The Minister of Finance, in his mid-term budget review, again declared that the economy has turned around and produced figures that showed that there was GDP growth over three consecutive quarters, which to economists indicates that the economy is on a growth path.
Our economic performance is driven by our oil/gas production, the prices fetched in the market either as basic commodities (crude oil or LNG) or as downstream petrochemicals. Production of oil and gas depends on the encouragement of foreign direct investment that exploits the petroleum resource.
In such a production system there are long term trends (climate change included) that are governed by exploration and production rates, depletion of the resource and the increasing costs to produce the petroleum. The short term trends are driven by exogenous variables over which the local industry has no control—the noise/disturbance in the system—and in which market price and competition are of importance.
The long term health of the economy is a function of the long term trends (c.f. the future of the Guyanese industry with that of T&T), while the short term fluctuations, boom and bust phenomenon, are functions of the exogenous variable, the noise in the system.
If we look at the long term trends we see that our oil production has declined steadily from some 240,000bbl per day to 60,000bbls per day currently.
Further, the exploration for oil in the deep waters, where it will be more expensive to produce, has borne no fruit. The gas production needed to maintain the current industry is some four billion cubic feet per day. This has dropped and has remained below this figure for many years, with the petrochemical plants operating below capacity.
Even the gas that exists is proving costly to NGC who is not purchasing all the gas available because of cost, so increasing the cost to the downstream producers: all of this is with global competition from US shale gas which is cheaper and abundant. Also, the deep water has given up some of its gas, but again the costs to produce will be high.
The long term trends tell us that the local petroleum industry is in a creeping crisis of resource shortage and increasing exploration and production costs coupled with the threat of shale gas. Hence to judge the performance of this industry and therefore the country’s economy on the noise generated by the exogenous variables over a very short period (three quarters) really gives no indication of the economic health, growth or development of the industry or the economy as a whole.
Surely, in the short term this crisis has to be dealt with as best we can—investment encouragement, price negotiations with up and down-streamers. But if we focus exclusively on this crisis we will miss the strategic conditions that will make a fundamental contribution to our economic future. The world could even overlook us if we do not keep ourselves relevant to the global economy.
A basic aspect of this relevance is that we must export, we must produce globally competitive goods/services so that we can fund the many key imports that cannot be made locally. The strategic conditions that govern how we reconstruct our economy are, not only that we must compete for space in the global market, but also respond to the disruptive digital technologies of the new industrial revolution. These technologies revolve around robotics, AI’s deep learning and pattern recognition, and massive automation.
What is emerging is that with these disruptive technologies the new currency is not capital, it is not money, it is data. Those who control this data will be the new “robber barons” — Google, Facebook, Amazon. These technologies are changing the way we do business, our business models, how we deliver services. They will destroy many conventional jobs, produce new ones but one fears that these new ones may not come fast enough.
I have previously suggested the creation of a national innovation system as the way to go.
It is unrealistic to ignore technological change and simply plan our diversification on traditional jobs and products of the past industrial paradigm. Seeking to import aluminium ingots to make wire and flat-plate is to short change our working population, or to service ships at La Brea whereas the expanding fibre optic networks that crisscross the oceans are the transport media for the new currency, data. To engage in building roads hoping that if the countryside is opened up this would spawn economic development is to ignore that the infrastructure that is really required is fibre optic networks to support the new data economy.
If our government continues to gaze at its navel and ignore the need to so restructure our economy it will indeed be a dereliction of duty.
— Mary K King is an economist