By Alexander Jones, International Banker
It is a distinct rarity to observe a nation’s economy balloon over a year by a mighty 62 percent. And yet this is what Guyana managed to achieve in 2022. Moreover, this bumper year followed the growth rates of 48.7 percent and 20.1 percent that the diminutive South American nation notched up in 2020 and 2021, respectively. With several world-class oil discoveries in recent years underpinning this unprecedented boom, it is hoped that Guyana can overcome the grim spectre of the “resource curse” and use its newfound oil wealth to transform its economy into a true powerhouse.
ExxonMobil’s 2015 discovery of voluminous crude-oil reserves within the 6.6-million-acre Stabroek Block, located 120 miles offshore, provided the first clues that Guyana was set to embark upon an oil revolution. The discoveries have uncovered a mammoth 11.2 billion barrels of recoverable oil equivalent to date. It took just four years for Guyana to become the world’s newest oil-producing nation after that first 2015 discovery, courtesy of Exxon and its oil-producing partners Hess Corporation and CNOOC Petroleum.
Today, the country produces around 380,000 barrels per day (bpd) from two floating production storage and offloading (FPSO) vessels—the Liza Destiny and Liza Unity—operating in Stabroek’s Liza oilfield. A third FPSO, the Prosperity, is scheduled to go live later this year and is projected to add 220,000 bpd. And with a further series of top-grade crude discoveries having been made by the Exxon-led consortium of oil producers, such as the Uaru development (the fifth project on Stabroek Block, expected to come online in 2026 with 250,000 bpd) and a separate joint venture between CGX Energy and Frontera Energy operating on the Corentyne Block, Guyana’s oil-production boom is just getting started.
Indeed, Guyana is on course to become the world’s fourth-largest offshore oil producer. Hess Corp’s chief executive officer, John Hess, recently indicated that by 2027, six FPSOs will be pumping a mighty 1.2 million bpd from Stabroek. That should also position the former British colony among the world’s leading oil exporters, driving a phenomenal economic boom for many years to come. “Our fifth, multi-billion-dollar investment in Guyana exemplifies ExxonMobil’s long-term commitment to the country’s sustained economic growth,” Liam Mallon, president of the ExxonMobil Upstream Company, recently noted, referencing the Uaru development. “Our Guyana investments and unrivalled development success continue to contribute to secure, reliable global energy supplies at this critical time.”
Indeed, the International Monetary Fund (IMF) expects the country to achieve five consecutive years of double-digit gross domestic product (GDP) growth rates, with 37.2-percent and 45.3-percent rates slated for this year and next. According to Guyanese President Mohamed Irfaan Ali, moreover, such a production-growth trajectory could boost Guyana’s government revenues from around $4 billion this year to $10 billion per year from 2025.
And yet the population of Guyana, which borders Brazil to the south and Venezuela to the west, does not even total 800,000. With such an abundance of oil riches set to flow into its economy, palpable fear exists that the modestly sized country could succumb to the “resource curse”, whereby a typically small country is overwhelmed by a sudden boom in commodity sales to the detriment of its other industrial sectors, disrupting the economic balance within the country and creating conditions that are ripe for widespread corruption.
This curse will only be magnified against the mere 780,000 Guyanese residents, with some estimates suggesting that its oil reserves are so gargantuan that it is now on track to eclipse Kuwait as the world’s top oil producer on a per-capita basis. “The oil curse is in many ways a consequence of oil in the absence of strong regulatory controls, accountability, transparency, disclosure and reporting,” a chartered accountant and attorney-at-law, (Lallbachan) Christopher Ram, recently explained to the Caribbean Investigative Journalism Network (CIJN), which noted that Ram continues to advocate for robust oversight mechanisms to manage Guyana’s oil wealth.
For now, the government insists it is competently handling this dramatic change of circumstances. “Despite challenges, Guyana managed to grow its economy and put measures in place to reduce the burden of elevated prices on citizens, while at the same time, prudently managing financial resources,” President Ali recently said to provide reassurance, adding that his nation’s sharp reduction in debt from 38.9 percent of total GDP at end-2021 to 24.6 percent one year later further demonstrated the government’s commitment to prudent fiscal management. “If you look at economic growth estimates, the world is estimated to grow at 2.8 percent in 2023; advanced economies are expected to grow at 1.3 percent, Latin America and the Caribbean, 1.6 percent, Caribbean tourism-dependent countries at 3.2 percent, Caribbean commodity exporters, 18.7 percent.”
But Guyana’s history and current demographic composition mean that longstanding tensions between its various ethnic groups could be tipped over the edge by this oil boom. With the African continent, the Indian sub-continent and indigenous communities all major constituents of the country’s ethnic mix—and with ethnicity a significant factor as far as Guyanese political representation is concerned—some fear that future control of oil revenues could lead to instability along ethnic lines in a country that has an unfortunate history of corruption.
That said, key factors could also work to promote and strengthen Guyana’s economic and political stability over the coming years. For one, the sheer magnitude of this oil revolution, coupled with the country’s small population, could be sufficient to satiate everyone’s needs. President Ali has also been clear about his intentions to allocate this new revenue source across a wide range of other sectors, which should boost the economy’s resilience across all business-cycle stages. Indeed, Ali recently confirmed that while Guyana is an emerging hydrocarbon market, its economy will “not be hydrocarbon-based”. Plans are thus being laid to invest in other key sectors, including mining, tourism and agriculture.
With dense rainforest having left Guyana historically isolated from surrounding countries, significant infrastructure investment will be made to advance transport connections with neighbouring countries. The government aims to build major roads and bridges connecting Guyana to its neighbours, including Venezuela, French Guiana, Suriname and Brazil. In turn, Ali observed, this should open up greater opportunities for gold, diamonds, bauxite and copper mining. And with a deepwater port planned for the Caribbean coast, Guyana will have access to a crucial corridor linking it to major Atlantic markets. “We have intense discussions going on with Abu Dhabi Ports… about the development of a major deepwater harbour in Guyana,” Ali recently told the Financial Times. “That deepwater harbour will support northern Brazil and give them access to the Atlantic.”
The government also created a sovereign wealth fund in 2021, with $600 million earmarked for its budget the following year. “We’re investing tremendously in healthcare, and we’re investing heavily in education,” Ali added. “But not only are we investing in healthcare and education to fulfil the needs of Guyanese, we’re investing in healthcare and education as important foreign currency earners of the future…so Guyana can become a health and education hub for South America, for the Caribbean and the huge diaspora that resides in North America.”
And while it may seem as though ExxonMobil dominates Guyana’s oil plans and plays at present, the government is in discussions with the US oil behemoth to identify offshore areas that the state will retain to diversify operators. Under the production contract agreed in 2016, the oil-producing consortium led by Exxon is required to return 20 percent of unexplored offshore regions to the government this year.
From an ecological perspective, meanwhile, Ali is seeking to do more to protect the Amazon rainforest, 18.5 million hectares of which are located within Guyana’s borders. The jungles could be transformed into an eco-tourism and biodiversity focal point for the wider region and generate substantial sums from ethical conservation. “Many people don’t know that Guyana’s forests store 19.5 gigatonnes of carbon,” the president noted. “That can have an annualised income of close to $200mn through carbon credits and carbon markets.”
Such plans clearly show that the government has lofty ambitions to make the most of the substantial economic windfall heading its way over the coming years. That said, highly skilled management across economic, political and social lines will undoubtedly be required to ensure Guyana avoids the common pitfalls plaguing the nations that the resource curse has undone.