By Arthur Deakin and Dr Remi Piet
For five long months, the people of Guyana waited anxiously to see who their next president would be. On Sunday, August 2, opposition candidate Mohamed Irfaan Ali was sworn in as Guyana’s newly elected president. The PPP/C, a majority Afro-Guyanese coalition, is resuming office after five years on the sidelines. Since then, Guyana has discovered eight billion barrels of recoverable oil. At an estimated peak of 1.2 million barrels a day, Guyana is on track to become the third-largest oil producer in Latin America, behind only Brazil and Mexico.
President Ali is 40 years old and was a former housing and water minister under former two-term president Bharrat Jagdeo. As a minister, he was charged with fraud and conspiracy by Guyana’s Special Organized Crime Unit. He denies all allegations and promises to establish the right governance structure before touching any oil revenues. He replaces David Granger, the leader of the largely backed Indo-Guyanese party that took office in 2015.
What has not been discussed much in international media, and should be brought to attention, is the expected involvement of Jagdeo, who has been appointed by Ali as his vice-president. Jagdeo is the General Secretariat of the PPP/C and many expect him to be making important decisions behind-the-scenes. To shore up investor confidence, it is vital for president Ali to independently implement his own agenda. In a similar situation in Argentina, president Alberto Fernandéz has done a good job separating himself from vice president Cristina Kirchner.
Transparency is going to be a make or break factor in the success of this upcoming administration. President Ali has called for more robust systems in place to manage oil revenues. But his party, the PPP, has said that it will dissolve the Natural Resource Fund. The fund, which was approved by the National Assembly in 2019 to administer oil revenues, sits in the New York Federal Reserve. It contains provisions for public oversight, ceilings on investments and strict guidelines on withdrawals. Tampering with the fund would be ill-advised, as it is one of the promising regulatory beacons of the oil sector.
Ethnic inclusion, or the lack thereof, is another fundamental factor that will influence Guyana’s rate of development. It is common for new administrations across the globe to ‘clean house’ when they assume office. This is especially true in Guyana, where a highly divided population is split not only through political lines but via ethnic ones as well. In Guyana, the separation is largely between Afro-Guyanese and Indo-Guyanese, with a small Indigenous minority. It is also common for departing administrations to award long-term contracts and appoint confidants to important positions. That is why the new administration should conduct an independent review of any ‘unsupervised’ last-minute decisions made by Granger in his winding days.
That said, Guyana and its citizens would also benefit from an administration that picks its people based on merit, not just their political affiliation and ethnicity. This allows for a smoother political transition and ensures that Guyana can build on the groundwork laid by the previous administration. President Ali can’t afford to simply discard those that are of different ethnic backgrounds. If past experiences are any indication, the most successful presidents are the ones that are able to establish good relations with both sides of the aisle.
President Ali and his team must also turn their attention to reigniting the economy. Due to the political uncertainty from the elections and the lockdowns from COVID-19, the Guyanese economy reached a standstill. International investments were delayed, people lost their jobs and banks stopped providing credit.
Because money is more valuable today than tomorrow, the upcoming administration should be conscious of any pending projects that have been pushed back due to the political impasse.
Development projects that have been vetted and will bring in much-needed capital to Guyana, such as the Payara Field in the Stabroek block, should be approved. ExxonMobil hopes to make its Final Investment Decision (FID) on the Payara project by September. If the government is unable to approve the development plan soon, oil revenues will be delayed. In fact, consultancy Wood Mackenzie projects that a 1-year delay in the Stabroek development could decrease the government’s share value by roughly $1.5 billion. If there is a three-year delay, total losses to the state would increase to $4.5 billion. That is equivalent to 98 percent of Guyana’s GDP in 2019.
However, the oil and gas sector cannot be Guyana’s sole focus. The country must continue to diversify its economy to avoid an oil-dependency. President Ali’s recently appointed minister of agriculture, Zulfikar Mustapha, says he will reopen closed-down sugar estates and complete a comprehensive evaluation of the sector. That’s a good start, but sugar estates should not be opened at the expense of operational efficiency in the sector. The minister of natural resources, Vickram Barram, was also briefed that the Guyana Forestry Commission is unable to pay salaries for July and owes large sums to utility companies. A restructuring is in order, but it should be done with the help of trained professionals with industry expertise.
As president Ali takes the helm of a country expected to see unprecedented riches, he must be able to act on what he is preaching. Guyana cannot afford any more delays due to political or regulatory indecision. It needs a government that is clear about its actions and that lays the proper framework to transparently administer the oil revenues. It needs a government that is propelled to foster investments, not stuck behind the bureaucracy of inadequate government processes. It also needs a government that develops its institutions and infrastructure, from schools to hospitals, to sugar estates to mines. Without all of these elements, Guyana will certainly fall short from achieving its full potential.
Dr Remi Piet is a Senior Director at Americas Market Intelligence (AMI)/ Africa Market Intelligence (AfMI) and leader of the firm’s Natural Resources and Infrastructure Practice.
Arthur Deakin is an Analyst at AMI and AfMI where he conducts political, economic and other risk analysis activities for the mining, energy and infrastructure sectors in both Latin America and Africa.