A paid advertisement in the Friday edition of this newspaper reported that many countries ended up worse off after the oil companies left their shores. So what indeed is the record on this score and in particular in relation to Exxon?
Angola is Africa’s second largest oil producer. Yet over the past four years, its economy has been in free fall with growth expected to further contract this year. Corruption and squander mania have fritted away much of the oil revenues with many major projects being unable to be completed because they are over budget.
Oil-rich Angola became oil-poor Angola. The country has had to revert to the International Monetary Fund to help dig it out of its economic morass. True to form, the IMF is calling for the removal of subsidies, including agricultural subsidies which Angola needs to hasten its economic diversification.
The IMF has not made a healthy prognosis of Angola’s future. It points to high annual debt to GDP ratios (as high as 91%), problems of fiscal sustainability, external debt arrears,
Angola is in such a mess that it is being forced to privatise much of the state-owned enterprises. And that country has a far better deal than Guyana has with Exxon. At one stage, it was producing as many as 600,000 barrels of oil per day. Guyana will start at one-fifth of that quantity.
The Angolan experience shows that those who manage a country have to know what they are doing. Unless there are strong safeguards against corruption, the little that you receive, will be taken away, if not by the oil companies, then it will by the corruption.
Angola’s experience should be a wake-up call to Guyana. The Ministry of Finance is usually very alert and sensitive to criticisms about its management of the economy.
Last week and this week, there was a letter and a column respectively appearing in the dailies which point to a serious deterioration in Guyana’s overdraft facility. To date, there has been no explanation as to why despite no major new infrastructural project being launched since 2015, Guyana’s overdraft should be that high.
One economist has nailed the problem down to increased public sector spending but on recurrent expenditure rather than on capital projects. While all of this is happening, the exchange rate continues to slip.
Last week, the United States dollar was selling at US$1 =G$219. This is going to have a serious inflationary impact on consumers and despite the government indicating that inflation is moderated, the reality out there is that prices have increased beyond any improvement in consumer purchasing power.
All of these developments are not unrelated to the prospects in the oil sector. As the Angolan experience shows, when there is economic mismanagement, it has an effect on investors. Investors are cagey about making new investments and like Exxon has done in Angola, it will most likely proceed stealthily.
The verdict therefore on Angola is that oil production has created a greater crisis than it has done good. It has forced the country into the clutches of the International Monetary Fund. When one considers the size of Angola’s oil reserves, it would have been unthinkable fifteen years ago for anyone to imagine that the country so rich in oil could have ended up in dire straits.
Guyana is not Angola. It does not have an oil company, which can become a partner in oil exploration. As such, Guyana has found itself pawning out its oil resources for a pittance and when that pittance cannot solve the problems of the economy – which is now showing some signs of retrogression in terms of its overdraft balances – then Guyana, like it did in 1989, may end like Angola and have to go with its begging bowl to the IMF.
The APNU and the AFC are struggling to manage the economy. A small capital programme still has an unacceptable rate of implementation. This points to a dearth in implementation capacity. The government needs help, intellectual and otherwise.
A joint approach to the management of oil should be considered. The government should reach out not just to the opposition parties but also to civil society stakeholders and try to arrive at a consensus as to how the oil wealth is going to be managed.
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