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December 4, 2019

Guyana: From Gold, Sugar to Oil

Guyana is a small South American country that is considered one of the poorest on the continent. Guyana is the only English- speaking country in South America and due to its location, has strong ties to the Caribbean. In fact, the Caribbean Community’s Secretariat is hosted in Guyana’s capital, Georgetown.
You might think a small country that is relatively unknown wouldn’t have much to do with the world’s trade market, and you could be right. However, Guyana is about to make a name for itself. The Guyanese have weathered economic storms in the past and will welcome the big changes that lie ahead.
A Difficult History
Guyana has relied on exporting sugar for much of its history, but Guyana's sugar industry has had ups and downs. In the 1970s and 1980s, the industry faced a number of challenges. There were years of too much rain and not enough rain which led to small harvests. The country nationalized historic sugar companies, and a loss of talent in the country's industry led to sugar tonnage falling by 50 percent over a decade during that era.
The country has made adjustments over the years since these difficult times, but the world sweetener market has continued to be difficult. US corn subsidies and the development of High Fructose Corn Syrup (HFCS) in the 1970s lowered demand for real sugar somewhat, and Guyana found it difficult to compete on cost.
In more recent times, Guyana has made adjustments that have been painful, but which have helped the industry regain profitability, like closing production plants and reducing sugarcane acreage. Better access to capital from financial institutions like Guyana Bank for Trade and Industry Limited has also helped.
The Gold Shield
Gold is a critical component of the Guyanese economy. The gold region in Guyana is believed to be largely untapped and the potential for growth is extremely high. After Guyana gained independence from Great Britain it maintained a strong hold on its resources, including gold. The country was closed to outside investment or mineral exploration until 2004. During 2004, the Land Tenure Act was passed by the government allowing outside interests to pursue gold and mineral mining in Guyana. What was once a well-kept secret, is now a big part of many international operations and this growth is supported by the Guyanese government as long as their strict rules and regulations are met.

It is believed that the country sits on top of the Guyana Shield, which is described as an area of almost 1 million square kilometres of land rich in gold deposits. It is estimated that this shield shares a common border with the Leo Mann Shield of West Africa and that both were formed prior to the Atlantic Ocean during the Proterozoic Age. The layers of metamorphic rock that make up this shield has a vast number of gold deposits that has just begun to be explored. Gold will continue to be a huge part of Guyana’s trade market given the fact that the Guyana Shield is thought to hold around 110 million ounces of gold.   

 Oil Opportunity

In 2015, Exxon Mobil struck oil off the coast of Guyana. This discovery has rocked the Guyanese government as they try to establish themselves as a new petrostate. The original Guyanese petroleum laws were decades old and didn’t provide the structure they needed to effectively manage oil production of this magnitude. Almost five years later, the country is still working to establish all the necessary laws and regulatory bodies required to handle the continuing exploration and production.

In the meantime, Exxon continues to drill and produce around 120,000 barrels a day off the shore of what was once a poor South American country. While it will take time for the small country to gain wealth from the oil production, but it will happen. It is estimated the country of Guyana will earn around 5 billion annually from the oil production by 2025. Guyana’s oil reserves will make it one of OPEC’s top 15 producers.

A Whole New World

Guyana’s Cinderella story stands to change the entire country’s way of life. This quiet, simple, Caribbean-like country will go from trading sugar cane and gold to barrels and barrels of oil all across the globe. The government has a lot of decisions to make and will have to decide the best way to spend the estimated 300-million-dollars in revenue from 2020 alone.

If managed well, this money could reshape the entire country and create a strong thriving economy. Many of the Guyanese people are excited about the growth, while others worry about instability and the unknown. In the next decade, Guyana could be one of the richest countries in the world. On the other hand, if mishandled, this abundant natural resource could turn into a curse. All eyes are on Guyana.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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