Saturday, April 1, 2023

Guyana oil boom will drive construction activity, reduce unemployment – Fitch Solutions

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Fitch Solutions – an industry-leading provider of credit, debt market, and macro intelligence services – says as the South American country of Guyana upgrades its infrastructure and prepares for an economic windfall from oil production, the construction sector will grow, and unemployment will decline.

“At Fitch Solutions, we expect increasing investment will drive construction activity and reduce unemployment in Guyana as the economy modernises its infrastructure and readies for an economic windfall from its nascent energy sector,” the agency said.

Fitch Solutions reminded that ExxonMobil, the primary developer of Guyana’s offshore oil blocks, authorised a USD6.0bn investment in May 2019 and has already created more than 1,200 jobs. “The Guyanese government is also increasing investment in transport infrastructure and creating more public sector jobs to oversee project development and regulate the energy industry,” Fitch said.

However, Fitch Solutions said the non-energy primary sectors will likely see uneven growth. “In an effort to cut public subsidies, the Guyanese government has begun to restructure Guyana Sugar Corporation, a loss-making state-owned company, which will likely curb production and employment in agriculture in the coming quarters. While agriculture has traditionally been one of the larger components of the Guyanese economy, accounting for approximately 30% of employment, weakening productivity and a poor investment environment have held back growth in agriculture and other primary sectors.”

But the beginning of crude oil production in H120 will lift Guyana’s long-term growth trajectory, Fitch Solutions projected. “ExxonMobil continues to revise up its projections for the country’s recoverable oil reserves, supporting exports and government revenues beginning in 2020.”

The company’s most recent estimate is that Guyana’s offshore deposits hold more than 5.5bn barrels of crude oil. ExxonMobil estimates it will produce around 750,000 barrels a day by 2025. “This will offer substantial windfalls to domestic wages, private consumption and government revenues,” Fitch Solutions said.

“However, political uncertainty poses moderate downside risks to growth. The legislature’s successful December 2018 no confidence motion against President David Granger’s A Partnership for National Unity government {APNU+AFC Coalition} was upheld by the Caribbean Court of Justice in June 2019, increasing the risk of a change in government in the coming months. While President Granger has vowed to call a new election, he has not yet set a date for the general election and has delayed the process by insisting that Guyana update its voter lists,” the agency noted.

“At Fitch Solutions, we expect the opposition People’s Progressive Party/Civic (PPP) will regain control of government in the new election, presenting modest risks to economic policy. The PPP has criticised the Granger government for agreeing to favourable terms with foreign energy companies and for giving economic preferences to the Afro-Guyanese community at the expense of Indo-Guyanese citizens, who broadly support the PPP. While we do not expect a PPP government would attempt to re-negotiate Guyana’s arrangements with foreign energy companies, policy uncertainty could hamper foreign investment in the medium to long term,” Fitch Solutions said.

Fitch Solutions is the primary distributor of Fitch Ratings content.

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