GUYANA: Oil funds have to be carefully used for restructuring of economy – Letter by Geoffrey Da Silva

— gov’t should note Venezuela’s ‘Dutch Disease’

Dear Editor, …….. Letter by Geoffrey Da Silva

Venezuela has the largest reserves of oil in the world (300 Billion barrels). Since 1928, Venezuela has been infected with the oil ‘Dutch Disease’ in its financial, political, economic, and social spheres.

In essence, the economy is mismanaged. The strategies of different governments were not sufficiently focused on using most of the oil revenues to grow a diversified, open and sustainable economy with competitive businesses in the non-oil sectors.   

There is a very heavy dependence on oil exports for government revenue. Crude oil exports have always been a very large percentage of all exports (in 2019, it was 85%). There is heavy borrowing from the forward sales of crude oil to fund projects. Public spending is unrestrained and extravagant. Foreign debt and the debt-to-GDP ratio are high. Capital budgets for infrastructural projects are badly implemented. Sufficient earnings from local and foreign investments are not re-invested into the national economy. The flight of capital to foreign destinations is high.

Local and foreign investments are highly skewed towards the oil-related sectors. Significant fluctuations in foreign exchange rates negatively affect the competitiveness of the non-oil economic sectors. The local private sector’s contribution to Gross Domestic Production (GDP) decreases, especially in manufacturing and agriculture.

Most businesses are unable to identify and successfully pursue export activities. There are no effective export promotion institutions that support businesses to sustainably assemble and produce a diversity of value-added products and services for export markets. Venezuela is heavily dependent on all kinds of imports, especially food and raw materials that could be produced in the country.

Consequently, democracy is threatened and undermined by unequal ethnic and class competition that fosters political instability, violent conflicts and violations of the rule of law. Grand and petty corruption is rampant. All types of crime are increasing. The rich, the upper middle class and many politicians waste resources on lavish lifestyles and consume a lot of foreign goods. Immigration is not managed properly. Between 1950 and 2020, the Venezuelan population increased by 460% from 5 million persons to 28 million, because of waves of immigrants from Europe, Latin America, the Caribbean and the Middle East.

During the 1974-1979 government of social-democrat Carlos Andres Perez, who nationalized the oil industry in 1976, and during the 1999-2013 government of socialist Hugo Chavez, there were very high oil prices. The increased revenues were used to mainly finance infrastructure projects and social welfare programmes to reduce poverty, and to expand health and education services. Some of those revenues were invested to support a limited diversification of the economy that included an auto-assembly sector, and some manufacturing and agricultural businesses. But these were short-lived successes because, when the high oil prices ended, poverty and inequality returned with a vengeance for the majority of Venezuelans.

The situation now under the government of President Nicolas Maduro is even worse with low oil prices and the imposition of sanctions by the USA. There are shortages of some types of food. The inflation rate is very high. Many workers, farmers and the poor are selling household belongings to buy food. There is a fuel shortage. Many working people cannot afford to buy gasoline and cooking gas, and they are using firewood to do their cooking. Corruption is even more widespread in the government and the security services. Many rural communities cannot survive because they are heavily dependent on public funds which are significantly decreasing. Venezuela has one of the highest crime rates in the world. Millions of Venezuelans have left the country to escape growing poverty and significant declines in health and education services. Maybe 50% of the 45,000 Venezuelan Guyanese diaspora have migrated back to Guyana and to the Caribbean and North America.

In a new Guyana free of the ‘Dutch Disease’, we Guyanese will want to see that all politicians adhere to the rule of law and practice inclusive governance in an accountable and transparent way. We want our politicians to lead the way and stand up against grand and petty corruption, extravagance and the wastage of public resources. The government must ensure that all capital projects are efficiently and effectively completed, free of corruption.

The priority must be supporting the private sector to create diverse job and business opportunities especially for the youth who are the overwhelming majority of the population. The education system must focus on producing graduates for the future productive sectors of the economy.

The seven Guyanese ethnic communities (Indigenous, Africans, Indians, Mixed, Portuguese, Chinese and Euro-pean) would work together to build strong professional and non-partisan government institutions that would successfully manage a significant reduction in poverty, a low crime rate, better public security, fair and equal competition, and less dependence of some communities and businesses on government revenues for survival. The main objective must be increased incomes for all Guyanese, and equal pay for equal work for Guyanese employees compared to foreign employees.

The government would not borrow from the future sales of oil to finance projects. Over the next 25 years, through a diversified export economy, dependence on revenue from crude oil exports will decrease. Incentives and regulations will be implemented to discourage capital flight and encourage the re-investment of local and foreign earnings into the economy. The foreign debt, the debt-to-GDP ratio and the inflation rate would be kept low, and the exchange rate would remain stable.

The oil funds would be carefully used for a national development plan to restructure the economy in priority areas: [1] new infrastructure projects in electric power (hydro, solar and wind), roads, highways, ports, railways and broadband; [2] Research and Development (R&D) to improve productivity and the competitiveness of businesses through better management, mechanization and technology; [3] diversified growth of a competitive local private sector in the non-oil sectors, including the agricultural, manufacturing, construction, engineering, Information and Communications Technology (ICT) and tourism sectors; [4] reduction of rural and hinterland poverty through the diversification and modernization of agriculture for the export of more processed foods, and for replacing some food imports with quality local products; [5] support for more resource-based manufacturing using raw materials from the agricultural, forestry and mining sectors to manufacture products for export markets and for the local construction and housing industries; and [6] creation of effective export promotion institutions that will support the private sector to export diversified value-added products and services for current and new markets.

Finally, our new Guyana will have a dynamic and well-managed immigration policy to encourage brain circulation from the Guyanese diaspora, and to attract foreign employees with specific skills.

Yours faithfully,

Geoffrey Da Silva former Ambassador to Venezuela  

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Comments

  • Linda  On October 19, 2020 at 9:51 am

    From your lips to God’s ears!!!!

  • wic  On October 19, 2020 at 1:27 pm

    Mr. Da Silva’s observations are and laudable with good logic. However, he overlooks that human failing – greed which leads to dishonesty.

    Which non-Western territory with large newly discovered natural resources has successfully exploited those resources and benefited the people? a large portion of such resources is stolen by the leaders and hidden away in bank accounts in Europe or the Cayman’s. Additionally, the funds are used to buy weapons which the manufacturers are only too happy to sell and unconcerned about their use be it to control their customers’ own people or for defence against neighbouring countries.

    Venezuela has mismanaged its oil resources, for many years coveted Guyana’s and probably even encouraged migration to Guyana ostensibly as refugees. The time may well come when an incursion will be made by Venezeula’s army after a staged incident ostensibly to “protect” its citizens. In the past It has happened in many parts of the world and no reason why not Guyana where the population is small and racially divided and unable to work together for the common good.

    Don’t Cry for me Argentina but for Guyana.

    • Dennis Albert  On October 28, 2020 at 10:29 am

      You’re right. Just look at the flooding of the Success squatters while a few months ago, Lilian Chaterjee and Sarah Ann Lynch were siding with the PPP for democracy. What is PPP democracy? Pegasus towers and Pradovilles?

  • Jo  On October 19, 2020 at 4:42 pm

    Geoffrey: You are a credit to your country. It’s amazing. One person who has utter integrity can move mountains. Such a leader can inspire the best in us. It’s been done before. I wish we had more women leaders who can show the way. It’s my hope that Dr. Ali will rise to the best in him to set the tone for the kind of leadership that is required with this oil bonanza. We also need a strong team of experts to guide us. Most of all we need the vision that you’re at pains to outline. I’m not a church goer but there’s a place for our religious leaders also to set the tone for a new cooperative way forward. A country that set up a fair public holiday system honoring the three major religions and where there’s been the mixing of races in our offspring, not to mention an education system where students are still striving to excel..has promise in it. Keep writing..I hope you’re heard and listened to.

  • brandli62  On October 28, 2020 at 8:34 am

    Geoffrey, thanks for our thoughts about how Guyana should set its priorities in the coming year fuelled by oil money. Your six points plus a new immigration policy are all well-taken. However, the most important point has not been mentioned here. There is a need that the oil revenues are fed into a sovereign wealth fund along the lines of the hugely successful Norwegian Oil Fund. In short, the funds assets are off-limits to politicians. They are invested on the international capital markets to generate constant and reliable returns for the Guyanese public. Only the annual returns of the sovereign wealth fund go into the national budget. This is typically equivalent to about 4% of the fund. With accumulating oil revenues more money becomes available while still preserving the core of the fund. The Granger administration has made a first step in this direction by passing the Natural Resource Fund Act, which is modelled on the Norwegian Oil Fund, in 2019. The Ali administration has recently announced that they either want to repeal the NRF Act or amend it. Amendments would be fine, if they help improve the NRF along the lines laid out by the Norwegian Oil Fund. However, I suspect that President Ali and VP Jagdeo are not happy about the fact that they would only be able to spend the revenue generated but not the core of the NRF.

    The Guyanese people have to be very vigilant about this very dangerous development!

    • Dennis Albert  On October 28, 2020 at 10:27 am

      When the PPP was in power from 1992 to 2015, Pradovilles and six storey malls were used with taxpayer monies.

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