Previous Quarterly Editions
Expropriation Risk: 51 51 51 53 Political Violence Risk: 38 38 39 39 Terrorism Risk: 15 15 15 15 Exchange Transfer and Trade Sanction Risk: 35 35 35 25 Sovereign Default Risk: 47 47 57 47
TREND ▼
New Guyanese President Irfaan Ali took office in August 2020, bringing to a close a year-long period of heightened political instability and social unrest. Ali and his People’s Progressive Party (PPP) have moved quickly to address Guyana’s main economic and social challenges, including COVID-19 and managing the country’s sudden oil wealth.
The growing oil sector is set to bring a surge in revenues for Guyana over coming years. This will benefit the country in terms of revenues available for investment and social spending but will also pose challenges in terms of managing this new oil wealth, particularly regarding transparency and vulnerability to corruption.
In particular, the government will need to train and professionalise public officials associated with the oil sector, given a general lack of experience and training. This can delay approval processes and contract negotiation, while also leaving the government open to the charge that it has mis-negotiated key production-sharing agreements. When in opposition, Ali criticised the contract agreement signed with ExxonMobil as setting the level of state royalties too low. Although no renegotiations of existing agreements are likely, given the negative signal this would send to investors, the government may seek to increase the state’s take in future contract negotiations.
The government will also need to manage public expectations regarding the social benefits of rising oil revenues. Frequent public rhetoric highlighting Guyana’s oil wealth and the number of recent oil discoveries have created high expectations around rising social spending and state investment. While the government is likely to press ahead with some initiatives along these lines, it will need to communicate spending plans carefully, in case public disappointment with lower-than-expected state spending leads to protests. This is particularly key in regions that do not support the PPP and are thus more likely to accuse the government of electorally motivated spending decisions.
Most immediately, the Ali administration will need to maintain its focus on containing the spread of COVID-19 and rolling out the vaccine programme. Guyana has been relatively successful in containing the coronavirus, thanks in part to its relatively small population and swift moves to restrict international travel. The challenge now is timing Guyana’s economic and international reopening to ensure that there is no surge in cases before the vaccine programme can roll out. Guyana began its vaccination programme in February 2021 and expects this to run for several months.
A medium-term risk is the longstanding territorial dispute with Venezuela, which claims that the 160,000km Essequibo region and its maritime area belong to it. This dispute has revived in recent years, largely because of Guyana’s offshore oil discoveries, some of which were made in areas claimed by Venezuela. The dispute is set to have its first hearing by the International Court of Justice (ICJ) in 2021, although Venezuela has already stated that it does not recognise the ICJ’s jurisdiction. The ICJ process poses some risk for Guyana, in terms both of losing territory and because the maritime border uncertainty could potentially deter some offshore oil exploration and investment. Although the dispute does not appear to have deterred investment to date, any negative statements by the ICJ could dampen investor sentiment.
In addition, there is a low-to-medium risk that the dispute could escalate into border clashes, given some previous incidents in which Guyana claimed Venezuela had entered Guyanese territory illegally. Guyana will hope that international support from the Caribbean Community and the UK-led Commonwealth, as well as tacit US support, will serve as a deterrent to any military action by Venezuela. However, Venezuela could view a border clash with Guyana as a risk worth taking to bolster domestic sentiment in the face of a sharply deteriorating economy and high political tensions.
TREND ▲
There is minimal risk of expropriation in Guyana. The government is focusing on maintaining an attractive investment environment and improving the regulatory framework to bolster foreign investment, particularly into the oil sector. Legislation is in place to protect foreign investments.
TREND ►
Guyanese society is divided along ethnic lines between the Indo-Guyanese and the Afro-Guyanese communities, and these tensions can occasionally spill over into violence. This is closely linked to the political situation, split between the predominantly Indo-Guyanese PPP and the mainly Afro-Guyanese A Partnership for National Unity/Alliance for Change (APNU/AFC). These ethnic tensions exacerbated the political stand-off of 2020, as APNU/AFC President David Granger delayed recognition of Ali’s electoral victory in an apparent attempt to cling on to power.
With Ali now in power, political and social tensions have eased, reducing the risk of violence. However, the murder of two Afro-Guyanese teenagers in September 2020 served as a reminder of how quickly ethnic tensions can spark violence; an Indo-Guyanese teenager was killed several days later in apparent retaliation. Violent protests subsequently took place across the West Coast Berbice region and the Guyana Defence Force was deployed to quell the violence.
Ali faces the difficult challenge of healing the country’s divisions; something that successive presidents have tried and failed to do. In the absence of reconciliation, there remains a significant risk that isolated incidents could spark broader protests and violence across the country by tapping into unresolved ethnic tensions.
There are no active terrorist groups in Guyana and the country has not been mentioned by international terrorist groups as a specific target. There is a long-term risk that the growing presence of international oil companies could prove a potential target for terrorist groups, but this seems unlikely at present.
A greater risk is the country’s financial system, which remains vulnerable to misuse for terrorist financing despite several moves to strengthen its anti-money laundering and counterterrorist financing (often abbreviated as ‘AML/CFT’) regime in recent years. The government launched a new National Risk Assessment process in 2020 and the results in 2021 will determine the path of future AML/CFT regulatory reform during Ali’s presidency.
There are no foreign exchange controls in place in Guyana and neither the government nor central the bank appears to be considering such controls. Instead, it is in Guyana’s interest to maintain an open foreign exchange and trade regime to support the growing oil and oil services sector, which is dominated by foreign companies.
Guyana maintains positive trade relations and is not the subject of any sanctions. The US imposition of visa sanctions on some politicians from the previous Granger administration in mid-2020 was designed to encourage a democratic transfer of power during a period of electoral uncertainty. With Ali now installed as President, normal relations have been restored and the prospect of trade sanctions is unlikely.
The dramatic increase in state revenues in 2020 due to the start of oil production has substantially reduced the risk of a sovereign debt default. Guyana’s economy grew by 26.2% annually in 2020 thanks to oil revenue, helping the country to mitigate COVID-19’s economic impact on non-oil revenues. State oil revenues totalled approximately USD300mn in 2020, underpinning fiscal stability and ensuring that the government has been able to meet its debt repayment commitments.
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