Oil, Government Take & Spending: Navigating Guyana’s Development Challenge – 6

Introduction

Today’s column starts my discussion of the fourth of the top-ten development challenges that spending of Guyana’s expected significant “Government Take” will have to navigate in the coming years of oil and gas production and export. That is the economy’s absorptive capacity or lack thereof. I begin by asking: what is meant by this term?

Most laypersons to whom I have spoken seem to have an intuitive appreciation of what Guyana’s lack of absorptive capacity means. More specifically, several have directly expressed this as Guyana’s inability to efficiently spend its expected Govern-ment Take from the petroleum sector. Basically, this is due to their belief that there are major constraints and/or bottlenecks in the economy. This intuition is broadly speaking, correct. Particularly since economists’ shorthand description of absorptive capacity, put simply, is “local conditions.”

Origins

However, the concept of absorptive capacity was originally developed in the disciplines of business administration, organizational behaviour, and strategic management, not economics.  Thus, the standard textbook definition of absorptive capacity still remains: “a firm’s ability to recognize the value of new information, assimilate it, and apply it to commercial ends” (Cohen and Levinthal, Administrative Science Quarterly, 1990). This concept has been subsequently broadened and applied to groups, as well as at the national and regional levels…..