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Guyana’s Sudden Riches

Episode 60

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A massive oil discovery in Guyana has put the tiny South American country on track for explosive economic growth – but does it have the tools to successfully navigate the coming windfall?

In 2015, Exxon Mobil discovered in Guyana one of the largest oil and gas reserves in decades and is slated to begin production in early 2020. While this bonanza promises countless opportunities and massive transformations for the tiny South American country, it remains to be seen whether Guyana has the infrastructure in place to manage the explosive influx of new petroleum revenue. Will it follow the successful examples of Norway or Botswana and avoid the so-called “Resource Curse” – or fall victim to its own good fortune?   

David Goldwyn, president of Goldwyn Global Strategies and world-renowned energy expert, joins Altamar to explain how Guyana can still establish the necessary guardrails to combat corruption, and transform its revenue streams into newfound prosperity for its citizens. Goldwyn was the former Assistant Secretary of Energy for International affairs and former US State Department’s Special Envoy and Coordinator for International Energy Affairs, where he conceived and developed the Global Shale Gas Initiative and the Energy Governance and Capacity Initiative. He is currently the Chairman of the Atlantic Council’s Global Energy Center’s Energy Advisory Board and has served as an adviser to a multiple of energy companies around the world.

Guyana’s evolution will be massive – and it’s coming fast. “They’re going to have 120,000 barrels of production probably starting in March. They’re going to get about $300 million a year. But by 2024, when production ramps up to about 600,000 barrels, it’s going to be $5 billion a year. That’s a big jump. In absolute terms, it’s very significant, probably the biggest find that the industry has had in years, but what really matters is what it means for Guyana,” said Goldwyn.

Guyana’s discovery is particularly noteworthy due to the country’s relatively small size. As Goldwyn notes, though Guyana’s reserves are estimated at comparatively middling estimated six billion barrels, “On a per capita basis, it’s enormous because Guyana has 800,000 people. Today, they have the per capita income of Tonga, but by 2024, they’ll have the per capita income of Brazil,” a country whose population dwarfs Guyana’s by over 200 million people.

Guyana is not the first country to have struck fortune so unexpectedly – but resulting misfortunes are notorious. The “Resource Curse” phenomenon refers to the paradox by which a country that finds an abundance of a valuable natural resource, such as oil, counterintuitively experiences a nosedive in economic prosperity, leaving it worse off than before. It’s not inevitable –Norway, and other countries such as Botswana, famously saw an increase in economic growth and a higher GDP per capita after discovering its own sizeable petroleum resources– but history has shown that it’s an all-too-easy trap to fall into.

So, what does Guyana’s prognosis look like? According to Goldwyn, “On the positive side, they have done a lot of their homework. They’ve had eight years of advice on revenue management and resource management from the State Department, enormous help from the World Bank, the International Monetary Fund, the Inter-American Development Bank, NRI (the National Resources Institute).” Meanwhile, the present Guyanese government is seen as one that is transparent.  “President Granger himself is a person of very high integrity and known to be very honest. Guyana ranks 37 on a scale of 100 for corruption under Transparency International rankings,” said Goldwyn.

On the other hand, there is still much to be done. According to Goldwyn, “Guyana really is a country at risk… They’ve gotten lots of advice, they’ve thought about a sovereign wealth fund, they’ve thought about a public accountability board, they’ve thought about a petroleum law — but they haven’t implemented it yet… they’ve got a framework on paper of a system that would provide accountability, but they haven’t implemented it yet.”

Guyana will moreover have to overcome the severe brain drain crisis it has experienced in recent years. As a result, Goldwyn noted, the country is likely “going to get external advisors. That can provide some friction because the foreigner is getting paid more than the locals, and that’s never very popular. You have to procure that expertise while you build your own, and if you don’t, the risk is that you make bad decisions and you squander that money early.”

The windfall is also taking place amidst political uncertainty, with general elections due in March 2020. As Goldwyn noted, “The next five years will be bumpy. The money will not have arrived. The ramp up will be slow. And there will be another political cycle, so whoever is in power now will not be in power when the $5 billion a year check arrives.”

Goldwyn also believes Guyana will have to step up several of its structural components to help smooth its path forward over the next five years, primarily by investing in infrastructure and improving the livelihoods of its citizens – a strategy that will ultimately see a high return on investments: “My hope for Guyana [is] that by that point, they have a national electricity grid, they have roads, they have schools and universities to train people not only on petroleum management, but also forestry management. That they have had five to eight years of world-class support and advice, that they have citizens, expats, who have come back home to take leadership roles and to join things. That they have become the model of South America.”

Listen for more of our analysis of Guyana’s upcoming rapid economic transformation – available for download here.

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Episode 60
Guyana’s Sudden Riches