Local content law will result in extreme Dutch Disease

Dec 11, 2021 Letters

Dear Editor,

Kaieteur News – In February I had previously written on the government’s approach to local content policy cautioning that fixed and over ambitious schedules for the levels of employment and materials might not be the best approach to such a complex subject.

Ten months later we see the emergence of legislation which is rumoured to be sent to Parliament for debate imminently but may have unintended consequences that would be harmful to the country’s overall development. When President Ali spoke about the local content policy at the February seminar he emphasised it would be across all sectors. This was a good point as it would not result in the mass migration of jobs to the oil industry. However the subsequent debate and the draft schedules have centred on the oil sector.

These mandates if passed will send the industry into overdrive to secure skilled labour from other sectors rather than risk being in violation of the legislation. This will be made even more urgent should the law be retroactive. While the heads of the private sector bodies are talking up local content, many local companies are complaining of having lost workers to the oil sector over the past year and this will accelerate with the proposed legislation. Add to that the redirection of capital and entrepreneurial focus and we have a classic and extreme example of Dutch Disease. This directly contradicts the President’s own pronouncements of creating a diversified economy.

If they don’t decide to scale back investments, it is a certainty that foreign companies will begin to adjust their contracts with suppliers as soon as the legislation is passed to reflect and stay in line with the new laws as well as create whole departments to monitor compliance. They will not wait around for any administrative body to be formed to regulate the legislation.
More jobs you may say? In fact no, as they will simply be siphoned off from the civil service, traditional manufacturers or construction companies, some of which are already moving to work with the industry rather than the government. Slippage in deadlines and cost overruns through higher labour costs for vital infrastructure are occurring and will increase.

Local content policy should not be some zero sum game about grabbing as much from the other party in the short term. The energy sector is probably one of the most collaborative industries on the planet with goals of sharing risks and maximising outcomes for all parties. A more holistic and flexible approach would have better long term benefits for Guyana and even for the local private sector.

Yours sincerely
Lynn Nicholas

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