Guyana’s Oil Bonanza Could Inflame Its Ethnic Divisions
(Bloomberg Opinion) -- This time last year, Guyana’s future looked bright. The first oil from the Western Hemisphere’s biggest new find in decades was ready to flow. The economy was on track to expand by 86% in a year and, soon enough, transform one of the poorest countries in the Americas. Even corruption, Guyana’s legacy scourge, seemed to be somewhat in retreat.
Instead, 12 months on, this small nation of 750,000 people on South America’s northern rim is reeling. The March 2 presidential election, a shambles that took five months to settle, left traditionally feuding elites more deeply divided by racial and ethnic loyalties. The political turmoil has imposed costly setbacks for oil extraction and exploration and made investors uneasy. Institutions vital to managing the geyser of oil revenue remain flimsy, where they exist at all. And all this has unfolded amid an international oil glut and the coronavirus pandemic.
This tale looks familiar. Frontier oil nations too often are easy marks for the resource curse, under which the sudden gift of a bounteous natural asset subverts national institutions and blights politics and society. Yet Guyana is a reminder that the hex can work both ways.
Cronyism, graft and self-dealing have long made Guyana’s identity-riven politics a race to the bottom. Unless Guyanese society holds its carping political establishment to a higher bar, South America’s breakout nation risks sabotaging a centuries-deferred vision of creating common wealth and democratic stability, and instead enriching only the oil behemoths.
Undoubtedly, getting blindsided by plenty can be problematic. “The nation’s ports, power supply, supply bases — all are rudimentary and industry in Georgetown is basic at best,” said Marcelo de Assis, head of upstream research at Wood Mackenzie, an energy consultancy. Yet Guyana’s race-fueled partisan strife adds a toxic twist. “One of the worst circumstances you can have is a country polarized politically and ethnically that is about to be awash in a huge amount of money,” said Francisco Monaldi, an oil and energy expert at Rice University’s Baker Institute for Public Policy.
Start with the no-confidence vote against President David Granger’s government in late 2018, which threw the system into turmoil. Instead of a smooth segue to new elections, as the U.K.-inspired constitution prescribed, Guyana got a 19-month political stalemate: Granger appealed to the courts, demanded an election recount and then challenged the international auditors who validated the balloting. Making matters worse, the electoral quarrel was cloven along centuries-old fault lines: Guyanese of African descent lined up behind Granger’s outgoing People’s National Congress while Indo-Guyanese descended from indentured servants hewed to the ranks of the rival PPP party, now back in power under President Irfaan Ali.
Oil majors are no strangers to turbulent markets: Look at Angola and Chad, where the crude kept flowing through ethnic animosities and civil wars. However, the disarray in Guyana has given investors pause and threatened production setbacks. A likely 12-month delay on the Payara oil development in the prized Stabroek block could cost Guyana around $1.6 billion. Adding to the murk are suspicions that sticky-fingered officials gave away oil concessions in 2016, shortly after Guyana’s fabulous oil find.
Those claims were bolstered earlier this year when Global Witness, an industry watchdog, accused Exxon Mobil Corp. of imposing an “abusive” production-sharing agreement, which it said could shortchange the country by around $55 billion — around 12 times Guyana’s gross domestic product in 2019. Guyanese authorities and Exxon denied any undue advantages, arguing the terms of the agreement reflected the risk of operating in a frontier hydrocarbon province.
Public misgivings over the contracts have triggered demands that the government renegotiate them. Perhaps more important, however, Guyana should get its own house in order. “Guyanese youth is the key. I say forget about local content and oil and gas jobs for the moment. We need to build a country from scratch. There’s so much work to be done,” Guyanese oil expert Jan Mangal, who advised the Granger administration but has been critical of both competing factions, told me. Instead, Mangal added, “we have all the red flags.”
Transforming Guyana ultimately depends on solving a bigger riddle: Can the country kick the habit of incapacitating rivalries based on skin color and cousinry? While Guyanese of Asian and African descent have lived side by side for centuries, “they mix but they do not combine,” said Christopher Charles, a professor of psychology at the University of the West Indies, in Jamaica. “Indians and Africans see themselves as locked in a zero-sum game for power.” The struggle for power and influence has turned diversity into enmity, now aggravated by the prospect of fabulous oil rents. “Given its access to resources and gateway location to South America, Guyana could be a little Singapore by now. Instead, the politicians have used race to stay in power,” said Mangal.
Guyana has made some strides in overcoming its dysfunctions. Transparency International recently rated Guyana as one of the most improved nations on its annual Corruption Perceptions list, ranking 85 of 180 countries in 2019, (compared with 93 the year before). Racial tensions have generally not exploded into violence and, encouragingly, some parts of society also may already have bridged its atavistic cultural moats. The number of Guyanese self-identifying as racially mixed (20% of the total population) doubled between 1980 and 2012 (the date of the last complete census), the fastest growing demographic alongside those of Portuguese ancestry.
A longtime expatriate aid official in Georgetown — who works with all Guyanese groups and so asked not to be identified — recalls throwing a house party during the 2014 World Cup and being surprised at the easy interaction among the diverse guests. “I had a big crowd with many mixed couples. It was all very natural. I realized then that Guyana had changed for the better,” the official told me. “I hadn’t noticed because I’d been living in my bubble.”
Sadly, half a century after independence, politicians are still living inside of theirs.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Mac Margolis is a Bloomberg Opinion columnist covering Latin and South America. He was a reporter for Newsweek and is the author of “The Last New World: The Conquest of the Amazon Frontier.”
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