Dear Editor,
Despite positive growth in recent years, Guyana’s economy seems stuck in the Lower Middle Income trap characterised by a low growth scenario. In recent years economic growth has failed to reach its targeted level despite downward revision on a number of occasions. The last five years (2014-2018) saw real growth fall below the 4% level with an even more dismal 2.1% growth performance in 2017. Last year, real economic growth was 3.4% below the 3.8% target with the main pillars of the economy: gold, sugar and fishing suffering declines while rice production was at the margins. Except for mining the main source of growth was the service sector which is a large user of foreign exchange and with limited export potential. Lower production in the main sectors in part led to a decline in exports by US$45.1 million and a widening of the Current Account Deficit to US$463.8 million in 2018.
The level of economic growth explains why poverty estimated at 35% has not improved much in the last decade, despite access to very generous resources (highly concessional and grants). Empirical research have shown that a country needs to grow at least by four percent for it to translate into a one percent increase in per capita income. I wrote before that a major reason for Guyana’s meagre economic performance is low labour productivity. Therefore, it is not surprising that the recently published labour survey (2017) by the Stats Bureau in Guyana showed that just around half of the working age population received only primary education with another 10% receiving no schooling, while a meagre 2.8% has a university degree. Mind you, this is a country that has the largest exodus of skills with tertiary and university education to developed countries based on IMF Research. It is therefore not surprising that attracting good quality labour was identified as a major constraint on its competitiveness, not to underestimate the pathetic, unreliable electricity supply and power generation. Higher human capital will not only raise the return on investment but will allow the economy to double its size in just over two decades with sustained improvements in per capita income.
The current strategy of the politicians is to wait for first oil to flow when nirvana will suddenly arrive. However, this new oil find will only take Guyana to a new equilibrium with increases in revenues but will not contribute to higher income and employment for the majority of the population. The extractive industry with its enclave structure will increase GDP but the Gross National Product that translates into a higher standard of living will increase far more slowly. Policies have to be geared to address the binding constraints on growth. In addition to high unemployment, workers in general are engulfed in a crisis condition that wages can hardly meet the cost of living. Despite the present government’s promise of “a good life” money in people’s pockets has certainly dwindled and not jingled.
It baffled many why two foreign commercial banks will close their operations here when oil is to start flowing in 2020. The decision especially by Scotia Bank to close its operations will be a severe blow to the banking sector after it survived the harsh economic season of the 80’s considered as the lost decade for Guyana. Scotia has a large portfolio in the mining sector especially gold and is a major player in the foreign exchange market. Scotia also has a good mortgage portfolio, its exodus at time when two local banks lost Correspondent Banking Relationships will be a handicap to business. A useful commentary was made by Dr Thomas Singh in the Stabroek News letter column (08/12/18) where he pointed out that “Actually, what ScotiaBank and the Bank of Baroda have done is not so much to bet against oil rich Guyana but to bet on an undiversified Guyana economy …(and) not (be) deceived Editor by talk of the EITI and the Natural Resource Fund, oil revenues (which fall within the classic definition of Ricardian rent) … Wherever there are rents there will be rent seekers and rent seeking behaviour!”
New oil finds in Africa offer perfect examples of rent seeking behaviour with the creation of new groups of parasitic kleptocrats. The nexus between finance and economic development is well established; therefore Scotia’s and Baroda’s exits do not augur well for the future.
Indonesia offers a good lesson on best practice in managing the revenue windfall from first oil. Indonesia has been able to diversify its exports away from oil with a larger share of non-oil exports. Venezuela offers the best example of how quickly a country can be transformed from riches to ruin with oil dependence. Being a capital intensive offshore project in Guyana, oil expends more than eighty percent of every dollar earned leaving a profit to be divided. Further, the oil price is extremely volatile in the boom-bust cycle. Limited diversification in exports and a narrow economic structure will accelerate shocks to the domestic economy. This limits the scope for productivity growth and quality upgrade. Diversification into products with longer quality ladders or a value chain is the path to sustained development in Guyana.
Finally, the stagnation and social deficit that plagues Guyana is not only economic as it is political. In fact, the economy is in crisis because the politics is in crisis. Ever since Independence, a fractured political system that practises the politics of exclusion is responsible for our economic and social decay. Today some five decades later, the writing on the wall remains even clearer that only a fair system of shared governance with the participation of all the major stakeholders will lay the foundation for real economic growth and social progress in the long run.
Yours faithfully,
Rajendra Rampersaud
