VP to Guyana private sector: Improve financial standing to bridge funding gap
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Access to finance has been a major deterrent to local businesses looking to service Guyana’s oil and gas sector. After all, the development cost for just one of ExxonMobil’s offshore projects overshadows Guyana’s annual budgets.
Calls have mounted for the government to devise ways to alleviate this proverbial brick wall. The latest came from the President of the Guyana Manufacturing and Services Association (GMSA) Rafeek Khan, who floated the idea of creating a revolving fund to Vice President Dr. Bharrat Jagdeo.
But even before this can be considered, Dr. Jagdeo outlined that the private sector needs to improve its financial standing.
He highlighted many local companies are unwilling to explore partnerships to take their companies public. This avenue would see the sale of company stock allowing the public to own equity in the company, and it could possibly be the “best vehicle” to get funding outside of debt financing.
The Vice President pointed out that many businesses are unable to access loans from the bank because no transparency exists within the company nor adequate records to support it.
“So, it is not just about the government providing funds to businesses – which could happen in the future once the resources are available, but it is about the private sector also taking steps to improve its own accountability at the company level and opening up its horizon to access financing of a different nature. We are open to the idea, but much more work needs to be done at that level,” he emphasized.
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Notwithstanding this, the Vice President pointed out that the government is actively pursuing avenues to see “a greater flow of financing” in Guyana, especially for local companies that have contracts with oil and gas companies or their contractors.
On this front, he revealed that the government has granted a license to one new merchant bank, with applications in the pipeline for several others.
“[The merchant banks] will specialise in, maybe discounting invoices and even providing some… limited financing based on contracts signed with the multinational companies here,” Dr. Jagdeo said. “We plan to be very liberal in licensing these non-depository taking institutions, so you are going to see several new institutions of that nature opening doors in the next few years.”
Read MoreGovt prepared to support, sell crude to small refinery – VP | INews Guyana
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Vice President Dr Bharrat Jagdeo has revealed that the Government, which presently has several proposals before it for setting up a refinery, is prepared to support the establishment of a small refinery, and even sell limited amounts of Guyana’s crude to such a refinery.
During the Guyana Manufacturing and Services Association’s (GMSA’s) mid-year dinner, on Tuesday at the Ramada Princess Hotel, Jagdeo, who was the feature speaker, explained that the Government, in theory, does support the setting up of a small refinery.
“We have a lot of proposals here for refineries. Right now we have several, and we said we’re prepared to sell, because I don’t know which one will go forward. So that if it will lend itself to greater energy security – which is a crucial matter for us – so that we have, in situations of crises the same way we have food crises, that we can have our own domestic supply of gas and everything else; for that reason, we’re prepared to support a small refinery,” Jagdeo said. “But we’ve had discussions with several groups, and we’re prepared to sell a limited number of barrels of crude to the refinery to make that work.”
There is, however, a darker side to refineries that Jagdeo alluded to in responding to questions from the audience. Besides the pollution that comes from refineries, Jagdeo noted, most of the proposals also wanted tax holidays.
Jagdeo also debunked the belief that refineries should be set up on the basis of job creation. In fact, he noted that even with a refinery and a gas-to-shore project complete with a Liquid Natural Gas (LNG) facility, there would not be enough jobs retained to cater to the needs of Guyanese. Those facilities will, however, provide a much-needed boost to Guyana’s push to be industrialised and to have enough gas to export.
“My point is that we’re bringing in a pipeline. The gas will come in. The gas will be used to generate power, the first 50 million cubic. We will have an LNG facility that will supply enough LPG for us to export. We’d have to find an export market for LPG, cooking gas. Then we have another 70 to 80 million cubic feet of gas that will come in. That will be utilised for other industries.
“So, we are going to utilise gas to industrialise and to do a lot of things. We’re talking about fertiliser, fibre, a whole range of other products, downstream industries. So, we’re going to do that. My point was that when you look at all of those investments, you still cannot absorb the number of young people who are looking for jobs,” Jagdeo explained.
As such, the Vice President stressed the importance of expanding the services industry, mining, forestry and other sectors that are more job retentive.
Even as Guyana receives growing interest for small refineries here, Trinidad and Tobago has been touting the availability of Petrotrin – it’s state-owned refinery that is currently under negotiations for sale or lease – to refine Guyana’s oil.
This was revealed by Prime Minister Dr Keith Rowley during a press conference in Port of Spain shortly after returning from a week-long engagement in Guyana, for the Agri Investment Forum and Expo that was held from May 19 to 21. According to Rowley, discussions were held on the possible use of this Trinidad refinery during his engagements in Georgetown.
“If Guyana has oil and Guyana is interested, with someone who we have selected here or are selecting, then those conversations should take place,” Rowley has said.
“It all has to do with a supply of oil to the refinery, which exist and can, with some not insignificant effort, be brought back into operation, if only there is an entity with a supply of oil. That entity is not the Government of Trinidad and Tobago, it’s not Petrotrin,” the T&T Prime Minister posited.
Petrotrin (Petroleum Company of Trinidad and Tobago) was closed back in 2018. At the time, the unavailability of a sufficient supply of oil being produced locally to keep operations going had been cited.
At a press briefing in Guyana before he had departed after the close of the Agri Expo, PM Rowley had explained that due to the lack of an adequate supply of oil locally, the country had to import as much as 120,000 barrels per day to be refined; but, in that process, would incur losses. This situation led to the closure of the facility.
Successive Governments in Guyana have been cautious on the matter of building in Guyana a refinery that is State-owned, resulting in the only takers for this initiative coming from the Private Sector.
The former A Partnership for National Unity/Alliance For Change (APNU/AFC) Government had previously hired a consultant, Pedro Haas, to carry out a feasibility study into constructing an oil refinery. The results of the study did not favour building a refinery, particularly one with a capacity to produce over 100,000 barrels per day.
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Local Content Law: Companies using junior staff to meet senior management quota – Jagdeo
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…but junior staff salaries remain same despite ‘new’ job titles
Despite the Local Content Act, oil and gas companies continue to come up with new ways to bypass the law. According to Vice President Bharrat Jagdeo, companies have now taken to using their junior staff to fill up the legally-mandated quota for senior management staff, all while the junior staff continue to collect their original salary.
According to Jagdeo during the Guyana Manufacturing and Services Association (GMSA) Mid-Year Dinner, the fact that Guyana was able to get the Local Content Act passed very early into the development of the oil and gas sector is significant since many countries only pass their local content laws decades into the business. However, Jagdeo noted that even with the Act, there were companies still trying to dupe the authorities.
“There are many people who are trying to bypass the provisions of the legislation. It has been brought to my attention, for example, that a company that may have had maybe three foreign directors/managers in the old dispensation, now to get past the legislation since there is a 75 per cent management team (requirement),” Jagdeo said.
“To get past that position, they simply take junior staff and change their designations. So, the management team now becomes larger. So, they fulfil that requirement. But it’s just a designation for junior staff. When you look at their salary structure, their salaries have not changed.”
According to Jagdeo, the Government is keeping a close eye on this. He noted that other companies have also gone the route of giving a Guyanese company 50 per cent ownership, but also charge a large contract fee for management services.
Jagdeo noted that the Government’s experiences with managing local content in the oil sector, as well as Guyana’s affiliation with the World Trade Organisation (WTO) and Caribbean Community (Caricom), have dissuaded it from implementing similar policies in other productive sectors.
“So, the profit margin is smaller, to be distributed based on the shares structure. So that is why, to a large extent, if we start going to every sector, it’s not desirable. Because we’re also part of the WTO, Caricom,” the Vice President said.
“And if we start shutting down every sector to foreigners or imposing requirements for their investment in every other area, we can also have reciprocal behaviour for our investors abroad. Or alternately, they can put up trade barriers to prevent our products going into their market.”
Local Content
According to the Local Content Act passed last year, oil and gas companies operating in Guyana, as well as their contractors and sub-contractors, must procure from Guyanese companies by the end of 2022, 90 per cent of office space rental and accommodation services; 90 per cent of janitorial, laundry and catering services; 95 per cent of pest control services; 100 per cent of local insurance services; 75 per cent of local supply of food; and 90 per cent of local accounting services. These are just some of the 40 different services outlined in the first schedule.
The Act also defines a local company as one incorporated under the Companies Act and beneficially owned by Guyanese nationals. Beneficial ownership is defined as owning 51 per cent of the company. Additionally, a local company is expected to have Guyanese in at least 75 per cent of executive and senior management positions and at least 90 per cent in non-managerial and other positions.
In a recent interview with Guyana Times, Natural Resources Minister Vickram Bharrat assured that the Government was committed to taking action against defaulters. He noted that as long as companies fail to satisfy all the criterion for their Local Content Certificates, these would continue to be denied to them.
“We have a Local Content legislation. And like all laws, you have to abide by the laws. And if companies are not acting in keeping with the laws, then obviously there will be consequences as we have seen the non-approval of a few companies because of the fact they did not reach the criteria set out in the legislation,” Bharrat posited.
“You know there are more than one criteria, one criteria speaks to 51 per cent ownership by Guyanese or a Guyanese company, there is another criteria that speaks 75 per cent managerial staff, there’s another criteria that speaks to 90 per cent of general staffing. So, companies need to satisfy all criteria, not only one criteria too, so once the Secretariat is not satisfied that companies are not acting in keeping with the legislation, obviously they will take action,” Bharrat further said.
Mining, quarrying sectors set for massive expansion – GMSA President
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…says forestry, services sectors also on upward trajectory
Recent developments in the gold mining sector, as well as the quarrying sector, augur well for Guyana’s economic prospects and growth in these sectors. This is according to Guyana Manufacturing and Services Association (GMSA) President Rafeek Khan.
During the GMSA’s mid-year dinner on Tuesday, Khan gave his outlook on the economy. For one, he was optimistic about the recent news that two gold companies in Guyana are either slated to start exploration soon or are currently doing preparatory work. Khan was also optimistic about the forestry sector, in which he is personally involved.
“We’re going to see the mining sector (increasing). Today I saw on the news, two new companies coming in to build capacity. The mining sector has been down. The gold production has been down. But we anticipate, with the building of capacity and investments coming in to the country, we’re going to see those sectors increasing,” Khan said.
“The forestry sector, which I’m actually part of, has actually increased its production, despite the challenges, by 25 per cent to date. We have increased exports by 30 per cent. So, those are some good indicators that we see happening.”
It was revealed by Natural Resources Minister Vickram Bharrat recently that Barrick Gold would be starting exploration soon. Further, ETK Incorporated in partnership with Gran Colombia would also be doing work on the Toroparu mine.
Khan meanwhile also spoke about the pharmaceutical sector, noting that with eight hospitals planned for the country and US$180 million expected to be spent on hospitals, the pharmaceutical sector is likely to be increased.
According to Khan, the oil and gas sector will drive economic expansion in the non-oil sector, including in agriculture and construction.
“As the President has been promoting bilateral trade within the Caribbean, food security and housing, apart from oil and gas, those two sectors are going to drive the economy. Food security moves into a whole array of services, not just the manufacturing and production of food.”
“I heard the quarry sector, the Government has issued 10 quarry licences. The country has an annual demand of 1.5 (million) metric tonnes. And we’re importing 300 (thousand) metric tonnes of that. Eventually, we’re going to see the quarry sector increasing,” Khan further said.
The GMSA President also touched on the services sector, which he noted encompassed from tourism to consultancies. In fact, he noted that the GMSA has seen increased membership in the services sector, including in consultancies, accountancy, and environmental or architectural services. This sector, he noted, is one that is also on a rapid growth path.
The World Bank had estimated earlier this year that Guyana’s 2023 economic growth rate would be over 34 per cent. According to its semi-annual report for Latin America and the Caribbean (LAC) called “Consolidating the Recovery; Seizing Green Growth Opportunities”, which was released in April, Guyana will register a Gross Domestic Product (GDP) growth rate of 34.3 per cent in 2023.
This rate of growth is actually the most in the LAC region and the only one in double figures, once again highlighting the importance of oil exploration to the economy. The second highest growth rate projected for next year is St Vincent and the Grenadines, at 7.3 per cent.
When it comes to the forecast for 2022, the World Bank had projected an economic growth rate of 47.9 per cent for Guyana. In this case, only Barbados, with a projected growth rate of 11.2 per cent for 2022, also crosses over into double figures.
Since these projections, however, the Government, through Senior Minister with responsibility for Finance in the Office of the President, Dr Ashni Singh, has actually upped the growth projections.
While addressing the Guyana-Saudi Arabia Investment Engagement that was held in the dome of the Arthur Chung Conference Centre (ACCC) on Saturday, Singh had revealed that the projected growth for Guyana is now 57.8 per cent. According to him, Guyana’s economic growth will outperform both regional and global averages.
GMSA weary of difficulties at local banks, Jagdeo says gov’t considering a request for revolving fund
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Access to capital has long been a hindrance to the formation and expansion of local businesses but the Guyana Manufacturing and Services Association (GMSA) has a proposal that could change that.
During its mid-year business dinner on Tuesday night, the Association’s President, Rafeek Khan acknowledged this impediment and said a revolving fund would be appropriate to address the issue.
In his words, the fund could “help businesses not to be beggars at international and local banks.”
A revolving fund is established for a specific purpose and used to give loans to members or to be expended or invested for a specific purpose with the condition that repayments are used again for these purposes only.
Businesses in Guyana have long complained about setbacks in accessing financing and there have been targeted efforts in recent years to change that.
Khan said on Tuesday night that lending by local banks has increased by almost 10 per cent, noting that it is a “good sign that the economy is doing well and banks are lending more.”
His comments followed promises by Vice President Dr. Bharrat Jagdeo that the government would consider the revolving fund facility but he emphasised that the private sector must also improve its own financing.
The Vice President said businesses cannot want greater access to financing but are unwilling to explore partnerships or go public.
According to the Vice President, local businesses must look for ways to raise money outside of debt financing.
“Many [businesses] can’t go to the bank because there is transparency in record keeping…it should not be only about government providing the funds to businesses…the private sector also must take steps to improve its own accountability,” Jagdeo added.
He said if the current commercial banks are not fit for purpose, then the government will fix that by bringing in more merchant banks.
Recently, the government issued a license to one new merchant bank and Jagdeo has said that there are several applications for other such financial institutions.
“Several new institutions will be opening their doors in the next few years,” he added.
Meanwhile, Khan said with the oil boom and unprecedented economic growth to take place in the next few years, it presents a golden opportunity for the many businesses that have been holding out for the last decade.
He calls it, “paying the price.” Khan credited future successes to the support offered by lower energy and infrastructure costs.
To this end, competitiveness is expected to increase.
But with that ramped-up competitiveness across sectors, the GMSA President believes local manufacturers must also look to grow into secondary and tertiary manufacturing.
“This is where you see real growth in the economy and value-added. Every sector is preparing to grow,” Khan said.
According to the government’s revised projections, the economy is expected to grow by an average of 59 per cent this year.
Khan believes agriculture and construction, apart from oil and gas, will drive this economic growth.
While the GMSA awaits the official mid-year report which is due by the end of this month, Khan said quarrying and mining, which have been down, are set for a rebound.
The forestry sector, he explained, has increased production by 25 per cent, resulting in increased exports by 30 per cent.
To this end, he made a case for local businesses to be supported in scaling up their capacities for the export markets even as he welcomed the increase in air cargo services.
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Rafeek Khan re-elected as President of GMSA
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Rafeek Khan, Managing Director of Woods Direct, was yesterday re-elected unopposed as President of the Guyana Manufacturing and Services Association (GMSA).
A statement from the Association said that Khan will be supported by Ramsay Ali, CEO of Sterling Products Limited, as First
Vice President and Chairman of Agro-Processing Sub-sector; Dr. Vishnu Doerga of ActionINVEST Caribbean Inc. as Second Vice President and Vasudeo Singh, Chief Financial Officer of Deme-rara Distillers Limited as Third Vice-President & Treasurer.
The GMSA election was held in two parts, as is customary. On March 31, 2022, thirteen board directors were elected through a blended voting process, in-person and virtually. Yesterday, the President, three Vice-Presidents and Treasurer were elected.
In remarks after his election, Khan said it is his vision to create a dynamic and progressive GMSA by ensuring greater representation and maximizing opportunities for the membership of the body.
He stressed the importance of public-private partnerships.
The statement disclosed that sub-sectors within the GMSA have been re-aligned and will reflect Agro-Processing and Agriculture separately, the emergence of an Information Communications & Technology subsector and the merging of Forestry and Mining which will form the Extractive Industries sub-sector.
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