Getting to the 50,000 job creation target

Oct 17, 2019 Letters

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DEAR EDITOR,

Please permit me to respond to an article dated October 11, 2019 in another newspaper entitled “Little detail on how PPP’s Ali would create 50,000 jobs-presidential candidate silent on matter”. I admire the writer’s persistence in seeking clarity on the soundness of the 50,000 jobs creation plan.
The prospect of creating 50,000 jobs within the next five years, starting from 2020, is justifiable on economic grounds. In fact, the estimated figure, to a certain degree is conservative. There is no doubt that the prospect of Guyana is blissful following the discovery of some 7 billion plus barrels of high quality crude oil. Notwithstanding, the abysmal contractual terms and conditions of the production sharing agreements (PSA), the nation is set to receive a substantial amount of revenue.
Since taking up office in 2015, our economy has experience major structural shifts. First, our agriculture and forestry sectors, especially amongst sugar and rice, have seen major decline in production. This of course is directly linked to the closure of five major sugar estates, and the loss of the lucrative Petrocaribe rice deal with Venezuela. Basic economic intuition would tell us that, lower level of production would lead to job loss. It is public knowledge that over 7,000 direct jobs have been lost following the downsizing of the sugar industry. According to the Budget Estimates Vol. 1, 2015-18, in both the rice industry and forestry sector, aggregate production, using 2014 as the base year, decrease by more than $2.1B and $10.3B in 2018, respectively. Moreover, in the mining and quarrying sector, the aggregate production level of bauxite during the same period fell by more than $6.4B, while in the forestry sector aggregate production level fell by more than $10B.
Now, with the exception of sugar, say no job loss took place in the these sector, then why is that the very same document shows that private consumption, at the aggregate level, fell by more than $67B in 2018? At the household level, this means that consumption fell by more than $330,000 during the four years period. In line with this argument, the 2018 Guyana Labour Source Survey points out that labour force participation amongst men fell by more than 6,000 since 2012. What this means is that, in excess of 6,000 men as of 2017 simply stop working when compared to 2012, either because they have met the age of retirement or because they have realised that there is no hope in finding a job. Given the closure of the five sugar estates, dismissal of thousands of CSOs, shrinking rice industry and forestry sector, I’m inclined to espouse the latter. A key point to note, however, is that this figure does not represent the amount of unemployed persons. Unemployment represents the amount of persons that are part of the labour force who are actively looking for a job.

Forestry and Mining
The writer posited that Mr. Ali did not provide the source of his statistic for the claim that over 6,000 jobs have been lost in the forestry sector. I know this might come as a surprise to many, but there is evidence of job loss in the sector. Based on the Forest Sector Information Report, an estimated 6,000 direct jobs have been lost between 2014 and 2017, reducing total employment from approximately 25,000 to 19,000 or 24%, which is consistent with Mr. Ali’s original claim. Interestingly, the 24% estimated decline in employment is just 3 percentage points shy of the recorded 27% decline in production between 2014 and 2018, as highlighted in the 2018 Bank of Guyana Annual Report.
Of course, by stimulating investment through community forest organisations, increase allocation of concessions, and incentivising value-added processes would, undoubtedly, increase employment within the sector. Especially amongst those Amerindian communities that rely upon the forestry sector as their main source of income, any increase in concession coupled with incentive packages to increase value added production would certainly see a major boom in the forestry production. I think it is a bit trivial to suggest that added explanation is needed to justify a 6,000 increase in jobs in the forestry sector when the same sector, just over four years ago, supported an additional 6,000 jobs. There is no doubt, whatsoever, that reversing the present draconian measures and add a few more incentives to the stimulus package would not create more than 6,000 jobs.
Similarly, in the mining sector adding 6,000 jobs by reversing the draconian measures such as the 2% royalty on gold, enhancing the quality of roads, subsidise fuel cost and increase allocation of mining blocks especially to small and medium miners, is achievable. The 6,000 jobs over the 5 years period boils down to 1,200 jobs per year. Indeed a few critics would question the effect of better road and lower fuel prices on incentivise mining. For added clarity, one has to understand the effect of fuel prices on the overall cost function of mining. And the interaction of deteriorated roads on the price of fuel. During the raining season, the cost of fuel could easily increase by twofold due to the deteriorated roads. The effect has been so severe that the Minister in his 2017 mid-year report cited deteriorated roads and high price of fuel as the major hindrances that affected the production of mining, and hence, the lower than anticipated declaration of gold. There is no doubt, whatsoever, that if these problems could be addressed, activities within the mining sector would increase.

Environmental Service
Building on the initiatives of the low carbon development strategy, Mr. Ali projected that another 1,000 jobs would be created. Of course, land titling has been a major issue affecting Amerindian communities. Given the large surface that has to be surveyed, it would be ignorant to suggest that no jobs would be created. This activity would require a large number of labourers. To get into the specificity as to “how the jobs would be created” as the writer implies, at this point in time, I think it is frivolous. How difficult is it to see that surveying, say, 100 Amerindian communities at a minimum would require more than 10 persons per community, including drivers, labourers, etc? And this is just one component of the under the LCDs programme.

Construction
Based, on Mr. Ali’s projection major investment would be unfolded in the service sector, especially in infrastructure, ICT, housing, education etc. Investments in these have been especially effective in boosting aggregate demand. For example, after the 2008 financial crisis, the U.S introduced a stimulus package to the tune of approximately $800 billion. The programme has been deemed a success and have even credited for alleviating part of the repercussions of the crisis. In Guyana’s cases, given our deficit in infrastructure, heavy investment in this area would certainly create a huge demand for workers.
In Latin America, for example, construction has played a major role in boosting employment level. According to the World Bank (see Schwartz, J., L. Andres, and G. Dragoiu. 2009. “Crisis in Latin America: Infrastructure Investment, Employment, and the Expectations of Stimulus.”), a for every $1B dollar investment in road construction in Brazil, an estimated 17,000 direct jobs are created. In Colombia, on the contrary, 23,000 jobs are created, while in Guatemala and Peru, over 500,000 jobs have been created for every $1B dollar investment made in rural road maintenance. Veisen (2011) has shown that in Yemen an investment of $1B dollar in rural roads has created more 25,000 jobs.
Indeed average wage rate and other country specific effects play a major role in determining the cost of these projects. On this note, the World Bank (see article entitled “Infrastructure and Employment Creation in the Middle East and North Africa”) posits that extrapolation could be made to other countries using GDP per capita as a benchmark. In Guyana case for example, an investment of US$1B dollar or just over GYD$200B over the next five years period in capital project, using Colombia’s estimated coefficient, in excess of 23,000 jobs could be created. Though of course, is a conservative estimate given Colombia’s relatively higher GDP per capita of 40%. Indeed a one-off investment of over GYD$200B is not possible since this would present sever absorption constrained. However, if we break up the $200B over the 5 years period, it would reduce to just over GYD$40B per year or a 70% increase in our current capital expenditure, holding other expenditure constant. Funding for such an investment could be easily accommodated by our oil windfall, and a few minor adjustments to the recurrent expenditure. For example if we cut back (to 2014 level) on the increase in employment charges by 50%, and remove the increase on dietary and security charges, we would have at our disposal more than $20B for investment. This is the level of resource mismanagement that we have witnessed over the past 4 years.
Spending an additional $40B in capital project, I’m sure is realistic given our deteriorated road network: the Linden/Lethem roadwork, Linden-Seosdyke Highway, East Bank/East Coast Road Linkage project, modernisation of Port Georgetown, construction of a permanent fixed bridge across the Essequibo River at Kurupukari would all become possible.

Investment in 2020 and beyond
There is no doubt Guyana is set to become a major oil producing country given our 7 billion plus reserve of crude oil. In 2020, the first wave of oil revenue windfall is set to arrive, which could potentially see a major boost in investment, especially in the non-tradable sector such as construction, education, health, housing, etc. Given our current economic composition of low inflation, high unemployment, and low-income level, there is no doubt absorption problems would become a threat.
In line with economic theory, which has been corroborated by empirical findings, it is highly advisable that nascent oil developing countries such as Guyana should invest heavily in much needed infrastructure. What makes this proposition even more attractive is the fact that we have the absorptive capacity. A sudden increase in investment becomes counterproductive especially if the economy is operating at its optimum. High level of inflation, upward pressure on wages, and a sudden increase in exchange rate could easily be materialised if the economy does not have the capacity to offset the level of investment. The effect would be detrimental to other sectors, especially the non-resource tradable such as manufacturing, and private businesses as a whole. This is where the so-called Dutch disease comes into play.
Given the above, we could easily account for 49,000 jobs. In the interest of space, I would leave the other sectors for future discussion. Note, we have yet to account for job creation in the Oil and Gas sector through the implementation of the Local Content Policy, Service Sector (hotel, logistics, value chains, etc.), Agriculture/Agro Business, Education/Health care (export oriented services), and Downstream from oil and gas sector. These are all highly prospective industries and sectors that would see major transformation ex-post 2020. The nation stands to benefit from thousands of jobs. So, after all Mr. Ali 50,000 is a conservative estimate.

• Construction- 23,000
• Forestry-6,000
• Mining-6,000
• Sugar-11,000
• Environment-1,000
• CSOs-2,000

Roger Samuels

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