Preparing for Oil

Jul 01, 2012 Features / Columnists, Ravi Dev

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The search for oil within our boundaries is once again intensifying. We repeat this caution from 2007 about oil being a mixed blessing. 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 and1989. 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 demonstrated between the growth of the resource component of the GDP and conflicts within the countries. While the causation for this effect is complex and contextual, it challenges the widespread hope that with increased revenue our present 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 perverse for groups outside the administration to suspect that “in-groups” are 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 become 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. WikiLeaks cables suggested that the President of Sudan squirreled away over US$9 billion in British banks alone! Recently our President took cognisance of the sustained accusations of “corruption” that have bedevilled the administration, so he would accept that the opportunities for graft will increase in direct proportion to the increase in revenue when the oil starts flowing. And the potential for conflict over increased “marginalisation”.
To avert such conflicts, we have to devise 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 initiate a national consultation on development – along the lines of the Constitutional Reform Process in 1999 – to create a more focused growth strategy, with the understanding that the 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 officials, 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. Apart from denying pork-barrel schemes funded from the Consolidated Fund, the OFND will have to ensure that the oil industry does not flourish 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 involves all sections of the society.
We have long advocated the need for us to have a development bank to kick start the needed investment we all know are necessary to lift us out of poverty. The OFND would provide our own revenue stream and the International Financial Institution’s do not have to grant or withhold permission. We do not believe that Government itself should necessarily get into the ownership of new productive facilities, but should identify private entities which can be partnered and eventually assume total ownership. We commend the Entrepreneurial Catalytic State à la the Eastern Tigers.

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