Introduction
Today’s column continues to elaborate on the meaning I am intending to attach to the three key concepts referred to in last week’s column; namely, extractivism, petrostate and happenstance. I had formally introduced these concepts last week as going forward I rely on them in framing the methodology informing my analysis of the dynamics of Guyana’s economic growth and development of its wider social, political , environmental and other societal systems.
Before pursuing this effort, I pause here to offer readers my view on what constitutes the extractives sector in Guyana. Completion of this task will round off last week’s discussion of extractivism.
Extractives Sector
I’ll start with any standard textbook definition of an extractive industry or sector. This would focus on commercial or other operations that are centred on the physical removal [extraction] of natural resources such as oil, gas, metals, minerals, stones and sand from the earth. Extractive processes would therefore include mining [bauxite, alumina], dredging and quarrying and oil and gas extraction wells. In recent decades the coverage of the extractive industry has been widened to include forestry and fisheries. From the perspective of Guyana, I would add further, sugar production, based on Professor Barbara Bernier’s strong recommendation in The Sugar Belt: Redefining Extractive in the Era of Extractivism.
Petrostate
In last week’s column I had reminded readers that I had introduced the concept of extractivism to this Sunday Stabroek column series during the time I had been evaluating Guyana’s forest sector. This was immediately prior to my shift in focus of the columns towards oil and gas following the country’s world class petroleum finds starting in 2015. However, in the case of the petrostate, this concept has been intermittently applied throughout the seven years of the oil and gas focus. Today’s column formally introduces the concept of the petrostate as applied here by me.
To be clear therefore, I am comfortable with most definitions of the term, petrostate, as it is defined in a simple google search. Consequently, for readers’ convenience, I have adopted and shall employ in this analysis Wikipedia’s definition. This definition requires two complementary features. The first of these is that for a petrostate [or oil state] to emerge is for a nation’s economy to be empirically demonstrated as having a heavily dependent relation on the extraction, of petroleum products mainly oil and gas. That is for income generation and government revenue, with both tied to the nation’s reliance on a narrow concentration of export of petroleum products mainly, oil and/or natural gas.
Second, Petrostates must also have highly concentrated political and economic power, with both resting in the hands of narrow elites. Typically, political institutions are found to be hugely non-transparent as well as broadly predisposed or biased and therefore susceptible to corrupt behaviours.
Readers should be aware that, contrary to general presumption, the presence alone of large oil and gas industries is not sufficient to establish a petrostate; Indeed, Wikipedia cites countries like Norway, Canada and the USA that are among the world’s largest oil and gas producers and are also highly diversified economies.
Related features
Definitions of petrostate are frequently accompanied with references to features that uniquely typify them; examples from Wikipedia are cited below:
Economy
Wikipedia states that, because petrostates are typically narrowly specialized export-dependent economies; they are consequently highly import dependent on foreign supply of goods, services as well as finance and capital for its oil related investments. Many of them, similar to Guyana are relatively small economies when measured by a mix of indicators such as population/GDP/ geographic area. Relatedly, petrostates are on balance weak economies, because historically they have been cursed with pervasive inherited poverty at their early phase of construction.
Governance
Wiki states Petrostates are frequently autocracies. Generally their citizens are discouraged by their dependence on government oil revenue. Their score on governance is mixed.
Dutch disease
Petrostates’ reliance on oil and natural gas may preclude the development of other industries. The presumed mechanism is that as revenues increase in the growing petroleum sector the nation’s currency appreciates resulting in the nation’s non-oil exports becoming more expensive for other countries to buy, and imports becoming cheaper, making those sectors trend towards becoming less competitive.
Resource curse
Global energy prices are volatile leading to wide swings in petrostates undiversified reliance on oil and gas industries. Petrostates can suffer from their abundance of petroleum resources if these result in detrimental impacts on other parts of the economy along with adverse negative social and political impacts. The resource curse is also termed the paradox of plenty referring to their failure to 1] reap full benefits from their natural resource wealth 2] respond effectively to public needs 3] while having comparatively higher rates of conflict and authoritarianism, alongside lower rates of economic stability and economic growth.
Conclusion
Next week’s column continues my evaluation of Guyana’s petrostate credentials. I begin by first introducing the empirical data revealing its petroleum dependence. This is followed with reference to studies making similar attribution in recent years. Afterwards I introduce the third key concept, happenstance going forward.
