Guyana avoids early signs of resource curse
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ALTHOUGH the earliest discoveries were made just five years ago, Guyana, so far, appears to have avoided many of the most common early pitfalls that have led to the “resource curse” elsewhere. The resource curse, or the paradox of plenty, is a phenomenon that occurs when a resource rich country experiences lower long term economic growth than a country with fewer natural resources due to poor management, political instability, lack of regulatory institutions and volatile international prices of commodities.

The resource curse has been a familiar concern here in Guyana especially in the past five years. And rightly so. Without institutional safeguards and mechanisms to distribute benefits fairly and widely, countries all over the world have shown that development of natural resources sometimes fails to reach its transformative potential.

But, while there is still more to do and some developments have been concerning, we have avoided many of the most common mistakes others have made. Some countries, like Ghana, made early strategic errors that can have negative long-term consequences, like spending revenues ahead of actual production. Others, like Uganda and Tanzania, have seen spiraling costs or delays of more than a decade between discoveries and development.

The government, in contrast, appears at least to be focussed on the right set of issues to help the benefits of oil be widely felt. It has launched efforts to implement proper regulatory and financial checks that should help develop oil and gas resources responsibly. Other measures, like pursuing gas-to-power, could reduce energy costs widely, leaving households with more income leftover each month and companies with new ways to grow.

Although there were some post-election uncertainties in early 2020, the eventual transfer of power was thankfully peaceful. That kind of political stability, judicial independence and institutional resilience is key for resource development. Political violence is an unfortunate risk of the resource curse and has been devastating for development in places like Mozambique.

Beyond a stable political environment, it is critical to have a government that is transparent, highly engaged and responsible in terms of development. It is important that the government continues its efforts to regularly share updates with the public and explain key issues. Regular and transparent communication as well as providing relevant studies can also help citizens stay informed and feel that the development process is fair and inclusive.

Some key systems are already in place, like the Natural Resources Fund, which currently holds more than US$250 million. But it’s also important that the government continues to heed advice from the World Bank and other leading international institutions on strengthening management and regulatory capacities. New staff hires at the Ministry of Natural Resources and the eventual establishment of the new Petroleum Commission later this year are also steps toward building greater local expertise.

Guyana has also adopted 21 of the 24 so-called Santiago principles, an initiative of the International Working Group of Sovereign Wealth Funds that promotes transparency, good governance, accountability, and prudence in the use of resource management. These programmes can be crucial to helping the country avoid risks of corruption and reduce patronage.

The emerging local content policy is another promising sign, despite concerns about target levels and feasibility. The fact that a policy is in place puts Guyana far ahead of many producers like Trinidad, which took more than 100 years to implement a comprehensive local content policy.

Engagement between the government, opposition and companies is also key. The Stabroek block operator ExxonMobil’s regular meetings with the government and recent meeting with the leader of the opposition and other members of parliament are positive signs that development will be a long-term partnership. This has also helped Guyana create a highly sought-after investment climate. In 2020, Guyana attracted US$9 billion in investment for the Payara project even during a global slump.

The healthy debates around flaring and environmental safeguards are another positive sign. While no level of flaring is ideal, startup technical difficulties are commonplace. But the fact that flaring levels are transparently disclosed and that the government is forcing the operator to maintain production and flaring levels in a way that balances caution and revenues is a sign that Guyana is working to align itself with the responsible approach taken by environmentally conscious oil producers like Canada and Norway.

As development and production progress, Guyana should continue to reap the benefits of its early efforts to set up the right institutions and regulatory agencies. But it must remain vigilant. Guyana has a major line-up of projects over the next few years, meaning more revenues, more production, and its first major investments of oil revenues into infrastructure projects. Continuing to implement smart and inclusive policies, commonsense regulations and transparent safeguards will be essential in helping to avoid the pitfalls that can turn oil wealth into a curse.

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