OIL AND SOME OF ITS CONSEQUENCES

Three of the four dailies on Friday headlined the second oil find by ExxonMobil at a well called Payara-1. Past predictions about the presence of petroleum deposits in off-shore Guyana were confirmed when ExxonMobil’s announced its world class discovery, the largest for 2016, at its Liza well. If the Payara-1 turns out to be large, then the predictions of much greater deposits in the area could be accurate and much more oil could be found.

The amount of petroleum deposits that have already been found is enough to transform Guyana. But somehow Guyanese do not yet appear to be impressed. Casual conversations with Guyanese suggest that the cynicism that has developed from decades of promises based on Guyana’s agricultural potential, that Guyana could become the bread basket of the Caribbean and Guyana’s failure to take off economically, continues to exist. When told about the prospect of oil wealth for Guyana, and what it could mean for the future, many Guyanese are dismissive and unbelieving.
The truth is that Guyana would be transformed and we need to choose how. It would not happen overnight, of course, but by 2025 Guyanese would be feeling the impact of the oil income, which would continually increase. The Government appears to be making preparations to establish the legal framework and institutional mechanisms. There is no evidence that it is making any effort to reach out to the Opposition to build consensus from the earliest stage. If the Government wants political and national consensus going forward, it needs to start consultations with the Opposition early or face the possibility of a perennially contentious situation for our oil industry. Former Minister of Energy of Trinidad and Tobago, Kevin Ramnarine, speaking in Guyana recently, urged the establishment of a national oil and gas company to manage the oil industry, whose leadership should be insulated from politics. While this is easier said than done, it can be accomplished if the effort starts now.

Apart from all the matters which have to be resolved relating to oil, one major issue facing Guyana and its Government is how to ensure that Guyana’s agriculture, mining and forestry industries are sustained, that agri-based industries, in which Guyana has great potential and other industries, such as in information technology and otherwise, are developed. A large number of developing countries which have become oil producers have seen their indigenous industries abandoned because of the flow of income from oil. As government expenditure increases, spending on infrastructure and social services also increases. The need for labor also increases and the pay is much higher than the workers obtain as agricultural workers. They leave for the higher pay. Shortage of labor can kill agriculture, mining and forestry.

At the same time, those with capital, including farmers who were forced to cease farming because of shortage of labor, find that importation of goods and providing services become much more profitable. The availability of more money creates demand for goods and service which Guyana does not produce or could not be bothered to encourage. Investors move into these very profitable areas which do not add value to the economy. The only thing they do is to create more employment, circulate more money, create more demand for the same goods and services and put pressure on the foreign exchange. This scene has played out in exactly the way described in Trinidad and that is why there is such a shortage of foreign exchange. The same problems in varied forms have affected the other countries referred to.

If the Government wishes Guyana to avoid the fate of so many other countries, it has to start planning now. Somewhere in the vicinity of 70 percent of bank loans are for services and housing. Agriculture and mining account for a very small proportion. The increased banking resources devoted to housing by the banks is a good case to study. Incentives were given to the banks to offer loans for housing. Over the past decade or two, housing construction and home ownership have expanded dramatically. Unless the Government decides to impose lending by banks of a certain percentage of overall loans to special areas, such as agriculture, paying special attention to small and medium scale farmers, it would need to devise some serious incentives to banks to increase the flow of resources to agriculture and agri-based industries.

Lending for agriculture and the inadequacy of financial instruments to encourage agriculture in developing countries, even though large sections of the population is engaged in agriculture, been recognized as a problem as an international problem and many ideas exist to deal with it. The experience of other countries like Brazil, whose exports of agricultural products is about 30 percent of its GDP, can be useful. It is necessary that these consultations and discourses should begin now, that public opinion be engaged on these matters and that Government should lead the way. We hear warnings repeatedly about the “Dutch disease,” corruption, and other ills likely to emerge in Guyana as an oil producer. But there are no consultations, no proposals and no debate. We are being warned.