Guyana: Recommendations from Bloomberg

Yahoo has an opinion piece that has recommendations for how Guyana should deal with its 2020 and beyond oil wealth. Here are some recommendations:

Don’t bring the oil onshore . . . Building a tangle of pipelines and refineries is exorbitant, brings marginal returns and makes the host country a magnet for corruption, [Rice University energy expert Francisco] Monaldi said. One of the headline scandals in Brazil’s Carwash corruption probe was a head-turning case of contract fraud on a grossly overpriced domestic refinery and petrochemical complex launched amid the euphoria over earlier big oil discoveries . . . 

Resist the local content temptation . . . Get the rules straight . . . Forge a political pact . . . Hire globally. 


Resist the local content and hire globally seems to be the same recommendation. As the opinion piece mentions, Guyana has a population of 780,000. I really can't see a country that small having the necessary skill sets to deal with a new industry that will have a dramatic impact on the economy. To me, that's why Guyana really should start trying to hire Venezuelans to work their new oil fields. I'm sure there are plenty of oil workers from Venezuela that would love to work in Guyana. If they do hire internally, even if they avoid corruption, they'll surely end up with suboptimal results.

CNBC writes:

Guyana, a country of about 780,000 which shares a border with Brazil, Suriname and Venezuela in the northeast of South America, will see economic growth of 86% in 2020, according to the IMF.

. . . In comparison to OPEC kingpin Saudi Arabia, which has approximately 1,900 barrels of offshore reserves per person, Guyana has 3,900 barrels, Hidalgo said.

. . . .“Dutch disease” refers to the negative consequences that can arise from a spike in the value of a nation’s currency. The economic term is most commonly associated with the paradox which occurs when good news, such as Guyana’s discovery of large oil reserves, harms a country’s broader economy.

Dutch disease is actually a really good point. Their main exports are sugar, rice, gold, bauxite, rum, timber and alumina, which are probably traded in USD. So they're still going to need to sell it at the market rate set by the dollar, but Guyana producers won't be able to convert it to the amount of Guyanaese dollars they're used to getting. So if they were used to selling 1 USD and getting 200 GYD back, now they might only get 190 GYD back. That makes it harder to pay their workers. It makes it harder to pay back their debts (if it is in GYD). On the other hand, it will be cheaper for them to buy the equipment they need, which I suspect gets sold to them by companies such as Caterpillar. So they'll be encouraged to shift to a more capital intensive situation to stay competitive in their raw material exports, which doesn't exactly do much good for their workers. This kind of indicates that Guyana would be best served to share the wealth -- I'd say something similar to what Alaska does. Or, I suppose, Guyana could drastically cut corporate taxes to help with the FX impact.