Prosperity beckons if we administer oil wealth properly, take bold steps

Dear Editor,

Even with the 2% oil royalty, we could have a bright future. It up to our President and his administration.

The President should adopt a brave, bold and aggressive approach in charting a new vision for Guyana. As conditions change and opportunities arise, it is only appropriate to adapt to these changes and get aggressive in formulating new strategies.

The President should direct that no new borrowing should take place from foreign countries or entities where the overhead costs such as fees and commissions exceed 5 percent. At least 95% of the funds should be at the exclusive disposal of his administration which can be directed to value for money activities.

The lender should have no role in determining who should do the feasibility study, preliminary design, detailed design and implementation. The Government should be free to hire whomever it wishes based on its procurement laws.

The lender should have no role in determining where supplies and materials are sourced. The government should have total control over its trading relationships.

The lender should not be entitled to any concessions. The project being financed should not be entitled to any concessions. The project must be costed paying its share of duties and taxes like everybody else.

The lender and the contractors selected should not be entitled to hire foreign workers. They must first advertise locally and if they cannot source the person, then they can go abroad. When hiring from abroad, members of the Guyanese Diaspora must be given priority.

All foreign workers must be subject to Visa/Work Permits same as would apply in their country and all relevant taxes same as local employees.

Interest rates and repayment terms on loans must be aggressively negotiated. We must decide.

We are not begging, we borrowing.

So why should they line up to lend to Guyana.

Right now the big money in the world is earning almost zero percent interest and subject to inflation at the same time. In some countries they even earn negative interest. Lending to Guyana at any interest rate will be better than many other options available to them.

Lending to Guyana is safe and secure. We have oil. Lots of it. At an average of US$40 per barrel, we are worth a ton of money. This is what we have to leverage to provide safety and security to lenders.

We should be able to leverage our Natural Resources Fund and future earnings from oil to obtain the best terms and conditions for loans.

This would require that certain decisions be taken with respect to the Natural Resources fund:

Immediately retain the services of a Wealth Management Company to actively manage the fund to maximize growth and earnings.

While such a company will charge up to Half Percent (0.5%) management fee, such a company should be able to guarantee a minimum growth of 9% to 15% per year.

The fund should be used to guarantee loans.

The fund should be used to service loans/debt.

Funds needed for Loan Servicing should not exceed annual earnings of fund for the first 10 years. While this may be seen as a constraint, if you do the projections, you will see that it will more than meet the development needs of the country.

Assuming that 2020 is year 1 with fund worth 200m, given the current plans with Liza-2 and Payara, after 10 years the fund should conservatively be worth US$16.2b; and at 9% earnings per year, it would have generated earnings of US$4.4b; and can earn at least US$1.2b in year 10.

The President, having the opportunity to serve two terms can embark on this 10-year programme to take us from rags to riches. And this is with just three currently approved wells.

There is another more important source of funding available to Guyana. We can leverage the Natural Resources Fund to issue Guyana Savings Bonds.

We should start off by issuing 7-year development bonds which will on maturity double in value. If held to maturity, the effective interest rate will be 10.4% compounded annually. Guyanese investing in these bonds will be exempt from any taxes when cashing their bonds on maturity. All other investors will be subject to 20% tax on the income portion of the bond.

By creating the right conditions, you can have more money coming from the diaspora than you will know how to handle.

You need to fix the procedural problems we currently have with the banks. Let me explain:

My sister in Crabwood Creek wants to send me some money. The bank will not allow her to wire the money into my account unless I contact their bank and my bank and confirm that I am ok with the transaction.

She decides to ask for a Bank Manager’s cheque for the amount. This was denied.

The amount was $600,000.

Then you have the business with having to identify yourself to the bank every year; regardless of the amount in your account or the type of transactions you conduct.

Concerns for money laundering in Guyana are no different than in other countries. Yet other countries do not have the same problems which restrict our ability to conduct business. This is a solvable problem.

You also have to decide to facilitate US$ transactions. Your Savings Bonds must be in US$. Redemption of Bonds will be in US$. You will have to allow all persons the right to maintain US$ accounts in Guyana. You will have to allow online transactions for the transfer of funds to and from the US$ accounts.

The Diaspora in North America is made up of mostly skilled and entrepreneurial persons who have accumulated significant capital over the years. These same people have a soft spot for Guyana which is demonstrated by the amount of remittances this country receives including the shipment of barrels of personal items for friends and families.

Development Bonds that double in seven years tax free for Guyanese will attract a lot of investment. Your need to borrow from other lenders will be significantly reduced.

A major hurdle for this programme to become a success is the application of Property Tax on amounts greater than $40M or $200,000 US. Property tax must be abolished so that the Diaspora can bring back money without having to worry about having it taxed for no particular reason. It is common knowledge that many businesses and individuals in Guyana accumulate their wealth in foreign lands; primarily to avoid the dreaded Property Tax. It is a dis-incentive to investing in Guyana and accumulating wealth in Guyana.

Tax property at the local NDC level and get rid of the Property Tax as it is currently applied.

We do not have to be satisfied with 2% royalty, but that is what we have and if we manage it right, we can become a prosperous country. Nothing can stop us from trying to improve on the 2% but in the meantime we should manage the 2% right.

Be safe.

Yours faithfully,

Sase Shewnarain