To export logs or not?

Aug 10, 2014 Features / Columnists, Peeping Tom

---

 
In yesterday’s column I made the point that while Guyanese love to boast about their country’s natural resources, these resources remain globally uncompetitive. I also contrasted the benefits that Guyana received from the exploitation of these resources by foreign multinationals with the benefits that have been yielded by the use of our human resources, namely our brain power.
This raises the question of whether we should be transitioning towards a knowledge-based economy rather than focusing on a resource-based economy. Certainly, when you examine what one call centre has achieved in Guyana, the records would suggest that there are more benefits to the people of Guyana by utilizing our human resources rather than allowing foreign multinationals to continue to plunder our natural resources.
But let us be fair also to foreign companies. It is not those companies alone that have been exploiting our natural resources. Locals have also been in our goldfields and timber forests extracting these resources. Apart from creating super-rich individuals, what is there for the country to show for all these extractive industries? I am not speaking about those homes and assets which the super-rich in Guyana hold in Florida and other parts of the world?
I am asking how have Guyanese taxpayers benefitted from all the wealth that has been generated by rich capitalists from Guyana. Where has this wealth been invested?
This is the dilemma of the resource curse. A country has resources, but to what extent that resource is used for the benefit of the masses of the people is debatable. And to what extent do the gains from these resources remain in the home country?
Cheddi Jagan was conscious of this dilemma. He recognized the need for private, inclusive of foreign, investment in Guyana. Despite being labeled a communist, Cheddi was never opposed to private investment. But he always felt that the interests of the working class had to be secured in such investments. This is why he always emphasized respect for workers’ rights and the need for the creation of jobs.
As a student of global politics, Cheddi had dipped into dependency theory, and he appreciated the need for developing countries to benefit from the value chain. Dependency theory had in part argued that when developing countries exported primary products, these were processed into higher valued manufactured products in the developed economies. As a student of dependency theory, Cheddi was of the view that developing countries such as Guyana needed to capture a greater portion of the value chain of manufactured goods through increased value added processing of natural resources.
Just as he came in to power in 1992, a number of Asian companies were interested in investing in Guyana’s timber industry. Many investments were lined up by these investors, not just in the forestry sector, but also in other sectors of the economy. This is a typical tactic of foreign multinationals in the natural resource sector. Their primary interest is really the extraction of natural resources. But in order to gain approval from the country, they throw in sweeteners, such as promising to build a hotel and other investments.
Right now there is a major Indian firm that is supposed to be building a massive hotel in Georgetown. This hotel it is said will cost more than the Marriott Hotel under construction in Kingston. Many observers feel that instead of a hotel, what will result is a hostel for foreign workers who will be coming to Guyana to work on the real interest of this firm, the mining sector.
Cheddi was not easily swayed by the big plans of foreign companies. He did not discourage these plans, but he was keen to encourage value-added activities in the country’s natural resources. He wanted, for example, more processing of timber to take place locally. He was also keen on a gold refinery being established in Guyana rather than the gold being shipped out of Guyana in a raw state. For him, this would allow for greater economic benefits to the country and the creation of more jobs.
This same debate is now raging over the exportation of logs. Should Guyana allow a foreign investor to ship out logs or should it insist that what should be exported is lumber; that is, processed logs, so that Guyana benefits from the in-country processing of its natural resource. I do not think that anyone needs to ask where Cheddi would have stood on this question. He would have discouraged the exportation of logs and insisted that sawmills be established locally and that only lumber and wood products be exported.
This debate about the export of primary commodities, driven by the growth of economies such as China, India and Russia, is not a new debate. It has been taking place over the past decade, and sadly, there is strong support for the argument that instead of seeking to promote value added production, it is sounder for countries to export primary products, because at this time these products are fetching a higher price internationally. Developing countries, it is contended, lack the capital and the technology to competitively produce value added products.
This is not an argument without some merit, and therefore, in as much as there is haste to condemn locally the exportation of logs, we have to ask ourselves what is the best option for Guyana economically. Should we seek to promote investments in processing and manufacturing or should we tap into the present high prices and demand for primary products?
In arriving at a decision, Guyana has to consider whether we will be able to be competitive in value added production and if markets exist for such production. The evidence tends to suggest the answer is not as straightforward as it may seem.
(To be continued next week)

---

---