Guyana outgrowing its financial sector
There is no shortage of investment opportunities in sectors beyond oil, but the country’s capital markets lack capacity to handle the levels of financing needed, Guyana’s finance minister said on Tuesday.
At the inaugural JSE Guyana Capital Markets Conference held in Georgetown, Dr Ashni Singh, senior minister within the Office of the President with responsibility for the Ministry of Finance, stressed that the world’s fastest-growing economy was focused on diversification and pushing for investment in areas such as tourism, manufacturing and transport.
“The first prerequisite for a sound capital market to emerge is a sound macroeconomic context where the economy is growing, and where there is a demand for financing,” said Singh.
But: “The financial sector simply does not have the capacity,” he said at the opening of the conference, hosted from October 3-4 by the Jamaica Stock Exchange in conjunction with the Georgetown Chamber of Commerce and Industry.
A few years ago, Guyana was a low-income country. But a massive oil find running to 11 billion barrels of reserves has seen the country of less than 800,000 people being reclassified as high-income and sought after as an attractive place to invest. The country, while located on the South American continent, is geopolitically aligned with the Caribbean as a member of the Caricom trade bloc.
On Tuesday, Singh stressed that while the oil find had changed the country’s fortunes, Guyana wanted a participatory economy and was looking towards investments in non-oil activity, a sector that, by itself, grew 12 per cent last year.
That in turn has created a challenge for Guyana: how to develop its capital market to adequately finance the activity inside the non-oil economy.
It requires funding solutions that go beyond traditional bank financing, Singh said.
“We have to have a conversation about modernising the architecture in which financing is being raised,” the minister said at the opening of the conference.
“The financial sector needs to have a conversation, along with regulators, about what needs to be done to increasingly move away from traditional bank financing. Some may be regulatory. Some may be technological. Some may be cultural,” he added.
Guyana has its own stock exchange, which is operated by the Guyana Association of Securities Companies and Intermediaries Inc, but it only trades once per week, on a Monday.
There are 15 stocks listed on Guyana Stock Exchange with market capitalisation of GUY$702 billion (US$3.3 billion).
Within the non-oil sector, Guyana is offering incentives that include duty waivers on imported machinery and tax breaks of up to 10 years, to entice foreign investors.
Expansion and investment are ongoing in transport infrastructure to improve connectivity with neighbours – including a road to Brazil and its population of 216 million, and a bridge to Caricom neighbour Suriname and its population of 620,000 – and the government is building out public infrastructure to open up new arable lands in excess of 50,000 acres.
“We are investing and co-investing with the private sector, with the aim to become self-sufficient in corn and soybean in 2025” and also supply regional markets, said the finance minister.
“We aim to reduce regional food dependency from external sources by 25 per cent,” he said.
Expansion is also ongoing in gold mining, bauxite mining, and services such as business process outsourcing.
In the area of tourism, eight internationally branded hotels have been approved for development, with five under construction. But the government wants even more investments in tourism, including eco-lodges.
“The objective is to integrate with partners to twin products. Tourism to the Caribbean region sees over 28 million visitors a year. We just need to position ourselves – maybe offering five days on the beach and two days at an eco-lodge,” said Dr Peter Ramsaroop, chief investment officer in the Office of the President.
“We have several brand name hotels also being constructed. Getting proper accommodation in Guyana has always been an issue. But this issue will be alleviated in the near future,” Ramsaroop said in an appearance at the conference on Wednesday.
The current hotel projects include a US$15-million Aiden/Best Western hotel in Georgetown, a US$90-million Hilton Hotel to be constructed in Greater Georgetown, a US$100-million Radisson Blu Hotel, and a US$20-million Marriott Courtyard Hotel, to be located near the Cheddi Jagan International Airport.
Guyana is also building out modern port facilities and investing in energy infrastructure, “which will see us doubling generation capacity by 2025 and reducing cost to consumers by 50 per cent,” Singh said on Tuesday.
“We expect a dramatically improved manufacturing sector for value-added and productive activity,” he said.
Guyana currently produces 360,000 to 400,000 barrels of oil per day, and expects to ramp that up to about 560,000 to 600,000 barrels daily by early 2024.
The oil find was made by American company ExxonMobil Corporation and partners, but others continue to explore for crude.
In the past three years, the oil bounty has fuelled economic growth averaging 45 per cent for Guyana, and the country is projected to continue growing at a pace of 25 per cent over the next three years to 2026, said Singh.
Last year, the country saw GDP growth of 62 per cent, with 12 per cent expansion in the non-oil sector. This year, the non-oil sector is expected to grow by 9 per cent.
“The Guyanese economic journey is the result of sustained effort over the last three decades to bring us back from abject indebtedness, to restore our credibility as a location as an investment destination. Exxon Mobil would not be here otherwise,” said Singh.
“It took a lot of hard work, discipline and on many occasions politically challenging decisions, but we did not shy away; we were not afraid to implement strong structural reforms where these were appropriate. We did not baulk at the pain that had to be felt in order to get Guyana back to the position of a fiscally solvent country,” he said.
Guyana expects to ramp up oil production in ensuing years and is projecting that it will hit 1.2 million barrels by 2027. Its proven oil reserves is the third-largest in Latin America and the Caribbean and the 17th-largest in the world.
Also within the energy arena: “We will be landing 300 megawatts of gas resources onshore. This will be used to develop fertiliser, cooking gas and petrochemicals. In the first instance that will be centred in Wales on the Westbank of the Demerara,” Singh said.
The Guyanese government is setting up a natural resources wealth fund seeded by oil proceeds that will finance “the most pressing development needs in the near term”, and “a percentage saved for future generations”, said Singh.
Content legislation was also developed to ensure that Guyanese companies are not sidelined.
Within that landscape, however, the finance minister suggested there was need for a new mindset within the business community.
“There are many family-owned businesses, many of which have played an important role in the economic landscape. There is a conversation which says going to the market necessitates a change in behaviour. Many have the potential to grow even more, but cultural and behavioural changes are needed,” he said.
That very issue appeared to have factored into the planning of the conference.
On Wednesday, Andrew Williams, the chief executive of one of the newest companies to list on the junior market of the Jamaica Stock Exchange, made an appearance to pitch the benefits of taking a company public.
Addressing the issue that often make private investors baulk–the public disclosure of their finances–Williams said businesses should weigh that against the financing opportunities that listing opens up for small enterprises.
“We are in a globalised economy. We are seeking to compete with multinationals. Yes, you will have to disclose certain information. The public and investors need to know. The bigger picture is that you will be following guidelines which are in the interest of the company and the investing public,” said the Regency Petroleum Company CEO.
“When you have small and medium-sized entities which are listed, debt is also cheaper when needed for further expansion. All your financials are now public. You are on a growth path. You will be offered a better interest rate for working capital.”
“You can float bonds privately which carry better terms,” he added.
Regency Petroleum is a young business engaged in the distribution of petrol and cooking gas. It listed on the market last December and is in the process of expanding. As a junior market company, Regency is allowed 10 years of tax breaks.
Speaking from the perspective of owner of a small business, Williams said it was “absolutely beneficial for any developing country to have a junior stock exchange which provides the opportunity for growth”.
He also sees the stock market as a safeguard, saying listing is a way of ensuring that the business will continue even when the original founders are out of the picture.
“Your children may not be interested in continuing the business you have started, but your children will retain share ownership and remain a part of it, employing personnel needed,” he said.
The Guyana conference marks the first time in 18 years that the JSE has staged a capital markets confab outside of its home country. It intends to maintain the itinerant schedule in addition to the main conference held annually each January, which will continue to be staged in Jamaica.