Identifier
Created
Classification
Origin
06GEORGETOWN107
2006-01-31 19:28:00
UNCLASSIFIED
Embassy Georgetown
Cable title:  

INVESTMENT CLIMATE STATEMENT FOR GUYANA

Tags:  EINV EFIN ETRD ELAB PGOV KTDB GY OPIC USTR 
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UNCLAS SECTION 01 OF 07 GEORGETOWN 000107 

SIPDIS

STATE FOR EB/IFD/OIA

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB PGOV KTDB GY OPIC USTR
SUBJECT: INVESTMENT CLIMATE STATEMENT FOR GUYANA

REF: 05 STATE 202943

------------------------------
Openness to Foreign Investment
------------------------------

UNCLAS SECTION 01 OF 07 GEORGETOWN 000107

SIPDIS

STATE FOR EB/IFD/OIA

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB PGOV KTDB GY OPIC USTR
SUBJECT: INVESTMENT CLIMATE STATEMENT FOR GUYANA

REF: 05 STATE 202943

--------------
Openness to Foreign Investment
--------------


1. The Government of Guyana encourages foreign direct
investment in almost all sectors. Billed as a "first stop
shop" for investors, the Guyana Office for Investment (GO-
INVEST) is charged with leading government efforts to
attract foreign and domestic investment. GO-INVEST focuses
primarily on the agroprocessing, tourism, manufacturing,
information technology, fishing, and wood processing
sectors. Potential investors should note that GO-INVEST
serves as the first in a long line of bureaucratic hurdles
required to obtain the permits and tax concessions necessary
to do business in Guyana. Potential investors face separate
bureaucratic procedures at ministries throughout the
government to obtain the desired permits and concessions.
Major foreign investments receive intense political
attention in an economy still dominated by the state. The
government has enacted new laws and amended existing ones to
encourage foreign direct investment, with mixed levels of
success.


2. An annual survey of business confidence released in
January 2006 revealed less confidence in the business
outlook for 2006 compared to the previous year. Of the 42
respondents, 12 were planning to increase the scale of
operations in 2006, two were planning to downsize, and 26
planned no change. Among the issues identified as having the
most expected impact on business operations in 2006 were
fuel prices, political stability, consumer spending,
electricity supply and rates, and exchange rates.


3. The National Assembly passed the Investment Act in 2004,
designed to stimulate socio-economic development and to
attract and facilitate foreign investment. Other important
laws pertaining to investment include the Income Tax Act,
The Customs Act, the Procurement Act of 2003, the Companies
Act of 1991, the Securities Act of 1998, the Small Business
Act, and the Consumption Tax Act. However, several

outstanding actions are still required for much of this
legislation, such as the Procurement Act, to be effectively
implemented.


4. Although the judicial system is responsible for
upholding the sanctity of contracts, it does not have the
capacity to uphold its legal mandate. Apparent corrupt
practices, coupled with long delays in the administration of
justice make the courts an undesirable and largely
ineffective way to settle investment or contractual
disputes, particularly for foreign investors unfamiliar with
Guyana's political scene.


5. Foreign ownership of companies is permitted and
welcomed. There is no mandatory screening of foreign
investment. However, the government screens most
investments to determine which businesses are eligible for
special tax treatment, access to licenses, approval and
procurement. In spite of recent moves to remove
discretionary power from the various ministries, Ministers
still retain significant authority to determine how relevant
laws, such as the Investment Act, Small Business Act and
Procurement Act, are interpreted.


6. In general, foreign investors receive the same treatment
as local investors in Guyana. One exception is the special
approval required for local financing. Foreign borrowers
applying for a loan of over US$10,638 (G$2 million) must
request permission from the Minister of Finance to take out
the loan locally. This requirement reflects Guyana's
preference for foreign investors to bring capital into the
country. In most cases, foreign investors seek credit
abroad to avoid Guyana's high interest rates. Another
exception in the mining sector restricts ownership of small
and medium scale mining property titles to Guyanese
ownership. However, foreigners may enter into joint-venture
arrangements whereby the two parties agree to jointly
develop a mining property. There are no restrictions on the
percentage of the investment shouldered by the foreign
investor. These arrangements are strictly by private
contract. Foreign investors that have entered into these
arrangements report high levels of risk and have complained
that Guyana's sluggish legal system rarely settles disputes
in a timely or satisfactory manner. One investor who
entered into a private joint-venture mining contract
reported that the mining property was sold by his partner
after the investment had been made and without his prior
knowledge or consent. Despite some success in the courts,
he was unable to fully recover the money he had originally
invested.


7. The government has made progress in recent years with
privatization initiatives. Of the 18 government entities
originally targeted for privatization, 16 have been
privatized. The Aroaima Mining Company (AMC) and Guyana
Power & Light (GPL) remain the two major exceptions. RUSAL,
the Russian aluminum giant, assumed management control of
AMC in 2004 as part of a joint agreement with the Government
of Guyana to revitalize the bauxite industry. The
government announced that AMC is slated for privatization in
March 2006, with RUSAL reportedly paying US$20 million. In
1999, the government entered into a joint agreement with
Americas & Caribbean Power Limited (ACP) to privatize GPL,
with each party holding 50% of the company's shares. Four
years later, ACP sold its shares back to the Government for
$1 and withdrew from the deal. The government is now
seeking a US$30 million investment from local investors for
the re-privatization of the utility, though it has not
identified any potential suitors. Foreign investors have
equal access to privatization opportunities. For some
larger operations, foreign investment is openly preferred.


8. Most large-scale investments in Guyana's infrastructure
are government projects financed by international lending
institutions, with the Inter-American Development Bank (IDB)
as the largest donor. U.S. firms are generally given equal
access to these projects, though many are too small to
interest U.S. bidders.

--------------
Conversion and Transfer Policies
--------------


9. The Guyana dollar is fully convertible. There are no
limits on inflows or repatriation of funds, although there
are spot shortages of foreign currency. The exchange rate
is US$1 to G$199.95 (December 2005). There is no limit to
the acquisition of foreign currency, although the government
limits the percentage that a number of state-owned firms may
keep for their own purchases. The government recently eased
restrictions on the establishment of foreign currency bank
accounts in Guyana, a step that has significantly simplified
the process of moving money. Funds can now be wired in and
out of the country electronically without having to go
through cumbersome exchange procedures.


10. In practice, many large foreign investors in Guyana use
subsidiaries outside Guyana to handle earnings generated by
the export of primary products, including timber, gold, and
bauxite. Those companies then advance funds to their local
entities to cover operating costs.


11. The exchange rate is commercially determined according
to market supply and demand using telegraphic transfers for
the three largest commercial banks. Political uncertainty
and poor economic performance by the Guyanese economy since
1999 have eroded consumer and investor confidence. The
government has intervened in support of the Guyana dollar
with some success. The government announced that it will
continue to intervene in defense of the Guyana dollar and
its international reserves.

--------------
Expropriation and Compensation
--------------


12. On August 16, 2001 the National Assembly approved the
Acquisition of Lands for Public Purposes (Amendment) Bill

2001. This Bill cleared the way for the government to
specifically acquire a private parcel of land at a price the
owner contended was less than fair market value.

--------------
Dispute Settlement
--------------


13. Guyana is a signatory to the Convention on the
Settlement of Investment Disputes between States and
Nationals of Other States. International arbitration
decisions are enforceable under the Arbitration Act of 1931.
Guyana is also a member of the International Center for the
Settlement of Investment Disputes (ICSID).


14. There have been several high profile investment
disputes in recent years involving U.S. and other investors
in Guyana. Most disputes focus on special tax treatment,
access to licenses, and approvals necessary to conduct
business in Guyana.

--------------
Performance Requirements & Incentives
--------------


15. While there is no set policy regarding performance
requirements, they are often written into contracts with
foreign investors. Some contracts require a certain minimum
level of investment. Investors are not required to source
locally. They do not have to export a certain percentage of
output. Foreign exchange is not rationed in proportion to
exports. There are no national ownership or technology
transfer requirements.


16. The Status of Aliens Act allows a non-resident of
Guyana to acquire and dispose of assets, and moveable and
immoveable property in the same manner as a citizen of
Guyana. The government treats domestic and foreign
investors alike with regard to investment incentives. There
are incentives offered to all investors equally and
incentives available based on specific criteria such as
location of an investment or investment in specific
government-targeted sectors.


17. The Fiscal Enactments (Amendment) (No. 2) Bill of 2003
allows the Minister of Finance to grant exemptions from
Corporate Taxes for a period of five years to an investor if
the activity demonstrably creates new employment in Region
1: Barima Waini, Region 8: Cuyuni-Mazaruni, Region 9: Upper
Takatu-Upper Essequibo and Region 10: Upper Demerara -
Upper Berbice. The act allows for exemptions of corporate
taxes if the new economic activity falls under the following
categories: non-traditional agro processing (excludes sugar
refinery, rice milling and chicken farming); tourist hotels
or eco-tourist hotels; information and communications
technology (excluding retail and distribution); petroleum
exploration, extraction, or refining and; mineral
exploration, extraction, or refining. In the latter three
activities defined, the Minister may grant exemptions for a
period up to ten years. In spite of outlined provisions for
tax relief, the Minister maintains final discretion over
which investors receive corporate tax exemptions.


18. Other incentives available to investors include
affordable leases for land in industrial estates. Though
promoted by GO-INVEST, the application for the land is done
through the Minister of Tourism, Industry and Commerce. The
Ministry of Tourism continues to accept and encourage the
submission of lease applications for industrial estates,
though there are no industrial estates available for lease.
The government advertised two industrial estates near to the
capital city of Georgetown as being available for lease.
However, the government attempts to repossess these
properties are ongoing. The land was previously leased to
investors who, according to the government, have not
developed the land or engaged it in any productive process.
Officials from the Ministry indicated that the process for
repossession is not straight forward. To apply, potential
investors are requested to submit an application form and a
business proposal to the Ministry of Tourism. Though not
required, GO-INVEST can make a recommendation to the
Ministry of Tourism on the investor's behalf. The
application and business proposal is then reviewed by
Ministry personnel who determine whether the investor
qualifies for the land. Qualifying criteria include the
export component of the business and employment
opportunities created. It is difficult to predict when and
if the government will be successful with repossessing lands
since these matters tend to be tied up with extensive Court
decisions and appeals.

-Waivers of the customs duty and the high consumption taxes
on plant, machinery and equipment are granted based on
submissions made to the Commissioner General of the GRA.

-The Income Tax (In Aid of Industry) Act provides for
accelerated depreciation of plant and equipment on
applicable trades outlined in the act; export tax allowances
for manufacturing or processing of non-traditional products
exported to countries outside of the Caribbean Community;
and research and development tax allowances.


19. The approval authority for duty and consumption tax
exemptions on plant, equipment, machinery and spare parts
lies with the Commissioner General of the GRA. Investors
are expected (though not required) to submit business
proposals to GO-INVEST that outline the proposed project,
the value of the investment, and employment to be generated
from the economic activity. GO-INVEST reviews the proposal
and makes a recommendation to the GRA. GRA grants approval
in accordance with the Customs Duties (Amendment) (No. 2)
Order of 2003. Each project is reviewed on a case-by-case
basis and recommendations are made accordingly. The GRA
determines whether imported materials are being imported for
the reasons stated by the investor and whether those
materials are eligible for tax relief under the law.

--------------
Right to Private Ownership and Establishment
--------------


20. Foreign and domestic firms have the right to establish
and own business enterprises and engage in all forms of
remunerative activity. However, in some cases, licenses are
required. Private entities may freely acquire and dispose
of interests in business enterprises, although some newly
privatized entities have limits on the number of shares that
may be acquired by any one individual or entity (domestic or
foreign). Similarly, the articles of association of some
firms prohibit the issuance of more than a certain number of
share transfer forms to any one individual or company in an
effort to prevent attempts to gain control of such companies
in the secondary market. In theory, the government can
limit competition with state-owned companies by denying
private firms the required licenses to operate. Licenses
are granted primarily in the mining, telecommunications,
forestry, banking, tourism and environmental sectors.
Investors should be aware that getting all the licenses
required to operate in Guyana can be a time-consuming task.
According to the GO-INVEST Investor's Roadmap, the estimated
processing time to obtain the approvals to lease state or
government lands may take one year, though some investors
report much longer delays. To register a patent or
trademark can take approximately six months. The right of
foreigners to own property or land in Guyana is specifically
protected under the Constitution.

--------------
Protection of Property Rights
--------------


21. Guyana adopted British law on patents and copyrights
upon independence. This outdated legislation currently is
being revised to conform to global norms. For instance,
Guyana passed the Geographic Indication Bill in July 2005,
giving protection to local products that are uniquely
Guyanese in origin. Guyana joined the World Intellectual
Property Organization (WIPO) and acceded to the Bern and
Paris Conventions in late 1994. WIPO officials visited
Guyana in early 1995 and conducted a seminar on intellectual
property rights. At present, there is no enforcement
mechanism to protect intellectual property rights. Patent
and trademark infringement is common. Local television
stations pirate and re-broadcast TV satellite signals with
impunity. Most music and software for sale is pirated.
Book piracy is also rampant, especially foreign textbooks;
some estimates say illegally copied textbooks account for
nearly one-third of local sales. Guyana has not ratified an
intellectual property rights agreement with the U.S. Trade
Related Intellectual Property Rights (TRIPS) draft
legislation was prepared, but has apparently been shelved.

-------------- ---
Transparency of the Regulatory System
-------------- ---


22. Guyana has no anti-trust legislation, though a
Competition and Fair Trading was tabled in Parliament in
December. The Bill includes provisions against bid-rigging,
misleading advertisements and price fixing and would
establish a Competition Commission with the authority to
review anti-competitive business practices. Historical
factors, Guyana's small population, and economies of scale
have led many sectors to be dominated by one or two firms.
Capital markets are still evolving and the allocation of
investment takes place without a well-organized market.
Bureaucratic procedures are cumbersome. Investors often
receive conflicting messages from various officials and have
difficulty determining where the authority for decision-
making lies. In the current absence of adequate
legislation, much decision-making is centralized. An
extraordinary number of issues are resolved in Cabinet or in
the Office of the President, a process that is not open to
public scrutiny and which often results in long delays.
Attempts to reform Guyana's many bureaucratic procedures
have not succeeded in limiting red tape.

-------------- --------------
Efficient Capital Markets and Portfolio Investment
-------------- --------------


23. Guyana's banking system is still not fully developed.
Inefficiencies and delays periodically plague the foreign
currency exchange market. Businesses report that currency
shortages can result in significant delays in converting
Guyana dollars to U.S. dollars at some banks. Because
Guyana has yet to develop an effective inter-bank trading
system, some banks may be short of foreign exchange while
others have currency available.


24. In November 2004, the Financial Institutions Act was
passed, giving the Central Bank the power to take temporary
control of financial institutions in trouble. This
effectively gives the bank greater responsibility for
licensed financial institutions. Previously, the Central
Bank had been criticized for not taking a more proactive
role in helping one local bank to remedy its poor financial
situation. As a result, the institution went into
receivership and many small depositors were unable to
recover their savings.


25. The cost of capital in Guyana is not attractive.
Interest rates on capital loans range from 10% to 19.75%.
The Minister of Finance must give permission for a foreign
investor to borrow over US$10,638 (G$2 million) in Guyana.
The government sells treasury bills at auction to finance
the public debt, and other government-controlled rates move
with the treasury bill rate. Private attempts at bond
financing have not been successful. One large Guyanese
company offered a bond issue in early 1995 in an attempt to
raise US$10 million. The issue was not successful and no
subsequent large bond offers have been made.


26. The banking system in Guyana is liquid. Local bank
statements reveal that deposits continue to increase even as
loans continue to decrease; a trend that appears to indicate
the existence of a large underground economy. Some local
analysts suspect that the underground economic activity
could account for as much as 50% of Guyana's total economic
activity. Eager to lend money, but skeptical of Guyana's
legal system, banks claim that they are unable to find
suitable local candidates for loans.


27. Although large and well-established companies sometimes
use equity financing, the government encourages companies to
finance new operations by offering shares on Guyana's stock
market. In 2003 The Guyana Association of Securities
Companies and Intermediaries Inc., (GASCI) a self-regulating
organization, was registered to operate the Guyana Stock
Exchange. Its members, the stockbrokers who compete against
each other in share trading, own GASCI. GASCI relies on
trades to support the exchange's operations. However, the
small volumes traded have been insufficient to meet
organizational expenses. Consequently, the Association has
struggled to maintain adequate staffing levels. The Guyana
Security Council (GSC),the regulatory body for the
Exchange, has been the target of two high profile lawsuits
by two of the largest local conglomerates over disclosure
issues. The GSC has also struggled to garner the support of
listed firms that are unwilling to disclose relevant
information. Individual investors generally prefer to
utilize the banking sector to finance investments, although
one Canadian company reported that it was able to
successfully finance its operations using the stock market
in late 2004.

--------------
Political Violence
--------------


28. The last three elections, in 1992, 1997 and 2001, saw
politically motivated violence leading up to and following
the election. National and regional elections are due by
August 2006, and some commentators fear violence surrounding
the elections may be worse than previous years.


29. Apart from election-related violence, crime is a major
problem in Guyana. Four Americans were murdered in three
separate incidents in 2005. A spate of high profile
robberies have prompted private sector interests to call on
the Government of Guyana to increase its efforts to stem the
crime problem. Most business owners resort to private
security protection for both business and home.

--------------
Corruption
--------------


30. Despite the paucity of documented corruption,
allegations of corruption are common. Transparency
International's 2005 Corruption Perceptions Index ranked
Guyana 117 of 158 countries surveyed, assigning the country
a score of 2.5 (with 10 being least corrupt and 1 being most
corrupt). Although the government acted in 1998 to address
this problem with legislation that requires public officials
to disclose their assets to an Integrity Commission prior to
assuming office, its implementation has been slow and
ineffective. The Integrity Commission has not been
constituted as a result of disagreement between the
government and the main political opposition party on the
names of members to sit on the Commission.


31. The Procurement Act 2003 was passed in Parliament to
provide for the regulation of government procurement of
goods, services and the execution of works to promote
competition among suppliers and contractors and to promote
fairness and transparency in the procurement process. The
Act has come under fire by critics because it grants the
Minister of Finance the power to unilaterally appoint a
National Board, responsible for the National Procurement and
Tender Administration that exercises jurisdiction over
tenders.


32. Offering or receiving a bribe is a criminal offense in
Guyana punishable by incarceration. The law is not applied
extraterritorially. The government has periodically
prosecuted officials for corruption with mixed success.

--------------
Bilateral Investment Agreements
--------------


33. Guyana has not signed a Bilateral Investment Treaty
with the United States. Negotiations began in 1993, but
broke down in 1995 due to disagreements on formal investment
rules. There have been no continuing negotiations. Guyana
has similar treaties with Germany, the United Kingdom, and,
most recently, Switzerland. Guyana has double taxation
treaties with Canada, the United Kingdom, and CARICOM
countries.


--------------
OPIC and Other Investment Insurance Programs
--------------


34. OPIC renewed its support for U.S. investors in Guyana
in 2000 following the settlement of a long-standing dispute
between an OPIC client, Green Mining, Inc., and Guyana. The
EX-IM Bank resumed limited coverage in Guyana, offering
insurance and short-term loans for the private sector at the
beginning of 1994.

--------------
Labor
--------------


35. According to the 2002 Census, Guyana's labor force
comprises approximately 484,000 people with skills
encompassing a vast range of disciplines in the fields of
manufacturing, agriculture, electronics, commerce,
management, and other professional practices. Education and
skill development are provided in primary, secondary, and
technical schools as well in the university and privately
owned institutions of learning. Individual companies mount
various programs to develop human resources specific to
their needs. Parliament passed the Trade Union Recognition
Bill in 1997. All businesses operating in Guyana must
recognize and collectively bargain with the trade union
selected by a majority of its workers. Guyana adheres to
the International Labor Organization (ILO) Convention
protecting worker rights.


36. Emigration, particularly of skilled labor, poses a
serious problem to employers throughout Guyana. An
International Monetary Fund study in late 2005 revealed that
86% of college-educated Guyanese have left the country.
Large private sector companies report a turnover of about
20% to 25% of their administrative workforce, and extreme
difficulty is recruiting and retaining qualified employees.
Skilled workers migrate to the United States, Canada, the
Caribbean, and Europe. Unemployment and underemployment of
the unskilled element of the population also plague Guyana's
economy.

--------------
Foreign Direct Investment
--------------


37. There was a surge in foreign direct investment from
1989 to 1991 that fueled healthy growth figures in the early
to mid-1990s. In recent years there have been relatively
few large-scale investments in Guyana. Bank of Guyana
statistics show that foreign direct investment, outside of
the telecommunications sector, has decreased in recent
years. New foreign direct investment (FDI) in Guyana
decreased from US$43.5 million in 2002 to US$26.1 million in

2003. In 2004, the telecommunications sector accounted for
US$25 million of the US$30 million invested in the country.
Bank of Guyana statistics for the first half of 2005 report
FDI in the amount of US$61.7 million. A notable recent
development was the Russian aluminum company RUSAL's US$20
million investment in the Aroaima Bauxite Mine. In late
2005, a local manufacturing enterprise announced plans to
constructs a US$600,000 food processing facility in the
Eccles Industrial Estate following the 2006 elections. A
local beverage distributor has also embarked on a US$841,000
program to upgrade its fleet of American-made delivery
vehicles.


38. Following is a list of foreign direct investment
compiled by the Bank of Guyana for 2002 to 2004.

Foreign Direct Investment
January-December 2002/2004
(US$ Million)

Companies 2002 2003 2004
Ask 4 Solutions
5.0 - -
Barama
4.0 11.0 3.3
Blue Sky Communication
2.0 - -
Caribbean Containers Ltd.
0.3 - -
Courts
0.3 - -
Decipher International Inc.
2.0 - -
Esso Standard Oil S. A. Ltd.
0.3 - -
Global Seafood Technology
1.3 - -
Guyana Lottery Company
0.3 - -
Guyana Power and Light Co.
2.6 - -
Guyana Telephone & Telegraph Co.
14.0 - 10.0
National Milling Company Ltd.
0.5 - -
Omai
4.5 1.5 -
Sanata
6.4 - -
Trans World Telecom (TWT)
- 6.0 15.0
Mining Exploration companies
- 7.6 5.0
Skeldon
- - 1.7


Total 43.5 26.1 35.0
Source: Bank of Guyana

The Guyana government has signed a deal with a Canadian
company, Cambior, to privatize the Linmine bauxite
operations. The government announced plans to secure
investments during 2005 with the following entities:
Jaling Forest Industries Inc. (Canadian Investors)
Omai Bauxite Company Ltd. (US$39M)(Canadian Investors)
Lake View Hotel and Resort (US$25M)(Unknown Investors)
RotorWay International Guyana (US$5M)(American Investor)
ROMANEX Guyana Exploration Ltd. - a subsidiary Of Vannessa
Ventures (US$1.5M)(Canadian Investors)

BULLEN