The Americas | The gusher in Guyana

Will oil corrupt a small Caribbean state?

It will take better politicians to resist the corrosive power of petrodollars

Waiting for the wealth to trickle down
|GEORGETOWN

SOUTH AMERICA’S only English-speaking country is one of its poorest. But perhaps not for much longer: Guyana has struck black gold. By 2020 ExxonMobil, the world’s biggest private oil firm, expects to be pumping oil in Guyanese waters, with Hess and Nexen, its American and Chinese partner firms. In the past two years they have found reserves of around 2bn barrels. Five more promising prospects will be drilled by 2018, and then perhaps a dozen more. Guyana could be producing 120,000 barrels per day by 2020, and more than 400,000 by the mid-2020s.

Even with oil at under $50 a barrel, this is vast wealth for a nation of just 750,000. But the Guyanese seem strangely underwhelmed. “It will not trickle down,” a street trader shrugs. Little of the work will be done onshore. Guyana has few engineers and no heavy industry. A global glut of refining capacity means there is no point in Guyana building its own. Oil will be pumped into giant vessels, then shipped directly to foreign markets.

So the main question is how the government will spend its share of the windfall. There is talk of a sovereign wealth fund and projects to boost long-term growth: an all-weather road linking the capital, Georgetown, to the interior and Brazil; a deep-water port; hydro-electric schemes; better health care and schools.

But Guyana already had diamonds and gold, and little of that wealth was shared. Horse-drawn carts still weave through the Georgetown traffic. Large new gold mines under Australian and Canadian ownership have boosted export earnings and the tax take. But small locally owned ones smuggle much of their output abroad, bypassing the taxman. State-owned sugar producers gobble subsidies. Cash will be tight until the oil starts flowing.

Retail sales are down. Nightspots are closing. “Businesses are scared to invest,” says an accountant. He blames a crackdown on money-laundering and graft. Others blame a newish local office of America’s Drug Enforcement Administration for reducing the flow of drugs cash.

The minister for natural resources, Raphael Trotman, wants Guyana to sign up to the Extractive Industries Transparency Initiative, which monitors mineral revenues to stop them being stolen. The Guyana Oil and Gas Association, a recently formed coalition of private firms and individuals, aims to promote transparency in the industry. But oil tends to corrupt weak governments. And Guyana’s is far from strong; the country has a history of corruption and its politics are bitter and racially polarised.

An alliance led by the mainly Afro-Guyanese People’s National Congress, the party that governed from 1964 to 1992 through rigged elections, squeaked back into power in 2015. It is locked in a standoff with the opposition over who should become the new head of the elections commission, which has kept elections broadly free and fair since 1992. If no deal is reached, the constitution seems to allow the president to impose his choice—in which case the leader of the opposition People’s Progressive Party, which is mostly supported by Indo-Guyanese people, threatens to sue.

The risk is that Guyana’s petrodollars will be squandered on more sugar subsidies and pay rises for the unproductive public sector. The next election is due in 2020 just when the oil starts to flow. The victor could enjoy a well-lubricated quarter-century in office.

This article appeared in the The Americas section of the print edition under the headline "The gusher in Guyana"

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