ZACHARY HAGEN-SMITH – OCTOBER 12TH, 2021 EDITOR: KAREENA HARGUNANI
Guyana is the world’s fastest growing economy, but that’s not necessarily a good thing.
On May 11, 2019, the strawberry-red walls of Movietowne, a cathedral-like shopping center in Guyana’s capital city, hummed with anticipation. A new venue was opening its doors, not just to Movietowne, but to the entire South American nation. Guyana was getting its first Hard Rock Café.
Tom Perez, Vice-President of the Americas for Hard Rock, told reporters that “Guyana’s economic outlook made the country an attractive choice.” He’s part of a growing corporate crowd. Across Guyana, forlorn sugar fields are being bulldozed and replaced by luxury compounds and corporate headquarters. Guyana is taking the advice of J. Paul Getty: “rise early, work hard, strike oil.”
In 2015, a group of energy companies led by ExxonMobil discovered crude oil reserves off Guyana’s coast. The reserves are some of the largest in the world, containing 8 billion barrels of oil. Guyana, characterized by its crumbling roads and incessant power outages (it’s the third poorest country in South America), finally has an escape hatch from poverty.
At an election rally in 2020, then-President David Granger expressed his optimism: “The profits from our petroleum industry will provide you—and you—and you—with a good life,” Granger proclaimed, pointing at individuals in the crowd.
Granger celebrated ExxonMobil’s first commercial crude by declaring December 20, 2019 “National Petroleum Day.” The oil revenue will be “transformative,” he promised, and it was: in 2020, Guyana had the fastest growing GDP in the world.
Headlines boomed: “World Economy May Be Crashing But Guyana Still Seen Growing”; “Exxon’s Big Bet on Guyana Starting to Pay Off.” Articles from Bloomberg and The New York Times practically shouted the small country’s name. Guyana’s skyrocketing GDP launched it into the sights of global interest: for better or worse, the country was on a new trajectory. All because of a single statistic.
The concept of GDP was first developed by a mild-mannered analyst. Simon Kuznets was born in Czarist Russia, and studied national income accounting at the Kharkiv Institute of Commerce in modern Ukraine. His education abruptly ended when Bolshevik authorities shut down the university in the aftermath of the Russian Revolution. They were impressed by Kuznets though, and appointed him head of Russia’s Bureau of Labor Statistics. At the time, empirical social science was just emerging, and the demand for financial statistics was through the roof: countries needed good economic data.
However, Kuznets wouldn’t do much data aggregation for the Soviets. Keenly aware of rising anti-Semitism, Kuznets, who was Jewish, emigrated with his family to the US and, in 1929, accepted a position at the National Bureau of Economic Research.
At the time, America’s economy was collapsing in on itself. The mechanisms behind this “great depression” hid in enigmatic obscurity: there simply wasn’t enough information to understand the economy.
Wisconsin Senator Robert M. La Follette came to the same conclusion as the Soviets: the US needed better economic data. On La Follette’s insistence, the Department of Commerce agreed to take on the challenge, with help from the National Bureau of Economic Research. The arduous task would require someone with a proven history in data analysis and income accounting. Kuznets was the obvious choice.
In a report titled National Income, 1929-32, Kuznets proposed that one single number could capture an economy’s entire production. From consumers. From companies. From government. And the calculation was simple. Consumer spending plus total investment plus government spending plus exports minus imports: Gross Domestic Product.
The Department of Commerce adopted Kuznets’ calculation and, in a matter of years, the statistic became shorthand across the US, plastered on the front of Time Magazine and referenced in FDR’s speeches. At the 1944 Bretton Woods Conference, a summit on post-war development, US policy leaders declared GDP a beacon of hope for the financially devastated world. The conference enshrined the statistic as an essential measure for the World Bank, IMF, and UN. A new world order would be built on the three-letter acronym.
As Allied powers convened at Bretton Woods, Guyana squirmed under the British Empire’s thumb. Guyana was (and remains) a uniquely diverse place. Around a third of the population is black—Afro-Guyanese—descendants of African slaves who worked on colonial sugar plantations. The largest ethnicity is Indo-Guyanese: descendants of indentured servants from India who worked on plantations after England abolished of slavery. Tensions between the country’s Afro- and Indo-Guyanese factions could run deep, but during the nineteen-forties independence movements bridged racial division.
In 1953, England relented to anti-colonial pressure and granted universal suffrage for Guyana’s parliamentary elections. Finally, the citizens of Guyana would have a say in their country’s future, and its future wouldn’t be tied to England.
The People’s Progressive Party (PPP) spearheaded Guyana’s fight for self-determination. In the 1953 elections, they made a clean sweep and took three quarters of parliamentary seats. Led by an inter-racial duo, Chedi Jagan and Forbes Burnham, the PPP envisioned a multicultural, post-colonial future—one based in Marxism. The anti-Communist British disagreed, shutting down Guyana’s parliament and suspending its constitution.
Unshaken, the PPP won the next several elections but under different terms. Party leaders Jagan and Burnham had a falling out. Jagan was a full-fledged communist, but Burnham, a socialist, had more flexible values, breaking off and forming his own party, the People’s National Congress (PNC). The PPP and PNC, despite advocating similar policies, divided voters along the ethnic lines. Indo-Guyanese voters cast their ballots for Jagan’s PPP. Afro-Guyanese voters, for Burnham’s PNC. Guyana’s dream of multicultural unity devolved into polarized ethnic partisanship.
In 1964, the PPP’s electoral luck ran short when US-backed forces sabotaged Jagan and replaced him with his old colleague, Burnham.
As riots broke out in Harlem and Philadelphia that year, so too did racial tensions boil over in Guyana. Jagan’s removal created deep rifts in the country’s racialized politics. In Linden, Guyana’s second largest city, mobs terrorized Indo-Guyanese neighborhoods. Five people died and two-hundred properties were destroyed. On a nearby river, an Afro-Guyanese launch boat exploded, killing 43 of the 63 people on board. The Wismar-Linden riots and Sun Chapman boat bombing epitomized the worst of 1964’s violence, which in total displaced over 15,000 people.
When the dust settled, Burnham reigned supreme. He secured independence from England in 1966 and ruled Guyana as a strongman dictator until his death twenty years later.
Free and fair elections didn’t return to Guyana until 1992, under pressure from Jimmy Carter and other international observers. When they came back, so did ethnic partisanship.
The traditionally Indo-Guyanese PPP won the ’92 election and ruled for most of Guyana’s democratic era, but in 2015, for the first time in twenty-three years, the PPP lost.
Voters chose David Granger of the PNC as their next president. Perpetually bespectacled and generously gray-haired, before the election Granger was a newspaper editor and before that, an Army brigadier. What he lacked in political experience though he made up for in vision. As president of a coalition government, he couldn’t lead through ethnic nationalism. Guyanese—of all backgrounds—would have to work together towards a shared, multicultural future.
The new leadership brought a change of pace, accompanied by an even bigger change. The same year Granger was elected, Exxon found oil.
In the 1955 French thriller Wages of Fear, there’s an infamous scene where the protagonist, an outlaw named Mario, is in peril. Broke and stranded in a South American country (like Guyana), Mario is paid to transport a truckload of unstable chemicals for an American oil company (like ExxonMobil). The famous, pin-drop-quiet scene has Mario driving the explosive liquid on an uneven dirt road that doesn’t seem to end. At any second, at any pothole, the cargo could combust and, with it, Mario. Everything dangles by a thread, begging the question: “how much is a taste of oil wealth really worth?” In the movie, two thousand dollars. For Guyana, perhaps less.
Guyana’s 2016 oil contract had seemingly decent provisions. Guyana and ENH, the Exxon led consortium, would split oil revenue fifty-fifty. National profits would go into a sovereign wealth fund that’d invest the money in development goals: by 2024, that’d amount to $2B funding fields like infrastructure and healthcare—nearly double Guyana’s total spending in its pre-oil years. But the revenue split came with other provisions.
Guyana would give Exxon over $1.7B worth of tax breaks and take responsibility for all of the company’s insurance premiums and loan interest. They’d also pay Exxon’s income tax (which Exxon overstated by nearly $100M) as a cut of Guyana’s own national oil revenue. Future changes to Guyana’s laws would be barred from impacting oil operations—the contract would be permanent. In the Guyanese newspaper Kaieteur News’s analysis of 130 other national oil contracts, Guyana’s came in last. No country had ever negotiated such a self-destructive contract.
Hallmarks of most oil agreements—production bonuses, government monitoring of oil measurements, sliding scales of royalty—were completely absent from Guyana’s. And the sovereign wealth fund that was supposed to invest all the country’s oil revenue in development wasn’t even operational. Since no commencement order ever enacted the fund, there was no actual requirement to direct profits into it.
According to a study by the Institute for Energy Economics and Financial Analysis, over the next five years, Guyana’s oil revenue will be “insufficient to cover the country’s deficits, support new spending. and build its wealth.” In fact, by 2025, Guyana will owe the oil companies money—twenty billion dollars’ worth.
Despite this, Guyana is repositioning its economy around oil. In 2020, a third of the government’s total revenue came from the energy sector, and politicians want that proportion to climb. As leaders redirect Guyana’s economic trajectory, the country’s largest employment sectors, farming and mining, are left behind. Sugar, Guyana’s economic backbone since the 17th century, has been especially hit. In 2018, Granger shut down most of Guyana’s unprofitable, state-owned sugar plants, and seven-thousand sugar workers lost their jobs. As its coastal regions discover new oil wealth, Guyana’s agricultural interior lies in a depression.
In 2005, those coastal communities were ten feet underwater. Guyana’s winter rains had devolved into country-wide flooding, displacing tens of thousands, with damages totalling half of Guyana’s GDP. According to research by the Global Facility For Disaster Reduction and Recovery, forty percent of Guyana’s population was affected by the three week ordeal. The 2005 floods were the worst environmental disaster in Guyana’s history, but climate change might alter that.
As the primary exporter for one of the world’s largest oil companies, Guyana will be directly responsible for intensifying the climate crisis, and, in doing so, exacerbating its own climate vulnerability. “It is more or less a delta region,” said Sarah Vaughn, UC Berkeley Associate Professor of Anthropology, “Imagine other delta regions around the world, such as parts of South Asia as well as Louisiana.” In 2005, Louisiana would have its own devastating storm, and three years later, Cyclone Nargis would strike South Asia. Low-lying delta regions like these are among the most vulnerable to rising sea levels and extreme weather.
Guyana is especially at risk. Ninety percent of its population lives by the coast, a region already shrinking from erosion. By 2050, storm surges are expected to inundate at least 80,000 hectares of coastal zone. Predictions also hold that Guyana’s sea levels will rise at least two feet by 2100. Farmers are already losing crops to encroaching tides.
Guyana has a long history of constructing seawalls and other ocean barriers, but rising waters pose a challenge. “Since the 2005 disaster there, engineers have done what is called adaptations of those infrastructures,” Vaughn told me. “[Climate adaptation] is an ongoing process. They understand both realities. Climate change is something accelerating the vulnerability of their coast from flooding, and at the same time they’re figuring out how to do oil exploration.”
While Guyanese politicians assert that climate change is “an existential threat,” Guyana’s commitment to a green future is hard to square with current developments. For decades, the country’s environmental laws didn’t even mention petroleum. Granger’s government needed someone to revise oil regulations, so they hired Hunton Andrews Kurth, ExxonMobil’s own law firm.
It’s a conflict of interest that puts the most basic regulations at stake. Risks of a blowout, which would cause a massive oil spill, are higher than “reasonably practicable,” a petroleum engineer told the Guardian, “[There are] loose ends, assumptions, and premises that are not substantiated…and the more of these threads that you tug at, the more concerned you become that what’s being done here is superficial.” Exxon still hasn’t completed the necessary risk assessments and probably never will. Regulated by its own law firm, Exxon decides what rules are worth following.
Oil is a glamorous, money-making industry, but it’s hard to see what Guyana will actually gain from it. The industry provides few direct jobs: some Guyanese expertise will be employed, but most petroleum specialists are expected to come from abroad.
Guyana is instead gambling on downstream growth, that new jobs will emerge catering to the oil industry and the new economy. New businesses like the Hard Rock Café and Movietowne are opening up simply because of Guyana’s financial outlook. Before the pandemic, these jobs spurred the country’s first rise in employment in over a decade. There are undeniable benefits to oil, just not sustainable ones.
Within the decade, growth is expected to diminish. “Exxon is only going to be here for 20 to 25 years,” Vincent Adams, Guyana’s former environment chief, told the Guardian, “When they make all their billions, and they’re ready to pack up and they’re gone, we’ve got to deal with the mess.” Who will the burgeoning service industry serve once Exxon is gone? With no legitimate profit-sharing contract, Guyana is entirely dependent on growth in these sectors. It’s no coincidence that ExxonMobil has repeatedly declined to make public the statistics on its long-term economic impact.
Actual quantitative evidence that oil will benefit Guyana is limited. So, why does Guyana insist on this path? Three letters: G.D.P.
“Distinctions must be kept in mind between quantity and quality of growth,” Simon Kuznets reflected some thirty years after inventing his measurement, “between its costs and return, and between the short and long term. Goals for more growth should specify: more growth of what? And for what?”
GDP is useful for keeping track of consumption and analyzing growth patterns, but its scope is flawed.
GDP undercounts service and digital sectors and gives undue priority to manufacturing and material production. So, when Guyana drills for oil, it receives a big GDP boost, but if it were to, say, develop a tech industry, its GDP wouldn’t budge much.
GDP also excludes the heavy costs of production. Robert Kennedy voiced his frustration with the measurement’s short-sightedness in 1968, “It counts napalm and counts nuclear warheads and armored cars…Yet [it] does not allow for the health of our children [or] the quality of their education … It measures neither our wit nor our courage, neither our wisdom nor our learning … it measures everything, in short, except that which makes life worthwhile.” While GDP tabulates Guyana’s oil revenue and spending, it doesn’t account for broken politics, bad contracts, or ecological degradation. In fact, environmental disasters can be beneficial. Alaska’s 1989 Exxon Valdez Spill boosted US GDP because the clean up effort required so much spending.
GDP isn’t pointless though. In 1962, Arthur Melvin Okun discovered an interesting trend. For every 3 points GDP rises, employment rises by 1%. “Okun’s Law” holds up to even the most dubious skeptics. GDP growth is beneficial, but to what end?
The problem isn’t GDP’s construction, but its prevalence. Per Kuznets’ intention, GDP is a decent measure of production, but it’s no barometer for a country’s well-being, economic or otherwise.
As Kuznets presented his new statistic to Congress, he presciently warned that it “should be handled delicately and not overgeneralized, the welfare of a nation can scarcely be inferred from a measurement of national income.” GDP isn’t Machiavellianly designed. It’s just skewed out of proportion, especially by those in power.
In December 2018, David Granger lost a no-confidence vote in Guyana’s legislature, triggering an early presidential election. Like previous elections this one divided Guyanese along racial lines. Only now, the stakes were raised because whichever party won would also decide the fate of Guyana’s oil wealth. Billions of dollars were on the line.
Times columnist Anatoly Kurmanaev described the situation, “Both parties fear that if they [lose], the opposing party would use the oil wealth to shut them out of government for years to come—and deprive their constituents of their fair share of revenue.”
Guyanese voters’ concern with racial exclusion was justified. Granger’s traditionally Afro-Guyanese PNC advocated investing the money into healthcare and education, sectors centered in urban areas where Afro-Guyanese voters historically lived. The PPP, which nominated former housing minister Irfaan Ali, promised to invest oil revenue in reviving the country’s sugar industry, centered in rural areas where many Indo-Guyanese voters live. Guyana’s racial division was always a zero-sum game: the massive inflow of oil money only amplified its destructive nature.
On March 2, 2020, Guyanese voters went to the polls and handed a slim victory to Irfaan Ali and the PPP. Suspiciously slim. David Granger refused to concede, insisting that a quarter of votes should be tossed because of fraud risks. After a lengthy recount, in June 2020, the Organization of American States confirmed that Irfaan Ali and the PPP won the election legitimately, but Granger still refused to concede.
International pressure mounted. After the recount, the Organization of American States called on Guyana to “allow the legitimately elected government to take its place.” The United States, where ExxonMobil is based, went further. At a press conference in July, then-Secretary of State Mike Pompeo told reporters that Guyana “should get on with it.” His department started issuing visa restrictions on PNC leaders. By the end of the summer, Granger retracted his claims and Ali was sworn in as president.
Irfaan Ali recognizes that Guyana needs to rethink oil. Ali’s government is renegotiating the ENH contract into a new profit-sharing agreement that’ll demand higher revenue and crack down on pollution from drilling sites. According to his Vice President, the contract will be ready “within six months or so.” In the meantime, it’s unclear where oil revenue will be going, as the sovereign wealth fund is still not enacted.
Even if Ali’s promises are all they’re sold as, his administration will oversee Guyana’s transition from a net carbon sink to a leading carbon exporter. Most of these carbon exports will be handled by ExxonMobil. Guyana is set to become the company’s single biggest oil and gas supplier, providing a quarter of the its crude. As ExxonMobil rapidly adjusts the volume of its services to focus on the small South American nation, it seems like Exxon needs Guyana more than Guyana needs Exxon. With so much at stake—contracts, politics, the environment—and so little to gain, should Guyana just stop drilling?
“Why do [the world’s poor] have to make the mistakes we have made?” environmentalist Sunita Narain said in an interview, “I hear this from American NGOs all the time. I’m like, wow. I mean, if it was that easy, I would really have liked the US to move to solar.” It’s hypocritical to ask resource-rich developing countries not to extract their wealth. If Norway, Saudi Arabia, and the US were able to grow rich off oil, why shouldn’t they? At the same time, Global South nations are on the frontlines of climate changes, experiencing far harsher environmental consequences than more developed countries. Impoverished, oil-rich countries have an unpleasant choice to make: not securing their resources could deprive them of needed wealth but doing so could spell environmental disaster.
Guyana’s institutions are strained under the pressure of negotiating oil contracts, managing revenue growth, and creating a sovereign wealth fund. Given the incompetence that has characterized Guyana’s handling of the oil industry so far, it seems reasonable that the allocation of resource wealth won’t be as beneficial as once hoped. Countries like Venezuela and the Democratic Republic of the Congo demonstrate that nations with unimaginable wealth can still be home to some of the world’s poorest people.
In 2021, Guyana won’t have the world’s fastest growing GDP. That spot is expected to go to Libya, another rapidly expanding oil nation. Instead, Guyana will be fourth. But does this even matter? Renowned economists from Kuznets to Jeffrey Sachs to Joseph Stiglitz attest to GDP’s fallibility. Still, business leaders frame investor confidence in Guyana through these terms, oblivious to the instability they’re contributing to. As Guyanese scholars Alissa Trotz and Arif Bulkan write for Stabroek News, “the fundamental issue is how vulnerable [Guyana’s] ongoing polarisation makes us to this latest chapter of multinational resource extraction… to those who once again stand to profit from our intractable division.” Time will only tell.
Featured Image Source: Slow Gratification
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