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The last resort: Resisting the temptation to buy Almond

shadiasimpson, [email protected]

The last resort: Resisting the temptation to buy Almond

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As the ship of the Barbados economy continues to take on water, Government has released its new fiscal strategy document, designed to not only stop us from sinking, but also to start our foreign-exchange earning engines.
The new Barbados Medium-Term Growth Development Strategy, called the MGDS, has called for deep cuts to be made to current expenditure in a last-ditch effort to reduce the fiscal deficit.
We now await the announcement of who will be going home, which Government programmes will be cut, and what incentives, if any, will be offered to businesses and individuals to help get the economy moving again.
Last week, not having made any announcement with regard to any of the above as yet, and with the economy already running at a deficit, which will end up around the same eight per cent “achieved” in fiscal 2013 (which ended on March 31), Government let it be known that it might buy Almond Beach Village.
Just like that. Out of the blue. Two years after it watched it close down.
One estimate I read was that between purchasing the property and refurbishing it, the cost to the country would be around $100 million.
This would be on top of some half a billion or so that the Government is said to be planning to spend on upgrading Andrews Sugar Factory into a multi-purpose operation which will not only make sugar and molasses but also renewable energy to be sold to the national electricity grid.
Getting both the Almond Beach Village going and the green sugar factory up and running would be great for this country, but I don’t think Government should pay for them. For all the usual reasons and maybe a couple more.
The usual reasons are that we are already too high in debt for such massive undertakings and that Government’s heavy hand in trying to run market-sensitive businesses leads it to move like a sailboat trying to tack to stay in the wind as it competes with a high-powered speedboat which can just keep straight, adjusting its course quickly depending on the strength of the current.
So in the best case scenario we have institutions like the Barbados National Oil Company, which “competes” in the market that is controlled by its owner, the Government, through changes in the excise tax.
We are living with the reality of that price-setting “mechanism” every day. It is a system geared to punish the consumer.
There are many other models of Government ownership of market-based enterprises, some of them successful due to their monopoly status, others dismal failures despite their monopoly status.
In the latter case – CBC and the Transport Board come to mind, but there are more – the consumer has succeeded to a certain extent in getting his or her voice heard, so there are alternatives.
Once the Government-owned enterprise is forced to compete with other players in its main marketplace, it loses even more money, and the losses cannot be contained through conventional business practices because politics gets in the way.
Another main reason why the Government needs to resist the temptation to buy Almond is that its very presence at the negotiating table distorts the marketplace.
I am not saying to what extent this may be happening in the Almond Beach Village matter, but it is a given that anytime the Government shows up, the price will go up, or at least not go down.
The would-be seller of the enterprise, no matter what market it may be in, knows that the Government doesn’t really want to be at the negotiating table, but is only there because the alternatives for the economy are unpalatable: loss of direct jobs, loss of foreign exchange earnings, loss of ancillary jobs in firms supplying the enterprise, and, of course, the related loss of PAYE and National Insurance Scheme deductions and value added tax, which were being generated by the enterprise.
Knowing this, why would you not expect the discussions to be more like hostage negotiations, even if they don’t sound like them? Worse, the market-driven buyers – and this seems to be part of the situation at Almond – may find it almost impossible to get a deal on which they believe they can build up a profit-making, successful enterprise with Big Brother willing to step up to the plate.
What should have been a buyer’s market can quickly turn into a seller’s to our detriment.
The temptation to buy back Almond Beach Village is therefore based on the exigencies of the situation, and in theory sounds like a good plan.
However, it is a very bad plan, because Government will be making the same mistake it did when it pulled together a bunch of losing hotels into the GEMS project.
We are still losing millions of dollars every year on that deal, despite the leasing out of some of the properties. GEMS has cost us north of $200 million, perhaps well north, and counting. There appears to be no exit ramp of the GEMS highway. It will continue to be a bottomless pit for taxpayer money. Just like Kensington Oval.
Both of those projects were carried out under the Arthur administration and we have been paying for them ever since. If you think the benefits we have gained from one or the other, or both, has been worth it, then fine. But I don’t.
At this stage the Government must facilitate investment, not be the investor. Becoming the investor of last resort (in Almond Beach Village’s case, that might be literal as well as metaphorical) muddies up the waters: instead of putting up all that money in loans, the government should offer a package of tax incentives across the board to whoever buys the property.
This would make the bidders feel more comfortable about making their investment, and once the give-backs are reasonable and for a defined time, say ten years, the loss of revenue, which we are not getting now anyway, would be money well “invested”.