Guyana’s development has been stymied for more than ten years, owing to its peculiar development challenges. The time has now come for all of Guyana and its people to embrace the development path the country is embarking upon, and support the policymakers to achieve these goals.
Guyana is now well positioned to lead a massive regional integration drive, given the development trajectory the country is embarking upon.
To that end, given the development of Guyana’s embryonic petroleum sector, a plethora of opportunities is emerging. These have already begun to manifest themselves for Guyanese businesses to capitalise upon, including through the formation of synergies with other international and regional organisations in providing support services to the offshore drilling companies and other oil and gas-related ventures.
Guyana is poised to experience an economic boom in the long-term outlook (Post COVID-19).
Owing to the now burgeoning oil and gas sector, Guyana’s average Foreign Direct Investment (FDI) annually pre–oil was US$260 million. Post oil production in 2019, FDIs amounted to US$1.7 billion, which is an increase of US$1.4 billion, or 536% of what Guyana’s normal average level of FDIs was before becoming an oil producing country. As at 2020, net foreign direct investments increased by 7.6 percent, or US$128.9 million from the 2019 position to US$1.824 billion, due to investments in the oil and gas sector.
It is worthwhile to note that investors’ confidence – coupled with a business-friendly regime especially, are at an all-time high. Both foreign and local investors are moving ahead with critical investment projects – all of which will transform the economic landscape of Guyana in years to come.
Potential economic benefits from gas-to-shore project
Lower energy cost will drive a strong industrialised economy and attract more foreign direct investments. Currently, energy costs account for 40% to 50% of the operating costs of manufacturing firms. Therefore, lower energy cost can facilitate greater economies of scale and economies of scope for firms and overall national competitiveness.
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 the importation of petroleum products annually.
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 region.
Other indirect economic benefits
From looking at private investment data over the last ten years, the annual average growth in private investment was 39%, or Gy$22 billion, and averaging Gy$116 billion.
Over the next five–ten years, the estimated total public and private investment in major infrastructure and developmental projects 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 investment, 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.
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 to 5% – over the next five years and/or by the end of the decade.
As at 2018, the average total private expenditure, which includes private investments both local and foreign, stood at $880 billion/US$4 billion. On average, 7.3% of total private expenditure represents corporate and personal taxes. Therefore, for the purpose of this analysis, 7.3 can be used as a multiplier factor to determine what level of taxes can be earned based on forecasted increase in private expenditure.
Thus, in the scenario wherein GDP is projected to grow by 20.9% in 2021, and in 2020 where GDP growth was 43%. This is an average of 31.5% growth (measuring growth of the new oil economy), which is about 6 times non-oil GDP growth that Guyana experienced pre-oil production.
As such, assuming that given the development trajectory of Guyana, with GDP projected to grow by 4 to 6 times on average for the next decade or so, it is safe to presume that private expenditure can increase by as much as 4 to 6 times, or about 80%, annually.
With private expenditure increasing by six times over the next decade to approximately $66.4 trillion or US$310 billion, using 7.3% as the multiplier factor, corporate and income taxes can amount to approximately US$23 billion, or Gy$5 trillion, in ten years, or Gy$500 billion on average annually.
In the given scenario, this level of projected increase in corporate and income taxes represents 14 times the current average (2020 position) of $35 billion.
Hence, when one considers what Guyana’s economic transformation and development can translate to, the aforementioned are just a few hypothetic scenarios of what this might be, or could be.
About the Author: JC. Bhagwandin is a financial and economic analyst; and an Adjunct Professor at Texila American University, Business College. 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].