In recent years, Guyana has become the newest global player in the lucrative petroleum and oil industry. The discovery of this country-shaping resource by ExxonMobile’s surveyors in May of 2015 has caused much debate surrounding the best usage of their new oil riches to best benefit the economy. Titled the Stabroek deposit, Guyana now lays claim to an estimated eleven billion barrels off their coast. A relatively young country, Guyana’s economy is yet to mature and stabilise, in which due to poor governance saw little economic growth prior to their oil boom, causing widespread poverty and limited opportunities for Guyana’s residents. Whilst the discovery could be considered a quick path to riches for the small nation, a variety of present barriers still lie in their way. Political tensions, corruption, and social inequalities all plague Guyana’s ability to move forward in capitalising upon this valuable resource.
It is thus imperative that the management of their wealth proves to be sustainable in both the short and long term economic success. Sustainable development is crucial to the future prosperity of Guyana, as without diversifying and future-proofing their economy, they lay vulnerable to an uncertain future. Sources speculate that Guyana still has a lot of room to grow, with estimates stating the economy could grow by 115% by 2028. Such the question lies, how should Guyana proceed with their short term riches to ensure long term economic sustainability?
Pre-Oil Living
Prior to 2015, Guyana’s economic status was bleak. One of the lowest performing economies in Latin-America, Guyana struggled with poverty, social inequality and a lack of development. Relying heavily on industries created in colonial times, Guyana’s lack of social investment and infrastructure was harming the ability for modern markets to thrive. This ultimately led to a lack of GDP per capita growth, whereby it fluctuated above and below zero. As of Jan-2015 Guyana’s GDP per capita was $5668USD per person, almost half of GDP per capita of neighbouring Suriname, and a third of Venezuela.
Source: TRADINGECONOMICS
With an approximated 60.9% of the country’s populations living in poverty in pre-oil times, the underdevelopment had severe social implications for Guyana. Incomprehensive wage control, which saw drastically low wages in unregulated industries, that the government refuses to act within. And a struggling healthcare system, which in 2014, led to 1 in 3 children not being able to live beyond five years old. There were many systematic issues present in Guyana impacting the living standards of ordinary Guyanese, which would require extensive government reform along with increased funds to solve.
Pre-Oil Industries
Prior to the discovery of oil, Guyana’s key industries were typically synonymous with a developing nation. Agriculture, forestry, fishing and other crops dominated Guyana’s pre-oil economy, holding a 51.7% share of Guyana’s GDP in 2014, with an estimated 70% percent of people working in rural areas to support this major industry. Similarly Guyana has been exploiting its natural resources since the early 20th century. In which mines were opened nearby to Linden, which now due to the impact of mining, is Guyana’s second largest urban centre.
Source: TRADINGECONOMICS
Whilst many nations had been looking to tap into key modern markets, Guyanese parliamentary policies and lack of public investment has proved difficult for Guyana to establish emerging markets naturally. For instance it was only in 2020 that the parliament imposed a free-market upon the telecommunications sector, causing a 31 year monopoly to end. This reliance upon industries with limited growth, and the hindrance towards emerging markets has seen Guyana’s GDP stagnate, and future prosperity did not appear promising.
Past Limitations of Growth
In the past Guyana has had its troubles with corruption and social equality, which has ultimately seen a negative effect on economic development. Improper usage of public funds, bureaucracy, and disputed elections have all contributed to Guyana’s limited growth. Whereby policy makers tend to be self-concerned or act in the interest of the connections rather than the general public. Meaning resources incorrectly allocated for the gain of leaders, taking away crucial investment opportunities which could have reshaped Guyana’s major industries. Similarly a large social gap between the upper and lower classes with the poorest 50% of Guyanese only accounting for the 25% of the total household income across the nation. This past income inequality amongst Guyanese also contributed to the lack of growth, reducing investments and consumption in Guyana by the majority of the population due to a lack of income.
Current Issues
Plagued with endemic social, political and economic challenges alongside geopolitical tensions with larger rival Venezuela, current dilemmas potentially imperil Guyana’s sustainable development prospects.
Geopolitical
Being economically, geographically and militarily dwarfed by its larger neighbour, the increasingly combative stance Venezuela adopts has significant consequences for Guyana. Predicated upon a territorial dispute dating back to Guyana’s founding in 1814 , Venezuela maintains its claim to the Essequibo region, representing 74.2% and 15.7% of Guyana’s area and population respectively.
Venezuela’s Territorial Claims to Guyana
Presenting parallels to Iraq’s 1990 Kuwait invasion, tensions have been exacerbated by Guyana’s newfound wealth. Venezuela has expanded its military presence at the border and backed making Essequibo a Venezuelan state in a 2023 referendum. The volatility this introduces to Guyanese investments, through instances such as Venezuelan leader Maduro claiming “Exxon would receive a proportional forceful response”if drilling began, diminishes the potential profit-sharing agreements Guyana can negotiate. Thus, this not only represents an existential threat to Guyana, but its mere presence also diminishes the wealth they can extract.
Capital and Education Deficiencies
With ultra deepwater offshore oil production necessitating both vast capital allocation and specialised expertise, Guyana requires a development partner. With its GDP prior to oil investments (2015) totalling just US $4.3 billion considerably outsized by the ExxonMobil led consortium’s $55 billion commitment, Guyana meeting the project’s investment requirements independently was infeasible. Moreover, whilst maintaining high literacy rates, 90% compared to 86.3% internationally, low secondary education completion rates (61%) and gaps between domestic vocational education offering and that needed by industry, necessitate Guyana supplementing domestic expertise with foreign development partners.
Political and Social Issues
Fragmentation of Guyanese society adds further complications to the equitable distribution of resource income, especially with the interconnectedness between race and politics. A remnant of multiple migration waves, Guyana has a diverse ethnic makeup; however, Afro-Guyanese and Indo-Guyanese remain dominant, comprising 30% and 40% of the population respectively. This has encouraged political parties to pander to specific racial groups, largely elevating ethnicity over ideology as the primary determinant of support for major parties . Historically, the People’s Progressive Party (PPP) has targeted Indo-Guyanese, descendents of indentured labourers, whilst the People’s National Congress (PNC) appealed primarily to Afro-Guyanese, descendents of slaves. Further, the control of the sovereign wealth fund receiving oil revenues is nearly exclusively held by the governing party, disenfranchising those not in power and promoting discontent from perceived unequal benefits.
Recently, this allure of wealth has also contributed to parties contesting election results sowing civil unrest that contributed riots, with fires started and police attacked.Ultimately, to ensure social cohesion and maximum utility of oil income, Guyana must construct a balanced and resilient authority to manage its newfound wealth, disconnected from its turbulent political fluctuations.
Corruption
Longstanding corruption within the country further hinders Guyana’s sustainable development. Guyana ranks lowly at 87th on the corruption perceptions index with a score of just 40/100. Emblematic of this commonality, current and former senior ministers have received US sanctions for accepting extensive bribes to bias tender processes and avoid US$50 million in taxes. These underhanded deals exhibit the potential to create an elite oligarchy whilst leaving wider Guyanese society in relative poverty. International examples of oil wealth’s corrupting influence, in places such as Equatorial Guinea confirm that Guyana must act quickly to stem historic and developing corruption if it hopes to achieve sustainable growth.
How should Guyana then move forward?
Moving forward, for Guyana to keep their oil reserve as a blessing and not a “resource curse”, it is important to benchmark successful transitions of oil-dependent countries, while learning from the mistakes of other economies. In the long-run, to break free from the over-reliance on oil and petroleum, sustainable development is crucial for a number of reasons. Sustainable economies are less prone to commodity and environmental shocks, allowing a more resilient economy. Because natural resources are finite, responsible usage of such resources are vital to prevent depletion and ensure the benefits are available for future generations.
For example, Guyana can sustainably manage its extensive forest resources to ensure trees are harvested without depleting nor damaging the forest. This not only protects the ecosystem and generates carbon credits, but also allows the production of eco-certified quality timber, opening up entry into a premium market for sustainable sourced material.
Oil Development in Venezuela
A cautionary tale of how to not sustainably develop oil, can be seen from neighbouring country Venezuela. Despite having close to 304 billion barrels of oil reserves– 6 billion barrels larger than Saudi Arabia–, its economy experienced hyperinflation, a humanitarian crisis followed by civil unrest, and ultimately international isolation. The failure of this “petrostate” was caused by several interrelated attributes; over-reliance on oil where oil exports accredited over two-thirds of the country’s exports, corruption within the government and oil companies leading to the mismanagement of revenue, as well as international sanctions cascaded by Venezuela’s authoritarian practices. For Guyana, this highlights the importance of good governance and transparency to prevent corruption and ensure oil revenue management is free from political interference. Further, efforts in strengthening democratic institutions are crucial for a long-term partnership with the western world.
Oil Development in Norway
For modelling successful countries, Norway’s methods of managing oil wealth could be beneficial for Guyana to adopt. Norway’s sovereign wealth fund (GPFG) invests surplus revenue from the petroleum industry with the primary objective to transform shorter-term, non-renewable resources into sustainable long-term assets. Likewise, the economy of Norway is well-diversified, with the oil industry only contributing 24% to total GDP, and a healthy balance between manufacturing, mining, infrastructure and education.
Guyana could benefit from its own oil fund, stabilising the economy during oil price fluctuations, promoting intergenerational equity and long-run savings. However, the most important task would be diversifying its economy, by leveraging oil money. This includes reinvestment into Guyana’s existing sectors such as agriculture, utilising their large fertile land and investing in modernised farming techniques. Areas of potential development also include tourism, education, manufacturing and infrastructure.
Conclusion
Guyana’s entrance as a new global oil and petroleum industry brings significant potential for economic development. However, this small South American country still faces numerous social challenges and friction as they navigate to become a new challenger in the global oil market. Whether that’s alleviating the ethnic tension between the Afro and Indo Guyanese people, addressing conflicts with Venezuela, or strengthening democratic values to reduce corruption, Guyana has substantial work ahead before it can reap the advantages as an oil producing nation.
Regardless, it is crucial for Guyana to be innovative in sustainability, as sustainable economic development practices such as equal opportunities and fair resource distribution will contribute to long-term benefits towards social welfare and equity.
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