Investing in Guyana's future
By Guyana Chronicle
Petroleumworld 11 19 2018
EARLIER this month, the former Prime Minister of Trinidad and Tobago Kamla Persad-Bissessar addressed the Guyana Manufacturing and Services Association Awards Dinner on the lessons that Trinidad and Tobago has learned from its own experiences with oil and gas revenues.
In her speech, Persad-Bissessar urged Guyana to think long-term by spending on infrastructure, education, health care, and specialised skills training, as well as oil exploration and electrification. On the issue of a Sovereign Wealth Fund (SWF), she cautioned against using the money to fund recurring budgetary expenses instead of investing it in specific programmes to help develop human capital.
Experts estimate that Guyana will receive hundreds of millions of U.S. dollars per year starting in 2020, likely rising into the billions per year by the middle of the decade. Given that rapid timeline, it's critically important for Guyana to strategise now about how to responsibly put a portion of that money towards long-term development. And, in order to maximise business development both within and outside of the oil-and-gas industry in Guyana, government regulations and processes must be transparent, predictable and not bureaucratically onerous to attract and retain businesses.
Based on her experience in Trinidad, Persad-Bissessar recommended that a national vision for spending oil revenues was key–including spending on physical infrastructure such as roads, railways, hospitals, and electrification and funding specialised education in the oil-and-gas industry for Guyanese.
Her ideas broadly fit with what many international experts from the World Bank, International Monetary Fund, Resource Governance Institute and others have recommended to Guyana. Her words also echoed what some other countries with successful SWFs have spent their money on, though different countries prioritise different areas.
The stage of development a country finds itself in when oil production begins is particularly important. Countries such as Norway and the United Kingdom were already advanced economies with modern markets, infrastructure, education, and healthcare when they struck oil. While both carry excellent lessons for Guyana, they may not always offer the best example for Guyana's first few years of oil development.
Norway, for example, used funds to invest in local businesses. But this is something with which Guyana must be careful. As an advanced economy, Norway could obtain minority stakes in Scandinavian businesses through established and regulated stock markets. Guyana has few publicly traded companies and so would need to invest more directly—something that must be done responsibly and transparently to avoid accusations of favouritism or corruption.
The early stages of oil development in countries such as Malaysia and the United Arab Emirates (UAE) are probably a better guide for Guyana, when it looks for ways to most effectively turn oil revenues into lasting development and improved living standards. Both were relatively undeveloped when oil revenues began, but now have comparatively high standards of living and human development.
Malaysia now boasts the second best physical infrastructure in Asia, according to the Global Infrastructure Investment Index. Its literacy rate, life expectancy, and rates of electrification and access to healthcare also far outpace its neighbours, according to figures from the United Nations. Its healthcare system in particular has been recognised as a successful system of universal care that is funded in part through oil revenues.
Its Sovereign Wealth Fund also has a largely successful track record of investing in Malaysian companies to encourage diversification outside the oil industry and into heavy industries and technology.
Other nations, like the United Arab Emirates, have invested aggressively in diversifying their economies into finance and other industries and built infrastructure and prestigious universities. Many also finance specialised education abroad for promising students as a way to build human capital.
Both Malaysia and the UAE planned out strategic long-term development strategies and then used income from their respective sovereign wealth funds to help achieve the goals—in line with Persad-Bissessar's suggestion that Guyana outline a national vision and use oil revenues to help achieve it.
Persad-Bissessar also recommended investing in further oil exploration, while advising that Guyana avoid the creation of a state oil company. She noted that state-owned companies find it “very difficult” to modernise and innovate and can lead to stagnation and entitlement.
Though Trinidad's experiences are not entirely applicable to Guyana, they should not be discounted out of hand either. Guyana is endowed with a large amount of resources per capita, and the potential is great to meaningfully improve Guyanese citizens' daily lives. On the cusp of oil production, it's more important than ever that Guyanese look around the world and learn from the mistakes and successes of other countries.
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