Tribalism and tribal politics have led us to conclude highly unfavourable contracts with transnational corporations

Dear Editor,

A fundamental structural feature of colonialism is the fracturing of an economy into two parts: export enclave and the rest of the economy.  In the case of Guyana, the latter comprised small rice farmers, whom Leslie Potter called “paddy proletariat,” other small farmers, artisans, landless labourers, a tiny government sector that built roads, bridges and other structures, administered villages and provided security for colonial officials, white planters, their mangers, engineers and others who ran the plantations.  The export enclave comprised plantations in which mostly British capital, managerial and technical talent were invested, while Africans until 1838 and mostly Indians thereafter provided manual labour.  The export enclave is set up to almost exclusively export raw materials to the mother country.  There were little linkages, vertical or horizontal, to the rest of the economy that enhances its productive capacity.  The relationship between plantations and the rest of the economy was simple: the latter provided a pliable labour supply in exchange for wages too insufficient to live above poverty.

non-enclave economy produces few commodities for export, mostly agricultural and forestry before the 1920s.  Guyana began to export rice in 1902-3, when about 5 tons, at a value of £60, left the colony.  In terms of employment, export value and contribution to the overall output (GDP), the export enclave was the bigger component.  Even by the 1920s, export of sugar and its by-products accounted for 70 to 75 percent of the total value of exports.  Per capita imports in 1911-12 was US$29 compared to around US$2,830 today, which is more than 90 times what it was a century ago. Around the same time, per capita export was US$429; today it is US$2,150.  It is highly unlikely that the average Guyanese income today is more than 2000 times as much as her counterpart earned a century or so ago.  For this to happen, per capita income had to be around US$2.5 around 1910.

Colonialism ended in 1966, when Guyana became an independent country.  For now, let’s forget the transition from colonialism to dictatorship and fast forward to the last decade or so.  What do we have?  An economy that grew at about 4 percent annually from 2010 to 2017, with performance below average during the last three years. Crucially important, is the rise of neo-colonialism, which is now creating another export enclave surpassing that of colonialism in term of size, capital-intensity, technology and potential ecological destruction.  The emerging oil-economy will outsize the traditional domestic (non-oil) economy. We will have two parallel economies operating within our borders.  One built by foreign capital, technology and talent, and run by foreigners, mainly American; the other, chugging along clumsily in the shadow of the export enclave and stifled by tribal politics.  These two economies exist in different worlds, simultaneously, and with little linkages. There is precious little, including manual labour and minor food items, that the non-oil economy can supply the sophisticated and complex oil economy. Indeed, the latter has little use for the former.

Prospects for overall growth of the total economy are favourable in the medium-term, thanks to oil production which is expected to commence in 2020.  Additional oil discoveries have significantly improved the medium- and long-term outlook. The IMF projects economic growth of 3.4 percent in 2018, driven by continued strength in the construction and rice sectors, and a recovery in gold mining.  Real GDP is expected to grow by 4.8 percent in 2019, buoyed by the emerging oil economy, and then takes off for the stratosphere. The steep upward ascent owes its drive almost exclusively to King Oil, whose lifespan will be shorter than that of King Sugar. It is, therefore, informative to look at the growth bifurcation in the oil and non-oil economies. From 2019 to 2023, the non-oil economy – the export enclave – is forecasted to grow about 4.6 – 4.8 percent annually, compared to 2.9 percent since the APNU + AFC came to power in 2015.  The extra boost, around 1.5 to 2.0 percent per year, to the non-oil economy will come from the oil economy. Growth of the total economy, oil and non-oil, will soar to 29.8 percent in 2020, slide to 22.1 percent and 11.8 percent, respectively, in the next two years.  It will then soar to 27.9 percent in 2023.

A recent IMF Staff Report says commercial production should commence in mid-2020, with a conservatively estimated output of 100,000 barrels/day (bpd) from Liza Phase I. Liza Phase II is expected to commence production in 2022, with a capacity of 220,000 bpd. Together Liza Phase I and Phase II make up close to 45 percent of total known oil reserves in Guyana (14.1 percent and 30.7 percent, respectively). The two phases are estimated to produce around 300,000 bpd by 2025. Under the revenue-sharing agreement, 75 percent of oil production is initially allocated to “cost recovery” to ExxonMobil and its partners. The remaining 25 percent, deemed “profit oil,” will be shared 50-50 with the government. The agreement sets a royalty of 2 percent on gross earnings, which brings the initial government share to 14.5 percent of total oil revenues.  This set up means that changes to oil prices have a one for-one impact on fiscal revenue in the first years of production (but lower oil prices would prolong the “cost recovery” period). The breakeven price for Liza Phase 2 is relatively low at around $35 per barrel, so it would take a major adverse price shock to delay its development plans. The potential for even larger oil production exists as there are other offshore blocks besides Stabroek, and many companies have expressed interest for the ultra-deep offshore block.

The main direct effect of oil on the non-oil economy will be through fiscal revenues, which largely explains the growth of the non-oil economy from 2020.  In that year, according to the IMF, the government will collect US$1.13 billion in revenue, and even larger amounts during the next three years: US$2.2 billion in 2021, US$2.9 billion in 2022 and US$4.9 billion in 2003. Together, the Government is expected to collect US$11.12 billion in oil revenues from 2019-2023.  Exactly what it will do with this pile of oil wealth remains to be seen.  Most likely, part will fund pumped up government expenditure, perhaps including unconditional cash transfers, part will probably end up in a Sovereign Wealth Fund, which, hopefully, will be barricaded against ethnic politics.

The new export enclave (the oil economy) is designed to appropriate an unusually large share of the benefits from Guyanese oil resources.  ExxonMobil and partners will recover the cost of investment incurred in developing the oil economy while profits from Guyanese oil resources will be equally shared with the government.  Beyond this, the reward for allowing ExxonMobil to exploit these resources is a paltry 2 percent royalty on gross earnings.  That’s a pretty lousy bargain. Contra colonialism, we now have the freedom to bargain and are more educated and wealthier.  Yet we have signed away the rights to our oil resources in a highly exploitative contract.  Neo-colonialism is set to rape and scar Guyana and Guyanese forever.  Many readers will probably not agree with me: I attribute the cheap bargain not to stupidity but to the play- ethnic politics that will deliver to Guyanese far less than they could have gotten for their mineral resources. Tribalism and tribal politics have led us to conclude highly unfavourable contracts with transnational corporations.  With colonialism, exploitation was imposed upon us; today we allow neo-colonialism to exploit us.  Such is the nature of progress in Guyana!

Yours faithfully,

Ramesh Gampat

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