Holding Georgetown ‘Over a Barrel’

[dropcap]G[/dropcap]uyana has struck oil, and oil is worth a lot of money. Yet in many ways Guyana’s future has never been more uncertain. This is because history shows that the line between generating wealth from oil, and that wealth being passed onto John or Joan Citizen, is rarely direct. Once upon a time the prospect of a ‘smoke and mirrors’ deal was almost a fait accompli.

At the heart of this new landscape is the question: What history does Georgetown need to know, lest history be repeated? And what will the future of the oil industry locally and globally offer it?

OPPORTUNITY AND RISK

Within our Caribbean family, Guyana is not among the most affluent nations. In fact it’s one of the least affluent. News that it has a reserve in excess of 2 billion barrels is surely welcome for the potential it offers to deliver a new profitability to the nation. Moses Nagamootoo, the prime minister of Guyana, has compared it to finding ‘the road to El Dorado’.

All agree that reaching El Dorado is desirable but such journeys can be dangerous, even not worth it. At heart, the risk comes when that opportunity is not optimised. In such a scenario, news of ‘new oil’ could be not only a double-edged sword, but a new danger.  The thought of such an outcome is not a pleasant one.

It would be far more agreeable to not mention this at all, to suggest it’s all sunshine and rainbows. But this scenario is regrettably a realistic one; one that history shows has the potential to become all too real, and gives pause for the future of the find in the Stabroek area, where the crude resides across nearly 27,000 square kilometers of the coast of Guyana.

The history of oil in the Caribbean and beyond shows that a surge in oil wealth can create a whole new level of problems for its owners. Even nations that have had a longstanding exposure to the oil industry, and would otherwise be considered a safe pair of hands, can become embattled.

PRIMARY AND SECONDARY INDUSTRY

There is also the risk that a boom can have generally on an economy. When money is suddenly awash in one sector of the economy, the migration of many people to it is a natural progression.

There’s no question the rapid expansion of an oil industry can see it drive forward like a race car. The danger occurs when the wheels of the sector aren’t stable and enduring. 

Today Guyana faces this equation in oil. But Japan’s real estate bubble of the late 1980s, the dot-com bust in the late 1990s in Silicon Valley, USA, and the end of the mining boom in parts of Australia throughout the 2000s have become textbook examples of economic busts. The dangers are more pronounced for developing nations but it can happen in any nation.

The consequence of these busts is always the same. Many resources are directed there in boom times, a bust happens, and then not only is the primary industry impacted but also many secondary (support industries) as well. Industries that are often unable to be restarted.

LIKE OIL AND WATER

Oil has a unique history in this sector, and the Caribbean in 2018 finds itself with unique considerations when it comes to fossil fuels. A century ago such a find would have been heralded and celebrated without reservation. The growth of the oil industry in Trinidad and Tobago, Cuba and now Venezuela could also be championed with a view to the future.

There is surely something to celebrate in Guyana but it must come with the recognition that oil is ultimately no longer a ‘future asset’, especially for the Caribbean. The Caribbean not only faces the threat of climate change as a whole, but there are also threats to our local economy in numerous areas.

Global oil profits and offshore banking have long held an intimate link but these ties will be tested anew by the growing global pressure on nations that harbour tax havens. It’s important to note these issues are complex, with shades of grey, and there’s every reason to have optimism that our tourism industry can evolve in this era.

So, too, that new growth and innovation in our local finance industry could deliver new value, and do away with some of the more odorous elements of an industry that has attracted global ire. But just as many in offshore banking recognise change ahead will be necessary, so must a 21st century nation treat an oil find differently than it would one in the 20th century.

This even applies on the consumer level. A prediction made by a Stanford start-up in 2017 held that by 2030 only 20% of Americans would own a personal car. Anybody who just filled up a tank of gas in the past week may at first think that prediction is unlikely. But when it’s recognised that the iPhone was just coming out a decade ago, with the iPad not even released and Netflix just a glimmer in the digital world, then it becomes more realistic.

Especially as each innovation cycle will only decrease more and more as we speed into the future. Such a drop in personal car use will deliver a real blow to the value of oil.

CARIBBEAN FAMILY

Georgetown’s plan is for the first barrel from the newly discovered oil reserves to be pumped in the early 2020s. If all goes well, Guyana could be seeing $700 million of profit generated per year from its oil industry.

But the potential for it to be closer to ‘all goes wrong’ cannot be overlooked. The well-being and future of the Guyanese people are at the heart of this. It’s their territory, and their oil. Exxon’s deal with the Guyanese government will be a key area to watch here; already the International Monetary Fund has called for Guyana to reform existing tax law to provide a greater share of the profits to the Guyanese people.

For the Caribbean, how this latest chapter in regional wealth is transfused will be important well beyond Georgetown. For today it is Guyana, but tomorrow it could be another nation. This is an issue that’s national, but also regional; Guyana is a sovereign nation but the countries of the Caribbean are a family.

Like any family we may squabble sometimes and not always agree on the future. But a common history is shared, an aspiration to not only advance individually but together, and to ensure painful memories of exploitation are never revisited, not by military force or economic duress.

There is every reason to be positive about the sunny days ahead for Guyana.  It’s just also necessary to keep an eye out for any storms clouds too.