Budget Speech

Hits: 3336 | Published Date: 30 Mar, 2012

| Speech delivered at: 6th Sitting - Tenth Parliament

| Speech Delivered by : Dr. Ashni K. Singh, MP

Dr. Singh: Mr. Speaker, I rise to move the motion for the approval of the Estimates of the Public Sector and the Budget for the Financial Year 2012 and, in so doing, I wish to indicate that, pursuant to Article 171 Paragraph 2 of the Constitution, the Cabinet has recommended that the National Assembly proceed upon this motion.
Mr. Speaker, I consider myself immensely honoured to be tasked with presenting Budget 2012 at the very commencement, indeed on what is merely the sixth sitting, of this the Tenth Parliament of Guyana. That this Budget comes to this Hon. House at an important juncture in our country’s still youthful history must surely be an understatement of itself significant proportions. We sit in a Parliament that was elected just four months ago, by a process that reaffirmed our country’s strong and rapidly maturing democracy and that displayed the continuing resolve of the Guyanese People to embrace democratic norms. We would all be justified in feeling pride and satisfaction at the smooth conduct of the 2011 General and Regional Elections, as yet another manifestation of the strength of our democratic institutions and the entrenchment of our democratic traditions.
The political configuration that emerged from the 2011 Elections, whereby the Party in Government does not hold a clear legislative majority, is a domestic novelty even if similar situations have been experienced by other democracies the world over. This arrangement beckons our country into a new political epoch and heralds an opportunity for the nurturing of a new political culture. The prevailing dispensation will test and hopefully prove our resolve as a People, and within this House our respective will to serve as responsible representatives of a deserving people, to work together in service to the cause of national development.
Mr. Speaker, lest we be misunderstood to be under an illusion of some sort, let there be no doubt that as much as the current dispensation provides important opportunities so is it fraught with formidable challenges. Our quest for lasting solutions will have to be dominated not by partisan agendas but by rational and meritocratic considerations, driven less by our impulsive instinct and more by our careful and deliberate judgment, and able to resist the political lure of making choices that might have short-term appeal but that compromise long term imperatives. Most of all, the current dispensation will require us to eschew political opportunism and grandstanding, and work together to make good and sound decisions that can withstand the test of time.
Mr. Speaker, I am on public record as describing our country’s current position as uncharted waters, not to betray the slightest reason for trepidation whatsoever, but instead to signal the need for us to collectively determine a clear passage through what will inevitably be situations un-contemplated by the architects of our extant Constitutional and legislative framework. I would exhort all of my colleagues in this Hon. House never to lose sight of the need for good sense and practical answers, guided always by that which is fair and just, and with but one aim constantly in mind and that is to ensure the uninterrupted daily advancement of our beloved country.
One of the immediate responses to the current political configuration has been the constituting and convening by the Parliamentary Parties of the Inter-Parliamentary Party Dialogue forum, under which a plenary as well as a number of subsidiary committees on matters that include governance and the economy have been established. These committees have commenced meeting, have agreed working modalities and priority agendas, and now hold the promise of forming the basis for a productive engagement amongst the Parties.
Mr. Speaker, Budget 2012 comes to this Hon. House at a time when the Guyanese economy is at its strongest in recent memory. Our productive base is showing increasing signs of resilience and dynamism and is more diversified than ever before, with real growth in gross domestic product averaging 4.4 percent over the past five years. At the same time, our external balances are at their highest ever with our external reserves rising threefold since 2006 to US$798 million. We are much less indebted as a nation than we were twenty years, with external debt being reduced from 658% of GDP at the end of 1991 to 47% of GDP at the end of 2011. Our fiscal deficit is on a declining trend, having been reduced from 11.2% in 2006 to 4.4% in 2011. Our exchange rate has remained stable, interest rates have trended downwards, and inflation has remained within acceptable norms. Credit to the private sector has risen by 118 percent, and total foreign direct investment has amounted to US$1.3 billion over the past five years. Moreover, domestic and external investor confidence and optimism are at an all time high, and there have been more commitments of inward foreign direct investment in recent years than at any other time in our country’s history. This strong performance of the Guyanese economy in recent years augurs well for the circumstances of our people and for the long term future of our country. Looking ahead to 2012 and beyond into the medium term, there can be no doubt that the progress made thus far has provided a strong foundation on which to build and on the basis of which the much heralded potential of our country can finally be realised.
The People’s Progressive Party/Civic’s vision for Guyana’s future was outlined in our manifesto for the last elections, on the basis of which the People of Guyana elected us as the largest Party in the National Assembly and returned us to Government. Our vision is one of a Guyana that is a land of opportunity and prosperity, where every citizen can realise their personal and professional aspirations, where more of our people chose to remain to make a rewarding living and where more of our diaspora find it worthwhile to return whether for gainful employment or restful retirement, where investors prefer to do business, where productive activity continues to grow and where productivity and competitiveness improve steadily, where high quality social and other services are readily and efficiently available, and where all of our actions and decisions are consistent with the long term sustainability of our natural environment.
There are, however, certain critical prerequisites which must remain in place if this vision is to be realised. Firstly, the strong democratic credentials that we have earned as a nation is the bedrock of all the international confidence we enjoy and all the domestic optimism we feel today, and it must be jealously guarded at all costs. Secondly, we must continue to build faith in the institutions of our state especially as they relate to safety, security, and justice. Thirdly, our macroeconomic framework must continue to be one that safeguards stability and promotes growth, especially given the high premium attached to these conditions by both the investors that create jobs, generate incomes, and seek adequate returns, and the households and individuals who save from their hard earned incomes, aspire to accumulate wealth, and endeavour to uplift their personal circumstances. Fourthly, and perhaps relatedly, we must pursue the achievement of a widely diversified and even more resilient economy. In particular, the vast natural resources and talented human resources of our country must be mobilised in a manner that is closely aligned to our growth and development objectives. Fifthly, we must continue to invest in the critical physical infrastructure that will unlock our country’s productive potential at scale and improve both economic opportunity and quality of life. Sixthly, our investment in the social sector must continue to ensure that our entire population has ready access to high quality social services. Seventhly, we must continue to mainstream the objective of environmental sustainability, and in particular the implications of climate change, in all our public policies and across all sectors of our economy.
Perhaps most importantly, it is absolutely critical that all of the People of Guyana are enlisted in this effort to make our country a better place, the investors whose financial capital and entrepreneurial acumen drive business activity and economic growth, the workers whose effort and productivity determine our competitiveness as a nation, and the young people whose state of preparedness today will determine the fate and prospects of our country tomorrow. For all of this to be realised, the clearest signal of all must come from those of us in this Hon. House, whose legislative agenda will chart the course for our country, whose cohesiveness will set the tone for all else in our nation, and whose every decision must be consistent with and never deviate from keeping our country on the path to a brighter tomorrow for all.
Budget 2012 is therefore presented under the theme “Remaining on Course, United in Purpose, Prosperity for All”, for the task before us is to work together steadfastly to keep our country on the path to greater prosperity so as to ensure that Guyana does become in the shortest possible time the better place it promises to be for all Guyanese.
Global Economic Developments
Mr. Speaker, I will now review the global economic developments. One stark lesson of the recent global economic crisis has been that, no matter how small an economy might be or how distant it might appear from the major financial metropolises of the world, the potential domestic consequences of global economic and financial events are always near, given the extent of today’s interconnectedness. Small economies such as ours and our sister CARICOM member states face the peculiar conundrum that we make such an inordinately small contribution to global outcomes, yet we simultaneously face inordinately high exposure to these very outcomes. The global financial crisis is, of course, a case in point, where the Caribbean contributed in no significant way to the onset of the crisis yet so many of our economies faced and continue to face the threat of complete decimation in the wake of the crisis.
Mr. Speaker, with this in mind, the global economy continues to be characterised by increasing uncertainty, with 2011 marked by a recovery that is described by the international community as stalled. Global output expanded by 3.8 percent, a significant slowing from the 5.2 percent growth achieved in 2010. This was primarily the result of the drag of the advanced economies which grew by 1.6 percent, with the uncertainties of the Euro area and the effects of the Japanese tsunami both taking their toll. The emerging and developing economies, on the other hand, grew by 6.2 percent with China and India continuing to lead the way with 9.2 percent and 7.4 percent growth respectively.
Looking ahead, global growth prospects remain subdued largely as a result of the lingering crisis in the Euro area, a persistent lack of market confidence, and limited policy options in some advanced economies to strike the delicate balance between the need to move towards fiscal sustainability and the need to stimulate a sustained recovery. In 2012, the global economy is projected to grow by 3.3 percent, with the emerging and developing countries expected to grow by 5.4 percent, while the advanced economies are projected to continue to lag with projected growth of 1.2 percent. The Euro area is expected to descend into a mild recession, as output in that zone is projected to contract by 0.5 percent.
In the commodity markets, prices fluctuated significantly during 2011 but generally followed an upward trend. In the case of oil, the world market price for crude oil stayed above the symbolic US$100 per barrel for much of the year and ended the year at US$104 per barrel, 15.8 percent higher than one year earlier. Metal prices generally declined during the year, with aluminum ending the year at US$2,024 per tonne, 14.1 percent below the price at the end of 2010. While the price of gold peaked in August at US$1,914 per ounce, it then declined to US$1,652 per ounce, still 18.8 percent above the price at the end of 2010. Food commodity prices generally trended downwards, although rice prices defied this tendency and increased by 8.2 percent to end 2011 at US$581 per tonne.
Mr. Speaker, closer to home, the Caribbean economy grew by 0.7 percent in 2011, compared to 0.2 percent in 2010, and is projected to grow by 1.7 percent in 2012. This modest performance and corresponding outlook reflect prevailing global conditions, including continuing uncertainty facing the tourism sector with the tourism dominated economies of the region continuing to face the brunt of global conditions. In addition, severe fiscal challenges persist across the region with unsustainable indebtedness being a widespread Caribbean problem, and attendant implications that limit policy space for restarting growth. The region’s need for a lasting strategy for entrenching robust economic growth and for restoring fiscal sustainability for the long term remains urgent, and is as yet unmet.
Domestic Macroeconomic Developments
A. Real Gross Domestic Product
Mr. Speaker, I will now review domestic macroeconomic developments. Much policy effort has been devoted by this Government to make the Guyanese economy more robust and resilient, better able to withstand external shocks, and less vulnerable to the vicissitudes of domestic single industry upheavals. We have done this by aggressively promoting the development of a more diversified productive base and by advancing an agenda for improving national competitiveness. These efforts have yielded the result that the domestic economy has endured the worst global and regional economic crisis in living memory without significant disruption or dislocation.
Indeed, in 2011, the domestic economy achieved real growth in gross domestic product (GDP) of 5.4%, within which non-sugar GDP grew even more rapidly by 5.6%. Significantly, this represented the sixth consecutive year of positive growth in Guyana.
B.      Sectoral Performance
Sugar production grew by 7.1 per cent to 236,506 tonnes in 2011. While the first crop production of 106,871 tonnes was 30.5 per cent above the corresponding performance in 2010, the second crop contracted by 6.7 per cent to 129,635 tonnes, reflecting unhelpful weather and industrial relations conditions. Notwithstanding the increase in production achieved by the industry and the fact that the 2011 output represents the highest level of sugar production since 2008, output continues to lag the production trajectory anticipated by the industry’s long term business plans, and industry finances are being adversely affected. Efforts will continue, on which more will be said later, to ensure that the industry is placed in a position of long term profitability.
More positively, the rice industry extended its stellar performance of recent years with total production in 2011 of 401,904 tonnes, an 11.3 per cent growth in output, and the industry’s highest level of annual production ever. During the year, the industry continued to expand acreage under cultivation and earned higher yields, reflecting increased training of farmers, returns from the introduction of higher yielding varieties of rice and supported by Government’s investment in drainage and irrigation. Investment and production in the sector were also bolstered by the benefit of stronger external market prices.
The other agriculture subsectors grew by 5.7 per cent, reflecting returns on the Grow More Food campaign and the Agricultural Diversification Programme coupled with more integrated market access especially with the bridging of the Berbice River. The livestock sector also expanded by 5.8 per cent mainly attributed to higher production of eggs, poultry meat and mutton. On the other hand, the fishing industry contracted by 5.3 per cent, reflecting a reduction in the number of operating vessels and fishing trips associated with the increased cost of fuel and the risk of piracy and also the continued depletion of fishing grounds. In addition, the forestry sector contracted by 9.3 per cent as a result of improved monitoring and enforcement of sustainable forestry practices.
The mining and quarrying sector recorded growth of 19.2 per cent in 2011. Underlying this was a 17.7 per cent increase in raw gold declarations to 363,083 ounces, the highest level since 2004 when Omai Gold Mines was still in operation, as favourable world market prices persisted in 2011 and induced significant continued investment in the sector. Bauxite production amounted to 1,818,399 tonnes, compared to 1,082,512 tonnes in 2010, and diamond declarations grew by 4.7 per cent to 52,273 carats despite the continued shift of productive capacity into the more lucrative gold industry.
The manufacturing sector grew by 6.8 per cent primarily attributed to the expansion in rice milling and sugar processing. In addition, other manufacturing also grew by 4.9 per cent. The construction sector grew by 2.8 per cent, reflecting the completion of a number of major public sector investment projects and what is expected to be a temporary moderation in private construction activities. The transport and storage sector grew by 14.2 per cent, as accelerated repairs of vital road arteries were carried out coupled with the greater movement of passengers and cargo between the coastal and interior areas, and as travel out of the main domestic airport increased significantly.
The information and communication sector grew by 1.5 per cent, with postal services declining as consumers shift away from traditional communication to digital forms of communication. The wholesale and retail sector registered growth of 4.5 per cent. Financial and insurance services sector grew by 9.7 per cent, as the commercial banks continued to expand their branch network thereby improving access coupled with increased demand by the household and productive sectors for these services, as evident with the increase in private sector credit. Rental of dwellings grew by 1.6 per cent and other services by 0.5 per cent. The education and health and social service sectors grew by 6.7 and 3.8 per cent respectively and electricity and water by 2.1 per cent, a reflection of Government’s commitment to expand and improve the delivery of these social services.
C.      Balance of Payments
At the end of 2011 the balance of payments reflected a modest deficit of US$15 million. This is primarily attributed to developments on the current account due to a higher import bill driven by rising fuel prices and higher levels of imports of capital goods concentrated mainly in the industrial, agricultural and mining sectors. This outweighed the collective increases in export earnings associated with higher world market prices for key commodities and net current transfers.
Export earnings expanded by 27.6 per cent to US$1.1 billion, primarily attributed to increase in volumes exported as well as favourable world market prices for most of the key export commodities. Export earnings on sugar increased by 21.6 per cent to US$123.4 million due to a 16.8 per cent increase in average export price coupled with a 4 per cent increase in export volume to 211,762 tonnes. Rice exports earnings also expanded by 14.5 per cent to US$173.2 million, mainly attributed to a 26.1 per cent increase in average export price to US$567 per tonne, while export volume contracted to 305,382 tonnes due to a decline in stock levels at the beginning of the year.Total gold exports amounted to US$517.1 million, a 49.3 per cent increase over 2010. This outturn is attributed to an expansion in gold mining as both small and medium scale miners expanded their operations, spurred by favourable world market prices, while volume also increased by 14.9 per cent to 347,850 ounces. In addition, the bauxite sector earned US$133.3 million due to higher production levels at both bauxite operations with export volume increasing to 1.8 million tonnes compared to 1.1 million tonnes the previous year, outweighing the decline in the average export prices which contracted by 27 per cent to US$73.4 per tonne. Timber exports amounted to US$39.1 million, a contraction of 19.5 per cent, as production of logs declined, aided by improved monitoring and enforcement of sustainable forestry practices.
Merchandise imports expanded by 24.8 per cent to US$1.8 billion, primarily attributed to a 41.3 per cent increase in the value of fuel and lubricants imported. In addition, other imports increased by 18.4 per cent, with non-fuel intermediate goods increasing by 10.2 per cent, while capital goods and consumption goods increased by 38.9 per cent and 10.8 per cent respectively.
Net current transfers increased by 11.8 per cent to US$414.6 million, due to higher receipts of worker remittances which increased from US$367.8 million to US$412.2 million. Net payment of services amounted to US$145.5 million compared to US$84.1 million the previous year due to a US$39.3 million increase in non factor services mainly as a result of higher cost for transport and freight, while factor services moved from a net receipt of US$12.8 million to a net payment of US$9.3 million.
The capital account recorded a surplus of US$373.2 million compared to US$339.2 million for the previous year, attributed to higher foreign direct investment concentrated mainly in the mining and telecommunications sectors.
Reflecting these developments, the Bank of Guyana ended the year with total external reserves of US$798.1 million, equivalent to 4.2 months of imports.
D.          Monetary Developments
Monetary policy remained focused on the maintenance of price and exchange rate stability while promoting private sector credit. Credit by the banking system to the private sector grew by 19.9 per cent to $134.6 billion, underlying which was a 42.4 per cent expansion in credit to the agriculture sector, a 31.5 per cent increase in credit to other manufacturing, followed by a 24.7 per cent increase in credit to distribution and 22 per cent and 18.9 per cent respectively increases in credit to the other service sector and real estate.
E.        Prices and Income
              a. Inflation Rate
Inflation remained within acceptable norms at 3.3 per cent in 2011, notwithstanding the background of increases in global fuel prices. This reflected Government’s interventions to lower the taxes charged on fuel products and to provide financial support to the GPL to avoid full pass through of imported fuel price movement.
              b. Interest Rate
Interest rates continued to trend downwards, with the commercial banks weighted average lending rate declining by 27 basis points to 11.68 per cent while the small savings rate declined by 68 basis points to 1.99 per cent, reflecting the continued availability of liquidity in the banking system. In addition, the 91-day Treasury Bill rate also declined in 2011 by 143 basis points to 2.35 per cent, reflecting the intense level of competitive bidding for Treasury Bills. These developments helped to facilitate the growth observed in private sector credit.
              c. Exchange Rate
The foreign exchange market remained buoyant and recorded a 17.7 per cent increase in activity in 2011, amounting to transactions totalling US$6 billion, consistent with the higher level of trade and remittances. The market had an adequate supply of foreign exchange to provide for a stable exchange rate, and the Guyana dollar ended the year at $203.75 against the US dollar as compared to $203.5 against the US dollar at the end of 2010.
             d. Developments in Wages
Government reaffirmed its commitment to improving the livelihood of public servants, teachers, and members of the disciplined services with the granting of an 8 per cent across the board increase on the level of wages and salaries effective from the start of 2011. This brought the public service minimum wage to $35,864 per month, compared with $26,070 five years ago, a cumulative increase of 38 per cent over the period. The disciplined services also benefited from a one month basic salary tax free incentive paid in the last quarter of 2011.
Furthermore, in keeping with the stated preference for multi-year agreements as the basis for setting emoluments in a predictable manner, Government concluded with the Guyana Teachers’ Union, in the first half of 2011, a second five-year agreement which provides for predictable salary increases along with addressing a number of other non-salary benefits for members of the teaching profession in the public sector.
F.         Fiscal Position
                a.   Non-Financial Public Sector
The fiscal deficit of the non-financial public sector amounted to $22.9 billion or 4.4 per cent of GDP compared to 3.6 per cent in 2010.
                 b.   Central Government
Central Government revenue in 2011 amounted to $120.9 billion, 12.1 per cent over 2010, attributed to enhanced collections among both tax and non-tax categories. Tax revenue collections accounted for 92.1 per cent or $111.4 billion of total revenue collections, an increase of $10.5 billion, while non-tax collections increased by 37.5 per cent to $9.5 billion.
Internal revenue collections amounted to $47.2 billion, an increase of $3.9 billion over 2010 collections. This is on account of continued robust performance of the private sector with corporation tax and income tax from the self employed increasing by 3 per cent and 16.6 per cent respectively to $17.5 billion and $2.8 billion. Withholding tax collections amounted to $5 billion, a 49.8 per cent increase, which was the result of a substantial payment made by a local manufacturing company to its overseas parent company with respect to dividend payments for previous years coupled with the increase in gold production. Personal income tax collections exceeded 2010 collections by $1.4 billion with both the private and public sectors remitting higher levels. Customs and trade taxes amounted to $11.1 billion, representing a 19.9 per cent increase, mainly attributed to an 18.8 per cent increase in import duties to $9.9 billion consistent with higher imports of capital, intermediate and consumption goods. The VAT and excise tax collections increased by 9.7 per cent to $53 billion, as VAT on imports of goods recorded (net of refunds) an increase of $3.1 billion or 21 per cent over 2010, again, consistent with the higher level of imports as the mining, agricultural and telecommunication sectors increased their demand for several commodities. In addition, VAT on domestic supply of goods amounted to $13.1 billion or 7.7 per cent above 2010. Moreover, excise tax collections on motor vehicles increased by $106.3 million, reflecting the returns of the modernisation of motor vehicle registration process and a higher level of imports. On the other hand, excise tax collections on petrol decreased by $299.5 million due to comparably lower tax rates. Non-tax revenue collections for the period amounted to $9.5 billion, compared to $6.9 billion, primarily attributed to higher dividend payments coupled with an increase in Bank of Guyana (BoG) profits.
Non-interest current expenditure increased by 17.9 per cent to $92.5 billion, as a result of wages and salaries, other goods and services, and transfer payments growing by 10.5 per cent, 25.6 per cent and 17.9 per cent respectively. The 10.5 per cent increase in wages and salaries is primarily attributed to the 8 per cent increase granted across the board to public servants and teachers nationwide, along with an increase in the number of employees entering the public sector. Other goods and services increased to $33.7 billion mainly due to increased Government services along with higher contributions towards electricity charges for Government agencies, and the conduct of the 2011 National Elections. Transfer payments increased to $27.5 billion due to a $1.5 billion subsidy given to GPL, higher contributions being made for community power in Linden and Kwakwani, and pension increases granted during 2011. Capital expenditure increased by $3.5 billion on account of higher levels of disbursement on externally financed projects.
                 c. Public Enterprises
At the end of 2011, public enterprises realised an overall deficit of $6.6 billion, compared to $2.8 billion in 2010. This was mainly attributed to the higher acquisition cost of fuel, affecting all public enterprises and, in particular, the GPL which recorded a deficit of $3.2 billion compared to a surplus of $1.5 billion in 2010. It should be noted that although the Guyana Sugar Corporation Inc. (GuySuCo) recorded increased production in 2011, the company’s operations still generated an overall deficit of $2.1 billion.
G.           Debt Management
Prudent management of our public debt remains an integral aspect of maintaining macroeconomic stability into the medium term. As a result of our strong revenue administration, responsible expenditure management, and support from our development partners through their provision of concessional financing, Guyana’s public debt is projected to remain sustainable through the medium term.
At the end of 2011, Guyana’s external debt stock grew by 16 per cent to US$1.2 billion, primarily due to new disbursements of project loans. On the debt service front, principal repayments to a number of external creditors increased in 2011, contributing to the overall increase in debt service payments which amounted to US$40 million at the end of 2011.
Progress has been made in debt negotiations with our bilateral creditors, in particular the Russian Federation and Venezuela. Pursuant to the decision taken by the Russian Federation in 2006 to grant additional debt relief to eligible debtor countries, we have advanced negotiations to the stage where Guyana is expected to sign a debt cancellation agreement later this year. This is expected to result in a write-off of 100 per cent of Guyana’s outstanding debt to the Russian Federation in the value of US$0.3 million. Government continues to advocate strongly for Paris Club comparable debt relief treatment from our bilateral non-Paris Club and commercial creditors through diplomatic and other efforts.
In addition, the Governments of Guyana and Venezuela have agreed on the procedure for the cancellation of a significant portion of Guyana’s oil debt in compensation for rice and paddy exports. The debt compensation agreement will result in the cancellation of Guyana’s oil debt to Venezuela equivalent to the value of rice shipped, which amounted to US$143.4 million at the end of 2011, and which will contribute to an overall reduction of Guyana’s debt stock at the end of 2012.
On the domestic side, Guyana's domestic debt stock increased moderately by 2.2 per cent to US$728 million at the end of 2011 as a result of Government's continued diligence and sound practice in managing the domestic debt. Further, the repayment of the debentures that matured in 2010 led to a 43.5 per cent reduction in domestic debt service.
Maintaining debt sustainability while financing critical economic and social development needs are twin objectives that will require continued access to concessional financing. It is therefore imperative that we actively seek the support of both our traditional and non-traditional development partners in this regard. At the same time, Guyana will continue to explore alternative options for expanding access to new financing.
Sectoral Developments and the Agenda for 2012 and Beyond
A.   The Medium Term Outlook
I have already alluded to our Government’s vision for the future, as was so comprehensively encapsulated in our Party’s Manifesto for the 2011 elections and in last month’s inaugural address by President Donald Ramotar in this Hon. House. Guided by that vision, and emboldened by the will to see it realised, we anticipate that the next five years could be the most rewarding in our country’s history. With the foundation laid, Guyana is on the verge of a most exciting transformation once the policy environment remains supportive.
The next five years present us with opportunities to completely change the face of our traditional industries, with the sugar industry becoming a more efficient and profitable one, the rice industry entering the era of large scale production in new areas in our country, major investment in bauxite resulting in new products and new mines being launched, and the gold industry witnessing the entry of a number of large scale producers bringing dramatic increases in production and introducing new technologies. The next five years also present us with the very real prospect of realising the first major wave of large scale diversification of our economy, with emergence of new sectors such as environmental services, petroleum products, previously untapped minerals, information and communication technology and tourism, all poised to become significant contributors to national output, creating jobs, and generating incomes and wealth for our people.
In addition to the transformation of our productive sector, the next five years will witness a concomitant modernisation of our country. The foundation is laid for improved infrastructural links both within Guyana and with our neighbours, including through the advancement of the Linden to Lethem road and the associated deep water harbour. Our energy supply will be modernised, including by the harnessing of hydropower to meet the needs of the national grid. Information and communication technology will be utilised and universal access promoted in pursuit of a more efficient public and private sector and a more competitive and better trained workforce. Also, within the next five years, Guyana’s place would have been secured as a global leader in providing environmental services and, in particular, utilising our vast forest resources in the fight against climate change, and environmental services and, in particular, utilising our vast forest resources in the fight against climate change, and environmental responsibility will underlie every policy in the modern Guyana.
B. Low Carbon Development Strategy
On the subject of climate change, Guyana has continued to provide leadership and advocacy on the international stage. In the international negotiations under the UN Framework Convention for Climate Change, Guyana played an active role in achieving a Reducing Emissions from Deforestation and Forest Degradation (REDD+) decision at the Durban talks in December 2011. Under that decision, the UN Convention agreed that financing for REDD+ actions will come from both public and private sources, opening the door for continued negotiations in 2012 on the role of the carbon market in climate financing. In addition to this deliverable, we also saw the establishment of a Green Climate Fund with explicit eligibility given to REDD+ activities, and a platform and road map for legal, global treaty on climate change. In 2012, Guyana will continue to advocate and negotiate for disbursement of early grant-type financing for REDD+ actions, and for an agreement on the role of carbon markets in generating REDD+ financing. In addition, we will continue to advocate more ambitious emission reduction targets by industrialised countries, and the full operationalisation of the Green Climate Fund with REDD+ window by January 2013.
I have, in previous budget speeches, made detailed reference to the visionary Low Carbon Development Strategy (LCDS) developed by our Government to align and remove any incompatibility between the objectives of environmental responsibility and accelerated economic and social development. I have also previously made detailed reference to the historic partnership entered into by Guyana and Norway under which Norway compensates Guyana for environmental services provided by Guyana’s forests, and under which a total of US$250 million is projected to be transferred by Norway to Guyana over a five-year period. At the end of 2011, two tranches totalling US$70 million had been transferred by Norway to the Guyana REDD+ Investment Fund (GRIF).
These funds having been disbursed into the GRIF, Government is currently working with our Norwegian counterparts and multilateral partner entities to refine the administrative and institutional arrangements for these resources to flow to Guyana to implement the projects and programmes articulated in the LCDS. Indeed, one such partner entity, the Inter-American Development Bank, has already given approval for the first of the GRIF-funded LCDS projects valued at US$7 million, through which Government will strengthen the Guyana Forestry Commission’s capacity for implementing REDD+ activities. In addition, a comprehensive assessment of forest area change, identification of areas affected by forest degradation and technical capacity to develop forest carbon stock measurement and monitoring will be addressed.
Government envisions the advancement of a number of core LCDS initiatives during the current year. Most notably, construction of the Amaila Falls Hydropower Project (AFHP) is anticipated to commence by the end of the third quarter of 2012. Under the GRIF, Government proposes to provide US$80 million of equity to the Amaila project. Additionally, Amerindian communities will benefit from a land titling and demarcation project, the Amerindian Development Fund will channel funds directly to Amerindian communities to support the development of community-identified priority projects, and a micro and small enterprise development programme will address the major bottlenecks in the development of a strengthened entrepreneurial and small business sector. Importantly, the Cunha Canal rehabilitation, which is the first climate adaptation project under the LCDS, will help to reduce the risks of flooding of areas along the East Bank of the Demerara River. It is expected that other climate adaptation projects to be funded under the GRIF will be identified going forward.
Still on the subject of our commitment to responsible environmental management, last year we enacted the Protected Areas Act 2011 to govern the establishment and management of a National Protected Areas System in Guyana. In keeping with the requirements of the Act the establishment of a new entity, the Protected Areas Commission, has recently been concluded with its main functions being to establish, manage, maintain, promote and expand the national protected areas system. Planned activities for 2012 include the establishment of an institutional structure for the Protected Areas Commission, including site-level management authorities, hiring of rangers and the setting up of a Trust Fund. This Commission will also begin to oversee the implementation of the Kanuku Mountains Management Plan and the Kaieteur National Park Management Plan, and will seek to produce a Shell Beach Protected Areas Management Plan, and will seek to produce a Shell Beach Protected Areas Management Plan.
C. Transforming the Economy
          a.    Modernising the Traditional Sectors
Notwithstanding the progress made in diversifying our economy, the traditional sectors remain important, supporting entire communities, providing thousands of jobs and making an invaluable contribution to national productive output. For these reasons, ensuring that these sectors remain vibrant and growing, efficient and competitive, and profitable into the long term, continues to be a priority.
i. Sugar
Guyana’s sugar industry has the potential to achieve and sustain annual production of over 400,000 tonnes of sugar in the medium term. Government’s intention is to enable the industry to realise this potential and, in particular, to do so while steadily increasing the share of value added products in total output, particularly of packaged and processed sugar, so as to ensure a profitable and competitive industry in the long run.
The industry’s underperformance in recent years has been attributed principally to the devastating financial impact of the changes in the European sugar regime, compounded by the ongoing reasons of low labour turnout, a complicated industrial relations climate, less than favourable weather conditions and the need for greater managerial effectiveness. These factors notwithstanding, it would appear that we are now in a position to be cautiously optimistic with respect to the industry. In 2011, while work progressed on rectifying the Skeldon factory to expand sugar processing capability, the commissioning of the Enmore Packaging Plant resulted in an immediate boost in capacity to package sugar. In the fields, mechanisation advanced with the company achieving 55 per cent mechanisation at Skeldon and 70 per cent mechanisation at Enmore and La Bonne Intention estates.
Management has outlined additional efforts to improve the domestic conditions for production and the industry’s financial performance. With the increased mechanisation of the Skeldon estate, the beginning of 2012 has seen only about 20 per cent dependency on complete manual harvesting and the mechanisation effort is set to expand further at other estates later this year. The ongoing programme of technical improvement of the Skeldon Factory to address the defects is expected to ensure that the factory will function at full capacity by the second crop of this year. The recently established Enmore Packaging Plant is expected to operate at full capacity subject to the availability of canes as the industry increases acreage under cultivation, including in collaboration with private farmers. The aim is to raise the industry average of private cane production from 8 per cent in 2011 to 12 per cent in 2012. Further, the industry will expend $2.7 billion in 2012 towards the operational plant and field infrastructure at all 8 sugar estates, and work will advance in replanting, land conversion to layouts suitable for mechanisation and capital replacement of drainage works. Taken together, these developments are expected to see the industry move towards the targeted medium term production and profitability trajectory.
ii. Rice
As in the case of the sugar industry, the rice industry continues to be a mainstay of our rural communities, contributing much to livelihoods in traditional rice farming areas. Our aim is to continue to encourage expansion in efficient and profitable production with a focus on value added.
As I have already reported, buoyed by Government’s sustained support in improved drainage and irrigation, agronomic practices and expansion of capital infrastructure, the rice industry delivered another record performance in 2011. Total acreage under cultivation per crop is now at its highest level ever at approximately 170,000 acres, and new areas are being brought into cultivation, including Moco Moco in Region 9. Furthermore, 2 new varieties of rice were released to farmers on coastal regions for commercial testing, and industry research remains focused on introducing varieties that are high-yielding, blast-resistant and able to tolerate the environmental conditions in Guyana, with 14 new varieties are currently being tested.
It is anticipated that the commissioning of an additional paddy seed plant in 2012 will result in the production of 20,000 bags of high quality paddy seed annually. In addition, work is ongoing with the Guyana National Bureau of Standards to certify the rice testing laboratory and to achieve ISO-Standards which is a critical step in strengthening export capacity and improving access to wider markets. Further, the pursuit of the expansion of hinterland rice production will continue with small scale production of rice in several areas of the hinterland, supporting livelihoods and food security, while work is ongoing to encourage private investment in large scale rice production, including in new areas such as the Rupununi.
iii. Bauxite
In much the same manner as with sugar and rice, the bauxite industry has served as an important traditional contributor to overall economic performance. Even as we promote diversification and creation of alternative job opportunities in and around the bauxite communities to reduce their dependence on this industry, efforts remain unabated to facilitate the emergence of a growing and more competitive bauxite industry despite challenging and unpredictable external circumstances.
The global market for bauxite continues to show mixed signs. In 2011, while the refractory market continued to recover, the metallurgical bauxite market in the Atlantic region faced a declining price for alumina in the face of excess capacity and supply. Nevertheless, 2011 saw an expansion of production for both companies operating in Guyana. The Bauxite Company of Guyana Inc. (BCGI)’s production of 1.3 million tonnes represented a 61 per cent increase over 2010, largely driven by improving production equipment and mining practices. Bosai saw an expansion in refractory bauxite production by 10 per cent in volume to over 203,000 tonnes in 2011.
Under this Government, the value of investment in the bauxite industry, since privitisation, has been in excess of US$200 million. Over the next four years, a new wave of expansion is expected that will see even larger sums being invested. In 2012, Bosai will start construction of a third kiln aimed at expanding Refractory A-Grade Super Calcined (RASC) production by 150,000 tonnes per annum, and the production of a facility to produce 75,000 tonnes of mullite per annum. These two projects alone will create jobs during construction and see over US$100 million being invested. BCGI is similarly poised for expansion with over US$30 million of mining equipment being delivered to Guyana early this year. Over the next four years, more than US$80 million will be spent to expand the Berbice operation to a level capable of producing 5 million tonnes of bauxite per annum. BCGI projects that at least another 450 jobs will be created. A third bauxite company, First Bauxite Inc., is projected to start construction of its refractory operations in Bonasika in the latter part of 2012, with an investment in excess of US$120 million.
iv. Gold
The gold sector maintained its position as the largest contributor to total mineral output and, as I have just reported, returned a record year in 2011 with domestic mine production surpassing the Omai gold mine highest output by 2.5 per cent and recording a third consecutive year above the 300,000 ounce mark. In relation to the small and medium scale gold mining sector, over US$100 million has been invested last year mainly as a result of high gold prices and it is envisaged that for 2012 that the figure is expected to increase.
Going forward, orderly growth and development and capacity building will be Government’s focus in this sector. Significant new investments in the sector include two major gold exploration projects, Guyana Goldfields Inc. and ETK Inc., in collaboration with Sandspring Resources Ltd., both of which are at the resource assessment stage. Guyana Goldfields Inc. announced positive feasibility study results for its Aurora Gold Project in Guyana with the total investment expected to amount to US$600 million and seeing 250 jobs created during development and another 200 created during mine operation. In the case of the Toroparu mine being developed by ETK Inc./Sandspring Resources Ltd., the total investment is projected at US$400 million and 300 jobs will be created during development, while another 200 jobs will be created during mine operations. With the above developments on course, the gold subsector is poised to continue to play a leading role in its contribution to growth, to exports and to job creation.
b. New and Emerging Sectors
i. Information and Communication Technology
Information and Communication Technology (ICT) has emerged globally as one of the most influential drivers of innovation and transformation in the current generation. The emergence of ICT has spawned limitless opportunities for people in countries such as ours, and our Government is firmly committed to ensuring that the Guyanese people are fully equipped to take advantage of these opportunities. Our vision is to ensure that every single Guyanese person, irrespective of where they live or how old they are, has access to the advantages brought by ICT. Our ICT strategy will facilitate dramatic increases in social and economic welfare at all levels, catalyse major transformative change in the way in which we educate our people, in the manner in which business is conducted and government services are delivered, and in the type of jobs we create. To this end, our strategy prioritises legislative change to promote a competitive and efficient environment, investment in infrastructure to increase connectivity and reduce cost, and promote ICT education in our schools, and improve access to ICT for all our people.
We have already successfully facilitated the emergence of an ICT sector, within which over 3,000 persons are employed in business process outsourcing, with ten call centres currently in operation, doing business in telemarketing, inbound customer support, voice transcription, medical records transcription and data warehousing. This sector is poised to be a major driver of growth in the future, with the potential to create an additional 6,000 jobs in the near term and a further 15,000 jobs in the medium term. We will continue to promote investment in the sector aggressively in order to ensure that as many high quality jobs are created in the shortest possible time.
A critical element of ensuring competitiveness and expansion in this sector would be the achievement of telecommunications liberalisation. Efforts were made during the last Parliament to introduce a legislative framework to govern the sector in an era of competition, with a new Telecommunications Bill, amendments to the Public Utilities Act, and Telecommunications Regulations drafted. Regrettably, the legislative process could not have been completed on time before the dissolution of the Ninth Parliament. It is our intention to return to this Hon. House early in the current Parliament to have this new legislative framework put in place in order to facilitate the transition to full competition.
In pursuit of the objectives of universal access, Government has been following the twin tracks of installing infrastructure that will see high speed delivery of e-Government content along with ensuring that no household will be left without access to that content. To these ends, amounts totalling $2.6 billion were allocated to install some 580 kilometres of high speed fibre-optic network spanning from Lethem to Providence with drop-off sites at Lethem, Annai, Kurupukari, Mabura and Linden, and commencing a fibre-optic backhaul network connecting Moleson Creek to Anna Regina, with a data centre at Providence for the development of e-Government with high speed wireless access using a 4G network. A total of $3.1 billion is budgeted to be spent in 2012 for the continuation of these networks.
Also in 2011, Government launched the flagship One Laptop Per Family (OLPF) programme. An amount of $1.6 billion was spent to procure 27,000 laptops of which 10,850 laptops were distributed in Regions 2, 3, 4, 5, 6, 7 and 10. To facilitate the effective use and operation of these laptops, Government utilised 99 private sector hubs to provide training and internet access to the recipients. In this regard, 3,569 recipients completed the mandatory ten-hour training programme. This year will see the continuation of the OLPF programme for which an amount of $3.7 billion is allocated. Over the next year a total of 63,000 laptops will be acquired for distribution to families and communities countrywide, bringing the total number of laptops distributed to 90,000. This programme will make a dramatic difference in ensuring that our most vulnerable have equal access to ICT, and will vastly increase the pool of Information Technology (IT) literate persons in our country.
Taken together, these developments will place Guyana in a position to be much more competitive as a destination for ICT investment, and will enable the sector to play its expected transformative role, including as a direct driver of economic diversification and growth.
             ii. Extractive Industries
            Oil
Another major contributor to economic transformation over the next five years will be the natural resources sector. While the gold and bauxite industries have already been referred to, a number of other extractive industries are also poised to become significant contributors to domestic productive output. These include oil and manganese along with other minerals such as uranium and rare earths which are at the initial exploration stages.
As far back as 2000, the United States Geological Survey ranked Guyana as having the second most attractive under-explored basin in the world with a potential of 15.2 billion barrels of oil and, were a discovery to be made, production targets would be estimated at 50 million barrels per year which would be equivalent to 140,000 barrels per day. One decade later, the anticipated investments have been realised and the process of drilling has commenced. Indeed, even as we meet today, the offshore drilling rig Ocean Saratoga lies just beyond our shore drilling the Eagle prospects, which have been identified by CGX Resources Inc. as having potential for discovery, while the Atwood Beacon is drilling the Jaguar prospects for a consortium led by Repsol. In addition, the joint venture led by Esso will see continued exploration activity including 3D seismic data acquisition as they determine the merit for further exploration which may include drilling.
In 2012, the sector will continue with offshore exploration drilling by Repsol and CGX, the coastal onshore and Rupununi activity is expected to continue, and new venture interests are expected to result in licences being issued in the ultra-deep water offshore as well as nearer shore and on the basin fringe, all bringing with them the attendant forward linkage opportunities for growth in ancillary services.
Manganese
For nearly half a century, there have been indications of manganiferous ore between the Barima and Barama Rivers. The Matthews Ridge manganese reserves have since been determined to be 2.6 million tonnes of crude ore, and depending on further work, this is anticipated to increase. New investments in the industry have resulted in Reunion Manganese Inc., a subsidiary of Reunion Gold, a Canadian traded company executing a mineral agreement with the Government of Guyana last year. Since the start of their operations, some 35 holes have been drilled so far with continued drilling and sampling being the focus of the company’s feasibility study to date. It is expected that, providing the feasibility study and investment programme are completed as projected, Guyana could witness the development of one of the largest manganese mines in the region by 2013. This operation has already seen over US$50 million invested and some 250 jobs created. The development phase will see 1,000 jobs created and mature operations will create over 500 permanent jobs, and generate total investment in excess of US$300 million.
Uranium and Rare Earth Elements
In the area of uranium, there are three companies currently engaged in prospecting for radioactive minerals in Guyana. Prometheus Resources of Canada is at the most advanced stage with drilling occurring in Kurupung, Middle Mazaruni area. The company lists Guyana as one of three countries in South America that represent a promising new frontier for uranium exploration and development and in July last year reported 82 per cent uranium recovery. Further, two other companies are conducting reconnaissance surveys in the North West District and mid-western Guyana respectively.
On another front, rare earth elements, which are a vital component in the electronics industry for such items as cell phones and other high technology applications, present a new opportunity for investment, and with industrial countries actively pursuing alternative sources, Guyana offers new terrain. To this end, Government has invited expressions of interest for two locations, one in southern Guyana and the other in Middle Mazaruni. This is likely to give rise to the development of exploratory activity in the first instance and subsequently, conditions permitting, extraction.
iii. Agricultural Diversification
Guyana has long been recognised for its potential to be the food basket of the Caribbean. Were Guyana’s food production potential to be fully realised, not only with our domestic supply requirements be substantially met, but so would a significant part of the Region’s food import bill be met by local production. With this aim in mind, Guyana has embraced a development path within the agriculture sector that focuses on diversification, facilitating large scale investments in our traditional as well as new food crops, the use of new and emerging technologies, implementation of sanitary and phytosanitary standards, the creation and testing of new varieties, critical investments in infrastructure and the training of our farmers, businesses and farming communities to improve and enhance our food production and food security.
A total of $1.4 billion was expended in 2011 on Government’s aggressive agro-diversification programme. In order to ensure that the necessary supportive regulatory framework is in place, a number of important legislative initiatives were undertaken. These included the tabling and passage of the Plant, Animal and Seeds Acts, and the drafting of a number other Bills, including a Food Safety Bill which will be brought to this Hon. House during the legislative session. In 2011, the sector continued to introduce genetically improved varieties and breeds that can withstand various environmental conditions and provide higher yields. Other efforts are ongoing to improve genetic stocks and varieties that will improve quality and yield for crops, and captured fish. Over 8,000 farmers trained in crop and animal husbandry and farm management. Additionally, the hinterland rice and bean project and spice project commenced. The spice project included the cultivation of onions, carrots, turmeric, black pepper, ginger, nutmeg and potatoes in communities such as Kato, Kurukubaru, Paramakatoi and Bamboo Creek. In addition, several measures were implemented to promote exports, including training in food safety, rehabilitation of quarantine office at CJIA, training of farmers within the clusters of fruits and vegetables, aquaculture and livestock for over 40 community based organisations and producer groups, including over 1,000 farmers in organisational and enterprise development. The result has been a rapid increase in production and export of non-traditional crops.
In 2012, $1 billion is allocated to the agriculture sector to advance efforts towards the diversification and modernisation of the sector. Government will continue to develop 5,500 acres uncultivated land between Supenaam and Riverstown, which will see the expansion of land for agricultural production in areas of rice, livestock, citrus and other fruits and vegetables in the Aurora area. This year will see over 50 large scale farmers benefit from the use of improved technology on their farms which will result in increased production for the domestic and export markets and another 30 producer groups will be provided with credit to enable them to finance their own businesses. Further, 49 business plans will be financed to support the introduction of new technologies in agriculture. In aquaculture, efforts will be concentrated in pond construction, acquisition of brood stock and the setting up of hatcheries. In the livestock area focus will be placed on genetic diversification. National Agriculture Research Extension Institute (NAREI) will enhance its capacity through the equipping of a modern germplasm and tissue culture laboratory capable of producing over 50,000 seedlings. Meanwhile, we will introduce international standards to 100 farmers and agro-processors with particular emphasis on the 5 large agro-processors facilities, 4 poultry processing plants and 9 aquaculture farms. The expansion of the cold chain system will complete the value chain in ensuring that the produce leaving our shores are kept in optimal condition thereby guaranteeing our competitiveness in our marketplace.
These initiatives, along the completion of a genetic bank, artificial insemination laboratory, and quarantine stations at St. Ignatius and Mabura are among the initiatives that will be pursued this year.
iv. Tourism
Tourism remains one of the sectors in which Guyana has a significant comparative advantage, given our vast and unique endowment of nature. It is anticipated that the sector’s contribution to the national economy will grow considerably in the near future, given recent gains. Our policy for the sector aims to ensure that the Guyanese tourism product maintains its relevance and attractiveness to target audiences, that the capacity of the industry is increased, that standards are raised and maintained, that the unique Guyanese product becomes as widely known and as favourably regarded as possible, and that the destination and the industry are made as competitive as possible. Target audiences include the diaspora, and visitors from nearby and neighbouring countries, and industry niches include eco- and adventure tourism, bird watching, sports fishing and low carbon vacations.
With these aims in mind, the tourism sector has been growing rapidly in recent years. Industry capacity has been increasing steadily, with significant levels of private investment taking the total number of hotel rooms to 3,000 at the end of 2011, compared to 1,700 five years ago. Visitor arrivals amounted to 156,910 in 2011, a 4.5 per cent increase over 2010. The number of airlines travelling to Guyana and the number of routes, flights and seats available have been increasing steadily, with the most recent addition being Suriname Airways introducing flights between Parimaribo, Georgetown and Miami. Meanwhile, the Guyanese product has received favourable exposure in a number of mainstream publications. In addition, investments continue to be made in training of personnel, with the aim of improving service quality and visitor experience.
In 2012, efforts will continue to ensure that this sector accelerates its growth towards realising the fullness of its potential. Firstly, the absence of a major international hospitality brand remains an impediment to both sector capacity and quality. In 2012, efforts will continue apace to advance the Marriott Hotel project under the public-private partnership. At a total estimated cost of US$58 million, this 197-room hotel will include entertainment facilities such as a casino, nightclub and boardwalk. Efforts will also continue in collaboration with industry partners