Recently, the World Bank, using the Gross National Income (GNI) per capita measure, reclassified Guyana as a high-income country. GNI is the sum of all income earned by a country, irrespective of where the income was earned. The justification for this elevation into the highest GNI category is largely based on the impact of foreign direct investment, and the expanding export earnings in the oil sector, which accounts for the largest share of export earnings in the Guyanese economy. As a result, Guyana has been upgraded and categorized as a high-income country, due to the increasing earnings from oil; and this precludes Guyana from accessing loans at reasonable interest rates and lending terms.
In order to be admitted as a member of the high-income-country, the GNI per capita must be US$13,845.00 (G$2.8 Million) or higher. According to the World Bank, Guyana GNI per capita in 2022 was US$15,050.00 (G$3.01 Million). Ask the typical Guyanese worker if they know any Guyanese living in Guyana who earns G$3.01 Million, and the affirmative answer would be ‘No’. In fact, Government and private sector workers earn on the average income that is significantly lower than the GNI per capita amount of US$15,050.00 (G$3.01 Million). For instance, if the typical Guyanese worker earns US$6,000.00 (G$1.2 Million) or more per year that worker would be someone working for a foreign owned company either in the mining sector (gold, bauxite, diamond, manganese, oil); or some service-related sector; or in the past, it was the sugar industry.
In some countries, the GNI per capita and the Gross Domestic Product (GDP) per capita can be approximately the same or different. For example, the GNI per capita and GDP per capita in the USA in 2022 were approximately the same amount: US$76,370.00 and US$76,398.60, respectively. In contrast, the GDP per capita in Ireland and Guyana are US$104,038.90 and US$18,989.80, respectively; while the GNI per capita are US$81,070.00 and US$15,050.00, respectively. The reason why the GNI per capita is smaller than the GDP per capita in Ireland is due to foreign investors controlling a large proportion of Ireland’s production, and it is a low-tax jurisdiction, the home for many European and US subsidiaries.
Guyana has the same incentive structure as Ireland, together with other over-incentivized factors in a lopsided PSA. For example, EEPGL is a subsidiary of ExxonMobil; it pays no taxes, but receives tax receipts from the Government of Guyana for the non-payment of taxes. EEPGL pays insignificant royalties (2 percent of total sales, far less than other countries); it extracts upfront 75 percent of total revenue for expenses in an effort to maximize costs and not profit, given that there is no ring fencing on each oil reservoir. For the period January to June 2023, and using Bank of Guyana data and the PSA income distribution, the total oil sales are estimated at US$4.54 Billion. And of this amount, Guyana received US$658.4 Million (14.5%), while EEPGL extracted US$3.88 Billion (85.5%), where for every dollar that Guyana received, EEPGL received US$5.90. In other words, Guyana only received 14.5 barrels of oil out of every 100 barrels of oil extracted and exported, while EEPGL captures the remaining 85.5 barrels of oil. From this distribution, it can be inferred that a significant proportion of the foreign exchange captured by EEPGL is not added to Guyana’s foreign exchange reserves. Just ask the private sector about the shortage of foreign exchange in the local market and you would learn of a current debate. Meanwhile, the loss of the World Bank soft loans could be a constraining factor on economic development; and together with the pressuring stipulations in Article 26 and Article 32.1 of the PSA, it is plausible to believe that Guyana’s sovereignty as a Nation State has been decimated by the owners of EEPGL.
While Guyanese understand that EEPGL must receive a fair return on their investment, it is also clear to Guyanese that the current PSA is disturbingly unfair, and it must be restructured for a more equitable distribution of the earnings. In this regard, Guyanese must listen to Mr. John Hess, CEO of Hess Corporation, a partner in the EEPGL, who speaks of the excellent profits they are making in Guyana. Consequently, a fair and equitable arrangement is undoubtedly required by all Guyanese, and EEPGL is in a position to come to the table and bring closure to this problem; for our history tells us that sugar barons must not be replaced by oil barons; for oil extraction and exports under the current PSA must not be a new a pathway to slavery and indentureship. Therefore, ExxonMobil, Hess, and CNOOC must do the right thing and step up to the table; introduce a fair and equitable agreement, and eliminate the downside of this investment that tramples Guyana’s sovereignty.
Sincerely,
Dr. C. Kenrick Hunte
Professor and Former Ambassador
Article Originally Published At: https://www.stabroeknews.com/2023/09/14/opinion/letters/guyanas-reclassification-as-a-high-income-country/
