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Diversifying Guyana’s non-oil economy tough without a development plan

Diversifying Guyana’s non-oil economy tough without a development plan

As Guyana strives to diversify its rapidly growing oil-based economy, the government has embarked on an ad hoc spending spree, without adherence to a national development or strategic plan.

 

Using revenues from oil, in combination with a 21% increase in publicly guaranteed debt last year, the government has allocated billions of dollars to projects which are deemed to be transformational in nature, including energy expansion and diversification, transportation infrastructure and sea and river defence.

 

As well, the government also plans to use oil revenues to finance investments in mining, tourism, agriculture, health care, education, and social services.

 

The ultimate goal is to prevent the country from enduring the so-called Dutch disease, whereby a resource boom leads to economic imbalances in the country, created by an over-dependence on oil and a subsequent decline in other sectors.

 

The truth is, oil is a depletable resource which will not last forever. It is also subject to the uncertainties of international pricing and demand/supply arrangements. It is therefore necessary to strategically develop traditional “core” sectors of the economy such as agriculture, forestry, fishing and mining which will likely survive oil over the long run.

 

For instance, agriculture sustains the livelihoods of about one-third of the population and also provides much needed food security in the current environment of rising prices and global food shortages, as well as for future needs.

 

To put the failure to diversify around oil in perspective, it is useful to draw on the recent experiences of two neighbouring economies, Trinidad & Tobago (T&T) and Venezuela. Declining oil production in the wake of low world market prices up until last year left both countries in dire straits, creating massive shortages of foreign currency necessary to buy basic goods and to sustain their economies.

 

Perhaps, it is still too early pass judgement but the trend in production in core sectors of the economy such as agriculture, forestry, fishing and mining does not in any way reflect the benefits of efforts to diversify the economy.

 

Moreover, the historical pattern of fluctuating to declining production in these sectors must be reversed if diversification is to have any meaningful impact.

 

As Table 1 shows, there has been a surge in the year-over-year (YOY) change in total GDP growth in 2020, the year in which oil revenues began flowing. In 2021, the percentage change in YOY GDP growth over 2020 was 53.58%. The average total GDP growth for the 2012-2021 period was 9.6%.

 

 

Comparatively, the year-over-year (YOY) change in total non-oil GDP growth in 2021 was 18.7%. However, this change is largely due to coming off a year of negative growth of 9.4% in 2020 (see Table 2), primarily due to the slowdown caused by the COVID pandemic.  The average non-oil GDP growth for the 2012-2021 period was 3.8%, which indicates that total GDP growth, which includes oil, grew at about three times faster than non-oil GDP.

 

 

 

 

 

In the agriculture sector, which is one of the core sectors, it is imperative for diversification efforts to have a far greater impact.  While the YOY change in agriculture’s contribution to total GDP growth was 17.7% in 2021, the contribution of the sector to the economy since 2012 was extremely volatile, averaging negative 4.53% (See Table 3).

While the government has announced substantial investments in agriculture, the sector’s historical pattern of production must be reversed if its contribution is to offset the growth in oil and have a meaningful impact in the oil driven economy in the future.

 

 

Although the mining and quarrying sector has had periods of strong growth since 2012, good years have been typically followed by bad years as seen in Table 4. Last year, the YOY change in the sector’s contribution to total GDP growth was a mere 2.1%, compared to a decline of 9.7% in the previous year.

 

Unlike the core sectors that should benefit the most from diversification, the Services sector has experienced relatively consistent growth since 2012, with the exception of 2020 when economic activity slowed down during the COVID pandemic. Last year, the YOY change in growth in the sector was the highest, mainly due to a resurgence in economic activity (see Table 5).

There is no doubt that the government of Guyana has plans to diversify the country’s non-oil economy. The problems of doing so are historical in nature. Pumping money into its core sectors is a necessary but not sufficient condition to achieve long-term success. It must have a defined strategy in place.

Dwarka Lakhan

Dwarka Lakhan

Dwarka Lakhan is a pioneer in emerging markets journalism in Canada. His first emerging markets article, “Africa Joins Ranks of the Emerging,” appeared in Investment Executive, Canada’s leading newspaper for financial advisors, in September 1994. Since then he has written hundreds of articles on the full spectrum of emerging markets and has conducted more than two thousand interviews with emerging and frontier markets investment professionals.


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