In “Oil companies using profits from Guyana operations to finance `investments’” (SN Jul 20), OGGN essentially makes a claim that ExxonMobil has not injected much new funding in its US $40 B investment in our country. Rather, OGGN contends, the oil company reinvests its profits (what should be retained earnings) and earned revenues or cost recovery (capital outlays and related costs) as a large part of the $40 investment. The organization asks several questions about the $40 B investment injection. Its argument is not very clear.
It is not known how much of revenues and profits are re-injected into the Guyanese economy. Companies generally reinvest profits in business expansion and seek to avoid putting new money into operations unless there is a high degree of guarantee on returns in the investment. Whether it is Exxon’s new money or recovered costs or profits or a combination of each, it is welcomed investment that benefits our economy and country. The source of investment is immaterial; it is important investment that has led to rising GDP and per capita income.
In my studies during the 1980s in development economics, one recurring complaint was, and still is today, that multinationals were (are) repatriating earned revenues and profits (and costs recovery) to developed home countries and investing there, growing those developed economies rather than re-injecting them into the economies where the profits were earned. Businesses tend to chase after profits; they invest where profits are highest and most secure. They minimize risks and maximize profits. And as OGGN claims, oil investment in Guyana is a good bet. That Exxon or other companies are re-investing profits in Guyana is a positive development that has fueled economic growth in Guyana and has increased income among Guyanese. This is what developing countries like Guyana desire. MNCs, please reinvest your profits in Guyana!
Guyana is capital starved for projects and has relied heavily on Chinese investment and loans rather than American capital. That Exxon, an American company, re-invests its cost recovery and profits are not matters to complain about but to be welcomed. It is better than to depend on Chinese loans that will eventually strangle us as has been happening around the globe.
Let us for argument sake say Exxon had decided not to plow back in Guyana any new money or profits or cost recovery, what would have been the impact on the economy? Other oil blocks would not have been developed. The daily production of oil would not have increased. Revenues (royalty and profits) would have been less than a third it is today. Guyana would not have been the fastest growing economy. Cash grants would not have been possible. There would not have been an increase in amounts in school vouchers or pension or other social security payments. University education will not be free. Scholarships would not have been possible. Etc!
While the country will be pleased to have new investment dollars from Exxon and other companies, reinvestment of profits is welcome. It is still money that is just as good as new money. Exxon and any business engage in strategic reinvestment with a focus on generating a positive rate of return on investment to please its stockholders. Reinvestment of profits and costs recovery allow for growth opportunities in our country. Exxon has not earned $40 billion in profits in Guyana over the last five years that it is not putting new money in operations in Guyana. And any business that relies solely on profits for funding tend to limit its ability to pursue increasing profit opportunities that require substantial new capital. Exxon will want to increase earnings. At any rate, expansion of oil production in deep ocean operations requires a lot of new funding that come with high risks. It is believed that Exxon has invested a lot more than it has recovered. Investments are taken from its national income. Revenues and profits from all operations all over the world are placed into the company’s total banking cash deposits. From that total account and or from loans, investments are pursued with operations in Guyana. So it is immaterial whether profits are re-invested or it is new money. Guyana wants both and will not complain about the source.
OGGN is commended for bringing to the attention of the public the fact that Exxon has been plowing back its profits and oil recovery costs in operations in Guyana. The country benefits from such critical investments, growing by leaps and bounds as we expand infrastructure and fund so many other projects and have given out so many handouts.