REPORT #367 August 2000

Produced by the Belize Development Trust

How does this work? Have you thought it through in a cause and effect model? Let me explain. Investors in a new investment are gambling. When they gamble, or speculate in a new business and location, the traditional method of doing this in the USA, is based on location, market share you are shooting for, sales, quality control, brand name identification, transportation to market costs, supply of raw materials and regular overhead costs.

When you consider investing in Belize, or any of the other 26 nations in Latin America and the Caribbean, you have to add something to the complicated business plan. That is politics! No matter where you go in Latin America, politics enters the picture. It is an added factor. Foreign and local investors often cannot figure out the variables of the added costs in a political factor for the new business equation. It doesn't fit in the traditional business plan.

In the USA for instance, law is set by legislatures. They are set by City law, County law, State law and Federal law. You have to comply with each. Basically, everybody in competition with each other has the same opportunities. You pay your licenses, pay your taxes and the rest is up to you. There is no politician, or cabinet that has to approve your business. It is all set out equally by law. Not so in Belize, or most of Latin America.

Take BSI and the BEL Memorandum of Agreement for a 20 year contract on co-generation of electricity they just concluded in the local media. Ostensibly the 20 year contract for 15 Mega Watts is a quasi-monopoly. BEL has to buy for 20 years. This excludes competition, until the demand exceeds the supply. Yet that is patently not fair. There should be no 20 year contract. It should be open electrical supply competition by investors, each competing to produce more at lower cost. So technology changes force progress and updates.

We have a perfect example of this drawback in the BTL (Belize Telecommunications Monopoly ). For the length of the contract, another one and a half years, the nation of Belize is condemned to fall behind in economic returns and world trade. Business investment from home and abroad is champing at the bit, to enter Belize but cannot. For the last eight years, each succeeding year has cost Belize economic growth and lost investment now exceeding an estimated billion dollars. All for a contract that is a monopoly that earned the government about $150 million in dividends in total for the first few years. Belize is going to lose 10 years in total of backwardness and over a billion dollars in economic growth and investment and productivity because of a monopoly contract, which is the direct by-product, or default mechanism of an autocratic ruler political system. Cabinet discretion creates monopolies!

Monopolies, or psuedo monopolies masquerading as contracts are created by a political systems, such as in most of Latin America and the Caribbean because of the colonial rapacious methodology that says in order to have a strong ruler constitution, you need veto power, or decree power ( in Belize, it is called Ministers discretion ) over the laws of Congress, or in Belize the legislature. In Belize, you can govern without the legislature, or laws. For Ministers and the Cabinet have discretion to override laws of the legislature. Ministers and the Cabinet are not confined to a set of rules that they must obey in applying the functions of their office. They are outside and above the law. They make them up as they go along.

If you are a business investor, local or foreign and all your savings and assets and everything you can borrow is to be invested in a competitive speculative venture, like the Sugar Factory with BSI, you are forced to negotiate with the rulers in Belmopan for favorable terms to cancel the uncertainties of the political factors, that would not hamper a similar investment in the USA. You cannot just judge the market for your product, in this case of BSI, electricity. They are talking millions of re-investment and upgrades to an obsolete sugar factory, plus the cost of the co-generation equipment. This is a highly speculative investment. There is risk! The risks involved with producing electricity from waste bagasse are calculable. In a democracy of laws, the risks would be neglible. Straight forward costs and expenses versus the output, plus price. The risk would simply be, how soon before a competitor entered the field and supplied the demand for electricity needed by BEL. Maybe offering to sweeten the deal at a lower cost, by cutting profits. But how do you calculate the political factor, when any Minister, or the cabinet can ruin your business with an opinion and a stroke of the pen. Suppose, that at a cocktail party with several ministers present, a high muckity muck in BSI gets seduced by a Ministers wife? The Minister finds out and swears vengeance! He is going to ruin your business. In the party political process, there are a lot of secrets and quid pro adjustments. Votes and debts can be called in and suddenly, the Minister of Electricity, or the Cabinet decide that your electricity fees are too high and they cut them in half by fiat, or decree, or as it euphemistically called in Belize "MINISTERS DISCRETION". A veto by another name is still a decree, or veto. You are ruined and millions of debt go down the drain. Bankruptcy is around the corner suddenly, by whim of a Minister on whom there are no controls by law, or regulations as to his limits of duties. This is speculative investment uncertainty.

You cannot calculate it. So why take the risk, or invest in Belize? Why indeed? Nobody much does, that is why! The autocratic leader, ruler system of colonial empire building days, directly throttles and thwarts foreign investment in Belize politically. Both locally and foreign based.

The speculative investor seeks to cancel the political equation by getting an airtight contract for a fixed number of years to amortize his or her investment. In BTL we see how monopolies ruin the country. For 8 years now, new investment in Belize has been throttled and choked off by the BTL contract. It will be a loss of ten years by the time this contract finishes in January 2002 and around an estimated billion and a half dollars of economic growth lost. Yet Ashcroft the main investor did the right thing. He sought to get a contract, or monopoly for a fixed number of years and this has effectively crossed different changes in government and has multiplied his original investment many times. At a cost to economic growth and lack of development and competition of the nation of Belize.

In this new case between BEL and BSI the investment is another large multi million dollar speculation. There is not much speculation from a normal risk/cost factor. The price is known and there is a shortage of electricity. But the political risks are unknown and possibly can bankrupt BSI. The solution is a 20 year contract BSI rightly presume, copying BTL. The problem with this contract is that it becomes a quasi-monopoly and stops similar electrical production investors, from putting up 4 megawatt windmills, or something similar, like they do in electrical generation windmill farms in California and New Mexico. Because BSI will have a lock on the first 15 megawatts of private electrical production. They probably can even negotiate more if they are capable political wheeler dealers.

From the government in Belmopan's viewpoint, they are inclined to encourage BEL to give BSI the contract, to encourage the investment in private electrical production. This would be a first, a breakthrough. The cause and effect process is thus; BECAUSE of the Ministers Discretion of a Minister and a Cabinet, the direct result is that investment in Belize is not practical from a speculative investors viewpoint. The political uncertainty makes it unwise for any foreign or local investor to borrow funds on a calculable risk, because the terms can be changed by a persons whim in the Cabinet. The veto, fiat, decree, or Ministers Discretion, or Cabinet Decree in Latin America and the Caribbean 26 odd nations carried over from Empire days is killing investment in these countries, including Belize. The political system has to change to legislative laws, by which even Ministers and the Cabinet abilities are circumscribed and defined by law. This levels the playing field and opens a country to competition and investment on an equal basis.

The current political governing system in Belmopan creates monopolies, long term contracts that are quasi-monopolies and condemns Belize to mediocrity. A monopoly, or quasi-monopoly as in a contract is a default mechanism of the political equation of countries that rule by decree, ministers discretion from ruler systems of Empire building colonial times. The very things that they are fighting against, they cause by the political system used. No wise investor would invest under these conditions, unless you were doing a very small one family business. The alternative is huge businesses in which you can control the political equation through intimidation, fear, guerrillas and assassinations of political figures. As the population grows in Belize and the economy, that too is going to come under this current ruler political system. The alternative is a democratic six district member cabinet with clearly defined circumscribed ministerial duties as defined by the legislature without discretion, veto, decree, or fiat. In other words, consensual democracy through a debating fighting compromising system of elected Senate and elected Legislature.

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