GUYANA is becoming increasingly attractive to foreign investors, and, of course, there is likely to be heightened excitement by the Private Sector and the Guyanese people in view of Guyana’s new found oil wealth.
Guyana is poised to earn between $100 billion and $200 billion annually for the first five years. Bearing in mind that other oil companies may come on board and increase production levels, it means the oil revenue would increase proportionately, and the more oil finds made would mean production levels may increase further, which would mean proportionate increases in revenues.
In the first decade, Guyana’s nominal GDP could potentially expand by more than 200 per cent.
Now, what is GDP and economic growth? And what is the difference between the two? GDP, which is the acronym for Gross Domestic Product, simply means the sum total of all the goods and services produced in an economy at market values in a given time period – usually a calendar year.
Real GDP, on the other hand, is a macroeconomic measure of the size (nominal GDP) of an economy adjusted for price changes and inflation.
Real GDP, then, is used to measure the economic growth rate. The economic growth rate is the percentage change in the quantity of goods and services produced from one year to the next. In other words, economic growth is the increase in the ability of an economy to produce goods and services over time; whereas GDP is the monetary value of all goods and services. Economic growth, in turn, is used to determine economic welfare comparisons, international welfare comparisons, and business cycle forecasts.
Economic welfare measures the nation’s overall state of economic well-being. For seven reasons, real GDP is not a perfect measure of economic welfare: (1) quality improvements tend to be neglected in calculating real GDP, so the inflation rate is overstated and the real GDP understated. (2) Real GDP does not include household production; that is, productive activities done in and around the house by members of the household. (3) Real GDP, as measured, omits the underground economy, which is illegal economic activity or legal economic activity that goes unreported for tax avoidance reasons. (4) Health and life expectancy are not directly included in real GDP. (5) Leisure time, a valuable component of an individual’s welfare, is not included in real GDP. (6) Environmental damage is not deducted from real GDP; and (7) Political freedom and social justice are not included in real GDP. Human development is all about human freedoms: freedom to realise the full potential of human life, not just of a few, nor of most, but of all lives in every corner of the world – now and in the future (UNDP, 2016).
Yale University (2004) published a paper on “Economic Growth and Human Development”. The paper showed the linkages between economic and human development – arisen from a study – in some states. It was found that the two-way relationship suggested that nations may enter into a virtuous cycle of high growth and large gains in human development, or a vicious cycle of low growth and low rates of human development improvement. In these states, levels of economic growth and human development are mutually reinforcing: either leading towards an upward spiral of development, or to a poverty trap. Countries may also find themselves in a lop-sided state, at least temporarily, with relatively good growth and relatively poor human development, and vice versa.
There may be various reasons for “economic growth lopsided” nations; that is, those which have high rates of GDP growth relative to improvement in human development indicators, including low social expenditure, government corruption, or inequitable distribution of incomes. The resultant effect of such cases suggest that good economic growth not accompanied by increases and/or improvements in human development may prove to be ultimately unstable.
In putting the aforementioned discussions into perspective, what all that preamble simply means is that, with the potentially huge growth in GDP on account of large sums of oil revenues, it does not necessarily mean that the quality of life on a broader spectrum would be improved and/or experienced by a wide-cross section of the Guyanese people.
Therefore, the important task for policymakers to achieve the desired outcome of improved human development and broad-based and inclusive development of the economy depends on how well the resources earned are managed and deployed into diversification of the economy: creating new industries, investing in infrastructure, education, healthcare, and public security among other crucial development goals.