Guyana’s oil wealth relative to Economic Development, and Human Development
Guyana is becoming more and more attractive to foreign investors, and of course there is likely to be heightened excitement by the Private Sector and the Guyanese people, in view of Guyana’s new found oil wealth.
Guyana poised to earn about $100 – $200 billion annually for the first five years. Bearing in mind that other oil companies may come on board and increased production levels which means the oil revenue will only increase proportionately; the more oil finds made – production level may increase which would mean further increases in revenues.
In the first decade, Guyana’s nominal GDP could potentially expand by more than 200 percent. Now, what is GDP and economic growth? And the difference between the two? GDP – which is the acronym for Gross Domestic Product – simply means the sum total of all the goods and services produced in an economy – at market values – in a given time period – usually a calendar year. Real GDP on the other hand, is a macroeconomic measure of the size (nominal GDP) of an economy adjusted for price changes and inflation. Real GDP is then used to measure the economic growth rate. The economic growth rate is the percentage change in the quantity of goods and services produced from one year to the next. In other words, economic growth is the increase in the ability of an economy to produce goods and services over time – whereas – GDP is the monetary value of all goods and services. Economic growth, in turn, is used to determine economic welfare comparisons; international welfare comparisons; and business cycle forecasts. However, in the context of this article – only the economic welfare component is addressed – hereunder.
Economic welfare measures the nation’s overall state of economic well-being. Real GDP is not a perfect measure of economic welfare for seven reasons: (1) quality improvements tend to be neglected in calculating real GDP so the inflation rate is overstated and the real GDP understated; (2) real GDP does not include household production, that is, productive activities done in and around the house by members of the household; (3) Real GDP, as measured, omits the underground economy, which is illegal economic activity or legal economic activity that goes unreported for tax avoidance reasons; (4) health and life expectancy are not directly included in real GDP; (5) Leisure time, a valuable component of an individual’s welfare, is not included in real GDP; (6) environmental damage is not deducted from real GDP; and (7) political freedom and social justice are not included in real GDP.
“Human development is all about human freedoms: freedom to realize the full potential of human life, not just of a few, nor of most, but of all lives in every corner of the world – now and in the future”, (UNDP, 2016).
Yale University (2004) published a paper on “Economic Growth and Human Development”. The paper showed the linkages between economic and human development – arisen from a study – in some states. It was found that the two-way relationship suggested that nations may enter into a virtuous cycle of high growth and large gains in human development, or a vicious cycle of low growth and low rates of human development improvement. In these states, levels of economic growth and human development are mutually reinforcing, either leading towards an upward spiral of development, or a poverty trap. Countries may also find themselves in a lop-sided state, at least temporarily, with relatively good growth and relatively poor human development and vice versa.
There may be various reasons for “economic growth lopsided” nations, that is, those which have high rates of GDP growth relative to improvement in human development indicators, including low social expenditure, government corruption, or inequitably distribution of incomes. The resultant effect of such cases suggests that good economic growth not accompanied by increases and/or improvements in human development may prove to be ultimately unstable.
In putting the aforementioned discussions into perspective – what all that preamble simply means – is that – with the potential huge growth in GDP on account of large sums of oil revenues – does not necessarily mean that the quality of life on a broader spectrum – will be improved and/or experienced by a wide cross section of the Guyanese people. It does not guarantee real economic growth against the background of the human development paradigm – with respect to poverty reduction in particular.
Case in point, with the largest retrenchment in Guyanese (recent) economic history of some 10,000 sugar workers – having the far-reaching implication of further adversely affecting about 40,000 dependents. This outcome, has in effect taken away approximately $10 billion in income distribution to these workers and the broader economy annually. This means that the economic and social wellbeing of these people are going to decline rather rapidly and oil revenue would not necessarily create direct employment for them. The previous Administration attempted to put programs in place aimed at re-engaging these people in productive income generating activities such as training with new skills – namely carpentry and plumbing etc. But these measures, though designed with good intent, will not compensate for the economic loss incurred, neither would it give rise to stability and progressive growth in the income distribution of these thousands of retrenched people.
Therefore, the important task for policymakers to achieve the desired outcome of improved human development and broad-based and inclusive development of the economy, depends on how well the resources earned are managed and deployed into diversification of the economy, creating new industries, investing in infrastructure, education, healthcare, and public security among other crucial development goals.
About the Author:
- Bhagwandin is a macro-finance and research analyst, lecturer and business & financial consultant. 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 firstname.lastname@example.org.