Agriculture, manufacturing & gold among non-oil sectors projected to grow in 2022 – IDB

The content originally appeared on: INews Guyana

– report also highlights Guyana’s potential to expand its access to capital

In its recently released quarterly report entitled “Caribbean Economics, Finance for Firms”, the Inter-American Development Bank (IDB) has not only projected the growth of various productive sectors in Guyana’s economy, but also the potential for Guyana to expand its access to capital for small, medium and large firms.

According to the report, Guyana’s Gross Domestic Product (GDP) growth is expected to increase by 47.5 per cent in 2022, compared to 43.5 per cent in 2020. Delving further into the report, it states that the non-oil economy, which contracted by 7.3 per cent in 2020, will grow by 7.7 per cent this year.

This will be driven by growth in agriculture, mining and construction. Agriculture and gold, which contracted last year, will grow by 8.9 per cent and 12.2 per cent, respectively, in 2022. The manufacturing and construction sectors are also expected to grow by 14.3 per cent and 10.5 per cent, respectively. On the other hand, the large services sector is projected to grow by 3.8 per cent.

“In summary, the new oil economy has rebalanced as follows: oil and gas are estimated to represent 59.7 per cent of GDP in 2022, followed by services at 16.7 per cent, agriculture at 10 per cent, and gold production at 4 per cent. Oil production’s contribution to GDP growth was 51 per cent and 17 per cent in 2020 and 2021, respectively, and is projected to be 43.3 per cent in 2022,” the report further detailed.

When there is economic growth, access to finance for the private sector is never far from the conversation, as businesses serve as the engine of growth for the non-oil economic sectors. The development of the financial sector of a country is measured by its financial depth, which the report went into detail about.

According to the report, Guyana’s financial depth has been climbing steadily, increasing from 22 per cent in 2009 to 39 per cent in 2020. The report notes that there is potential for credit to continue expanding in Guyana.

According to a graph in the report that compared the years 2014 and 2020, Guyana has always been one of the countries in the region where firms had minimal barriers to financial access, compared to its regional peers.

Graph showing the barriers firms in the region face in accessing capital, due to cost of credit

This became even more apparent in 2020, during the COVID-19 pandemic, when major obstacles to accessing finance in Guyana only accounted for 32 per cent and very severe obstacles accounted for 18 per cent. In contrast, the obstacles to accessing finance have ballooned in other countries.

In Jamaica, these figures were 37 per cent and 22 per cent respectively in 2020. In Suriname it was 46 per cent and 30 per cent, respectively. In the Bahamas, it was 31 per cent and 21 per cent, while Barbados registered 32 per cent and 40 per cent.

And in Trinidad and Tobago, it was 41 per cent and 24 per cent, respectively. This is in sharp contrast to 2014, when the twin island republic had the least obstacles to accessing finance with 10 per cent major obstacles and four per cent severe obstacles.

However, the report highlights than in 2020, Guyana had serious issues with cost of credit, including regionally high interest rates. In 2020, Guyana’s major obstacles and very severe obstacles to cost of credit accounted for 36 per cent and 12 per cent, respectively. The closest country to Guyana in terms of its major obstacles to cost of credit, was Suriname with 26 per cent.

“Over 40 per cent of firms in Barbados, Guyana, Suriname, and Trinidad and Tobago reported high interest rates as a significant barrier to their operations in 2020. For most of these countries, these concerns became more acute between 2014 and 2020.”

“The only country for which firms in aggregate reported this being less of a constraint in 2020 than in 2014 was Jamaica, though even there, 36 per cent of businesses flagged this as a concern,” the report also states.

Again, interest rates were a severe problem in Guyana when surveys were taken. In 2020, a whopping 41 per cent of large firms listed “interest rates are not favourable” as their reason for not applying for credit. Only Bahamas came close, with 30 per cent of large firms listing this as their reason. However, this was the reason in Barbados for 39 per cent of small firms.

Non-favourable interest rates were also the number one reason in Guyana for women-owned and women-led firms to not apply for credit.

The report contains a number of recommendations for how states such as Guyana can improve its access to finance, one of which is the use of more technology. A point in Guyana’s favour is that it has slowly been progressing towards the use of more technology, but much more remains to be done.

“Of 155 firms surveyed in Guyana, less than half reported accepting payments by credit cards. About a third mentioned accepting bank transfers, while very small shares reported accepting payments from mobile money apps or electronic payments through a mobile phone,” the report states.

Firms in Guyana also reported to the IDB that collateral for access to loans, is a major or very severe obstacle for them. Other obstacles include interest rates. A 2020 survey had reported that average interest rates for Guyana were 11.8 per cent, compared to the Caribbean average of 13.3 per cent. Lending rates have, however, declined since the survey and averaged 9 per cent last year.