Letter of the Day | Oil and the windfall problem

THE EDITOR, Madam:

In 2018, Trinidad and Tobago shut down Petrotrin. The state oil company had been the spine of the economy for decades, employing thousands, underwriting a standard of living that felt like it would hold. When it closed, it took with it the diversification 30 years of government speeches had promised. The revenues that could have built it had gone elsewhere.

Trinidad had oil for over a century and still arrived at that moment unprepared.

Guyana signed its Stabroek Block agreement with ExxonMobil under pressure to move quickly. The cost recovery provisions favoured the operator so heavily that actual early revenues were a fraction of what the headline profit split suggested. A sovereign wealth fund was established, rules were written, and the fund is already under pressure to spend faster than those rules allow.

Jamaica has no confirmed commercial discovery. But exploration interest has grown considerably since Guyana rewrote the Caribbean’s resource map, and the question of what a discovery would mean here is worth examining before the answer becomes urgent.

The past decade of fiscal consolidation is real – debt approaching 60 per cent of GDP, primary surpluses held across administrations. Then a hurricane pushed the numbers backward, and what that revealed is that the consolidation was always sitting on top of an economy that hasn’t changed its fundamental shape. Tourism stops when a storm comes. Small businesses carry electricity costs that make them uncompetitive before anything else enters the picture. Real diversification has lived in policy documents long enough that the gap between the conversation and the reality has become familiar.

Oil revenue arriving into this economy would find those conditions waiting.

When a government earns from the ground rather than from the productive activity of its people, it gradually reorients around managing who gets what share of what’s coming up. In Jamaica, where the distance between political connectivity and economic opportunity is already shorter than it should be, that reorientation would find fertile ground. The Integrity Commission tables reports. Procurement questions surface regularly and consequences arrive slowly. This holds across administrations and across parties.

Jamaica has the economists, the lawyers, the planners who understand exactly what is at stake. Whether the political conditions exist to act on that understanding – before the pressure of actual revenues arrives – is the question the country has not yet seriously put to itself.

The exchange rate damage runs alongside all of this quietly. Revenues flow in, the currency strengthens, and the farmer and the small manufacturer find their products more expensive abroad while domestic customers reach for cheaper imports. Economists call it Dutch Disease. For an MSME owner already paying some of the highest electricity tariffs in the hemisphere, the ground shifts beneath them through no fault of their own.

Those electricity costs matter because they touch every business trying to compete before any other variable enters the calculation. Directing windfall revenues toward energy infrastructure – renewable generation, grid investment – reduces what Jamaica pays to import energy rather than adding new spending into the domestic economy. A finite resource gets converted into a permanent reduction in the cost of doing business. And unlike most spending, energy infrastructure concludes – you build the capacity, the argument for continued windfall spending weakens on its own terms.

Trinidad’s window was always open and never used. Jamaica’s is open now.

CLIFFORD JAMES