By Samuel Brathwaite
Dr Samuel Braithwaite is a Lecturer in the Department of Economics at The University of the West Indies, Mona. He is also a technical consultant at Growth Perspectives Ltd.
In the Friday March 17, 2023, edition of the Jamaica Observer, Dr. Damien King, retired senior lecturer and my former colleague at the University of the West Indies, weighed in on Guyana’s economic development by offering an unflattering, dismal, and biting characterization of Guyana’s prospects for economic development, concluding that, “mark my words, Guyana is going nowhere.” King’s concerns have disrupted the glowing and lopsided narrative on Guyana which has dominated the headlines in Jamaica, and the wider Caribbean.
King’s concerns, valid as they are, should have been couched in more measured language. To speak to the “resource curse” is one thing, but to make inflammatory statements is imprudent and ill-advised. In what appears to be an attempt to soften the blow of his intemperate and caustic statements on Guyana, King then wishes that Jamaica never discovers oil; apparently Jamaica too will “go nowhere” should it find hydrocarbons in commercially viable quantities.
While this series of articles are motivated by King’s comments, I am keenly aware that having not placed his thoughts in an article, the totality of his argument has not been presented. Indeed, it is not entirely clear what is meant by “going nowhere.” Will Guyana become Venezuela, a country with a population 35 times that of Guyana? Will Guyana become Nigeria, a country with a population 266 times that of Guyana and most of its oilfields on land? Will Guyanese engage in a protracted civil war? Given the uncertainty of what it means to “go nowhere,” this article is not a fulsome rebuttal, perse.
Singapore the Outlier
Not surprisingly, King cited the phenomenal growth of Singapore. Lee Kuan Yew, a man who disparaged Afro-Jamaicans with racist comments in his book, “From Third World to First”, is revered by some commentators in Jamaica. It seems no discussion in Jamaica on economic development is complete without mention of Singapore.
Did Singapore become a bastion of high economic growth and development simply because of good governance? Are we to ignore the repressive nature of Singaporean politics and media? What are we to make of the fact that Singapore is a small island in the Malacca Strait, without natural resources, occupying a geographically critical chokepoint where about 40 per cent of world maritime trade passes through? The economic development (human development) of a country cannot be pinned down to a singular factor. The economic development of a country rests on a concatenation of factors: geography and history are critical.
Notwithstanding good governance, economies like Hong Kong and Singapore became well off largely because they were colonies of settlement. Hong Kong and Singapore were strategically important “outposts” for the British in a region of the world historically known to produce myriad manufactured goods, many of which occupy your home. Is it any wonder then that Hong Kong and Singapore are major financial centres in the world of finance? These outposts allowed for western capitalists to interact with their ethnic Chinese counterparts regardless of the economic model embraced by China, thereby allowing for the uninterrupted creation of wealth. In the past, wealthy Chinese nationals have migrated to Singapore when they saw it as necessary to protect and grow their wealth. More recently, Beijing’s draconian COVID-19 restrictions have increased the migration of wealthy Chinese to Singapore.
Countries like Guyana and Jamaica were colonies for the extraction of resources. Nothing much has changed today. Instead of sugar leaving in ships for the ports of Bristol, Liverpool and London, our best resources, our people, are currently recruited to staff hospitals, classrooms, factories etc., in the United Kingdom, the United States, and other developed countries.
The Resource Curse
Economic research has shown that countries which are well endowed with natural resources have underperformed economically relative to less endowed countries; this is the so called “resource curse”. The resource curse can be caused by different factors: economic, political, social etc. The Dutch Disease is one source (economic) or expression of the resource course. Interestingly, the term “Dutch Disease” (The Economist 1977) predates that of the term “resource curse” first used in Richard Auty’s 1993 book, Sustaining Development in Mineral Economies: The Resource Curse.
The term “Dutch Disease” originates from the discovery of large deposits of natural gas in the Netherlands. This natural resource boom resulted in significant inflows of foreign currency which led to an appreciation of the Dutch Guilder; imports became cheaper, and non-gas and non-oil exports grew relatively expensive. The relatively expensive non-gas and non-oil exports lost their international competitiveness, resulting in the decline of those industries. While the case of the Netherlands epitomizes the Dutch Disease phenomenon, the Dutch Disease can be broadly viewed as the decline (deindustrialization) of some exporting sectors of an economy due to a resource boom in another exporting sector. The process which leads to the Dutch Disease does not necessarily have to result from currency appreciation (in real terms) and the concomitant loss of competitiveness.
Gavin Hilson and Tim Laing in their paper, “Guyana Gold: A Unique Resource Curse?”, posit that Guyana’s agricultural sector (rice and sugar) has suffered at the expense of the gold mining industry; notwithstanding, of course, the impact of the removal of preferential trade arrangements. Increases in the world price of gold have pulled agricultural workers away from the coast into the mining areas of the interior. When there is a slowdown of activity in the gold fields workers return to their coastland jobs. This movement between jobs is not new as sugar workers have traditionally been known to engage in other economic activity during the “out of crop” period when their labour is not needed on the sugar estates. What is different now is that their movement negatively impacts the productivity of the sugar industry. The superior wages earned in the gold fields relative to agriculture has resulted in a non-traditional form of the Dutch Disease which negatively impacts the output of the agricultural sector.
There is an alternative view that the Dutch Disease phenomenon is simply a natural structural shift that in the long term could result in a higher standard of living for a country.
Whichever way you view the Dutch Disease, it is important for the Government of Guyana (GoG) to ensure that Guyana’s agricultural sector remains viable. Guyana holds the agricultural portfolio in the quasi-cabinet of CARICOM and within the last year the GoG has led the charge as regards committing to reducing CARICOM’s food import bill. This is welcome. This is necessary.
The Environment and Oil Extraction
Concerns about the pace of Guyana’s oil exploration without sufficient priority given to environmental concerns have been raised by Guyanese. The call is for a more careful approach,one that balances economic growth with lowering the probability of environmental disaster and that sufficiently prepares the country to mitigate the negative effects of a potential disaster.
The probability of an oil well blowout varies depending on the type of operation being conducted; a “drilling operation” has a higher probability of a blowout compared to a “production operation”. Of course, should production occur beyond safe production limits the probability of a blowout increases. According to European data the odds of a blowout can be as high as 1 in 500 (drilling) to a low of 1 in 103,093 (production); the odds of being struck by lightning is 1 in 15,300.
It is my considered view that the discovery of oil in Guyana was going to happen based on ExxonMobil’s timetable. The supermajors (large oil companies) have the scientific and technical resources to extract Guyana’s oil which is at ultra-deep levels. In 2002 I read an online report from the US Geological Survey (USGS) which noted that about 15 billion barrels of oil can be recovered, with a high degree of certainty, in the Guyana-Suriname Basin; surely the supermajors would have been privy to this information. The question is, why would an oil firm want to extract oil from a location (Guyana) where it is difficult to extract, and with a well-developed industry next door (Venezuela)? The Economist (August 3, 2013) provides an answer, and I quote:
“[t]hese days more and more NOCs [national oil companies] are able to do without the supermajors’ help. This means the supermajors are increasingly reliant on oil which is hard to get at: either because of geology (oil buried deep underwater and far from any shore); or because of chemistry (oil mixed up in tar sands and the like); or because of politics (oil in countries politically difficult to deal with). Their size, know-how and experience serve the companies well in such plays.”
This desire to go after oil which is “hard to get” resulted in the Deepwater Horizon disaster (Macondo Well, Gulf of Mexico). Drilling was occurring in about 5,000 feet of water and over 13,000 feet under the sea floor; a total of more than 18,000 feet. In the case of Guyana, the Liza Discovery for example was drilled to a total of approximately 18,000 feet in about 6,000 feet of water. It is precisely because of the similarity in depth between the Macondo Well and Guyana’s oil wells that concerns have been raised. Aside from industry standard blowout prevention measures, no doubt upgraded post Macondo, ExxonMobil and its partners are required to store and maintain a capping stack in Guyana. Capping stacks, created in response to the Macondo disaster, weigh between 50-100 tons and are used to plug a well in the event of a blowout. I have found no evidence that this critical piece of equipment is currently in Guyana, and I do not know what the timeline for delivery is.
On June 8, 2023, Justice Rishi Singh of the Guyana Appellate Court, stayed an order of a lower court requiring that Exxon Mobil provide an unlimited guarantee to cover any potential oil spill. The June 8 ruling requires that Exxon Mobil, the parent company of Esso Exploration & Production Guyana Ltd., and its partners must provide a guarantee of US $2 Billion insurance by June 18, 2023; to put into context, US $2 billion is only the clean-up cost Exxon paid after the 1989 Exxon Valdez oil spill. This creates a dilemma; a disaster will be costly but so too will an adequate insurance premium.
