Suriname 2012 PSAR

2012

Suriname 2012 PSAR

October 2012

This Suriname Private Sector Assessment Report (SU-PSAR) presents an overall assessment of private sector development (PSD) and recommendations for facilitating and accelerating private investment and growth. This report includes a summary of the main characteristics and issues of the economy of Suriname as it relates to private sector development, the selection of priorities, a section on monitoring and evaluation of PSD initiatives, and finally a section with recommendations for interventions and also for filling in data gaps. The report includes two annexes the Suriname Donor Matrix (SU-DMX), and the most important sources of information currently available for the analysis of PSD.

I want to thank the support, comments and suggestions of Diego Morris, Steven Hofwijks, Adriana La Valley, Marco Nicola, Paz Castillo-Ruiz, Tara Lisa Persaud and JJ Saavedra. I also want to recognize the comments and support from Vice President Robert Ameerali, and from Kenneth Foe A Man and Sieglien Burleson from the Suriname Business Forum. Finally, I want to thank all the people that were interviewed in Paramaribo that provided data, analysis and experiences that have been incorporated into this report.

Carlos Elias Ph.D.

Suriname PSAR

Suriname Private Sector Assessment Report

Table of Contents 1) Introduction ...... 4 2) Chapter I: Indentifying market failures ...... 6 a) Goal of PSD in the country and current programs ...... 6 b) Overview of the economy ...... 8 i. The domestic economy ...... 8 ii. The international economy ...... 14 iii. The productive structure ...... 17 iv. The institutions ...... 19 c) State of the private sector ...... 20 d) Large and fast growing sectors in the economy ...... 22 e) Issues for private sector development ...... 22 i. Business supportive institutions structure ...... 23 ii. Donors and other international entities ...... 25 iii. Access to finance ...... 28 iv. Corporate taxation ...... 30 v. Business environment ...... 32 vi. Technology and innovation ...... 38 vii. Trade and FDI policies ...... 40 viii. Labor regulation ...... 44 ix. Infrastructure, communications and energy ...... 44 x. Environment ...... 48 xi. Gender ...... 49 3) Chapter II: Selecting and prioritizing issues ...... 52 a) Priority PSD issues—improving PSD coordination ...... 52 b) Priority PSD issues—improving the business climate ...... 53 c) Priority PSD issues—opening space for private sector participation ...... 54 d) Priority PSD issues—increase participation of domestic companies in the mining sector 54 e) Action plan ...... 54 4) Follow-up, monitoring and evaluation ...... 55 5) Chapter III: Conclusions and recommendations ...... 57 Annex 1: Sources of information used in this report ...... 59

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Annex 2: Suriname Donor Matrix Report (SU-DMX) ...... 60

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1) Introduction

The main result from the analysis presented in this report, and its common thread, is the identification that the greatest challenge for private sector growth and development is the poor business environment that limits the creation and growth of private sector enterprises. The weakness of the private sector is related to the strength of the public sector that employs about 60% of total employment and participates in many sectors in the economy, including among others financial services, transport, and agriculture. From a sector perspective, mining is the engine of growth of the economy and largely funds the public sector. Simplifying the growth process: in Suriname economic growth results from the transmission of resources from exports of gold, oil and bauxite, to government, and from government to the rest of the economy via public spending.

In this overall context the domestic private sector is small and its economic activities are mostly limited to the provision of non-tradable goods and services, most notably in commerce. It is important to clarify that the mining sector behaves as an enclave as it is dominated by large multinational corporations with few links to the rest of the economy. Importantly for this report, there are no large and fast growing sectors, with the exception of mining, because the private sector is underdeveloped. Although some export oriented economic activities exist and there is some industrial production, in the aggregate these activities and industries are small. This report, therefore, notes that to facilitate private sector growth it is necessary to facilitate the expansion of the private sector into all areas of economic activity by improving the business climate and reducing over time the presence of the state in the economy. Throughout this report, this is called to open space for the expansion of private sector domestic and export oriented activities.

It is also important to highlight that the analysis presented in this report is limited by the availability of data. All efforts have been made to back findings and analysis using available data, however, in many cases a subjective interpretation was necessary to prepare this report and to identify priorities. For this reason important recommendations included in this report relate to filling in data and information gaps.

Therefore, this Suriname Private Sector Assessment Report (SU-PSAR) presents an overall assessment of private sector development (PSD) and recommendations for facilitating and accelerating private economic investment and growth.1 Following the suggestion of the guidelines for the preparation of Donor Coordination Matrices (DMX) for CARIFORUM countries, the SU-PSAR includes as an annex the Suriname Donor Matrix (SU-DMX). This introduction presents a brief description of the purpose of the PSAR and DMX, and explains their purpose and how they complement each other. It is important to note that this report would need to be updated over time as the overall economic conditions change, new PSD programs and projects are implemented, new actors enter or leave the market, and data gaps are filled in with primary data and analysis. It is recommended that this report is updated every two years, or less if conditions change significantly.

1 This report is funded by Compete Caribbean, which is a program created to facilitate Private Sector Development (PSD) in CARIFORUM countries and sponsored by DFID, CIDA and the IDB.

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According to the PSAR guidelines the PSAR is: “a report meant to provide a comprehensive framework to identify market failures concerning the development of the private sector and prioritize them in terms of their need for an urgent solution. These outcomes are the result of a process that involves the use of descriptive and analytical tools to assess the state of the private sector and the economy as a whole, as well as consulting with firms in strategic sectors of the economy to prioritize issues. The PSAR can be decomposed in two big parts: first, it compiles and analyzes information from different sources in order to provide a snapshot of the state of the private sector in the country, and second, it brings the information to relevant stakeholders – such as firms in the economy – to establish priorities on all the identified issues affecting further 2 growth in the private sector.”

According to the DMX guidelines the DMX is: “is a dynamic tool designed to improve coordination among government, stakeholders and the donor community of PSD programs and projects in CARIFORUM countries. The DMX will identify PSD programs and projects, including, among other, business climate reforms, macroeconomic support to governments, direct support to the private sector, and women in business initiatives and related gender mainstreaming efforts. As such it is a tool that will be used to identify, assess, and monitor PSD programs and projects in individual CARIFORUM countries as well as sub regional programs and projects. The DMX is also meant to be used for the development of strategic partnerships, to identify gaps and omissions, and to maximize the impact of projects through improved donor 3 coordination.”

The DMX guidelines note that: “The DMX and PSAR complement each other, with the DMX providing information about past and present programs and projects in each country; and the PSAR identifying priority areas for Private Sector Development (PSD) interventions at the country or sub-regional level. The contrast between what is currently being supported by the donor community identified in the DMX, and what should be supported identified in the PSAR, is an important input for the definition of PSD programs and projects, and for improved coordination between government, stakeholders and the donor community.”

It is expected that donors, working together, would use this report to improve coordination and identification of larger, more comprehensive private sector projects and programs to accelerate growth across the region. Improved coordination would lead to increasing the development impact of private sector development projects and programs while reducing transaction costs. These activities fall within larger donor coordination efforts to improve the quality and effectiveness of development cooperation as reflected in the Paris Declaration on Aid Effectiveness of 2005, the follow-up Accra Agenda for Action of 2008 and the Busan Partnership for Effective Development Cooperation recently agreed on by donors in November 2011.

The analysis presented in this report rests on two sources of information: primary data collected during a trip to Paramaribo in May 2012 that served to identify actors and PSD programs as well

2 Guide for Private Sector Assessment Report (PSAR) in the Caribbean Countries. Version 1.2. InterAmerican Development Bank, 2011. The guide was created for Compete Caribbean by Dany Bahar. 3 Donor Matrix Guidelines. Draft February 2012. InterAmerican Development Bank, 2012. The guidelines were created for Compete Caribbean by Carlos Elias.

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as the main bottlenecks for investment and growth; and secondary data and information available from multiple sources that are referenced throughout the document. An important contribution from this report, in addition to fulfilling the purpose of the SU-PSAR, is to identify data and information gaps. Because of the importance of this issue, the report includes an annex with the most important sources of information available for Suriname.

The rest of this report presents a summary of the main characteristics and issues of the economy of Suriname as it relates to private sector development, the selection of priorities including those identified by the business community in Suriname, a section on monitoring and evaluation of PSD initiatives, and finally a section with recommendations for interventions and also for filling in data gaps. The report includes two annexes the SU-DMX, and an annex with the most important sources of information currently available for the analysis of PSD.

2) Chapter I: Indentifying market failures

This section presents the economic background for this report and concludes that the largest challenge is to open space to the private sector for the expansion of domestic and export oriented activities. First this section presents an overall assessment of PSD and explains the importance of the private sector for growth and development of Suriname noting the large size and pervasive presence of the public sector in the economy, and the importance of mining for overall economic performance. In this overall context, the improvement of the macroeconomic environment since 2000 is explained by investments in the mining sector linked to high prices of gold, oil and alumina and also by the implementation of conservative fiscal and monetary policies. The section includes an overview of the private sector, which can be characterized by large multinational corporations active in mining, and many small domestic companies active for the most part in the production of no-tradable goods.

a) Goal of PSD in the country and current programs

The common thread of this report and its recommendations, and the overarching PSD goal in Suriname, is to gradually open space for the expansion of private sector activities, and as such, this goal is closely linked to public sector reform because of the large size of the public sector. Because of the small size of the economy and its relative isolation, the expansion of the private sector activities would require to gradually replace public enterprises by private enterprises, and a special emphasis on export promotion and regional integration.

Suriname needs to change the current economic model. Up to now the country’s economic model may be summarized as follows: the extraction of minerals by multinational corporations to be sold abroad has generated income that has been distributed throughout the economy by the public sector, primarily by providing public employment in the central government, but also in the many public enterprises; and the non-mining private sector is small and limited to selling goods and services to government, and also to importing goods and services that are demanded but not produced in Suriname. The local industry has not developed because: the size of domestic demand is small and therefore the Surinamese industry cannot compete against imports on price and quality without very large investments that would allow for the satisfaction of local demand and also for production for the export market—these investments are not promoted

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because of a poor business climate. Over time as the economy expanded or contracted following the swings in prices of exports, the non-mining private sector accommodated all the internal adjustments by expanding or shrinking, making it extremely difficult to save and invest, and therefore to grow. Additionally, Surinamese companies are relatively isolated, because of history, language, and business practices, and have few contacts or ties with regional private 4 companies and favor their European traditional business partners, especially in The Netherlands.

The business climate for private sector expansion is not good and may be summarized, as one businessman put it, as “Suriname is a country of licenses, and all systems are based on the ad hoc concession of a business license of one form or another.” A long-standing tendency of government to distrust the private sector resulted in the creation of regulations that added barriers to PSD. An example, repeated to exhaustion by all the analysts of the private sector business climate in Suriname, is that any business license has to be individually and personally approved by the President of the country, but only after the application has been reviewed and moved forward by the full Cabinet of Ministers. As a result it takes over two years to receive a business license, if the President agrees. This astonishing barrier to establish a business is not as binding as it appears because it has fueled an active business of creating phantom companies, and then selling those companies to the highest bidder among those wishing to avoid the long delay. Recently the process has been significantly improved and it is reported that the approval of a business license takes less time than before. Nevertheless the regulation stands to this day and allows analysts to make the point of the attitude of Government towards the domestic private sector.

Suriname’s economy can be characterized as a small and very open economy that depends on the exploitation of mining natural resources, and that is dominated by the pervasive presence of the state in all sectors of the economy. During the last 40 years the public sector has employed, in government and public enterprises, over 60% of the economically active population.5 Government was able to maintain a large presence because of two factors: in the past it received large amounts of annual transfers from The Netherlands as part of the Independency Treaty through what is called the Treaty Funds; and because the mining sector is export oriented and very large compared to the economy and government receives from it a large proportion of its income—in 2010 and 2011 the IMF noted that mineral revenues represented about 1/3 of total government revenues and about 95% of total exports. 6 The first factor is not relevant anymore as the Treaty Funds provided by The Netherlands have been exhausted and the balance, as of April 2012, is only about €20 million. The second source of income that allows government to maintain a large presence in the economy remains strong and it is expected to grow over time if oil and gas are found offshore. However, over the medium term the mining sector also faces challenges related to its non-renewable nature and dependency on continuously finding new assets, which although available tend to be more expensive to exploit.

4 Isolation, from a trade perspective, is related to trade agreements with CARICOM, the European Union, Brazil and South American countries that are in place but are not being fully used by Surinamese businesses. The United Nations Commodity Trade Statistics Database report that in 2010 Suriname exported to Brazil US$1.5 million, about 0.1% of total exports of about US$1.5 billion. 5 IDB “Country Strategy with Suriname 2007-2010.” Inter-American Development Bank, Washington DC (2007). 6 IMF “2011 Article IV Consultation—Staff Report.” IMF Country Report No. 11/256, February (2011).

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Therefore over time the economy would have to rely less on the mining sector and more on other export-oriented non-mining activities that require the creativity and investment of the private sector. Suriname can afford the gradual transition to this new economic model while mining resources continue to maintain the economy. Therefore, the next few years offer Suriname a window of opportunity to transform its current mining-dependent economy into an export- oriented non-mining economy.

b) Overview of the economy i. The domestic economy

Suriname’s small open economy is fragile because it depends on mining exports, exposing the economy to changes in external prices of minerals. The combination of a large wage bill and exposure to price volatility of primary exports constrains government fiscal options. Figure 1 presents exports, GDP, and government revenues since 2000. The figure shows the high correlation between exports and GDP, and between exports and government revenues. The price volatility of Suriname’s export products—bauxite, alumina, oil and gold—is transmitted to the rest of the economy via its impact on royalties and taxes paid to government.

Figure 1: Exports, GDP and government revenues are correlated (current US$ million)

2500 4500

es 4000 )

)

v 2000 3500 n

illi

3000 ,

illi

e S

m 1500

m , 2500

$ t

S n

er 2000 U

1000

rre gov

1500 u d

rre

n a

u 1000

500

(c DP

rt o 500 G

x 0 0 E

Total revenues (current US$) Total exports (current US$) GDP (current US$)

Source: IMF Article IV and World Bank Data Set.

Table 1 shows graphically the price volatility of Suriname’s exports, with oil the most volatile, followed by gold and then aluminum. In the past a large drop in export prices would cause a series of difficulties: (i) it generated lower fiscal revenues; (ii) when confronted with a large public sector wage bill, government did not have fiscal flexibility to accommodate the drop in income with cuts elsewhere; (iii) the inevitable fiscal deficit was monetized resulting in inflation, in fact, by May 2012 government is still allowed to draw from the Central Bank to up to 10% of the total deficit; (iv) the recurrent policy in Suriname to anchor prices to the nominal exchange

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rate resulted in appreciation of the real exchange rate; (v) which in turn impacted on foreign reserves to the point where a devaluation is forced on the Central Bank; and (vi) the process ended in a combination of inflation and a large real devaluation of the exchange rate with negative impact on growth, income of businesses and families, and employment generation. Similarly, an increase of the wage bill—a common occurrence during electoral periods such as 7 8 1999, 2005 and 2010—increases public spending with similar consequences.

Table 1: Prices of Suriname main exports

Aluminum US$ per metric ton Oil US$ per barrel

4000 140 3500 120 3000 100 2500 80 2000 60 1500 1000 40

500 20

0 0

1 6 1 4 9 2 7 2 5 0 3 8 1 6 1 4 9 2 7 2 5 0 3

1 0 7 4 1 0 7 4 1 0 7 4 1 0 7 4 1 0 7

0 0 1 0 0 0 0 1 0 1 0 0 0 0 1 0 0 0 0 1 0 1 0

1 0 0 0 1 0 0 0 1 0 0 0 1 0 0 0 1 0

M M M M M M M M M M M M M M M M M M M M M M M

M M M M M M M M M M M M M M M M M M M

1980 1981 1982 1984 1985 1987 1988 1989 1991 1992 1994 1995 1997 1998 1999 2001 2002 2004 2005 2006 2008 2009 2011

1981 1983 1985 1987 1988 1990 1992 1994 1995 1997 1999 2001 2002 2004 200 2008 2009 2011

1980

30 year monthly indicators Gold US$ per troy ounce

2000 1800 1600 Standard % Std. Average 1400 Deviation Dev./Avg. 1200 1000 800 600 400

200 Aluminum 1649.49 497.92 30%

0 7 4 1 0 7 4 1 0 7 4 1 0 7 4 1 0 7

1 0 0 0 1 0 0 0 1 0 0 0 1 0 0 0 1 0

0 Gold 485.67 278.94 57%

M M M M M M M M M M M M M M M M M M M

1981 1983 1985 1987 1988 1990 1992 1994 1995 1997 1999 2001 2002 2004 2006 2008 2009 2011

1980 Oil 34.27 24.48 71%

Source: IMF commodity database and the World Gold Council.

Over the last decade, the favorable external environment for the mining sector and large improvements in fiscal and monetary policy—and a somewhat isolated financial sector that shielded Suriname from the negative impact of the international financial crisis of 2007-2009—

7 A description and analysis of these events is presented in the IDB Country Strategy (2007), and in several IMF Article IV reports (2001-2009). 8 The latest attempt to deal with the issue of low salaries and salary compression in the public administration is FISO. FISO is the program that attempts to reform the public administration by defining minimum qualifications for government positions and job descriptions, and significantly increasing salaries and reducing wage compression. The program was designed so that public servants could be reclassified upwards if they could prove they met the minimum qualifications. Reflecting the difficulties of dealing with a large public sector in the context of political fragmentation the program also establishes that any public servant cannot be downgraded.

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help explain the good performance of the economy over the last several years. Table 2 compares key indicators of economic performance for the period 1990-2000 and 2000-2009. The Table shows overall improvement in all indicators and in particular a reduction in volatility, with the exception of income per capita for which volatility is welcomed as it implies higher and faster income growth in 2000-2009 compared to the previous decade.

Price stability has been beneficial to Suriname in facilitating growth and domestic investment since 2000. Compared to the last 10 years, the period of 1990-1999 was characterized by extreme volatility. Large swings in inflation and related real exchange rate did not provide a stable environment for growth, and as a consequence Suriname grew on average only 0.6% for the decade. By comparison, the decade of 2000-2009 exhibits remarkable improvement in lower inflation rates and more stable real exchange rates than in the past. The overall consequence is higher growth, an average of 4.4% that translated into significantly higher income per capita at US$6,610—50% higher than in the previous decade.

Table 2: Comparison of key indicators in the Surinamese economy 1990-1994 1995-1999 2000-2004 2005-2009 1990-1999 2000-2009 1990-2009 RER Index SDR/US$ (1) Average 175.4 329.7 344.1 275.1 252.5 309.6 281.1 Standard Deviation 244.5 34.8 28.0 24.5 183.6 44.0 133.2 Inflation (period average, percent change) Average 120.7 72.0 34.1 8.7 96.3 18.9 57.6 Standard Deviation 147.2 99.7 20.0 5.1 121.3 17.7 93.2 GDP real growth (percent change) Average -0.6 1.8 3.4 5.1 0.6 4.4 2.5 Standard Deviation 4.2 2.4 3.3 2.0 3.5 2.4 3.5 Gross domestic product based on purchasing-power-parity (PPP) per capita GDP (US$) Average 4,267 4,609 5,143 7,589 4,438 6,610 5,524 Standard Deviation 126 192 582 903 236 1,444 1,502 Note 1. An appreciation of the RER is reflected in a drop of the RER index. RER index is 100 in 1990. The RER index was estimated using US and Paramaribo CPI, and SDR/US$ official exchange rate. Source: IMF IFS dataset and authors calculations

The success over the last decade is also linked to large increases in mineral prices, and since 2000 exports more than quadrupled from US$490 million to US$2,309 million, with about 95% of total exports represented by alumina, gold and oil. In spite of the large growth in exports the trade balance has not improved as imports have also grown at a high rate as a consequence of a growing economy that demands more of the goods and services that Suriname does not produce and must buy from the rest of the world—see Figure 2.

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Figure 2: Annual export and import performance in Suriname 1980-2010

3.E+09

2.E+09

1.E+09

5.E+08

0.E+00

Exports of goods and services (BoP, current US$) Imports of goods and services (BoP, current US$)

Source: World Bank Databank

The rest of this section presents the macroeconomic developments over the last few years in the real sector and prices, money and credit, and fiscal accounts. The source of information of the analysis is the IMF Article IV Staff reports and the Central Bank of Suriname, see Table 3.

Suriname has been growing at an average rate of 4.3%for the period 2007-2010. Nominal GDP stood at US$3,682 million, about US$7,471 per capita using the 2004 census population of 492,829 people. This estimate includes the informal sector, and puts Suriname per capita income at a high level compared to the region. A sign of concern noted by the IMF and reported by the Central Bank is the increase in inflation recorded in 2010 and more markedly in 2011, about 6.9% and 17.9% period average respectively. In particular inflation in 2011 reflects the adjustment in the nominal exchange rate from the long-standing level of 2.75 SRD/US$ to 3.3 SRD/US$ in 2011. Because the economy is so open and depends so much on imports of most goods consumed in the country, the necessary adjustment of the nominal exchange rate, of 20%, has a large pass through effect on the overall price level. The IMF reports that the real exchange is “broadly in line with fundamentals’ indicating therefore that the large devaluation in 2011 has corrected the overvaluation of the real exchange rate, consistent with the fact that the spread between the official and parallel exchange rate is less than 2%.

Monetary policy is broadly consistent with maintaining the real exchange rate in equilibrium. An important development since 2007 is the de-dollarization of the financial sector, from 51.5% of credit and 55.2% of deposits in US$ in 2007 to 36.8% and 50.4% respectively in 2011. This development is probably related also to the steady devaluation of the US$, and reduces risk in the system due to its exposure to credit in foreign currency by local companies which revenues are denominated in SRD. Also of relevance to the SU-PSAR is to note the steady growth of credit to the private sector, mirrored by a steady decline in credit to the public sector.

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The fiscal accounts show deterioration from good performance measured by positive overall balances of the central government in 2007 and 2008, to large negative balances in 2009, 2010 and 2011. The switch from positive to negative balances may be attributed to the slowdown of the economy from 2009, in part related to the impact of overall global demand on mineral products and therefore lower prices. Interestingly government is relying more on domestic sources of financing than on external sources. From a public debt management perspective this is a sign of lowering debt risks by tapping on domestic savings and borrowing in domestic currency. However, for the purposes of this report focusing on PSD, public sector borrowing almost always crowds out private sector access to financial resources. This is an issue that needs to be further analyzed with the Suriname Debt Management Office and the Central Bank. The issue is relevant because Suriname’s public debt is very low, which gives government the choice of borrowing from domestic or external sources. As of 2011 total public debt was only 20% of GDP, of which 9.7% was domestic and 10.3 external. An outstanding issue that still remains unresolved is public sector debt in arrears. Over the last 5 years arrears have been slowly cleared with all bilateral creditors, and the small amount in arrears is related to old commercial debt. This is another issue that should be prioritized by government as it has an impact on private sector access and price to borrowing from abroad.

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Table 3: Suriname Selected Economic Indicators, IMF Article IV Staff Report 2011

Source: IMF Article IV Staff Report 2011

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The IMF predicts continued success of the Surinamese economy in the near-term. The positive outlook is explained by large investments in mining, therefore, the downside of the outlook would be linked to a global economic slowdown with an impact on mineral prices. In spite of the likely slowdown of the global economy, and a drop in mineral prices, large investments underway include building a new refinery by Staatsolie, an investment equivalent to 15% of GDP that would also solve a long standing problem of Suriname: although it produces oil it spends a large amount resources importing gasoline and diesel. Additional investments in the sector, for as much as 14-16% of GDP according to the IMF, would be required for the development of new bauxite and gold mines in eastern Suriname.

Table 4: IMF medium-term outlook as of August 2011

Source: IMF Article IV Staff Report, 2011

ii. The international economy

The analysis of savings and investment balances reveals the fragility of the private sector that has to adjust to changes in the external and government accounts—see Table 3. The adjustment is related to large swings in investment and growth related to addressing internal imbalances out of the control of the private sector. The private sector balance, the difference between savings and investment, has fluctuated from about 8% of GDP in 2007 and 2008, to 0.9% of GDP in 2009, and up again to 4.6% and 2.1% of GDP respectively in 2010 and 2011. In all cases since 2007 the private sector has been saving more than investing, filling in gaps generated either in the external accounts, such as in 2007, 2008, 2010 and 2011, or in the public sector, such as in 2009, 2010 and 2011. Only in two years in the series, 2007 and 2008, the public sector contributed to overall savings in the economy. Importantly, these two years recorded the highest growth in the series, in 2007 and 2008, probably as a consequence of not crowding out private investment. It is also important to note that the analysis would benefit from the disaggregation of data into mining and non-mining sectors, because the mining sector is so large it introduces severe distortions and does not allow for a proper understanding of the savings and investment behavior of the non-mining private sector.

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The dependence on mining and exports is presented in Figure 3Error! Reference source not found., that shows the tree map of exports, noting that the vast majority of exports were related to gold, alumina (noted as artificial corundum in the figure), and oil. All other exports are very small and limited to agriculture and fisheries.

Figure 4Error! Reference source not found. shows that Suriname imports a highly varied set of goods and services. With the exception of refined oil that represent about 25% of total imports, the other goods imported into the country reflect the tendency to import rather than produce for domestic consumption. It is worth noting that both figures also show the total amounts exported (US$1.7 billion) and imported (US$1.2 billion) that are included in the database of the MIT Observatory of Economic Complexity. Total GDP for 2010 was about US$3.7 billion, therefore the openness of the economy for that year was 78%, one of the highest in the region.

Trade opportunities may be limited by trade agreements between Suriname and trading partners. Suriname is member of the Caribbean Common market as of 1995. CARICOM products are subject to tariffs ranging from 5% to 20%. Trade with CARICOM has increased in the last few years, however, the largest trading partner continues to be the U.S. Since 2008 some goods imported from the European Union may enter the country duty free as part of the Economic Partnership Agreement between the E.U. and CARICOM countries. Additional trade agreements with Brazil and South American countries are in place but are not being fully used by Surinamese businesses.

Figure 3: Suriname tree map of exports, data 2010

Source: The Observatory of Economic Complexity, http://atlas.media.mit.edu/explore/tree_map/export/sur/all/show/2010/

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Figure 4: Suriname tree map of imports, data 2010

Source: The Observatory of Economic Complexity, http://atlas.media.mit.edu/explore/tree_map/import/sur/all/show/2010/

More recently the external accounts shows the impact of the global economic slowdown from 2007 in the large reduction of the current account balance, from +10.7% of GDP in 2007 to +0.4% in 2011. The external adjustment, however, was fully accommodated in the capital account and foreign reserves in the Central Bank have continuously increase over the period, from 3.8 months of imports or US$433 million in 2007 to 4.6 months of imports or US$966 million in 2011. The increase in foreign reserves confirms the IMF assessment of the real exchange rate in equilibrium.

The poor investment climate is best portrayed in Figure 5 that shows that Suriname net FDI was negative for the period 2000-2010. The mining sector attracts most FDI, however, the characteristics of the cash flow of the sector, especially in gold, determine very large initial investments but also large outflows related to exports.

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Figure 5: Suriname 10-year net FDI performance compared to countries in the region

12000

10000

8000

6000

4000

2000

0 Suriname Belize Guyana Barbados Bahamas, The Jamaica Trinidad and Tobago

-2000

iii. The productive structure

Over the years the economic structure of Suriname has been changing, see Table 5Error! Reference source not found.. The period of 1960-1980 shows a large share of industry compared to the period after 1980. A working hypothesis is that industrial investment suffered from the uncertainty related to the independence of Suriname from The Netherlands in 1975, in fact, evidence many Surinamese migrated to Europe before independence. This event may also have triggered a large reduction of Dutch investment in industry. Industry as a proportion of total GDP did not recover to the 1980 levels and for the period 2001-2008 represents about 1/3 of value added output. The agriculture sector, relatively strong in coastal areas that cultivate rice and bananas, is recovering from the difficult decade of 1991-2000 and now has reached levels similar to those recorded from 1981-1990. The service sector, such as with other economies in the region, has become more relevant over time and currently represents the largest share of GDP. This sector encompasses almost all of the domestic private sector and is dominated by small family owned firms, the vast majority of which employ less than 3 employees, many of

17 Suriname PSAR

which are informal, and are active in non-tradable activities such as commerce, transportation, 9 restaurants and hotels.

Table 5: Structure of the Surinamese Economy

1961- 1971- 1981- 1991- 2001- 70 80 90 2000 08

Agriculture, value added (% of GDP) 9.4 8.0 9.5 13.1 6.5 Industry, value added (% of GDP) 46.0 44.1 29.9 24.4 34.4 of which Manufacturing, value added (% of GDP) NA NA 13.2 9.6 16.3 Services, etc., value added (% of GDP) 44.6 47.9 60.6 62.5 59.1

Agriculture, value added (current US$, million) 14.0 31.4 85.8 77.3 83.7 Industry, value added (current US$, million) 67.0 181.9 287.1 152.8 385.2 of which Manufacturing, value added (current US$, million) NA NA 128.4 61.4 177.3 Services, etc., value added (current US$, ,million) 63.4 191.4 522.9 368.0 709.0

Agriculture, value added (annual % growth) NA NA 2.0 -1.3 2.8 Industry, value added (annual % growth) NA NA -2.9 0.1 6.3 of which Manufacturing, value added (annual % growth) NA NA -4.4 -2.2 10.4 Services, etc., value added (annual % growth) NA NA -1.3 1.9 4.3 Source: World Bank World Development Indicators 2010

The importance of mining should be highlighted. As previously noted it contributes significant revenues to government, and represents almost all exports, nevertheless the sector only provides about 3% of total employment. For this reason the development impact of mining may be limited because mine-related activities are enclaves, and as such the economic spillovers, especially in employment to the domestic economy are small. The impact of the mining sector is reflected in the employment of a small number of people in the service sector, such as transportation or food services. This is the “traditional” view of enclaves in which large investments in mining do not generate significant backward or forward linkages within the 10 domestic economy (Hojman, 1983), which unfortunately appears to be the case in Suriname.

The mining sector also includes large numbers of informal miners. Suriname’s abundant gold resources have attracted a large number of illegal miners from neighboring Brazil, the garimpeiros. The overall impact of informal mining on development is negative as it is responsible for severe environmental damage including mercury poisoning of the population adjacent to the informal settlements.

9 IDB Country Strategy with Suriname 2007-2010. 10 However, the term “enclave” has evolved over time, from a dualist approach to more modern views of the impact of social corporate responsibility on development. In fact many argue today, in complete opposition to the analysis of the past, that “enclaves” may be catalysts of change and development (Auty, 2006). Hojman, David E. “From Mexican plantations to Chilean mines: the theoretical and empirical relevance of enclave theories in contemporary Latin America.” Working Paper 3, Centre for Latin American Studies, University of Liverpool, Liverpool, 1983. Auty, Richard. “Mining enclave to economic catalyst: large mineral project in developing countries.” Journal of World Affairs, Fall/Winter 2006, Volume XIII, Issue , (2006). 18 Suriname PSAR

iv. The institutions

Suriname is a presidential democracy. National elections are held every 5 years to elect the 51 members of the National Assembly. After parliamentary elections, the President of the Republic is elected by the National Assembly with at least two-thirds of the votes—34 votes out of a total of 51. In the 2010 elections 12 parties were elected to the National Assembly clustered around five coalitions. The Mega Combinatie, led by Mr. Bouterse NDP party and including a group of additional small parties, won 23 out of 51 seats in the National Assembly. The NPD was able to form government by succeeding in creating a coalition that gave them the required 34 votes majority. Then, the National Assembly elected Mr. Bouterse President.

Of the twelve parties represented in parliament in 2010, six are ethnically based (over 85% of their voters are from one ethnic group). In spite of the close link between ethnicity and politics, Suriname is respected for the harmonious coexistence of diverse ethnic groups. It should be noted that three of the four coalitions that participated in the 2010 elections constitute a multiethnic alliance. Only the three Maroon parties that formed A-Combinatie constitute a mono- ethnic alliance.

The InterAmerican Development Bank (2007) summarizes that “The political environment in Suriname is complex, reflecting the unique diversity of the Surinamese population, which includes Hindustanis (27%), Creoles (17.7%), Javanese (14.6%), Maroons (14%) and Indigenous Peoples (3.7%) as well as people of European, Chinese and other descent. Political alliances bring together combinations of ethnically based parties that contribute to a complex political balance. In this context consensus-building in the Surinamese government and society comes at the cost of a protracted pace of decision-making and implementation. However, once decisions take root, the degree of commitment on the part of the Government is generally high and firmly established. Suriname’s multi-ethnic and multi-lingual society continues to evolve; it 11 has been enriched by the inclusion of Indigenous Peoples and Maroons in politics.”

The importance of consensus building for decision making cannot be sufficiently highlighted and should be carefully considered for the design of donor support to Suriname. Every step in the decision making process of government, the interactions between government and the private sector, the interactions between government and the donor community, and the interactions between central government and local governments may be characterized by a complex process of building consensus among the many different groups represented in society.

By all standards Suriname’s consensus building approach to making decisions results in long delays. From the selection of personnel appointments, the definition of the agenda for reform, the creation of new laws, the registration of firms everything takes time and patience. This characteristic of Suriname discourages FDI and confuses the donor community that cannot understand how inefficient this process can be. It is important to note that Suriname has never privatized a public company, but it also has never nationalized a private company.

11 IDB Country Stragegy with Suriname 2007-2010.

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In a multiethnic and diverse society in which ethnic groups maintain their traditions, religion, and language, maybe this is not too bad even if it is inefficient, this may be a second best that works well for the citizens of Suriname. See Figure 6 that shows that in Paramaribo the Synagogue sits right next to the Mosque. This level of tolerance and respect for diversity is an asset for the people of Suriname.

Figure 6: Paramaribo Synagogue and Mosque, side by side

Source: This is a file from the Wikimedia Commons, by Mark Ahsmann. http://en.wikipedia.org/wiki/File:Paramaribo_synagogue_and_mosque.JPG

Several public institutions are very active in the promotion of private sector development in Suriname—see the SU-DMX. The most relevant among them is the Suriname Business Forum given its wide representation and inclusion of actors from many different sectors in the public and private sectors. Currently the Office of the Vice President also plays an important role in prioritizing and promoting private sector development.

c) State of the private sector

As previously noted, the private sector includes large multinational corporations active in the mining sector—Iamgold, Newmont Suparna Gold Corp in gold and Alcoa’s subsidiary Suralco in bauxite, with increasing interest in investing in oil that is managed by the public oil company Staatsolie that is granting offshore exploration rights to multinational oil companies including Repsol—while the non-mining private sector is small and produces goods and services for government and domestic private consumption and investment with few companies active in selling goods and services abroad. Importantly, the larger non-mining private businesses specialize in selling goods and services to government, especially in the construction sector, or in importing goods from abroad for domestic consumption or investment.

20 Suriname PSAR

Some relevant information is presented in the 2010 World Bank and IFC Country Report of Enterprise Surveys in Suriname. According to this report, which is based on the execution of a survey to non-agriculture private sector firms in Suriname, firms in the sample tend to be well established. In the sample of firms used by the survey, about 80% of firms have 10 or more years of continuous presence in the market, see Figure 7.

Figure 7: Suriname distribution of firms by age in the sample used by the WB/IFC Enterprise Survey

Source: Suriname Country Profile 2010, World Bank and IFC Enterprise Surveys

The SU-DMX presents a review of associations that represent private sector interests. As noted, most of the members, with the exception of multinational mining corporations, represent small businesses active in many sectors of the economy. These institutions are directly financed by government and include government representatives in their Boards. This peculiar characteristic of Surinamese PSD institutions offers a large opportunity for facilitating PSD initiatives in the country. For instance simplifying the tax code or investment laws are important initiatives with large impact on private sector growth. Initiatives sponsored by PSD institutions have the potential to implement these initiatives because of the participation of government representatives in their Boards. The initiatives that are supported by these institutions, therefore, to some extent have been already acknowledged by government because of their membership on the Board of Directors of these institutions. However, successes of PSD institutions in improving the business climate are limited.

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Beyond the information presented, there is no information that would permit for a more detailed description of the private sector in the economy. As noted in the SU-DMX, PSD analysis would benefit from investing in filling in the following information and data gaps:

 A mapping of private sector activities by sector  A mapping of financial sector products available to the private sector—such as banking services on factoring, secured transactions, discount of letters, long-term lending terms and options, stock exchange bond issue conditions, credit ratings of people and companies  A mapping of trade-related information relevant to companies in selected sectors for selected market—such as phytosanitary and other food safety concerns, standards and certification, trading mechanisms and timing, costs  A complete description and analysis of labor markets  A complete description and analysis of the tax system  A complete description and analysis of registries, real estate and movable property  A complete mapping of licensing requirements by sector  A complete mapping of bottlenecks for private sector development

d) Large and fast growing sectors in the economy

As previously noted it is not possible to identify large and fast growing sectors in the economy. This should not be confused with stating that there are no industries or export oriented businesses with potential for expansion and growth. Most businesses with export potential are being developed and face, such as the rest of the private sector, a difficult business climate. An indication of the areas in which future investments may be prioritized is provided by the U.S. Commercial Guide, which is designed to help develop trade ties between the U.S. and Suriname. According to the U.S. Commercial Guide the following as leading sectors for U.S. exports and investment:

 Commercial sectors o Gold mining o Oil and gas o Bauxite o Consumer products—computers, cell phones and related equipment, home appliances, electronic gaming o Construction—concrete, construction equipment, ceramic tiles, locks and locksets, faucets, electrical equipment, plumbing equipment and materials, copper products, bathroom accessories o Forestry/woodworking  Agriculture o Palm oil o Bananas o Fish/shrimp o rice

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e) Issues for private sector development

This section presents detailed analysis of PDS bottlenecks clustered around the following issues: business supportive institutions structure, donors and other international entities, access to finance, corporate taxation, business environment, technology and innovation, trade and FDI policies, labor regulation, infrastructure communications and energy, environment, gender, and other. A recurrent problem for the analysis of PSD initiatives in Suriname is lack of reliable information, therefore in all cases the report provides as much factual information as possible including complete references. When subjective assessments have been made those are also clearly identified in the report, usually with recommendations for investing in primary data collection and analysis.

i. Business supportive institutions structure

The section summarizes the information presented in the SU-DMX annex, with emphasis on the most relevant institution and the roles that they play in PSD.

There are many institutions that represent private sector interests in Suriname, and many of those are directly financed by government and include government representatives in their Boards. This peculiar characteristic of Surinamese PSD institutions offers a large opportunity for facilitating PSD initiatives in the country. For instance simplifying the tax code or investment laws are important initiatives with large impact on private sector growth. Initiatives sponsored by PSD institutions have the potential to implement these initiatives because of the participation of government representatives in their Boards. The initiatives that are supported by these institutions, therefore, to some extent have been already acknowledged by government because of their membership on the Board of Directors of PSD institutions. In spite of the presence of government, successes of PSD institutions in improving the business climate are limited. The most important finding of the SU-DMX report is the following: the link between government participation in PSD institutions through funding and inclusion of government representatives in the Boards of these institutions and government support for PSD initiatives is broken and should be restored. Restoring the link would allow for government to take action and support priority initiatives with high impact on the business climate of Suriname.

The four largest PSD institutions in Suriname are: the Suriname Business Forum (SBF), the Suriname Trade and Industry Association (VSB), the Manufacturers Association of Suriname (ASFA), and the Chamber of Commerce and Industry (KKF).

The SBF was created with funding from the EU to promote private sector development. The SBF Board includes representatives of the Chamber of Commerce (KKF), the Suriname Trade and Industry Association (VSB), the Ministry of Finance, the Manufacturers Association of Suriname (ASFA), the Ministry of Trade and Industry, the Ministry of Justice and Police, the Ministry of Agriculture, Animal Husbandry and Fisheries, the Anton de Kom University (ADEK), the Council of Trade Federations in Suriname (RAVAKSUR), and the Women’s Business Group. The SBF is, therefore, a point on intersection of PSD associations representing a wide variety of sectors, including government. The wide membership of the SBF offers the ideal space for the definition of PSD priorities in Suriname. In fact, the SBF has prepared a PSD

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strategy with the following pillars: foreign direct investment, competitiveness, new growth areas, public/private dialogue, legal framework, and business development services. The strategy identifies 88 activities, however, the SBF needs to prioritize them and focus on those prioritized areas. The SBF hosts the Suriname Business Development Center in which private companies have access to resources for their own strengthening and development, including training in selected issues and business services.

The SBF is transitioning in 2012 from its initial phase of creation, funded by the EU, to a mature self-sustaining institution that aspires to take the lead in the design and implementation of PSD reforms. Up to now the SBF has been funded with EU grants, and now it needs to find its own sources of funding to continue and expand their coordination role. These sources of funding are limited to: contributions from its members, charging for services provided, additional contributions from government, or contributions from other donors. It is unclear at this stage which one of these sources, or combination, would end up funding the next phase of the SBF. This is not the only challenge for the SBF. As previously noted, the government inclusion in this PSD forum should be leveraged more to move from planning to execution of the private sector development strategy already prepared by the SBF.

The Suriname Trade and Industry Association (VSB) is the largest and oldest privately funded PSD institution in Suriname. The VSB membership includes over 230 companies, which jointly produce more than 95% of private sector production in the country, and employ over 20,000 people. The VSB represents the private sector in the tri partite meetings between government, unions and private sector—it is worth noting that Suriname does not have a tri partite social compact such as other Caribbean countries—and in other committees such as the State Council, the Labor Advisory Council, the Mediation Council, and the National Commission for the elimination of Child Labor. Internationally, the VSB is affiliated to the International Labor Organization (ILO), the International Organization of Employers (IOE), and the Caribbean Employers’ Association (CEC). The VSB is organized in committees that reflect the economic sectors in Suriname: agriculture, banking, trade, lumber, industry, mining, transport, insurance and services.

In 2010, during celebrations of their 60th anniversary, the VSB presented its priorities for private sector development: macroeconomic and financial stability, improving opportunities and possibilities for entrepreneurs, stimulation of the labor market and development-oriented education system, adequate physical infrastructure and public utilities, targeted planning and land policy, sustainable environmental policy, an effective and efficient government, good and innovative management, and intermediate role of the VSB. Of these, the VSB identifies that the challenge for privately owned companies is to improve management. Importantly the VSB highlights the importance of opening economic space for the expansion of SMEs, strengthening clusters for the industry, improving quality and standards, and expanding ISO certification including the creation of a Documentation and Information Center for Standardization and Certification.

The Manufacturers Association of Suriname (ASFA) represents about 105 small manufacturers. Compared to the VSB, ASFA focuses on small and medium companies, whereas VSB tends to attract larger companies—it is also worth noting that there is large overlapping in membership,

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so that a company is at the same time a member of VSB, ASFA, KKF and other private sector institutions. Most of ASFA members have less than 25 employees, with representation in many sectors such as construction, food, lumber, dairy products, syrups, with some companies exporting to European markets. About 25 members have ISO certificates.

By law all companies in Suriname have to be members of the Chamber of Commerce and Industry (KKF). The Chamber, which is fully funded by government, has three main functions: implementation of economic legislation, provision of trade information, and representation of the interests of regional trade and industry. The KKF provides its members with services and information in a one-window format for starting a business, financial, commercial and legal issues, personnel, closing a business, regional and international trade.

In addition to these main representatives of the private sector, the SBF, VSB and KKF, other institutions also represent specific sectors or interests. For example the American Chamber of Commerce of Suriname facilitates trade and investment in Suriname and in the USA, the Kwaffa Agricultural Organization represents over 300 farmers, the Mohamas Hoeseing Fisheries Cooperative represents over 60 fishermen, the National Women’s Movement facilitates business opportunities for women and people of the Interior, the Surinamese Tourism Foundation provides specialized services to its members, the Association of Small and Medium Size Enterprises (AKMOS).

Some additional ad-hoc PSD programs were also identified in the SU-DMX. Anecdotal evidence provided during meetings indicate that Staatoile, the public sector Surinamese oil company, provided support to ADEK university to start a geology program to train Surinamese students in oil and gas exploration and extraction. The Ministry of Labor also facilitated vocational training in welding, a key skill for the oil and gas industry. Finally, with support from the IDB government procurement is being improved to increase transparency, efficiency and equal access.

Coordination efforts among private sector representatives appears difficult, and such as in other areas of society, it is difficult to build consensus about PSD programs and projects. The SBF offers significant opportunities to increase coordination, and representation of the private sector in Suriname.

ii. Donors and other international entities

The section summarizes the information presented in the SU-DMX annex.

Suriname is a country with a large contingent of international bilateral and multilateral institutions that actively support PSD programs. The multilateral donors’ largest actor in Suriname is the InterAmerican Development Bank that is executing a work program that includes PSD activities, including projects financed by the InterAmerican Investment Corporation, the private sector institution linked to the IDB. Importantly, the InterAmerican Development Bank partnered with DFID and CIDA to provide funding, US$40 million, to create Compete Caribbean, a program that is fully devoted to PSD activities with an active prospective program in Suriname—this program is coordinated in Suriname from the office of the Vice

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President. Additional multilateral donors include the International Finance Corporation, linked to the World Bank, and very recently the World Bank has initiated dialogue with the authorities, that expect formalizing a program in the near-term that would include PSD projects. The European Union is the largest bilateral actor in Suriname, with an active program designed to improve transport infrastructure. The Dutch and Chinese governments offer direct support, via grants and loans respectively, to Surinamese companies that want to expand trade with their respective countries.

In spite of the large number of international institutions in Suriname, coordination mechanisms are informal and limited to informal contacts among representatives of these institutions—it is worth noting that the EU has a somewhat dated donor matrix showing the work programs of the international donor community. Different donors have different counterparts in Suriname. For example, the Ministry of Finance interacts with the IDB, CDB and bilateral donors with the exception of China and India; the Central Bank interacts with the World Bank, IFC, Islamic Development Bank; and the Ministry of Foreign Affairs interacts with China and India. Because the political system in Suriname forces the creation of a coalition of political parties to elect the President, and because the negotiations include the distribution of Ministries, it is common for Ministries to work in isolation, and therefore do not share information unless it is at the level of the Cabinet of Ministers. In this context, coordinating PSD programs and projects with the authorities is challenging.

Almost all programs and projects identified in the SU-DMX annex mention the importance of gender issues. Nevertheless, there is not a formal coordination mechanism to identify gender- related issues, monitor estimates of participation of women in business or in the labor force, or other relevant indicators that may be used to monitor improvements.

The programs supported by international institutions cover many areas and appear to favor providing direct support to individual companies and less emphasis on the improvement of the business climate. There is a preference for individual projects that either are designed to support specific private enterprises, such as loans facilitated by the IIC and the IFC, or individual projects with government as counterpart that focus on broader areas of development, such as building infrastructure in transport. Notable exceptions are Compete Caribbean and the EU, that provide funding for individual companies or for improving the business climate. A highlight of the later is the EU support to the Surinamese Business Forum, which provides the opportunity for PSD stakeholders, including representatives of the private and public sector to come together and identify, and try to solve, PSD bottlenecks. Another important exception is the support to improve the business climate offered by the IDB MIF program and also by Compete Caribbean through small grants for programs in specific sectors or for business climate improving programs. A highlight of these grants is SU-T1025, Competitiveness Benchmarking for Suriname, that funded the execution of the Executive Opinion Survey and the collection of additional data that were necessary to include Suriname in the World Economic Forum World Competitiveness Report (WEF GCR)—follow up support for the continuing inclusion of Suriname in the WEF GCR is also being provided by Compete Caribbean. More recently Compete Caribbean is funding the National Competitiveness Program for Suriname that would: (a) establish a business climate reform unit; (b) identify, prioritize and implement a select number of achievable business climate reforms over the near term; and (c) design a

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comprehensive competitiveness program for Suriname to be implemented over the medium term. The SU-DMX provides a list of individual programs by institution, and the SU-DMX MS Access database provides a more structured list of characteristics of each program.

Monitoring execution and measuring results of these programs are circumscribed to the processes required by each individual institution, and in general, results are not shared with other donors or local stakeholders. The emphasis of PSD programs sponsored by multilateral and bilateral donors is on the design and execution, but there is little effort in monitoring outputs or outcomes and on evaluation of the results. For PSD programs, probably because tend to be small, the data collection effort for the creation of baselines, monitoring results, and evaluation, is low. For example, programs that provide grant funding of less than US$1 million do not have enough resources to design a good monitoring and evaluation system. This report identifies the need for consolidating efforts to monitor results of relevant PSD indicators. Similarly, this report identifies poor information about relevant PSD information, such as: a mapping of the private sector; a mapping of services, especially financial services, offered to the private sector; a mapping of capital supply options, venture capital and additional sources of investment including the Suriname Stock Exchange.

Based on this assessment, we identify significant opportunities to improve coordination using the SU-DMX tool as well as the SU-PSAR. The most important include the following recommendations:

General recommendations

 More private, less public. Importantly, PSD initiatives should be sponsored and led by private sector stakeholders and less by public sector actors. Suriname’s public sector is very large, and as it is explained in the SU-PSAR, the largest challenge for PSD success rests on the capacity to create space for the expansion of private sector activities. It is notable that the largest PSD institutions include a majority of public sector representatives. This characteristic, however, is not necessarily negative in the context of Suriname. It could be used to ensure government support of PSD reforms. This would be a fundamental change from current business as usual practices which emphasize consensus building with little real decisions made, to a new practice of making decisions and implementing plans in the short-run. Suriname, at this stage, does not need more private sector development strategies, it needs to implement a small and prioritized list of concrete actions with high value added in the short-run.

Recommendations to improve coordination among the donor community

 PSD projects are too many, too small, and there is duplication of efforts. In general PSD programs are too small, and although there are many donors that willingly provide funding, funding for each individual project is small. Therefore, there are many small initiatives and it is difficult to assess the overall impact of these initiatives. Because projects are small, they do not have proper monitoring of execution and evaluation of results systems. It is extremely difficult to discuss counterfactuals, i.e. what would have happened without the projects, because systems are not in place to follow up PSD

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projects results. To make programs bigger than they are now, the donor community and stakeholders need to coordinate better and prepare jointly financed projects.  Better coordination would improve PSD design and execution of programs. Although there are many PSD institutions, there is poor coordination. Good coordination would result in fewer projects with larger funding than now.

Recommendations to improve coordination between the donor community and local stakeholders

 The first step is the definition of priorities for PSD. The Suriname Business Forum private sector development strategy presents most of the main problems for private sector growth, however, there are too many activities and as it is, the strategy lacks focus. The Business Forum needs to identify a short-list of priority PSD initiatives, and focus on the design and implementation of these initiatives in the short-term.

Recommendations to improve PSD-related information systems and monitoring and evaluation of results

 Poor follow up of projects. In general projects are not designed considering sustainability of funded actions. Larger and more focused projects would address this problem.  Monitoring and evaluation of projects need to be strengthened. Larger and more focused projects would benefit from the establishment of monitoring and evaluation systems. Such systems are generally characterized by the definition of baselines of relevant indicators, the definition of targets over time, and the use of evaluations for the modification during project execution and the definition of follow up projects.

iii. Access to finance

This is an important bottleneck to PSD in Suriname and it is noted by the WEF Global Competitiveness Index and by the World Bank/IFC Ease of Doing Business Report. The financial sector is very small, characterized by a handful of banks and large concentration of lending and deposit in the largest three banks: RBTT Suriname, DSB and Hakrinbank. It is worth noting two of the largest banks, DSB and Hakrinbank, are totally or partially owned by government. Godo is a bank that specializes in providing credit to small enterprises, and its importance is ascending given the approach of the institution towards credit, and to the high demand from this segment of the private sector. Credit to the private sector is limited, and as of April 2012 total credit in was SRD 2,396.6 million and in foreign currency the equivalent of SRD1,563.6 million (US$350.4 million, and €91.2 million). Overall credit to the private sector represents about1/3 of total GDP, small by regional standards. The Central Bank provides disaggregated data that allows for the estimation of credit by sector. Table 6 shows several interesting characteristics of credit to the private sector in Suriname: (i) the banking sector is exposed to foreign currency risk as about 40% of loans are denominated in US$ or €, in part due to the reluctance of banks to lend in SRD that exposes them to devaluation risks; (ii) the largest sector is trade, which is for the most part dedicated to imports of goods that are consumed in Suriname; (iii) the line “other” includes personal loans, including credit card debt, and also lending to government; (iv) lending to primary and secondary sectors is very small, in part

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because of the small size of the private sector, but probably mostly because access to credit is limited to large companies.

Table 6: Suriname total credit to the private sector by April 2012

Domestic Foreign currency Total credit % of currency (million (million SRD) (million SRD) total SRD) Total primary and secondary sectors 338.6 424.2 762.8 19.3% Agriculture 71.8 59.4 131.2 3.3% Fisheries 9.3 29.6 38.9 1.0% Forestry 2 0.4 2.4 0.1% Mining 3.6 90 93.6 2.4% Manufacturing 164 165.5 329.5 8.3% Construction 86.3 61.7 148 3.7% Utilities 1.6 17.6 19.2 0.5% Total other sectors 2,058.30 1,139.40 3,197.7 80.7% Trade 459.3 597.7 1,057.0 26.7% Transport, storage and communications 81.2 26 107.2 2.7% Services 142.5 246.7 389.2 9.8% Housing 536.7 81 617.7 15.6% Other 838.6 188 1026.6 25.9% Of which credit to government 164.2 164.2 4.1% TOTAL CREDIT 2,396.90 1,563.60 3,960.5 100.0% Source: Central Bank of Suriname, website, Tables 8 and 9, http://www.cbvs.sr/STA/Eng/Table%208.pdf and http://www.cbvs.sr/STA/Eng/Table%209.pdf

In spite of the small size of credit to the private sector in Suriname, lending rates are relatively low. According to the Central Bank, average lending rates in SRD by April 2012 were 11.6%, with average deposit rate at 6.7%. Because inflation, measured month to month from April 2011 to 2012, is 4.2%, then real average real interest lending rate is 7.4%, within the range of rates in the region but significantly higher than international rates during this period characterized by very low rates throughout capital markets. Average lending rates in US$ is 9.5% and average deposit rate is 2.6%, and in € is lending is 9.9% and deposit 0.8%. The real lending interest rates in US$ and € are high and higher than in local currency. Similarly, deposit rates are very low, especially in €, probably in response to demand for these currencies in the financial system, although this is an issue that would require additional analysis to determine the preferences for lending and deposit.

An important issue that requires additional research is related to the financial services available to the private sector. Anecdotal evidence collected during April 2012 indicates the pervasive use of lending using real estate as collateral, and limited offering of factoring. Additional potential financial instruments that would deepen financial intermediation are not available. Such instruments may include: the expansion of the market for government bonds therefore promoting savings and investments of persons and firms; leasing; secured transactions; and revitalizing the stock exchange that is increasing trade, during 2011 total trade was SRD670,000 or about US$200,000 in spite of a large increase compared to 2010, is just not fulfilling its role to

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facilitate trade and investment by offering options to persons and firms for saving and 12 investing.

In general country credit ratings are improving, although they remain low at B+ from Fitch and Standard & Poor’s, and from Moody’s B1. Ratings have improved from 2009, and mostly related to an improved macroeconomic environment and outlook, and to the serious attempt from government to resolve the long standing problem of debt in arrears with bilateral donors and commercial banks. The Fitch note indicates that “national and international entrepreneurs will be able to feel reassured that investments in the Republic of Suriname are safe.”13 The Fitch report also recognizes the government’s effort to eliminate debt in arrears, and quoting the report: “In its press release of July 20, 2011, the Central Bank of Suriname indicated that the economy is on the right track but that a prudent fiscal and monetary policy will continue to be the guideline. In this respect it is worth mentioning that this week the government reached an agreement with the American government to redeem within three years, the many years’ arrears of an outstanding debt. The first redemption has meanwhile been made. This demonstrates the resolve of the government to settle its accounts. These activities will have to further improve our credit rating in the future.” The Standard & Poor’s analysis in general agrees with Fitch, although it also notes the high macroeconomic risk related to the dependency from a few export commodities.

The efforts of the Central Bank to ensure that Suriname receives the attention of credit rating agencies is commendable and should be recognized and encouraged. In part because of the effort to receive a credit rating, and the consequent commitment to monitoring and improving it, Fitch and other credit rating agencies provide an important source of information for prospective investors. These efforts also benefit the domestic private sector because it facilitates finding partners abroad, and also for those that would prefer to borrow abroad get a good measure of country risk.

iv. Corporate taxation

The information provided in this section comes from the World Bank/IFC Ease of Doing Business Report 2012, complemented by information included in the 2003 FIAS report and anecdotal evidence provided by business representatives in April 2012.

Suriname ranks well when compared with other countries in the region in how much taxes are really paid by businesses and who difficult is it to pay taxes in Suriname—see Figure 8. The WB/IFC report notes that Suriname ranks 34 out of 183 countries, and that firms make 17 tax payments per year, spend 199 hours per year filling tax forms, and that preparing and paying taxes represent 27.9 % of profits. By comparison, in Latin America the best performer is Chile with a tax rate equivalent to 25% of profits.

12 http://www.surinamestockexchange.com/nl 13 Press release of the Central Bank of Suriname as presented in the webpage of the Central Bank of Suriname. The title of the press release is: Fitch ratings upgrades Suriname to B+. http://www.cbvs.sr/wp- content/uploads/2011/08/persberichten-20110801E1.pdf

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Figure 8: Suriname ranking in paying taxes according to the WB/IFC Ease of Doing Business Report

Source: World Bank/IFC Suriname Country Report, Ease of Doing Business Report, Table 8.1

Table 7 notes that the corporate tax rate is 36%, however the existence of multiple tax exemptions, most of which are ad hoc and will be presented in the section that deals with FDI, brings down the overall rate to 27.9%. The VAT stands at 10% and taxes related to employment are 4% of net salaries.

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Table 7: Suriname corporate taxes according to the WB/IFC Ease of Doing Business

Source: World Bank/IFC Suriname Country Report, Ease of Doing Business Report, page 71

v. Business environment

This section presents the results from three relevant PSD sources of information: the World Economic Forum Global Competitiveness Report, the World Bank/International Finance Corporation Ease of Doing Report, and the WB/IFC 2010 report on Suriname Enterprise Survey, which incidentally was financed by Compete Caribbean. These reports complement each other and provide a view of macro/competitiveness problems and more micro problems.

The World Economic Forum’s (WEF) Global Competitiveness Index (GCI) 2011-2012 ranks Suriname’s competitiveness at 112 out of 142 countries. In Latin America, Suriname only compares favorably with Nicaragua at 115, Paraguay at 122, Belize at 123, and Venezuela at 124. The analysis provided by WEF also shows that for basic requirements Suriname ranks better at 79, but worse at efficiency enhancing factors, 124, and innovation factors at 122. According to responses to the survey executed in Suriname the following are the top five pressing problems: (i) inefficient government bureaucracy (19.4% of respondents); (ii) access to financing (9.9%); (iii) inflation (9.7%); (iv) corruption (9.1%); and (v) inadequate supply of infrastructure (7.9%) that ties with poor work ethic in national labor force.

In terms of institutions, Suriname’s WEF survey shows respondents concerns about: protection of minority shareholders’ interests, intellectual property protection, strength of auditing and reporting standards, efficiency of legal framework in challenging regulations and in settling disputes, and transparency of government policy making. Additional shortcomings point to the following problems: (i) in infrastructure the quality of air transport infrastructure; (ii) in macroeconomic stability the on-going prevalence of inflation; (iii) in health and primary education: HIV prevalence, malaria incidence, and business impact of HIV/AIDS; (iv) in higher education and training: the lack of local research and training services, internet access in schools, and extent of staff training; (v) in goods market efficiency: the time required to start a business, business impact of rules on foreign direct investment, and the burden of customs procedures; and

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finally, (vi) in labor market efficiency: hiring and firing practices and cooperation in labor- employer relations.

The WEF Competitiveness report highlights the long list of problems that if resolved would improve the business environment in Suriname. Local stakeholders, most visibly the Chamber of Commerce, advocate for a reduction of red tape—note that the Chamber of Commerce is a public sector institution, fully owned by Government and with salaries paid by the public sector, and the head is appointed by the President. It is also worth noting that not all the private sector stakeholders are supporters of increased competition. Anecdotal evidence indicates that some private sector firms benefit from government’s tight control over the economy and from the cumbersome government procurement system—after all government is the largest buyer in the country. These firms wish to maintain the status quo as it gives them an edge over newer and less experienced firms that also want to win contracts from Government.

The World Bank/International Finance Corporation Doing Business report on Suriname focus on the following topics: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. As such, this report provides a more focused microeconomic view of how easy it is to do business in Suriname. Overall, Suriname is not performing well on this index and compared to the rest of the economies also included in the analysis, the country has dropped 5 spots to rank 158, out of 183 countries, in 2012 from rank 153 in 2011. Figure 9 shows that Suriname ranks only better than Haiti in the region.

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Figure 9: Suriname overall ease of doing business ranking

Source: Ease of Doing Business Report 2012

According to this report, the most difficulties are found in: starting a business (rank 173 out of 183 countries), protecting investors (rank 181), enforcing contracts (rank 178), registering property (rank 170), getting credit (rank 159), resolving insolvency (rank 157), trading across borders (rank 105), and dealing with construction permits (rank 98). In fact, only in two aspects Suriname ranks better than the Latin American and Caribbean: in getting electricity (rank 38) and in paying taxes (rank 34).

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Figure 10: Suriname ten doing business factors

Source: Ease of Doing Business Report 2012

Over time comparing the ease of doing business in 2011 to 2005, the report finds that in general Suriname’s has improved in how easy it is to start a business and in getting electrocity. In all other areas either it has become more difficult, or it has not changed. Figure 11 shows the comparison by presenting the starting point in a yellow dot and the change in a red line. A red line moving up indicates an improvement in that factor in 2011 compared to 2005. The figure also shows that the lower the yellow dot is, the worse the condition of that factor was in 2005. For example, resolving insolvency and protecting investors are, according to the report, the most difficult overall problems for businesses in Suriname.

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Figure 11: Suriname comparison of 2011 to 2005 ease of doing business

Source: Ease of Doing Business Report 2012

Surprisingly for such an open economy, trading across borders is also problematic. The report notes that the number of documents that are required for exporting one container is 8, it takes 25 days to export, and the cost per container is US$995. The number of documents to import a container and the number of days is the same, but the cost of a container when imported increases to US$1,065. Similar information for Trinidad and Tobago indicates that it takes 5 documents, 14 days and US$843 per container to export; and 6 documents, 19 days and US$1,260 to import.

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Figure 12: Suriname ease of trading across borders

Source: Ease of Doing Business Report 2012

Therefore the barriers that prevent private sector development in Suriname may be summarized as those that limit the expansion of private sector businesses, and in particular those barriers that limit the capacity of local firms to sell goods and services beyond the Surinamese market. The domestic market is small and cannot accommodate a large expansion of businesses, while access to Caribbean and European markets would offer an opportunity for growth in sectors in which Surinamese firms may have a comparative or competitive advantage. There are some sectors that may already be developing in the direction of expansion to external markets, such as fisheries taking advantage of Suriname’s tropical climate and abundance of water resources, specialized agricultural goods, and tourism.

According to the Suriname Country Report produced by the World Bank/IFC Enterprise Survey the four largest problems for doing business in Suriname include: inadequately educated workforce, customs and trade regulations, access to finance and corruption.

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Figure 13: Suriname snapshot of the business environment according to the WB/IFC Country Report based on the Enterprise Survey

Source: Suriname Country Profile 2010, World Bank and IFC Enterprise Surveys

vi. Technology and innovation

The WEF Global Competitiveness Report for 2011-2012 presents data that was collected by the Executive Opinion survey that indicates that technology and innovation are lagging compared to other countries with similar development as Suriname. Interestingly Suriname ranks well on Internet users, broadband Internet subscriptions, and Internet bandwidth. Areas that require improvement include: availability of latest technologies, firm-level technology absorption, and FDI and technology transfer—more on this in the next section—see Table 8.

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Table 8: Suriname WEF GCI 9th pillar technological readiness, 2011-2012

Source: World Economic Forum Global Competitiveness Report 2011-2012, data for Suriname

The mining sector offers an opportunity to accelerate technology transfers into Suriname following the example of Trinidad and Tobago. In Trinidad and Tobago the energy sector is experiencing an interesting process of technological spillover from the foreign owned companies to a large number of small and medium domestic companies. The spillovers exist in upstream and downstream activities, and involve high specialization by local firms in some areas related to the gas and oil sector. These companies are expanding and selling their highly specialized services in Africa and the Americas. Suriname can learn from this process and use the mining sector because it involves some of the most advanced multinational corporations that specialize in gold extraction, alumina production, and gas and oil prospection and extraction. An area of future work for private sector stakeholders in Suriname is to build a linked cluster of small and medium sized companies that specialize in providing services to multinational corporations. When building them, gender and diversity criteria to benefit different groups of the economy should be taken into account . As it is now, and as it is presented in this report, the mining sector appears to be an enclave with few linkages to the local economy.

Building linkages to the mining sector by providing highly specialized services to multinational corporations would require a focused effort into facilitating the sophistication of businesses and their capacity to innovate. Table 9 provides the results from the WEF Executive Opinion survey and shows that in general business leaders consider that businesses in Suriname are nor sophisticated as measured by: the development of clusters, willingness to delegate authority, control of international distribution, and the value chain breath. All of these are important issues that need to be addressed by the private sector.

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Table 9: Suriname WEF GCI 11th pillar business sophistication, 2011-2012

Source: World Economic Forum Global Competitiveness Report 2011-2012, data for Suriname

The development of linkages with multinational corporations would also require a special effort from the private sector in strengthening their capacity to innovate. Table 10 shows the results of the WEF Executive Opinion survey and notes that business leaders identify the following factors as most problematic: government procurement of advanced technological products, quality of scientific research institutions, university-industry collaboration in R&D, and company spending on R&D.

Table 10: Suriname WEF GCI 12th pillar innovation, 2011-2012

Source: World Economic Forum Global Competitiveness Report 2011-2012, data for Suriname

vii. Trade and FDI policies

This section is based on a 2003 Foreign Investment Advisory Service (FIAS) Report that was requested by government and financed by the IDB. This is an excellent report that addresses the problem of the business climate in Suriname and focuses on investment and the need for a new investment law that would make it easier for PSD in the country. Although the document is now

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9 years old, most of the analysis and recommendations remain relevant today and should be revised by PSD stakeholders.

The FIAS report provides, such as this SU-PSAR does, an overview of the economic condition of the country and identifies the need for space for PSD and notes the large size of government and government regulations that choke investment opportunities. The report, in this context, focuses on: the reduction of ad hoc government actions in general, the revision of the 2001 Investment Law to level the playing field for investors, and the revision of a law that was designed to create an Investment Promotion Agency, InvestSur. The 2001 investment law was never implemented because in essence it is not a good law, and because government could not agree on the creation of the new investment agency and faced some opposition from the private sector for the general provisions of the law.

The 2001 Investment Law did not provide equal access to investment in the country, had a strong bias against FDI, and focused almost exclusively on the use of ad hoc fiscal incentives for PSD. As such, the law was highly discretional and did not provide guidance for investors about the rules for PSD, it was clear that investors would have to negotiate individually with the authorities every project, such as is the case with the mining sector in which each multinational company individually negotiates different conditions with government for each individual large investment.

In this context, the FIAS report focuses on rewriting the Investment Law, on incorporating within it the creation of an Investment Promotion Agency. These are the highlights of the recommendations of the FIAS report:

But without a doubt, the orientation and objectives of the new investment law and the Law on InvestSur need to be adjusted. In order for it to play an important role in shaping the investment environment so as to be in a position to attract more investment to the country, InvestSur has to change its intended function from incentives administrator to a true Investment Promotion Agency (IPA). The primary focus of this entity should be on policy advocacy and the initiation of policy reforms relevant to investors in order to facilitate the entry of new investment projects.

In Suriname, the initial focus should certainly be on three main issues:

 Developing a legal framework appropriate for modern businesses and investment projects,  A systematic removal of administrative barriers to investment, especially developing a streamlined process of business registration and licensing, and  Reviewing the country’s corporate income tax system to change the high-tax/ discretionary incentive environment to one with an internationally acceptable level of tax burden without discretionary incentives.

In order for this work to be effective, InvestSur would clearly have to work closely with the private sector to ensure that the proposed reforms meet investor needs. Close collaboration with relevant government agencies involved in the proposed reforms is equally important. In taxes, for example, InvestSur would need to involve the Ministry of Finance throughout to develop a

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clear understanding of existing revenue generation needs. The Suriname Business Forum presents itself as an excellent opportunity in these collaboration efforts, and InvestSur could strengthen the ongoing efforts, while benefiting from the existing consultative mechanism.

Important findings from the FIAS report about administrative complexity and discretion include:

 Investors in Suriname face a public administration that heavily interferes with the activities of the private sector.  Registering a company to the Chamber of Commerce is relatively easy as it takes only 2 to 3 days for investors to register their company. However, after registering the company to the Chamber of Commerce investors need to obtain a special industry license to operate the company. Almost all economic activities need to have special industry licenses. Entrepreneurs are always dealing with licenses as it takes two years to obtain a license, valid only for three years. Thus, a soon as the investors obtain his license, he has to restart the procedure for its renewal.  The system is extremely investor unfriendly and encourages corruption.  This means that an investor is never sure of being in compliance with laws and regulations, and always at risk of an inspection.  Investors that want to buy land from a private owner can freely do so, but they must have an authorization to import into the country the foreign currency needed for the purchase. If the land is owned by the State, the transactions are more difficult and corruption seems common according to investor experiences.

With respect to the PSD legal system the FIAS report notes:

 Most of the laws in Suriname are the inheritance of the Dutch legislation and were never updated. The Business Forum estimates that there are some 200 laws that need to be changed. An example is the Company Law, a Dutch Law of 1838, which is the basis for the two-years long process to found a LLC. The LLC have to be authorized by the President of the Republic in the Council of State. In addition, company directors as well as the majority of owners have to be of Surinamese nationality, and most investors get around these requirements by creating a sister company of an existing LLC, which is 100% owned by Surinamese  In addition, new laws seem to be enacted without a clear underlying policy and without consulting the stakeholders involved or the legal community  The government does not seem to pay attention to the international agreements of which Suriname is part (i.e. the Cotonou Agreement (signed in 2001) and the Caricom Agreement, signed in 1995). Following Chapter 7 of the Cotonou Agreement, the Government of Suriname shall implement measures to reduce the commercial risks for investors, i.e., arbitration mechanisms, and take measures and actions, which help to create and maintain a predictable and secure investment climate. Neither an Arbitration Tribunal nor a predictable environment is present in Suriname. The existing Arbitral Tribunal of Suriname has not been active for the last 30 years  The current “2001 Investment Law” does not include any of the usual rights internationally recognized to investments and investors. Among those is the “Minimum Standard of Treatment”, which means that all direct investors will be treated in

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accordance with International Law, including fair and equitable treatment and full protection and security . Foreign investors should also have the right to invest under the same rules that apply to national investors (National Treatment), unless expressly provided by the investment law itself, e.g., the ability to repatriate capital and earnings in the country of origin  Investor cannot even rely on the Judiciary to see their rights recognized because of the slowness and delays in the judicial process. Although the judiciary is generally regarded as fair and impartial, the lack of judges and the general concerns about favoritism and corruption in the public sector decision-making process are problematic

The FIAS report of 2003 triggered follow up support from the IDB to rewrite the investment law according to the recommendations of the report. A new investment law was drafted that provided a clear set of rules that would apply to all private sector investment in the country, including equal rights for FDI. In Suriname the executive branch proposes laws to Parliament, that then approves them or modify them before approval. Because the initiative is on the executive branch, a new law has to be approved by the Cabinet of Ministers, that then submits it for review and approval of the President. Only then, the President would submit a draft law for review and approval of Parliament. Because the process is complex, and requires building consensus among the political parties that form government, negotiations are long and tedious, and minimum disagreements may result, such as is the case for this law, in long delays. Up to April 2012, the new investment law is still waiting approval by the Cabinet of Ministers. This is a priority that requires renewed efforts by PSD stakeholders.

Another recommendation that is still valid and should be implemented is to prepare an analysis of barriers to investment. It is worth noting that FIAS specializes in such an analysis and would be the ideal candidate for its execution. Such an analysis would include:

 Investment approvals/licenses;  Other authorizations (incentives, exemptions, etc.);  Company registration;  Tax and foreign exchange registration and reporting;  Registration with other authorities (statistical offices, social security, labor, etc.);  Visas, work permits, and residence permits;  Local and municipal business license;  Access to land and land titles or long-term leases;  Construction and building permits;  Environmental permits and approvals;  Utility connections (telephone, water, sewerage, electricity, gas, etc.);  Selected sectoral approvals or licenses;  Operational formalities such as import/export, labor, transport, taxes, etc.;  Procedures to initiate a case in court

Finally, the FIAS report presents a detailed proposal for the creation of an Investment Promotion Agency that we do not support. The main reason is that Suriname has already a very complex institutional web that includes many government supported institutions that should be facilitating

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PSD. Because of this, the SU-PSAR suggests that the Business Forum takes the lead in investment promotion and uses some of the recommendations presented in the FIAS report to guide their actions.

viii. Labor regulation

There is scant formal analysis about rigidities in the labor markets. Information collected in April 2012 notes that the “formal” labor market is very rigid, including provisions included in the “Dismissal Decree” that requires a special permit from the Ministry of Labor for the dismissal of any employee. Because of this requirement the private sector has an incentive of maintaining very small companies that employ few people.

The SU-PSAR recommends the preparation of a comprehensive analysis of labor markets to identify reforms that would facilitate PSD.

ix. Infrastructure, communications and energy

The WB/IFC Enterprise Survey provides important information about the supply of electricity, water, and telephone connections. Figure 14 shows the results from the survey related to the provision of electricity. As the survey notes supply of electricity is adequate compared to other results in Latin America. This is somewhat surprising as anecdotal evidence collected during April 2012 indicated a problem with supply in rural areas, that generate electricity using diesel generators. The survey may be picking up results from firms that are located in Paramaribo or Nickerie, but not in other areas of the country. It is also worth noting that the survey does not include firms in agriculture.

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Figure 14: Suriname electricity provision according to the WB/IFC Enterprise Survey

Source: Suriname Country Profile 2010, World Bank and IFC Enterprise Surveys

Figure 15 shows the results from the survey when asked about the provision of water. Compared to electricity water appears to be supplied less reliably, and the number of monthly shortages is higher than other Latin American countries, and the duration of shortages is also higher. This is also a surprising result as we do not have anecdotal evidence about water supply shortages. In fact an emerging industry is bottled water that is sold regionally, Para Springs Mineral Water. This is an issue that also requires additional analysis.

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Figure 15: Suriname water provision according to the WB/IFC Enterprise Survey

Source: Suriname Country Profile 2010, World Bank and IFC Enterprise Surveys

Figure 16 shows the results from the survey about delays in obtaining electricity, water and a telephone line. The information provided by respondents to the survey indicates that delays are more when compared to the Latin American average except for the time it takes to get a telephone land line.

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Figure 16: Infrastructure services delays according to the WB/IFC Enterprise Survey

Source: Suriname Country Profile 2010, World Bank and IFC Enterprise Surveys

The other factors of relevance are land transportation, air transportation and water transportation and ports. Given the size of the country and the difficulties and environmental fragility due to its geographical location, government is actively involved in improving all three types of infrastructure.

The road infrastructure of Suriname may be summarized as follows: there are two main axis: east-west connecting the country with Guyana on the west and French Guyana on the east; and north-south connecting Suriname with Brazil on the south. In general road condition varies greatly, with some sections in good condition and other in very poor condition, moreover, volume of traffic is in general low. The European Union notes that there are about 4,570 kilometers of roads, of which 1,125 are paved.14 In all cases, but especially the east-west roads, government is improving the quality with the active support of the donor community, in particular the European Union, the Government of France, the Government of China, and the IDB. Several sections of the east-west axis are being repaved and improved, in addition to improving connectivity with Guyana, via a bridge, and French Guyana, a ferry system. It is expected that improved connectivity in general would facilitate the development of private sector activities in agriculture. For example, anecdotal evidence collected in April 2012 indicates that the region between Paramaribo and French Guyana had an active agriculture before the civil war

14 Development and cooperation – Europeaid http://ec.europa.eu/europeaid/where/acp/country- cooperation/suriname/suriname_en.htm

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of the late 1980s. One of the main economic consequences of the civil war was the destruction of agricultural production, which never recovered.

Air and water transportation is extremely important for the Interior of Suriname as these are the only way to connect the coastal region with all the towns and villages that exist in the Interior. These towns and villages are the homes of most of the Amerindian and Maroon population. For example Medical Mission, an international NGO, provides medical services to the people of the Interior using almost exclusively air transportation. Small airports throughout the country are used for this purpose. There is no information about investing in the expansion of air or water transportation services to the Interior. Water transportation is provided by the state through a ferry system, which for the most part are very small boats that go into the Interior bringing goods, most importantly gasoline and diesel to be used by electric generators.

Finally, port infrastructure is not good and is in need of upgrading and expansion. The European Union has provided funding in the past for dragging the port of Paramaribo and also for its expansion. Additional information is needed related to government plans for improving port infrastructure in the country.

x. Environment

Suriname assets include a diverse and rich biodiversity in coastal areas and in the Interior. This rich environment is also fragile, and exposed to the risk of informal gold mining. As noted, garimpeiros are active in remote areas of the country and are causing significant, yet localized, damage to soil and water quality. Moreover, their presence also adds health-related risk, due to pollution of water and also to the transmission of STD, especially AIDS, because of the existence of wide prostitution networks.

The issue of the environment is closely linked to the rights of Amerindians and Maroons. The vast majority of Suriname’s mineral and forest resources are located in “the Interior” (or hinterland), which also boasts high biological diversity and potential for tourism. The Interior, however, is also the home of Indigenous peoples and Maroons who, for centuries, have almost exclusively occupied and used the forests, savannahs, rivers and creeks. While they speak their own languages and have their own culture and history, Indigenous peoples and Maroons are not simply ethnic groups; in terms of governance two important circumstances set them apart.

First, Indigenous peoples and Maroons have their own traditional governance systems. These traditional governments provide structure for the community and regulate access to resources. They are to some extent recognized by government as traditional authorities. They receive monthly stipends from the central government and are officially installed after being appointed by their communities. Legally, however, traditional governments are not mentioned in the Constitution or in any other Surinamese law or statute.

Secondly, Indigenous peoples and Maroons are recognized under international law as having a right to self-government and the right to own and control their traditional lands and resources in accordance with their own customs and traditions. This was confirmed in a recent judgment of the Inter-American Court of Human Rights (the Saramaka People vs Suriname case, 2007). The

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Court ordered Suriname to adopt legislation to recognize the traditional authorities and the ownership of the traditional territories and resources, it also issued specific orders with regard to resource exploitation in Indigenous and tribal areas. These included the adoption of minimum principles for consultation and consent, as well as requiring benefit sharing agreements and environmental and social impact studies carried out before the resource development. The Venetiaan government acceded to the jurisdiction of the Court and indicated that it would comply fully with the Court’s order, however this part of the judgment is still awaiting implementation.

Recently news reports published in Paramaribo indicate that the Association of Saramaccaanse Gezagsdragers (VSG) drafted a map demarcating approximately 9,000 km2 of what they consider their territory for purposes of autonomy. This, and other similar actions, would have significant impact on the development of the Interior and the rights for mining or development of tourism.

Unfortunately Suriname does not have readily available data to present a more detailed analysis of PSD and the environment—the Yale University Environmental Performance Index does not include Suriname, and the 2011 WEF Travel and Tourism Report does not cover Suriname.

In spite of the lack of information, the SU-PSAR identifies that the single most important source of risk to the environment is related to informal mining. The SU-PSAR recommends the preparation of a report focused on PSD and the environment with recommendations to maintain the bio diversity of Suriname, and to provide a framework for respecting rights of Amerindians and Maroons.

xi. Gender

Important efforts have been undertaken by the Government of Suriname to mainstream gender, however information disaggregated by gender on entrepreneurship in Suriname is scarce.15 Some information is available on labor market participation, sector segregation and female unemployment.

This issue is important and has been recognized in the Multi-Annual Development Plan (MOP) 2006-2011 presents gender as a crosscutting issue which concerns all sectors. It states that reaching a fair and just society requires including gender analyses in all policy programs, projects and plans. Additionally, one of the MOP strategies for poverty alleviation consists in increasing the economic and physical independence of women. Moreover, gender focal points at the various Ministries (the Gender Management System) assist in this matter while the National Bureau on Gender Policy (NBG) is responsible for the execution of gender policy.

In spite of Government efforts, Suriname is rated by the Gender Gap Index (GGI) 102 out of 134 countries and it is the ranked last among 7 Caribbean Countries, indicating that significant differences exist in opportunities. The Gender Development Index (GDI), however, notes the high development level of Suriname even after gender differences have been discuounted from

15 The NBG is working on the development of a Gender Database System (GDS), using the software programe DevInfo. Three staff members have been trained in working with DevInfo by the Bureau of Statistics (ABS).

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the human development index, and rates Suriname number 72 out of 157 countries and third 16 Caribbean Country only behind Trinidad and Tobago and Barbados.

On the specific subject of women’s employment and economic opportunities, it is known that even thought women participation in the labor market has been increasing importantly, men still constitute about 60% of the labour force. Also there is available data that shows that the majority of the workforce is comprise of employees (80.7%.), of which 77.8 are male and 86.8% are female. The rest are employers and own account workers, 0.64% and 15.7% respectively. In both case the majority (0.8% and 18.7%) are male and only 0.2% and 9.3% are female.

The largest share of employed persons is in the age group 25/54 years. The figures show that a much larger number of men (78.625) than women (48,052) have an occupation. The age category 15/24 years counts 17,085 employed persons, 25.6% of these people are women and 74,4% is a man. This figure is consistent with the finding that girls and women are more likely than men to continue education.

In the age group 25-64 year of the active population, 35%-40% of the women are formally employed. For men this figure lies around 60%. Informal labor offers many women a household income or a necessary financial addition to a regular wage. Working in the informal sector is attractive because of the flexible hours and possibility to work (partly) from the home, which facilitate combining this form of labor with the care for children and household chores. Additionally, a significant share of households is female-headed. In 2008, a woman was the head of one third of households (32.9%, N=29,058).

Unemployment is considerable larger for women than for men. In 2008, 13,082 persons were formally unemployed. Of this number, 71% were female and 29% were male. For adolescents in the age category 15-24, the total number of unemployed persons was 4859. Of this number, 61.2 percent were female and 38.8 percent were male. In order to combat unemployment, the government has initiated various projects including: the project Social Investment Fund (SIF); Project vocational education for women; Projects to increase the economic participation and resilience of women; and credit programs for entrepreneurs. In 2009 the Labour Market program started.

As per sectors, women are overrepresented in education, public administration, services and hotel and restaurants, and as services workers, technicians and associate professionals, legislators, senior officials and managers. Women are employed in administrative functions and in lower service and commercial occupations. They are underrepresented in the technical sector, where only 89 out of 9785 persons who find employ in this sector are female. Many women (10,074) have an administrative job. In this sector only 4,056 men are active. In addition, many

16 The Gender Gap Index (GGI), World Economic Forum index, measures the gap between men and women in economic participation and opportunity, educational attainment, health and survival and political empowerment in a total of 14 different variables and a total of 134 countries. The Gender Development Index (GDI), the UNDP index it is basically the Human Development Index discounted for gender inequality in life expectancy, education and estimated earned income. It focuses on extension of capabilities for 157 countries.

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women have scientific occupations. More women (6545) than men (3111) have jobs in the field of science. These data are in line with the graduation results of the Anton de Kom University, which show that more women than men obtain scientific degrees.

According to the 3rd CEDAW report, in the private sector men fill the majority of top positions and among the higher and middle level technicians and professionals. In comparison to men, women are less likely to have leadership positions or work as higher and middle-level professionals.

The only additional data that was found providing information related to business ownership by gender is provided by the WB/IFC Enterprise Survey. Figure 17 shows that the sample for Suriname suggest the fewer women own or participate in ownership of businesses when Suriname is compared to Latin America. This is an issue that is also highlight, although without the support of data, by the Heemskerk and Apapoe gender report on Suriname.

Figure 17: Suriname females in management and ownership according to the WB/IFC Enterprise Survey

Source: Suriname Country Profile 2010, World Bank and IFC Enterprise Surveys

The above data indicates that lack of professional expertise, informality, segregation by sector and occupation, and family responsibilities are likely barriers for women to become entrepreneurs. Others barriers present in Suriname and related to the business environment difficulties and lack of credit and services will, according to the literature, disproportionately affect women. Therefore, to improve the effectiveness of the private sector, additional efforts and

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resources should be allocate to assess, study and analyze, and open opportunities to women in business or with the potential to open their own businesses.

3) Chapter II: Selecting and prioritizing issues

This section presents the priority PSD issues which have been identified throughout this report and the SU-DMX annex, and a proposal for a PSD plan to be implemented in the short-term that would re-energized several PSD processes that are currently in preparation and in execution in Suriname.

It is important to clarify that the set of priorities and the proposal for a PSD plan are preliminary suggestions that will be validated in November in Paramaribo by stakeholders. As noted in the SU-DMX, there are many important stakeholders very active in facilitating PSD in Suriname, and the Suriname Business Forum is strategically located to represent most, if not all, of PSD stakeholders in the country. Therefore, the Business Forum would play a central role in validating the priorities presented in this report, and the suggested work program. In addition to the Business Forum, the SU-DMX identifies the PSD supporting role of the office of the Vice Presidency, therefore, this report also suggests that this office plays a central role in the validation of priorities and the suggested work program. It is expected that significant comments and suggestions would be provided by representatives of the Business Forum and the office of the Vice Presidency, which would be incorporated in the final version of this SU-PSAR. It is also worth clarifying that this report, now and after validation, should reflect a process and therefore should be updated as often as stakeholders consider necessary.

In this context the SU-PSAR identifies the overarching PSD objective to open space for private sector expansion in all sectors of the economy. As noted in this report, the detail and number of possible priorities is very large. The priorities presented here reflect an effort to select only those that at the same time have high value added, may be implemented in the near term, and their implementation does not face possible large political opposition.

The priorities are presented clustered around the following issues: (i) those that are related to PSD coordination that were identified in the SU-DMX; (ii) those that are related to improving the business climate; (iii) those that are related to opening space for private sector participation in the economy; and (iv) those related to the design of a policy that would increase the participation of domestic companies providing goods and services to the mining sector.

a) Priority PSD issues—improving PSD coordination Table 11: Suriname priorities for PSD coordination

Technical Political Issue Responsibility for leadership difficulties friction Medium— Suriname Business Forum— requires building

Inadequate follow up of PSD projects, and poor build a single system to monitor the capacity to Low monitoring and evaluation systems all PSD indicators with links to collect and PSD projects analyze primary data Public servants representing government in PSD Office of the Vice Presidency— None Medium

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institutions, especially the Business Forum, list of actions and responsibility need to become active champions for PSD assigned reform in their respective Ministries The Suriname Business Forum is ideally situated to play the role to coordinate reforms

necessary to facilitate private sector development. The most relevant tasks in the Suriname Business Forum None Medium short-run for the institution are: (i) ensure its

financial sustainability; and (ii) define a small number of priority activities for private sector development Suriname Business Forum & PSD projects are too many, too small, and there Office of the Vice Presidency is duplication of efforts. To make programs bigger than they are now, the donor community create a “one-stop PSD donor None High coordination window”— and stakeholders need to coordinate better and formally taking the leadership prepare jointly financed projects in PSD donor coordination More private, less public. PSD initiatives should be sponsored and led by private sector Office of the Vice Presidency None High stakeholders and less by public sector actors Source: author analysis and recommendation

b) Priority PSD issues—improving the business climate Table 12: Suriname priorities for improving the business climate Issue Responsibility for leadership Technical difficulties Political friction Medium—requires Access to finance: identify banking expertise in opportunities for adding Suriname Business Forum preparing an assessment None financial services of current services and

options Medium— requires reviewing very Access to finance: continue None—the old loans in arrears and improving credit ratings from government already Office of the Vice Presidency negotiating resolution Ficht, Moody’s and Standard has agreed to resolve with debtors & Poor’s this problem

Re start the process to Medium—requires support from the approve a new investment Office of the Vice Presidency None Cabinet of Ministers law and the President Improving property rights— property registration, Suriname Business Forum High Medium resolution of conflict, enforcing contracts Lower transaction costs for international trade—exports Office of the Vice Presidency Medium Medium and imports, customs and port and airport infrastructure Suriname Business Forum— High—public unions Improving labor market prepare an assessment and Medium may oppose this efficiency identify quick wins to make initiative the labor market more flexible Source: author analysis and recommendation

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c) Priority PSD issues—opening space for private sector participation Table 13: Suriname priorities for opening space for private sector expansion Issue Responsibility for leadership Technical difficulties Political friction Focus on innovation and Suriname Business Forum— facilitating research and learn from other relevant None None development—design a experiences policy/approach Suriname Business Forum— Focus on accelerating trade complete review of expansion and regional Medium None opportunities for accelerate integration trade and regional integration Public sector reform— Medium—requires procurement system that specialized review of Office of the Vice Presidency Medium facilitates participation of small procurement and medium enterprises processes Public sector reform— Medium—requires privatization of public Office of the Vice Presidency specialized due High enterprises diligence Reliable infrastructure—focus High due to the cost on roads to expand the of investing in roads Office of the Vice Presidency Medium agriculture horizon; focus on and the port of ports Paramaribo Source: author analysis and recommendation

d) Priority PSD issues—increase participation of domestic companies in the mining sector Table 14: Suriname priorities for increasing participation of domestic companies in the mining sector

Responsibility for Issue Technical difficulties Political friction leadership Office of the Vice Building linkages between Presidency and Suriname the domestic private sector Business Forum—bring Medium None and the mining sector the mining sector into the Forum Identifying opportunities

for agglomeration and Medium—requires specialization, including Suriname Business Forum None specialized analysis

cluster and related value chains Skills development High—takes time to focused on the mining Suriname Business develop programs and sector—Staatsoile and Forum—coordination of train specialist, need to None ADEK have started, need efforts identify highly paid, to strengthen highly demanded skills Source: author analysis and recommendation

e) Action plan

The proposed action plan is summarized in Figure 18. The recommendations presented in this report will be discussed in Paramaribo in November 2012 with the Suriname Business Forum and staff of the office of the Vice President. Ownership of the process fully rests on

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stakeholders, therefore during the visit we expect to accomplish the full definition of the second stage of the process as defined in the figure. It is also important to note that, in addition to the definition of priorities, we expect that stakeholders will also agree on a plan to prioritize filling in data and information gaps. As it is noted in this report, there are many data gaps that need to be filled with primary data collection. The donor community may play an important role in funding some the collection an analysis of data.

Figure 18: Suriname suggested framework to achieve reforms

Source: Guide for Private Sector Assessment Report (PSAR) in the Caribbean Countries. Version 1.2. InterAmerican Development Bank, 2011

4) Follow-up, monitoring and evaluation

The PSAR/DMX includes the definition and creation of databases for future monitoring and evaluation of results of both instruments. These instruments are powerful tools for the selection of priority interventions to support PSD, as well as for the coordination of ongoing and future programs and projects. Of particular interest is to be able to determine savings related to improved coordination when donors jointly focus their work programs, and on results related to more focused and larger PSD interventions. As already noted in the introduction, the DMX guidelines note: “The contrast between what is currently being supported by the donor community identified in the DMX, and what should be supported identified in the PSAR, is an important input for the definition of PSD programs and projects, and for improved coordination between government, stakeholders and the donor community.”

Therefore, the final report will include a selection of baseline indicators for future PSAR/DMX monitoring of results as they relate to coordination and focus of PSD initiatives. Table 15 and Table 16 provide lists of indicators to use in the final PSAR/DMX report.

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Table 15: DMX monitoring indicators

Purpose of the DMX Indicator Output Outcome

Number of programs and projects X

Provide an inventory of programs and projects % of complete information about programs and projects in the DMX Database relative to the total number of X programs and projects Facilitate access for stakeholders and Website usage metrics (among others number of visits, representatives of the donor community to the X inventory of programs and projects queries, frequency of updates, repeat visits)

Classify programs and projects according to the PSAR guide Number of programs and projects classified X

Number and amount of programs and projects that X duplicate or overlap initiatives Identify duplication and overlapping initiatives to Number and amount of programs and projects that have improve efficient private sector support by the X donor community been merged/consolidated Number and amount of new multi-donor efforts in areas X in which duplication or overlapping had been identified

Number and amount of new programs and projects that Identify omissions and gaps in donor supported have been identified as omissions and gaps in the DMX X programs that need to be filled to accelerate report private sector development Number and amount of new multi-donor efforts in areas X identified as omissions and gaps in the DMX report

Table 16: PSAR monitoring indicators

Purpose of the PSAR Indicator Output Outcome

General macroeconomic indicators, such as total and private sector real growth, inflation, total and private sector X employment, private sector exports as a percentage of total exports

Overall characteristics of the economy in Competitiveness indicators as presented in the World Economic relation to PSD Forum Global Competitiveness Index and the World Bank Ease X of Doing Business Reports

Collect primary data on businesses that provide goods and services to multinational corporations in the energy sector— X sales, exports, number of employees

Short selection of PSD priority areas that merit support from the Identification of PSD priorities donor community X

Increased focus on PSD support from the Average size and number of programs and projects X donor community

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Number and amount of programs and projects that duplicate or X overlap initiatives Identify duplication and overlapping Number and amount of programs and projects that have been initiatives to improve efficient private X sector support by the donor community merged/consolidated Number and amount of new multi-donor efforts in areas in X which duplication or overlapping had been identified Number and amount of new programs and projects that have X Identify omissions and gaps in donor been identified as omissions and gaps in the DMX report supported programs that need to be filled to accelerate private sector development Number and amount of new multi-donor efforts in areas X identified as omissions and gaps in the DMX report

It is worth noting that the complementarities between the PSAR and DMX are reflected in the fact that both instruments use the same baselines for monitoring and evaluation when measuring their impact on reducing duplication and overlapping, and also in the identification of omissions and gaps in donor support. An issue that may need to be considered in the future design and execution of PSD programs is how to resolve the problem of attribution. In general it is very difficult to assess the impact of a project on overall outcomes because it is extremely difficult to map out the transmission mechanism from inputs to outputs, and from there to outcomes. An option to consider is the use of randomized controlled trials to test alternative program design before expansion to the full set of participants. Although this is a popular option in the development literature, there are significant problems with the design of these trials, and to the cost, including the opportunity cost, of phasing support in priority areas. This issue goes beyond the purpose of the PSAR/DMX exercise and should be addressed in the context of programming future PSD support in Suriname.

5) Chapter III: Conclusions and recommendations

This Suriname Private Sector Assessment Report (SU-PSAR) presented an overall assessment of private sector development (PSD) and recommendations for facilitating and accelerating private investment and growth. This is a draft report, and the preliminary recommendations presented here will be discussed with stakeholders in Paramaribo in November 2012. Priorities, as defined by stakeholders, as well as an action plan for the execution of short-term initiatives, would be incorporated into the final report along with a plan to prioritize filling in data and information gaps.

It is important to clarify that important PSD initiatives are currently supported by stakeholders in Suriname. The objective of this report is to respectfully contribute to the process to accelerate growth and development in Suriname, not to compete or upstage any existing PSD effort. The intention of this report is to provide stakeholders with a complementary and comprehensive review of programs, alternatives, and options, including a preliminary proposal for priority interventions and an action plan. If this report is to succeed in re energizing PSD support in Suriname, it is because stakeholders take ownership of the action plan and agree on the way forward. Therefore, this first draft is intended to energize the process and facilitate dialogue with PSD stakeholders, and as a result to agree on a common approach to stimulate growth.

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Hopefully it will also secure interest and funding from the donor community for some of the proposals that would result from the process.

The common thread of this report and its recommendations, and the overarching PSD goal in Suriname as presented in this report, is to gradually open space for the expansion of private sector activities. Because of the small size of the economy and its relative isolation, the expansion of the private sector activities would require to gradually replace public enterprises with private enterprises, and a special emphasis on export promotion and regional integration.

To gradually opening space for private sector development is not easy and would require the design and implementation of coordinated actions in many different areas.

Recommendations in addition to those already presented in this report include those with emphasis on the environment and indigenous peoples.

Environment and Indigenous Peoples. The SU-PSAR recommends the preparation of a report focused on PSD and the environment with recommendations to maintain the bio diversity of Suriname, and to provide a framework for respecting rights of Amerindians and Maroons.

Data and information gaps Suriname would benefit from filling in the following information gaps, disaggregated by gender whenever possible:

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Annex 1: Sources of information used in this report

FIAS 2003. Review of the InvesSur Initiative to strengthen Suriname’s Investment Climate. Foreign Investment Advisory Service, a joint a joint service of the International Finance Corporation and The World Bank.

International Monetary Fund, 2011. 2011 Article IV Consultation, Staff Report.

U.S. Commercial Service, 2012. Doing Business in Suriname: 2012 Country Commercial Guide for U.S. Companies.

World Bank/International Finance Corporation, 2012. Doing Business, Suriname Country Report.

World Bank/International Finance Corporation Enterprise Survey 2010, Suriname Country Profile. The survey was executed to 152 private sector firms excluding agriculture—66 were small with less than 20m employees, 77 were medium size with 20-99 employees, and 9 were considered large with more than 100 employees; 75 firms were active in manufacturing, 26 in retail, 51 in other services. Importantly the “Enterprise Survey and Indicator Surveys, Sampling Methodology” from August 2009 provides important information about the sampling methodology, the number of surveys executed, and the stratification strategy.

World Economic Forum Global Competitiveness Report 2011-2012. The Global Competitiveness Report 2011–2012 is published by the World Economic Forum within the framework of the Centre for Global Competitiveness and Performance

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Annex 2: Suriname Donor Matrix Report (SU-DMX)