Wednesday, November 30, 2022

Investing in Guyana’s Manufacturing Sector

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By Dr. Lorraine Sobers – OilNOW

Guyana is facing an exciting future as it makes its mark in the energy sector with oil production soon to exceed one million barrels per day and plans underway to bring natural gas to shore within the next two years. Competitively priced, clean and green energy will allow Guyana to occupy an advantageous position in Latin America and the Caribbean. Paired with abundant natural resources and rapid projected growth in the energy sector, the manufacturing sector is poised to support the nation’s strategy for diversification and expansion.

Be it diversification or development, a strong manufacturing sector is critical to building a stable economy. The alternative leads to a higher import bill, vulnerability to volatile markets and lost opportunities for employment creation. Guyana’s energy prices are projected to decrease within the next five (5) years through the upcoming gas-to-power project and the Amaila Falls Hydropower Project.

Lower energy prices will allow for lower production costs and competitive prices of products. For example, Trinidad and Tobago has had the lowest energy prices in the region for decades. This has allowed the country to establish a manufacturing sector that maintains a significant market share for a wide range of products across the Caribbean.

Recently, I came upon the question, “In which manufacturing industries should Guyana invest to capitalise on more competitive energy prices?” Although this is a fair question, I will not attempt to answer it directly. I believe a suitable response will require a thorough feasibility study or a foresighting exercise with a group of experts. Nevertheless, my immediate thoughts lead to two fundamental questions: 1) Why invest in Guyana? and, 2) Why invest in its manufacturing sector?

It is tempting to jump directly into familiar talking points such as utilising natural gas, developing petrochemicals, expanding existing industries, following through on well-planned but unfunded, dormant projects etc. However, discovering and documenting the “whys” of any action or significant investment will prove invaluable in probing assumptions and defining scope. My initial hunch is that Guyana can develop clusters of agri-focused and agriculture-supporting industries such as fertiliser, agri-processing and research in food technology. However, if not addressed, those pesky “why” questions will always persist.

Why invest in Guyana?

Potential investors will consider every aspect of operation that can impact their profitability —availability and cost of raw material, labour, land, transportation networks, energy availability and security, skill base, market availability, risk, and robustness. Energy costs, in particular, can be one of the largest operating costs for most manufacturing processes. As such, more competitive energy prices in Guyana, through gas-to-power and renewable energy developments, can make Guyana attractive to investors.

Guyana Office for Investment (Go-INVEST) reports that the manufacturing sector currently contributes less than 5% to the national gross domestic product (GDP) and employs approximately 12% of the population. Growth in 2021 was estimated to be 3.5%. In Guyana’s favour, we have proximity to Latin American, Caribbean and United States markets, preferential trade arrangements, opportunity to source raw material locally, availability of industrial parks and tax-exemptions on a wide range of vehicles, material and equipment import. Additionally, at present, more than 75% of Guyana’s exports have duty-free market access to facilitate competitive placement of products

However, there is need for improvement in several areas. Undoubtedly, investors will be concerned about the cost and reliability of power supply, the capability and capacity of the labour force and the ease of doing business such as the processing time for applications and licenses. This comes back to an issue I have raised several times, that is, the support systems must be prepared to facilitate the anticipated rapid growth and expansion of operations to be carried out in Guyana. The institutions responsible for public services, education, power supply and distribution and finance must be able to deliver timely and quality service to stakeholders — there is no other way.

Why invest in Guyana’s manufacturing sector?

An obvious starting point would be to look at what Guyana has in hand — abundant, locally available raw material from the agriculture, fishing, forestry, and mining sectors. There is also a vast range of possible traditional and non-traditional investment areas based on the availability of raw material including agro-industry products, industrial materials, and paper products.

In addition to a predicted drop in energy costs, Guyana’s manufacturing sector will be able to boast of producing products using cleaner and green energy with a mix of natural gas, hydropower, and solar power. Investors interested in positioning their products as low carbon or net zero will find this very attractive coupled with the competitive conditions previously mentioned. The practice of some companies using Environment, Social and Governance (ESG) standards to evaluate projects and investment portfolios will be in harmony with Guyana’s low carbon development strategy.

Ongoing development of a robust manufacturing sector moves Guyana away from exporting its raw materials, towards creating more value-added products. As a natural consequence there is an accompanying increase in the value of exports, reduced demand for importing those products and increased employment. Also, through Guyana’s manufacturing sector small and medium enterprises (SMEs) may also access opportunities supported by international partnerships, training programs, grants, funding programs and specific government incentive packages for priority investment areas.

At this time, Guyana is awash with hope and anticipation as the nation transitions into a new order of business, opportunities and developments. Investment in the manufacturing sector will undoubtedly position Guyana to avoid the resource curse, ensuring sustainable and stable development.

About the Author

Dr. Lorraine Sobers is a Fulbright Scholar currently lecturing at the University of the West Indies, St. Augustine. Dr. Sobers has a BS in Chemical Engineering and postgraduate degrees, MS and Ph.D., in Petroleum Engineering from Texas Tech and Imperial College, London respectively. She has 19 years’ experience in the energy sector specialising in Carbon Capture and Storage (CCS). Dr. Sobers is the Project Coordinator for CO2 Emission Reduction Mobilisation (CERM) Project and a Fellow of the Caribbean Policy Consortium.

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