Guyana Records 300% GDP Growth in 3 years.

Fastest growing economy.

In 2018, at a reception in the Guyanese capital of Georgetown, US Ambassador Perry Holloway was to say to the assembled audience, "you will probably be the richest country in the world." He was saying this in a country that was at the time one of the poorest on the continent. Five years have passed and according to IMF per capita figures, Guyanese are the wealthiest society in South America. The last three years alone have seen a 300% increase in nominal GDP. Is Holloway's prediction just now coming true?

Manna from Heaven

In 2015, when US mining giant Exxon Mobil confirmed the discovery of large oil deposits on Guyana's offshore shelf, the reaction was twofold. Local optimists hoped that black gold would make a real difference to their livelihoods. Pessimists, on the other hand, seeing what was happening in nearby Venezuela, feared massive corruption, the looting of state assets or even internal conflict. It has been eight years since the immense discovery was announced and more than three years since extraction began. How has the situation in Guyana evolved? Today we know a lot more. Let's look at the hard numbers.

First, we need to realise the scale of the potential wealth that befell Guyana in 2015. This small South American country has had the largest offshore oil discoveries anywhere in the world over the past decade. The 11 billion barrels of reserves accumulated have vaulted the country to the top of the list of countries with the largest offshore oil deposits. A report prepared by analyst firm Rystad forecasts that Guyana is on track to become the world's fourth-largest offshore oil producer by 2035. Ahead of big players such as the United States, Norway, and Mexico. What's more, the Guyana-Suriname Basin continues to be largely unexplored. The deposits could be up to twice as large as those found by Exxon. Remember that we are talking about a country with under a million inhabitants.

However, potential is only one thing. How it’s utilised is another. This was primarily the responsibility of the aforementioned American-based Exxon Mobil. And indeed, in 2020, Guyana's oil production kicked off and has doubled almost every year. From 66,000 barrels per day in 2020 all the way to 360,000 in 2023. By the end of the decade, Georgetown aims to produce more than 1.6 million barrels per day. More than the UK or Nigeria produce now and almost as much as Norway. When this happens, Guyana will overtake Kuwait and become the country with the highest per capita oil production rate in the world. That's not all. Guyana also has yet-to-be-extracted deposits of natural gas, the production of which is also planned for the near future. In short – wealth is coming.

What's more, the unstable international situation, namely the coronavirus pandemic and Russian aggression in Ukraine, has shaken global oil prices hard. From Guyana's perspective, the trajectory was perfect.

When Exxon began production, the price of oil was drastically low. It had fallen to $20 per barrel, or the lowest of the last 20 years. Then, as if at Georgetown's command, the price of oil skyrocketed, which coincided with the start of Guyanese production.

Rising production coupled with a climbing price - that’s a recipe for success. In one of our first materials of 2020, we reported that the IMF was forecasting an 86% growth in Guyana's GDP in 2020 alone. Another estimate - by IHS Markit - reported 30% growth.

Ultimately, Guyana achieved a middleground, but still outstanding 43% GDP growth in 2020. Subsequent years saw growth of 24%, 58%, and for this past year, another 25%. Such numbers for macroeconomic conditions are unprecedented. At the end of 2019, Guyana's GDP was estimated at $5.5 billion, while at the end of 2022, it had exceeded $15 billion. At the end of 2023, it is likely to approach the $20 billion mark. So in three years, Georgetown has tripled its nominal GDP, and after four years, it is likely to increase fourfold.

GDP per capita has similarly shot up. From $7,000 in 2020 up to the current $21,000. According to IMF figures, the Guyanese are now - in theory - the wealthiest society in South America and Guyana is the fastest-growing economy in the world.

Recently, Irfaan Ali, the country’s president, said, "we are finally on the path to prosperity."

Dutch Disease

But with great money comes great responsibility. Many feared that Guyana would experience what is known as Dutch Disease, or a situation in which a country, after the discovery of large deposits, descends into chaos instead of growth. The abundance of natural resources discourages countries from developing other sectors and creates circumstances conducive to corruption.

And indeed, there are issues to be concerned about.

Exxon's share of profits from oil sales is exceptionally favourable. The highest in the entire industry, according to Colombia Univeristy's Tom Mitro, a former Chevron employee. Guyana gets a 50% share of the profits. According to Rystad, that percentage usually reaches 75%.

There are also threads of corruption in the $18 million the government received from Exxon in 2016. This donation remained undisclosed until it was leaked to the media a year and a half later.

According to surveys, the majority of Guyanese - 57% - actually feel that the country's mining sector is being consumed by corruption. 16% believe there is "some" of it.

The bitterness of the population can be understood, especially given the level from which the country started. Historically, Guyana is one of the poorest countries in the western hemisphere. Moreover, the state has been haunted by disasters that have often wiped out people’s entire livelihoods in the blink of an eye. The damage caused by the 2005 flood was estimated at 59% of the country's GDP. Such a low starting point also explains, in a way, the sudden stratospheric increase in GDP. The starting point was simply very low.

Low levels of development mean weak institutions and these lead to hotbeds of corruption. However, despite the negative public sentiment about corruption, it is important to note that national decision-makers, under public pressure, have taken several initiatives to reduce the fields for abuse.

The current administration has created a sovereign wealth fund that requires all oil revenues to be publicly disclosed and placed in accounts that citizens can monitor. Violation of these transparency requirements by officials carries a 10-year prison sentence. The country has also joined the Extractive Industries Transparency Initiative, which requires member states to publicly disclose how resource rights are allocated, track finances through public channels, and report on how the funds benefit the public.

Window of Opportunity

And indeed, the flood of money is visible. Especially in the country’s capital. A larger budget allows the Guyanese to make new investments of which infrastructure projects are leading the way. A new 300-megawatt power plant, a natural gas processing facility, a stadium, several bridges, and a road linking Guyana to northern Brazil are just a part of the bigger picture.

As Bloomberg's Monte Reel reports from Georgetown, new construction sites are springing up like mushrooms in the country’s capital, the streets are clogged with trucks filled with materials, and there are queues of residents lining up at ministries to get permission to build a new home.

Haste usually makes waste, but in Guyana's case, haste may be understandable. The country is late in joining the black gold rush, and although the prospect of moving further away from fossil fuels is not imminent, still Western societies are in the process of looking for alternatives.

The possible end of oil is one thing, but perhaps more important is another motive for the rush - some consider oil extraction to be undercutting the branch on which Guyana sits. The country is suffering heavily from a warming climate and rising waters. Another flood similar to the one in 2005 may only be a matter of time. So paradoxically, Guyana's oil exports, in theory, could contribute to the new disasters within the country.

However, the Guyanese see it a little differently. The new wealth is to help them diversify their economy, move to renewable energy sources within a decade and prepare for the potential effects of rising water levels. The document that discusses Guyana's strategy - the Low Carbon Development Strategy 2030 - states that the country's goal is to protect Guyana's environment, diversify the economy so that it does not rely on profits from the sale of hydrocarbons alone and build seawalls to protect against flooding. Wealth from oil is, therefore, not an end in itself, but is intended to bring the country to a level that will allow for stable development when the black gold runs out or is not in demand.

New Kid on the Block

The country's sudden increase in wealth and control over the extensive deposits of one of the most essential natural resources on this planet also raises the international position of this small state. Interest in Guyana is on the rise with more and more foreign delegations arriving in Georgetown. The Americans have by far the strongest foothold in the state as through Exxon, they indirectly control oil production. Also, major new energy investments have fallen to American companies. Cooperation with China is also growing. Between 2018 and 2022, exchanges between Georgetown and Beijing grew by 213%. India is also not insignificant as the two countries recently signed an agreement on inter-governmental cooperation across the entire spectrum of the oil and gas sector. Here it helps that the current ruling political party is one formed by a Guyanese of East Indian origin. There is no doubt that the Chinese and Indians will also be lined up for the next bids to exploit Guyana's treasures.

Europe, which is the largest customer of Guyanese oil, also plays a vital role. As much as half of the export goes to the Old Continent. The reason for this large share is simple: the search for a replacement for Russian oil. Of course, the scale of imports from Guyana is a fraction of the imports Russia, but undoubtedly Guyana's growing production potential will help Europe lessen its dependence on Russian oil.

President Irfaan Ali, commenting on the country's future, said that Guyana is finally on the road to true sovereignty, 56 years after Georgetown declared independence from the British. Today, Guyana does not yet look like the most prosperous country in the world, as the former American ambassador predicted, but the country is undoubtedly changing, while Georgetown is one big construction site. All of this is backed up by soaring macroeconomic statistics. However, Guyana is not immune to the threats of the resource curse. Yet, more importantly, there is no reason to believe that the country will descend into chaos in the near future. Initiatives to increase transparency in public finances have positively contributed to this.

The case of Guyana is interesting for one more reason. If the country succeeds and the Guyanese manage their sudden wealth skillfully, the country has a chance to become an inspiration to other countries that have not been able to cope with this task. We are talking about Venezuela, Angola, or the Democratic Republic of the Congo. The Dutch disease chronically afflicted all. Time will tell whether Guyanese decision-makers and society will competently guide themselves in the new reality, but the beginning of this long road full of temptations for Guyana is very promising.

Sources:

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