Hello Guyanese citizens, in this video, we want to explain the political dimensions of the resource curserelated to how it affects the behaviour of governments and the impact on democracy.
The resource curse, also known as the paradox of plenty or the poverty paradox, is the phenomenon of countries with an abundance of natural resources (such as fossil fuels and certain minerals) having less economic growth, less democracy, or worse development outcomes than countries with fewer natural resources (Fernanda Brollo, Guido Tabellini, Tommaso Nannicini, Roberto Perotti, 10 March 2010). More corruption has also been found where there is a windfall in government revenues.
In the last few years, Guyana has emerged as a country with major oil reserves. The offshore oil discoveries have rivaled any other oil discovery in the world over the last 20 years in terms of quantity and quality. Research and the experiences of other oil countries have shown that when there is an oil boom, typically the government in power is the big winner. With new oil production, there would be a significant increase in government revenues which enables much more spending by the government. This increased spending usually enables the government of the resource rich country to remain in power for an extended length of time, as it is able to win supporters through a flurry of local development projects.
When the revenues from the resource starts to dominate the economy, the government in control could tend to have a sway over many in civil society. The government may become the biggest employer when it spends on new infrastructure projects such as building roads, schools, and hospitals. As these jobs are typically more lucrative in terms of compensation and opportunity, the private sector would become more dependent on government contracts and are not likely to speak up as much. Governments in resource rich countries, in addition to employing many, may transfer cash directly to its citizens which would cause them to overlook democratic issues they may have complained about in the past.
In countries where citizens pay significant taxes, they are more inclined to care about how their tax dollars are spent on services ranging from healthcare to education. However, in resource rich countries, the government may reduce the tax burden on citizens if it receives the majority of funding from its resource. In the 2021 Guyana budget, the Government did remove several Value-Added Taxes on several products, and offered modest increases in social benefits and income support. This may lead to citizens not being as vigilant as they were in the past in holding the government accountable for its spending.
With the new-found resource wealth, the government may borrow and spend much more than they are able to manage and keep proper oversight. (The 2021 Guyana budget is funded by some significant Government borrowing). For example, a government may quickly be able to build 10 hospitals whereas before the resource boom it may have been building one hospital every 5 years. This sudden scale up in infrastructure would mean the government probably would not have enough trained inspectors to ensure the building codes are properly being met and enough auditors to validate the invoices being billed by the contractors.
In Guyana, there are already signs of the resource curse playing out in the political arena. The election crisis of 2020 in Guyana, where external governments such as those in the Caribbean and western countries had to intervene to ensure Guyana remained a democracy, was one example of the new-found oil wealth causing the windfall of political winners to be so great that politicians will start to push the boundaries of law. Political commentators framed the election as one where the central issue was which party will win victory and control the oil wealth.
Researchers have also found that large windfalls of politically controlled natural resource revenues may encourage violence. In Guyana – a polarized, plural society – historically opposition parties and their union affiliates push for increased wages, benefits and distribution of resources to their constituencies, citing discrimination or unfairness, and including street action and the use of strategic social unrest to push such cases and causes.
The government has a significant role to play in avoiding the resource curse. It should ensure that other industries such as agriculture and the manufacturing sector are not impaled because oil related companies and other industries that benefit from an oil boom, such as the construction industry and retail, drive up wages and use up limited resources such as land, wharf space, steel, cement, and building materials. The government should focus on using inclusive strategies in decision making, enabling all groups in society to share in the oil wealth and ensuring groups are not underrepresented. For example, in most oil rich countries, the jobs in the oil sector are skewed towards men – the government should try to try to avoid these types of situations in its local content and regulatory framework. There are many more actions the government needs to take such as maintaining independent courts and educating the population to avoid the resource curse. There are some positive signs in the case of Guyana. The government’s commitment to participate in global resource transparency initiatives such as the Extractive Industries Transparency Initiative (EITI) is a good first step. The government developing a local content policy for oil and engaging civil society in the process is another positive sign. The government of Guyana should learn lessons from both its neighbour to its west, Venezuela, which is a state undergoing grave difficulties and Suriname to its east, which is trying to build a world class oil operation via the state-run oil company – Staatsolie. There are even valuable lessons to be learnt from its southern neighbour Brazil, where citizens’ actions as part of Operation Car Wash was able to expose massive corruption and result in senior politicians being held accountable for their corrupt practices related to Brazil’s oil industry. Also, countries with institutions that promote accountability and state competence will tend to benefit from resource booms since these institutions ameliorate the perverse political incentives that such booms create.