Gold smuggling dents economy hard; growth falls by 2.5 percent

Last Updated on Saturday, 17 October 2015, 22:29 by GxMedia

The Ministry of Finance, Main Street, Georgetown.

Guyana’s economic growth slumped by 2.5 percent for the first half of 2015, partly due to political uncertainty and the decline in mining sector including the smuggling of at least 15,000 ounces of gold per week, according to the mid-year report.

Required by law to be tabled in the National Assembly by the Finance Minister, the report states that Real Gross Domestic Product was 0.7 percent during the first half of the year compared to a projected 0.9 percent.

The Government Information Agency (GINA) says the economic slowdown was partly due to the suspension and subsequent dissolution of Parliament to make way for general elections in May, 2015. The then People’s Progressive Party Civic (PPPC) minority administration had stretched out its life in office over 10 months to stave off a no-confidence  motion by the then combined opposition. During that period, there was no budget until one was tabled by the new government in August, 2015.

“This delay meant that many government agencies were unable to carry out their planned programmes for the year. Many projects were held in abeyance, while only a few projects which were ‘rolled over’ from the previous year attracted funding. At the same time, the atmosphere of uncertainty and tensions surrounding the holding of general elections, led to investors postponing decision in many cases,” the Report stated.

The half-year economic report also points to a 17.4 percent decline in gold and bauxite mining and quarrying. Statistics show that this figure reflects a fall in gold, bauxite, and stone production by 16.2 percent, 18.6 percent and 54 percent respectively.

Coupled with a five-year low in gold prices, the report says there is a huge amount of gold smuggling. “This combined with extensive smuggling of gold, estimated to be as much as 15,000 ounces per week, led to a sharp drop in declaration,” states the report.

Gold is being smuggled mainly to the United States, Suriname, Europe and the Middle East. Authorities say they are seeking international help and have set up an inter-agency task force to address the illicit trade.

Figures show that the bauxite industry also experienced declining international prices, which contributed to the 18.6 percent decline in production in the first half of 2015 compared to the same period in 2014.

The Chinese gold mining company, BOSAI Minerals, was later in the year forced to lay off several workers due to lower demand for bauxite.

Other reasons cited by the Finance Minister for the economic downturn are reduced remittances and fewer correspondent banking relationships.

“I am saying that remittances aren’t at the state it was at a while ago. It could also be due to the general slowdown in the world economy itself, an issue also discussed in Peru. It is perhaps one of the worst in recent times, the slowdown but, luckily by the third quarter they have begun to see signs of the pick up (in the global economy) so they could be a pickup in remittances later on in the year,” Jordan noted.

Government further explained that Guyana recorded real Gross Domestic Product (GDP) of 0.7 percent in the first half of 2015, with non sugar GDP recording a growth rate of 0.8 percent. The economy recorded overall growth of 3.2 percent in real GDP in the first half of 2014, with non-sugar GDP growing by 2 percent.

The Finance Minister says fisheries sector continued its downward spiral, contracting by 11.6 percent. This is as a result of overfishing and possible under-declaration, combined with smaller fleets, lower harvesting in aquaculture, piracy and occurrence of sargassum seaweed.

The forestry sector contracted by 9.8 percent. This was due partially to unusual May/June rains which created conditions that were not conducive to harvesting, according to the report.

The report states that Guyana’s economy registered the following good performances:

Sugar production grew by 1.6 percent to reach 81, 271 tonnes.

Rice production in the first half of  2015 was 359,960 tonnes, 15.3 percent over last year’s record high first-half production of 312,283 tonnes

Production of the other crops’ sub-sectors rose by 5 percent. This was as a result of the on-going support to the sub-sectors.

Livestock industry grew by 15 percent. This is as a result of growth in poultry, egg, and mutton and milk production.

Manufacturing output increased by 7.1 percent, driven by a 15.3 percent increase in rice milling as a result of the bumper crop.

The service sector continued to expand, growing by 2.5 percent. This was due to the expansion in all of its subsectors, except construction, which declined by 13.2 percent. 

The Finance Minister forecasts that the economy will pick up speed by December because of rising public confidence and increased consumer spending with salary increases and ‘back-pay.’ “The budget is over, people have been paid their salaries and their back pay and there is more monies that is going to be circulating in the economy between now and December,” the Finance Minister was quoted by GINA as saying.

According to a World Bank overview of Guyana which was last updated on September 08, 2015, real growth of Guyana’s Gross Domestic Product is projected to fluctuate within the range of 3 percent to 5 percent during 2015-2018. Economic activities will be driven by continued investments in primary industries while potential offshore and hydro-energy projects may also attract foreign investment and further boost growth. Inflation is expected to remain relatively subdued.