Executive Summary
Many countries rich in natural resources squander their wealth, enriching a minority, while corruption and mismanagement leave the majority impoverished. Avoiding these mistakes or breaking their pattern is difficult but not impossible. For late developers, countries that are now discovering vast natural resources, the prospect of managing their resource wealth properly, delivering real improvement in living standards and avoiding the resource curse is better than for early developers. This is because of a vault of experience and lessons of policies and practices that countries should be careful to avoid and those they should pursue.
The importance of effective natural resources management to the stability and success of resource-rich countries and the region requires
policymakers and other stakeholders to have an informed conversation about how best to manage their natural resources, to ensure that
their natural resources promote broad-based prosperity, avoid the downsides, and protect the environment. Successful oil and gas exploration in Guyana, currently the second poorest country in the Caribbean, offers a real opportunity to address its many social and economic issues and significantly improve its living standards, but not without deliberate, and timely actions by policymakers.
“While the initial explanation for the resource curse was purely economic, it has gradually become evident that the key issues are political. Whether the region would become politically unstable depends on how well it can manage its resources and simultaneously strengthen its democratic institutions. Ultimately, the quality of governance and the ability and willingness of policymakers to adopt legislation, regulation, and policies to efficiently and transparently manage the country’s natural resources, whether they are oil and gas, precious metals, or forestry products determine whether countries can avoid or mitigate the resource curse.” Sir Paul Collier, Professor of Economics and Public Policy, Blavatnik School of Government and Director, International Growth Institute, University of Oxford.
There is no single policy that can adequately protect against the resource curse. However, a combination of regulations, policies, and administrative rules can be used to develop a strong firewall protection. These include a clear set of safeguards to diversify the economy, removing its dependence on oil and gas, and put revenues on a less fluctuating and a more sustainable and transparent path. This Guide discusses six of the most common mistakes that governments make that lead to the dreaded curse, and more importantly, systematic ways of how to avoid them. Specifically, policymakers should:
- Adopt strong environmental regulations and policies,
- Actively pursue economic diversification,
- Adopt laws and policies to protect against the Dutch disease,
- Establish a local content framework with laws and policies to achieve define targets and promote growth in targeted sectors,
- Establish one or more sovereign wealth funds early in the process to ensure complete transparency and accountability of resource revenues, and
- Establish a corporate social responsibility framework and strategy to align corporate activities with public needs to maximize public benefits.
Evidence shows that when these recommendations are pursued by accountable, transparent, and ethical governments, their economies thrive.
How Caribbean states navigate the current geopolitical landscape and other major events such as Brexit have important implications for the future of their economies and the success of their natural resource sectors. With Brexit, the Caribbean could lose market access and certain privileges with the European Union (EU) which poses serious implications for the region’s traditional (non-oil and gas) exporting sectors which are critical for growth and economic stability for most member states including those with newfound oil and gas industries.
As the Caribbean assesses its relationship between geopolitics and future relations, its economic dimension is the weak spot. Successful exploration in the Caribbean, especially in the Guyana-Suriname basin, is likely to impact global politics and would undoubtedly attract the attention of major global powers. China and Russia’s trade and investment in Latin America and the Caribbean energy sector have risen exponentially as is their status globally. This trend raises serious questions about China and Russia’s possible motives in the region and the implications for the region’s relationship with western democracies.
Many of the world’s leading oil-producing countries are either politically unstable and/or at odds with the United States. Their record on human rights, political stability, and compliance with international law is abysmal. Twenty-two percent of the world’s oil is in the hand of state sponsors of terrorism and are under US/UN sanctions. The Caribbean would be wise not to allow itself to be used in consequential ways in geopolitical or economic fights. Whether the region would become politically unstable depends on how well its governments can implement the recommendations laid out in this guide among others and simultaneously strengthen its democratic institutions.
Author
Dhanraj Singh, Economist and Executive Director, Guyana Budget Policy Institute and Dr. Bonnie Benesh, Executive Director, Think To Do Institute.
Suggested Citation
Singh, Dhanraj and Benesh, Bonnie (2019). Oil and Gas: Common Mistakes Governments Make and How to Avoid Them, Policy Guide. Guyana Budget Policy Institute and the Think To Do Institute. October 2019.
Key Words
Guyana, Curacao, Oil and Gas, Public Accountability and Transparency, Good Governance, Natural Resources Management, Public Policy.
