One Of The World’s Poorest Countries Just Hit The Jackpot
Guyana oil

It’s a pity that Guyana is coming of age in such a rough neighborhood, with Brazil to its south and an unrestrained bully named Venezuela to the north. According to Trading Economics it is one of the poorest nations in Latin America with an economy comprised of agriculture, mining, tourism, and foreign aid. GDP growth has been falling and in 2015 came in at 3%, which was down from 3.8% the year before. The reason this country has suddenly come under focus, is because recently Exxon Mobil discovered significant deposits of oil 120 miles off Guyana’s coast. The company called it a “world class discovery”, which appears to be between 800 million to 1.4 billion barrels of oil. A government minister Raphael Troutman said, “the future of Guyana has now been written and I think that this is going to send ripples throughout the world.” For a poor nation to have such a discovery is heartwarming, but there are also regional tensions and geopolitical undercurrents to consider that go much further beneath the surface than this oil discovery.

Venezuela has for a long time claimed dominion over much of Guyana and its territorial waters. In fact, in 2015, embattled President Nicolas Maduro issued a decree claiming Guyana and its territory waters as their own; and that was before the oil discovery. Of course it should be very interesting to see if Venezuela tries to enforce its claim.

On a tangentially different note, the Guyana government has recently announced plans to further diversify its economy and exports by creating private public partnerships. This in turn could help the small but lucrative high tech sector and infrastructure so that there would be less reliance on the mining industry, especially amidst a global slowdown in commodities.

Having said that, the new oil discovery could in turn cause the country to be solely reliant on oil exports, but if they do manage to expand the high tech and telecom sectors it would benefit them greatly. FDI has not been a major contributor to the economy, but that will change with the major hydrocarbon discovery. Some of the largest foreign companies doing business in Guyana are those such as China Railway First Group who is a major investor in a hydroelectric plant, and White Fox Technology who together with a Brazilian company is helping build a new bio ethanol plant.

So all in all the future looks bright for Guyana, the only English speaking country in South America, and a member of the Commonwealth – which is where this story takes yet another interesting turn. Venezuela could use the oil field discovery as an opportunity to use force, which they have said they are willing to do, and invade Guyana. In that case, Britain might send some of its armed forces to protect them and in doing so remove Maduro and his cronies. That would be a win-win for everyone. You never know.

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Peter Kohli, CEO of emerging market specialist DMS Funds.

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