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Oct 02, 2011 Features / Columnists, Ravi Dev
Last month’s discovery of oil (by Tullow Oil) off the coast of French Guiana reinforces geological data that Guyana also shares in that fortunate circumstance. As the CEO pointed out, they knew the northern coast of South America was once connected to West Africa and they shared the same geological characteristics. Their vast oil fields off Ghana gave them confidence they would find others off the Guianas.
As the 2011 elections campaign kicks off in earnest today, we raise concerns articulated before about the reality that resource-rich former colonies in general, and oil-rich ones in particular, have been the worst performers as far as increasing their growth rates are concerned. One study showed that countries that depended heavily on resource extraction in 1970 grew at a measly average of 1% between 1970 and 1989. As a consequence, their people have not experienced the dramatic increases in standards of living as such resource-poor countries like Singapore. Why?
Recently, a strong correlation was also demonstrated between the growth of the resource component of the GDP and conflicts within the countries. While the causation for this effect is complex and contextual, it challenges the widespread hope that with increased revenue our present squabbles over whether “marginalisation” is real or imagined will disappear.
This effect of increased conflict is especially noticeable in divided societies and should be of major concern to our policymakers. Not surprisingly, most conflicts have at their base a nexus with economics, and as the stakes rise with the flow of oil revenue into the national coffers, it is natural that competition for those revenues would increase. In divided societies, it is the norm for groups outside the administration to suspect that the “in-group” is being favoured.
If the increased revenues are not equitably distributed, the growth frontier of the country as a whole is inevitably constrained since the creative potential of significant segments of the population is not allowed to flower – and becomes lost to the society. All modern growth theories show that sustained high growth rates are only possible when the widest possible cross section of the society are involved. Social capital and all that. Increased conflicts – whether hot or cold – inevitably hinder economic activity and growth and in so many instances, precipitate a spiral of increasing poverty and death in the midst of “plenty”.
The most significant factor in ensuring that countries remain locked in low growth rates and mired in poverty while the dollars keep pouring in is what the economists like to call “rapacious rent-seeking” – but we laypersons recognise by the catch-all expression, “corruption”.
Corruption, from all studies, appears to be the major by-product of resource extraction from even the developed countries – much less the poor ones like Guyana. Opportunities for graft will increase in direct proportion to the increase in revenue when the oil starts flowing. And the potential for conflict over increased “marginalisation”.
Even from the limited review of possible pitfalls in the development of our oil potential, it is obvious that if we want to head off such increased conflict (which even without oil has been an albatross around our neck for half a century) we have to come up with a model of development that will involve the greatest number of our citizens as the oil revenue begins to flow in the next decade.
We propose that the Government initiate a national discussion – along the lines of the Constitutional Reform Process in 1999 – to create a more focused strategy, with the understanding that the oil revenue will be utilized to fund the projects proposed by the LCDS.
A national consensus on development projects should go a long way towards ameliorating the conditions that precipitate conflict over “marginalisation” of any group. We suggest that “Ethnic Impact Statements”, which we have long advocated, accompany every project to address concerns over ethnic favouritism that have bedevilled us for so long.
To ensure that the oil revenues are directed towards development, it would be best to constitute an independent “Oil Fund for National Development” (OFND) that operates on transparent accounting rules to ensure that all oil revenues are accounted for. The rules of such transparency have now been fully endorsed by the international community so it would not present any problems to so-called “privacy” needs of corporations. To place the oil revenue directly into the Consolidated Funds is to ensure that at the very best (assuming no sticky fingers) the money will be fritted away on consumption or pork-barrel schemes. The OFND would be our own development bank.
Not incidentally, it will have to ensure that the oil industry does not blossom at the expense of other previously important production sectors, such as agriculture and fishing and ensure that the economy diversifies into manufacturing and higher technologies.
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