under the law of concentration

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– Minister of GovernanceBy Kiana Wilburg Excessive wealth from the developing oil sector of some nations can be a blessing or a curse. As such,Minister of Governance, Raphael Trotmanthe announcement by ExxonMobil Corporation of its recent oil discovery in significant quantities at the Stabroek Block, just about 120 miles offshore Guyana, has prompted many shouts of glory and growing concerns.Business commentator Rawle Lucas contended in this recent writings that oil brings great potential for corruption. The pursuit in developing the sector, he said, will present Guyana with some new risks and challenges in management.He stressed that throughout this process, Guyanese must guard against the risk of corruption by holding their new leaders in A Partnership for National Unity and the Alliance For Change (APNU+AFC) accountable.But Minister of Governance Raphael Trotman is adamant that “no matter how great the temptation, the new administration will not allow itself to be cursed”.Trotman, who was recently appointed to oversee the natural resources sector, said that everything will be done in their power to build “corruption-proof” systems so that the wealth accumulated from the use of oil will be managed and distributed in accordance with international best practices.“We are aware of all the pitfalls that excessive wealth brings and this is based on the examples we have observed from around the world, where countries mismanaged such wealth. But the APNU+AFC government will be careful.”The politician said that the new administration is “very interested” in getting Guyana into the Extracted Industries Transparency Initiative (EITI) which is an international organization that accesses the levels of transparency in oil, gas and mineral resources for countries.This is overseen by a multi-stakeholder Board, consisting of representatives from governments, extractives companies, civil society organizations, institutional investors and international organizations.In fact, Trotman disclosed that Guyana has already sent in an application to be a member and is working along with the Canadian government in this regard.With regard to policies for the sector, the Minister said that the government has written to the University of Calgary in Canada which has a school of Public Policy.He said that the school has happily agreed to work along with Guyana to develop strong policies and deal with issues relating to the Sovereign Wealth Fund.This Fund, according to President David Granger, will be established to serve as the “oil-chest” where surpluses from that sector will be stored to safeguard the development of the future generation.Trotman said that officials from the school will assist in ensuring transparency with regard to the Fund, and help to insulate it from any form of corruption.He said, too, that the school is looking to hold a seminar to start preparing for the flow of wealth to come, while other steps are in place to support this kind of activity.In his interview with this newspaper on Sunday, he intimated that the new administration is also in close contact with the American Embassy in Guyana and the Department of Energy in the United States.He said that the Granger-led government will be receiving a briefing from them on how to manage the sector from an anti-corruption perspective.Trotman noted that the previous Natural Resources Ministry did work with the United Nations Development Programme (UNDP) and the Inter-American Development Bank (IDB) on oil policies. He said that those agencies have committed to continue working along with them.“We want to ensure that the policy-making aspect is guaranteed and is strong. We are not waiting until we start extracting oil by the barrels then to be hurrying to develop policies. And that is why we are starting now. We want to be insulated from corruption which cursed other countries. We are looking to build armour to protect against any attempt at corruption, so as to ensure that the wealth is distributed equitably,” the Minister expressed.He said, too, that the executive officials of ExxonMobil Corporation are expected to be in Guyana in June to lend further support to the development of Guyana’s oil sector.President David Granger told this newspaper that he is elated at the “good news” from the company, and articulated that it means an even better future for “our children”. He noted however, that the mining sector has some elements of “lawlessness.”“It is one of the reasons why I decided to ensure that the natural resources are under the Ministry of the Presidency…We are looking for a policy which ensures the sustainable exploitation of minerals and we want to design a more comprehensive policy for the extraction of minerals in accordance with international best practices,” said the Head of State.While the APNU+AFC government is making moves to guard against corruption of the sector in the early stages, economists, both locally and in the Diaspora, are calling on the new administration to pay attention to certain risks oil will bring.Rawle Lucas, for example, contended that linked to the issue of oil is also the economic phenomenon known as the ‘Dutch disease’.The Dutch disease is one in which a sudden increase in income coming from natural resources could lead to a rise in the exchange rate.Lucas stated that, “An additional danger of the Dutch disease is that it leads to a rise in income inequality. In other words, under the law of concentration, a country could move from low levels of income equality to high levels of income inequality, simply because, workers in the oil sector are earning far higher incomes than those left in other sectors. Oil, in effect, can be a perennial threat to the education and security policies of the new government with its constant pressure on wages”.He said, however, that there are practical ways to attend to the effects of the Dutch disease – one popular initiative being the creation of a Sovereign Wealth Fund, which the government has already committed to.He said that the availability of options to confront the Dutch disease eases fears of the phenomenon becoming a debilitating one.Lucas reminded that at the moment, oil represents the most imposing burden on the production structure of Guyana.  He said that a look at the trade statistics tells the story of what Guyana is going through as a result of having to include imported oil in its existing production structure.The Bank of Guyana (BOG) reported in its Statistical Bulletin that Guyana expended $118 billion on fuel and lubricants in 2013. He said that this single item represented close to one-third of Guyana’s import bill for that year as revealed in the same BOG report.Lucas said that the situation is even worse when examined from the perspective of export revenues.“In order for Guyana to meet its fuel consumption needs, it had to use 42 percent of the money that it got from the sale of the goods that it shipped overseas in 2013. The effect was that, Guyana had to give up 20 percent of the things that it produced in order to pay for the oil that it used in the production of goods and services in 2013,” he said.The economist continued, “By producing oil, not only would Guyana be able to retain the $118 billion currently spent, or whatever future sum is spent on oil for alternative uses, it would also be able to add to the anticipated savings with the export revenues that it expects to receive from the sale of oil.Assuming rational decision-making by the country’s leaders, the change of the position of oil from expense to revenue in the production structure would also expand international reserves and increase the wealth of the country.”