Editorial | Guyana mustn’t make oil a laxative
Smarting from having to ask Trinidad and Tobago for a loan during its oil boom of the 1970s, Michael Manley famously told a private meeting of the People's National Party (PNP) that the money was running through the twin-island Caribbean Community (CARICOM) member "like a dose of (Epsom) salts".
Trinidad and Tobago didn't, in fact, manage that first windfall well. So, when oil prices crashed in the 1980s, its economy went into a long tailspin. The Trinidadians, however, learned their lesson.
As inelegant as it may have been, the Manley analogy, at least the avoidance of its diarrhoeic effect, has a new relevance in the face of ExxonMobil's disclosure that an oil find off the coast of Guyana was perhaps twice as large, up to 1.4 billion barrels, as the size previously announced by the Guyanese government. At the lower end of the scale, Exxon projects the Liza-2 field to produce 800 million barrels of oil, or 100 million more than the initially projected top-end output.
At current oil prices, this find is valued around US$70 billion - and rising. But that's not the end of it. Guyana's offshore economic zone is a buzz of oil prospecting, which will be given a fillip by this find by ExxonMobil and its partners, Hess and China's CNOOC-Nixon.
Starkly put, the discovery of oil is potentially transformative for Guyana, a CARICOM member with a population of around 750,000. To put this into perspective, Guyana is among the hemisphere's poorest countries, with per-capita GDP of under US$4,000. Having benefited from forgiveness programmes for the poorest countries, its debt-GDP ratio has fallen to around 66 per cent. Its economy, heavily dependent on mining and agricultural exports, enjoyed decent growth for most of the past decade, but has recently slowed in the face of the collapse of commodity prices.
Muscle-flexing of Venezuela
The issue for Guyana, however, is what it is able to extract from its oil resources, and how well it manages and leverages what it earns. First, though, it has to ensure that these resources can be exploited and that investors/partners are not frightened away by the muscle-flexing of Venezuela, which claims large swathes of the country, including the offshore areas where oil was found. In this regard, CARICOM, with Jamaica, a close friend of Venezuela, playing a central role, must maintain its strong support for Guyana's territorial integrity.
Further, Guyana needs to build capacity and acquire expertise to help it safeguard returns from what is a finite asset. It will have to pass legislation for the oversight of a new industry as well as negotiate resource sharing, royalty and taxation agreements. Georgetown, of course, can hire specialist lawyers and other internal experts to help. But Trinidad and Tobago, a CARICOM partner, with its mature oil and gas industry, has expertise in these areas, which it should offer to Georgetown.
Jamaica, too, has expertise that it can offer, especially about the wasting of windfalls and the pitfalls of economic mismanagement. When bauxite and alumina were high-priced commodities and Jamaica was king of the pack, its production levy produced a bonanza, which didn't finance the planned diversification of the economy and expand infrastructure. That mustn't happen in Guyana, although the Guyanese have to be realistic about the absorptive capacity of their economy.