ENERGY SECURITYThe Promise and Peril of Guyana’s Oil Boom

The country whose economy will grow at the fastest clip in the coming years is not going to be one of the usual suspects: Vietnam, Rwanda, or Bangladesh.

Rather, it is going to be Guyana. Most people may not have even heard of this tiny country on the northeast coast of South America, but the former British colony is in the midst of an oil boom of staggering proportions.

Moisés Naím, a Venezuelan economist who was Venezuela’s Minister of Trade and Industry the Director of Venezuela’s Centra Bank (both positions held in the pre-Hugo Chavez days); and Executive Director of the World Bank (he was also the editor of Foreign Policy from 1996 to 2010), offers a helpful analysis of the situation in Guyana on the pages of Estadão.

He notes that for the last seven years, oil companies have discovered oil reserves off the Guyana coast which are estimated to be in the range of 11.2 billion barrels. This is almost a third of all new oil discoveries in the world since 2015.

Researchers at Nexus Group predict that in a few short years, Guyana will become one of the Top 5 high-seas oil producers, overtaking the United States, Mexico, and Norway.

On current trajectory, Guyana, by 2035, will be producing more oil per capita than any other country in the world. Government profits from oil may well reach $ 21,000 per citizen, almost doubling today’s GDP per capita.

This year, Guyana’s economy could grow by an eye-watering 58 percent. The share of oil in the country’s GDP could grow 30 percent a year between 2023 and 2026. Guyana, until recently one of the poorest countries in the Americas, has already exceeded the world average per capita income, and the oil boom has just begun.

Naím notes that there is another advantage to Guyana’s oil: it is cleaner than oil produced elsewhere.

The amount of carbon released per barrel of Guyanese oil produced is about half the world average carbon release per barrel, and it is going down. In other words, if Guyanese oil replaces the oil produced by its competitors, this replacement will make a major contribution to reducing carbon emissions.

The big question is whether the people of Guyana will benefit from the oil boom. Analysts say that the history of Guyana raises questions about whether the fact that the country is getting richer would mean that the Guyanese people would benefit.

The UN Development Index places Guyana at 108 out of 191 countries in the level of economic and societal development. The Economist’s Intelligence Unit describes Guyana as a “defective democracy”: elections are competitive, but not always clean. An electoral conflict in 2020 gave rise to a tough confrontation that lasted for months and triggered several waves of violence among supporters of the opposing factions.

The country’s politics – and policies – have long been defined and shaped by ethnic tensions in a demographically divided country. About 40 percent of Guyanese trace their ancestry to India; about 30 percent are of African origin; and about 10 percent are indigenous. The remaining 20 percent are mestizos, or mixed-race.

Guyanese tend to vote based on their ancestry, not ideology, and corruption has been endemic.

Analysts note that the experience of oil booms in countries without strong institutions and adherence to democratic practices, is not reassuring. Instead of working together for a better future for everyone, rival groups fight each other fiercely, and often violently, for control of oil rents.

The phenomenon is so prevalent, that scholars have given it a name: Resource Curse. The curse, which is also known as the “Paradox of Plenty,” is the phenomenon which sees economies that are blessed with natural resources experience less favorable development outcomes than their resource-poor counterparts.

Guyana already has three of the pre-conditions analysts see as making a country vulnerable to be trapped by the Resource Curse: Deep, rigid ethnic divisions which dominate politics and policy; endemic corruption; and weak institutions.

Naím says that Guyana may just escape the Resource Curse:

However defective it may be, Guyana is a democracy, which helps, up to a point, to vaccinate people against the curse. In addition, the sheer magnitude of the oil reserves in Guyana’s waters and the country’s small population may well make it possible to satisfy everyone, thus escaping the descent into an impoverishing conflicts over oil revenues.

The question, then, is whether Guyana will produce a wise and prudent political and economic leadership to manage the oil wealth. We will know the answer soon enough.