GUYANA’S rapid rise as a major oil producer has unquestionably led to a flood of new investments into the country. But, as government officials tout the economic gains of surging oil production, it is worth stepping back to make sure that the reality is still matching the positive rhetoric. Thankfully, despite challenges that come with this kind of explosive growth, the government seems to be taking the right steps to maximise the gains for Guyanese.
In early February, the GUY$552.6 billion national budget was approved and passed, the largest in Guyana’s history. More importantly, for the first time, it included GUY$126.7billion from the Natural Resources Fund (NRF), which represents Guyana’s share of profits and royalties from oil production. The money made from Guyana’s burgeoning oil and gas sector has been strategically used to support infrastructure projects and social programming, including the health and education sectors. Revenues have enabled the government to spend more while borrowing less from the domestic and international debt markets, compared to previous years.
This month in Houston, Texas, at a forum at the Baker Institute for Public Policy, Minister of Natural Resources, Vickram Bharrat, discussed how local content provisions are expected to generate higher demand for Guyanese goods but could also lead to the possibility of price hikes. “We have been pushing the other sectors, especially the agriculture sector,” said Minister Bharrat.
The government is seeking to proactively expand in-country production to guard against this problem and other challenges that come with the kind of rapid growth Guyana’s economy is experiencing. The Minister also highlighted how the government is pushing to build necessary infrastructure across Guyana and using oil funds to support the growth of its manufacturing sector to help meet demand locally, especially with the new Wales gas-to-energy project.
Recently, NRG Holdings won a contract to support future construction activities of ExxonMobil. This consortium is building a majority Guyanese owned shorebase, called Vreed-en-Hoop Shore Base Inc. (VEHSI), on the West Coast of Demerara. This project is another indicator that local content legislation is encouraging investment. This is evident in the billions of dollars in new infrastructure spending for Eccles to Mandela Avenue Road, which will be compliant with traffic regulations to increase safety. The government has also been vocal about commitment to the training and employment of Guyanese in the energy sector, which has led to development of training programmes and a new training centre.
As revenues are used to fund country-wide infrastructure like roads, electricity service and bridges, the positive effects of the oil sector could be felt beyond just Georgetown and well into the hinterland. At the Offshore Technology Conference (OTC) in Houston earlier this month, the future and growth of Guyana’s energy sector was a key discussion point.
Government officials have been vocal about highlighting both the benefits and challenges Guyana is facing and how it plans to meet them. The rapidly growing economy is driving increased demand for electricity, but the government has pledged that renewable energy will not be left behind. Pairing cleaner natural gas with solar and hydro is a national priority and a key investment area for oil revenues. The Low Carbon Development Strategy 2030 establishes incentives that promote a low-carbon economy to support both national and global net-zero goals.
Another benefit of Guyana’s oil wealth is that the country is nearing full employment. However, the surging demand for labour presents a risk due to Guyana’s small population and limited labour force, especially in highly skilled areas.
Vice President Bharrat Jagdeo recently pointed out that “we have a small population, a limited labour force; we’d have to carefully, at some point in the future, think we’d hit full employment. So, we may have to consider an active but careful immigration policy. That is how you expand your capacity.”
As the experience of other countries shows, local content policies like the one passed late last year can also have significant implications for this situation. It is critical that they are enforced in a way that does not strip critical workers away from other key industries through overly aggressive efforts that end up hurting the broader economy.
But, despite some of the challenges of a rapidly growing energy sector, oil revenues are enabling the government to proactively tackle issues like rising costs and scarce labour with new tax credits and programmes to support households and businesses in other sectors. Late last month, the Minister of Finance removed the cement tax in order to support the construction boom in addition to new programmes to help homebuyers and builders.
President Irfaan Ali announced, earlier this week, that the government will set up a special unit to assist people who own land but are having difficulties beginning construction of their homes. “The government will support the applicant through the process of applying for bank financing to meet the cost for constructing a home and will also look at helping in the initial phase of construction by the release of resources to expedite the construction process and help in bringing the banks and homeowners together so that you can own your own home,” President Ali said.
Guyana is already working to ensure non-energy sectors are on a path to also benefit and thrive from the new-found oil wealth. The actions by the government demonstrate a commitment to the responsible stewardship and deployment of resources that matches the rhetoric.