In recent days, I have been worried about the amount of extraction planned for our oil. The more I read about its effects, the more terrified it makes me. Yes, the find is very large, but no, we don’t have to extract it all in two decades.
Trinidad, for example, extracted theirs at a much more reasonable rate than we are allowing EXXON to extract ours and so they stretched it out to over 100 years of development. I kept hearing that our oil will be extracted very quickly by EXXON, and Guyanese appeared to be proud of it because in my opinion they do not comprehend the dangers of this super-fast extraction.
It’s like watching a pantomime. We are actually boasting that we have so much more oil than Trinidad, because we are extracting it at a much more accelerated rate… IT’S DANGEROUS; it serves the extractors’ interest not Guyana’s.
We are not equipped as a nation to monitor the extraction of this oil at that rate; we don’t have the institutions to serve it and protect us effectively. I am not making a suggestion, I am making a statement of fact.
With such a huge rate of extraction and unable to have the institutions to serve it properly to protect the Guyanese people, we could end up as in so many other countries, having a very real and deadly resource curse and bankrupt as a nation.
The fact is that most countries where there were no proper institutions to service such a large inflow of revenue, end up with only one industry, because the oil sector yields so much more revenue than all other industries. The salaries paid to its workers are usually very high. Even the spin-off sectors also pay high salaries.
When oil money begins to flow in poor countries like Guyana, which literally wakes up one day to find that a small US$1.3 billion National budget has been replaced by US$3-6 billion in oil revenue flow, they lose their other productive sectors.
In our case it means that sugar and rice and all other small operators of the agriculture sector will perish. This happens because as more foreign exchange becomes abundant, countries which have just found this new wealth begin to import cheaper food stuff from overseas.
In time, it kills the local agriculture sector which can’t compete for labour with the oil spinoff businesses which will arise but which also die when the oil dies. Moreover, since the currency of the country will appreciate because of the oil flow revenue, no one would actually buy our exports, since they have become too expensive.
Imposing import tariffs, which is one answer to the problem is not advisable, since it will make the agricultural sector inefficient and unable to compete when the oil money runs out.
It’s the exact situation unfolding in Venezuela. All the farmers have long since left the land and the country has no food since when oil price went below 50 dollars a barrel; the revenue from it could not service the country with foreign exchange to buy imported foodstuff and there was nothing else to replace it.
The nationalization of the oil industry in Venezuela by Chavez and replacing it with corrupt incompetent people, friends and family has had a disastrous effect on the country, so much so that to all intents and purposes Venezuela is now a failed state.
It’s a good lesson, which I am not sure we are looking at as carefully as we should, because it can very easily happen to us.
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