The resource extraction model

Jul 28, 2024 Features / Columnists, Peeping Tom

---

Kaieteur News – Guyana’s economic development has historically relied on the extraction of its abundant natural resources—bauxite, gold, timber, and now oil. This model of development, slavishly followed by both the PNCR and the PPP/C governments has resulted in an economy heavily dominated by foreign multinationals.

Chinese companies now control the bauxite industry following the withdrawal of RUSAL, the Russian owned multinational. Foreign entities also dominate gold mining, often flipping their interests in our resources without having to seek the approval of governments and without any known demand for them to pay capital gains on the profits generated from flipping the rights to our wealth. Manganese extraction is also in foreign hands. And timber used to be dominated by the Chinese and other Asian firms.

Despite significant foreign investment and resource extraction, Guyana remains one of the poorest countries in the region, with more than half of its population living below the revised poverty line. This paradox raises a critical question: Has the resource extraction model truly benefited our economy, or have we given up too much for too little in return?

One of the main issues with the current model is the generous concessions granted to foreign companies. These concessions often include tax holidays, duty-free imports, and minimal royalties, which significantly reduce the financial benefits to the State. While these incentives are meant to attract foreign investment, they often result in a net loss for the country.

Foreign companies’ dominance leads to significant capital flight. Profits generated from resource extraction are often repatriated to the home countries of these multinationals, contributing to a phenomenon known as capital flight. This outflow of capital means that the wealth generated from Guyana’s natural resources does not stay within the country to stimulate economic growth and development. Instead, it enriches foreign shareholders.

The lack of transparency in the operations of foreign multinationals further exacerbates the problem. It is often unclear whether these companies pay the appropriate taxes, including capital gains taxes when they flip their interests in Guyana’s resources. The opaque nature of these transactions makes it difficult for the government and the public to hold these companies accountable. This lack of accountability allows foreign companies to exploit Guyana’s resources with minimal oversight, reducing the potential benefits to the local economy.

The environmental impact of resource extraction is another significant concern. Mining and logging operations often result in deforestation, soil erosion, and water contamination, leading to long-term environmental degradation. These environmental costs are rarely factored into the economic calculus of resource extraction. Local communities bear the brunt of these environmental impacts, facing health risks and loss of livelihoods. The social costs of environmental degradation, combined with the economic exploitation by foreign companies, result in a double long-term burden on the local population.

The Omai cyanide spill of 1995 stands as one of Guyana’s most devastating environmental disasters. When a tailings dam at the Omai Gold Mines Limited, operated by a Canadian company, ruptured, over four billion liters of cyanide-laced waste surged into the Omai and Essequibo Rivers. This catastrophe poisoned the water supply, decimating aquatic life and severely impacting the livelihoods of riverine communities. The spill’s immediate aftermath saw widespread health concerns, with the government imposing a temporary ban on the use of river water. Despite the significant ecological and human toll, the incident highlighted the grave risks associated with large-scale gold mining.

Proponents of the resource extraction model often argue that it creates jobs and stimulates economic growth. However, the reality is that the jobs created by these industries are often low-paying and temporary. Foreign companies frequently bring in their own skilled labor, reducing opportunities for local employment. The promise of job creation thus rings hollow for many Guyanese, who find themselves excluded from the economic benefits of resource extraction.

In other countries, the resource extraction model has frequently resulted in significant negative impacts on the development of various countries. Nigeria’s vast oil revenues have not translated into economic development or improved living standards due to economic instability, corruption, and environmental degradation. Venezuela, despite its immense oil wealth, has experienced economic collapse due to over-reliance on oil exports. The Democratic Republic of the Congo’s rich mineral resources have fueled conflict and exploitation, resulting in human rights abuses and environmental destruction. In Papua New Guinea, foreign-dominated mining has caused severe environmental damage and social upheaval without equitable economic benefits. Peru’s mining boom has led to social conflict and environmental harm, with local communities suffering without seeing proportional benefits. These examples highlight how the resource extraction often leads to economic instability, environmental degradation, and social unrest, undermining sustainable development.

Guyana’s resource extraction model, as it stands, has also not delivered the promised economic benefits. Yet our governments continue along this ill-gotten path of development, clueless as to how to grow an economy other than through inviting multinationals to plunder our resources.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)

---

• bauxite, gold, governments, PPP/C, resources

---