Foreign Direct Investment as an Opening for Corruption in Guyana

by Morgan Cleary edited by Max Ferrandino and Guillermo Bichara Guzman GIS by

On the northeastern edge of South America, bordering Brazil, Suriname, and Venezuela, the small, relatively unknown country of Guyana is beginning to get involved in the international system again, as the small country has sparsely been able to do before. For much of its history, dependence on the export of raw materials sequestered Guyanese markets and left it one of the poorest countries in South America. 1 This left Guyana vulnerable to the desires of stronger regional powers, such as Venezuela, a country that repeatedly threatened Guyana over their clashing territorial claims to the Essequibo region. Furthermore, this complex ensured that Guyana remained susceptible to U.S. influence and ‘guidance.’ That is, until 2015, when rich oil deposits were found off the coast of Guyana, and the power dynamics of the country began to shift. 2

With this oil came the attention of world powers—the first of these being gas giant Exxon-Mobil. Since this major oil discovery off the coast of Guyana by the Texas-based corporation in 2015, Guyana has become the global leader in total offshore discoveries. 3 Exxon estimates that by 2035 production could be 1.7 million barrels of oil per day. 4 This projection puts Guyana fourth on the list of the largest global offshore oil producers, ahead of regional peers like Mexico and the United States, according to Rystad Energy, the Norwegian energy consultancy and analyzing firm. 5 With this discovery and the optimistic estimate of oil production increase comes attention and development investments in the form of foreign direct investment (FDI). As FDI increases exponentially, so does the country’s GDP and standard of living, a vital point of importance for the third poorest country in the Western Hemisphere. 6 Given this surge in oil wealth and foreign direct investment, Guyana is now estimated to be one of the fastest growing economies in the world. 7 While much of this money has been reinvested in the country, such a large shift in income flow does arouse suspicion for a country that has notoriously been corrupt in the past. 8 This issue came to center attention with the presidential election of 2020 when President Irfaan Ali won office under a promise of increased “transparency of revenues” and a multifaceted approach to reinvesting funds back into Guyana. 9 This transparency is vital and ensures the country is maintaining a functioning, inclusive democracy, yet is something that Guyana continues to grapple with.

This case study will analyze the role of foreign direct investment in Guyana, highlight the prospective benefits and disadvantages of this foreign direct investment, and analyze the global geopolitical implications that increased FDI could have in oil-rich countries. Most importantly, it will emphasize the need for transparency in countries such as Guyana whose economies have experienced sharp turns in performance. Investments have been made into a variety of different sectors in Guyana, but most of these investments have been in the infrastructure sector. 10 The financing of numerous infrastructure projects has affected indigenous rights and lands, Guyana’s unspoiled portion of the Amazon rainforest and its biodiversity, and resource security of Guyana’s people. Consequently, this affects Guyana’s democratic tradition and socioeconomic equality. The rationale and gains made from these investments must equally be addressed, however, as Guyana has made rational decisions for its long-term development. The previous relative insignificance of Guyana in the international system is changing, and by studying foreign direct investment in Guyana, one can better understand the vulnerabilities and potential lack of transparency that this may cause. From this, one can derive larger global implications for similar underdeveloped countries who might experience economic booms in the future.

Rationale behind Guyanese Eager Acceptance of Foreign Investment

Contemporary aversions to geopolitical pawnshop in Guyana can best be understood through former imperial intrusions, wrongdoings upon which Guyana has been built. The Dutch first colonized the modern day area of Guyana in the late sixteenth century. While the Spanish had spotted the coastal area early on in their voyages to the Americas, it was only the Dutch that sought to utilize the ‘Wild Coast’. 11 Like the other Caribbean nations of the same age, African slaves were imported in droves for the cultivation of sugarcane. From here onwards, the French and British traded ownership until 1831, when the British incorporated the area of Essequibo (modern day Guyana) into British Guiana. 12 Shortly thereafter, slavery was prohibited in British dominions and the nearly one hundred thousand Black slaves working on plantations were emancipated. For the next century, laborers from the Indian subcontinent were brought in to replace the liberated laborers of the colonial past and provide cheap labor. 13 Through the discovery of gold in 1879, British Guiana became a ethnic mixing pot of Mestizo, Mulatto, Indian, African, and individuals of various Indigenous descents.

It was not until 1970 that Guyana formally achieved independence from the British Empire, yet its entanglements with the world powers did not end here. Guyanese connections with the People’s Republic of China (PRC) were interpreted as communist sentiment by Western powers, which tangled the small country in the large, complex web of the Cold War. 14 Guyana’s then President Cheddi Jagan, considered the father of Guyana much in the same vein as Gandhi in India, sought policies of democratization and economic reform in attempts to liberalize the Guyanese economy but also fostered a relationship with the Chinese Communist Party (CCP). CIA and British intelligence, fearful of Bolshevik associations, meddled in Guyanese politics, overthrowing Jagan and positing authoritarian rule until 1992 when democracy successfully reemerged. 15 Real change only occurred in 1999 with the election of Bharrat Jagdeo, the long-time president and current vice president of Guyana. 16 Jagdeo’s administration entered immediately with a vast variety of problems from violent crime, mass protests, and ethnic tensions, as well as economic and environmental problems that had already long plagued Guyana. It was only by the end of the 2000s that the economy began to improve with investments in infrastructure, oil exploration, and the agricultural sector. 17 Throughout all of this, Guyana remained one of the poorest countries in the Western Hemisphere with limited prospects outside its commodity-export based market. This changed in 2015, when ExxonMobile discovered a rich oil field in the Stabroek region off the coast of Guyana. 18

Initial investments from Exxon were only around $106 million, yet even this small amount raised economic prospects for the former British colony. 19 Despite apprehension towards large sums of foreign direct investment, Vice President Bharrat Jagdeo, stressed the importance of jumping on the “economic window of opportunity,” while also highlighting a development plan that placed importance on the maintenance of environmental resources. 20 A spectrum between oil revenue, environmental maintenance, and longterm development was thus created. Since then Exxon and its partners have invested around $10 billion in Guyana, and the former British colony readily jumped on the foreign direct investment 21 . Furthermore, it opened the door for multinational companies to bid on future infrastructure projects, a process which Jagdeo affirmed as utmostly deliberated and unprejudiced 22

The China National Offshore Oil Corporation (CNOOC) bought a 25 percent share, investing $5.25 billion of its own capital in the Exxon-Mobil led consortium that controls the Stabroek oil fields. 23 While this was surprising, it is in line with Chinese-Guyanese relations dating back to Guyanese independence. Nonetheless, this was China’s first major investment in Guyanese oil, and this was followed by $1.5 billion in infrastructure investments, with the largest portion of $750 million going towards the Amaila Falls Hydropower dam constructed deep within the Amazon rainforest. 24 The project has long been proposed by various governments but has continually lacked the transparency that the public desires. 25 Other portions of the expenditure are planned to go towards highways that would link the country together as well as provide easier access to northern Brazil. 26 High expenditures in development following oil booms is typical, as the potential for further business expansion is high. Moreover, Guyana is comfortable borrowing at a two percent concessionary rate when oil revenues are estimated to be as high as $2 billion in 2022. 27 Infrastructure development speeds up further development exponentially, allowing more trade to occur in Guyana and creating a more businessfriendly environment.

Dangers Behind this Eager Acceptance of Foreign Investment

When former U.S. Secretary of State Mike Pompeo visited Guyana and Suriname in September of 2020 he warned that, “We’ve watched the Chinese Communist Party invest in countries, and it all seems great at the front end and then it all comes falling down when the political costs connected to that become clear.” 28 As Exxon, the CNOOC, and Chinese development banks transform the Guyanese economy, Pompeo’s words ring ever clearer. Furthermore, they apply to the ominous joint role that Exxon and the CNOOC hold over Guyana. While Guyana’s eager acceptance of Chinese investments goes against U.S. preferences, there is a bigger case for why transparency in government is important and why this is especially important in economies that experience a sudden upheaval like that of Guyana.

Guyana is a country that has been notoriously corrupt and opaque with its actions through the twenty-first century. Calls for the publication of the 2016 contract that Exxon made with Guyana were only answered in 2017, after months of persistence. 29 Kaieteurnews, a major Guyanese news publication, analyzed the contract in 2019 as compared to 130 other oil contracts and found that the contract was highly exploitative of Guyana. 30 These provisions included income tax exemptions, low employment obligations, deferral of unsuccessful well costs, no increase in royalties if production improved, as well as public contributions to the decommissioning of facilities once no longer in use. However, these contracts remained relatively small. Exxon misstepped by investing large portions of their wealth in green energies directly before the 2020 COVID-19 pandemic, which forced them to divert their strategy and reinvest in promising oil prospects. 31 Therefore, 2020 saw a nearly $10 billion increase in Exxon’s investment in Guyana, as well as a new government in Guyana that won by only a one percent margin. Questions about the new government’s authority to make such large decisions while barely winning the election loomed large, while demands for transparency beckoned ever stronger. Appeals were made to the peoples’ fears of corruption, yet corruption continued to remain entangled in Guyanese politics.

Since Irfaan Ali, leader of Guyana’s People’s Progressive Party (PPP), and Jagdeo have entered office, media censorship has decreased, petroleum contracts have become publicly available, the Integrity Commission has been reestablished—while a State Assets Recovery Agency has been erected for the first time, activating anti-money laundering laws—and whistleblower protection legislation has been passed. 32 Despite this enormous amount of progress, the public has expressed concern over a lack of new bribery prevention institutions, something that Vice President Jagdeo has been accused of recently in an exposition done by Vice News. 33 Specifically, several wealthy Chinese businessmen were recorded on camera boasting about their personal connections to Jagdeo, his immense power in the country, and their ability to easily circumvent Chinese and Guyanese financial legislation and access Jagdeo in pursuit of their own benefit.

Despite a longstanding relationship with China and U.S. fears over new, heavy spending in Latin America, the main issues faced by Guyana are the amount of money available to the government to spend in the public and private sectors, as well as the continued issues of corruption and lack of transparency. When the government is only elected by a one percent lead, full transparency is paramount to maintaining democracy. This sense of transparency should only be heightened by the great vulnerability of Guyana at this vital turning point in its development. With the discovery of oil came the quick development of the necessary infrastructure that the oil business requires, and while this is important, it is equally important that the diverse constituents of Guyana are heard. Over 90 percent of Guyana’s population lives in its coastal lowlands, lands that are endangered by imminent sea level rising. 34 Flooding will become more frequent, and the places most easily inhabited will become unlivable; this includes Guyana’s capital of Georgetown. 35 The population will concentrate, economic development will stall, and living conditions will deteriorate. Tensions will rise, order will be unsettled, and the most marginalized populations will feel this pain. Furthermore, Guyana’s large indigenous population often feels the pressures that development pushes onto society, especially in regard to environmental concerns associated with hydropower dams and general maintenance of their portion of the Amazon.

The late, great former Ghanaian politician

Kwame Nkrumah said, “As long as capitalism and imperialism go unchecked, there will always be exploitation and an ever-widening gap between the haves and have-nots, and all of the evils of imperialism and neocolonialism which breed and sustain war.” 36 Guyana finds itself in a crucial point of its long-term development, yet it is wellpositioned. Its protectorate relationship with the U.S. is still friendly and its relationship with China economically beneficial. However, with a new administration and the sharp turn that its economy has taken, the need for transparency in the government has never been higher. The people of Guyana deserve to know where money is going within their country, and it is only by transparency that capitalism can function without the intervention of bribery and corruption. If it is able to do so, Guyana will become a model for future economic-boom countries within Latin America and around the Caribbean.

References

1 US Department of State. (2022). 2022 Investment Climate Statements: Guyana, Executive Summary

2 Ibid.

3 Review of The Fight against Corruption. 2022. Guyana Chronicle. The Guyana Chronicle. June 6, 2022. https://guyanachronicle. com/2022/06/28/the-fight-against-corruption-2/.

4 Ibid.

5 Ibid.

6 US Department of State. (2022). 2022 Investment Climate Statements: Guyana.

7 Ibid.

8 Valérian, François. 2021. Review of In Depth: Guyana’s Oil Makes the Case for Publishing Public Contracts. Transparency. Transparency International. February 26, 2021. https://www. transparency.org/en/blog/in-depth-guyanas-oil-makes-the-casefor-publishing-public-contracts.

9 Lenton, Christopher. 2022. Review of Guyana Preparing for Oil Boom, Positioning Itself as Key Player in Regional Energy Security. Natural Gas Intelligence. NGI. July 26, 2022. https://www. naturalgasintel.com/guyana-preparing-for-oil-boom-positioning-itself-as-key-player-in-regional-energy-security/.

10 Ibid.

11 Guyana - Independence.” n.d. Encyclopedia Britannica.

12 Ibid.

13 Ibid.

14 Stabroek News. 2022. Review of Guyana-China friendship has stood the test of time. Stabroek News. Stabroek News. June 29, 2022.

15 “CIA Covert Operations: The 1964 Overthrow of Cheddi Jagan in British Guiana | National Security Archive.” 6 April, 2020. Nsarchive.gwu.edu.

16 Jagdeo, Bharrat. 2021. Review of VP Jagdeo’s Interview with Vice News Interview by Isobel Yeung. Vice News. https://www. youtube.com/watch?v=5iOKue0kP_g.

17 “Guyana - Independence.” n.d. Encyclopedia Britannica.

18 Smith, Matthew. “Guyana’s Oil Boom Has Been Amazing for Its Economy.” February 8, 2022 OilPrice.com. Accessed October 9, 2022. https://oilprice.com/Energy/Crude-Oil/Guyanas-OilBoom-Has-Been-Amazing-For-Its-Economy.html.

19 Marks, Neil. 2022. “Guyana Gets $106 Million from Exxon for Oil from Newest Offshore Platform.” Reuters, April 24, 2022, sec. Energy. https://www.reuters.com/business/energy/guyana-gets106-million-exxon-oil-newest-offshore-platform-2022-04-24/.

20 Jagdeo.

21 Fellows, University of Houston Energy. n.d. “As Guyana’s Oil Business Booms, Could a Potential New Deal with Exxon Loom?” Forbes. Accessed October 9, 2022. https://www.forbes.com/sites/ uhenergy/2022/06/22/as-guyanas-oil-business-booms-a-potential-new-deal-with-exxon-looms/?sh=1062b8887cdb.

22 Jagdeo.

23 Ellis, Evans. “Chinese Engagement in Guyana: An Update.” 2021. Diálogo Américas. December 7, 2021. https://dialogo-americas.com/articles/chinese-engagement-in-guyana-an-update/#. Y0NHWXbMI2x.

24 Stabroek News. 2021. Review of The China Loan. Stabroek News. Stabroek News. November 6, 2021. https://www. stabroeknews.com/2021/11/06/opinion/editorial/the-chinaloan/.

25 Ibid.

26 Ibid.

27 Ibid.

28 Stabroek News.

29 Valérian, François.

30 Ibid.

31 Dembicki, Geoff. 2020. Review of Exxon’s Massive Offshore Oil Project Is a “Carbon Bomb”: Environmental Group. Vice. Vice News. September 1, 2020. https://www.vice.com/en/article/ qj4a97/exxon-oil-guyana-climate-change.

32 Valérian, François.

33 Yeung, Isobel. 2021. Review of Undercover in Guyana: Exposing Chinese Business in South America Video. Vice News. https:// www.youtube.com/watch?v=sOOFSJqBYTY&t=122s.

34 US Department of State. (2022). 2022 Investment Climate Statements: Guyana.

35 Ibid.

36 Nkrumah, Kwame. (1967). Challenge of the Congo. Nelson, 1967.