By Youri Kemp
Caribbean News Now associate editor
NEW YORK, USA – A New York Times article has slammed Guyana as corrupt and ill equipped to handle its offshore oil discovery.
In a lengthy piece by NYTimes journalist, Clifford Krauss, points to Guyana being the epicentre of the next big oil boom, but cautions stakeholders against the systemic corruption, lack of strong country systems and a slow private sector that lacks innovation, and how it may make any finds less than beneficial to the citizens of Guyana.
Krauss writes: “If all goes well, one of the poorest countries in South America could become one of the wealthiest. Suddenly the talk of Georgetown is a proposed sovereign wealth fund to manage all the money, as if this were a Persian Gulf sheikhdom. A vast majority of college-educated youths emigrate to the United States or Canada, while those who stay behind experience high rates of HIV infection, crime and suicide.”
Krauss also described a lack of true optimism in people he interviewed in writing the article on the likelihood of the Guyanese government, headed by President David Granger, along with the minister for natural resources, Raphael Trotman, producing anything of quality with regard to shepherding the country to a successful oil-based economy.
“But there are obstacles. If history is any guide, countries that discover oil often waste their opportunity, as the resource blends seamlessly with corruption. Countries with weak political institutions like Guyana are especially vulnerable,” he wrote.
With regard to countries with large natural resource deposits paradoxically not being able to manage these resources effectively for profit and benefit of its citizens is not a new phenomenon he suggested. There is a wide range of literature on what economists and political scientists term as “Dutch Disease” or the “paradox of plenty” or the “resource curse”.
The Financial Times defines Dutch Disease as “the negative impact on an economy of anything that gives rise to a sharp inflow of foreign currency, such as the discovery of large oil reserves. The currency inflows lead to currency appreciation, making the country’s other products less price competitive on the export market. It also leads to higher levels of cheap imports and can lead to deindustrialisation as industries apart from resource exploitation are moved to cheaper locations.”
In fact, a case of Dutch Disease has been exemplified in Guyana’s neighbour, Venezuela, a country with the largest oil reserves in the world.
However, Venezuela has not been able to export its oil, or take advantage of rising oil prices due to systemic corruption, lack of proper management of resources. This has led to sanctions by external trade partners, in addition to the accrued benefits of the oil resources not trickling down to the general citizenry the way it was envisioned.
Venezuela is also simultaneously going through a massive humanitarian crisis, inflation is pegged to reach one million percent this year, in addition to oil rigs being shut down — an estimated 15-plus over the course of the last 18 months — and also production showing dramatic signs of decrease as all of these factors take hold.
Venezuela and Guyana have a border dispute working its way through the international arbitration bodies, including the International Court of Justice, which has been ramped up on the Venezuelan side after significant deposits were said to have been found on the Guyanese side of the Essequibo border area — a territory Venezuela claims outright.
Krauss, in his article, pointed to the partnership Guyana has with Exxon Mobil, the oil and gas multinational, which along with Hess, another oil and gas multinational, both of which found what they claim to be the largest oil finds in decades late last year.
As drilling continues, more and more oil deposits, deep under the seabed in the maritime territory of Guyana as currently constituted, are being discovered; drillable and able to be exploited.
Guyana is in the process of drafting legislation on the proposed sovereign wealth fund in order to manage the country’s oil find, but with no firm date for when this Bill will be finalized and brought to parliament.
Along with the lack of faith in the corrupt process, Krauss also indicated that other people he spoke to that are involved in the process, call into question not just current country systems in Guyana, but also the sincerity of the oil legislation overall, the loopholes analysts are asking to be plugged up in the sovereign wealth fund legislation and the failure to establish an open and transparent oil commission to oversee this initiative.
Krauss, speaking with Lars Mangal, president of Totaltec Oilfield Services, a Guyanese based oil safety training company: “The challenges are enormous and shouldn’t be underestimated… We have to overcome nepotism, entitlements, corruption, cynicism and scepticism.”
While Dutch Disease has been a problem with a great deal of countries that have found natural resources, particularly oil deposits, some countries have overcome the rigours of the resource curse, like Norway, and have managed their resources effectively, put the resources in a wealth fund and monitored exchange rate appreciation. This is leading some analysts to claim Norway as having a “clean bill of health” and has overcome the negative effects of its resource find, by and large.
No response has been issued by the Guyanese resources ministry to this article by Krauss and the concerns raised.