From the moment ExxonMobil announced it had struck a “significant” oil find off our coast — on May 20, four days after the 2015 election results were announced — analysts and observers have been sounding alarm bells that we should avoid what has been called the “Dutch Disease” or “Resource Curse”. While the terms are related, the first can be seen as a subset of the second.
To be educated on the pitfalls of an oil industry and not repeat those mistakes, a delegation from Guyana, headed by Natural Resources Minister Raphael Trotman, was sent to Uganda, which was at a similar stage in overall development and also in oil, to be “mentored”.
Having witnessed, in neighbours such as Sudan, the persistent poverty in the face of extraordinary levels of oil pumped in the previous decades, Ugandans discussed the issues of “Dutch Disease” and “Resource Curse” intensively, in an effort to avoid falling victim to these situations. Their efforts should be an object lesson to us, but it is obvious that the Government is ignoring their “mentors”. The following is excerpted from a Ugandan report of 2012:
“The phrase ‘natural resource curse,’ also sometimes called ‘the paradox of plenty,’ was originally coined by economists who found that countries with a rich endowment of natural resources tended, in the long term, to record slower economic growth than countries with fewer natural resources. It has since come to be used more widely and generally to describe a situation where, rather than bringing widespread benefits, the extraction of a country’s mineral, oil or gas resources causes significant harm [as Opposition Leader Bharrat Jagdeo noted here].
For the general problems of the resource curse, commentators often recommend an equally general list of ‘governance’ remedies: greater transparency; stronger and more accountable government institutions; curbing corruption; more equitable distribution of resources and social investments; making sure that there are tangible benefits for communities where the resource is found; etc. These, doubtless, are worthy recommendations, but they rarely come with suggestions as to the specific processes and mechanisms by which they can be achieved.
While ‘the natural resource curse’ is now used to describe a wide range of issues, ‘Dutch Disease’ remains a more specific and technical economic concept. It refers to a situation wherein growth in national income from natural resource extraction damages other sectors of a country’s economy. It is named after the experience of the Netherlands in the 1960s, when major gas finds brought a short-lived boom that created problems in other areas of the economy.
This happens because increased revenues from natural resource exports tend to increase the real value of the exporting nation’s currency. That makes the country’s other exports, such as agricultural products and manufactured goods, more expensive and therefore less competitive in world markets. Imports, meanwhile, become cheaper, and this can undermine local producers and manufacturers.
At the same time, demand also tends to rise for some service industries — such as the construction industry — since resource booms often fuel a building boom. This tends to make those services more expensive, which can hurt poorer citizens. The economy as a whole becomes over-reliant on the natural resources that it is exporting, and this can be particularly damaging if, for any reason, there is a drop in world price for those natural resources.
The paper advises that some of the measures that can be taken are to form a “Sovereign Wealth Fund” that invests in international stocks and bonds. The Fund should not be used for budgetary support, as this Government has announced, but for strategic investments made at a measured pace into the economy so as to minimise the adverse effects mentioned above.
With our sugar industry facing challenges, one strategic decision that could be made at this time is to not shut down the four estates but to subsidise them as a holding operation until the oil funds can be injected to diversify the drained and irrigated lands into crops demanded by the burgeoning Chinese and Indian middle classes.
