The discovery of oil by ExxonMobil in 2015 has put Guyana on a trajectory to receiving significant revenues. A recent Bloomberg article pointed out that of the 10 wells that ExxonMobil has drilled, 8 are commercially viable – with an estimated 4 billion barrels of oil in these areas; and, with an additional 19 more wells to be drilled this oil reserve estimation will increase exponentially. Exxon predicts that the first oil flow is expected in 2020. In preparation for oil wealth, the country needs to reorient itself to ensure that its citizens get maximum benefits. Experiences around the world have shown that the countries that fail to put the relevant systems in place can reap a curse instead of a blessing. Many economists such as Brahmbhatt and Canuto (2010) and Brahmbhatt, Canuto and Vostroknutova (2010) explain how certain conditions could lead to a curse, “Weak governance and corresponding poor economic policies underlie the misallocation and mismanagement of resources”. The Guyanese economy is no exception.
There is no doubt that the government is talking up the oil and gas sector. The talk has escalated to the point where there is “too much “gas” and very little substance. It is clear that the Granger government is overwhelmed by the enormity of the tasks in the sector. There is a lack of leadership, with confused and conflicting signals coming from various sections of government, and if this continues, it would undoubtedly undermine this nascent sector.
The government has failed to create the appropriate legislative framework. The flawed petroleum bill is languishing in a special select committee, and the other relevant legislation related to the growth and development of the sector has not been laid in the parliament. The department of oil and gas which would be the government’s lead agency for the industry is yet to be established. Legislation, policies and implementation plans on local content are still in its conceptualisation stage. Also, the IMF in its 2018 Article IV Consultation with Guyana on July 2018 warned that the “rules-based fiscal framework for managing oil wealth should be transparent and consistent with the resource fund deposit/withdrawal rules. “In the meanwhile, very few local companies have been able to realign themselves to benefit substantially from the business opportunities. With first oil expected in 2020, the government seems quite ill-prepared to inoculate itself again the “Dutch Disease” where volatility, risks of over-borrowing and overconsumption, and crowding out of local manufacturing can quickly spread in the economy. The Granger government’s incompetence is manifested in the oil and gas decision making, at best it is indecisive, and at its worst it is paralytic. And when it finally makes the decision it has an uncanny knack for amalgamating the worst options.
The Granger government needs to urgently get its act together, in the oil and gas sector. It should be guided by international best practices that would ensure that this country gets the maximum benefit from its natural resource wealth. All Guyanese would like to see policies in this sector, that provide transparency and strengthened checks and balances for all phases of natural resource extraction and use (terms of contracts, monitoring of operations, collection and use of taxes). The establishment of a Sovereign Wealth Fund and the adoption of fiscal rules to ring-fence investments from proceeds of overtime depletion of natural resources are yet to be finalised. There is an urgent need for public sector capacity building in public investment management, monitoring and evaluation, budget processes, to transform natural wealth into produced capital and other forms of intangible wealth. If the Granger government fails to embrace these policies, it will have profound consequences for this and future generations.
Frank Anthony MP