US$300M cannot kick-start economic transformation

Feb 23, 2018 Features / Columnists, Peeping Tom

A man in the street asked how oil revenues will affect his life. I asked him if he was a contractor. He said no. I told him that he must not expect any serious improvement in his financial fortunes. He then asked how oil revenues will transform the economy. I asked him what transformation he saw as a result of the increase in gold production in 2015. He said that he did not see any significant transformation.
In 2016, gold exports raked in US$830M. This was US$300M higher than the previous year. So what difference did this additional US$300M make to the economy? Not much, judging from the man-in-the-street reaction. In 2018, people are still complaining about the sluggishness in the economy.
It seems to have escaped notice, but with all the talk about oil, the Guyana dollar has depreciated in recent weeks. At the cambios, the US dollar is being bought at $210, which used to be the old selling price which has now increased to US$213.
Prices of imported items have started to increase. A Mars or Milky Way chocolate bar is now $250. A few years ago, it used to be $200. Other import prices are increasing. And this is even though Guyanese expect oil revenues to come their way.
According to the government, Guyana will earn approximately US$300M in the forty years of oil production. So Guyana will have US$300M more to spend. And this is exciting Guyanese so much so that they are staying very quiet about the scandalous oil deal which was signed between the government and Exxon.
In 2016, the government earned an additional US$300 M from gold, but this did not lead to a single new major infrastructural project in the country. All the major new ventures were all PPPC projects which are being rolled over. The US$300M from gold did not transform the infrastructure of the economy.
The reason for this is firstly that the flow-through effect of infrastructure investments to economic growth is very marginal. It requires hundreds of millions of investments to impact on a 1% economic growth.
Second, the trickle down effects of infrastructural investments is low. The persons who tend to benefit the most from infrastructural investments are the contractors.
What all of this means is that the US$300M which Guyana is expected to earn from Exxon is not going to impact on economic growth neither is it likely to impact on the fortunes of the small man.
The Exxon deal is not transformative, because the revenue flows are too small. In addition, the development of oil will lead to the neglect of other sectors. The sugar industry is on its last. Rice seems to be on the verge of peaking. Bauxite is flattening out. And the other sectors performed below par.
Guyanese therefore must not expect that the US$300M that will flow from oil in 2020 is going to be an additional US$300M into the economy. It is not. The new inflows from petroleum will have to compensate for the shortfall in export earnings in other sectors.
Guyanese have to wake up and smell the coffee or whatever else Exxon has offloaded and is smelling. The oil deal changes little for Guyana.
Yet, government persists with the asininity about concentrating on how the oil monies will be spent and not about whether Guyana got a good deal. This is a disgusting reaction from a government from which better was expected.
The question, therefore, as Marx would have posited is, “What is to be done?” The government is clearly now covering up its incompetence in the negotiations. It has contemptuously announced that there will be no renegotiation. It is a done deal.
The public will never know why it was that only some Ministers saw the contract before it was signed. The public will never enjoy the sweet of the oil which lies offshore. The government is beyond reclamation.

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