On the threshold of great wealth

Introduction

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Guyana has never been a typical country of the English-speaking Caribbean, and it is about to become even less typical. On 9 May, the BBC ran a headline asking: “Will Guyana soon be the richest country in the world?”. Maybe not, but it looks certain to be the richest country in the Caribbean. The latest estimates put its as-yet-untapped oil reserves at 6bn barrels with much more to be discovered. First oil is due to begin flowing in early 2020, with oil production climbing to 750,000 barrels per day (bpd) by 2025.

How Guyana will cope with this newfound wealth is a matter of much debate, but the country does have certain advantages. These include the fact that it has come late to the party, and there is now a deep understanding in the international community about how newfound oil wealth can be problematic. In addition, Guyana for all its flaws is a democracy with parliamentary, legal, and media checks and balances.

On the other hand, Guyana is a deeply divided society, between its African- and Indian-origin populations, with a tendency for each of them, having won an election, to use the benefits of incumbency to secure long periods in government. With so much oil wealth about to flow, the stakes for securing power in the next election are now higher than ever, and the forthcoming election has already taken on a highly controversial aspect following the no-confidence vote in December 2018 and the failure of the government to hold a new election within three months, as stipulated in the constitution. The president eventually set the election date for 2 March 2020, almost exactly a year after the mandated time.

Guyana in context

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There are 12 independent states in the English-speaking Caribbean, of which only two, Belize and Guyana, are mainland as opposed to island states. Guyana is, by a factor of nearly 10 times, the largest of the 12 countries, with an area of 214,969 sq km. Belize comes second with 22,966 sq km. However, this size is not reflected in population terms.

Jamaica, with an area of 10,991 sq km has a population of 2,898,700. Guyana’s population is 782,200. Trinidad & Tobago, which is half the size of Jamaica at 5,130 sq km, has a population of 1,372,600.

	Area	Population	GDP	GDP
	sq km	000s - 2018	$m - 2017	$ per capita
Antigua & Barbuda	442	103.1	1,535	16,702
The Bahamas	13,943	399.3	9,127	32,660
Barbados	430	286.4	4,821	17,757
Belize	22,966	382.4	1,819	4,806
Dominica	751	74.3	608	7,879
Grenada	344	108.3	1,111	10,405
Guyana	214,969	782.2	3,591	4,578
Jamaica	10,991	2,898.70	14,720	5,193
St Kitts & Nevis	261	55.9	939	17,397
St Lucia	616	179.7	1,717	9,607
St Vincent & the Grenadines	389	110.2	815	7,124
Trinidad & Tobago	5,130	1,372.60	20,300	16,637

The most-significant fact about Guyana’s relative position within the English-speaking Caribbean is that, on a per capita basis, it is currently the poorest of the 12 countries, with a GDP per capita of US$4,578 against a regional average of US$12,600. Guyana’s closest neighbour in the grouping, Trinidad & Tobago, has a per capita GDP of US$16,637 largely due to its successful oil and gas sector.

Even in absolute terms, Guyana’s GDP of US$3.6bn ranks it 5^th out of 12 countries, ahead only of Belize (US$1,819m) and the tiny island states of St Lucia (US$1,717m), Antigua & Barbuda (US$1,535M), Grenada (US$1,111m), St Kitts & Nevis (US$939m), St Vincent & the Grenadines (US$815m), and Dominica (US$608m).

Another area where Guyana is a stand-out is in the shape of its economy, with agriculture still accounting for 17.5% of GDP. The regional average is 6.4%, with agriculture in Trinidad accounting for just 0.4% of the economy. Guyana’s service sector, at 44.7%, is the smallest in the region where the average is 71.7%.

	Agriculture	Industry	Services
	% GDP	% GDP	% GDP
Antigua & Barbuda	2.3	20.2	77.5
The Bahamas	2.3	7.7	90
Barbados	1.4	4.8	93.8
Belize	9.7	13.8	62.2
Dominica	15.3	13.6	71.1
Grenada	9.1	14.2	76.7
Guyana	17.5	37.8	44.7
Jamaica	7.6	23.2	69.2
St Kitts & Nevis	1.1	30	68.9
St Lucia	2.9	14.2	82.8
St Vincent & the Grenadines	7.1	17.4	75.5
Trinidad & Tobago	0.4	48.8	50.8

However, there is one key respect in which Guyana outperforms most of its neighbours, and that is on public debt, which is a major problem for many countries of the English-speaking Caribbean.

At the top of the list for indebtedness is Barbados, with a national debt-to-GDP ratio of 127%. Belize (96%), Jamaica (94%), and Antigua & Barbuda (90%) all have debt levels of 90% or greater. These four are followed by Dominica (87%), St Vincent & the Grenadines (81%), St Lucia (75%), St Kitts & Nevis (58%), The Bahamas (57%), and Grenada (57%).

Guyana, with a modest national debt level of 56% of GDP, is outperformed on this score only by Trinidad & Tobago, with its debt-to-GDP ratio of 45%. This is a good foundation for Guyana as it heads into more expansionary times. As the IMF noted in its latest Article IV Consultation with Guyana, the central government deficit widened to 5.4% of GDP in 2018 and was projected to remain above 5% in 2019 due to the cost of restructuring the sugar sector and an increase in infrastructure-related capital expenditure.

The IMF goes on to say that while “debt sustainability concerns are attenuated by future oil revenues”, the financing of short-term deficits “should be carefully managed”.

Lagging on human-development indicators

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Notwithstanding its relatively healthy position on debt, Guyana’s general lack of economic progress relative to the rest of the Caribbean is reflected, not surprisingly, in measures for human development, as monitored by the United Nations Development Programme (UNDP). In the world index, Guyana ranks just 125 out of 189 countries and territories, with an index score of 0.654. No other country in the English-speaking Caribbean has a score of below 0.7, and only Belize (106) ranks above 100 (with a score of 0.708).

One of the starker areas in which Guyana lags is life expectancy at birth, which is 66.8. No other country in the English-speaking Caribbean has a life expectancy below 70, and some are in the high 70s. Guyana also has the lowest number of expected years of schooling, 11.4 against an average of 13.5.

	Life expectancy	Years of schooling
Antigua & Barbuda	76.5	13.2
The Bahamas	75.8	12.8
Barbados	76.1	15.3
Belize	70.6	12.8
Dominica	78	12.7
Grenada	73.8	16.9
Guyana	66.8	11.4
Jamaica	76.1	13.1
St Kitts & Nevis	74.4	14.4
St Lucia	75.7	13.6
St Vincent & the Grenadines	73.3	13.3
Trinidad & Tobago	70.8	12.9

Governance

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On various measures of good governance, Guyana ranks poorly alongside its Caribbean contemporaries.

For instance, in the World Bank’s ‘Ease of doing business’ index, it ranks 134 out of 190, with only St Kitts & Nevis (140) and Grenada (147) ranking lower. On the World Justice Project’s Rule of Law index, only Belize (86) ranks lower than Guyana (75). And on Transparency International’s Corruption Perceptions Index for 2018, Guyana ranked 93 out of 180 with a score of 37 out of 100. The next worse in the Caribbean region is Trinidad & Tobago, which ranks 78 with a score of 41. However, Belize, Antigua & Barbuda, and St Kitts & Nevis are not included in this index.

	Ease of doing business	Rule of Law	Corruption perceptions index 2018
	2018 Ranking/190	Ranking/126	Ranking/180 & Score/100
Antigua & Barbuda	112	33	n/a
The Bahamas	118	39	29/65
Barbados	129	29	25/68
Belize	125	86	n/a
Dominica	103	45	45/57
Grenada	147	43	53/52
Guyana	134	75	93/37
Jamaica	75	50	70/44
St Kitts & Nevis	140	30	n/a
St Lucia	93	38	50/55
St Vincent & the Grenadines	130	35	41/58
Trinidad & Tobago	105	55	78/41

Guyana scores much better when it comes to crime, or at least to murder. Of the 12 independent countries of the English-speaking Caribbean, Guyana ranks ninth with a murder rate of 17.0 per 100,000. Only Grenada (13.3), Antigua & Barbuda (11.2), and Barbados (7.4) are better.

Those with worse murder rates than Guyana are Belize (44.7), Jamaica (39.3), St Kitts & Nevis (33.6), The Bahamas (29.8), Trinidad & Tobago (28.3), St Vincent & the Grenadines (25.6), St Lucia (21.6), and Dominica (21.1).

The struggle for power

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To an extent, Guyana’s poor governance is a reflection of its heavily contested politics. Like Trinidad & Tobago, which with a score of 41 out of 100 is only just ahead of Guyana with its score of 37, Guyana has a society that is divided between those of East Indian origins and those of African origins. In Trinidad & Tobago, according to the 2011 census, the population is made up of 37.6% people of East Indian origin, 36.3% of African origin, and 24.2% mixed race. Those of Indian origin traditionally support the opposition United National Congress (UNC), with those of African origin mostly supporting the ruling People’s National Movement (PNM).

In Guyana, there is a similar dynamic. The central fact of Guyanese politics, as with Trinidad, is the ethnic divide between those Guyanese of East Indian descent and those of African descent. The 2012 census figures showed that people of East Indian descent make up 39.8% of the population, those of African descent make up 29.2%, and the mixed-race population is 19.9% of the total. Amerindians add a further 10.5%.

The People’s Progressive Party/Civic (PPP/C) is supported by the Indian community. The African community supports the People’s National Congress Reform (PNCR) of President David Granger, which is the main component in the ruling A Partnership for National Unity (Apnu). Apnu rules in a coalition with Alliance for Change (AFC) which was created to appeal across the ethnic divide.

The recent electoral history of Guyana has been of desperately close elections. In 2011, the PPP/C won its fifth consecutive general election, but only by the smallest margin. It secured the presidency with 48.6% of the vote, but it lost control of parliament for the first time in 19 years, winning only 32 of the 65 contested seats. The other 33 seats were split between 26 for Apnu and seven for the AFC.

In November 2014, faced with the prospect of losing a no-confidence vote, the PPP/C’s President Donald Ramotar prorogued parliament and subsequently called an early election for May 2015. On this occasion, the Apnu/AFC ran a combined campaign which enabled it to win the presidency with 50.29% of the vote and to retain control of parliament with 33 seats.

The PPP/C was anything but magnanimous in defeat. It contested the results and began referring to the “de facto” government of President Granger. And, less than a month after the election, the PPP/C began to complain bitterly about what it said was a witch hunt against PPP/C supporters in the civil service.

The PPP/C complained about “a general atmosphere of intimidation, fear, distrust, and uneasiness within the public service”. It said that “Guyanese nationalists and patriots” were being “cast aside, vilified, demonised, and destroyed professionally”. And it added: “The PPP will not stand idly by and allow the de facto Granger Administration to ride roughshod over the civil and political rights of Guyanese.”

The trouble is that since the 2015 general election the ethnic divisions have, if anything, intensified, and the stakes have got much higher with the discovery of oil. The local elections in November 2018 showed that race-based voting remains an unshakeable component of Guyanese elections and is far more important than policy.

But if race remains the unshakeable centrality of Guyanese politics, almost everything else is in flux, starting with the coalition. Apnu and AFC contested the November 2018 local elections separately rather than as coalition partners, and as a result the AFC revealed its political weakness by failing to make inroads into PPP/C strongholds (its main purpose as the multi-ethnic component of the coalition) and ended up losing ground in several constituencies where it had performed well in 2011.

Then, on 21 December 2018, the coalition lost a no-confidence vote because an AFC member (Charrandas Persaud) switched sides to give the opposition their victory.

The constitutionally mandated consequence of the 21 December 2018 no confidence vote was that an election should have been held within three months, but legal challenges and arguments over the readiness of the Guyana Elections Commission (Gecom) to hold an election led to a delay in calling the election until 2 March 2020, leaving President Granger presiding over a lame-duck administration without the legitimacy to take major decisions, including commercial decisions relating to the exploitation of Guyana’s oil wealth.

From non-alignment to US ally

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Guyana’s relations with the United States, and the West in general, have not always been smooth. For the PPP, and its Indo-Guyanese supporters, there is the long-held folk memory that the US, with British support, enabled the PNC to come to power after the pre-independence election of 1964 despite the fact that the PPP received more votes. The PPP under Cheddi Jagan was seen as pro-communist.

The PNC then stayed in power for 28 years, until 1992. When eventually the PPP did come to power – which it, in turn, held for 23 years - relations between the US and the governments led by Bharrat Jagdeo and Donald Ramotar were strained by their courting of China and allegations of corruption.

Under the PNC administration of Forbes Burnham (prime minister 1964-1980; president1980–1985), human rights declined steadily, which was to become a source of contention with the US. More importantly, despite owing his initial victory to the US and Britain, Burnham moved sharply to the left after 1970, establishing strong relations with Cuba, the Soviet Union, North Korea and other communist countries. He declared Guyana a “co-operative republic”, nationalising industries that were foreign-owned and reducing the private sector's share of the economy to 10% by 1979. Guyana under Burnham was also heavily involved in the liberation movements in Africa.

There was an improvement in bilateral ties during the Jimmy Carter presidency (1977-81) as the US declared itself more relaxed about Guyana’s development model, but they declined again with the coming to power in Washington of President Ronald Reagan in 1981.

When Burnham died in 1985, he was succeeded by first vice president and prime minister Desmond Hoyte who sought to improve Guyana's relations with the US and attempted the liberalization of the economy. Nevertheless, there was tension with the US over the pressure to hold fair elections, which eventually let the PPP into power in 1992.

Relations between the US and Guyana have improved immeasurable under President David Granger, but there is a danger that they could slip again should the PPP return to power. The US does no doubt favour the Apnu/AFC coalition, fearing a return to rampant corruption under the PPP and the likely favouring of Chinese companies. There are also fears in Washington that a PPP government might seek to renegotiate the production sharing agreement (PSA) with ExxonMobil (see below).

That the distrust of the US within the PPP persists was well-demonstrated by an incident in July 2014 when a PPP official publicly berated the outgoing US ambassador to Guyana, Brent Hardt, during what was intended to be a friendly farewell to the ambassador at his residence.

However, there is one factor which favours good relations with the US, and which concerns the PPP/C and Apnu/AFC equally, and that is the persistent claim by Venezuela to two-thirds of Guyana’s territory west of the Essequibo River, including oil-rich territorial waters. The maritime boundary between the two nations has been disputed since 1899 when an international arbitration panel awarded Britain (and subsequently Guyana after independence from Britain) territory which Venezuela believed was theirs. Venezuela has always claimed that the 1899 decision was invalid and at times has threatened military action to reclaim it. Venezuela believes that inclusion of the area within its national territory would substantially increase its Exclusive Economic Zone (EEZ) to include the Stabroek Block.

Guyana has asked the International Court of Justice to affirm “the legal validity and binding effect of” the 1899 award of the disputed area to the then Colony of British Guiana. Venezuela has responded by denying that the court has jurisdiction in the matter.

Another strange, and worrying, incident occurred in August 2019. On 15 August, a spokesperson for Russia’s foreign ministry gave a briefing on the side lines of an international youth forum in Russia at which she claimed that the UK government was constructing a military base on an island in the Essequibo River and that this base was being use to train Venezuelan dissidents for infiltration back into Venezuela.

The allegations were highly improbable, but they set alarm bells ringing in Georgetown, given how close Moscow is to the Maduro regime in Caracas, and provide further reason for staying close to the United States, and for not upsetting ExxonMobil.

The oil rush

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So how much oil is there? In August 2018, Wood Mackenzie wrote: “ExxonMobil’s exploration success in the last few years has established the Guyana basin as one of the world’s offshore hotspots – no other area has delivered as much conventional oil resource since 2015. And it shows little sign of slowing down…”

Woodmac added: “We estimate the [4+billion barrels of oil equivalent (boe)] discovered [to date] accounts for 15% of all conventional crude found globally since 2015. The project economics are world class, with development returns above 30% and a full-life breakeven of US$40/bbl…With almost 20 targets left to chase and an exploration rate of 80% to date, the project will only get bigger.”

Nothing seen in the succeeding year has changed this assessment. By May 2019, Morgan Stanley was putting Guyana’s gross recoverable oil resource at 6bn barrels, with the potential for a significantly higher figure. ExxonMobil has now made 13 discoveries in the Stabroek Block, and in August 2019 Tullow announced a significant new discovery in the Orinduik Block. It described the discovery as “substantial and high value” and said that it de-risked the block, indicating that the prolific discoveries made by Exxon in the Stabroek Block look set to be replicated in neighbouring areas.

These discoveries have raised two huge questions for Guyana. The first is what its fair share of the spoils should be; the second is how to avoid the perils of the Dutch disease, that is the pitfalls of being rich in natural resources but little else.

With regard to its share of the coming oil riches, on the face of it Guyana has little to complain about. Wood Mackenzie has estimated that, at peak production in 2027, the Liza Complex project alone will deliver US$8bn in taxes to Guyana, an astonishing figure when it is remembered that in 2017 the country’s total GDP was only $3.6bn. Lifetime revenues from Liza are estimated to be $215bn. Over the 30-year producing life of the project, Woodmac says this will amount to a GDP increase of $7.2bn a year, or $9,500 per capita.

But politics being what it is, the question of ExxonMobil’s production sharing agreement (PSA) has become a matter of controversy, as have later agreements signed with other companies. And, inevitably, a) the controversies are being drawn into the election, and b) the general uncertainty has been affecting decision-making as was admitted by Finance Minister Winston Jordan on 16 August. The day before, on 15 August, opposition leader Bharrat Jagdeo warned that if elected the PPP/C would not approve the Frontera farm-in into the two CGX blocks, and he said that the PPP/C would repeal and replace the Natural Resource Fund Act “with another model that reflects some of the principles that we’ll outline in our manifesto, [namely] Santiago Principles on Transparency and Norwegian-type management, which places the management of the fund at a distance from the politicians”.

In reference to Tullow Oil’s PSA, Jagdeo said: “The PPP will review any other contract which has benefits that exceed those of Exxon or are akin to those of Exxon in the future.”

Another area where uncertainty is holding back readiness for first oil is in infrastructure development, which is lagging behind the rapidly developing needs, with some of the slack being picked up by neighbouring Trinidad.

This uncertainty over contracts and the direction of development is certain to continue until after the general election, and likely for a while afterwards as well.

Managing the wealth

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In August 2018, the Guyana government produced a Green Paper on ‘Managing Petroleum Revenues and Establishment of a Fiscal Rule and a Sovereign Wealth Fund’. The details of what eventually emerges in law and in practice is, as we have explained above, subject to post-election revision, but the general direction of travel is clear. Guyana, at least under its current government, is determined to take the best advice and to establish a regime for dealing with the imminent stream of oil revenue that ensures it avoids the pitfalls that so many other countries have failed to avoid.

The preamble to the Green Paper notes that it is intended “to capture the key issues for consideration, including the mechanisms to ensure sustainable use of petroleum revenues to achieve a diversified and green economy, with a specific predisposition to avoid mismanagement of the national patrimony (i.e. ‘natural resource curse’).”

The paper also highlighted the dangers of the presource curse brought about by “elevated expectations which can, in turn, drive suboptimal behaviour”. For example, “governments can be pressured by constituents and political ambition to embark on risky borrowing on the back of overly optimistic revenue projections”. The example of Ghana was cited as a warning.

Work on legislation to create a sovereign wealth fund was started by the Ministry of Natural Resources in late 2016 with the assistance of the Commonwealth Secretariat (ComSec). A first aim was to produce a draft Natural Resource Fund Act (NRFA), a key component of which would be a fiscal rule which would outline the principles and requirements that will government the amount of money that can be withdrawn from the NRF in any given year.

The Green Paper begins by setting out the dangers that Guyana faces from over-dependence on petroleum revenues, which it lists as:

unstable revenue and, by extension, unstable government spending;
increased domestic demand resulting in increased inflation and significant exchange rate appreciation (Dutch Disease);
unstable increases in consumption and unfair benefit-sharing between generations.

To mitigate these risks, the Green Paper states, “a fiscal rule is needed to ensure that public spending is delinked from the volatility of oil revenues and prudently invested to guarantee an equitable intergenerational distribution of wealth in perpetuity, ceteris paribus…”

The establishment of the NRF is seen as the best way of minimising the risks. “The establishment of such a fund would secure and build the financial wealth of future generations, even as current generations benefit from scaled up budgetary investments.”

More specifically, the paper claims, establishing the NRF “can help to protect Guyana against Dutch Disease by sterilising boom revenues and ensuring that export earnings from petroleum only enter the economy at a rate which the economy can absorb these additional revenues.”

Not surprisingly, Norway is cited as a good example to follow.

Under the proposals, petroleum revenues and excess revenues from mining and forestry will be deposited into the NRF from which withdrawals will be made based on a fiscal rule. The withdrawals will be deposited into a Consolidated Fund “to form part of the financing streams for the annual budget”.

With regard to the fiscal rule, the paper states that the intention is to recognise existing development gaps, both in terms of human capital and physical infrastructure “and the need to accommodate development spending via the National Budget”. As a consequence, the fiscal rule “envisages an initial frontloading of spending to address critical development gaps, in the earlier years, and subsequent progression to higher savings ratios in later years”.

Conclusions

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There are three obvious conclusions. The first is that Guyana is on the cusp of a significant oil-driven boom. The second is that there is a very strong awareness, both within the country and amongst the country’s international partners, of the dangers of the resource curse and the measures required to avoid the pitfalls. But, thirdly, Guyana’s highly contested and divided politics greatly complicates the pursuit and implementation of best practice.

The Green Paper concludes that “there is an urgent need for strengthened institutions and systems to support strong governance and oversight”. It acknowledges that “effective monitoring and evaluation are critical to ensuring transparency and accountability”, and it asserts that this needs to be “complemented by stronger enforcement of anti-corruption measures across all sectors”.

And it exhorts: “As a nation, an historical opportunity is before its people. Maximising this to the benefit of every Guyanese woman, man and child is Government’s responsibility, and doing so – while taking pre-emptive actions to avoid the presource curse, Dutch Disease and resource curse – is what will make Guyana stand out as a people and, to the world, as a model government and nation worthy of emulation.”

If awareness and goodwill were enough, the future would indeed seem to be as bright as the arithmetic suggests it should be. But the political turmoil of 2019 points to the possibility of a less happy outcome. Much will depend on whether the general election, when it is finally held on 2 March 2020, can return the country to political stability – and if the winners of that election can resist a winner-takes-all approach to the country’s newfound wealth.

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