It is instructive that the government has chosen to spend its first year in office crafting local content policy rather than passing long overdue regulatory legislation and establishing an independent and hopefully apolitical Petroleum Commission.
Indeed the abject failure of successive governments to pass updated laws since the discovery of oil six years ago reflects the complexities of the industry, how little the country understands it and how we will continue to struggle with its management.
The sector is already generating over half of Guyana’s total export revenues, and yet we have a temporary and tiny agency looking over it, while being generally uncommunicative and non-transparent on its decisions, including the criteria for the recent award of a marketing contract worth up to US$400M.
This prioritisation of local content is not accidental. It is what the private sector insisted on. But what businessmen want is not necessarily what is best for a country and its people. It is worth noting that in all the talk shops and commentary on local content the dominant narrative has been about opportunities for the private sector within the oil and gas sector: calls for a level playing field, access to cheap financing among other issues amid complaints about Trinidadian firms already taking over. The voices of the working class and civil society have been absent because while the conversation is couched in terms of creating jobs for Guyanese it’s actually about profits.
And this may prove to be a short term and misguided approach. That is because at the heart of the debate is an unavoidable contradiction: Pushing local content for the oil sector cuts against the long term goal of diversifying the economy and is the fastest way to bring the resource curse down upon us. Numerous studies have shown that in many countries oil becomes so large and profitable that it out competes other sectors, sucking up capital and labour thereby creating an economy dependent on a single industry and vulnerable to the volatility of oil prices. In the past this might have been an acceptable cost for the benefits of producing an energy source that has been for over 150 years essential to all modern human activity. However in the context of the coming energy transition and projections of peak oil demand, it is a risky path we are already hurtling down.
We see signs of it everywhere: Waterfront real estate along the Demerara which a decade ago had few buyers is changing hands for tens of millions of US dollars as the demands of the sector crowd out the development of other activities that need access to the river. The New Demerara Harbour Bridge was moved from its original proposed location to allow for the expansion of shorebase activity at Houston, with a likely increase in its cost. Capital, entrepreneurial energies and the attention of the private sector are fixated on oil. When it comes to labour there are already reports that the industry is siphoning off skilled workers. Engineers, electricians, welders, chefs are abandoning domestic companies. One barge operator has had to import labour after his crews went to work for the industry. In the public sector, agencies such as the EPA, GRA, MARAD and the Bureau of Statistics have seen their workloads increase many fold over the past five years. Flatbed trailers hauling miles of pipes, containers of liquids and other strange pieces of equipment traverse the congested streets of our “Garden City” day and night. This does not look like an economy planning to diversify. On the contrary, we are a nation gripped by oil fever.
Still, what might be some possible palliatives to avoid becoming an economy utterly consumed and dependent on oil and gas even if that is still possible? One might argue that exactly the opposite of local content should happen and the industry should be ring fenced so that local capital and expertise are not sucked into it. However such extreme measures would go against the right of local businesses to compete and thrive in the sector. Instead local busi-nesses should be steered through various incentives into other industries as part of an aggressive programme to diversify the economy from now. Hospitality and tourism is an area that has promised for decades but now has the potential to expand rapidly. Incentives should also be based on geo-graphy because when one looks at the oil sector it is currently completely Georgetown-centric and the opportunities and benefits are not being shared equally to citizens in other regions. In this regard it is hopeful to see recent agricultural projects in the intermediate savannahs are now developing corn and soybean for the local chicken industry.
There are only two points to make about local content. One is that any regulations ought not to result in an increase in the cost of the offshore projects as that would ultimately mean a diversion of revenue away from the Natural Resource Fund and the development of the country and its people and into the coffers of the business sector. This was something Vice President Bharrat Jagdeo had men-tioned at the February local content policy forum, “we want to lower Exxon’s costs to the extent we lower their costs there’s more money for profit oil…We believe in the long run if there is a differential for pricing for labour and others, this must accrue to the benefit of the company and the country, not to a subcontractor.”
Secondly there is much talk about carving out areas exclusively for Guyanese firms or insisting on joint ventures with a local partner. This would need to conform with the Treaty of Chaguaramas and the free movement of capital across the Caribbean.
Any local content emphasis should primarily be on jobs and the systematic transfer of skills from expatriate workers to local employees over a well-defined period to create a cadre of highly skilled Guyanese that can begin to take ownership of the industry. Some of this is already happening through numerous training courses but more should be done once the needs of the sector for the next ten years are fully understood. It is also encouraging to see the government offering industry related scholarships and this could go a long way in building more regulatory capacity. Managing a 1.5M-barrel per day industry cannot be done by the current skeleton staff.
Like cheap electricity, a local content policy is not going to be some magic bullet that will transform the economy. Guyana’s issues run much deeper. What is most needed is investor confidence in the country’s political stability and in the consistent and trans-parent application of regulations.
