Dear Editor,
If the estimates reported in the Washington Post of January 16 are correct, Guyana may gain somewhere between US$24 and 28 billion at current crude oil prices, representing its share of the estimated 1.4 billion barrels of oil from the Liza 1- Well, which Exxon Mobil and its partners have drilled off Guyana’s coast.
Opportunities arising from such a financial inflow are significant; however, the questions to be answered are numerous. The first might be how to invest, rather than consume, the majority of these resources so that the multiplier effect contributes to substantial economic
transformation. The APNU+AFC administration intends to establish a Sovereign Wealth Fund (SWF). We are yet to learn what type it will be; whether stabilization, pension reserve, savings, reserve investment or a strategic development fund. The legal grounding and features of a SWF are crucial. Unless established by the Constitution virtually nothing stops an administration from undoing and emptying the fund.
The second is an extension of the first because it invokes the question of whether Guyana’s long awaited economic diversification ambitions can finally take flight. Further, there are questions of whether the strategy should be fully activated well before the first barrel of crude oil is produced, and whether a disciplined diversification strategy is the valid vehicle to drive transformation.
The type and legal architecture of the SWF could determine whether it will effectively contribute to entrepreneurs founding new enterprises and the creation of new production capacity; improved and new public infrastructure; skilled, high paying jobs; redevelopment of the export sector; and high quality health and education as concrete expressions of the lived daily experience of the average Guyanese.
Third, Guyana probably needs an integrated plan to develop the full repertoire of energy based industries and such a plan should also be in place before crude oil production begins.
Oil and gas are components of the energy sector. Exploration and extraction are two primary stage sub-components of oil and gas.
The APNU+AFC administration has talked about other aspects of the energy sector. Therefore, what happens beyond crude oil production, and shouldn’t one be framing the ambition in terms of a sector comprised of energy based industries?
The world crude oil price is unpredictable therefore –
- Shouldn’t a significant crude oil reserve be built, to guarantee stability of domestic energy prices as a key variable in national economic stability?
- Should some refining capacity be established?
- Should liquefied natural gas be included in the plans?
- The plans for hydropower and renewable energy industries should also proceed.
The world’s demand for energy will continue to grow and some energy industries will have to be export oriented, given Guyana’s population size and its domestic demand and underdeveloped economy especially.
Fourth, energy is pivotal to economic transformation and with this repertoire of energy sources a competitive manufacturing sector becomes possible. For example, extensive studies were done on the mining, transportation, beneficiation and final products ceramics industry. The plans failed. Energy was a primary, even though not the only cause.
Energy-intensive industrial materials might be a focus, because new sources of natural materials around the world are becoming scarce. Abundant energy makes production of high value energy-intensive industrial materials more possible including petro-chemicals; materials from Guyana’s abundant silica sand deposits (fiberglass); surface-finishing materials from granite; aluminum and smelting of specialised heavy metals; carbon-fibre and certain wood based materials .
Automation makes it possible to link Guyana into the components and intermediate materials supply chains of certain global industries. Given a small population and a shallow/narrow skills base but abundant and reliable energy we have always believed that automated production should constitute a significant part of Guyana’s manufacturing.
Fifth, Guyana’s lack of depth in its managerial, engineering, supervisory and technical skills will restrict progress. Therefore, an immigration policy that focuses on the recruitment of needed skills, plus an electronic labour market information system will be necessary, in order to effectively manage the supply of skills. Further, a steep increase will be needed in the share of mathematics, natural sciences, computing and engineering in the content of education and training. A faculty of energy sciences, expanded faculties of engineering and a School of Business which includes an MBA programme may be necessary to match anticipated expansion, sustained growth of companies and general business development in the economy.
Finally, there is the small matter of commonsense politics and effective government. All of the foregoing will come to naught without consensus politics, effective governance and vigorous promotion of a new culture of entrepreneurship and private enterprise.
Guyana should conceive of a diversified economy and a future beyond crude oil and gas. The components of its plans should be fully active before the first barrel of crude oil is produced. Revenues from oil and gas will then be the perfect lubricant to facilitate substantial economic transformation.
Yours faithfully,
Ivor Carryl
