The Economy: Guyana’s Economic Performance for 2017: what caused gold to under-perform?

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Earlier this month, the Ministry of Finance revealed to the press, some insights into the performance of the economy for 2017. To this end, Guyana recorded a deteriorated economic growth of 2.1% for 2017 when compared to the previous year. According to the Minister of Finance, he said that rice did quite well, producing 630,000 tonnes, while sugar and bauxite did not do well. He further posited that gold was a major disappointment with just over 653,000 ounces being declared (News Source, April 13, 2018). The Guyana Gold Board, however, cited reasons of poor roads and inclement weather for the decline in gold production. It was further mentioned that the Government budgeted some $1.5 billion for hinterland roads including those that lead to mining areas for this year.

Gold Production

  2014 2015 2016 2017
Gold Production (oz) 387,506 451,058 712,706 653,754
US$ Millions 469.8 501.1 830.7

Source: Extracted from Bank of Guyana Annual Report, 2016. Trend in the World Market price for gold in the last ten years, extracted from NASDAQ

The data above illustrates that gold production has increased rather steadily for the period 2014 – 2016 by 83.9 percent in 2016 from 2014 and 16.4 % from 2014 to 2015. Production increased by a massive 58 % or 259,648 ounces in 2016 when compared to the previous year, 2015. This development back in 2016 triggered a phenomenal level of excitement by the Government and other stakeholders, and of course, being one of the most stable and important sectors, contributing to the economy’s macroeconomic stability and fiscal stability, was a good indictor to the nation as a whole. It should be noted too that gold accounted for the largest foreign exchange earner compared to the other export commodities, for many years, bringing in US$830 million in 2016. This is despite the not so attractive world market price for gold which is currently at US$1,336 per ounce. This is nonetheless a decent and profitable level but when compared to the period prior to 2013 when the world market price fell significantly, gold price reached a high of just over US$1,800 per ounce back in 2011/2012. The price is thus only now picking up its upward momentum and it is very likely to surpass or reach a high of US$1,500 – US$1,800 within the next five years or so. Gold will always be regarded as a precious metal carrying high values despite fluctuations in prices which is quite natural, driven by market forces that is, the demand and supply dynamics.

In essence, it is very unlikely that gold price will ever crash as is more likely to occur with the global crude market – the oil market will inevitably crash one day, perhaps within the next two decades or even sooner (an argument put forward in previous writings by this author), and such an event, will mark the demise of the global oil industry, and ultimately Guyana’s oil industry as well.

That being said, it is not surprising that in 2017, gold production failed to meet target, registering a shortfall of 58,952 ounces when compared to actual production in 2016. While it is noted that the Gold Board sought to justify this shortfall by poor roads and the inclement weather, this is not something that is relatively new. In fact, this is always a challenge in general with gold mining operations so it is unlikely that this is the main reason for the shortfall. As such, from a little deeper investigation, it was found that back in 2016 when the Minister Finance presented the 2017 national budget in parliament, the Guyana Gold and Diamond Miners Association (GGDMA) was apparently not happy with the provisions made therein that would have had direct impact on gold miners. There was in fact a press release by the GGDMA which highlighted the following concerns arising as a direct impact of the 2017 budget for gold miners, especially small and medium scale:

  • The main concerns related to the new tax regulations instituted in 2017, where the Association was requesting that there be a reduction of the 40 % on the chargeable income for miners. With regard to the off-the-top payment of 5 % royalty to the GGMC along with the 2 % upfront withholding tax, the Association felt that a provision could have been made for a lower tax rate for miners and/or alternatively a sliding scale against the US dollar off the top.
  • The GGDMA requested that tributors be able to benefit from this threshold provision at the time that they are paid, where a provision can be made by the operation owner to deduct the 20 % Tributors tax after the person has earned in excess of $60,000 on a monthly basis. This would have allowed the tributors to immediately start to benefit from this provision.

These were just some of the main concerns as highlighted by the GGDMA. Overall, the GGDMA, unhesitatingly, expressed their deep frustration by the tax regulations among other regulatory impositions administered by the Guyana Geology and Mines Commission, inter alia, the 2017 national budget. Readers can access the full press release here: http://www.inewsguyana.com/ggdma-2017-budget-has-no-good-news-for-miners/.

Putting things into context, it would thus appear that these provisions and challenges highlighted by the GGDMA, indeed strongly correlates to the underperformance of the gold sector and not necessarily the inclement weather and bad roads. Roads are, however an important element in order to aid the further growth and higher performance of the gold industry by opening up the accessibility to more gold mining lands. To this end, the Government should make a concerted effort to work with the GGDMA to address the Association’s concerns and by extension, the small and medium scale miners especially, if they haven’t already done so. This should be of vital importance to all the stakeholders involved especially since it is an acknowledged fact that the small and medium scale miners combined, account for a larger proportion of total gold production that are declared annually.

*The author of this column is the holder of a Master of Science Degree from a UK university in Business Management, with specialism in Global Finance and Financial Markets.

 

 

 

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