Though its ascent on the global oil scene has been swift, Guyana is taking care to avoid the pitfalls of other major producers that have led to the emergence of the Dutch disease, said Vice President, Dr. Bharrat Jagdeo.
Guyana’s oil resource count has climbed to 11 billion barrels since 2015. The flurry of oil exploration and production activities that ensued has garnered billions in revenues for the South American nation. But the government’s plan remains resolute – to not become dependent on oil as others have done in the past.
“The Dutch disease has led to the monoculture or the single sectoral economies that we have observed in many oil-producing countries that have not paid heed to [the] issue. For us, we take this seriously because we are hell-bent on ensuring that we do not make the same mistakes that other oil-producing countries have made,” the VP outlined.
This, he pointed out was achieved by Guyana’s careful fiscal management of the energy sector and a “dedicated policy” towards diversification.
“We have removed the corporate tax on education, we have removed the corporate tax on healthcare, we are very generous with the tourism incentives so we have new hotels. In the agricultural sector, we are even co-investing, putting in infrastructure so we do not face this phenomenon, and we are managing the resources,” he added.
One major way Guyana is guarding against the Dutch disease is with its Local Content Law.
The Local Content Act of Guyana, which mandates the procurement of goods and services from Guyanese suppliers, has been successful in securing contracts for local businesses in its first year of operation, amounting to US$700 million.
The resource curse can manifest itself when the sector associated with a resource boom grows significantly at the expense of other sectors. However, with Local Content, much of the value from oil companies’ spending is beckoned to stay in-country to grow non-oil sectors.
As the oil sector continues to grow in Guyana, Local Content is expected to play an increasingly significant role. The government is already planning to expand the categories in the Local Content Act, from 40 to at least 60, representing a stronger mandate for the procurement of Guyanese goods and services. The increase, according to Director of the Local Content Secretariat Dr. Martin Pertab, could bring in an additional US$300-350 million annually.
