– Potential economic benefits / development impact
In light of the development trajectory that Guyana is embarking upon over the next decade coupled with the emerging oil and gas sector, and of course projects such as the gas-to-shore project – drawing from the above illustrations.
Hereunder mentioned are some of the long economic benefits that can be derived from these developmental and transformational projects:
• Lower energy cost can drive a strong industrialized economy and attract more foreign direct investments. Currently, energy costs accounts for 40% – 50% of the operating costs for manufacturing firms.
• Therefore, lower energy cost can facilitate greater economies of scale and economies of scope for firms and overall national competitiveness.
• From looking at private investment data over the last ten years, the annual average growth in private investment was 39% or by GY$ 22 billion, and averaging GY$116 billion. Hence, 50% reduction in energy cost can result in more than 100% annual increase in private investments or by more than GY$200 billion.
• Development projects such as the housing drive targeting 50,000 allocation of house lots which is about 10,000 per year: assuming that 5,000 – 10,000 new homes are built in a year at an average cost per home $15 million – this can translate to G$75 billion – G$150 billion injections in the economy annually in housing development alone.
• This in turn, will trickle down to increased loans in the banking sector, will also drive demand in other sectors such as the construction and hardware suppliers, contractors/ home builders – thus the creation of more than 20,000 jobs within the construction sector, contracting, homebuilders, banking and tourism.
• Over the next five – ten years the estimated total public and private investment in major infrastructure and developmental projects as outlined in the table above, can amount to GY$7.2 trillion or an average of GY$719 billion annually in public and private investments.
• The current average total public and private investments from looking at the trend over the last ten years was approximately GY$345 billion annually. With Guyana’s development trajectory, this sum can increase annually by 52% or by GY$345 billion over the next decade.
• Post recovery period for Liza 1, oil revenues can reach over GY$100 billion annually.
• Public and private investments can potentially increase by more than 50% annually and can effectively translate to the creation of more than 100,000 jobs and tremendous growth in entrepreneurship opportunities during this period. In this regard, unemployment is currently estimated to be more than 25% or 125,000 persons of the total labour force. This number can be reduced to the lower single digits – around 3 – 5% over the next five years and/or by the end of the decade.
• The implementation of the gas to shore project which will become a major part of Guyana’s energy mix can result in more than 50% savings on fuel imports which is currently over US$500 million, thereby saving about US$250 million in fuel imports annually.
• Savings in the country’s import bill and stronger growth in exports as a result of enhanced national competitiveness attributed to lower energy cost. This can ultimately translate to the country enjoying a trade balance surplus from a deficit position, as it has always been. A trade balance surplus is a signal of stronger macroeconomic stability and a strong and stable domestic currency.
• Guyana can also become a net exporter of energy/natural gas products and by-products within the Caribbean.
To be continued…
About the Author: JC. Bhagwandin is the Chief Financial Advisor/Analyst of JB Consultancy & Associates, and lecturer at Texila American University. The views expressed are exclusively his own, and do not necessarily represent those of this newspaper and the institutions he represents. For comments, send to [email protected].
