THE new local content policy, which is open to public comment for the next week, represents the government’s best intentions to include businesses in the future of the oil and gas industry. More participation in the high-value chain processes like design and fabrication can lead to lucrative returns, increased local technical expertise and ultimately a homegrown sector capable of supplying critical inputs to the oil and gas sector and competing externally.

The draft policy has led to discussions about how to build expertise and develop the local suppliers. Everyone understands that the wrong approach could lead to bad outcomes despite the best of intentions.

More specifically, efforts underway to increase agricultural production, improve public infrastructure and open Guyana to the world via tourism could be blocked if too many employees and investment funds shift away from those industries toward the oil and gas sector. This resource shift is one symptom of what economists call the “Dutch disease.”

One important way to prevent this outcome is a local content policy that takes a sustainable and realistic approach toward targets and implementation. Guyana is unique, and the goals of the local content policy should be closely aligned with our nation’s current reality as the government recognised when it released the draft policy and requested public comments on the objectives and targets.

The potential for “catching” the Dutch disease can’t be taken lightly. It’s a well-studied phenomenon that takes place in countries that experience a sudden influx of wealth from natural resources. The boom in oil and gas exports can quickly increase the value of the local currency.

This would make it easier for Guyanese to buy foreign goods but make it harder to local businesses to compete at home and internationally. Guyana is already taking steps to avoid this, like establishing and updating a sovereign wealth fund. But it is also critical that the government addresses some of the other impacts of this phenomenon.

Focussing too many resources on the oil and gas sector is one example. If too many resources like labour and investment go towards oil and gas production too quickly, other industries will not be able to grow and the economy won’t diversify. Governments need a well-designed local content policy to avoid stripping talent and resources away from other sectors of the economy and making the country more dependent on oil revenue.

Realistic targets that grow along with capacity in the country are necessary to avoid this problem. Careful analysis will be critical. The International Labour Organisation (ILO) predicts the Guyanese workforce will grow to 328,000 by 2024, just 6,000 more than it currently is.

That represents a major human resource constraint. For the government to meet its ambitious goals to build new infrastructure and revitalise industries like agriculture, businesses in other sectors will also need to attract workers and build capacity. Overdependence on the oil and gas sector driven by unrealistic targets would make this harder.

Currently, there are 114 categories in the local content policy in which the government wants to substantially increase Guyanese participation, from front end design and engineering to steel manufacturing and seismic surveys. Many of these targets may not be practical. For example, mandating that Guyanese companies produce 100 percent of the deep-sea pipelines within 10 years would require massive capital investments.

Let’s remember that oil and gas development is new to Guyana. We are starting from scratch so it is unrealistic to assume we can produce the highly technical materials needed for this industry in such a brief period of time.

Local stakeholders currently have the chance to review and comment on the local content policy. Many have already provided comments to the government’s local content expert panel as well. Afterward the government will be well-placed to balance capacity building in the oil and gas sector with growing sectors like agriculture, ecotourism and infrastructure. It’s crucial to set priorities in the short term as local businesses in all these sectors will require workers and companies to transform the country.

Our local businesses are already making progress in the oil and gas sector, as demonstrated by the recent steel strike ceremonies at local fabrication companies.

Targets are not always the only policy, and not always the best policy, to create a diversified economy with local participation up and down the value chain. Reforms in the banking sector, infrastructure investments and other parts of the local content policy are even more critical to encourage more commerce and give opportunities to local suppliers and local workers.