ALTHOUGH Guyana has been producing oil for less than two years, the private sector has made significant local content progress. The government is pursuing local content legislation to further support long-term benefits of energy development.
Local content policies, which are used by most oil producing countries, create incentives for local businesses, services, and workers from the home country to be included in the development process of a specific sector or broader economy. While these policies ensure inclusion of locals, they also seek to create opportunities for international expertise and transfer of skills and technology to the local market.
Such legislation balances inclusion of the domestic population with the reality of the country’s current capacity. In a small market like Guyana, there are few workers or companies with the highly specific skills needed for some roles in the oil and gas sector. If not done correctly, local content policies could create unequal access for companies that are better positioned financially, without actually encouraging capacity building. Businesses themselves need support, not just in training workers, but in other key areas where Guyana has long fallen behind its neighbours, like access to financing and ease of doing business. This is a crucial issue in industries that may not require rare skills but do require significant initial investments.
Making it easier to start and finance new businesses could alleviate many of the concerns that local content policies can create around prices and lack of competition by bringing more local companies to the market.
Even for services that do not require specific technical expertise, overly strict local content policies can cause supply chain disruptions and increased costs for other industries in the country. Take civil works for example. The draft local content bill requires the oil and gas sector to only use Guyanese companies in this regard.
While this may seem like a purely good idea in that it will increase demand for Guyanese offering related services, this approach is a perfect example both of the opportunities and risks that the government is working to balance. Creating heightened demand for a service that is already highly utilised by other industries could result in higher costs and a cascading effect of shortages in other sectors. The impact on pricing can also add up for the oil industry—increasing the costs to produce will ultimately reduce Guyana’s revenues.
Well thought-out policies can help avoid market disruptions like these and keep Guyanese from losing access to basic goods and services.
The purpose of local content legislation is open spaces for Guyanese companies to win business without holding back oil development or damaging other sectors of the economy. Facilitating the transfer of skills and technology that can benefit the country long-term is also a crucial concern with parts of the industry that require technical expertise.
Guyana also faces certain fundamental constraints around the size of the labour market and the economy. According to a recent article, Guyana has the potential to supply about 63,000 workers for the oil and gas industry. However, analysts estimate that the country could need as many as 160,000.
To remedy this, Guyana does have options. By encouraging international companies and workers to come to Guyana and work in the sector, the country can import skills and help meet demand.
There is also a real opportunity to rely on the diaspora to help fill the gap. There are over half a million Guyanese living around the world that are highly skilled in many industries including the oil and gas sector. By engaging with these groups, the government can increase local content while also reversing the brain drain that has long plagued the country.
Demand for services and workers in Guyana’s oil and gas sector are only expected to rise over the next decade, especially as Stabroek Block operator ExxonMobil sees the potential for up to 10 floating production storage and offloading vessels offshore within the next 10 years. This is why tradeoffs must be considered when local content policies are implemented. A careful process of cost-benefit analysis is vital to avoiding negative unintended consequences.
Legitimate consultations and open dialogue every step of the way is critical to balancing trade-offs in the local content process and benefitting the country.
