Value-added products less competitive since VAT changes

- Barama

As Barama Company Limited (BCL) continues to scale down its operations and focus on its value-added factory, General Manager Mohindra Chand said the company was still in talks with government about solutions to make the value-added sector more viable.

Speaking to Stabroek News last week, Chand said, “We are still in discussions and nothing has been finalized. The priority right now is to get the factory operational and we are still working on that.”

He explained that at the moment, the company has interim production arrangements in place to ensure that the factory at Land of Canaan, East Bank Demerara, continues to work.

“The full line of production is not ready but we have an interim plan, so that we can continue supplying the market. We are expecting to engage with the GFC [Guyana Forestry Commission] Board before the end of the month to share and update them and discuss whether support can be given,” he said, while highlighting, that there was still no fully-fleshed-out programme to deal with possible incentives for the industry.

“The very last piece of engagement was where we submitted an operational plan for this year.

So we made that submission and they have since accepted the plan, and so it is just about more or less about updating them [the government] on the process,” he said. Chand explained that the second priority is to ensure a steady supply of logs, since the company is no longer into logging.

He also explained that apart from the possibility of new incentives being introduced in the sector, the company is extremely concerned about VAT on finished products such as plywood.

“That is the main concern and the most burning issue for us and it’s not only Barama, but the entire forest industry,” he said, while pointing out that prior to changes in VAT, which came into effect in February, the industry was able to compete with the imported panels.

However, the price gap is now significantly less, and in most instances the prices for the local products are higher than the imported ones.

“We know our ply is of a higher quality but price is the factor that drives consumers.

Through the GMSA [Guyana Manu-facturing and Services Association] we are currently putting together an industry paper to justify why the VAT should be removed and Barama is a part of that drive. We can’t go and argue for plywood alone but everything,” he added.

He also explained that if the VAT isn’t removed or some other measures and incentives put in place, then the company would not be able to compete with the international market, and as such would be forced to close operations.

He added that the paper should be submitted to the GFC before the month is out and they are expecting to be engaged before the ending of July.

Barama set up here in 1991 in a controversial deal which gave South Korean and Malaysian investors control of a lowland, mixed tropical forest concession of approximately 1.6 million hectares in the Northwest region of Guyana. It has had a chequered history with the authorities, facing fines and questions about limited value-added activities in recent years. At its height, it employed over a thousand workers but the numbers have fallen significantly.

The Ministry of Natural Resources had noted that while discussions for the renewal had started over a year ago and Barama had been provided with a draft agreement for review and negotiations, the company had communicated its decision to not renew since it had concluded that it was no longer viable to continue in the forestry operations in view of prevailing global prices.

As such, the company decided to pull out of the market and focus on its value-added products.

However, while Chand had explained that the company was not blaming the government for the surprising development, a source had explained that the government’s slow pace with the negotiations was the main reason why Barama chose to end its long run of business.

“The whole process with engaging with the government and negotiations took too long and over that length of time the economic situation took a drastic downturn and they were being kept updated on all of that,” the source had explained.

“They are saying that the company got the draft agreement but that was more than a year later, and every effort was made to have an efficient and effective negotiation, but it ended up taking too long,” the source had said, adding that if the government had taken less time with the negotiations then most likely the company would have renewed the contract.

The Ministry of Natural Resources has said that in 2015, at Barama’s request for a continuation of its contract, Cabinet had given its ‘no objection,’ but had recommended the convening of a task force to examine the request.

This task force was seen as necessary given the “rapacious activities” of some foreign companies operating in the forests of Guyana, and “some not so positive observations that had been expressed about Barama, in particular,” the ministry had said in a statement.

The statement said task force met on several occasions and visited Barama’s operations at Buck Hall, Essequibo, following which the legal consultant began reviewing the existing contract, forest concessions, and tax incentives previously granted to the company, while other members evaluated workers’ rights, value-added operations and environmental management practices, among other things.

Earlier in the month, President of the Georgetown Chamber of Commerce and Industry Deodat Indar had stated that there were little to no incentives being offered to manufacturers and there was an urgent need for change.