Guyana & the Resource Curse

A hurricane is about to descend on the tiny nation of Guyana—a hurricane of money.

Guyana is a country of about 750,000 tucked between Suriname and Venezuela on the Atlantic Coast, with a vast interior and unspoiled rain forests. Another 500,000 Guyanese live abroad, many having fled the country’s endemic violence and corruption. The CIA says Guyana is a transshipment point for narcotics and a center of money laundering, sex trafficking and forced labor. Intelligence sources tell me that for decades, it was a clandestine battleground of the Cold War, and later, the War on Terror. A former British colony, it gained independence in 1966. But Britain did Guyana no favors on the way out by installing strongman Forbes Burnham to run the country. Burnham unleashed far-reaching waves of strife between his largely Afro-Guyanese followers and the other major demographic group, the Indo-Guyanese. Britain and the U.S. backed the authoritarian Burnham, fearing a communist-controlled government from his opponent, Indo-Guyanese leader Cheddi Jagan. Burnham and Jagan are long gone, but rivalry and tensions between Afro-Guyanese and Indo-Guyanese persist to this day, including in the National Assembly.

Guyana is a poor country. Skilled workers and much of the educated class emigrated in the Burnham years and after. The country went into steep economic decline. Now, the average per capita income in Guyana is about $4,000, making it one of the poorest countries in the region. The unemployment rate is about 12%. Youth unemployment is around 25%. About 30% of the Guyanese population live below the poverty line. Infrastructure development, health care and education struggle for limited government funds.

All this may be about to change. In 2015, ExxonMobil discovered huge oil reserves off the Guyanese coast. The numbers are staggering. ExxonMobil estimates at least four billion barrels of recoverable oil are at stake. The New York Times reported that the oil may generate “enough bounty to lift the lives of almost every Guyanese.” Energy analysts calculate Guyana could be taking in between $5 billion and $6 billion per year in oil revenues by the end of the next decade. For perspective, the current annual government budget is around $1.2 billion.

The big money is set to start flowing by 2020. For Guyana, it seems like a dream come true. What could go wrong?

Plenty, say observers who have seen this movie before. It’s called “the resource curse.” A tsunami of money blowing across a poor country with weak institutions creates huge problems.

The biggest problem is corruption. The ruling class steals the money or siphons it off to incompetent insider companies. Nigeria is a casebook example of the resource curse. Nigeria is one of the world’s top oil producers and yet its people live in crushing poverty. The activist group Global Witness estimates that more than $400 billion in Nigerian oil revenues have been lost to corruption and mismanagement.

The resource curse brings other problems as well. Traditional industries may be neglected and decline. Commodity prices can take sudden downward turns, throwing economies into turmoil. Divisions between the haves and have-nots are sharpened. As the Times noted, the Guyanese “need look no further than neighboring Venezuela to see a failed state where the world’s largest oil reserves have not prevented hunger, shortages of medicine and hyperinflation from producing widespread misery.”

The early signs from Guyana are not good. The political class is divided. The judiciary is weak. Government agencies are unprepared for the challenges ahead.

Last year, Guyanese analyst Chris Ram, revealed that ExxonMobil paid the Guyanese government an $18 million “signing bonus” when it inked a new oil contract. No one in the government or at ExxonMobil bothered to advise the public of the payment. Government officials defended the deal, saying the money had gone into a proper account. But Ram called for an investigation into the country’s Ministry of Natural Resources and the negotiation of oil contracts.

The Guyanese government has promised more transparency. But so far, little has changed.

“Basic accountability and transparency standards are still lacking” in Guyana, Foreign Policy noted in a lengthy investigative piece.

Government agencies are struggling. The Times reported on the travails of Guyana’s senior oil regulator, Newell Dennison, the acting head of the Geology and Mines Commission. Dennison sits in a forlorn office at a desk “stacked high with folders beside a single metal filing cabinet.” He has a computer to review data collected by Exxon drill ships, but he has yet to do so. Dennison and the Ministry of Natural Resources “have a mere nine technically trained people responsible for regulating oil production, engineering and geological research,” the Times reported.

“It’s a challenge,” Dennison told the Times,

Government squabbles have delayed action on setting up a sovereign wealth fund to manage the oil riches, create a policy-making national Energy Department, and appoint an independent petroleum commission to regulate the industry.

Freedom House reports that “corruption remains a pressing concern” in Guyana. A lack of senior judges, political disagreements, staff shortages and sparse resources undermine the effectiveness of the judiciary.

Contributing to the violence in the country is a poorly trained and supervised police force. “Police violence, abuse of detainees, and harsh, overcrowded prison conditions persist in Guyana,” Freedom House reports.

ExxonMobil, meanwhile, “is quickly establishing itself as a dominant economic force in Guyana,” says Foreign Policy. The company says it spent around $60 million in Guyana in the past 15 months, working with local companies.

Can Guyana save itself from the resource curse? It will be an uphill battle. Guyana can learn from countries that beat the resource curse, such as Canada, Chile, Norway and Botswana.

Expanded assistance efforts by the U.S., the United Nations, the World Bank and other international organizations could make a difference. The wealthy Guyanese expatriate community should rally—opportunity knocks in the homeland. The key tasks are to quickly stand up agencies that can harness the incoming oil wealth and create a robust culture of transparency and accountability.

Most critically, Guyana needs to strengthen the rule of law. Guyanese officials are debating what to do with the first fruits of the new sovereign wealth. Guyana’s top priority should be empowering a professional police force and expanded legal system. That means more cops, more supervision of the cops, rigorous police standards, more courts and more judges. A civil society’s first duty is to protect its citizens and ensure all people are equal before the law. Everything else is chaos and corruption.

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Micah Morrison is chief investigative reporter for Judicial Watch. Follow him on Twitter @micah_morrison. Tips: [email protected]

Investigative Bulletin is published by Judicial Watch. Reprints and media inquiries: [email protected]