As a fledgling oil producer, Guyana sits at a crucial juncture in its development. Despite the effects of COVID – 19, Guyana’s real GDP in 2021 grew by 19.9 % and is
projected to grow by 47.5% in 2022, driven primarily by the country’s rapidly rising oil sector. Whatever we think of fossil fuel extraction, Guyana both needed and deserves economic growth.
But oil brings with it significant risks – threats to the environment, volatility across the economy, corruption and the twin phenomenon of the Resource Curse and the Dutch Disease, the former referring to the paradox whereby countries rich in natural resources experience slower growth and poorer economic performance. Economic analyses of resource rich developing nations, such as Timor Leste, Angola, Nigeria, and closer to home Venezuela and Brazil, have found that resource richness does not translate to economic growth, and are often associated with poorer economic, social, and political outcomes. Those countries all face the following problems: the Dutch Disease, lack of institutional development, lack of capital of diffusion, and negative environmental repercussions. While these consequences have been avoided in a few developing countries among which Botswana and Chile stand out, the very nature of the petroleum industry almost inevitably catalyses the resource curse.
The Dutch disease – a phrase coined to describe the decreases in the Netherland’s manufacturing sector following the discovery of oil fields in the 1960’s – results from the saturation of the domestic economy by the injection of significant inflows of foreign currency. Because of the lack of diversity in the economy, increasing reliance on a price volatile resource, and inadequate governance issues in the administration of the country, Guyana is particularly exposed, and indeed may be already experiencing the consequences of the Dutch Disease.
It is a natural consequence that as inflow increases, the foreign exchange rate of the local currency appreciates resulting in the increase in the purchasing power of domestic currency relative to foreign goods. Goods, labour and manufacturing become cheaper abroad as prices of domestic goods and manufacturing costs balloon. This can result in the stunting of the growth of alternative sectors of the economy, particularly the agricultural and manufacturing industries, as capital and labour are diverted to the extractive industry.
Petroleum is a resource at the heart of an export-based industry while extraction of the resource relies heavily on foreign capital, as well the funding and involvement of multi-national companies. Guyana, previously known countries for its insistence for political and economic independence among Third World countries, is now in a symbiotic, inseparable relationship with international oil companies, unable even to make laws that affect them, with the operation of the oil contract now subject to international resolution rather than domestic adjudication.
Given the size of our population and the scale of the discoveries, some benefits will undoubtedly accrue to all segments of the population. But that will be heavily distorted in favour of the already privileged class, aggravating the wide economic and social disparity in our society. Institutional weaknesses and the concentration of capital allow the domestic business and political elite overwhelming control over the revenue from projects “operating largely outside the normal governmental financial processes.
Though the resource curse is a tangible and frankly, likely, threat to resource rich countries like Guyana, necessary precautions may offset some of the negative economic repercussions. Institutional integrity, such as an independent Petroleum Commission, an equally independent and robust sovereign wealth fund and government accountability and transparency may be conducive to sustained growth can deal with the governance issues. Diversification and economic productivity unrelated to the extractive industries that reduces dependence on the single resource can deal with the economic issues.
The absence in the Budget Speech of any indication of how the proceeds from the Natural Resource Fund will be injected into the economy must cause discomfort among those concerned about the Dutch Disease. It compounds the unfortunate condition that in the face of such challenges, the Government would be so unreceptive to any attempt by the political opposition, the media, academics and civil society to engage in discussions and consultations on what must be the top economic, environmental and inter-generational issue to be faced by the country.
