ANNEX 1. Title Guyana

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ANNEX 1. Title Guyana ANNEX 1. IDENTIFICATION Title Guyana - Annual Action Programme 2012 on Accompanying Measures on Sugar; CRIS reference nr. GY/DCI-SUCRE/2011/23480 Total cost EUR 23 355 000 Aid method / Sector Policy Support Programme: management mode - Sector budget support (centralised management) - project mode (centralised management) DAC-code 31162 Sector Industrial crops/export crops 2. RATIONALE AND COUNTRY CONTEXT 2.1. Country context and rationale for SPSP 2.1.1 Economic and social situation and poverty analysis The sugar sector remains very important for the economy of Guyana, 7-10% of gross domestic product (GDP), even though its share in the economy decreased after the rebasing of the GDP of Guyana. GDP per capita1 has increased consistently in recent years, from US$ 2 277 in 2007 to US$ 2 637 in 2009 (actuals), and is estimated to reach US$ 3 095 in 2011. The economic growth forecast for 2012 by IMF is 5.6 %. Moderate and extreme poverty rates declined from 43% and 29% in 1992 to 36% and 18.6% in 2006, respectively2. The latest United Nations Development Programme (UNDP) Millennium Development Goal (MDG) report (2011) for Guyana, states that the country made reasonable progress towards attaining most of the goals. 2.1.2 National development policy The Government has two complementary strategy documents, which form their strategic framework, namely the Poverty Reduction Strategy (PRSP) and the National Competitiveness Strategy (NCS). In 2001, the Government published the first PRSP with the aim of halving poverty in Guyana by 2015. A new PRSP covering 2011-2015 was finalised in July 2011 and shared with Parliament and international donors. The key objective of the NCS is to enhance Guyana’s competitiveness by supporting the creation of an enabling environment to attract increased investments and promote exports. The National Action Plan for Sugar (GNAP) has been designed in this context. Both are complementary and mutually supportive. The Low Carbon Development Strategy (LCDS), launched in 2009 focuses on using funds received for forest protection to develop the economy emphasising infrastructure development and agricultural diversification. In the latter case, the focus is on facilitating investments (creating the framework) for the exports of fruit & vegetables and aquaculture products. As Guyana has substantial unused non-forested land that can be converted to productive use for cash export crops, the agro- economical potential is high. 1 In current prices – source = IMF 2 Country Assistance Strategy for Guyana for the period FY 2009-2012, The World Bank, April 15, 2009 1 2.2 Sector context: policies and challenges Revenues from the sector totalled US$ 160 million in 2011, up from US$ 131 million in 2010. The sector continues to be a major employer in the country (around 16000 persons in full-time equivalents), mostly for low qualified people (cane cutters). However, the contribution of the sugar sector to the economy of Guyana declined from roughly 12 % of GDP in 2007 to 7 % of GDP in 2010. The Guyana Sugar Corporation Inc. (GuySuCo), is the only sugar-producing company in the country and is fully state-owned. The Government of Guyana submitted to the European Union on 16 March 2006 its National Action Plan on Sugar (GNAP). The GNAP is a policy document that addresses three main issues. The first one is the adaptation of the sugar sector based on the strategy of the Guyana Sugar Corporation. The second one addresses the development of new agricultural sectors and the third one focuses on the development of infrastructure and human resources. The GNAP sugar component includes numerous investments to improve and diversify the industry. The government has provided partial funding to the sector in recent years. Therefore, the company had to count mainly on its own resources to implement the reforms. However, since the 2005 flooding, the company has not succeeded to reach previous production levels. This has had a detrimental effect on the cash position. Consequently, most GNAP objectives can be met over a far longer time span than initially foreseen and others may never be reached. Due to the poor production performance and the weak cash position a Turnaround Plan (Strategic Blueprint) was developed in May 2009. The strategy is to focus back on the development of sugar production and sugar added value products. The general objectives remain more production, lower production costs and sugar products diversification. The turnaround is mainly situated at the level of organisational and managerial issues like production increase per Ha, more mechanisation of agricultural practices, expansion of cropped area, improving management and the sale of unproductive lands to generate cash for investments. Although the plan seems ambitious even on a reduced scale, it is coherent and much depends, in the absence of predictable government funding, on the ability of the current management of GuySuCo to find funds to do the critical investments. As they are not able to generate enough cash through the production of sugar and the sales of land, management is faced with a difficult position to improve the performance of the industry. In 2011, GuySuCo's production level was 7.5 % higher than in 2010 (236,500 tonnes), but much lower then the goal of the Business Plan (300,000 tonnes) and the revised target of 282,000 tonnes. Three years after the change in management and implementation of the 'Turnaround Plan' (Strategic Blueprint) some structural improvements can be seen. Significant investments in conversion of land lay-out to allow full mechanisation have taken place (6 884 ha), agricultural machinery has been acquired and a packaging plant is functioning. The large projected land sales in the previous business plans never materialized. As this was the main projected source of funds for capital expenditure, most investments were cancelled or delayed. The injection of funds into the sector is crucial to do the necessary investments for preserving and upgrading of the factories and the estates. In this sense, a positive commitment on the part of government to the investment needs of GuySuCo is essential. In relation with the second component of the GNAP, NCS and LCDS and the Ministry of Agriculture has developed and Agriculture Diversification policy with the objective to increase the exports of specific products (fruit & vegetables, aquaculture and livestock) in the future. In order to strengthen the framework for agriculture exports an assessment on export procedures was undertaken in 2011 by an independent consultant contracted by the EU. This study identified 2 gaps/challenges/improvements/weaknesses in the procedures. To enhance the export process some crucial improvements were planned to take place and were addressed by a performance indicator in AAP 2011. Unfortunately the time table slipped and this indicator is reintroduced in AAP 2012 Monitoring and coordination In March 2007 a GNAP Sugar Steering Committee was established. It is a regular meeting with all the stakeholders in the sugar sector and agricultural diversification team of the Ministry of Agriculture and the EU Delegation has the status of observer. GuySuCo provides updates to the Delegation on a regular basis on a number of indicators to facilitate follow up of performance in the sector. In addition to the monitoring and reporting requirements on the implementation of the GNAP and the EU assistance, the Ministry of Finance is responsible for submitting the necessary information required to confirm Guyana’s eligibility for budget support as an aid delivery mechanism. Macro-economic situation Guyana has, according to the IMF, sustained solid economic performance in recent years, supported by a strengthened policy framework. In the budget for 2011 an expected growth for the year of 4.6% was presented. That Minister of Finance adjusted that figure to 5.1% in his mid-year review. In the first half of 2011 the economy grew by 5.9% in comparison with the corresponding period in 2010. For 2012 the IMF expects a growth of 5.6 % . However it is based on the presumption that the sugar sector performs well. Key downside risks for the Guyanese economy include those linked to a weaker or delayed global recovery, higher-than-envisaged oil prices, and further delays in completing the modernization of GuySuCo. Significant improvements in the sugar sector performance were anticipated by the Government of Guyana in the 2011 Budget. Gold and Bauxite are important for the Guyanese economy, where prices of those commodities are relatively volatile, but buoyant at present. Public investment projects should ensure a high value-for- money, and help enhance Guyana's growth and debt-repayment capacity. In the coming years the eventual exploitation of Guyana's oil reserves (foreseen for 2014) might be able to create upward potential. Private consumption is currently significantly affected by the decline in remittances, prompted by the global economic slowdown. Although reliable data are not available, remittances are estimated to have decreased by about 9 % in 2009, mostly on account of large migration presence in the US and Canada where employment has been severely affected by the global crisis. However, the IMF assumes that remittances have increased in 2010. The inflation rate slightly increased in 2010 from 3.6% in 2009 to 4.5%. Inflation is highly influenced by the world fuel price, as Guyana has a significant fuel bill (16% of GDP is oil-related imports). For 2011 inflation is expected to be 4.8%. That is slightly higher than expected in early 2011, when the budget was presented (4.4%). The Government of Guyana foresees an increase in debt in 2011, by roughly €56 million (G$15 billion or roughly 3% GDP). Net external borrowing increases by €77 million (G$20.5 billion), domestic borrowing is reduced by €21 million (G$5.5billion). The main external increasing loans are debts with the IDB, Venezuela and China.
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