A CHECKLIST FOR TESTING AND PREVENTING THE OIL“DUTCH DISEASE”

Aug 25, 2020 Letters

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DEAR EDITOR,

Vice-President Bharrat Jagdeo gave a very comprehensive and detailed presentationof the Government’s positions on the new oil and gas industry in an interview with Kaieteur Radio’s Kiana Wilburg. In contrast to the lack of transparency on the oil and gas sectorbythe previous APNU/AFC administration, Jagdeo clearly stated that the Governmentis determined to provide sound and mature leadership, to support expert management and to have public consultations.
Jagdeo emphasized that the Guyanese nation has to avoid becoming a victim ofthe “Dutch Disease” thathas underdeveloped most oil-producing countries where there is persistent poverty and inequality, and a heavy dependence on oil exports for their export revenues.He stressed that Guyana’s share of the oil funds has to be used to support the growth of a diversified economy and an export marketing program.
One of Guyana’s greatest challenges ever will be to build a diversified economy with an oil industry.
One of the countries with an oil industry that successfully diversified its economy is Malaysia. For decades, it has had an oil industry in an open and diversified economy. Malaysia is among the top twenty most competitive nations in the world.
Interestingly, Malaysia has had a history of inter-ethnic rivalry similar to Guyana’s. After massive “Race Riots” in 1969, the Malay, Chinese and Indian leaders worked together and successfully minimized poverty by increasing incomes across and within all ethnic communities. The leaders’ bottom line was that not one ethnic communitywould experience any kind of loss or feel any sense of deprivation.
At present, Guyana is the sixth (6th) poorest of thirty-two (32) countries in Latin America and the Caribbean. Without a plan to develop a diversified economy over the next 20 years, Guyana’s future will be persistent poverty withthe dreaded “Dutch Disease”. That would be a disastrous outcome for the Guyanese nation.
Most Guyanese, including myself, have no experience and very little knowledge of the oil and gas industry. Just as how there is a checklist for the public to be aware of the symptoms and measures to detect and prevent Covid-19, including its effects on all the organs of the human body, we needa checklist onthe main signs and measuresfor detecting and preventing the “Dutch Disease”,especiallyits effects on the political, financial, economic and social spheres of our Guyanese nation.
As non-experts, the Guyanese people will be able to do regular checkups with this checklist, and support the government in monitoring, evaluating, learning and adjusting policies to avoid the “Dutch Disease”.
“Dutch Disease” in the political sphere- An oil-producing country has been infected when [1] there is political instability and increased inter-ethnic rivalry; [2] national institutions are weak, ineffectual and corrupt; [3] the people have less say in governance; [4] there are dismal performances on international governance indicators such as government effectiveness, the rule of law and the control of corruption; and [5] real and perceived corruption has increased.
Free of “Dutch Disease” in the political sphere – A successful oil-producing country has[1]political stability; [2]ethnic communities who have come together and agreed on inclusive governance to significantly reduce poverty;[3]equal opportunitiesfor all ethnic communities and social classes;[4] strong government institutions;and[5] a political class and a citizenry who practice the principles of anti-corruption, accountability, transparency and respect for the rule of law.
“Dutch Disease” in the financial sphere- An oil-producing country has been infected when[1] the Government is over-dependent on oil income for its revenues;[2] there is unrestrained public spending; [3] projects are funded by borrowing from the forward sales of crude oil;[4] the exchange rate appreciates significantly and it negatively affects the competitiveness of the non-oil economic sectors; [5] foreign debt and the debt-to-GDP ratio increases; and [6] the political class wastes resources on luxurious lifestyles and consumes mainly foreign goods.
Free of ”Dutch Disease” in the financial sphere – A successful oil-producing country has [1] a policy to ensure that only a third (1/3) of government revenues come from the oil and gas sector; [2] a more diverse tax base, and more of the earnings from local and foreign investments are re-invested in Guyana; [3] good budget planning, and the capital budgets are efficiently and effectively implemented; [4] no borrowing for projects from future sales of oil; [5] a low foreign debt and a decreasing debt-to-GDP ratio; [6] a stable exchange rateand low risks of recession and inflation; and [7] no extravagance and no wastage of public resources.
“Dutch Disease” in the economic sphere – An oil-producing country has been infected when[1] crude oil exports are a very large and increasing percentage of all exports; [2] the local private sector’s contribution to GDPis decreasing, and most local and foreign investments are highly skewed towards the oil-related sectors;[3] there is little economic diversification and the competitiveness of the non-oil sectors, including agriculture and manufacturing, is declining; [4] most businesses are unable to identify, diversify and successfully pursue higher-valued export activities because of the absence of effective institutions that will discover export opportunities; [5] the export of services is not growing; and [6] there is an increasing dependence on all kinds of imports and a growing importation of raw materials that could be produced in Guyana.
Free of ”Dutch Disease” in the economic sphere – A successful oil-producing country has [1] decreased oil exports as a percentage of all exports; [2] a national development program to grow a diversified economy to end poverty; [3] an increase in productivity through better management, mechanization and technology; [4] used oil funds to restructure the economy by financing infrastructure such as electric power, roads, ports, railways, solar power, broadband, and by financingResearch and Development (R&D) to support the growth of a competitive local private sector and Foreign Direct Investment (FDI) projects in the non-oil sectors, including agriculture, manufacturing, construction, engineering, Information and Communications Technology (ICT) and tourism;[5] more resource-based manufacturing using raw materials from the food, wood, solid mineral and mining sectors to create products for the construction and housing industries;[6] free trade zones, industrial estates and export institutions that effectively support the private sector to assemble and produce a diversity of value-added exports for current and new markets; and [7] a reduction in some food imports which are replaced by quality local products.
“Dutch Disease” in the social sphere – An oil-producing country has been infected when[1]all types of crime are increasing; [2] professionals are paid low salaries compared to foreign professionals; [3] the education system produces the wrong graduates and it is tailored to bureaucracy instead of the productive sectors; [4] more jobs are created in the public service than in the private sector;[5] there are not enough job opportunities for youth who are the overwhelming majority of the population; [6] there is a brain drain and there are no limits on the number of foreign employees;and [7] political office holders are highly paid while workers and farmers earn relatively low incomes.
Free of “Dutch Disease” in the social sphere – A successful oil-producing country has [1] a low crime rate; [2] increased incomesfor all citizens; [3] reduced rural poverty by diversifying and modernizing agriculture;[4] more education programs to train youth, women and other citizens for an economy that produces diversified products for an expanded export marketing program;[5] a decrease in the number of foreign employees; [6] more jobs in the productive sectors than in the public sector, and most youth have jobs or business ventures;and [7] there is brain circulation from the Diaspora instead of a brain drain.
Geoffrey Da Silva former Minister, Chief Executive Officer and Ambassador

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