Time For Guyana’s Stock Exchange To Take Off?

By Scott B. MacDonald

News Americas, NEW YORK, NY, Weds. August 17, 2022: The Guyana Stock Exchange, (GSE), is small by global standards with $2.8 billion in market capitalization. It is also relatively late to the stock market investment game, having only opened its doors in 2003. However, in 2021, the GSE’s expansion in market capitalization (by 46.1 percent) was at a faster pace than growth the country’s economic powerhouse. Despite this, GSE is not used as a development tool. Guyana should pay more attention to using the GSE as a financial venue to raise capital for Guyanese businesses, to facilitate any future privatization of the country’s remaining state-owned enterprises and to attract foreign investment, including those from the country’s large diaspora. While oil is currently king, the GSE can help pave the way to a post-oil era in which non-oil sectors play a vibrant role.

GSE expansion has been slow, with no new companies listed in more than a decade. Indeed, only since 2020 has there been a marked increase in activity and interest. According to the self-regulatory body that runs the GSE, the Guyana Association of Securities Companies and Intermediaries (GASCI), the stock market has 20 listed securities, operates one session per week and has a low trading volume. Financial institutions dominate, although there are also non-financial companies listed. GASCI consists of four member firms that trade (ie provide brokerage services to clients who wish to buy and sell shares) on the stock exchange. GASCI member firms are registered as brokers with the Guyana Securities Council. Foreign investors are allowed.

The GSE fits roughly into what are considered frontier markets, broadly defined as being limited in the number of listed companies, carrying high levels of risk, and/or being too illiquid to be considered an emerging market. By the standards of major frontier markets, the GSE is small, especially when compared to Peru and Vietnam (see table below). Even within the Caribbean, the GSE is relatively small, coming in behind the Jamaica Stock Exchange and the Trinidad and Tobago Stock Exchange.

Selected list of stock markets

Source: https://www.tradinghours.com/markets. August 4, 2022.

What will make the GSE rise? First of all, there is a flood of oil money coming into the country. Guyana’s recoverable oil reserves are estimated to be over 11 billion barrels, the third largest in Latin America and the Caribbean, and one of the highest levels of oil reserves per capita in the world. According to the IMF, real GDP in 2022 is expected to be 47.2 percent. All of this points to the possibility of Guyanese becoming wealthier and able to purchase more goods and services. Such a development should in turn benefit Guyanese businesses, some of which will seek assistance in financial intermediation. While Guyana has a relatively high level of savings, most of it is held in cash and short-term bonds. With an expanding stock market, some of that money channeled through the stock market could be used to fund new companies and provide Guyanese with a higher rate of return.

Second, Guyana’s financial needs are great, especially when it comes to infrastructure. Not all financing must come from oil revenues or from multilateral and/or commercial banks; the stock market can give Guyanese a stakeholder role in their economy. At the same time, a more active stock market could ease pressure on the country’s commercial banking system, which at the end of March 2022 had a non-performing loan ratio of 6.75 percent, an improvement from 10.8 percent at the end of the year. 2020, but still high.

Another incentive to promote GSE is that expanding the non-oil base of the economy would help Guyana avoid Dutch disease (which some already believe is occurring), a condition in which the hydrocarbon sector will dominate to the detriment of other sectors, often leading to greater dependence on imported goods and job losses. In 2021, the share of the non-oil sector of GDP expanded by 4.6 percent; most of the companies on the GSE are in this sector, which shows that there is room for expansion outside of oil.

Third, Guyana is working to develop a credit risk management culture that improves transparency and disclosure and reduces the chances of financial fraud. Key to this was the Credit Reporting Act of 2010 and the 2013 arrival of a private credit bureau, Creditinfo (Guyana) Inc., a firm geared towards small emerging and frontier markets. The country’s credit risk management culture was later reinforced by amending legislation, mandating the sharing of information by credit institutions, public utilities, mobile phone companies, insurance companies and others. Strengthening the anti-money laundering framework in the country further reinforces the idea of ​​building confidence in the investment environment.

While there is much to commend Guyana’s efforts to develop a culture of risk management, there is still work to be done to increase the attractiveness of the GSE to both investors and local companies considering listing. Two complaints stand out: many government procedures are cumbersome, often involving multiple ministries that have overlapping regulatory responsibilities, and the country’s accounting and auditing firms are limited in their capacity to conduct full audits that comply with practices international best.

Another possible factor for the expansion of the GSE is the development of greater linkages with other CARICOM exchanges. For investors in Guyana and other CARICOM countries, a deeper push in this direction would help create a menu for a more diversified investment portfolio and help foster greater economic integration. Guyana already has one foreign listed company, Trinidad Cement Limited, which is also listed on other CARICOM stock exchanges. But more work needs to be done on regulatory harmonization, something that often touches on national sensitivities to what may be perceived as a surrender of sovereignty.

GSE faces significant challenges in becoming a key force in Guyana’s national development. However, as President Irfaan Ali’s government seeks to promote Guyana as a new frontier for investors and, subsequently, set the stage for a post-oil economy, it will be even more important for the GSE to play an expanded role. , a goal worth pursuing.

EDITOR’S NOTE: Scott B. MacDonald, Ph.D. is chief economist for Smith’s Research & Gradings, is a fellow of the Caribbean Policy Consortium, and a research associate with Global Americans. His most recent book is The New Cold War, China and the Caribbean, August 2022.