‘The coming oil bonanza’ and bad signals

Guyanese on social media were euphoric last week when it was announced that the country now has at least 4 billion barrels of recoverable reserves. This would imply a capacity to produce 750,000 barrels per day. OilNow reported Minister Trotman as being very optimistic and even carried the headline “The coming oil bonanza.” Members of the government and Mr Trotman have always implied that Guyana will make billions of US dollars through volume of production. I and others have argued that the percentage terms in the contract, the signing bonus and the uncertain cost structure are not in the country’s favour. Therefore, the big money is dependent on volume given the low percentages. The Minister notes that Guyana will make more money than it can spend in a lifetime. I am not so sure what that means since the issues of demand, time and volatility have to be taken into account.

The estimate of 4 billion barrels of proven reserves is still likely conservative; therefore, the minister might have a point even after accounting for demand, time and volatility. Guyana would likely realize at least 10 billion barrels of proven reserves and capacity to produce over one million barrels per day by the middle to late 2020s. Guyana is an important part of ExxonMobil’s long-term strategy that involves shifting production to the Western Hemisphere and shale in the United States. There is certainly a crucial geo-political dimension to this strategy as much as the economics of transportation cost. It appears like Guyana’s leaders made a bargain for America’s political support on the spurious border claim by Venezuela in exchange for large-scale production and an unfavourable contract. Exactly how this will play out when a right-wing government gets back into power in Venezuela is not yet certain. It might turn out one day that those percentages should have been higher.

Percentages and geo-politics aside, let’s discuss the problems a well-intentioned elite group of politicians, business owners and executives must address if the country is to use its oil revenues in fair and efficient ways. However, at this moment, the dominant political and business organizations appear unwilling to face  the big questions, such as the ethnic divisions in the country, the waning credibility of the election machinery and others. For example, the Private Sector Commission (PSC) got Norway-based Rystad Energy to tell us that Guyana, which has approximately 850, 000 people, has the highest per capita oil reserves in the world. Well, duh? Isn’t the PSC interested in hearing a little about the possible downside risks if there is no constitutional and electoral overhaul, for example? Does the PSC want a balanced and meritocratic civil service or one which is susceptible to side payments?

Today, as I write this column, Mr Jagdeo has said he is not interested in talks with the PNCR at this point, the bona fide political representative of the  majority Afro-Guyanese. Mr Jagdeo made it clear that he and his party are interested in local government elections. They do not see much merit in discussing crucial questions pertaining to income and wealth distribution, governance, constitutional overall, and electoral revamping. Winning is all that matters. It would be remembered that President Carter appeared to have reopened a channel of dialogue, but this might have fallen off the radar of the Guyanese president and opposition leader. Mr Jagdeo and the PPP are in for a rough ride when they likely win the election in 2020 or 2021. 

As for the PNCR, since 2015 it has made it clear that it is determined to re-dominate the civil service at pre-1992 levels. President Granger says nice words, often little, therefore, we have to judge him by his revealed preferences. It is clear with the choice of the Permanent Secretaries and many other signals that he and his party are embarking on pre-1992 level of domination and exclusion of the masses of East Indians. As mentioned in my resource curse essays, the public service is all important because the coming oil revenues will flow to central government, which then decides how to spend, produce and employ. The government and civil service, therefore, become the most important economic actor after 2020.

This week it was reported by the government’s DPI that Afro-Guyanese entrepreneurs are being encouraged to receive funding from government. The principle indicates a good idea and it appears like Mr Eric Phillips has his finger on a few right buttons. I mentioned similar themes in my Development Watch columns of past. However, I am pessimistic that micro enterprises and village economies are the way to go about solving what really is a major coordination problem, which requires Afro-Guyanese, East Indians and others cooperating. The coordination problem cannot be solved by circulating moneys only within one ethnic group. Therefore, I am left with the feeling that this policy – as well as some of the comments blaming commercial banks – is intended to stoke the strategic vote of the PNCR’s ethnic base. It’s like their Babu Jaan moment or their Mighty Rebel (“Desi yuh wrong!”) moment.

The problem, furthermore, is these forms of affirmative action must be situated in a very broad discussion of distribution of income and wealth (including stock of human capital, which is a form of wealth) from 1964 to 1992, 1992 to 2015, and 2015 to present. We need to be transparent on things, such as ethnic distribution of employment in the civil service, semi-autonomous agencies, army and private sector, as well as government scholarship awards (not the ones going through political parties), and business ownership, such as sole proprietorships, partnerships and joint stock companies. We have to compare the degree of fairness in distribution of homes during the PNC time and recent PPP times. For example, let us do a wealth audit of ownership in housing schemes created in South Georgetown, Agricola and elsewhere during the PNC and Diamond, Eccles, etc, during the PPP/C.

Such audits might sound difficult to conduct, but it is not as daunting a task. The country desperately needs them because as Mr Ravi Dev proposed over 20 years ago, there is need for ethnic impact statements of economic policy. Addressing perceived discrimination in policy will require transparency and data, not extrapolation from one anecdote. It is time the government place online the names of all those who were awarded scholarships and contracts via procurement. This should be made public going back to pre-1992.

At this point, the most important role President Carter and even ExxonMobil can play is to get the PNCR, PPP/C and independents to agree to a fundamentally new constitution and electoral system, including a new politically independent elections commission. Transparency, a new constitution and a competitive electoral system are the only ways to consolidate democracy and prevent waste of oil revenues. These measures are also better at dealing with corruption. 

The next time the PSC or Ministry of Natural Resources invite foreign guests to speak, I would like to hear less about sovereign wealth funds and more about how to manage the harmful outcomes of ethnic strategic voting, income inequality and oil, and wealth inequality and oil. Let them also discuss matters such as GDP growth versus level shifts that will occur in 2020/21 and around 2025, constitutional overhaul and electoral redesign to minimize the resource curse, making the civil service developmental instead of a battleground for ethnic patronage, etc. 

Moreover, it would be helpful for the PSC and the government to get serious economic historians – and not the type focusing on who suffered more than whom – to bring lessons from history regarding why Guyana’s unique polder system will make village economies difficult to generate and sustain wealth. How can these lessons of history help in organizing a form of economics for business success of Afro-Guyanese, Indigenous people and former sugar workers? What does the interaction of history and Guyana’s geography have to do with commercial banks’ lending policy today? Are the banks intrinsically malicious for not lending to micro enterprises, as implied by the head of the Small Business Bureau?

Comments can be sent to Tarron Khemraj at tkhemraj@ncf.edu

 

Around the Web

Comments