Until recently, Guyana was relatively unknown to international investors. The small English-speaking country of about 800,000 people was one of the poorest in South America. Its position between Suriname, Brazil and Venezuela — the latter two being large oil-producing nations — meant Guyana was often overlooked.
But that all changed in May 2015 after a massive discovery of high-quality crude oil off its Atlantic coast. The offshore discovery in the 6.6 million-acre Stabroek Block, estimated at about 11% of the world’s new oil reserves, has magnetised significant foreign direct investment to the country.
The ExxonMobil-led consortium in Guyana that made the oil discovery has committed to invest more than $30bn. Several of ExxonMobil’s contractors have set up an office in the capital city Georgetown, including Norway’s Axess Group and Netherlands-based SBM Offshore. US oil drilling company Baker Hughes has also expanded its Guyana presence, with a new facility for oil services and equipment.
Oil production has been a boon to both the economy and government coffers. Between 2015 and 2021, Guyana’s nominal gross domestic product has almost doubled to reach $8.04bn, according to the World Bank. Amendments to legislation in December 2021 regarding Guyana’s sovereign wealth fund, which was set up in 2019 to manage the new petrodollars, have enabled the government to invest in infrastructure, healthcare and education.
Guyana’s president, Irfaan Ali, aims to use the oil windfall to diversify the economy, improve access to social services and promote investment in non-oil sectors, including agriculture, tourism and manufacturing.
“The oil and gas sector is only a means for us to accomplish more strategic priorities,” he told fDi in an interview in 2022, citing Guyana’s low-carbon development strategy. This aims to boost growth in green sectors by shifting the country towards renewables, enter international carbon credit markets and protect its forests, which cover more than 90% of the country’s land area.
“The government is very supportive of diversifying the economy and providing opportunities for all Guyanese in the job market,” says Yoni Epstein, the CEO of Itel, a Jamaica-based provider of business process outsourcing that is investing $4m into its Georgetown call centre operations.
The government is very supportive of diversifying the economy and providing opportunities for all Guyanese in the job market.
Better future deal needed
Aside from diversification efforts, multilateral organisations, such as the World Bank, have criticised Guyana for the way it has overseen offshore oil projects. Despite ExxonMobil and its direct contractors having already spent more than $700m with Guyanese businesses, experts have called for the government to tighten up its tax laws to ensure it gets a better deal for its resources.
“Failure to strengthen the country’s institutional framework increases the risk of Guyana falling victim to the resource curse,” says Arantza Alonso, senior Americas analyst at risk intelligence company Verisk Maplecroft, referring to the phenomenon where countries with an endowment of natural resources have worse development outcomes.
An IMF spokesperson tells fDi that the 2% royalty rate for the Exxon-led consortium extracting gas from the Stabroek Block is among the lowest in Latin America. Guyana’s vice-president, Bharrat Jagdeo, announced in autumn 2022 an auction for new oil blocks with an intention to get a more favourable deal for the country. In February 2023, he told Reuters that Guyana’s government plans to reclaim 20% of the existing Stabroek oil block from the Exxon-led consortium in a bid to inject more competition.
More than $5bn has already been spent on exploration efforts outside of the Stabroek Block, according to consultancy Rystad Energy. These investments are expected to grow as operators like Frontera Energy, Repsol and Tullow continue exploratory efforts in their respective blocks.
Aditya Ravi, a senior vice-president of upstream at Rystad, says there are “positive signs for foreign investments” due to the government’s intent to diversify the economy and sustain wealth generated from oil and gas.
“Transparency around oil revenues, government spending and the wealth fund is also critical to avoid any possible negative turn for the economy,” he adds.
Transparency around oil revenues, government spending and the wealth fund is also critical to avoid any possible negative turn for the economy.
Further oil production and discoveries bode well for Guyana’s long-term prospects, according to the IMF, but highly volatile oil prices and the potential slowing global economy could adversely affect the country. Ashni Singh, Guyana’s minister of finance, noted in his budget speech to parliament in January 2023 that the country must be careful to avoid and contain its over-exposure to any one sector.
“The threat of ‘Dutch Disease’ is real and nontrivial,” he said, referring to the economic concept where rapid development of one sector leads to a decline in other sectors. “We need now to take the actions necessary to secure the long-term competitiveness of our non-oil economy.”
Environmentalists have also voiced concerns about Guyana joining the oil and gas industry as the world transitions away from fossil fuels. Its low-lying coastline also puts it at severe risk of flooding. In January 2005, extreme rainfall caused the country’s worst-ever floods. It impacted 290,000 Guyanese people and caused damages worth an estimated $465m, due in large part to the impact on rice fields and other economic activities.
Nonetheless, Guyana’s economic prospects remain wedded to its natural resources. In 2020, crude petroleum accounted for 39% of the country’s roughly $3bn of exports, according to data from the Observatory of Economic Complexity. The next largest export was gold, which made up 22% of external trade revenue, followed by rice (9%), railway cargo containers (7.4%) and aluminium ore (3.2%).
Guyana is not free of political issues, either. The country’s democracy is divided along ethnic lines between the majority Afro-Guyanese and minority Indo-Guyanese populations. The last election, held in March 2020, was followed by months of legal disputes between then incumbent David Granger and the current president, Mr Ali.
Despite some tensions with civil society, political parties across the spectrum understand the benefits of maintaining a welcoming business environment to attract foreign investment, according to Ms Alonso of Verisk Maplecroft.
Several media outlets, including Vice News, have reported on government corruption over the awarding of contracts in recent years. Ms Alonso says that while corruption and an outdated regulatory system remain an issue in Guyana, it performs similarly or even better on corruption than other regional oil producers, such as Argentina, Brazil, Mexico and Suriname.