Oct 16, 2020 Letters
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 programs 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 European) 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:  new infrastructure projects in electric power (hydro, solar and wind), roads, highways, ports, railways and broadband; Research and Development (R&D) to improve productivity and the competitiveness of businesses through better management, mechanization and technology;  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;  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; 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 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.
Geoffrey Da Silva former Ambassador to Venezuela
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