Back in February 2021 President Ali told a local content forum that “While it [oil and gas] will be one critically targeted area, the local content policy is one that will cover every sector of the country. There is focus on insurance; the banking sector; development of manufacturing capacity; rentals, human resource transformation; and training and development in all emerging areas of the economy.”
It is not clear when President Ali’s objective for a multi-sector local content policy was abandoned but over the following months the focus of the various consultations – almost exclusively with the country’s private sector organisations – was on oil and gas. And sure enough when the legislation was finally unveiled only days before it was passed there was no mention of any other sectors.
Now the country has had seven months to gain an initial assessment of the law’s effects upon the sector and the economy as a whole. It is a mixed bag.
What is becoming clear is that there is a major shortage of labour, both skilled and unskilled. Only this week we have learnt that AMCAR, a producer and exporter of heart of palms, is to close its Rosignol factory with the loss of 24 jobs. Chief Executive Officer Jean-Francois Gerin said the company had no choice as it could not find workers to source the vegetable which is a delicacy in Europe. He postulated that the labour shortage might be a result of persons leaving Berbice or venturing into other forms of work: “We’ve been battling to find extra labour force because we have about 200 jobs available for harvesters in Berbice…but we cannot find labour…and generally there is a shortage of labour in Guyana.” It is hard to reconcile these remarks with the recent $250,000 grants to unemployed GuySuCo workers and the project to offer 3,000 part-time government jobs in Berbice.
But it does appear to be the case: Banks DIH director Ramesh Dookhoo recently lamented that operations in some private sector entities have been crippled by the loss of hundreds of skilled and technical employees to companies associated with the oil and gas industry. Truck drivers in particular are in high demand by the industry with its insatiable need for equipment and pipes.
Mr Dookhoo’s proposal was for more effective and targeted training and the importation of migrant labour, which given all the talk that local content was about creating jobs for Guyanese can only be seen as highly ironic. Foreign Secretary Robert Persaud has also talked of Guyana needing some 100,000 imported workers. That may be an exaggeration but even 50,000 would be a massive strain on the Ministry of Home Affairs to process and approve work permits. It managed 4000 in the past two years. A far more significant issue would be where and how to house, feed and transport such a workforce in what are already a stretched real estate sector; food supply chains that are susceptible to weather; and a road system that is highly congested. Guyana is simply too small for the level of activity the oil and gas sector is generating. And this also applies to land with Guyana Manufacturing and Services Association (GMSA)’s President Rafeek Khan recently stating that: “We also have a challenge, many businesses are complaining about the availability of land.”
It must be said that some of these issues would have arisen regardless of the local content legislation and that it is not all negative. It is very heartening to see young people getting jobs in a sector that generally pays better than other industries, and that is focused on the safety of its employees and the development of their careers. Speaking to several young people there is an optimism about their futures in Guyana rather than what has been for decades a cynicism and an overwhelming impulse to migrate. And the spillover effect of the sector has meant a substantial increase in economic activity along the coast. Finally it should be noted that without oil revenues – that will top US$1B in 2022 or almost half the national budget (before additional requests) – Guyana would have been in an incredibly precarious economic position as fuel and food import costs rise as has been the case in Suriname and in the most extreme case Sri Lanka. Even the Guyana dollar has appreciated against the US dollar in recent months.
However the main danger going forward is the resource curse that will be very hard to avoid and is actually being exacerbated by the same local content legislation. That is because the legislation’s very purpose is to encourage local entrepreneurs to divert their capital and energies away from their core businesses and into oil and gas. Furthermore this is being done by looking to carve out various categories, or by creating restrictions on foreign companies. The effect has been to create local oligopolies which will enjoy windfall profits and increase the costs of the oil projects themselves and by extension result in lower revenues to the government and the people of Guyana. A useful way to imagine this is to picture a waterfall of oil money under which the private sector gets to put their buckets before the revenues reach the government. It was something VP Jagdeo warned against at the same local content forum when he said “because 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.”
But this is very much par for the course for the country’s business class that has long benefited from a suspicion of foreign investors that has meant a largely closed economy. Thankfully President Ali has also said that, “Local content is not meant to be static… as our country continues to grow and change in nature, different aspects of the economy will evolve and the document has to evolve to match this development.”
If the administration is really serious about building a diversified economy resilient to the inevitable oil price slump, they would be wise at some point to review how the legislation is working and make adjustments that are to the benefit of the country as a whole rather than just their friends in the private sector.
