Guyana : An Economic Miracle in South America

Guyana: An Economic Miracle or a Short-Term Mirage In Latin America?

The South American country’s economy is expected to see the region’s fastest growth following the discovery of huge oil reserves, but which presents a huge challenge for its government

Bloomberg Línea — The dirt that two years ago covered most of the avenues of Georgetown, Guyana’s capital, has recently turned to asphalt; however, the city’s architecture still remains Victorian and without traces of restoration, and surrounds a population with few signs of economic improvement.

VIEW + Dispute Between Guyana and Venezuela Over Resource-Rich Esequiba Enters New Phase The two countries dispute the ownership and control of Guyana Esequiba, a strip of land rich in oil, forestry and possibly mineral resources in a case being overseen by the International Court of Justice

Guyana’s economy, one of the poorest in Latin America, is now projected to be the fastest growing in the last two years. The upturn is attributed to the oil sector, which in the first half of 2023 grew by 98.4%, and poses a challenge to the response capacity of the small country in dispute with Venezuela.

After a GDP advance of 57.8% last year, according to the World Bank, the economic activity in the country of 800,000 inhabitants could grow by up to 29% this year. However, this growth rate does not resemble the figures of 2014, just a year before an oil field was discovered 193km offshore by ExxonMobil and Hess Corporation in 2015. In that year, GDP stood at about $4.28 billion after rising 0.7% over the previous year.

Meanwhile, 35.1% of the population live in extreme poverty, with an estimated income of one dollar a day, according to NGO Humanium. And although the data is currently uncertain, the government’s official discourse highlights the efforts to eradicate poverty, thus revealing that the problem has not yet been solved.

The Guyanese capital, which has some 350,000 inhabitants and is the largest city in the small country, is an X-ray of this. Travelers still compare it with the poorest areas in Latin America, as well as with localities in the interior of other countries where capitals do have more progress.

Guyana’s GDP per capita has already reached almost $19,000 (at current prices), and commercially recoverable oil reserves are expected to exceed 11 billion barrels, according to the International Monetary Fund (IMF). Economists have advised the government led by President Irfaan Ali not to repeat mistakes of its peers in the management of the oil industry.

“Guyana must seek to strengthen its institutions, create savings and investment mechanisms. It must try to ensure that oil has a positive and sustained impact on its economy”, Venezuelan economist Luis Oliveros said in April of this year.

One of Latin America’s smallest countries could see 100% growth of its gross domestic product by end-2023 compared with two years earlier Estimates for the Caribbean nation’s economy remain positive, and the Guyanese government has managed to identify the economic diversification it requires, according to the World Bank representative for Guyana and Suriname, Diletta Doretti, in order to avoid falling into the so-called ‘Dutch syndrome’. However, the projects for human development and the boosting of non-oil revenues have not been detailed.

According to people familiar with the situation, the country’s political high command is focused on the tense situation developing on the border with Venezuela over the Essequibo territory and the mobilization of Guyana’s troops.

Living in Guyana

Steven works as a welder in one of the popular markets in Georgetown, and also generates income from other trades, which pay up to 20,000 Guyanese dollars, the equivalent of $100 a week. With the sum of all his activities he recently managed to acquire a vehicle.

The minimum wage in Guyana is $287 per month. Rents for an apartment in the city center can range from $1,400 to as much as $4,000.

“You can’t just work from one thing, you have to work from several things,” Steven tells Bloomberg Línea. “Food is not that expensive, but rent and utilities do cost, it’s expensive here in the capital, not like back in Venezuela. The electricity bill sometimes comes in at 29,000 ($139) and water at 8,000 ($39) while internet costs 2,800 ($14).”

People living near border areas have reported to international agencies about the intermittency of public services. Some rely on the rain to collect water in cans, pots and plastic containers.

Gabriel Herrera, a Venezuelan influencer who visited Georgetown told Bloomberg Línea that access to services in the hotel where he was able to stay was basic, without great luxuries or modernization. “Public transportation was nil, there are no well-defined stops or an advanced transportation system. The easiest way was by cab.”

In his journey from Georgetown to the Essequibo sector (territory in dispute with Venezuela), he was able to see that the dynamics and behavior of the country is the same. “The structures you see are the same. Everything looks and seems as if it were just another place in Guyana, there is no difference in the journey to the crossing sector in the disputed zone with Venezuela”, he said.

Social conditions

According to the UN, between 25,000 and 30,000 Venezuelan immigrants have fled the crisis in their country to tried their luck in Guyana. Several thousand live in Essequibo, according to a report by the EFE news agency. Previously, the situation was the opposite, and many Guyanese emigrated to Venezuela in search of a better life. Currently, 55% of Guyanese are living abroad.

As described by the NGO Humanium, the high rate of school desertion in Guyana is also worrying, since children are forced to work as a consequence of the precarious economic situation of their families.

In addition, there is another particular phenomenon that has to do with the indigenous peoples. “A large number of children, mostly Amerindian, live in remote areas, so they are unable to attend school regularly. As a result, this has led to growing disparities between the regions in the interior of the country and the rest of the state in terms of education,” says a Humanium report.

The mortality rate is also alarming, and is 33% among children, a consequence of a large number of malaria cases, especially among Amerindian children, as well as the high number of young people suffering from malnutrition or anemia.

According to an article in The Los Angeles Times, Guyana has $1.6 billion in oil revenues as of May this year, and as a result the government has launched infrastructure projects such as the construction of 12 hospitals, seven hotels, schools, two major highways, its first deepwater port, and a $1.9 billion project to generate electricity from natural gas that Vice President Bharrat Jagdeo told AP will double Guyana’s energy generation capacity and cut high electricity bills in half.

“While the projects have created jobs, it is rare for Guyanese to work directly in the oil industry. Ocean-bottom drilling work is highly technical, and the country offers no such training,” according to the article.

A lack of experience

Experts are concerned that Guyana lacks the expertise, legal and regulatory framework to handle the expected influx of wealth, and warn that democratic institutions could be weakened as a result.

“Global experience has shown that rising expectations of oil and gas revenues can lead to overspending, over-indebtedness or excessive depletion of sovereign funds in reshaping economic policy,” Diletta Doretti, the World Bank’s representative for the country tells Bloomberg Línea.

Guyana, which remains a poor country despite having accumulated significant fiscal and external reserves with the start of oil production in 2019, has sought to protect oil revenues with the Natural Resources Fund Act created in 2021. Still, it is critical for it to develop a medium-term strategy for economic diversification and growth in the non-oil sector, Doretti said.

“Guyana’s political instability raises concerns that the country is unprepared for its newfound wealth without a plan to manage the new revenues and equitably distribute the financial benefits,” according to a report by the US Agency for International Development (USAID), which acknowledged the country’s deep ethnic rivalries.

The Guyanese government, meanwhile, has been alert in recent months to the possibility of an armed conflict with Venezuela. The government’s defense of the Esequiba territory, an area of 160,000 square kilometers rich in minerals and natural wealth, as well as offshore oil reserves, whose sovereignty has been under discussion for almost two centuries, has been escalating.

“The government of Guyana reserves the right to carry out economic development activities in any part of its sovereign territory or in any corresponding maritime territory,” President Ali said in a statement released in September after Venezuela questioned the country’s plan to allow bidding for oil blocks, which it deemed illegal.