Introduction
Last week’s column provided information for readers seeking a basic appreciation of the role the gold industry (Guyana’s leading mineral sub-sector), plays when assessing the pitfalls posed by its dependence on extractive industries. Today’s discussion provides similar information on the bauxite industry (the second leading sub-sector), and also aims to highlight its major pitfalls.
The belief, which drives these columns, is that Guyana is on the cusp of fundamental developments in its oil and gas sub-sector. Such developments will have profound effects on the country’s overall production possibilities, and consequently, the effective determination of what can be considered as its potential output. From my perspective, such effects could be profoundly structural, and indeed likely transformational in their scope. And, with appropriate cautions, this factor should therefore enter into contemporary assessments of Guyana’s economic outlook, forward management, and vision.
Already, close observers would have noted from media reports that there have been stepped-up public deliberations, engagements, and announcements as regards to 1) extended oversight of the extractive resources sector 2) its fiscal regulation and 3) its future financing and budgetary management. Rightfully, these concerns should continue to engage Guyanese Authorities, and the wider public.
Origins
Bauxite, like gold, has been exported from Guyana for about a century; after being ‘discovered’ at the end of the 19th century. The Aluminum Company of America (Alcoa) had at that time incorporated the Demerara Bauxite Company (Demba) to engage in bauxite mining. Of note, Guyana’s bauxite resources are considerable, and have for long been estimated at about 350 million tonnes.
Guyana’s commercial bauxite production started in 1917. And, from that time to its nationalization in the 1970s, the industry was owned and controlled by two North American multinational corporations (MNCs) ̶ Alcan and Reynolds. During the inter-war years (1917-1939) Guyana was the world’s third largest bauxite producer, after the United States and Suriname. During World War II (1940-1949) further expansion took place, and Guyana became the world’s second largest producer, accounting for as much as 17 per cent of world output.
During the 1950s bauxite export was focused on 1) higher grade calcined bauxite (for which Guyana had an effective monopoly); and 2) processing of primary bauxite into alumina, beginning in 1956.
The decade following the 1970s nationalization has been described in the National Development Strategy (NDS) 2001-2010, as “a period of reasonable success”. Bauxite output grew; the nationalized companies recorded positive net income; and, their contributions to the economy expanded through dividend payments, taxes, employment, and export earnings. Thus for the period 1971-1979, bauxite’s average contribution to GDP was as much as 13.9 per cent and to merchandise export earnings, even higher, at as much as 43.4 per cent. However, the decade of the 1980s saw dramatic reversals.
Despite Guyana’s possession of high quality/grade bauxite, nature has placed steep physical obstacles on its extraction. This is particularly in the form of 1) high levels of overburden to ore, (ratios above 4:1), which must be removed to access ore deposits, and 2) shallow river channels, which have to be regularly dredged, as they severely limit the carrying capacity of boats used to ship the bauxite from the mines to overseas. In the 1980s Guyana lost its ‘leading’ status among world bauxite producers. The alumina factory had to be closed, and the export of calcined ore declined by one half; that is, from around 600 thousand tonnes to about half that amount.
Observations
While these columns focus on the performance of the industry in terms of output, export volumes, sales, price, costs, employment, contribution to GDP, (along with other mining and quarrying activities) the broad contours of its ownership over past decades are crucial for understanding where the industry is today.
Readers should be aware that, nationalization of the industry in the 1970s, was part of a political drive aimed at localizing control of the “commanding heights” of the economy under the state, and implied by removing bauxite ownership from private foreign MNCs. This was represented then as essential for ensuring both local control of local resources, along with aiding the end to external exploitation of the country’s mineral resources.
This strategy conformed to the then strongly held anti-colonial worldview.
But, as will be gleaned from coming discussions of Guyana’s extractive sector, embedded factors ensured that such endeavours were rarely ever commercial successes in ex-colonial countries. Thus in Guyana bauxite production and export earnings declined substantially; heavy commercial losses developed, along with other major reversals. Three of these are singled out below for their broader significance to the analysis.
First, efforts of the nationalized industry to add value to primary bauxite production, particularly through the further processing of the product into alumina, generated substantial losses and the plant had to be closed in 1982.
Second, as indicated, Guyana was the world leader in the global supply of the special bauxite product known as calcined bauxite. This product is used as a special abrasive material in blast furnaces. However, Guyana’s unreliability as a supplier after nationalization made the country so notorious that China’s export (of what was in effect an inferior grade bauxite), came to be generally preferred by global purchasers, because of its assured supply. Thus, in effect, Guyana’s premium product was replaced because it became costly and risky for blast furnaces to fall short of essential supplies of calcined ore!
Third, following such reversals, significant commercial losses emerged, leading to neglect of the maintenance of bauxite processing plants, mines, and their related infrastructure. As would be expected, this contributed to substantial declines in both plant productivity and company profitability.
Notice
Next week’s column will interrupt this series on extractive resources dependence to provide a one-off discussion of the situation at the Wales Estate. The series will therefore resume discussion of bauxite on the following Sunday (February 14, 2016).
