Cost/benefit of structural reform of the bauxite and sugar industries in Guyana
A small nation, but endowed with rich natural resources, Guyana is home to just over 760,000 people. While it made strong economic gains in the early and mid 90s – reducing inflation, recording an average annual GDP of 7 percent, and reducing the its poverty rate – domestic and external shocks have eroded some of these gains, and Guyana continues to experience difficult challenges.
In February 2002, the World Bank asked MI to customize the Threshold 21 model to Guyana, and perform analyses to support preparation of its Poverty Reduction Strategy Credit proposal, which would then feed into Guyana’s poverty reduction strategy paper (PRSP).
Two major elements of the reform program outlined in Guyana’s “National Development Strategy (2001-2010) A Policy Framework” were selected for analysis: privatization in the bauxite industry, and restructuring of the sugar industry. These two industries together account for one-fifth of GDP and over one-third of Guyana's exports, but are not able to compete in the world market without large government subsidies.
The analysis conducted showed that the structural reforms proposed for the bauxite and sugar industries pose a dilemma for the government. The reforms produce severe costs (loss of jobs and deepening poverty) in the short term, and their benefits, which include efficient, globally competitive industries, plus improved capacity to meet for social services and infrastructure demands of Guyana, do not appear until five to ten years later.