Source: Budget Speeches 2000-2005
1999 to 2004, the declaration of diamonds to the authorities has climbed
from 46,668 carats to 425,000 carats in 2004 - a staggering 810% increase
over the five-year period. By contrast gold declarations have fallen from
454,485 ounces to 362,798 ounces due largely to the falling production of
Omai Gold Mines Limited whose Essequibo operations are winding down as the
mine reaches exhaustion stage.
reasons offered for the diamond explosion are all purely speculative, with
no supporting or even empirical evidence. Diamonds are a cause of major
international concern associated as they are with wars, rape, death and
juvenile soldiers in parts of Africa. But before looking at whether the
Guyana declarations should be celebrated or suspected, let us look at the
more plausible reasons given for the increase.
that the increase is not due to production increases as the Minister of
Finance seems to think, but to a more honest reporting system. It would be
great to know that our diamond producers have become so honest, moral and
patriotic or loyal that they would volunteer to pay taxes which might
otherwise be fairly easy to escape. Apart from moral fervour, has there been
any development that would cause the change? There has been no change in the
rules regarding foreign exchange within the period. There has been no change
in the tax rates during the period. The tax system remains the same both for
the individual who pays 2% of the value placed on his declaration while the
corporate entity pays Corporation Tax at 35% of the net income. There has
been no new incentive during the period. In other words, there is no
rational explanation why diamond operators would suddenly become more
transparent in their declaration.
boys from Brazil
are two explanations offered involving the Brazilians. One is that they are
simply operating this country's resources more productively and successfully
than their willing or unwilling hosts. Brazilians certainly seem more
experienced and aggressive in their exploitation of resources, whether their
own as in the case of the Amazon, or other people's as in the case of
forestry and diamonds in Guyana. Yet it is hard to accept that the gap is
that wide. Is it that there are that many more Brazilians operating in
Guyana than five years ago? Does the number of work permits issued by the
government support that theory or do these people operate illegally for work
permit purposes but legally for taxation purposes?
other theory is that the diamonds are produced in Brazil but declared in
Guyana since the system is more favourable here than there. There is nothing
to suggest that there has been a significant change in the fiscal regime
there that would make Brazil disadvantaged comparatively, and with
non-disclosure always an option this explanation is hard to take seriously.
budget speech in 2003, the Minister of Finance attributed a 34.8% increase
in 2002 production "to higher prices, the impact of new technology and
foreign direct investment in the industry." But we have also had substantial
increases in the price of gold in the same period without any similar
increases in the non-Omai gold production. Given that the diamond fields are
hard to access other than by air, why is the production not corroborated by
increased air traffic? Indeed our air service operators are reporting just
the opposite - falling traffic.
the reasons offered seems quite convincing and leads to a further theory
which should cause real concern if it contains a grain of truth. And that is
that diamonds are being laundered in Guyana to circumvent the Kimberley
Agreement - devised from 2000 to address the serious trafficking in what are
called 'blood diamonds' coming out of a number of war-torn African
countries. A Canadian NGO - Campaign to Eliminate Conflict Diamonds - has
estimated that 500,000 civilians lost their lives during the nineties in
what are called the diamond wars of Angola, Sierra Leone, and the Democratic
Republic of Congo.
result of the work of the United Nations, governments and international
NGOs, the UN Security Council has adopted measures whereby the diamonds
coming out of Sierra Leone and Angola must be accompanied by a government
certificate of origin. There is, however, evidence of massive laundering of
diamonds through a host of countries whose diamond exports far exceed their
production capacity. Indeed some countries with virtually no known diamonds
of their own are exporters to the world diamond trading centres, while other
countries which do have diamonds export quantities considerably in excess of
their production capacities. The only logical explanation is that those
'blood diamonds' are being laundered and enter the international trading
system as a woman's best friend.
question is whether Guyana has fallen victim to this international scam. I
have been approached professionally on a number of occasions by traders from
India, Holland, Belgium, USA etc, seeking advice on the establishment of
businesses here to buy diamonds in Guyana for export. It is always
fascinating to observe their reaction to recommendations on the records they
need to keep, the statutory obligation for an audit and other regulatory
requirements. Almost without exception we never hear from them again.
jury is out
this prove that Guyana is a victim of the international trade in conflict
diamonds? We may not be, but the earlier graph suggests that the substantial
increase in diamond declaration coincided with the implementation of the
Kimberley Agreement. It would seem that we have an international obligation
to find out. Whether that obligation will make us any more determined to do
so, however, is another matter. Did we take the obvious steps to curb drug
trafficking after Guyana was identified as a major drug route or is Guyana
now itself becoming more than a laundry and is it now a destination for drug
money? And how many times must the government be reminded that the non-bank
cambios have outlived their usefulness and they now pose a threat to the
economy? Not a single person has yet been convicted of money-laundering
despite the empirical evidence which abounds.
an obligation that goes beyond revenue considerations. We need to be careful
on the work permits and mining licences we issue and the Guyana Geology and
Mines Commission needs to establish systems that allow it to determine the
reasonableness of the declarations. It is not sufficient to subscribe to the
Kimberley Agreement, we must support the efforts to improve it. We must not
become a party to another death, rape or mutilation or a proxy party to an
government has made a complete about-face on Barama which will see our
forest resources go the way of those of Asia where over-exploitation has led
to the virtual disappearance of that region's forests. The Minister reported
that round-logs exports during 2004 increased by 42 per cent, and it is
widely believed that this is almost entirely attributable to Barama.
Minister of Finance reports in his 2005 speech that a promised US$35M
investment in a sawmilling complex in Buck Hall, Essequibo will "add value
to the company's operations" but where is the added-value to this country?
He believes that the proposed investment will create 500 hundred jobs each
costing $14M - a belief that few other Guyanese share. We cannot develop if
we derive no added value from our natural resources, the exploitation of
which is facilitated by more and more concessions by a government that then
invites a non-Guyanese body to "begin a study of the economic costs and
benefits of tax exemptions"! The government does not need to go far - it can
start by reading the Auditor General's Report for 2003.
President has defended the 2005 budget by claiming that critics have missed
the point. While that may be so, Ram & McRae stands by its criticism that
the budget lacks ideas, imagination or even a single measure. The evidence
is there that the government was unable to come up with a single idea that
it could include as a budget measure. Ram & McRae considers itself in good
company with business and workers' representatives and indeed the rest of
the country in "missing the point."
be fascinating to witness the debate on the budget which begins tomorrow
when every MP becomes a financial and economics expert.