Natural resource: Guyana's rich forests may be fruitful in boosting the country's economy

The Guyanese government is looking to the small South American country's vast, untouched rainforests as a means of promoting eco-friendly development. Writer Brian Caplen

Guyana is not exactly your average place. As the only English-speaking country on the South American continent, its land area sits well with its British colonial heritage - it is about the size of the UK. But whereas the UK crams 60 million people into its borders, Guyana only has 770,000 - in fact, more Guyanese people live outside the country than inside it.

And what Guyana does not have in the way of people, it makes up for with trees - it boasts a vast terrain of undisturbed tropical rainforest. It follows that Guyana's government is hoping to turn its trees into cash, not by cutting them down, but by receiving rewards for their contribution to preventing climate change.

What will this do for Guyana's economy and its rather undeveloped financial system? Bankers widely complain of a lack of business opportunities. They have ample deposits, in some cases collected, with only a single branch. However, lending prospects are so restricted that Guyanese banks are hugely underleveraged and the country has sailed through the crisis with a system loan-to-deposit ratio in the 38% to 42% range. The Bank of Guyana's challenge has been the opposite of that facing central banks elsewhere - it needed to remove liquidity from the system, not pump it in.

"Over the past five or six years we have had a chronic excess of liquidity in the banking system and we have issued treasury bills to mop it up. The rate of growth in deposits has far outstripped the growth in loans," says Guyana's governor, Lawrence Williams. As a result, banks have ended up with a major chunk of their balance sheets invested in low-yielding government securities.

John Tracey, director of credit at Guyana Bank for Trade and Industry, one of the country's leading commercial banks, says: "There are not many companies here and the business class is not very large. We deal a lot with individuals. The country is predominantly agrarian. We have rice and sugar [two of the major exports] but until recently there has been no opportunity to lend to the sugar sector as it was government owned."

In addition to the lack of business, development banks face all the usual challenges of lending in an emerging market - old-fashioned rules on collateral and a slow-moving court system in dispute cases.

But there are some bright spots and signs that Guyana's commerce may move forward in the next few years. The economy is still growing and there is plenty of scope for introducing products that are standard elsewhere but new to Guyana. With only a basic branch and ATM network, there is ample opportunity to grow. There is a lack of long-term savings products, and a common point-of-sale system for merchants accepting different bank cards has yet to be established. "Presently, merchants have to carry several machines for all the different kinds of cards but everyone in the banking association agrees about the need for change," says John Alves, senior manager for credit at Republic Bank (Guyana).

On the lending side, Mr Williams says that a lot could be achieved through educating the business community in how to apply for loans and in the advantages of raising money on the stock market, which is currently in a fledgling state and still needing financial support from the government.

Environmental angle

It is too soon to tell whether President Jagdeo's positioning of Guyana's economy, ahead of the UN climate change conference in Copenhagen in December, is a stroke of genius or just another aid project that fails to translate into ongoing development.

Guyana, with its diverse ecosystem, untouched trees and spectacular natural sights such as the Kaieteur Falls, which dwarf the Niagara Falls, has huge, undeveloped tourism potential. Another growth business is the export of alcohol, particularly rum.

"Rum is one of the few areas of business that has grown continuously for the past 15 years. We are a niche player in the branded area but we also export bulk alcohol to the international drinks companies," says Loris Nathoo, general manager of rum exporter Demerara Distillers.

Mr Williams says: "There is a lot to be done to educate small entrepreneurs in how to present business ideas to the banks. The banks complain about the lack of bankable projects but some of the entrepreneurs don't have the expertise to present their case in the right way.

"Banks have also been timid in lending because of the difficulties in foreclosing, so we have established a commercial court to reduce the time it takes," he says. According to Mr Williams, the planned establishment of a credit bureau should help, and he encourages banks to both set up microfinance windows and to take branch banking into the rural areas that are underserved.

Exchange business

Of the stock market, Mr Williams says that Guyanese people have not been educated to see the benefits of a stock market listing and that family businesses see equity as something to pass on to the next generation.

Currently, the country's stock exchange, which opened for trading in 2003, has only 14 stocks, trading is thin and some shares are not traded at all.

Graham Scott, managing director of Guyana Americas Merchant Bank (GAMB), one of four brokers using the exchange, says: "The free float is very limited and there is reluctance on the part of private companies to go public. They are deterred by the requirements for disclosure." GAMB also provides financial advice and underwrites rights issues.

Another challenge is the time it can take for share certificates to change hands as there is no central securities depositary. "Sometimes the owners are abroad and the share certificates have to be sent by post, which can take as long as six weeks," says George Edwards, operations manager for the stock exchange.

All of this means that bank lending is likely to remain the primary source of financing in Guyana for some time to come. Banks are well capitalised, with a system Tier 1 of 16.86% but non-performing loans (NPLs) are also high (9.78%), indicating the risks of lending and the need to proceed with caution.

Vinod Sehgal, managing director of Bank of Baroda (Guyana), a subsidiary of the Indian state-owned bank, was posted to the country from Mumbai in January 1998. Reflecting again its British colonial heritage, 43% of Guyanese people are of east-Indian origin (their ancestors having arrived in the country as indentured labourers to work on the sugar plantations in the 19th century) and so have an affinity with the Indian bank. Mr Sehgal runs a thriving business in the capital, Georgetown with a single branch, but is considering Berbice - a region in the east of the country with a big Indian population - as a location for a second.

"Banking in Guyana is a very simple business," he says. "There are deposits, lending and foreign exchange. There is not really any treasury business and no long-term savings."

Mr Sehgal is able to use the central treasury of Bank of Baroda and is busy developing longer-term saving and investment schemes. "I have put together a two to three-year investment scheme so that people can change their mental state a little," he says.

Mr Sehgal has also set himself the task of ensuring the Guyana branch remains the only operation in the Bank of Baroda group without any non-performing assets. He is approaching this in the old-fashioned way by starting with the list of bad payers and telephoning and visiting them personally to achieve results.

If he succeeds it will be quite an achievement as NPLs are a challenge in Guyana. Scotiabank has used data mining to keep its NPLs at less than 5% in residential mortgages and less than 8% in consumer lending. "Scotia is big in retail and we do a lot of data mining so that we can send out an offer to, say, 1000 good borrowers, and be sure of positive results," says Esau Shamshudin, manager of the commercial banking unit for Scotiabank.

Guyana's youngest bank, Demerara Bank, is focused more on the corporate side. "The bank was set up by Guyanese business people 15 years ago and we have retained our entrepreneurial edge," says Shawn Gurcharran, operations manager at Demerera.

But the big challenge of lending in an agrarian society is the fickle nature of the business itself - subject to volatile markets and weather - and with long gestation periods.

Can Guyana be saved by its trees? If ever there was a time when the case could be made it must be now. Banks should be thinking about their eco-tourism portfolios as much as their smallholder lending.

 

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