Oil Extraction in Venezuela and Canada
A countrys endowment of natural resources is often seen as a source of economic supremacy of a country. Certain natural resources such as fossil fuels have a significant position in the world economy because the commodity is in high demand in all countries. Unfortunately, the availability of natural resources does not necessarily guarantee the citizens of a stable and prosperous economy. The ability of a country to translate the resources into economic development depends on the prudent management of the resources. The situation in which a country may be endowed with resources and end up being poor is called Dutch Disease. The main reason for this condition is mismanagement and overreliance on one resource, leaving other resources underdeveloped. Two countries, Canada and Venezuela, are explored where oil extraction has caused misery in Venezuela and success in Canada. Venezuela has exclusively pegged its economy on oil and ignored Agriculture, causing high inflation and scarcity of food. Though oil and gas are available in the two countries, prudent management of the resource in Canada has led to prosperity whereas mismanagement of the resource has led to misery in Venezuela.
Oil Production in Venezuela
Venezuela is the worlds fifth producer of oil and natural gas. The country has produced oil for about one century. About fifteen percent of oil sold in the United States is sourced from Venezuela. The revenue earned from oil accounts for half of the money the government collects from taxes. Oil exploration in Venezuela has led to the outcomes discussed below.
Oil exploration creates employment to about 45,000 people in Venezuela. However, the oil industry has been affected by a series of strikes and unrests. The oil company has been tainted for firing more than 19,000 employees. The termination of employment was said to be politically instigated as the new presidents replace the fired employees with their loyalists. Thus, the industry has caused misery to the families of the people rendered jobless.
The extraction of oil has caused a massive impact on the environment in Venezuela. Oil spills and oil leaks from tankers has caused massive pollution in the cost of Venezuela. The damage to the aquatic environment has caused a significant reduction in fishing activities on the coast of Venezuela.
The oil extraction has also increased the concentration of carbon dioxide as a result of the burning of natural gas. The high levels of the gas have been linked to the increased cases of breathing problems among the children and the elderly. Scientists have also warned that increased carbon dioxide would cause global warming.
Oil production has also damaged the environment around Lake Maracaibo. The massive extraction of oil from the areas neighboring Lake Maracaibo has led to the changing landscape. The eastern shores of the lake are experiencing an annual drop of 3%. This has caused an additional cost of constructing a dike to prevent water from the lake from flooding to the adjacent homes and towns.
Decrease in the Value of Currency
The value of Venezuelas currency has decreased significantly due to the decline in oil production. Venezuela is not efficiently extracting oil from its vast mature oil fields. The oil productivity has been falling progressively due to the poor management of oil extraction. In spite of the country lacking cutting edge technology for oil extraction, it has avoided entering into partnerships with multinationals that would provide capital and technology for efficient oil extraction. Consequently, fewer competent firms are involved in the extraction of oil, leading to low production and dwindling export revenue. This has caused a decrease in the value of the currency of Venezuela, making imports very expensive.
The decrease in the production of oil and its subsequent reduction in the value of the Venezuela currency have caused massive inflation in Venezuela. Currently, Venezuela has the worlds highest inflation rate. Inflation in 2016 stood at 500%. The essential commodities are largely unaffordable to a greater population of low-income earners. Instead of viewing oil extraction as an advantage, the citizens of Venezuela perceive it as a source of great misery.
Venezuela is a petrodollar economy which derives the bulk of its budget from oil revenue. The falling price of oil has complicated the servicing of Venezuelas foreign debt obligations. Thus, the foreign debt has accumulated to $15 billion in 2015 whereas the central bank has $11.8 billion in reserves. The accumulating foreign debt indicates that Venezuela would use a greater share of its revenue to pay loans, interests, and penalty.
The economy of Venezuela is almost entirely dependent on oil. The agricultural sector accounts for a small percentage of the economy, hence, most of the food commodities are imported. The falling oil revenues have reduced the ability of Venezuela to pay for imports. Food imports dropped by 50% in 2016, causing shortages of basics such as flour, toilet paper and milk that lasts for up to months. Consequently, the government rations the available basic commodities. Long lines can be seen in Venezuela of people waiting to buy essential goods. The shortages have led to the sprouting of the black market. The shortages extend to medicines. Penicillin and other remedies are in acute shortage in pharmacies and hospitals. The public hospitals have been grounded by the lack of medicine, leading to the death of people and infants.
Oil Extraction in Canada
Canada is estimated to hold about 175 billion barrels of oil, making it the third largest oil reserve in the world. In contrast with Venezuela, oil extraction in Canada generates a wide range of benefits to the economy. The development of oil sands has been attributed to the creation of a high number of jobs in entire Canada. In the year 2015, about 3400 companies in Canada supplied the oil sands with goods and services. Almost all goods used in oil extraction including the materials used in the construction and operation of the in situ oil sand projects were sourced from across Canada. The machinery includes gauges, valves, trucks, and pumps. All these materials are produced in Quebec and Ontario. The following outcomes are attributed to oil exploration in Canada.
Creation of Employment
The extraction of oil in Canada currently creates about direct 151,000 jobs. These people are employed in the direct sands investments. Oil exploration also creates indirect jobs through the companies that supply materials, technology and services used in the oil exploration because they are all sourced in Canada. Job creation also extends to hotels, restaurants, coffee shops and retail outlets. Though oil sands are found in Alberta, the job creation is felt to the province of Quebec and Ontario. Oil sands attract a large number of employees because they are well compensated for their expertise. The oil sands have stimulated all regions in Canada through job creation.
The oil and gas industry pays remits billions of dollars to the Canadian government in form of taxes and loyalties. The annual revenue received by the Canadian federal and provincial government from taxes amounts to $15 billion. Royalties are submitted to the provincial governments. The taxes are used to finance important government functions such as health care, education, and infrastructure that serve all residents of Canada.
Contribution to GDP
The oil and gas sector accounts for 28% of Canadas GDP. Pipelines add $11.5 billion to the GDP. The export of oil and gas contributes $81 billion to the GDP. In the next three decades, oil and gas are projected to contribute $175 billion to the GDP of Canada.
The oil sands development is said to be one of the sources of pollution to the Alberta lakes. The level of toxic carcinogen has been rising in the lakes with the development of the oil sands. The toxic carcinogen is associated with infertility, fish mutation and immune disorders.
However, the pollution levels have remained low when matched with the levels of economic development in the region. The oil seeps into the Alberta lakes from the nearby oil sands is also said to be natural. Therefore, pollution in Canada is natural and can be least attributed to oil exploration activities. In spite of the production of 1.5 million barrels a day, pollution levels are low.
Canada uses advanced technology in in the oil sands, which has helped to reduce the emission of greenhouse gases. The energy efficient method attributed to this reduction in emission is co-generation. The by-products are converted to electricity, hence wastes are reduced. Thus, the per barrel greenhouse gas emission is significantly low.
Canada has maintained a low inflation rate despite a reduction in oil prices. For almost a century, Canadas inflation rate has maintained an average of 3.15%. The decline in oil prices caused opposite effects in Canada and Venezuela. The decline causes an increase in inflation in Venezuela because it creates an adverse impact on the balance of payment. In Canada, a decrease in oil prices causes a reduction in inflation. Though Canada is the sixth largest producer of oil, it has not abandoned other sectors of the economy. It continues to export commodities from the manufacturing and agriculture sector.
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PDVSA is a corporation owned by the government of Venezuela. Its operations are controlled by the petroleum ministry. The company plans, coordinates and supervises oil exploration activities in Venezuela. It ranks fifth among the worlds largest oil companies.
PDVSA is known for irregular employment practices. It hires less skilled employees and replaces competent employees with loyalists of the president. It has a history of firing up to 18,000 employees at one instant, who accounts for 40% of the total workforce. The company also seeks to control international oil companies or it threatens them with expropriation. For example, when Exxon Mobil Company declined to cede control of their projects to PDVSA, it occasioned their expropriation. The decision led to an extra investment of $3 billion per year for maintenance of production levels at existing fields. These inappropriate decisions led to a decline in production of oil.
PDVSA has not been keen on implementing safety measures at the refineries. The negligence has caused a number of deaths in the refineries. For example, the explosion at the Amuay refinery caused forty-two deaths. Though suggestions were made on maintenance and safety checks, PDVSA implemented only 19% of the recommended shutdowns.
PDVSA has been accused of rampant corruption that has led to the loss of public funds. Between 2004 and 2014, the company is said to have lost $11 billion. This amount is equal to an annual budget of 5 countries in Central America. The company is responsible for 95% of the export revenue of Venezuela. It controls the countrys financial engine of more than two decades. The corruption allegations come at the time Venezuela is undergoing an economic crisis. The world oil prices are also declining sharply, generating negative impacts on the oil-dependent economy of Venezuela.
Suncor Energy, Inc.
It is Canadas largest company in terms of market capitalization. The company produces crude oil from oil sands and appears in the Forbes list. It mainly operates in Ontario, Alberta, and Quebec where mining activities are intense. It also conducts offshore drilling.
Suncor Energy has an unfavorable environmental record. In 2007, the company was ranked in the 6th position in greenhouse gas emissions. Its increased production activities at the oil sands have led to an increase in greenhouse gas emissions. The company has suffered hefty fines for this environmental unfriendly practice. It was charged with failing to use pollution control instrument and was fined 600,000 dollars. It was also accused of channeling untreated wastewater into river Athabasca.
Suncor Energy has received various awards as one of the best employers in Canada. It appears among one of the top hundred employers in Canada. The company employs and trains local people. It also conducts research and development activities in the local community. The development of local talent increases the living standards of the locals of the communities where the company operates.
Educational Assistance and Sustainability Initiatives
Suncor Energy has programs that provide financing to the needy children attending schools and colleges. The program offers annual grants for a full course. The program also offers education assistance to employees seeking to further their studies in the courses relevant to the work they do. The program indicates that the company is interested to develop the local community.
The company has also invested in sustainability initiatives. It invested one million dollars in the Sarnia sustainability initiatives. The initiative houses a community resource center and provides a convergence point for community and industry groups that are focused on researching and implementing sustainability initiatives. It also finances the educational site for alternative energy sources.
Agro-Foods Sector in Thailand
The agro foods sector combines a wide range of industries involved in the production and manufacture of foods. It included livestock, dairy products, poultry, cereals, vegetables, fruits, and horticulture. It also involves agricultural equipment and technologies. Manufacturing of food and beverages also falls in the sector. Agro-foods are not only a source of food security but also a provider of revenue and employment.
The agro-food sector is a highly established sector in Thailand. It the countrys largest economic sector that employs up to 40% of the total workforce. It contributes about 47 million dollars of the GDP. The middle class makes up about 55% of the countrys population has caused an increase in demand for processed and pre-packed food. Convenient stores and supermarkets have sprouted to meet this demand and they provide more than 70% of the pre-packed foods.
Nestle in Thailand
Nestle is the top food and beverage company worldwide. It sells more than 2000 brands in 191 countries. Its purpose is to enhance the quality of life by providing better nutrition. The company sells a wide range of products including coffee, tea, breakfast cereals, chocolate and dairy products.
Nestle's use of Child Labor and Slavery
Despite its sterling performance in the agro-food industry, Nestle is facing challenges of unethical labor practices. The company has been accused of using forced labor in its operations in Thailand. Nestle admitted that there are elements of forced labor within its supply chain, especially the seafood industry. The unethical practices were also uncovered in the Fancy Feast cat food branch of Nestle.
It was found that most of the forced labor is sourced from neighboring countries such as Cambodia. The captors use trickery of a profitable seafood industry only to trap the unsuspecting people into a life of debt and exploitation. They are initially charged hefty fees to get a job. The captives are subjected to inhumane working conditions in the fishing fields and ports to pay back the high brokerage charges. Sometimes, the nets get too heavy and pull workers into the waters. The workers who succumb are thrown into the water.
Nestl?s use of unethical labor practices poses a significant cost to Thailand. Thailand ranks the third position among the largest seafood exporters. Thailand and other Asia nations had received ban threats from EU on the basis of Nestl?s use of child and forced labor. EU issued a threat to ban seafood imports from Thailand if it could not end labor abuses. If the ban is enforced, Asian nation would risk an annual loss of one billion dollars.
Nestle should come up with policies to curb labor abuses. If the company cannot implement stringent measures, the food industry would face a widespread boycott of its products. This would cause massive losses in the entire supply chain beginning from the fishing companies to the suppliers and retailers. Since agro-foods commands a significant proportion of the economy of Thailand, such shocks would trigger unemployment and loss of revenue for the government.
One of the recommendations that the Thailand government can employ to stop labor abuses is to create regulations on labor practices that companies should follow. Companies failing to meet these standards should have their licenses withdrawn. The government should cooperate with anti-trafficking organizations, private recruitment agencies, and other public organizations to identify any labor abuses.
The government should set up mechanisms to identify labor trafficking victims through the establishment of reporting mechanisms. The government should also strengthen its efforts of investigating and prosecuting trafficking offenders. It should enhance procedures of labor inspection and increase protection of fishing industry workers. The government should also encourage the stakeholders of the seafood segment to form labor unions that would champion for the rights of workers in the fishing business.
Some of the labor abuses might be happening without the knowledge of Nestle. Nestle identified the abuses after conducting an investigation into the claims. Though its decision to investigate its practices was applauded, Nestle should employ proactive practices to prevent labor abuses. One of the mechanisms is to increase collaboration with the suppliers to ensure that the sources of its ingredients uphold ethics in labor practices. The company should conduct a regular audit of the sources and immediately terminate contracts with unethical suppliers. A tighter control of the supply chain would ensure that Nestle does not face lawsuits on the mistakes committed by suppliers.
The oil exploration sector generates disparate effects between Venezuela and Canada, depending on the level of dependence on the sector. Venezuela almost entirely depends on oil exploration. Hence, a slight shock in the sector leads to serious impacts in the entire economy. For example, a reduction in oil prices caused a fall in the value of the currency, increase in foreign debt, shortages and unemployment in Canada. The use of inefficient technology has also caused an increase in pollution. Conversely, Canada is a larger producer of oil than Venezuela, but it has also developed other sectors of the economy. Thus, a shock in the industry has no effect on inflation, the value of the currency or shortage of basic commodities. The oil production and distribution has created employment, increased GDP and becomes a stable source of government revenue. Further, the use of advanced technology has led to insignificant pollution on the environment. Though large-scale oil exploration is conducted on the oil sands, pollution cannot be openly identified as opposed to Venezuela where pollution from oil excavation is rampant. The outcomes from a sector in the overall performance of an economy also depend on the countrys level of dependence on a sector. Venezuela almost entirely depends on oil and ignores agriculture; hence, a slight decline in the oil industry disrupts the entire economy. On the other hand, Canada balances dependence on oil and agriculture, leading to a stable economy. A lesson can be learned from Thailand that has turned agro foods to a large source of revenue. Therefore, prudent management of resources and diversifying revenue sources translates a natural resource to a source of economic supremacy of a country.