WHILE the government and private sector continue to prepare for Guyana’s oil revenues to start coming in, the oil sector is already having big impacts on the national economy. That includes a surge of revenue for several government departments in the form of increased tax and social security payments resulting from increased activity of workers and businesses in the sector.

Certainly, the lion’s share of Guyana’s economic take from oil will be in the form of revenues from Guyana’s 50 per-cent share of profit oil. Yet, as statements from the government this week have shown, there won’t be an immediate boost given the delay between first oil production and expected revenues from the sale of that oil. Luckily, the positive knock-on impact of oil development is already being felt in the national economy though we are a while from first oil.

Signs of that growth are everywhere. In the first half of 2019, companies in the oil and gas industry paid more than GY $500M into the National Insurance Scheme (NIS) on behalf of more than 3,600 employees. Just a year before, only 155 employees were registered, and the NIS took in just $24M from the industry. This massive uptick reflects the growing number of Guyanese finding jobs to support the burgeoning oil and gas industry.

Many of these employees have been hired by contractors for the oil companies operating offshore to support a construction boom in advance of first oil. Thousands have been employed to build support and maintenance facilities, crew vessels and provide an array of services to the industry and its major contractors.

This kind of hiring will likely continue to ramp up quickly over the next several years as more projects are being brought online and the need for workers accelerates. Planned exploration and development work in other blocks will increase that demand. Hiring can be expected to taper off at some point, however, since oil production requires less manpower than the initial surge of construction projects.

But demand for workers at companies supporting the industry—everything from construction firms, environmental engineers and welders to caterers, drivers and security guards—will continue to be strong. And the knock-on impact from a stronger economy will open opportunities for other industries to thrive.
The near-term impact of the rising tide of oil and gas revenues can help the NIS avoid shortfalls like the record $854.9 million deficit it experienced last year.

Meanwhile, according to figures released last week, the Guyana Revenue Authority (GRA) took in more than $11B in taxes from January to August of this year, mostly in the form of corporation taxes and withholdings. That’s nearly three times what the GRA took in during the equivalent period in 2016 and almost $3B more than it took in during the same time last year.

Once again, this dramatic uptick is expected to continue over the near-term, providing a valuable bridge to when revenues really start to pick up a few years from now. Greater tax revenues at the GRA mean that more is available to spend on Guyana’s economic development priorities like infrastructure, debt reduction and education.

The money that the GRA and the NIS have taken in is classified as a “direct economic benefit” from the industry. This is differentiated from “indirect benefit” like the surge of new businesses catering to employees of the industry or new opportunities provided by airlines opening up more routes to Guyana as a result of greater demand from oil development.

The GRA is also stepping up work to eliminate tax loopholes and increase efficiency to prepare for managing and regulating the oil industry. A clear and reasonable set of well-enforced tax accounting rules can help Guyana reap the most revenue without slowing down development.

Building up the capacity of agencies, both in terms of staffing and specialized industry knowledge, will be a good investment in Guyana’s long-term prosperity and transparency. International bodies such as the World Bank and the British Government have already provided grants and training for auditors and other tax professionals at the GRA.

These early economic benefits show the activity already underway in Guyana and portends the massive economic impact that oil production will have. Current estimates expect that the oil sector will bring in billions of US dollars per year by the mid-2020s as more projects come online.