Losing Ground
September 2006 | By Rawle Lucas
Building wealth does not seem to be a top priority of Guyanese living in Guyana or, if it is, they do not seem to be demonstrating it very well. Maybe my observation is incorrect but I am not saying this to be flippant or to chide anyone. It is just that what I see from the information at hand makes me conclude that building wealth is not on most people's mind. Nor does it seem to be part of the government's policy. But I do not hold the government responsible for what individuals ought to be doing personally. After all, if the government is not acting in the interest of the people, Guyanese have the opportunity to elect officials who would help them build the type of future they want. That is a personal decision.
Building wealth is better pursued in the private sector and can be done in several ways. It can be done through investment in various types of securities, including company shares, treasury bills and mutual funds. There is no choice among mutual funds since only one mutual fund is known to be in existence in Guyana. The stock market is another story and does not seem to present real opportunities for Guyanese to invest with confidence. Financial reports of some listed companies are hard to obtain and information about the financial performance of other companies is based on outdated reports. Apart from indirect ownership through the stock market, wealth can be built through personal ownership of a successful business. The rate of private investment, though, has steadily declined from an annual average of 6 percent between 1994 and 1998 to less than 1 percent in the past four years. The downward trend in private investment is perhaps indicative of the lack of confidence in the present investment climate in Guyana. Investment in real estate can produce significant capital gains that add to the wealth of individuals. Working people in Guyana have the opportunity to save in the National Insurance scheme and pension programs of employers. Though, I am yet to meet someone who worked and retired in Guyana and lives well on such retirement income.
Limited Options
In the absence of a wide array of investment options, the opportunities for building wealth have been reduced to saving money with the commercial banks. Based on Bank of Guyana data, it would appear that most Guyanese seem to think that saving money with the commercial banks was their best and most effective option. In its annual report of 2004, the Bank of Guyana reported that deposits in savings accounts held at financial institutions have been growing rapidly. Calculations show that the rate of growth in deposits averaged about 11 percent per annum between 1994 and 2004. According to the Bank of Guyana, total deposits with the commercial banks had risen from G$40 billion in 1994 to exceed G$124 billion in 2004. With such sustained growth, savings and time deposits continued to make up about 70 percent of the money supply in the country during the 10-year period. The sustained growth in deposits and the size of deposits sitting in the banks suggest that people believe that there is some personal benefit to putting their money there.
The sad reality of this practice is that it is not helping to build wealth. Almost all savings are on a short-term basis. With interest rates on savings accounts as low as they are, currently at 3.29 percent, depositors will have to wait over 21 years, if they could, before their money doubles in value. The interest that depositors receive is taxed at no less than 15 percent leaving them with an effective rate of interest of 2.8 percent. This means that depositors get less than three cents for every dollar that they put into a savings account. Under such circumstances, the time that it will take for money to double extends to about 26 years. Time is one of the best allies in an attempt to build wealth but such low returns would not help the individual who has used up most of his or her working life and is hoping to retire in comfort on bank savings.
Even with time on their side, matters seem to get worse for Guyanese seeking to make their golden years comfortable when inflation is taken into account. The Bank of Guyana has reported that the consumer price index increased about 8.4 percent between June 2005 and June of this year. With that level of price increase, it means that a G$1 put in the bank at the beginning of the year is really worth 92 cents by the end of the year. When we include the interest of 2.9 cents on every dollar, all the sacrifice individuals make by saving their money add up to about 95 cents. By saving money in the commercial banks, the money of individuals is losing ground instead of gaining value. This outcome is not the kind of financial situation that helps individuals to improve their lives. Better investment options need to be put on the table so that Guyanese can be better placed to take charge of their own lives. A good place to start is the stock market where greater transparency and better financial reporting by participating companies are needed.
Permission required © 2006 Rawle Lucas