Guyana needs to tap into innovation, not oil


Nov 5, 2020

The small South American country of Guyana opened a new chapter in its history earlier this year when it sold its first barrels of oil. Its recently-discovered offshore oil field is set to produce 750,000 barrels of oil per day by 2025, unleashing enormous flows of cash to the impoverished former-British sugar colony.

The oil discovery will chart the course of Guyana’s future, but it remains to be seen in which direction. The country’s economy is seeing an initial bump as its tourism, housing, and hospitality sectors have grown in response to the arrival of new workers, but at the same time Guyana’s political landscape has grown more tumultuous as factions compete for control of future revenues. If it follows the trajectory of other resource-rich countries in South America and elsewhere, the country’s new windfalls of wealth won’t enable it to achieve long-term, widespread prosperity.

Part of the reason for this has to do with the way resource-reliant economies tend to innovate. Industries that extract natural resources like oil lend themselves to efficiency innovations, which help organizations do more with fewer inputs. For example, it’s in the interest of ExxonMobil (the company that discovered Guyana’s oil fields) to get as much oil out of the ground as possible while at the same time automating tasks, decreasing its labor force, and otherwise cutting its costs as much as possible. In the long run, this leads to a greater concentration of wealth among fewer stakeholders. 

It’s important to note that efficiency innovations are not inherently bad—they create cash flows and drive technological progress. But on their own, they tend to have a negative effect on the development of widespread prosperity in a region because they cut jobs. Jobs are indispensable for prosperity; they allow people to provide for themselves and their families, they give people self-worth, and they’ve even been shown to reduce crime.

Fueling shared prosperity

What Guyana needs most isn’t new oil revenues, but new markets. The creation of new markets is the product of a different type of innovation, aptly named market-creating innovation. Market-creating innovations expand access to products and services to vast new populations of people, creating bustling economic activity. 

In contrast to efficiency innovations, which tend to result in net job loss for an economy, market-creating innovations require the development of many local long-term jobs. This is because market-creating innovations target nonconsumers—populations of people unable to consume existing products they would otherwise need or want because of barriers like cost or geographic access. When an innovator creates a product that’s affordable or accessible enough for nonconsumers to buy and use, the company has to hire people to distribute, market, sell, and service its products. Most of these jobs require local context and are therefore difficult to outsource or give to foreign workers.  

For example, electricity in Guyana tends to be both expensive and inconsistent, and businesses often rely on generators to provide power at least some of the time. Many living in rural areas can’t access electricity at all. If an entrepreneur could develop an affordable and accessible power solution (perhaps like M-Kopa’s solar energy units in Kenya), not only would nonconsumers of electricity gain access to power, but the entrepreneur would need to create many new jobs to serve the new market she created, helping direct profits into less wealthy communities where nonconsumption tends to flourish. What’s more, by creating a new market the innovator would likely attract competitors and jumpstart dozens of complementary markets in the process.

The wealth generated by Guyana’s oil reserve need not be a bad thing for the country. If the Guyanese government channels its cash flow toward supporting market-creating innovations, the country could see a rapid increase in prosperity that will endure for decades to come. Opportunities for such innovations abound in places like Guyana and its neighboring countries, where many people remain nonconsumers of things like telecommunication, effective transportation, healthcare, quality sanitation, and other products and services. 

For Guyana, as for other emerging economies, enduring shared prosperity won’t come from a windfall of wealth; it will come from creating new markets.

Lincoln Wilcox is a research associate at the Christensen Institute, where he researches ways in which individuals, businesses, governments, and nonprofits can leverage innovation to create prosperity in low-income countries and communities.