Contextualizing local content requirements for Guyana’s oil & gas industry in Caricom

Introduction
My aim has been in recent columns to lay out carefully the economic rationale in support of the proposition that, if Guyana’s coming oil and gas extraction industry is to play a transformative role in its economic development, then the dynamic integration of whatever economic benefits are derived from the industry into other economic sectors is essential. Indeed, it is my further intention to argue that if sustainable development for Guyana as a whole (along with the promotion of a ‘green state’) is the main vision or goal, then that grander outcome is critically dependent on transforming the stereotypical operational configuration of oil and gas industries found in Guyana-type economies.

This is the reasoning that lies behind my earlier discussions, which focused on such notions as 1) the enclave economy that in Guyana-type economies typifies the outcomes of oil and gas extraction industries; 2) infant industry, and its rationale in today’s global environment; and 3) local content policy requirements (LCRs), which despite all protestations, remain priority policy prescriptions for all regions and economies, whether big or small; rich or poor; modern or backward; industrialized or non-industrialized; capital rich or capital poor; labour-abundant or labour-scarce; open or closed. As I have repeatedly observed in recent columns, such considerations lie at the heart of today’s great development debates.

However, despite this far-reaching observation, my columns are not intended to pursue these debates in any significant detail. I should point out though that the ‘development’ implications of LCRs remain closely linked to Caricom regional integration. This is because Guyana’s membership in Caricom makes sense, if this is pursued as a fundamental plank for its successful structural transformation.

In the next section I shall contextualize Guyana’s oil and gas industry within Caricom integration. In subsequent columns, I shall distil, for readers’ benefit, several lessons that can be learnt from a review of global experiences with LCR policies.

Regional integration
As I have argued previously at some length (both in these columns and elsewhere), Guyana’s size requires that its development prospects are tied to the development and evolution of the Caricom region. In this section I shall provide a few immediately observable instances of this connection.

First, at its very core, Caricom integration is aimed at creating a common market for goods and services, plus a common pooling of resources (natural, financial, human and technological) of its member states. Inevitably, the pace at which these efforts advance will be uneven. Essentially, however, each member state expects that over the long run, it can treat the combined region as a production platform and common economic space for launching its economic engagement with the rest of the world. Based on this vision, the transformative potential of Guyana’s oil and gas extractive sector should necessarily be seen from a Caricom-wide perspective.

From this perspective Caricom offers Guyana a common economic space for fostering infant industries. The logic is, as the regional economy grows, firms can reap economies of scale; the benefits of learning by doing; and the opportunity to survive through trial and error.

This observation is premised on the basic truism that the small size of individual Caricom economies objectively constrains the growth of their domestic firms and hence their global competitiveness. In larger market spaces, such constraints are substantially modified. Therefore, the larger regional market (effectively integrated), could liberate Caricom and Guyana firms from national market limits. To avoid the obvious criticism of taking a rosy view of these options, I readily concede that achieving this benefit clearly depends on appropriate trade policies/regulations (commonly applied) being put in place.

Second, similar to a common market for goods and services, a common policy for natural resources and productive factors’ use (especially labour (skills), capital (finance), and technology (know how)) is desirable. However, to be candid, thus far experience suggests the latter is harder to achieve than the former.

In this particular instance we can note that Caricom offers specific opportunities for sourcing skilled labour for Guyana’s oil and gas industry from the wider region (if not otherwise available locally). Facts on the ground also indicate that for any given set of skills, this could be more cheaply obtained in the Caricom region, as compared to their location in the wider world. This is simply because Caricom skilled labour is likely to require less ‘settlement’ and ‘cultural adjustment’ costs if located to Guyana, than similar skill sets recruited from outside the region. To take an example, accompanying family members of skilled workers (children), arrive in Guyana to face a not too dissimilar schooling environment from that in their home countries. Furthermore, because of relative proximity, travel opportunities for Caricom originated skills can be acquired cheaper than from more distant places of origin.

Third, Guyana is already deriving benefit from Trinidad and Tobago’s experiences with its oil and gas extractive industry. Training programmes and research experience are already in process. These cover both narrow technical aspects (engineering, chemistry and geophysics), and wider technical areas (finance, accounting, management, information, institutional practices, standards-setting, and policies/regulations).

Lastly, but by no means least, Trinidad and Tobago’s oil and gas extraction industry provides a range of experiences that Guyana can learn from. I have already identified and referred to some of these areas. One is Trinidad and Tobago’s experiences in applying for, and participating as a Member of the Extractive Industries Transparency Initiative (EITI). Another, is their Heritage and Stabilization Fund, which is the name given to their Sovereign Wealth Fund (SWF). Trinidad and Tobago’s experiences in managing volatile oil revenues and striving to avoid the infamous resource curse and paradox of plenty, also offer useful lessons from which Guyana can learn.

Conclusion
Beginning next week, I shall draw such lessons from Trinidad and Tobago’s experiences, as well as from a wide range of other countries, in order to provide readers with guideposts for appreciating the potential value of enacted LCRs for Guyana’s oil and gas industry. This should help ensure effective and knowledgeable public participation in Guyana in the design of an appropriate LCR regime.

Comments  

Decision Rule 2: No overall economic justification for a state-owned, controlled and operated oil refinery

Introduction Last week’s column was aimed at walking readers who are unfamiliar with economic feasibility studies, through the PowerPoint presentation by Pedro Haas of Hartree Partners, on the feasibility study for a state-owned Guyana refinery.

By ,

More on formulating Decision Rule 2: The Haas Guyana Refinery Study

Introduction Today’s column aims at walking readers through the Guyana Refinery Study, presented in a talk by Pedro Haas of Hartree Partners, in May this year.

By ,

Formulating Decision Rule 2: A state-owned oil refinery

Introduction Last Sunday’s column (September 3) marked one year of uninterrupted weekly articles addressing the topic: ‘Guyana in the coming time of its oil and gas industry, circa 2020’.

By ,

Decision rule for a local oil refinery with no state support

Introduction: Proviso It is worth repeating: my two previous columns had sought to make it abundantly clear that if a local oil refinery is established, which is wholly owned, managed and operationalized, either separately, or through a partnership (or some other joint arrangement), involving only 1) foreign investors (whether private, state, or some combination thereof), or 2) domestic private investors, this would be acceptable in my judgement, subject to one important proviso or caveat.

By ,

More on the efficacy of a local oil refinery

Introduction – Re-cap As posited last week, it is my view that the true essence of an oil refinery that is deemed local, lies in its type (form) of ownership, management, and operationalized control.

By ,

Your browser is out-of-date!

Update your browser to view this website correctly.

We built stabroeknews.com using new technology. This makes our website faster, more feature rich and easier to use for 95% of our readers.
Unfortunately, your browser does not support some of these technologies. Click the button below and choose a modern browser to receive our intended user experience.

Update my browser now

×