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Knowledge-based economy is key
One wonders whether Caricom can get it right this time; to use the petroleum resource discovered in the region to develop sustainable economies. This resource reportedly holds some 13.6 billion barrels of oil and 21.2tcf of natural gas and 5.74mmbbl of NGLS as compared with the three billion barrels of oil retrieved for T&T’s resource sine the 1970’s while T&T had some 30tcf of natural gas reserves.
Today with the resource in T&T depleting and an economy that is still underdeveloped, undiversified, the concern is whether, like Michael Manley’s prediction for T&T, the expected oil/gas foreign exchange revenues will wash through our, the regional, economies like a dose of salts.
Still, the exploration has started in Guyana the same way with the global entities, Exxon Mobil, CNOOC and Repsol, exploring the basin with Guyana, via the various contracts/royalties/taxes, hoping to reap the rents, like T&T’s experience, to usher in the good life based on imports.
The hope in the 1960s/1970s was that the natural resources of the region would be used to galvanise the population into the production of finished goods for export and so create sustainable economies. This did not come about. What were the missing ingredients? The errors made in T&T in establishing the Pt Lisas complex demonstrate the continuing misunderstanding in the region of how to build sustainable economies.
The global petroleum entities coupled their advantages of know how/technology and continued innovation with T&T’s comparative advantage, natural gas, to produce and export the basic petrochemical commodities, to produce added value products in their global network.
The initial plan by the T&T government was to own these plants, to use our comparative advantage and purchase the knowledge, know how, plant technologies and marketing from the developed nations.
This method could have also allowed us to move up the reward curve of the value chain if we had used the plants to build our own capabilities (operation skill, knowledge, R&D, innovation and product branding).
The plan, however, was simply to provide locally the input commodities and hope that the on-shore private sector would invest and again purchase the knowledge, know how, technology required to manufacture petrochemical based products for export- mistaking comparative advantage combined with imported knowledge as providing sustainable global competitiveness.
Unfortunately a recession ensued and under IMF advice we sold the plants and the private sector did not invest in further downstream consumer products. Prof John Foster tells us that the private sector because of its history may have developed a certain rigidity and was unable to adapt to this opportunity.
We then reverted to simply a plantation economy where T&T allowed its natural resource to be exploited with the minimum of local expertise gained and the rents earned contributed to our survival, bought the imports for the population.
The fault lies with many. First, we were created as a region to contribute to the metropole via plantation economies where we, cheap labour and natural resources, were the comparative advantage exploited by foreign knowledge, marketing etc. Colonialism managed this kind of economy.
When we became independent we mimicked the colonials since we did not recognise that all sustainable development is driven by continued knowledge creation, innovation and their exploitation in what Schumpeter refers to as “creative destruction”; the automobile destroyed horse drawn transport, steam ships destroyed sailing ships; the word processor put paid to the typewriter and digital technology to photographic film.
To date, we have depended on the rents from the exploitation of the natural resource without providing this substance of economic sustainability. Also, our education and training system is out of step with the demands of such an economy.
Out sourcing one’s comparative advantage runs the risk that it can change, or it can be challenged by competitors.
For example, China’s comparative advantage was its low labour cost and abundant labour which is being undermined by Vietnam, forcing China to redefine is economic future.
In our case the natural resource is depleting and searching for more oil/gas by foreign investors is high cost compared with other locations.
The development of sustainable economies then is a collaboration among governments, the R&D institutions and the private sector in funding the acquisition of knowledge, its implementation and creation/innovation, the supply of R&D grant and venture capital funding, branding, market development and export marketing.
Hence a knowledge-based economy is fundamental to the development of sustainability.
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