, which is still taking place, has been uneven and that conditions for sustained growth remain fragile.

Unsatisfactory
Here at home, despite the huge sums from our donors specifically to rebuild the statistical and financial capacity of the relevant agencies, national financial and economic statistics remain unsatisfactory. This column over the past few weeks has been at pains to point out the considerable confusion caused by conflicting statistics published by the Bank of Guyana and the Ministry of Finance. The Bank of Guyana has now quietly amended its own figures on its website by way of a footnote in its half-year report, but which now introduces an inconsistency with its conclusion. It is ironic that even as the Bank does this, it received from the survey respondents the highest number of ‘excellent’ ratings among public sector entities.

The agreement on a decline in the economy’s performance in the half year seems to suggest that the decline continued into the second quarter of the year, unlike the rest of the WESP recovery countries. Let us hope it will not take several more years before Guyana joins the rest of the modern world in offering quarterly economic statistics including labour data and regional activities.

Copenhagen fails
As the 2010 survey was being carried out, the world’s – and Guyana’s – attention was focused on Copenhagen, Denmark where the world’s leaders were haggling over a solution to a phenomenon with potentially devastating consequences for the environment. The report noted that signs coming out from that conference were not good, a view that has been confirmed by the failure of the more than one hundred leaders to arrive at meaningful and necessary action to protect the environment and secure the future of planet earth. No amount of diplomatic acrobatics or linguistics by Ban Ki-Moon, the UN Secretary General, could mask the huge failure that Copenhagen has turned out to be. Ram & McRae had noted that no amount of fiscal stimulus could substitute for the tough economic and political decisions which a solution demands, decisions which China and to a lesser extent the USA were unwilling to make. Having said that, Copenhagen represented a failure of leadership, preparation and execution all around.

The good, the bad and the…
The survey’s introductory remarks included a reminder that Guyana was spared a repeat of the Bartica-Lusignan type murderous attacks of the previous year. Businesses were not prepared, however, to give the security forces much credit for this and indeed, the Guyana Police Force and its supervising Ministry of Home Affairs were rated poorly in terms of effectiveness among public sector entities. The government however was far more generous to the security forces, not only in terms of huge budgetary increases but also in the payment of bounties, a dangerous policy if ever there was one.

Not surprisingly, the Low Carbon Development Strategy as a concept received a highly favourable rating, as did the new prevention of money laundering legislation and the repeat of the proposal for a credit bureau. Not only Guyana but the world agrees with some form of LCDS – which essentially calls for simultaneous development of the economy and the protection of the environment. It is not hard to understand too why the respondents supported anti-money laundering legislation. Those engaged in tax evasion, money laundering, corruption and who dominate the criminalised sector have a huge advantage over those who run reasonably honest businesses. Previous money laundering legislation did not work, and I do not think it is too early to fear that, as presently organised, the new arrangements are going to be any more successful.

Confidence levels
The survey report noted that confidence levels in the business sector had fallen significantly in recent years, and in the 2009 survey, none of the respondents was confident that the economy would improve and sixty per cent were positively not confident about the country’s economic prospects. The percentage of respondents who are now less pessimistic than the year before has fallen by 9% to 51%, the same level as in 2008 but still far from the levels of confidence reflected in the 2006 and 2007 surveys. After the re-election of President Jagdeo in 2006, only 17% of the private sector had expressed pessimism about the economy. That percentage has increased two-fold, in contradiction to what the leaders of the private sector have been singing to the government over the past couple of years.

A summary of the responses is as follows:

2009.12.20_Table1

One feature of the annual surveys has been that whatever their outlook of the economy might be, respondents always were more confident about their own operations, management and prospects. None of them plans any contraction of their business and they expect – in percentages unprecedented in recent years – increases in turnover and profitability. In its comment on these expectations, Ram & McRae expressed the hope that the increasingly confident business community, including the cash-rich financial sector, would provide the investment the country badly needs to generate employment, foreign exchange and taxes, to help in the development of the country.

Self-confidence

2009.12.20_Table2

Public/Private Sector performances
For the first time since the firm initiated a Business Outlook Survey sixteen years ago, it asked respondents to rate twenty-one public sector entities with which businesses interact and to rank them from poor (ineffective) to excellent (very effective). Respondents were given the option of not providing a rating for any of the entities, an option taken up by an average of eleven respondents – either opting out of the question or not having done business with the body.

Getting high ratings in order were the Ministry of Agriculture, the Bank of Guyana and the Ministry of Labour, with GPL rated the poorest. Of concern is the NIS which was rated eleventh in a group that includes the Guyana Police Force, the Ministry of Home Affairs and the Office of the Commissioner of Insurance and, of course, GPL. The Commercial Court was rated higher in terms effectiveness than the High Court.

Of the ten NGOs, the two trade union umbrella bodies were rated lowest in terms of effectiveness, with the Trades Union Congress slightly ahead of the Federation of Independent Trade Unions with thirty-seven respondents (80%) and thirty-six respondents (84%) rating them as ineffective or marginally effective, respectively. Neither received an ‘excellent’ rating from any respondent.

At the other end of the scale, the Institute of Chartered Accountants of Guyana and the Guyana Manufacturing and Services Association were rated highest with fourteen (33%) and ten (22%) rating them as effective or very effective respectively. Interestingly the private sector organisations the Guyana Manufacturers Association and the Georgetown Chamber of Commerce received considerably higher ratings than the Private Sector Commission, which more often than not claims to speak on behalf of the private sector.

Conclusion
All the indicators and informed projections point to a retreat from the free-fall in world trade, industrial production, asset prices and global credit availability which had threatened to push the global economy into another great depression in 2009. Since the second quarter of 2009, economies across continents have been improving at varying rates of growth. International trade and global industrial production have also been recovering noticeably, with an increasing number of countries registering positive quarterly growth of gross domestic product (GDP). That revival has been driven in no small part by the effects of the massive policy stimuli injected worldwide since late 2008, and by strong cyclical inventory adjustment. But as the UN World Economic Situation and Prospects (WESP) 2010 notes, the recovery is uneven and conditions for sustained growth remain fragile. Credit conditions are still tight in major developed economies, unemployment is still high and businesses are still wary of expanding the productive capacity until more certainty and stability appear.

At home, despite serious warning signs in agriculture, bauxite and manufacturing, the Minister of Finance predicted a significant turn around in the second half of 2009 while the President seems over-enthused about the economy’s prospects with some US$30 million coming to the country next year under the Guyana-Norway LCDS Memorandum of Understanding.

In the report’s conclusion, the firm expressed its continued conviction in the usefulness of the survey despite the apparent disregard by the government of the wider views of the private sector expressed in confidential, independent and professionally compiled reports. I am convinced that the government’s failure to treat with meaningful tax reform has contributed to the continuing, widespread and massive tax evasion. It has failed to incorporate into the formal economy the huge parallel economy and it has demonstrated neither the will nor the capacity to deal with the criminalised segment of the economy, corruption, and white collar crime. Unemployment and under-employment are officially non-issues, even as the country laments the loss of professional and other skills to migration.

Noting that the short-term political advantages gained by allowing these issues to be driven by electoral considerations are far outweighed by the long-term economic costs, the firm was not hopeful that these issues would be addressed in a year preceding important general elections.

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The audited financial statements and annual reports were used to analyse NBS

I am pleased to see some new names surfacing in the discussion of topical issues. It suggests that there may yet be persons out there prepared to engage seriously in these issues even if sometimes without a sufficient knowledge or understanding of the facts. I therefore consider it useful to address some of the more salient matters raised by Mr Salim Khan in his letter in the Stabroek News of October 6, 2009 ‘Assessments from critics of NBS are counterproductive.’

1. Mr Khan claims I have a peeve about the NBS, having served as a director of the Society. I grant him an unchallenged right to psychoanalyse my writings and personality.

2. Mr Khan recommended that the facts be checked, although there is no evidence that he himself did so. Not only do I always use the audited financial statements and annual reports of the Society for my periodic analysis but before the most recent Business Page, I wrote the Society’s Director Secretary for a copy of the half-year 2009 financials. He is yet to acknowledge my request. Would Mr Khan please help?

3. With NBS being the only Building Society in the country, Mr Khan may wish to tell readers which industry in which country he is referring to in claiming that “NBS’s financial position is as sound as any in the industry.”

4. Can Mr Khan explain what he means in his letter by a “simplistic portfolio of loans” and whether he thinks that the board was wrong to support the members’ motion at the 69th AGM for a Board Loans Sub-Committee?

5. Is Mr Khan aware that commercial banks are subject to two rules on provisioning against doubtful loans – IAS 39 and Bank of Guyana Supervision Guideline 5, the latter of which does not apply to NBS?

6. If Mr Khan would care to read my reviews of the commercial banks’ annual reports posted at chrisram.net, he would immediately realise that their interest spread is a criticism that I invariably make. Having said that, I wonder if Mr Khan knows the following:

a. That unlike the regulated financial and banking businesses, the NBS does not maintain a non-interest bearing statutory deposit with the Bank of Guyana. If they did, it would easily mean on the basis of NBS’s 2008 financial statements setting aside more than $3 billion dollars as non-income earning assets. By not doing so, NBS can earn, at the average rate of interest it earned on mortgages in 2008, income of $275 million not available to the commercial banks.

b. That the NBS is exempt from corporation taxes and consequently for every $100 net income earned by the Society, the commercial banks paying corporation tax at the rate of 45% would have to earn $180.

c. For those commercial banks approved for lending for low income housing, the ceiling is $3 million per loan while in the case of the NBS it is $12 million.

d. That the NBS pays no property tax which on its 2008 net asset position would amount to approximately $40 million annually.

e. That legislatively, NBS with its emphasis on mortgages and prescribed limits, is precluded from the risks of commercial lending faced by the commercial banks.

7. When stacked up against those realities, it is surprising that the NBS does not report higher surpluses than it currently does.

The reason in my view is the result of the inefficiencies of the monopolistic privileges enjoyed by the NBS under statute, politicised, ineffective and self-serving governance and a board and management that lack the range of skills that a modern financial institution needs in a competitive environment.

8. Mr Khan is the only person I know who speaks as a keen observer but who considers directing business to the competition a virtue. As far as I am aware, the only business the NBS ever directed to competing lending institutions was for temporary, bridge financing during the period when the security for loans was being perfected.

Thereafter, the NBS would grant the loan including such amount as to liquidate the bridge-financing.

I trust that I have clarified and addressed Mr Khan’s issues and look forward to his extending me reciprocal courtesies. I trust too that others, including the directors of the NBS, who make similarly uninformed comments and claims, would be guided accordingly.