LCDS and Oil

Jul 19, 2009 Features / Columnists, Ravi Dev

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Many Guyanese are frustrated at the slow pace that the efforts to extract our confirmed oil reserves have been proceeding. However oil has proven to be a mixed blessing to so many other poor countries that Lee Quan Yu once avowed that he was happy that Singapore did not have oil.
This statement may seem counterintuitive but the ground reality is that resource-rich former colonies in general and oil rich ones in particular have been the worst performers as far as increasing their growth rates are concerned. One study showed that countries that depended heavily on resource extraction in 1970 grew at a measly average of 1% between 1970 –1989. As a consequence their people have not experienced the dramatic increases in standards of living in such resource-poor countries like Singapore. Such results cry out for explanation.

Recently, a strong correlation has been also demonstrated between the growth of the resource component of the GDP and conflicts within the said countries. While the causation for this effect is complex and contextual it challenges the widespread hope that with increased revenue our squabbles over whether “marginalisation” is real or imagined will disappear. This effect of increased conflict is especially noticeable in divided societies and should be of major concern to our policymakers. Not surprisingly, most conflicts have at their base a nexus with economics and as the stakes rise with the flow of oil revenue into the national coffers it is natural that competition for those revenues would increase.

In divided societies it is not natural for the groups outside the administration to suspect that the “in-group” is being favoured.
If the increased revenues are not equitable distributed, the growth frontier of the country as a whole is inevitably constrained since the creative potential of significant segments of the population are not allowed to flower – and becomes lost to the society. All modern growth theories show that sustained high growth rates are only possible when the widest possible cross section of the society are involved. Social capital and all that. Increased conflicts – whether hot or cold – inevitably hinder economic activity and growth and in so many instances precipitate a spiral of increasing poverty and death in the midst of “plenty”.

The most significant factor in ensuring that countries remain locked in low growth rates and mired in poverty while the dollars keep pouring in is what the economists like to call “rapacious rent-seeking” – but we laypersons recognise by the catch-all expression, “corruption”.
Corruption, from all studies, appears to be the major by-product of resource extraction from even the developed countries – much less the poor ones like Guyana. Whether the administration has taken heed or not of the sustained accusations of “corruption” that has bedevilled them up to now, it must accept that the opportunities for graft will increase in direct proportion to the increase in revenue when the oil starts flowing. And so the potential for conflict over increased “marginalisation”.

Even from the limited review of possible pitfalls in the development of our oil potential it is obvious that if we want to head off such increased conflict (which even without oil has been an albatross around our neck for half a century) we have to come up with a model of development that will involve the greatest number of our citizens as the oil revenues begin to flow in the next decade.
We propose that the Government later extend the present Low Carbon Development Strategy (LCDS) consultation to include a wider industrial policy strategy, with the understanding that future oil revenues will be utilized to fund the projects proposed by the strategy. A national consensus on development projects should go a long way towards ameliorating the conditions that precipitate conflict over “marginalisation” of any group. We suggest that “Ethnic Impact Statements”, which we have long advocated, accompany every project to address concerns over ethnic favouritism that have bedevilled us for so long.

To ensure that the oil revenues do not flow into the pockets of corrupt politicians it would be best to constitute an independent “Oil Fund for National Development” (OFND) that operates on transparent accounting rules to ensure that all oil revenues are accounted for. The rules of such transparency have now been fully endorsed by the international community so it would not present any problems to so-called “privacy” needs of corporations.
To place the oil revenue directly into the Consolidated Fund is to ensure that at the very best (assuming no sticky fingers) the money will be fritted away in pork barrel showy schemes with no long-term impact on our sustainable development.

The OFND will have to ensure that the oil industry does not blossom at the expense of other previously important production sectors, such as agriculture and fishing and ensure that the economy diversifies into manufacturing and higher technologies – and involve all sections of the society.
It is obvious that such an entity as the OFND, which would be organised along the lines of development agencies that catapulted the Eastern Tigers from Third World into First, would have to have the widest possible support to earn the necessary legitimacy that is crucial to its eventual success.

There is also the issue of expertise to run such development strategy. Now there has been much speculation about the possibility that the President may seek a third term because he is such a young man and it would be a waste to lose the expertise that he has gained in both the Finance Ministry and the Presidency.
We agree that we do not have the luxury of jettisoning our hard-earned recourses – especially human recourses – but we believe that seeking a third term will put unnecessary pressures onto our already fragile political system. A better use of the President’s expertise and experience would be for him to take charge of the OFND and execute its mission to take Guyana, with dignity, into the 21st Century. This would be a fitting legacy for a man who began his working career in the Office of Development in this country.

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