As Guyanese prepare to go the polls on March 2, the country faces enormous challenges in the coming years to strengthen institutions and build capacity that would enable it to effectively manage oil revenue and avoid the pitfalls faced by many resource-rich countries. Effectively addressing these concerns will be the main challenge of the next government and getting it right is the only option if the small South American country is to truly benefit from its new-found wealth.
The revenue stream from oil production, which started in December, will be modest in the first years, estimated at around US$300 million annually during cost recovery, before ramping up significantly, particularly as more developments come on stream, which by 2025, should number 5.
But the oil resource and revenues it will generate will mean very little to the people of Guyana if the country fails to put systems in place to hold public officials accountable and ensure institutions are strengthened and made to operate independently.
UK-based global risk and strategic consulting firm, Verisk Maplecroft, says the country’s oil potential is beyond doubt and with a population of just over 773,000, the South American country could become one of the richest per capita in the world.
With billions of barrels of crude discovered in reservoirs offshore, the risk to the country’s future lies above the ground.
“Guyana is jumping into the deep end – with a population of just 773,000 and underdeveloped government institutions, the region’s fourth poorest country (in GDP per capita PPP terms) will face considerable hurdles to manage the newfound wealth effectively,” writes Sam Benstead, Verisk Maplecroft Latin America analyst.
Lack of experience will also push up the risk of public blunders – as exhibited by the November 2017 scandal around ExxonMobil’s USD18 million signing fee, Benstead stated. “The episode exposed the lack of transparency processes, which could fuel public perceptions of corruption in the sector. Windfall management failures and transparency concerns could push up civil unrest risks, particularly ahead of the election.”
The consulting firm says the influx of oil revenues will make the 2020 vote a winner-takes-all situation, increasing the risk of social unrest and reducing government stability, but still, there remains potential for real progress.
“Some good news: both parties support foreign investment and a rise in resource nationalism is unlikely. Indeed, ExxonMobil entered contract-sharing agreements with both dominant parties. Therefore, we would not expect the rise in government instability to translate into a marked deterioration of the business operating environment,” Benstead said.
The challenge beyond 2020, Benstead points out, is for the next government to adhere to and further develop the country’s institutional capacity to manage this wealth, and to implement a balanced economic policy programme ensuring equitable development for the entire country, irrespective of ethnic divisions.
