By Scott B. MacDonald
News Americas, MIAMI, Fl, Fri. Dec. 23, 2022: Foreign direct investment, (FDI), in the Caribbean has seen some lean years and some bountiful years. 2020 was a brutal year due to the COVID-19 pandemic; 2021 was much better, with FDI bouncing back throughout most of the region.
Significantly, Guyana, long one of the poorest countries in the Americas and for many decades starved for foreign investment, for the first time showed the largest growth in inflows, moving ahead of the multi-year leader, the Dominican Republic. Guyana’s new-found leadership for FDI in the Caribbean is of critical importance for the Caribbean, particularly in the ongoing development of the Southern Caribbean energy matrix.
In its annual report on FDI for 2021, the Economic Commission for Latin America and the Caribbean, (ECLAC), noted that the Caribbean attracted $8.957 billion, a 19.4 increase over 2020. Of that total, Guyana pulled in $4.4 billion, equal to almost 50 percent. Considering that ten years ago Guyana was one of the poorest countries in the Caribbean and Latin America and attracted little FDI, this is a major milestone in the country’s history.
A large part of that capital is earmarked for the oil sector, much of it from ExxonMobil and other major energy companies who have invested tens of billions of dollars over the last decade in exploration and production.
Guyana’s attractiveness to foreign investors derives from the country’s oil boom, which started in 2015. The country also benefits from strong economic growth, a general openness to foreign investment, political stability, and efforts to upgrade the national infrastructure. As new oil revenues flood into Guyana, there are plenty of needs to be met.
There are four points to be taken from ECLAC’s FDI investment report pertaining to Guyana and the Caribbean. First and foremost, Guyana remains a “hot prospect” for FDI, driven by the oil sector and the ripple effect that sector is having on the rest of the economy. The dynamic nature of Guyana’s oil sector is having a knock-on effect into other parts of the economy. The development of the oil sector is pushing a badly needed overhaul of the country’s roads, bridges, harbors, airports, electricity grid, and boosting sea and flood defenses. According to the ECLAC report new non-hydrocarbon projects worth $180 million were announced in 2021, an increase of 397 percent over 2020.
Part of the ripple effect of oil revenues is the Guyanese government’s efforts to diversify the economy away from hydrocarbons by promoting other sectors, such as agriculture, business support services, healthcare, and technology. The Guyana Office for Investment (GOINVEST) is active in working with foreign companies. It is understood by the Guyanese government that the oil wealth is transitory as the global economy moves toward renewables. One of the government’s aspirations is to make Guyana a breadbasket for the rest of the Caribbean, which currently imports a large portion of its food.
The second point is that Guyana is demonstrating that it has the potential to pull along the rest of the Caribbean. This is evident in the largest major non-hydrocarbon related investment that came in the telecommunications sector due to an announcement by Jamaican company Digicel that it will lay a submarine cable to provide the country with high-technology internet and telephone services. The Digicel “Deep Blue” project has an estimated value of $137 million. Digicel has already signed a partnership agreement with Orange (a French company) to extend the system from Trinidad to French Guiana.
The third point is that large FDI inflows to Guyana are reinforcing the development of a Southern Caribbean energy matrix, which currently is defined by Guyana, Suriname and Trinidad and Tobago.
As Trinidadian energy expert Anthony Bryan has repeatedly asserted, Guyana and Suriname represent new provinces for global oil, Trinidad is a mature oil and mainly natural gas province (with considerable expertise to be tapped) and Colombia, Venezuela, Grenada, and French Guiana could be added. According to the ECLAC report the Digicel project “…is associated with oil and gas exploration in the area, as the intention is to connect oil platforms off the coast of Guyana with other territories and countries in the region, such as French Guiana, Suriname and Trinidad and Tobago.” Consequently, capital flows help bind the matrix together, a development that could benefit the rest of the Caribbean.
The fourth point is that FDI investment in Guyana is led by the United States, which has both geopolitical and economic implications. Indeed, in the broader Caribbean region, U.S. and European investment was dominant in 2021. While ExxonMobil stands out in Guyana for the sheer size and scale of its investment, the U.S. in 2021 continued to be the main FDI source in the Dominican Republic, accounting for 44 percent of inflows according to ECLAC. Moreover, following the Summit of the Americas in June 2022, the Biden administration agreed to promote Caribbean energy security, access to finance and food security.
U.S. engagement is important from the perspective that U.S. and European interest in the Caribbean declined for the better part of the first two decades of the 21st century, while China had stepped up. However, it appears that U.S. and European investment, led by private sector companies, is now more engaged in the Caribbean, especially in Guyana.
China’s investment in the Caribbean and Latin America began to taper in 2015. Although In 2020 for the first time in 15 years, the China Development Bank and China’s Export-Import Bank did not lend to any countries, China’s interest in Guyana has hardly diminished.
This is due to higher global energy costs related to the Russo-Ukrainian war that started in February 2022. China’s state-owned energy giant, CNOOC, shares the Stabroek block with ExxonMobil and Hess. At the same time, Guyana’s mining sector has a relatively new entrant, Zijin Mining, which acquired Guyana Goldfields in 2020 from its Canadian owners with an all-cash transaction. Zijin Mining is actively expanding its operations beyond gold mining; over the past two years it has entered the lithium mining sector and signaled an interest in rare earth metals, which its holdings in Guyana and Suriname could help.
While Guyana’s foreign investment climate has much to offer, there are challenges. According to the U.S. State Department’s 2022 Investment Climate Report, Guyana has a high crime rate, high electricity costs, lengthy delays for permits, and issues with access to land. Indeed, in its 2020 Ease of Doing Business report (the last edition), the World Bank ranked Guyana at 134 out of 190 countries, indicating that there is room for improvement (with some of the issues being addressed in 2021 and 2022).
Efforts are being made to deal with these issues and Guyana has recently signed an engineering procurement contract for the development of a natural gas plant for electricity generation that should reduce prices significantly.
Oil wealth is changing Guyana and providing it with a rare opportunity to rapidly advance its economy, become a more equitable society, and provide a funding mechanism for a non-carbon-based economy. FDI is playing an important role in this process. The challenge ahead is to manage that process. For every United Arab Emirates and Qatar there is a Chad and a Venezuela.
Thus far, Guyana has taken heed of the words of American author H. Jackson Brown, Jr.,” “Nothing is more expensive than a missed opportunity.” The record amount of FDI shows that one of Latin America and the Caribbean’s past poorest states it is not missing the opportunity.
EDITOR’S NOTE: Dr. Scott B. MacDonald is the Chief Economist for Smiths Research & Gradings, a Fellow with the Caribbean Policy Consortium and a Research Fellow with Global Americans. His most recent book is The New Cold War, China and the Caribbean (Palgrave Macmillan 2022).