Dear Editor,
An oil and gas industry could be very important for the development of any nation. But, it depends. International experience shows that even when many oil-producing countries achieve high rates of GDP growth, even when their incomes per capita increase, even when their middle classes grow, and even when attempts are made to develop non-oil sectors, their economies and societies are not transformed to sustain higher income levels, improved social services and better living standards for the majority of workers, farmers, the unemployed, the marginalized, the poor and the hungry in all ethnic communities. Why is this so?
In these countries, oil-dependent thinking predominates among the general population, among political, business, labour, and civil society leaders, and among academics and the media, regardless of whether they are on the left, centre, or right of the political spectrum or, indeed, whether they are non-political. The predominant beliefs are [1] that the foundation for the development of a country’s wealth is its comparative advantage in natural resources (oil, minerals, land, water, and climate) and in low-cost labour, and [2] that any country with large natural resources can ensure that no individual, family, or racial/ethnic community is left behind, if the government does its job.
A prime example of oil-dependent thinking is Venezuela which is a rich and, at the same time, a poor nation with massive inequalities in the creation and distribution of wealth, based on race and class. The upper and middle classes are predominantly of white ancestry. They enjoy North American living standards and services and consume large amounts of imported luxury products, specialty foods, and other goods mainly from the USA, Canada, and Europe. However, the majority of Venezuelans are brown, black and indigenous workers, farmers, and members of the lower middle class who mainly live in large barrios (low income and poor neighbourhoods) with sub-standard housing and sanitation, inadequate social services, and few job opportunities.
Most Venezuelans do not think that the unequal development of their economy and society is directly linked to an economic strategy based on the comparative advantage that has made their country overwhelmingly dependent on oil for 96% of all export revenues. Economic and political debates revolve almost exclusively around how the oil industry should be managed and regulated, and not around how to become competitive in non-oil sectors. Little value is placed on learning and understanding about the needs, preferences and consumption patterns of customers, about global supply chains, and about the relative position of Venezuelan companies compared to foreign competitors. Consequently, most companies do not think it is crucial to innovate by investing in research and development and by continuously training their employees.
Oil-dependent thinking fosters unrealistic expectations about what an oil and gas sector should do to develop and sustain economic and social benefits for all citizens. Firstly, to keep pace with very high annual inflation rates of between 25% and 63% for various products and services, Venezuelan oil revenues are used to award huge annual increases in the minimum wage, in salaries and in subsidies. Secondly, although Venezuela produces mainly crude oil, the state-owned oil company has a decades-old policy of maintaining the retail price for a gallon of imported gasoline at 0.04 US cents [about GUY$8]! Thirdly, the large annual increases in disposable income produce a massive demand for basic food products which even increasing national production cannot satisfy. As a result, Venezuela annually imports massive amounts of basic foods.
By contrast, although Malaysia, Colombia, Brazil, the United States of America, the United Kingdom, the Gulf States and Canada have sizable oil and gas sectors, their economic policies are based on developing non-oil businesses that compete to win and keep customers in various segments of local, regional and global markets. Fundamentally, the people and leaders in these countries share a national belief that successful wealth creation and distribution cannot be primarily based on comparative advantages in natural resources and on fiscal and monetary financial policies. These countries do not overwhelmingly depend on oil revenues.
With regard to the oil companies, these successful oil-producing countries always practice independent thinking. They ‘trust, but verify’ key aspects of the oil companies’ operations such as the actual number of barrels produced and exported, the actual prices and costs per barrel, the actual salaries paid out to employees, the real value of capital investments for determining real profits, the actual interest payments that are rolled into production costs, the real costs to clean up oil spills and to restore the oil drilling areas after the exhaustion of reserves, the real profits made by the subsidiaries and intermediary companies linked to the oil-drilling operations, the actual depreciation costs of equipment, and the true quantity of oil reserves.
In Guyana today, regrettably, too many politicians, private and public sector officials, leaders in the labour movement and civil society, academics, media practitioners, and too many members of the general public have similar oil-dependent thinking that is practiced in Venezuela with disastrous results. They pay little attention to prioritizing the sustainable development of the non-oil sectors.
Fortunately, President Irfaan Ali and his team of Ministers are practicing independent thinking to ensure that Guyana does not become dependent on fossil fuels, especially since there is a tight timeline because of a global shift to renewable energy sources.
President Ali correctly emphasizes that we Guyanese have to be “honest with ourselves, we have to change our own way of thinking and our culture” to find the best solutions. He correctly thinks that “The future of Guyana is not set in oil and gas; it is set in a diversified economy” with micro, small, medium-sized, and large non-oil businesses that become competitive in the most attractive segments of regional and global markets.
Likewise, Vice-President Bharrat Jagdeo has stated that “Guyana’s share of the oil funds has to be used to support the growth of a diversified economy and an export marketing program.” The Minister of Finance Ashni Singh informs that “Our focus is on the economic diversification of Guyana. We are going to pump as much oil as we can, but we want to ensure that our diverse non-oil sectors – agriculture, manufacturing, information and communications technology (ICT), tourism, mining, forestry and services (engineering, financial, construction, transportation, environmental, biodiversity, housing) – are competitive and sustainable.”
Presently, to drive the initial transformation of the economy, the government is focusing on building transportation infrastructure (roads, highways, small and large bridges, ferries), energy infrastructure (gas and solar projects), agricultural infrastructure (sea and river defenses, drainage and irrigation canals, agro-processing facilities), telecommunications infrastructure (broadband in riverine and hinterland indigenous communities) and tourism infrastructure (airports, hotels, resorts and a training facility). At the same time, to improve the daily living conditions of all Guyanese, the government is expanding social infrastructure (hospitals, nursery/primary/secondary schools, and technical and vocational facilities).
The government is independently implementing ground breaking and pioneering initiatives such as the Low Carbon Development Strategy which so far has earned nearly US$1 billion in carbon credits for preserving Guyana’s massive rainforest and which funds hundreds of economic and social projects in Amerindian/ Indigenous communities; the Local Content Act which has enabled about one thousand Guyanese companies to earn over US$800 million in providing services to the oil companies; the huge gas-to-energy project with the oil companies supplying the gas free of charge; and a new Production Sharing Agreement (PSA) for future oil projects, that improves on the 2016 PSA for the Stabroek Block, by increasing the royalty rate and, for the first time, by charging corporate income tax on oil production.
However, in addition to these achievements, there are two key additional groundbreaking initiatives that require immediate attention to transform the daily lives of working people. The government should regularly implement realistic cost-of-living adjustments in the minimum wage and in the salaries of employees in the public sector to address especially the high rates of inflation for food and rental accommodation. Secondly, to ease congestion and the exhaustingly long hours that most working people spend every day going to and from their workplaces, a public-owned transportation system should be initiated, in addition to the private minibuses and taxis; similar to what exists in nearly every city in the world.
Sincerely,
Geoffrey Da Silva
Guyana Ambassador to Venezuela (2011-2015),
Chief Executive Officer of Go-Invest, the Guyana
Office for Investment (2001-2011),
Minister of Tourism, Industry and Commerce
(1999-2001).