BY DAVID E. LEWIS
After five months of political turmoil, a round of U.S. sanctions and the no-confidence vote ex-President David Granger’s government received almost two years ago, the South American nation of Guyana, on Aug. 2, successfully swore in Mohamed Irfaan Ali as its new president.
As the incumbent party peacefully steps down, decisions made by the new government in the first few months will affect the country’s socioeconomic future for generations.
The end of election chaos brings renewed hope for the country’s future, and especially for the potential of its oil exploration projects. Since 2015, a consortium led by ExxonMobil has found more than 8 billion barrels of oil off the Guyanese coast, which the World Bank predicts will bring the government billions of dollars in revenue annually by the mid-2020s.
While the new government has made progress on preparing for the country’s oil development, approvals for the next stage are months behind, and questions are mounting about Guyana’s ability to continue attracting investment.
To keep up the positive momentum, the government must ensure that it sets a realistic, thoughtful timeline for vetting and approving developments. Even a 12-month delay in approvals for the next stage of development would cost more than $1.6 billion in revenue according to energy consultancy Rystad.
The project already has faced almost a year of government reviews.
While the government’s desire to be thorough is understandable, it’s a warning sign to investors that one of the new administration’s key promises — made just days after taking office — already has been broken.
The thousands of Guyanese workers and local businesses that are employed by the sector anxiously await any sign of a decision. Exxon has already said that it will need to make a final decision regarding investments by September. Stability and predictability will be the keys to attracting investment that allows the new government to invest in and pursue social development programs long-term.
Guyana needs of avoid the traps that so many other resource-rich nations have fallen into. Developing a new non-political regulatory system will be a crucial first step. But the country also needs systemic change to create a friendlier climate for local businesses and investment.
Guyana ranks 134th in the World Bank’s Ease of Doing Business rankings, below Iran, Niger and the Gaza Strip. Local companies struggle with the high cost of electricity, a byzantine permitting system and pervasive brain drain. Addressing these issues could go a long way toward getting Guyanese involved in their new energy industry.
But the government is already considering some worrying steps in the other direction. It has floated the idea of ending the open and competitive contracting process that companies use now and replacing it with a system that would favor only a handful of local firms. In such a small market, that would likely create a huge opportunity for graft and cronyism. It would also throw a wrench into development timelines and future revenues. A country of fewer than 800,000 simply does not have any companies that handle the technical aspects of deep-sea drilling.
While the desire to encourage local industries is understandable, the new government must balance encouraging Guyanese participation in the industry, already strong by international standards, while not discouraging development.
The new government already is engaging the private sector in discussions regarding plans for new pro-business trade and investment policy initiatives and reforms, as well as advancing for support by multilateral organizations including the World Bank and the Inter-American Development Bank. These are good signs and steps in the right direction to advance a more business-friendly environment in the country.,
Approving the Payara project and fast-tracking long overdue improvements to the regulatory system are critical to meeting the government’s goal of attracting additional offshore investment. Increased revenues from that development are the only feasible way to provide President Ali and his administration with the financial means to diversify the country’s economy and invest in needed development projects in education, healthcare and infrastructure.
Guyana’s path to economic independence through oil will be long. But its new government can reach success by taking proactive steps now that will prove to foreign investors that Guyana is a stable and safe place to do business. ( Miami Herald )
David E. Lewis is vice president of Manchester Trade Ltd., an international business advisory firm in Washington, D.C. He is adjunct professor at the FIU School of Business.
