Guyana’s Oil and Gas Boom – A Less Gloomy Outlook!
April 26, 2023
Dashan Hendricks, Jamaica Observer’s Business Content Manager, sought Economist Damien King’s opinion on Guyana’s development prospects based on windfall oil and gas returns. The March 17, 2023 result: “‘Mark my words’… King fears resource curse could strike Guyana”, is an entirely gloomy oil painting.
It begins with conclusions from core views: “ECONOMIST Dr Damien King said Guyana could fall victim to the so-called ‘resource curse’ as it moves deeper in developing its oil and gas finds because it lacks strong institutions to prevent corruption.”
‘Mark my words’ is prelude to robust, strongly held views. King didn’t speculate on what ‘could’ happen. Rather, he predicted an outcome!
In commenting on these opinions, let me first invoke a caveat. It is a hazardous endeavor to engage in critical discourse based on reports or snippets of a discussion with, between, or among experts. One must assume recall and rendering of arguments, positions held and/or set forth, are accurate. We do that here.
The following quote however, makes such concerns irrelevant: “You mark my words, Guyana is going to go nowhere,” King told the Jamaica Observer, citing that the oil revenues could cause corruption to increase in the country and make it worse off than it was before.
“It’s worth bearing in mind that very few countries in the world have grown from poverty to wealth, having done so on the basis of natural resources. Very, very few,” he continued, pointing out that oil-rich countries like “Venezuela is a basket case and Nigeria is a joke.”
Buttressing his argument, he invokes resource-poor Singapore and Switzerland as examples of countries becoming wealthy through good governance. One problem here is that King, along with many commentators in our region over the years ignores completely, ‘geographical location’ as a ‘resource’, particularly in the case of Singapore. Adjacent economic activity, trade and supply chain requirements linked to British interests bear no mention in that comparison.
More importantly though, King conflates the economic concept and predictable impact of ‘Dutch Disease’ or ‘Resource Curse’ with the negative consequences of wide-spread corruption. The Economist coined this term in its 1977 analysis of the Netherlands’ deteriorating manufacturing sector after the 1959 discovery and exploitation of its Groningen natural gas field.
This proposition – theorem if you prefer – often called the Balassa–Samuelson hypothesis, predicts that the mechanism by which economies adjust to windfalls in its traded sector is appreciation of the real exchange rate. Oil and gas exports generate foreign exchange. Guyana’s currency could appreciate and non-oil and gas exports decline. Whole sections of the economy could deteriorate.
The negative exchange rate adjustment impact on the economy’s non-oil sectors occurs, independent of corruption. Attenuation of this ‘scourge’ may be countered by appropriate economic policy. Such action rests directly in the hands of the Guyana government.
Additionally, perhaps the most glaring and consequential omission in King’s full-bodied prediction is lack of attention to geopolitical influences to which colonial British Guiana was subject. There is no consideration of racial/ethnic issues exploited by the former colonial interests in the politics of British Guiana.
This omission causes, or rather allows King to overlook, indeed completely ignore major proximate causes of the weak institutional infrastructure he credits with enabling destructive political and other forms of debilitating corruption to emerge. The consequential ethnic divide that overhangs all politics and political decisions in the country therefore have no place in his discussion.
Surely these omissions are worthy of the label “economists’ mal-practice”! I want to suggest that the plainly known risk of ‘Dutch Disease’ or ‘resource curse’ – economic decay amidst unexpected windfall riches – could rather, precipitate the change that leads to building robust institutional infrastructure.
The simmering brew that led to turmoil in mid-1960s British Guiana was ethnic rivalry amidst mutual distrust amongst the population. Inter-racial strife, public disturbances and targeted partisanship fueled despair and external migration of critically required skills and talent – the brain drain – which decimated the potential bulwark of civil society opinion and action. Much of this migration of talent directly accounts for Guyana’s major flaw of weak institutional infrastructure.
There’s no way however, to understand Guyana’s current condition of institutional anemia without reference to, and a knowledgeable grasp of these influential factors. Omitting consideration of causation in the genesis of this condition prohibits even the conception of positive, purposeful remedial change!
Currently, there are signs that civil society in Guyana has had a rebirth. Indeed, a major element of the impulses for this seems to be oil and gas! Indeed, new or previously dormant civil society organizations in Guyana are now actively engaged in monitoring the government’s use of oil revenues while advocating for transparent and accountable management of the country’s newfound wealth.
Such groups act on environmental issues, political, electoral and constitutional reform. The government is considering and embarked upon the long-recognised possibility of Guyana becoming the food breadbasket of CARICOM.
Resource Curse is not an inevitability if strong institutions and effective governance to manage oil and gas revenues and prevent corruption are created. Guyana has established a sovereign wealth fund, the Natural Resource Fund, to manage proceeds from oil sales and royalties.
These are positive steps towards ensuring transparency and accountability. The fund’s management is subject to oversight by an independent body, the Public Accountability and Oversight Committee, which includes civil society representatives. These measures are designed to prevent misappropriation of oil revenues while promoting transparency and accountability.
Additionally, Guyana has benefited from international support and technical assistance for both creation and strengthening institutions and regulatory frameworks. These include assistance from the World Bank, the International Monetary Fund, and the Extractive Industries Transparency Initiative (EITI) to strengthen the legal and regulatory framework for managing oil resources while promoting transparency and accountability.
The country recorded significant growth since production began in 2019 and projections indicate the economy will continue expansion in the near term. This provides prospects for investment in infrastructure, human development, agricultural diversification through further deployment of what in the Burnham years was pitched as ‘crop diversification’. All the latter would assist in reducing poverty and inequality.
Enhancing these possibilities, the Caribbean Development Bank (CDB) recently approved financing initiatives to explore Maritime Cargo Services among Barbados, Grenada, Guyana, and Trinidad and Tobago, particularly for shipping agricultural products.
We agree that Dutch Disease or ‘resource curse’ is a real, clear, and present risk. Yet, there exist several indications that Guyana can avoid this fate. With the support of civil society organizations, fostering strong institutions and regulatory frameworks, and a commitment to transparency and accountability, Guyana can use its newfound oil wealth to drive sustainable development and improve the lives of its citizens – and peripherally, of the CARICOM region.
Noteworthy are efforts to address underlying issues that historically, have contributed to political instability and turmoil. One of prime importance is the electoral system – a source of controversy and tension between the major ethnic groups in the country.
The possibility of constitutional reform, particularly if twinned with mechanisms of power-sharing, incorporation of a more diversified and forward-looking cadre of both government and private sector actors in positions of influence and decision making are viable possibilities.
Such initiatives require promoting political arrangements allowing different ethnic groups to share power and resources fairly, rather than continuing the dominance of one over others. This approach, the very notion of which some view as distasteful, unthinkable, or just plain taboo, has succeeded elsewhere and may well be a viable solution for Guyana.
So yes, significant risks accompany oil and gas windfall returns. It is certainly not inevitable though, that Guyana falls victim to Dutch Disease. With effective governance, committed to investing in infrastructure and human development, Guyana has the potential to avoid the resource curse and achieve sustainable economic growth.
While only time will tell, we may in conclusion, anticipate Dutch Disease giving way to replication of a different ‘Dutch’ impact. Their technology that enabled the very existence of then British Guiana as a land, the coastal plain of which was, and remains below sea level yet, for centuries to create untold riches generated by control of flowing waters by the ‘Back Dams’ and ‘Kokers’, and the ‘Sea Wall’ of that pioneering Dutch engineering spirit of Low Countries’ innovation!
It seems King’s robustly gloomy prediction may just as well be countered by its antonym: a bright socioeconomic future. Who knows? I remain certain of one thing: positive change is undeniably possible!
Wilberne Persaud is a writer, Op-Ed Columnist and Economist, formerly Senior Lecturer and Head, Department of Economics, The University of the West Indies, Mona, Kingston, Jamaica. His latest publication: “Jamaica: Post-Colonial Struggles for Dignity, Equity and Development – Wilberne Persaud Selected Columns 1976-2013” is available on Amazon, in both Kindle and Paperback Versions.