Dear Editor,
Regarding a letter in the Stabroek News on 16-Jan-2019, titled `How the overwhelming unemployment problem could be tackled’, by Mr Timothy Jonas. Also in the Kaieteur News titled `Untangling the Gordian Knot’.
I am responding to this letter because:
1. The letter concerns oil and Guyana’s development.
2. I believe oil should be the top agenda item for all parties in the next elections.
3. The letter is from a member of a new political party.
4. All political parties should explain their plans for oil and how to ensure Guyana benefits from oil.
5. All political parties should explain their reasons for/against re-negotiating the contract with Exxon for the Stabroek Block.
6. All political parties should explain their plans for investigating the highly suspicious awards of oil blocks in the runup to the last election in 2015.
7. The letter links Guyana’s unemployment problemwith the sanctity of contracts (of foreign investors).
8. The letter suggests Guyana’s unemployment problem can be overcome by increasing the extraction and exploitation of natural resources.
Although my response here to Mr Jonas’s letter will be seen as critical, I generally support all new political parties because Guyana has suffered 53 years of failed politics, failed development, and injustice.
My main concerns with Mr Jonas’s letter are that it seems to be a veiled attempt at supporting the unfair contract with Exxon, is based on spurious reasoning, and it makes inappropriate recommendations.
The linkage between unemployment and sanctity of contract is not evident in Guyana. Where is the historical evidence in Guyana that overwhelmingly links Guyana’s unemployment problem with the breaking of contracts with foreign investors? Guyana does not have a long history of breaking contracts with foreign investors. Guyana’s unemployment problem is due to a myriad of other factors, such as an inappropriate system of governance, flip-flopping racially based government, corruption, mismanagement, the brain-drain, an abandoned education system, etc.
Mr Jonas claims that Guyana can only attract foreign investors if Guyana respects the sanctity of contracts, i.e. Guyana can only attract investors if Guyana does not re-negotiate the contract with Exxon. But I view this claim as incorrect. Contracts in the oil and gas industry are commonly re-negotiated as conditions change. The 1999 Exxon contract has already been re-negotiated in 2016, and it needs to be re-negotiated again. Guyana is losing US$2.6 Billion on the first project alone, i.e. Liza Phase 1 (assuming internationally benchmarked terms for royalty and tax). And Guyana will be losing more on the second project Liza Phase 2, and even more on the third and subsequent projects. If Guyana does not get a fair deal now, this will jeopardise the sustainability of our new oil industry. Guyanese may react severely in the future once they see the value being forfeited. Just look at Venezuela next door.
With regard to investor confidence, please consider the following alternate view. The fact that large natural resource companies are attracted to our country is not a sign of investor confidence. Far from it, it might in fact be the opposite. Companies like Exxon thrive in chaos, and they are able to make huge profits in war zones. Just look at some African oil producing countries. Being able to attract Exxon to Guyana is not a sign that Guyana is open for business. Guyana will know it is open for business when small/medium regional companies and diaspora feel safe to open shop in Guyana, and when there is a level playing field. Guyana will know it is open for business when small/medium companies from Europe and the Americas know they can operate in Guyana without having to bribe some government officials for permits and when they are not vulnerable to shake downs. Guyana will know it is open for business when visiting businesswomen know they do not have to meet with high level government officials, but instead can follow an efficient, transparent and respected process to set up a business. Guyana will know it is open for business when some government officials stop taking bribes to have meetings, and when some officers of the legal system stop accepting bribes to influence court decisions. So let us not be fooled that because Exxon and other natural resource companies are here, we are somehow suddenly open for business. There is much work still to be done to make Guyana attractive to real diverse sustainable investment.
It is good that we have oil and it is good that Exxon will be a contractor to help us extract our oil, but also remember these companies are able to thrive in chaos, and these companies will likely make even more money from our oil if Guyana falls apart (social unrest, militarisation, police state, etc). Some claim that multinational natural resource companies not only benefit from chaos, and but that they sometimes encourage the degradation of democratic institutions so as to increase profit. Hence large multinational companies and their sovereign backers can benefit by keeping border problems alive. For example, they may demand a higher risk premium for investing in a country with a border problem.
Mr Jonas states “To create these jobs, Guyana needs new investors who can set up shop in the interior and extract resources without having to rely on our failing infrastructure”. But Guyana should not focus on the extraction of natural resources in its interior. These industries rarely help countries develop in sustainable ways, and usually do serious and lasting damage to the environment. Guyana should instead focus on getting a fair deal for its oil (by re-negotiating the Exxon contract), and on using that revenue to develop the country and its infrastructure, and to spur other sectors such as agriculture, manufacturing, green tourism and research, etc.
Mr Jonas uses Singapore as an example for sanctity of contract. Although it seems Singapore did in fact honour investor contracts, these were likely to be fair contracts negotiated by qualified bureaucrats, and not the lamentable form witnessed in Guyana with Exxon. But Singapore did not succeed in its project of nation building because of some blind adherence to respecting contracts with foreign investors. No, Singapore succeeded because of the rule of law, and because of a rules-based system for every aspect of the country’s business and its people’s lives. Singapore succeeded because it had long-term visions and stability via an authoritarian and somewhat benevolent leader, and because Singapore dealt with its racial issues with a strong hand (race became subservient to a higher goal, which was economics). Singapore succeeded because it invested huge sums in education.
The letter by Mr Jonas raises another issue. Many of Guyana’s best law firms are now working for oil companies or their contractors. This could pose a conundrum for some lawyers who may feel they have to choose between advocating for the best interests of their country folk versus advocating for the best interests of their clients, in instances where these interests might diverge. Hence all those in politics or entering politics should declare their ties to oil and associated companies.
Guyana needs more of its young sons and daughters to step up like Mr Jonas and Mr Shuman, and I admire and support them for what they are doing. It seems Mr Jonas may already have been victimised by the government for his courage to challenge the political status quo. But this is to be expected and hopefully Mr Jonas will endure. We also must remember there will be other brave souls hidden within the two main political parties who are trying to change them from within.
The best course for Guyana is to develop a long-term plan which addresses Guyana’s existing deficiencies, for Guyana to fix its existing failed political system, and for Guyana to focus on routing out corruption. We should not use oil as a panacea for our ills. This will not work.
Yours faithfully,
Jan Mangal
