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Spare a thought for Guyana: The world's next oil-rich country

Ariel Castro-Martinez | Latin America Fellow

There is a patch of oil in the Caribbean more significant than the country it is sitting in. Tapping into this resource wealth will mean tapping into the promises of an under-developed and under-considered nation. Of the two, it is not easy to know which will be more exploited.

Guyana is a country with a population of not-even 800,000 people and the third poorest nation in the Americas. The value of the crude oil recently discovered off its coast dwarfs the South American nation’s economy. By the end of the decade, it could be the richest state in the world on a per-capita basis, leapfrogging other small, oil-rich states like Qatar. That is, if it can surmount the enormous challenges necessary to channel its newfound oil wealth effectively and equitably.

Winning the lottery is the easy part; knowing what to do with the money––and what the money will do to you––is the real test. Neighbouring Venezuela, the country with the world’s largest proven oil reserves, is in political and economic ruin from mismanaged oil wealth. The worry is that––far from enriching the country––an unprepared Guyana will be diminished by the distortions that a windfall of such sheer scale will wreak on its otherwise weak economy, political institutions, and social cohesion. Guyana may be too small, its social and political development too nascent, its future too big, too close, and too unfettered to guard against big oil’s most corruptive effects.

Obscene oil wealth obscures government transparency and accountability, particularly for less developed nations. In 2017, Guyana’s natural resources minister met with petroleum giant Exxon Mobil behind closed doors to negotiate development and profit sharing for the country’s first big oil find in 2015. Since then, additional discoveries have estimated deposits valued at over USD $300 billion, with drilling having commenced early in 2020. Guyana’s GDP is only about USD $4 billion. Global profit-sharing standards range from 65 to 85 per cent directed towards state accounts. At a profit share of 52 per cent with minimal contract transparency, Guyana’s unfavourable deal with Exxon raises concerns of either state corruption or weakness to negotiate better terms for the Guyanese people.

With overabundant resource revenue, the financial and political role of taxation dissolves as states exercise spending power independent of the nation’s economic and democratic input. Even moreso for smaller nations like Guyana, impartial institutions such as election bodies can be easily corrupted by patronage systems. In August, Guyana’s former President David Granger relinquished power after months of refusing to accept a court-approved electoral recount following ballot disputes. Reaffirming his objections to the results, Granger has urged calm from his mostly Afro-Guyanese supporters as the new government’s mostly Indo-Guyanese party takes power. Each party is remembered for long and corrupt tenures, and each side fears being excluded by a newly rich and entrenched regime.

Even if managed fairly, Guyana will be fighting unintended economic side effects that have distorted bigger economies endowed with smaller hydrocarbon resource boons. A booming export industry raises the value of a nation’s currency, thereby draining competitiveness, development, and investment from other exports, while cheaper imports squash local industry. The extractive industry already comprised a fifth of Guyana’s GDP in 2017––well before offshore oil extraction had begun. Poverty and size leaves little incentive for Guyana to commit to anything other than petroleum.

In fact, poverty, size, and the promise of big oil informs Guyana’s external vulnerabilities too. Venezuela has laid claim to two-thirds of Guyana’s territory (including its now oil-rich waters) long before Guyana was even an independent state. Met with maritime coercion by both its coastal neighbours, Guyana’s Exxon deal is also one of security partnership. The United States and regional multilateral institutions like the Caribbean Community (CARICOM) have played a more stabilising role. The US has provided training to Guyana’s internal revenue authority while CARICOM successfully mediated Guyana’s high-stakes disputed elections. In September 2020, US Secretary of State, Mike Pompeo, paid a diplomatic visit to Guyana, becoming the highest level US official to visit the country, indicating Guyana’s growing regional importance. Guyana’s diminutive age and size may make it small enough to coerce, but also formative enough to foster.

Successive Guyanese governments must exercise discipline to redirect returns towards broad, sustainable, future-oriented development strategies. Investments in education and civic infrastructure will secure rising living standards. Furthermore, by building civil society capacity to keep up with the country’s economic transformation, Guyana will not only cultivate economic resilience, but also develop the institutional oversight needed to fairly and effectively channel its nation’s rise throughout and beyond the oil’s hold on state decision making.

International affairs is usually about how nations and people affect the Earth. Guyana is a country where geography is still exerting formative influence on a young state. This is Guyana’s uniquely vulnerable and promising moment to either make good decisions about the kind of nation it wants to be, or risk the fate of corrupted and exploited resource-cursed nations looming over it. Resource development precedes but should not eclipse institutional and human development. Historic grievances and inequities must not overwhelm the possibility for new, consolidated prosperity. This is not just Guyana’s time to rise; it is the time for the world to pay attention.

Ariel Castro-Martinez is the Latin America Fellow for Young Australians in International Affairs


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