Voters Speak as Oil Roars

Guyana is about to become one of the wealthiest nations no one has noticed.  Its election on Monday, March 2, 2020, will partially guide the country into the future but the economic changes will be the main catalyst for change.

To Americans over the age of forty-five, this South American country is likely best known for the Jonestown mass-suicide of 1978.  But large oil discoveries off the coast encouraged the International Monetary Fund (IMF) to predict the economy will expand by 86 percent this year.  IHS Markit may have a more realistic prediction of 30 percent growth for 2020.

U.S. Ambassador to Guyana, Perry Holloway, stated, “Most people still do not get how big this is.”  He predicted the economy would grow 300 percent by 2025.  He stated Guyana would be the “richest country in the hemisphere and potentially the richest country in the world.”

In the past, the country has dealt with widespread poverty, high suicide rates and college educated adults leaving the country.  In coming years, it will have to deal with billions in new government revenue.

While most national oil fortunes since World War II were created in the Middle East, Guyana is the new kid on the block.  Its tiny population of less than 800,000 makes it smaller than the city of Jacksonville and it has more oil than Norway which boasts a per capita income of greater than $60,000.  Clearly massive change is coming to the only English-speaking country in South America with a current per capita income of around $4000.

The countries on the American continents are increasingly becoming larger producers of oil and gas.  Canada and Venezuela each have nearly as much in reserves of oil and gas as Saudi Arabia.  The U.S. was the world’s leading producer of oil in 2018 as the use of horizontal drilling and fracking led to a resurgence of energy development.  Discoveries off the coast of Brazil in the past fifteen years and oil shale in Argentina over the last decade have added to the robust production of Mexico and Colombia and more limited production in Equator.

Seven thousand barrels of oil reserves per person have been discovered in Guyana and with new discoveries being made regularly that number may increase.  Already, the county has more proven reserves, per person, than Iran, Iraq or Canada and roughly the same as Saudi Arabia.  A Bloomberg article predicted the country “could probably produce more per citizen than any other country” by 2025.

Colossal Change

International organizations have expressed concerns the country is not ready for such a huge influx of petrodollars.  Some are concerned the county might suffer from the “Dutch disease” where the rest of the economy withers as high interest rates, needed to limit inflation, make financing other industries impossible.  In this scenario, the country’s agricultural, minerals mining and tourism industries could be at risk.

Amy Meyers Jaffee, of the Council on Foreign Relations, stated, “There is no way the explosion of money will be managed properly.”

The country scores poorly in rankings by Transparency International and Freedom House.  Freedom House gives Guyana poor grades for its high crime rate, lack of protection for the LGBT community and limited transparency.  Yet it received high marks for fair elections, the freedom to create political parties and the ability to hold protests.

Chatham House has warned that the government will feel pressure to build a refinery and subsidize oil products like gasoline.  Subsidies are very difficult to reverse when they become too expensive and would make the country more dependent on oil resources.  Iran experienced protests and riots when they reduced energy subsidies in 2019.

A refinery would allow the country to add value to its crude oil, possibly getting a higher return on refined products and give the country more control over its oil sales.   However, it would make the country more dependent on oil, would be damaging environmentally and, with a possible glut of refining capacity in the region, could lead to negative returns on oil sales.

Misinformation about the county abounds including reports that the country needs to create a sovereign wealth fund.  Guyana created a sovereign wealth fund, called the Natural Resource Fund, in December 2019.

Political Faceoff

For years Guyana has been one of the poorest countries on the continent and been polarized along racial lines.  Black Guyanese represent thirty percent of the population while Indian Guyanese make up forty.  The People’s Progressive Party (PPP) was created by those with Indian ethnicity and governed the country from 1992 and 2015.  The People’s National Congress (PNC), created by those of African ancestry, joined a coalition with the Alliance for Change (AFC) and won the election to govern the country in 2015.  The Parliament made the leader of the PNC, David Granger, President.  After a vote of “no confidence” near the end of 2018, the election was set for March 2, 2020.

The changes in the economy are as dramatic as the political parties are similar.  Both parties have pledged to invest the oil wealth in infrastructure, education, health care and direct cash transfers to vulnerable citizens.  They have also committed to make better deals for the county when new oil production sharing agreements are made.  The opposition PPP party has been very critical of the existing agreement with ExxonMobil and declared it will take a more aggressive review of the contract.  But, like the PNC, it will not try to rewrite it.

PNC President David Granger announced, the Guyanese people “will never be poor again” and pledged the oil wealth “will go to the people who need it most.”

The leader of the PPP is Irfaan Ali, who is a member of Parliament and a former government cabinet minister.  He has been charged with 19 counts of fraud and his academic credentials have been called into question.  Some see Ali as a stand-in for long time party leader Bharrat Jagdeo, the General Secretary of the PPP, who served as President for two terms.

Although Ali is a controversial figure a November 2019 report from Global Citizen, which castigated the PNC government’s negotiated contract with ExxonMobil, makes this race a toss-up.