the report · 2020-02-20 · guyana country profile tropical rainforest covers around 80% of...

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THEREPORTGuyana2020

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THE REPORT Guyana 2020Bloomberg Terminal Research Homepage: OBGR‹GO›

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New discoveries of high-quality oil are poised to turn Guyana into an impor-tant player in the global energy market. The country’s Stabroek Block is home to some of the last decade’s biggest oil finds and is set to be a source of unprec-edented wealth. Still, with nearly one in five Guyanese living off-grid, developing renewable energy is key to providing cheap, reliable power to remote areas.

Unrivalled potentialPage 15

Despite discovering the large Stabroek oilfield in 2015, the economy grew at modest annu-al rates of 2-5% between that year and 2019. Growth of 3.4% in 2018 saw nominal GDP reach $3.6bn, with a further expansion of 4.6% esti-mated for 2019. However, with oil operations getting under way in late 2019, the economy is expected to grow by an incredible 86% in 2020, providing Guyana with an opportunity to move into the next stage of development.

Leaps and boundsPage 8

Chairman: Michael Benson-Colpi

Editor-in-Chief: Oliver Cornock

Regional Editor, The Americas: Harry Van SchaickEditorial Manager: Joseph Hall

Managing Director: Polina VirrRegional Director, The Americas: Maria MeroñoCountry Director: Simona Simeonova

Group Managing Editor: Laura NelsonChief Sub-Editor: Tim OwensDeputy Chief Sub-Editors: JenniferMa, Kayla MoserSenior Sub-Editors: Dominic Mealy,Elise ReidSenior Sub-Editor, Digital: John GrayWriter and Editor, Digital: AlexPichaloffSub-Editors: Yves Boju, Kevin Mataraci, Teresa Meoni, Morgan Soares-Astbury, Lizzie Waymouth

Analyst: Mat Youkee

Head of Research: Susan ManoğluEditorial Researcher: Beatriz Trigueros

Creative Director: Yonca ErginArt Editors: Catherine Celeste, ZahraRashidJunior Graphic Associate: BabylynneB CruzIllustrations: Jeong Min Moon

Logistics & Administration Manager:Burçin IlgazLogistics Executive: Marly F GimenoLogistics Associate: Will H Mamatra

Director of Field Development: Helena Alvarez-VieitezField Operations & Systems Manager: Christian L SibayanField Operations Associates: Charmagne Loyola, Julie Anne Septimo

CONTENTS GUYANA 2020

COUNTRY PROFILERich in diversity: Cultural history and promising oil discoveries lay a strong foundation for growth

INTERVIEWWinston Jordan, Minister of Finance, on properly managing the imminent influx of hydrocarbons revenue

ECONOMYLeaps and bounds: Oil income is set to transform the economy by stabilising debt levels and funding multi-sector development

FINANCIAL SERVICESTools of the trade: Financial services will be responsible for leveraging the effects of oil exports to benefit citizens and businesses

INTERVIEWAmral Khan, Managing Director, Republic Bank Guyana, on supporting the continued growth of the financial sector

DOING BUSINESSBetter business: Evaluating efforts to improve the local operating environment

ENERGYUnrivalled potential: Offshore oil discoveries have attracted global firms, and the government is making sure the economy is the biggest beneficiary

MININGAbundant reserves: Both gold and bauxite production are expected to grow alongside efforts to develop the light manufacturing segment

TRANSPORT & LOGISTICSBreak ground: Work is under way to upgrade the country’s road network and develop ports to serve the oil and gas industry

CONSTRUCTION & REAL ESTATEKnock-on effect: The sector continues to expand as demand for commercial and residential property grows on the back of new oil finds

INTERVIEWDerek Chin, Chairman, MovieTowne, on reaping the benefits of recent hydrocarbons discoveries

AGRICULTURE & FORESTRYIn the works: With agriculture still an economic cornerstone, the government is looking to boost productivity through higher investment

TOURISMGaining recognition: Sustainable tourism with a focus on nature, adventure and culture is positioned as the country’s primary offering

HEALTH & EDUCATIONMind and body: The government works to improve health indicators and expand the education system

TAXPwCBy the book: An overview of the local tax regime and related regulations

VIEWPOINTAngelique Bart, Managing Partner, PwC Guyana, on the efforts to reform the tax regime to benefit both citizens and the nascent energy industry

GUYANA COUNTRY PROFILE

Tropical rainforest covers around

80%of Guyana’s land mass

Guyana is one of 35 members of the Organisation of American States

HISTORY: At the time of Christopher Columbus’ first voyages to the region, the Caribbean coast of South America was inhabited by the Arawak and Carib tribes. Although the Spanish and the British led expeditions into the interior of the Guianas in search of the fabled city of El Dorado, the Dutch were the first Europeans to successfully settle in the region, creating trading posts on the Essequibo River in 1616 and the Berbice River in 1627. They went on to establish a successful plantation econ-omy for tobacco and sugar, importing thousands of slaves from Africa. By the late 18th century, however, British settlers outnumbered the Dutch, and the ter-ritories were ceded to the British in 1814. Following the end of the slave trade in 1838, Afro-Guyanese slave labour on the sugar plantations was replaced first by Portuguese and Chinese labour, and even-tually by indentured labour from India.

The South American country of Guyana has experi-enced subdued economic growth since its independ-ence from the UK in 1966, mainly relying on mineral and agricultural exports. However, the discovery and subsequent production of oil is likely to radically change Guyana in the decade to 2030. GEOGRAPHY & CLIMATE: Guyana is home to some of the most remote landscapes of Latin America, sit-uated along the northern shoulder of South America and bordered by Venezuela to the west, Brazil to the south-west and Suriname to the east. Around 80% of the country’s total land mass is covered by tropical rainforest, and in the south-west the Rupun-uni grasslands stretch to the border with Brazil, dissected by the Kanuku Mountains. Some 90% of the Guyanese population lives in the narrow fertile strip between the rainforest and the Caribbean coast, which was once one of the most productive plantation economies of the colonial era. Today, however, much of it is below sea level and protected by a sea wall that stretches from the eastern banks of the Demerara River, around the capital George-town, and a further 451 km to the east.

Guyana gets its name from an indigenous Arawak word that translates to “land of many waters”. The country is intersected by a number of rivers, with its three largest – the Essequibo River, the Demerara River and the Berbice River – all running from south to north. Only the Demerara River is bridged, with a 1.8-km retractable toll bridge which, when it was constructed in the 1970s, was the world’s longest floating bridge. Paved roads connect Georgetown to Guyana’s second-largest city, Linden, 90 km to the south, and to the town of Skeldon in the east.

Guyana is located in the tropics and close to the equator. Accordingly, its climate sees high average temperatures and considerable annual rainfall. Georgetown’s temperatures, which are typical for the country, average between around 24°C and 31°C.

THE REPORT Guyana 2020

Rich in diversityCultural history and promising oil discoveries lay a strong foundation for growth

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The current shape of the country’s political party system emerged in the aftermath of the Second World War, during which time exports from Guy-ana – namely bauxite – boomed. Cheddi Jagan, founder of the left-wing People’s Progressive Party (PPP), became president in 1953, but was eventu-ally deposed by British military action ordered by Winston Churchill. Following the drafting of a new constitution, the PPP remained in power until 1964, when it lost to the People’s National Congress (PNC), led by Linden Forbes Burnham.

Burnham and Jagan were the leading political figures in Guyana during the 20th century, with Burnham overseeing independence from Britain in 1966. During his time in power, he overcame a separatist movement in the Rupununi savannah and

Guyana gets its name from an indigenous Arawak word that translates to “land of many waters”

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GUYANA COUNTRY PROFILE

Georgetown is home to roughly

10%of the population

In 2017 Guyana’s population was estimated at around 773,000, with 56% of inhabitants under the age of 29

dealt with ramifications stemming from the 1978 Jonestown Massacre. He also tackled increases in political violence and a deepening economic crisis, before dying in office in 1985. DEMOGRAPHICS: In 2017 Guyana’s population was estimated at around 773,000. With 56% of its inhabitants under the age of 29, its population is relatively young. Successive waves of immigration to the country have resulted a wide range of ethnic groups, religions and cultures. According to the most recent census, which took place in 2012, approxi-mately 39.8% of citizens are Indo-Guyanese, 29.3% are Afro-Guyanese, 19.9 % are of mixed race and 10.5% are Amerindian. In recent years, however, immigration has been minimal, with newcomers largely coming from neighbouring countries like Suriname and, to a lesser extent, Brazil. As such, there were relatively few foreign-born residents living in the country as of early 2020.

Emigration, however, has been heavily influential on Guyana’s demographics since its independence. It experienced a “brain drain” through the latter half of the 20th century, with educated Guyanese relocat-ing to the UK, the US, Canada and some neighbouring Caribbean islands such as Trinidad and Tobago. In addition, many low-skilled Guyanese have emigrated to Suriname in search of work. GEORGETOWN: Founded in 1781 and named after King George III, Georgetown is both Guyana’s cap-ital and its largest city. With approximately 70,690 residents, it holds roughly 10% of the country’s population. The city is located at the mouth of the Demerara River on the Atlantic Ocean, perfectly situating it as the country’s leading manufacturing and commercial centre. As such, it has a number of sugar refineries and exports much of the agricul-tural and mining produce from the interior. LANGUAGE & RELIGION: Guyana’s official language is English; however, its wide array of South Asian

communities still speak a number of Creole and Hindu languages. According to the 2012 census, approximately 24.8% of the population identified as Indian, 22.8% Pentecostal, 7.1% Roman Catholic and 6.8% Muslim. The remaining 24.8% of respond-ents were classified as “other”, including a number of indigenous religions practiced by much of the country’s Amerindian population. POLITICS TODAY: In 1992 Jagan returned to the presidency at the head of the PPP, which had been out of power for 28 years. The PPP went on to cement its political dominance, winning the next four general elections and opening the country up for foreign and local private investment.

In 2015 David Granger, former commander of the Guyanese army, won the presidency at the head of a coalition between the PNC and a number of smaller political parties. Shortly after his inauguration, US oil company ExxonMobil announced substantial oil discoveries which have the potential to change the country’s economic fortunes. However, the coalition held a narrow majority – with just 33 of the National Assembly’s 65 seats – and after one of its parlia-mentarians defected in December 2018, there was a vote of no confidence in Granger’s government.

Under normal circumstances, the loss of such a vote would have led to general elections within 90 days, but a protracted legal debate resulted in elections being set for March 2020. The proceed-ings are expected to be hotly contested, with both of the main parties and a number of smaller new ones vying to be the first to manage and channel the country’s new spending power on much-needed social and physical infrastructure projects. GOVERNMENT STRUCTURE: Guyana’s current constitution, which dates from 1980, laid out the responsibilities of the three branches of govern-ment. The legislature is unicameral and formed exclusively by the National Assembly, with 65 repre-sentatives elected on five-year terms and 40 elected on a party basis under proportional representation. An additional 25 representatives are chosen by the country’s administrative regions. The president heads the executive branch and the Cabinet, and is overseen the National Assembly. The judiciary’s highest institution is the Supreme Court, which is made up of the Court of Appeal and the High Court. The law in Guyana is largely based on a tradition of British common law, while the Roman-Dutch code is applied for land tenure. Since 2009 the Caribbean Court of Justice has been Guyana’s court of appeal. FOREIGN POLICY: Following its independence in 1966, Guyana joined the UN. It is also one of the 35 members of the Organisation of American States. More regionally, as a result of both its language and past as a British colony, Guyana has maintained stronger ties with its Caribbean peers than its South American neighbours. In 1965 it joined the Carib-bean Free Trade Association, which became Carib-bean Community, better known as CARICOM, in 1974. The organisation is headquartered in Georgetown.

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GUYANA INTERVIEW

Winston Jordan

blue sea and ocean-related tourism, we can significantly develop our nature and ecotourism offerings similar to countries like Costa Rica and Belize.

With GDP growth for 2020 predicted to reach 86%, how can Guyana avoid the resource curse?JORDAN: The government is aware of the resource curse and the steps that must be taken to prevent an overdependence on one source of revenue. We have started by implementing the Natural Resource Fund (NRF), which will receive all petroleum revenues. The fund has established rules so that the economy does not overheat. We are working out investment plans that will allow Guyana to pursue a healthy mix of both productive and social investments. Our leaders will not start projects just for the sake of construction, but will make targeted and focused investments by way of the NRF. Guyana has already established a fiscal rule that allows the government to spend only as much money as is in line with the economy’s competitiveness, avoiding any major disruption to our economic variables. Essen-tially, Guyana has imposed a cap on its spending. We have an investment committee to monitor the money coming into the NRF, and a macroeconomic committee to track the country’s competitiveness, taking into account inflation, the deficit and other similar indica-tors. The two will work together to decide what is most productive for the economy.

How is climate change likely to affect Guyana?JORDAN: Guyana has a series of environmental chal-lenges it must address, from its enormous inland space to a coastline that is below sea level. Our dykes and sea walls are facing structural deficiencies, and these are detrimental to our coastline. We must attend to this, and it is going to represent a great cost. We must also build sustainable transportation networks to connect the coast with the interior, so that all of the country can benefit in unison from the growth of our economy.

What is the most significant challenge Guyana will face through the decade to 2030? JORDAN: Guyana only recently finished with its long-est-running structural adjustment programme, which began in the late 1980s. As a result of profligate spend-ing on an international level, combined with a surge in oil prices and socialist-leaning policies, Guyana’s spend-ing accelerated over a very short period of time. The economy is, therefore, emerging from the throes of structural adjustment, which makes controlling the fiscal deficit an important issue. To add to this, the econ-omy has not significantly matured in the past 50 years; Guyana still produces sugar and other raw materials for local industries. Some of these industries, however, have lost productivity due to a lack of maintenance, a loss of market share and poor oversight. Oil will help to alleviate many of our challenges, and in a way it may even be the saviour of the country. The income from hydrocarbons will provide an opportunity for Guyana to strengthen, mature and transform its ageing industries.

Which industries are poised for the greatest growth? JORDAN: Agriculture is in an excellent position for growth. Rice and sugar, which are currently exported at their stage-one levels, show potential for added value and transformation. They are simply grown and sent to Europe, and given the lack of local processing capacity, Guyana is then obliged to buy back the more expen-sive, value-added imports. More broadly, Guyana is a forested country and is home to many well-known and lesser-known species of trees. We have the potential to build a furniture industry using our timber sustainably. We currently export timber and pay high prices for the import of finished products. The linkages are not yet in place, and we must spend more time diversifying the economy with existing and emerging industries.

Another sector of the economy that shows potential is tourism, specifically ecotourism. While Guyana may never be able to compete with the Caribbean countries’

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Land of opportunityWinston Jordan, Minister of Finance, on properly managing the imminent influx of hydrocarbons revenue


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The exchange rate stood at around GY$210:$1 at the start of 2020

Guyana’s economy is expected to grow by

86%in 2020

The capital account surplus rose from $477.6m in the first half of 2018 to $795.2m in the same period of 2019. This came on the back of higher foreign direct investment, which grew by 60% year-on-year.

arrival of first oil presents Guyana with an oppor-tunity to move into the next stage of development. “Oil has come as a saviour,” Winston Jordan, the minister of finance, told OBG. “In recent years we have been producing less and earning less. Oil rev-enue will provide us with a respite while we work to modernise existing industries.” NATIONAL ACCOUNTS: Reliant on imports for energy, food stuffs and many domestic goods, Guyana maintains a significant trade deficit. In the first six months of 2019 the deficit reached $628m, almost double the $329.3m of the corresponding period in 2018. Imports grew by 31.6% to $1.37bn, driven by a surge in demand for inputs required by the hydrocarbons industry. The import of capital assets – such as the machinery needed to build new energy infrastructure – also expanded in value, from $155m to $423m. The overall current account deficit rose by 50% year-on-year (y-o-y) to $866.8m.

The capital account surplus, conversely, rose from $477.6m in the first half of 2018 to $795.2m in the same period of 2019. This followed on the back of higher foreign direct investment, which grew by 60% y-o-y to $826.4m at mid-2019, with oil and gas accounting for $354.6m.

The fiscal deficit was expected to decline by 0.1 percentage points in 2019 to 4.9% of GDP, while the public debt-to-GDP ratio sat at 52.9% in 2018, on a par with Uruguay and Brazil. The country’s public external debt amounted to $1.27bn in the first half of 2019. Some $451m was bilateral debt, mostly owed to the Export-Import Bank of China, which financed the renovation of the Cheddi Jagan Interna-tional Airport, road projects and national broadband infrastructure. The IMF expects debt dynamics to improve significantly following the first oil revenues. EXCHANGE RATE: As with other economies in the region, the exchange rate of the Guyanese dollar to the US dollar is heavily influenced by central bank

First oil flowed from the Liza-1 well in December 2019, marking a turning point for Guyana. With pro-duction set to reach approximately 120,000 barrels per day (bpd) over the course of 2020, the IMF sees oil as the catalyst for the economy expanding by an estimated 86% that year. Between 2019 and 2024 the economy is forecast to triple in size, as pro-duction reaches 750,000 bpd – equal to one barrel per inhabitant each day. Following ExxonMobil’s 14th discovery at the Stabroek offshore block in September 2019, Norwegian consultancy Rystad Energy estimated that Guyana stood to earn over $120bn in government revenue. Exploration has continued, and the number of discoveries at the block rose to 16 in January 2020.

The challenges of capitalising on this new-found resources wealth and deploying its benefits equi-tably are manifold. However, the last half century has provided many examples of countries that have harnessed their natural resources for wider economic gain, but then became too economically dependent on them. From this privileged position, the government of Guyana can help the country navigate potential risks in this endeavour. ROUNDING A CORNER: Despite discovering the large Stabroek field in 2015, the Guyanese economy grew at modest annual rates of 2-5% between that year and 2019. Growth of 3.4% in 2018 saw nominal GDP reach $3.6bn, with a further expansion of 4.6% estimated for 2019. With much of the economy based on primary resource extraction – including gold, bauxite, timber and, to a lesser extent, agri-cultural products – the country’s output has been affected by lower global commodity prices since 2013. That trend continued into 2019, with fur-ther declines in the price of rice, sugar and timber, although these were offset by a higher price for gold.

With a GDP per capita of $4979 in 2018, the lowest on the South American continent after Bolivia, the

Leaps and boundsOil income is set to transform the economy by stabilising debt levels and funding multi-sector development

GUYANA ECONOMY

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GUYANA ECONOMY

intervention. For the first six months of 2019, the weighted mid-rate exchange rate was GY$208.50:$1, the same as in the corresponding period of 2018. Overall foreign currency transactions in the country increased by 23% y-o-y to $4.6bn, with official trans-actions by the Bank of Guyana (BoG), the central bank, increasing from $557.3m to $585.8m. The BoG expects foreign capital inflows to sustain the bal-ance of payments deficit during 2020, and envisages a relatively stable exchange rate. The exchange rate stood at GY$210:$1 on January 1, 2020. SOVEREIGN WEALTH FUND: Aware of the potential disruption to its relatively sound macroeconomic base, Guyana faces the challenge of absorbing large sums of oil revenue in a way that will not sideline other sectors of the economy. As seen in other nations, a strong hydrocarbons sector that brings an influx of foreign capital and currency appreci-ation can lead to the neglect of other industries, threatening the economy in the medium term. As such, the government has looked to countries that have harnessed the transformative potential of oil revenue through sovereign wealth funds, such as Norway. In January 2019 Parliament approved the establishment of the Natural Resource Fund (NRF) with the goals of contributing to economic stabili-sation, transferring natural resource wealth across generations and mobilising revenues towards the creation of an inclusive green economy.

The government’s earnings from future oil exports will be held in an account with the US Federal Reserve Bank of New York and controlled by the BoG. Whereas Norway tends to spend only the interest it earns on its trillion-dollar wealth fund each year, Guyana will allow funds to be withdrawn from the NRF to support the national budget. Its statutes include a Sovereign Investment Committee to advise on the investment of funds, and a Macroeconomic Committee to determine where funds are allocated, taking into account the dynamics of the economy at any given time. The amount of money flowing into the fund will depend on the international oil price and costs of production. Jordan expects it to total between $280m and $300m in 2021-22, of which around $175m would be available to the government for spending on targeted physical and social infra-structure projects. “This is not a slush fund,” Jordan told OBG. “We still have to run the economy using all the fiscal and monetary tools available to us.”

The creation of the NRF – along with draft legisla-tion for local content provision in the energy sector – is a strong indicator that Guyana has learned the right lessons from around the globe. “The NRF is a must-have for the Guyanese economy,” Caribbean economist and adviser Marla Dukharan told OBG. “However, if Guyana is to escape the resource curse, it will have to invest heavily in strengthening insti-tutions from the judiciary to the central bank, from the election commission to the tax authority.” GREEN FUTURE: The majority of the billions of bar-rels of crude beneath the water in the Stabroek

block will never be brought onshore. The oil will run through a floating production storage and offload-ing unit and be exported to destinations around the region. The government has heeded the advice of international experts and decided against a strat-egy focused on adding value to petroleum stock through the construction of costly refineries and downstream industries. Instead, the Green State Development Strategy (GSDS), crafted in May 2019 to chart the country’s course through to 2040, is based on three pillars: the sustainable manage-ment of natural resources, the development of eco-nomic resilience, and the strengthening of human resources and institutional capacity.

With tropical rainforest, large rivers and diverse wildlife, Guyana has much to preserve through its commitment to a low-carbon growth strategy. The country’s unreliable and expensive electricity sec-tor, which is fuelled by imported bunker oil, is set to be replaced by a new power plant running on associated natural gas from offshore oilfields and supplemented with solar energy.

The overhaul of the national power system would not only reduce costs and carbon emissions, but also remove one of the largest obstacles to the diversifi-cation of local industry: the need for cheap, reliable power. Moreover, the NRF will be used to finance the infrastructure required to boost the competi-tiveness of local agri-businesses and manufacturing companies. “We have a vast hinterland and a small coastal region challenged by rising sea levels,” Jordan told OBG. “We must invest in shoring up the sea wall and dyke systems, and create transport links from the coast to the hinterland.”OUTLOOK: Stable GDP growth, booming foreign investment, and high demand for infrastructure and labour signal bright times ahead for the economy. The call by international policy bodies for developing nations to build stronger institutions will take time and sustained effort to meet, but with the estab-lishment of the NRF and the GSDS, Guyana has laid the foundation for sustainable long-term growth.

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The amount of money flowing into the Natural Resource Fund is expected to total between $280m and $300m in 2021-22, of which around $175m would be available to the government for targeted physical and social infrastructure projects.

GUYANA FINANCIAL SERVICES

Deposits with commercial banks stood at around $2bn in mid-2019

than doubled, rising from GY$253.8bn ($1.2bn) that year to GY$515.8bn ($2.5bn) as of mid-2019. It was widely expected that Republic Bank would acquire Scotiabank Guyana in 2019 as part of its wider efforts to acquire the Canadian bank’s assets across the Caribbean. However, with Republic Bank already the largest bank by assets in the country, the deal was halted in September by the BoG due to concerns regarding the effects the acquisition would have on competition in the sector.

The banking sector remains very liquid. In June 2019 the total amount of deposits held at commercial banks was GY$413.5bn ($2bn) – 5.2% higher than one year prior – and total loans and advances stood 6.2% higher at GY$155.5bn ($747.6m). The interest rate spread is wide: while the small savings rate and the weighted average time deposit rate stood around 1% per annum in mid-2019, the weighted average lending rate and prime lending rate were around 10%. In recent years the government has introduced schemes to guarantee a portion of commercial loans – meaning the rate can be as low as 6% for some clients – but the cost of credit remains a significant barrier to expansion for many local firms.

The elevated rate of loan delinquency and the gen-erally high costs of running a business in Guyana are the principle reasons for the wide interest rate spread, Raymond Smith, country manager of Scotiabank, told OBG. By June 2019 the country’s licensed depository financial institutions had a non-performing loan (NPL) stock of GY$32.1bn ($154.3m), representing a 4% y-o-y increase. This was driven by a rapid rise in household NPLs, which grew by 19.5% over the period, whereas those for businesses fell by 2.7%. According to the IMF’s Article IV report on Guyana for 2019, “address-ing high NPLs and under-provisioning in the banking sector should remain a priority”. FUTURE GROWTH: The development of the oil and gas industry has lead to higher demand for financial

For small economies, trying to absorb the capital inflows and revenue brought about by a resource boom can be very difficult, as funds enter the country faster than they can be efficiently allocated by the financial system. In the case of Guyana, the early 2019 creation of the Natural Resource Fund (NRF) – the sovereign wealth fund that will receive the govern-ment’s take from oil exports – goes some way to ease the pressure on the financial sector (see Economy).

According to the 2019 mid-year report by the Min-istry of Finance, the financial services and insurance sector grew by 4.1% year-on-year (y-o-y) in the first half of 2019, and is forecast to grow by 6% in 2020. However, due to the expected influx of cash from oil exports and private sector energy investment, Guy-ana’s small banking sector and almost non-existent capital markets will face unprecedented growth that will put a serious strain on current capacity. CENTRAL BANK: Established in 1965 the central bank, the Bank of Guyana (BoG), is an independent body tasked with setting monetary policy, maintain-ing price stability and ensuring a stable Guyanese dollar. Its wider role is to foster the development of a progressive and effective financial system, while overseeing the NRF, insurance activity and capital markets. In its May 2018 Article IV report, the IMF praised the progress the country had made in incorpo-rating recommendations of the 2016 financial sector assessment programme. These included expanding the BoG’s supervisory power and establishing an emergency liquidity assistance framework, a national payment system and a deposit insurance scheme. COMMERCIAL BANKS: In 2019 there were six com-mercial and retail banks operating in Guyana: the state-owned Guyana Bank for Trade and Industry; local outfits Demerara Bank and Citizens Bank; Republic Bank of Trinidad & Tobago; Canada’s Sco-tiabank; and Baroda Bank from India. Since 2009 the total assets of commercial banks have more


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The financial services and insurance sector grew by

4.1% year-on-year in the first half of 2019

Since 2009 the total assets of the country’s six commercial banks have more than doubled, rising from $1.2bn that year to $2.5bn as of mid-2019.

Tools of the tradeFinancial services will be responsible for leveraging the effects of oil exports to benefit citizens and businesses

GUYANA FINANCIAL SERVICES

Optimism in the economy is reaching consumers, with credit to households rising over the course of 2019

services. The drafting of legislation for local content requirements, combined with private initiatives such as ExxonMobil’s Centre for Local Business Develop-ment – which supports entrepreneurs in developing satellite businesses for the oil and gas sector – means that demand for loans is surging. “The real trend is the growth in Guyanese participating in support services for the oil and gas sector,” Smith told OBG. “We are seeing a boom in loan requests from companies pro-viding technical services and construction services to the sector, but we are also seeing growth in the transport, medical, and food and beverage markets.” In addition, there is great opportunity for local banks to participate in funding small-scale infrastructure, often through syndicated loans.

Optimism in the economy is reaching homebuyers and consumers. By the end of June 2019 the stock of mortgage loans reached GY$85bn ($408.7m), a 5.7% increase on the previous year, while commer-cial banks’ credit to households increased by 13.5% y-o-y to GY$32bn ($153.8m) for purposes such as home improvements, vehicle purchases, education and travel. With an influx of expatriate workers asso-ciated with the oil boom, vehicle leasing schemes are also seeing heightened demand, and strong demand exists for internet banking. This has led several banks to overhaul and expand their online services. CHALLENGES: With this increased demand for finan-cial services come challenges for the sector. New regulations – including the introduction of deposit insurance and tougher rules on the recovery of col-lateral used against loans – have increased costs for banks. Meanwhile, foreign account tax legislation has increased the volume of compliance work and bankers say they are frequently confronted with a lack of adequate documentation from new retail and commercial clients. In addition, the sector faces a shortage of human capital, especially loan managers capable of dealing with the upsurge in demand.

INSURANCE: In July 2016 Guyana updated its insur-ance regulations in order to bring them more in line with international sector standards and better pro-tect customers. The BoG was given the power to impose fines for failure to comply with directives and tougher sanctions for insurers whose failures could present systemic risks to the industry. Regulations were also tightened around awarding new licences to insurers, obliged firms to maintain acceptable risk management systems and required greater transpar-ency in the complaints procedure.

Insurance is one of the fastest-growing industries in the country: premium rose by 7.5% y-o-y to GY$436m ($2.1bn) in June 2019. That month insurance made up 8.2% of all financial assets and 30.1% of non-bank assets, up from 7% and 27%, respectively, the previous year. The life segment accounts for 70% of total pre-mium and remains an expansion area for providers, with half a dozen new firms opening in recent years. There is still much room for growth in both life and non-life lines as the economy enters a new phase with oil and gas production. Total assets in the insurance sector accounted for just 8.7% of GDP as of mid-2019. CAPITAL MARKETS: The Guyana Stock Exchange, meanwhile, (GASCI) began trading in June 2003 but remains small and undeveloped. Trading takes place in person on Monday mornings in a building next to the BoG, and the Guyana Securities Council, the industry regulator, oversees the country’s four brokers. At present there are no companies officially listed on the exchange, but there are 15 that trade shares on the secondary exchange. A typical trading day may see around GY$10m ($48,100) in volume, and even small trades can skew the price of shares significantly. Guyanese investors tend to be very conservative and those that do buy shares often hold them for life, col-lecting dividends and passing them to their children.

However, in the GASCI the country may have the beginnings of a capital markets system that could effectively leverage the hydrocarbons boom. The Trinidad & Tobago Stock Exchange, the region’s largest by market capitalisation, has low levels of liquidity, but through listing shares of privatised former state-run companies, a vibrant mutual fund market has devel-oped that has allowed local savers to benefit from oil-fuelled economic growth. “The government needs to diversify capital markets in order to deal with the huge influx of oil wealth and reduce the volume siphoned away and invested overseas,” Nikhil Ramkarran, chair-man of the GASCI told OBG. “In a country with high lending rates, it is important to recognise that stock listings are also a source of funding for businesses. Capital markets are one means of spreading equitable distribution of benefits from the oil boom.”

Near-term growth of the financial sector will be driven by necessity and opportunity. The development of the wider economy will support demand for credit, retail banking, insurance and, eventually, capital mar-kets products. As with other sectors, banking must rapidly address infrastructure and human resources deficits to make the most of this opportunity.


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A typical trading day on the Guyana Stock Exchange may see around $48,100 in volume, and even small trades can skew the price of shares significantly.

Insurance premium rose by 7.5% year-on-year to

$2.1bnin June 2019

GUYANA INTERVIEW

Amral Khan

feasibility study to be conducted, which should allow local non-banks to provide some financial services.

The Bank of Guyana has also supported the expan-sion of mobile banking, thereby reducing the cost of transactions through economies of scale.

How can public and private entities more effec-tively collaborate to finance Guyana’s economy?KHAN: A problem often faced by financial insti-tutions is that many of the small businesses that approach the financial sector for credit facilities do not have clear business plans. If a borrower is unable to outline the business model, projected cash flows, costs and the firm’s ability to repay loans, funding will not be granted. To counteract this, the public and private sectors should conduct joint education initiatives to teach basic principles such as business continuity planning, and the alignment of the timing and quantity of cash inflows and outflows.

Despite the energy sector boom, the resources available to diversify the economy will be limited. In this regard, it is important to pursue this initiative in a targeted and strategic manner. The government should identify emerging high-value industries and develop programmes to incubate businesses in these areas. These programmes should involve fiscal incen-tives, business mentorship, export facilitation and financial guarantees to enable firms to access credit.

A strong and dynamic financial sector is important for long-term economic growth. For this reason, it is vital that the sector is supported by legislation to protect stakeholders and promote the overall health of the economy. However, it should be noted that financial institutions will never be able to satisfy the credit needs of all actors in the economy. Conse-quently, it is necessary to take steps to enhance the domestic stock market and ensure that effective leg-islation is in place to regulate the activity of venture capitalists and new facilities such as crowdfunding.

To what extent is the behaviour of Guyana’s fi-nancial sector risk-averse?KHAN: I believe that Guyana has a dynamic financial sector. For instance, Republic Bank has historically provided funding for most major sectors, including sugar and rice production. We also have considerable exposure to the country’s emergent energy sector and continue to evaluate the available opportunities in every industry on a case-by-case basis. With oil revenue expected to provide a substantial boost to the economy, the financial sector is expected to be presented with a plethora of new opportunities. Like most developing economies, there are still areas that need to be improved, but the sector is well placed to take advantage of promising economic conditions.

What regulatory measures must be implemented to encourage foreign investment?KHAN: There are already a number of financial sec-tor regulations established in Guyana that support, protect and benefit the market. However, with rapid changes anticipated in the near future, new and updated regulations should be introduced in order to stimulate capital market activity and promote an active equity market. Additionally, we should look to projects funded by public-private partnerships, since this is a highly dynamic area.

In what ways can financial technology help tap into Guyana’s unbanked population? KHAN: Although significant strides have been made, Guyana has been slow to introduce new technology in terms of payment channels, electronic fund transfers and mobile banking. The country’s sparse geography may be a contributing factor, as well as the issue of connectivity and the cost of implementation.

Guyana is largely a cash-based economy, and there is a growing need for financial services in rural com-munities. The government has received funding for a

Dynamic environment Amral Khan, Managing Director, Republic Bank Guyana, on supporting the continued growth of the financial sector

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GUYANA DOING BUSINESS

Legislation to create a Customs and trade single window passed in 2019

As is the case in many frontier and emerging markets, improving the environment for doing business is a top priority for policymakers in Guyana. In the World Bank’s “Doing Business 2020” report the country ranked 134th out of the 190 countries surveyed, ahead of South American neighbours Bolivia and Suriname. However, it lagged behind many of its CARICOM peers, includ-ing Jamaica (71st), Trinidad and Tobago (105th), and Dominica (111th), particularly in the areas of getting electricity and construction permits. PROGRESS: Even still, Guyana has made significant progress in recent years on some of the most impor-tant areas covered in the World Bank report. In 2017 it recorded one of the largest improvements in access to credit, thanks to the introduction of a credit rating scheme that increased borrower coverage from 2.4% to 16.4%. The passage of the new Code of Civil procedure was similarly seen to strengthen case management by introducing tighter timelines for legal proceedings. The country scores higher (92nd) for enforcement of contracts, with cases taking, on average, 581 days to resolve, at a cost of 27% of the claims. The report noted improvements to land administration transparency through the expansion of web-based service portals. While six procedures are still needed to register prop-erty, the time fell from 75 in 2017 to 46 days in 2020. Lastly, and perhaps most importantly, Guyana remains a relatively easy place to start a business, requiring seven procedures and around 18 days to complete.

It is still comparatively uncompetitive for trading across borders, however, ranking 151st. Exporting goods requires 272 hours of documentary and border compliance at a cost of $546, while imports require 240 hours of work at a cost of $328. However, improve-ments could be on the way. In recent years a num-ber of Caribbean nations, including T&T and Jamaica, have implemented the web-based ASYCUDA World data-management system for their Customs processes, engendering significant efficiency gains. In late 2018

Guyana began phasing in the ASYCUDA system, initially with a pilot scheme of 25 top traders from the Port of Georgetown. In May 2019 the National Assembly passed legislation to establish a Customs and trade single window that will become the unified portal for the inspection, clearance and release of cargo. IMPROVEMENT TARGETS: The rankings are less encouraging in other areas. The country scores poorly (163rd) for resolving insolvency due to lengthy and costly procedures. In addition, it scores low for paying taxes (122nd), which requires 35 payments and an average of 256 hours of work per year, though this compares favourably with other CARICOM nations.

Two issues stand out as targets for improvement to bolster diversification efforts. Access to energy is a major challenge for both manufacturing and service companies. The cost of getting electricity is 423.8% of income per capita, while the reliability of supply and transparency of tariffs scores 0 out of 8. Jamaica, by comparison, has invested in its distribution network and introduced smart meters, which have helped its cost of getting electricity fall to 203.4% of income per capita and achieve a reliability and transparency score of 5. Successful economic diversification ultimately depends on the supply of cheap and reliable power. In some ways T&T, which has used its own hydrocarbons deposits to provide electricity for local industry, is a good example to follow in this regard. In 2020 T&T ranked 43rd for getting electricity, at less than half the cost of Guyana, with a reliability rating of 6 and a cost income per capita of 185.3%.

Given the burgeoning energy sector’s substantial appetite for new commercial and industrial structures, the construction permit system – which ranks 167th – is another target for overhaul. Permits take 208 days and 18 procedures to receive. In Jamaica, a slightly higher number of procedures are required (18), but this takes just 140.5 days. It is also relatively costly, at 2.4% of the total warehouse value, compared to just 0.1% in T&T.


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Guyana recorded one of the largest improvements in access to credit in 2017, following the introduction of a credit rating programme that increased borrower coverage from 2.4% to 16.4%.

Given the burgeoning energy sector’s appetite for new commercial and industrial structures, the construction permit system is a target for overhaul.

Better business Evaluating efforts to improve the local operating environment

GUYANA ENERGY

Local firms are building capacity to service the growing oil industry

For most of its history Guyana’s energy sector has seen comparatively little activity, however, new discoveries of high-quality oil are poised to turn it into one of the most important actors in the international energy market. The Stabroek Block, a 26,800-sq-km deepwa-ter region 190 km off the coast of Guyana, is home to some of the last decade’s biggest oil discoveries and is set to be a source of unprecedented wealth for the Caribbean nation of under 800,000 inhabitants. LIZA: US-based oil major ExxonMobil has held the Stabroek Block since 2008, conducting seismic explo-ration work. It was not until early 2015 that the com-pany drilled its first exploratory well. It is now part of a joint venture in which it is the operator, holding 45%, along with US energy company Hess Corporation (30%) and state-owned China National Offshore Oil Company (25%). The Liza 1 well was drilled at a depth of 1743 metres and encountered a 90-metre stratum of highly oil-prone sandstone.

In June 2017 ExxonMobil announced it would push ahead with the Liza Phase One development, a $4.4bn project with a targeted production of 120,000 barrels per day (bpd) by 2020. In early 2019 a drill ship drilled eight production wells, six water injection wells and three gas injection wells. Subsea production systems were put in place by TechnipFMC, while flowlines, umbilicals and manifold structures were constructed by Saipem. In August 2019 the Stabroek site saw the arrival of a floating production storage and offloading (FPSO) vessel with a storage capacity of 1.6m barrels and a water injection capacity of 200,000 bpd.

On December 20, 2019 the first oil flowed. The discovery, development and commissioning of a deep-water oil project, one of the most complex engineer-ing feats in modern industry, had been carried out smoothly. “The speed of development in a country with no previous oil and gas experience has been highly impressive,” Kevin Ramnarine, former minister of energy for Trinidad and Tobago, told OBG. “To take

a project from discovery to first oil in under five years is almost unheard of anywhere in the world.” GEOLOGY: ExxonMobil’s success in Guyana is a vindi-cation for the petroleum geologists who have staked their reputations on the Atlantic Mirror Theory. “This theory holds that the continents of South America and Africa were once joined, and that the large deepwater deposits of Nigeria and Ghana would be mirrored on the other side of the Atlantic Ocean,” Ramnarine said. “Geologists had noted that the turbidite fans in each region looked very similar, but the discovery of a clear and established deepwater oil province in Guyana proves the Atlantic Mirror Theory.”

The scale of ExxonMobil’s success has led to a flurry of exploration activity, both from the US firm and its competitors, with a drilling success rate of 80%. By the end of 2019, 15 discoveries had been made in the Stabroek Block, with all four of the 2019 drill targets – Tilapia, Haimara, Yellowtail and Tripletail – yielding positive results. In January 2020 Exxon increased its estimate of recoverable oil from 6bn to 8bn barrels of oil, a figure which does not yet take into account a new discovery in the same month made at the Uaru explo-ration well. As exploration continues many experts agree the 8bn-barrel estimate is very likely to rise. Since 2015 approximately 15% of the world’s newly discovered oil has come from Guyana.

That oil is coming on-stream fast. In May 2019 Exx-onMobil closed financing for the $6bn Liza Phase 2 project, including the $1.6bn leasing of the Liza Unity FPSO, which began construction in a Singapore dock-yard in September 2019. The project is nearly twice the size of its predecessor, utilising a total of 30 wells – half of which are for production – with a forecast output of 220,000 bpd when it comes on-line in 2022.

The government – acting in its interim status – has put on hold ExxonMobil’s field development plan for the Payara project: another 220,000 bpd FPSO project planned for the Stabroek Block. However,


15


As exploration continues, industry experts believe that the amount of recoverable oil expected from the Stabroek Block, estimated at 8bn barrels in January 2020, will increase.

Of all the oil discovered since 2015, some

15% has come from Guyana

Unrivalled potentialOffshore oil discoveries have attracted global firms, and the government is making sure the economy is the biggest beneficiary

GUYANA ENERGY

Guyana is expected to produce around

750,000barrels per day by 2025

Oil from Stabroek could sell for $4-6 higher than Brent crude prices

Energy – as will an additional three in Canje, where its partners are the French Total, Canadian junior explorer JHI Associates and Guyanese Mid-Atlantic Oil & Gas.

Significant finds by other explorers have been made as well, such as that in the Orinduik Block by the UK’s Tullow Oil, in partnership with Total, Qatar Petroleum and Toronto-headquartered Eco Atlantic. Tullow’s Jethro-1 and Joe-1 wells, in shallower depths than the Stabroek Block, both struck oil in late 2019. Eco Atlantic’s CEO, Gil Holzman, told international press in September 2019 that the discoveries have proven that “shallow low-cost plays exists in Guyana, as we are up-dip from the huge Exxon fields at Liza and Turbot areas, with good quality sands and oil that are clearly present on our block”. Spanish firm Repsol drilled its first target in the Kanuku Block in September 2019, and Canadian firm CGX Energy is expected to drill as many as six wells at its two offshore blocks – Coren-tyne and Demerara – sometime by 2020. MADE FOR MARKET: Oil from the Stabroek Block is both light and sweet, meaning it is less dense than water and has a low sulphur content. This crude is rare and often used to dilute heavier crude; as such, it typ-ically has a higher price. In December 2019 oil traders from around the globe descended on Georgetown to bid for the first three cargoes of Guyanese oil. Some traders estimate it could be priced on international markets between $4 and $6 higher per barrel than the prevailing cost of Brent crude.

In 2016 the production sharing agreement (PSA) for Stabroek was renegotiated with only minor modifica-tions and extended ExxonMobil’s claim to the block for another 25 years. The PSA – which designates a 50:50 production split plus 2% royalty – is a generous one to the operator in a basin with confirmed discoveries. In addition, 75% of monthly sales from production will initially be used to pay off its up-front investment and costs. The government take will increase once ExxonMobil has recovered it costs, but Rystad Energy, a Norwegian consultancy, estimates that once cor-porate tax and other payments are factored in, the

it looks likely to be given the final go-ahead when the new government takes office in mid-2020. The operator awarded subsea and service contracts for the project in November 2019, with first oil from the project estimated to flow some time in 2023. With these three projects, Guyana is expected to produce around 750,000 bpd by 2025, equivalent to a barrel of oil for each citizen every day, and giving the country a per-capita production status similar to that of estab-lished petrostates like Qatar and Kuwait. OTHER BLOCKS: In addition to Stabroek, ExxonMobil holds two more deepwater exploration blocks – Kai-eteur and Canje – to the north of its existing discov-eries. In December 2019 the firm announced that its four drill ships based in the region would embark on a 31-well exploration campaign in 2020. Some 25 wells will ultimately be spudded in Stabroek; three more will be drilled in Kaieteur – where ExxonMobil is the operator partnering with Hess and Israel’s Ratio

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GUYANA ENERGY

The recently opened Centre for Local Business Development will help local small and medium-sized firms build capacity in a range of sectors that serve the hydrocarbons industry.

Guyanese government will see 60% of oil profits, below the worldwide average of 75% for offshore projects.

There may be good reasons for the terms offered by the government, such as the desire to secure major long-term foreign investment in the west of the coun-try, which has been subject to a decades-long territo-rial dispute with Venezuela. However, several smaller parties competing in the March 2020 elections have proposed renegotiating oil contracts going forward. CHALLENGES: Expectations of immediate oil wealth are not guaranteed, according to Ramnarine. “Produc-ing in deepwater is very difficult. The temperatures on the seabed are cold, meaning huge volumes of solvents are required to keep the crude moving, and heavy currents can make loading operations techni-cally challenging,” he told OBG. “There are thousands of factors that could cause production to fall off. We really do not know how reservoirs will behave until we start to produce from them.”

Tullow’s discoveries at the Orinduik Block are a case in point. Following testing, the oil there was found to be much heavier and contain a higher sulphur content than that of the Stabroek Block. With the additional costs required to extract and sell the product, Tullow has held off on developing a production plan. The company’s country manager, Joachim Vogt, told local press in 2019 that it would require “a lot of homework to design a potential production outcome”.

Operators also face a lack of infrastructure and services available at the domestic level. While Exx-onMobil has signed a deal with local Guyana Shore Base, a majority locally owned facility on the banks of the Demerara River, other firms, including Repsol and Tullow, have preferred to base themselves out of nearby T&T. The world’s top oilfield services firms – including Baker Hughes, Schlumberger and Halliburton – have already established offices in Georgetown, as have leading offshore infrastructure providers like TechnipFMC, Saipem and SBM Offshore.

Many of the next-level services – from supply ships to offshore training – are offered by Trinbagonian companies. Tiger Rentals is one such Trinidadian firm, which signed a five-year contract for the removal of hazardous and non-hazardous waste from Esso Explo-ration and Production Guyana’s offshore operations in 2017. “At present, most services for offshore come from outside of Guyana,” Shane Singh, the compa-ny’s operations manager, told OBG. “There is a huge demand for facilities and services in-country, and both ExxonMobil and the government are working hard to promote growth and investment in this regard.”LOCAL CONTENT: The government has yet to finalise and put into place local content laws that would gov-ern the amount of products and services oil compa-nies must source from local firms. The director of the department of energy, Mark Bynoe, told local press in November 2019 that the rules would set a “framework for engagement and allow the Guyanese private sector not only to access businesses but also technology transfers”, and would enable the capacity building necessary for Guyana to benefit from its resources.

Such a policy would help provide local investors with the assurances they need, according to Singh. “Companies indicate that they need commitments in order to make risky investments,” he told OBG. “At this point, the higher-level offshore services remain beyond Guyana’s reach, but there is huge opportunity in softer services, from transport and basic stain-less steel parts, to offshore food supplies and safety equipment. However, firms need to get the right cer-tifications. It has been a steep learning curve, but we are seeing improvements.”

In July 2017 ExxonMobil, in partnership with private development firm DAI Global, opened the Centre for Local Business Development, located in Georgetown. The centre aims to assist local small and medium-sized enterprises in building and improving capacity in a range of sectors that will serve the hydrocarbons industry. The centre also facilitates the establishment of partnerships between local and international firms, and has already helped broker the creation of Guyana Oil and Gas Support Services, a partnership between the local National Hardware Guyana and the Trinbago-nian Concepts and Services. The new company has 14 welders trained to international standards and is focused on winning more contracts for the construc-tion and maintenance of energy-related facilities. Another local firm, Totaltec, has trained more than 250 Guyanese for work in oilfield services. POWER GENERATION: The development of a domes-tic hydrocarbons industry could also play a key role in bolstering Guyana’s manufacturing sector. With an inadequate and largely outdated electrical grid, electricity prices in Guyana are among the highest in South America. Guyana Power and Light (GPL) – the state-owned company in charge of generation, trans-mission and distribution – has an installed capacity of 142 MW. However, with peak demand reaching 124.6 MW, Guyana’s 17.4-MW reserve capacity falls short of the international standard of 20%. In December

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The development of a domestic hydrocarbons industry could serve to bolster the manufacturing sector

GUYANA ENERGY

Gas will be piped from offshore wells to a new gas-fired power plant

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188-MW power plant, supplied by gas from Stabroek via a pipeline and expected to come on-line sometime in 2021. Bynoe, however, told press that natural gas will not be available in significant quantities until 2035.RENEWABLES: With nearly one in five Guyanese living off-grid, the development of renewable energy is key to providing access to cheap, reliable and clean power in remote areas. Around one-third of off-grid communities have already benefitted from govern-ment-backed solar projects. The Green State Develop-ment Strategy prioritises strengthening the national grid and sets three goals for a greener energy mix by 2040: transitioning to 100% renewable energy gener-ation; doubling the energy efficiency of all buildings; and using low-emissions vehicles.

“Channelling resources into renewables would cre-ate a new economy in itself, as well as benefit the envi-ronment,” Frank Teelucksingh, the director of Coastal Dynamics, told OBG. “People can be trained and put to work in a marketplace that is initially subsidised by the oil and gas industry. There is huge potential for renewable energy expansion in the long term.”

The government has already made progress towards its goals. In 2017 contracts were awarded for the installation of photovoltaic systems on top of 70 government buildings and for the creation of a 400-KW solar farm. Larger-scale projects are also in the pipeline, some backed by international development finance. In October 2019 a pre-bidding session was held in Georgetown for a 1.5-MW solar farm at Bartica, in addition to a 1-MW project in the southern city of Lethem. The projects will provide power to a total of 20,000 residents when they come on-line in the first quarter of 2021. A third project is earmarked to be tendered for the town of Mahdia in the country’s Potaro-Siparuni region during 2020. All together, the new energy facilities are estimated to cost $8.6m and will be financed partly by the Guyana Energy Agency.

Unlike many other nations in a similar position, Guyana is focused on developing a sustainable, for-ward-thinking energy strategy prior to its first large-scale oil exports. By resisting the temptation to build a downstream industry, Guyana can maximise export revenues in the near term and make investments in gas and renewables that will absorb revenues and ensure its long-term energy security and independence.

2019 GPL presented the government with a plan to expand capacity by 47 MW by the end of 2020 through expanding production at select power plants.

Underinvestment in distribution infrastructure means that power is unreliable, with frequent black-outs leading most businesses and wealthy residences to acquire their own generators. Some experts say there could be as much as 120 MW of diesel self-generation capacity. “Power is one of the biggest challenges facing manufacturing,” Gerry Gouveia, chairman of the Private Sector Commission, told OBG. “We need to plan how to capture and use offshore natural gas to bring down the cost of power and fuel industrialisation.” GPL has targeted an extra 83 km of 69-KV transmission lines in its 2016-20 strategy, which stipulated 47 km be in place by the end of 2019.

Until recently it was assumed that most of the nat-ural gas from the Stabroek Block would be reinjected into reservoirs to keep production pressure high. However, as the deepwater finds have grown, it now seems likely that sufficient gas will be available to fuel a major power generation project. In August 2019 the minister of public infrastructure, David Patterson, told local media construction was under way on a

With nearly one in five Guyanese living off-grid, renewable energy projects are considered key to providing access to cheap, reliable and clean power in remote parts of the country.

GUYANA MINING

Gold is a mainstay of the economy and was the largest export in 2018

Guyana has long relied on primary resource extraction for growth and job creation. Moving towards a sustain-able light manufacturing ecosystem and increasing the value of raw materials is one of the main goals within the Green State Development Strategy, the 20-year plan guiding economic and socio-cultural development.BAUXITE: A key ingredient in the production of alu-minium, high-grade bauxite was discovered in vast quantities between the Pomeroon and Essequibo rivers at the end of the 19th century. The industry was a mainstay of the economy until it was nationalised in the 1970s, entering a period of steep decline. While Guyana produced 21.5% of the world’s bauxite between 1945 and 1949, this had fallen to 0.5% by 2017.

The bauxite industry was gradually privatised in the early 2000s and production is now divided between Russian-owned Rusal – the second-largest supplier of aluminium in the world – and China’s Bosai Minerals Group. The former has an annual production capacity of 2.3m tonnes of bauxite from its licences for the Linden, Kwakwani and Ituni deposits, while the latter has a capacity of 1.5m tonnes per year.

Production figures fall below each company’s stated capacity, but the industry appears to be in the early stages of a comeback. In 2018 Guyana’s bauxite pro-duction totalled 1.9m tonnes, representing annual growth of 24.6%. The industry received a further boost in January 2019 when the US removed sanctions on Rusal, but a month-long strike in February 2019 saw the Ministry of Finance (MoF) revise its full-year growth expectations for the segment from 8.6% to 1.3%. GOLD: Guyana lies on the Guiana Shield, an ancient rock formation that was once joined to mineral-rich West Africa. As a result, it is believed that the country possesses similar geological features and therefore holds significant potential for resource extraction.

Gold has traditionally been an important part of the Guyanese economy and was the country’s largest export in 2018. The country produced 613,073 oz in

2018, down from 653,674 oz the previous year. Out-put was divided between Guyana Goldfields, which operates the Aurora and Sulphur Rose mines and accounted for 163,568 oz, or 26.7% of the total in 2018; Troy Resources, which mines the Karouni project and produced 90,684 oz, or 14.8%; and small-scale and arti-sanal miners, which made up the remaining 52.8%, or 323,830 oz and generally operate strip-mining projects in remote areas of the country.

Despite a decline in production in 2018, the first half of 2019 showed promising growth. Between January and June 2019 Guyana produced 300,674 oz of gold, representing a 4.4% year-on-year increase. This can be attributed to improved road and weather conditions, allowing small-scale miners to boost their production by 15.8% over this period. However, the death of a worker at Troy Resources’ mine in October 2019 led to the voluntary shutdown of operations while the firm struggled with operational and financial difficulties.

Nevertheless, the country is believed to hold explo-ration potential for further deposits. In February 2019 Canada’s Barrick Gold – one of the world’s largest pro-ducers – announced a joint venture with Reunion Gold, another Canadian firm, to explore the region. “Until the 1990s, Guyana was politically closed off to mining investment,” Daniel Noone, executive director of G2 Goldfields, a Canadian mining company with titles in Guyana, told OBG. “Today there is difficulty in accessing mine sites and the wet seasons present challenges to exploration, but there are excellent local drilling and service companies, and the government has been very supportive of the industry.”

Guyana’s abundant reserves of minerals and land mean that the economy is likely to remain dependent on primary industries for the foreseeable future. However, traditional barriers to manufacturing value-added prod-ucts using low-cost raw materials look set to fall away, particularly as the government continues to invest in light manufacturing in order to diversify the economy.


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In 2018 bauxite production rose by

24.6%

Abundant reservesBoth gold and bauxite production are expected to grow alongside efforts to develop the light manufacturing segment

GUYANA TRANSPORT & LOGISTICS

The road network is concentrated around the Caribbean coastline

Inter-American Development Bank. Furthermore, the road from Linden to Lethem, on the border with Brazil, remains unpaved and bridge infrastructure is insuffi-cient to traverse the country’s many rivers.

Nevertheless, a number of projects are set to expand the country’s road network. In 2016 the Export-Import Bank of China issued a $45.5m loan to widen the East Coast Demerara highway to four lanes. As of late 2019 the first phase – from the capital to Rosignol – had been completed and the second phase, extending to the Berbice River in the east of the country, was in the planning stages. Also under development is a major new road from Great Diamond – 21 km south of Georgetown – to the East Coast Demerara highway. The project is expected to cost $180m to complete, Winston Jordan, the minister of finance, told OBG.PORTS: Guyana’s port infrastructure is comparatively fragmented, with five players in the segment. “The gov-ernment should bring together the diverse operators to create a single container port for Georgetown,” Chandradat Chintamani, senior vice-president of the shipping company Laparkan, told OBG. “It could buy up land to link the projects, meaning there would be no need for inland storage, which would reduce con-gestion.” Two local port players have already moved to develop shore bases focused on the country’s growing oil and gas industry. Work broke ground in November 2019 on a new port facility in Georgetown that is being developed through a partnership between shipping firm John Fernandes and the oil services firm Baker Hughes. The most significant development, however, is the creation of the Guyana shore base by local port company Muneshwers, along with Pacific Rim Construc-tors and TOTALTEC Oilfield Services. With 12.9 ha of waterfront and a further 40.5 ha on other side of the Houston main road, the $150m investment will be used as the principle shore base for ExxonMobil. Away from the Demerara, in November 2019 local businessman Stanley Ming announced plans for a $200m, 121.4-ha

While recent years have seen an uptick in activity to expand the country’s transport sector, Guyana’s road network remains underdeveloped and port infrastruc-ture is fragmented. Although this is largely attributable to its relatively small, sparse population, and the fact that it has not experienced a commodity-driven boom like many of its South American counterparts, infra-structure investment in Guyana had historically lagged behind its regional neighbours both in South Amer-ica and the Caribbean. Nevertheless, with the rapidly growing hydrocarbons industry, the sector presents considerable potential and is set to attract investment, thanks to its projected jump economic growth derived from increased oil and gas revenue.INSTITUTIONS: The Ministry of Public Infrastructure (MoPI) is the primary institution charged with the con-struction, maintenance and planning of infrastruc-ture, in particular the national road network and flood defences. In a broader sense, it aims to reduce the cost of transport across the country and harness improved infrastructure to boost economic development. The MoPI has 12 associated bodies, including Cheddi Jagan International Airport (CJIA), the Guyana Civil Aviation Authority (GCAA), and the Maritime Administration Department and Canawaira Ferry Services, which help to oversee the country’s maritime transport segment.ROADS: With over 90% of the population living close to the Caribbean, the Guyanese road network is largely coastal, with a number of roads connecting to inland cities. The main highway in Guyana stretches the coast-line linking New Amsterdam in the east to the country’s capital of Georgetown. This road then continues over a floating bridge – one of the longest in the world – to the western banks of the Demerara River.

In addition, a four-lane road runs south from Georgetown to CJIA and to the inland city of Linden. However, with 3995 km of roads serving a country of 215,000 sq km in 2019 Guyana had one of the spars-est road networks on the continent, according to the


20

A major new road is under development from Great Diamond – 21 km south of Georgetown – to the East Coast Demerara highway. The project is expected to cost $180m to complete.

Break groundWork is under way to upgrade the country’s road network and develop ports to serve the oil and gas industry

GUYANA TRANSPORT & LOGISTICS

Some observers view growing Chinese interest in Guyana as part of a wider engagement strategy being pursued across the South American continent.

In December 2018 a $150m airport upgrade and expansion project was undertaken by Chinese investors

shore base on the Essequibo River. Meanwhile, Cana-dian oil firm CGX is lobbying the government to allow the construction of a deepwater port on Crab Island, referred to as the Berbice Deepsea Port. It would be the first deepwater port in Guyana and the most prominent of its kind in north-eastern South America. Set to be constructed in three phases, the project is designed to leverage the projected high levels of oil production in Guyana of 750,000 barrels per day by 2025. AIR: Given its underdeveloped road network, inter-nally the country is relatively reliant on small aircraft to transport people and cargo, with Roraima Airways and Trans Guyana Airways being the two largest operators. Between 2014 and 2018 the total cargo transported by air increased from 6.15m kg to 7.97m kg, according to the GCAA, and the government has introduced tax incentives to further develop the segment.

“There are hundreds of airstrips all over the jungle in Guyana, but they need to be upgraded, properly maintained and see improved security,” Gerry Gouveia, CEO of the Roraima Group, told OBG.

Internationally, civil aviation capacity has been stead-ily growing. As international visitor numbers increase, the connectivity and capacity of the country’s aviation sector will be of great importance. In December 2018 a CJIA upgrade and expansion project was undertaken by Chinese investors at a cost of $150m. The project involved improvements to the airport’s technology to boost its ability to handle operations in challenging weather conditions, an important capability for an air-port situated in the tropics. Other aspects of the project include additional gates and jet bridges, an enlarged departure area and a longer runway to accommodate larger aircraft. Since the improvement, both US carrier American Airlines and Trinidad and Tobago’s Caribbean Airlines have expanded their operations. In addition, the US’ Jet Blue and Eastern Airlines are set to make their first flights to the country in 2020, scheduled to begin on April 2 and March 5, respectively. This is in addition

to the existing daily flights between New York City and Georgetown operated by American and Caribbean.

In a bid to improve its regulatory standing, the GCAA is pursuing Category 1 status from the US Federal Aviation Authority. This category signals that a given country’s aviation regulations comply with internation-ally recognised standards. Even though the GCAA has received indications that it will be granted the status, to retain its Category 1 designation, a country has to be home to an airline operating regularly scheduled flights to the US, something Guyana currently lacks.BELT & ROAD: Although geographically far from the old Silk Road on which China’s Belt and Road Initiative (BRI) is based, Guyana has joined many of its counter-parts in South America and the Caribbean in signing on to the project. In July 2018 the two countries signed a memorandum of understanding to cooperate in a number of areas, with a large component dedicated to investment in public infrastructure. Some observ-ers see Chinese interest in Guyana as part of a wider engagement strategy across the continent.

“China sees Guyana as a conduit to northern Brazil,” Sasenerine Singh, a financial analyst, told media. “A road link from Manaus to Guyana would cut thousands of kilometres off the shipping route along the Amazon River.” One such project is the proposed development of the Linden-Lethem highway connecting Guyana’s interior to the Brazilian border, in particular the sec-tion between Kurupukari to Lethem. Although some of the estimated $100m cost is being absorbed by the Caribbean Development Bank and the UK government, Guyana also hopes to use funds from the BRI, given the importance the project has in galvanising economic development in remote regions.

In spite of general consensus that investment is needed in transport infrastructure, greater transpar-ency on both sides would go a long way to shoring up local support for the BRI, amid reservations about how China has undertaken BRI work in other countries.

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Guyana is pursuing Category 1 status from US aviation regulators

of gated communities. “A house in a high-end gated community costs on average $5000 per month, which is almost on a par with New York City,” Shari Rodrigues, founder of Integral Solutions, told OBG. “The areas of Eccles, Houston and Providence are in particularly high demand due to their proximity to the Guyana shore base where ExxonMobil operates.”

Demand for high-quality housing units for expatri-ate workers has also fuelled expansion in the hotel market. The neighbourhood of Kingston is home to the Guyana Marriott Hotel Georgetown and the Pegasus Hotel, the latter of which is in the process of a $100m expansion that is set to include a 15-storey residential tower and a convention centre. NEW AREAS: Although there have been several new developments in Georgetown, the next stage of Guyana’s real estate boom looks likely to take place away from the capital. “Currently, real estate investment is focused on Georgetown,” Rodrigues told OBG. “However, projects are becoming increas-ingly decentralised, creating new opportunities for small towns with access to the ocean. The legacy of the recent oil discoveries will be the creation of new growth areas outside the capital in places such as Parika and Berbice.” For example, a $200m shore base is currently under construction in Parika, close to the mouth of the Essequibo River, led by local businessman Stanley Ming, while Canadian oil and gas firm CGX announced plans in November 2019 to develop deepwater port facilities on the banks of the Berbice River. With the government set to receive its first oil revenue in 2020 and demand for com-mercial and residential space continuing to expand, the number of public and private construction pro-jects put to tender is likely to increase sharply in the coming years. The central challenge for the indus-try will be building the capacity of local firms and boosting access to mortgage finance in order to develop high-quality projects at a reasonable price.

Guyana’s construction sector has been the primary beneficiary of the oil boom to date as local firms have embarked on a raft of new projects, including shore bases, storage facilities and accommodation for expatriate workers. The sector grew by 11% in 2018 and a further 8.2% in the first six months of 2019, accounting for around 12% of GDP. In the real estate sector, meanwhile, demand for riverside land has seen property prices and rents rise substantially. PRIVATE FOCUS: Government contracts remain a key component of the local construction industry, with a major focus on civil works, bridges and water-ways. However, the open tendering process – which includes little vetting – makes this segment compet-itive, with margins too thin to satisfy smaller con-struction firms. “With the advent of oil, there will be growing demand for high-quality construction and larger projects in the $15m-20m range,” Mohamed Raffik, CEO of local contractor Raffik and Sons Con-struction, told OBG. “In order to take advantage of these opportunities, it would be prudent for local companies to make strategic alliances with larger companies, especially with those from Trinidad and Tobago that have the relevant experience.” MORTGAGES: The demand for construction services is reflected in the growth of real estate mortgages, which totalled GY$84.5bn ($403.8m) in the first half of 2019. This represented a 5% year-on-year increase in loans for residential properties and a 14.7% rise in loans for industrial and commercial projects. Despite this, the mortgage finance seg-ment remains somewhat conservative. Mortgages often require a 20% down payment and charge a 7.5% interest rate, and most banks are risk-averse when dealing with new clients. DEMAND: Even prior to the recent oil discover-ies, demand for premium residential projects out-stripped supply, as buoyant gold prices encouraged miners to relocate to Georgetown’s limited number


22

The construction sector grew by

8.2%in the first six months of 2019

The demand for construction services is reflected in the growth of real estate mortgages, which totalled $403.8m in the first half of 2019.

Knock-on effectThe sector continues to expand as demand for commercial and residential property grows on the back of new oil finds

GUYANA CONSTRUCTION & REAL ESTATE

Demand for riverside land has seen property prices and rents rise

GUYANA INTERVIEW

Derek Chin

What new measures would the private sector like to see introduced in 2020?CHIN: Broadly speaking, the private sector would like to see the development of reliable, effective infrastructure. The creation of a power plant that could supply affordably priced energy and electricity would be both encouraging for domestic entrepre-neurs looking to start new businesses and attrac-tive to companies from around the globe. Equally important is the removal of overly bureaucratic administrative processes. Lastly, the private sector would like to extend invitations to participants that participate in sustainable development, provided adequate controls are in place.

In order to bring about these changes, relevant expertise and careful planning are very important. We must invest in proper development. Countries that become arrogant and create too many barriers hinder business activity, leading tangible economic benefits to escape much of the population.

Which potential risks do you see arising from the hydrocarbons discoveries? CHIN: First, the Guyanese government should not make the same mistake other countries have histor-ically made by overextending itself when benefitting from a new, substantial source of revenue. Naturally, over the long term, the inner workings of implement-ing an effective strategy for hydrocarbons revenue will be a challenging task, but we can take comfort in the fact that Guyana has already successfully completed shorter-term development projects.

Managing the country’s development will be crit-ical given the large infrastructure gaps that must be plugged immediately, and the work that this entails. At the same time, implementing improved regulation to allow for more extensive oil and gas exploration will be necessary. It is paramount that Guyana remains disciplined and establishes clear

priorities so that oil and gas revenue is spent on development projects that benefit the country and its people. Undoubtedly, some work will have to be done to achieve for clear values of accountability.

When studying other emerging nations that strike substantial oil finds, one observes that inflation can become a pertinent issue. However, with prudent management, expertise and good education, ben-efits beyond expectations can accrue. Ultimately, Guyana must look to invest in projects that prioritise development and generate further revenue if it wants to maximise the potential earnings that oil and gas discoveries offer. The establishment of a heritage fund and clear policies on national invest-ment will be key milestones on this path.

How can Guyana improve its business climate?CHIN: Guyana has room to improve when it comes to its standing in the World Bank’s ease of doing business index, where it ranks 134th out of 190 countries. This is largely the result of having too few economic resources despite offering a wealth of physical resources. There are, however, some opportunities available to investors, but given that Guyana, as a market, is not as experienced as devel-oped nations may be, its people are not yet familiar with the qualities and processes that could make the country more competitive.

Indeed, there has been little exposure to the international business world, and a lot of work will be necessary to educate and develop innovative systems that could allow the Guyanese to attract investors from around the world. The country needs liaison officers to work with potential investors worldwide. This option may provide the latter with more guidance on how the local system works. It will take a lot of time and work to get the ease of doing business ranking up, but openly embracing the upcoming wave of new investment remains critical.

Leveraging new revenueDerek Chin, Chairman, MovieTowne, on reaping the benefits of recent hydrocarbons discoveries

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24

In 2018 agriculture contributed

16.1%to GDP

105,000 tonnes of sugar was produced in 2018, down 43% from 2016

action. The ruling People’s National Congress pro-poses to focus on protecting the country’s three larg-est estates to bring production up to 147,000 tonnes and become the most sustainable sugar industry in the Caribbean in the medium term. Should it come to power after the March 2020 elections, the Peo-ple’s Progressive Party said it would reopen three previously shuttered estates and hire workers under the belief that the wider benefits of doing so would justify the industry running at a loss. DIVERSIFICATION: The traditional focus on rice and sugar has historically dampened the urge to develop other products, but this situation is starting to change. “Guyana’s agricultural potential is signifi-cant. We have fresh water, vast tracts of underused arable land and we are outside of the hurricane belt,” Jared Kissoon, CEO of Pomeroon Trading, a coconut water and agri-development company, told OBG. At its peak in the 1980s, over 36,422 ha of land were given over to coconut cultivation in Guyana. Today around 2023 ha of coconut groves remain, with one-fifth commercially farmed, according to Kissoon. Techniques have evolved, too: the 405-ha Pomeroon farm in the west of Guyana grows shorter, easier to harvest trees, rather than the taller ones planted in the past. “We are the first to treat coconuts as a high-volume commodity for the export market,” Kissoon said. “If we could build a geographic indica-tor for our coconuts – like Jamaica’s Blue Mountain Coffee – it would be great for the industry.”

However, infrastructure – from roads to drainage and irrigation – remains a major obstacle for the country’s agri-businesses. In addition, in the absence of a national commercial bank, small farmers face exorbitant lending rates from the country’s banks, ranging 12-20%. Many in the private sector believe that only major government investment in the nec-essary infrastructure will create the conditions for agriculture to flourish. The re-establishment of an

In the 1950s Guyana earned the nickname “the breadbasket of the Caribbean” thanks to the rapid growth of its rice production and consequently, exports. However, over the following half-century the country has been slow to fully capitalise on its agricultural potential outside of the cornerstone rice and sugar industries, the latter of which is in need of reform to regain competitiveness. By 2019 CARI-COM countries were importing $4.5bn worth of food every year that could be grown locally, according to Julio Berdegué, assistant director-general of the UN Food and Agriculture Organisation. “Guyana is a fundamental part of the solution to this problem,” he told local media in Georgetown in April 2019, adding that “few other countries in the Caribbean have the production potential of Guyana”.GENERAL INDICATORS: In 2017 agriculture accounted for 18% of the labour force, and in 2018 it contributed 16.1% to GDP. Mid-2019 figures sug-gested the sector had contracted by 0.3% since the start of the year. Two segments saw strong perfor-mances: total rice production surpassed 1m tonnes in the first half of 2019, the second-highest production on record, while the forestry segment grew by 8.5% on the back of strong construction activity. However, declines in fishing and livestock of 12.2% and 8.1%, respectively, dragged the wider agriculture sector into negative growth for the January-to-June period. SUGAR: Home to the river that gave Demerara sugar its name, Guyana has faced stiff challenges in main-taining global competitiveness in the sugar segment. The national Guyana Sugar Corporation is responsible for most of the country’s production, but a history of underinvestment has caused output to gradually decrease. For instance, in 2018 production stood at 105,000 tonnes, 43% lower than 2016 levels, while in 2000 Guyana produced close to 300,000 tonnes.

The two main political parties are committed to rejuvenating the industry, but differ in their plan of

In the worksWith agriculture still an economic cornerstone, the government is looking to boost productivity through higher investment

GUYANA AGRICULTURE & FORESTRY

25


GUYANA AGRICULTURE & FORESTRY

In early 2019 Guyana signed an agreement with the EU under the Forest Law Enforcement, Governance and Trade initiative, facilitating trade with European buyers.

While a small segment of agriculture, agro-processing has significant potential to take the sector further and has been targeted by the government as part of diversification plans.

Deforestation rates in Guyana are among the lowest in the world, at under 0.05% of all forested area in 2017

agricultural bank, a recurrent theme in Guyanese politics, could be a possibility in the future, having been proposed by the Change Guyana party during the 2020 presidential campaign. TIMBER: Timber accounted for a little over 1.8% of Guyana’s GDP in 2018. That year timber production grew by 2.3% to 385,653 cu metres, but the total value of exports declined slightly, from $39.1m in 2017 to $37.9m. However, improvements in interior roads led to an 8.5% surge in production in the first half of 2019, particularly in Region 10, which sits between the upper stretches of the Demerara and Berbice rivers in the north-east.

In 2018 China and India, respectively, accounted for 71% and 19% of the total value of exported logs, with the most popular species being Wamara, Greenheart, Kabukalli, Darina and Purpleheart. In the undressed lumber and roundwood categories, however, there was a greater diversity of export destinations, with Latin America and the Caribbean accounting for 43%, North America for 23% and Europe for 21%.

The industry faces the challenge of boosting legal, sustainable production, and controlling illegal log-ging. In 2016 the Guyana Forestry Commission (GFC), in charge of monitoring the segment, refused to renew over 180,000 ha worth of logging licences belonging to Chinese firm Bai Shan Lin, which had not paid its fees and had entered into joint ventures illegally. In early 2020 the GFC announced its inten-tion to re-advertise the seized concessions.

Despite these issues, Guyana remains a country with one of the lowest rates of deforestation in the world, losing under 0.05% of its forested areas in 2017. In 2009 Guyana signed a deal with the govern-ment of Norway whereby the latter would provide $250m per year under the UN’s Reducing Emissions from Deforestation and Degradation initiative if deforestation remained at or below a baseline rate of 0.05% for five years. In early 2019 Guyana signed an agreement with the EU, bringing it closer to issuing logging licences under the EU’s Forest Law Enforce-ment, Governance and Trade (FLEGT) initiative. With a FLEGT licence, European importers will be able to purchase Guyanese timber without having to under-take costly local due diligence. MANUFACTURING: Guyana’s manufacturing sector is focused on processing and adding value to local raw materials. As such, it mainly engages in light man-ufacturing, and output grew by 3.6% year-on-year in the first half of 2019. Yet the sector remains small and uncompetitive due to the high cost of energy and sparse infrastructure in the country. “Many of the long-standing jeopardies are inextricably linked to the high cost and unreliability of electrical power,” Clinton Williams, president of the Guyana Manu-facturing & Services Association (GMSA), told local media in December 2019. “Until we overcome the issue of expensive and unreliable power, the private sector and particularly the manufacturing sector will continue to perform below potential, having a knock-on effect on jobs and the wider economy.”

However, the highly expected arrival of cheaper energy with ExxonMobil’s oil and gas production and promised investment in bridges and roads (see Energy), combined with the government’s com-mitment to economic diversification, mean that the manufacturing sector could see significant investment in the coming years. Agro-processing would be the logical first step on this agenda, and in December 2019 over 80 local companies attended the Marketplace UncappeD exhibition organised by the GMSA to promote the segment. Elsewhere, government agencies have taken the lead on various projects. The Guyana Marketing Corporation, for instance, offers training to local food producers to market their products, while the National Bureau of Standards is working with laboratory facilities, both medical and related to food monitoring, to help them meet international standards.

To boost productivity levels and lower costs, the GMSA also works with the government to provide farmers with low-cost technologies for primary pro-cessing in remote areas and modular agro-process-ing facilities in regions rich in mangoes, pineapples, plantains and peanuts. Lastly, the country also has potential when it comes to adding value to its timber exports. In that regard, Robert Badal, the presidential candidate of the Change Guyana party, has promised to build an advanced furniture factory in Linden, south of Georgetown, should he be elected in 2020.

For decades Guyanese agriculture has been an essential source of jobs while sometimes, as in the case of sugar, a drain on national resources. If eco-nomic diversification is to be achieved, a portion of incoming oil revenue should be earmarked for vital road and bridge projects that bring connectivity to the country’s vast tracts of underutilised arable land. In the meantime, investment in irrigation schemes and improved manufacturing capabilities should allow Guyana to boost its agri-business performance.

GUYANA TOURISM

Other Caribbean nations supply a little under half of Guyana’s tourists

largest scaled freshwater fish. Rewa Eco-Lodge now attracts anglers from around the world and each trip is accompanied by researchers who help track and monitor the behaviour of the arapaima. MEETING DEMAND: In its Strategic Action Plan 2018-25 the GTA set the objective of being internationally recognised as a “premier destination for protecting its natural and cultural heritage, providing authentic experiences and benefitting residents”. Guyana’s tour-ism attributes are being increasingly promoted, with the GTA using targeted social media ads to reach both the Guyanese diaspora and travellers from its core markets in North America and Europe who are seeking nature, culture and adventure experiences. In 2019 the country won one regional and four global awards for being a leading sustainable tourism destination, and in December of the same year it was listed by US media company Condé Nast as a top place to visit in 2020.

Coordinating supply with increasing demand has been a growing challenge. The country has an increas-ing number of eco-lodges in the interior and while some of the accommodation remains decidedly rustic, upgrades and expansions are needed to welcome a larger number of travellers. Terrestrial infrastructure presents obstacles too, as some destinations require over a day’s transit time from the nearest airport, mak-ing attracting anyone other than adventure-oriented ecotourists somewhat challenging. Improving service levels and procuring qualified staff are also priorities, and in recent years the GTA has invested significantly in training schemes. In 2018 five Guyanese tourism trainers were certified according to international standards, providing training to 300 individuals. In 2019, 27 new trainers taught 760 locals. The govern-ment also released a new tax exception guide for the tourism sector in 2019 to make it easier for lodging owners to secure, for example, full Customs duty and value-added tax exemptions for building materials, fit-tings and furnishings for new hotels and guest houses.

Guyana’s varied and pristine environment puts it in a strong position to capitalise on the growth in global tourism. New efforts to implement sustainable tourism best practices and promote the country’s strengths in nature, adventure and cultural tourism are beginning to bear fruit, and position the country as an up-and-com-ing destination in the competitive Caribbean region. SECTOR GROWTH: In the first 10 months of 2019 Guy-ana registered a record 255,779 visitors, a 9.1% increase on the same period in 2018. Between 2009 and 2018 the annual number of arrivals doubled from 141,281 to 286,732, with visits from other Caribbean nations making up nearly half of the total. Visitors from the US represent one-third of arrivals, with Canada (6.9%) and Europe (4.6%) accounting for smaller shares. In 2019 the government recorded the average spending of tourists which, at GY$222,216 ($1060) per person per visit, sits close to the global average. Overall, the tourism industry was estimated to bring in GY$62.6bn ($299.2m) of revenue that year. PRESERVATION: Guyana’s largely unexplored hinter-land makes it an attractive destination for sustainable tourism, yet the potential can only be unlocked if the country’s natural remoteness and wildlife is preserved, and if more communities get involved in tourism. “Guyana is the destination of the future in an age of over-tourism,” Brian Mullis, director of the Guyana Tourism Authority (GTA), told OBG. “We aim to expand sustainable, high-value and low-impact tourism with a focus on adventure, nature and culture.”

In recent years many of the most successful tourism projects have been developed in partnership with local communities. One example is the Rewa Eco-Lodge founded by a community on the Rewa River that wanted an alternative source of employment to agriculture and mining. In partnership with sunglasses manufacturer Costa and sustainable fishing organisation Indifly, the lodge became the first project to be awarded a licence for catch-and-release fishing of arapaima, the world’s


26

In the first 10 months of 2019 Guyana registered

255,779visitors

To help cooordinate supply and increasing demand, the government introduced tax exemptions for lodging owners to build, fit and furnish new hotels and guest houses.

Gaining recognitionSustainable tourism with a focus on nature, adventure and culture is positioned as the country’s primary offering


27


The country has 22 district hospitals and four regional hospitals

GUYANA HEALTH & EDUCATION

Maternal mortality fell to

122per 100,000 in 2019

Education is free and compulsory for Guyanese children aged 5 to 16, with exams conducted every two years to test both numeracy and literacy.

The promotion of a health and education is one of the key objectives of the government’s Green State Development Strategy, and in 2013 Guyana adopted the goal of establishing universal health care. However, the country faces major challenges in achieving its targets, with many of its health indicators being among the lowest performing in the region. For example, life expectancy at birth is the second lowest in the Ameri-cas, at 69.9 years, and the maternal mortality rate stood at 229 per 100,000 births in 2018, more than twice the average for the non-Latin American Caribbean, accord-ing to the Pan American Health Organisation (PAHO). Communicable diseases remain a challenge with nearly 14,000 cases of malaria reported in 2018 and 97 cases of leprosy. The HIV rate of 99 per 100,000 people is the second highest in the CARICOM region after Suriname and the arrival of 47,000 Venezuelans has created the need for new immunisation programmes. HEALTH SYSTEM: The Guyanese health care system is split into five levels. At the village level – levels one and two – there are 32 health posts and 70 health centres across the country. Levels three and four consist of 22 district hospitals and four regional hospitals. The fifth level includes the National Referral Hospital in the capital Georgetown – which has around 1000 beds – and a psychiatric institute in the eastern area of Canje. Currently, there are 10 private hospitals in the country, but more are expected to enter the market to meet rising demand for private care, driven in particular by Guyana’s increased expatriate population.

In terms of policy, Guyana is one of a handful of coun-try’s to have introduced a national suicide prevention programme in 2014. Furthermore, Guyana follows the 90-90-90 target set by Joint UN Programme on HIV/AIDS, which aims for 90% of infected people to have awareness of their condition, with 90% of that group receiving anti-retroviral drugs and 90% of those under treatment having a viral load at a level where the patient is considered to be HIV free. PAHO has also

focused on maternal mortality reduction, launching a region-by-region campaign in 2015 to tackle the risks of natal haemorrhages and offering contraceptive implants. These efforts appear to be bringing results, as the maternal mortality rate has dropped significantly by 2019 to around 122 per 100,000, according to PAHO. “Guyana spends about 4.3% of GDP on health care, below our recommended level of 6%,” Dr William Adu-Krow, PAHO’s representative in Guyana, told OBG. “If the country’s health challenges are to be met, we need to gather better data in order to inform policy deci-sions, and we need to invest more in human resources and provide incentives to stay in the public sector.”EDUCATION: When it comes to human capital for-mation, the education system is free and compulsory for all Guyanese children aged 5 to 16 years old, with exams every two years to test numeracy and literacy. Entrance to higher ranked secondary schools is based on selective examinations. However, according to the ministry of education only 36% of secondary students attain minimum matriculation requirements. Further-more, data from 2016, the most recent year for which figures are available, showed that enrolment rates for primary and secondary schools were only 80%. There are approximately 10 vocational schools – split between public and private entities – and just one large tertiary education institution, the University of Guyana, although two private medical schools have campuses in the country. As a result many Guyanese attend university overseas, with Trinidad and Tobago, the US and the UK being popular destinations.

Education expenditure as a share of GDP has risen steadily, from 3.2% in 2010 to 6.3% in 2016, according to the World Bank. Nevertheless, major challenges remain, most significantly better training is required for the country’s primary and secondary school teachers, with one in four teachers currently having no formal train-ing. A review of the sector undertaken by CARICOM in 2019 is expected to provide further policy guidance.

Mind and bodyThe government works to improve health indicators and expand the education system

GUYANA TAX

Guyana has double taxation treaties with Canada, the UK and CARICOM

Guyana’s fiscal regime is based on self-assessment and voluntary compliance. It includes a mixture of direct and indirect taxes. For individuals, direct taxation takes the form of income tax imposed via the pay-as-you-earn (PAYE) method for employees and quarterly instalments for self-employed per-sons. Corporations’ direct taxation takes the form of corporation tax. Both individuals and corporations are also subject to property tax and withholding tax. Guyana has three double taxation treaties (Canada, the UK and CARICOM), and negotiations are ongoing for a fourth with the UAE. Guyana-resident compa-nies are liable for tax on their worldwide income. Non-resident companies that carry on a trade or business in Guyana are subject to tax on the income that is derived from Guyana. Corporate residence is determined by the location of the central man-agement and control of the business of a company.

The current rates of corporate tax are outlined in the table below.MINIMUM CORPORATION TAX: Commercial com-panies (other than insurance companies) are subject to tax at the rate of 40% of chargeable profits or 2% minimum corporation tax (MCT) of turnover,

whichever is higher. Any excess MCT over tax at the normal rate is carried forward for set-off against corporate tax payable in subsequent years, pro-vided that in no year is the tax payable reduced to less than 2% of turnover. All revenue expenses wholly and exclusively incurred in the production of income are generally deductible. Tax depreciation rates – or wear-and-tear allowances – is applied at varying rates based on the asset class (see table below). VAT is charged at the rates of 14% or 0% on the taxable supply of goods and services within Guyana by a registered person. Property tax is an annual tax charged on the net property of a person at the end of each year (see table). PAYROLL TAXES: Employers are required to deduct and remit PAYE contributions to the tax authority by the 14th day of the month following that in which the employment income was paid. Individuals with chargeable income of less than GY$1.56m ($7460) per annum pay tax at the rate of 28%; where the chargeable income exceeds that amount, the incre-mental rate of tax applicable is 40%.SOCIAL SECURITY: As an employer, a company is also required to deduct and remit social security


By the bookAn overview of the local tax regime and related regulations

29


Type of company Corporate tax rate (%)

Telephone companies 45

Commercial companies* 40

Other companies (non-commercial) 25

Both non-commercial & commercial 25 / 40

Small business engaged in manufacturing/construction 25services & registered with the Small Business Bureau

Current rates of corporate tax

*A commercial company is one that derives at least 75% of its gross income fromgoods not manufactured by it, or if it is engaged in telecommunication, bankingor insurance (other than long-term insurance).

Asset class Depreciation rate (%)

Aircraft 33.33

Boats 10

Buildings (housing & industrial) 5

Furniture & fittings 10

Motor vehicles 20

O�ce equipment, including computers & computer software 50

Plant & machinery 20

Other 15

Tax depreciation rates

An individual is deemed a resident in Guyana if he or she resides in the country for more than 183 days in a year

contributions on behalf of its employees. Social security contributions are due on employees’ monthly earnings of up to GY$240,000 ($1150) and weekly earnings of up to GY$50,385 ($241).

Participation is compulsory under the National Insurance scheme. There is no exemption for the employee or employer. Contributions at the fol-lowing rates are mandatory and must be deducted by the employer and paid by the 15th day of the following calendar month:• Employee: 5.6% of insurable earnings• Employer: 8.4% of insurable earnings.The insurable earnings ceiling is currently set at GY$220,000 ($1050) per month.WITHHOLDING TAXES: Withholding tax is charge-able on gross payments to non-residents and must be remitted to the tax authority within 30 days of making the payment. In cases where the treaty rate is higher than the statutory rate, the lower statutory rate applies. The rates of withholding tax range from 0% to 20%.TAXABLE PERIOD: The tax year is the calendar year. Tax is assessed during a tax year on income earned during the year of assessment, which is generally the calendar year preceding the tax year. TAX RETURNS: Tax returns must be filed by April 30 of each tax year.PAYMENT OF TAX: Corporate tax is payable in advance in quarterly instalments on the preceding year’s tax liability. Advance tax payments are due on

March 15, June 15, September 15, and December 15 of the calendar year prior to the tax year. STAMP TAXES: Stamp duty is levied at various rates on several instruments, including affidavits, statu-tory declarations, deeds of conveyance, mortgages, share transfers, awards of arbitrator, powers of attorney, agreements, bills of exchange, receipts and insurance policies.CAPITAL GAINS TAXES: Capital gains tax is imposed at the rate of 20% on the net chargeable gains derived from the disposal of capital assets. Gains derived from the disposal of an asset within 12 months of its acquisition are treated as ordi-nary income and subject to corporate tax at the applicable rates. CUSTOMS DUTIES: Customs duty is paid on all goods imported into Guyana. The rates of duty vary between 5% and 150%, depending on the classifi-cation of the item in question. EXCISE TAXES: Excise tax is imposed on specific imported or home-produced products. These prod-ucts include alcoholic beverages, tobacco products, petroleum products and motor vehicles.PERSONAL INCOME TAX: Resident individuals (i.e., those present in Guyana for at least 183 days in the calendar year) will be entitled to a personal allow-ance of GY$780,000 ($3730) or one-third of their income (per annum), whichever is greater.

As stated previously, individuals with chargeable income of less than GY$1.56m ($7460) per annum pay tax at the rate of 28%. If their chargeable income exceeds that amount, the incremental rate of tax applicable is 40%.

An individual is deemed to be resident in Guyana if he or she resides in the country for more than 183 days in any calendar year, resides in Guyana permanently, or if he or she is in Guyana and intends to reside there permanently.TEMPORARY VISAS: Visas are issued under the following five categories and are valid for multiple periods of three months, up to a maximum of three years:• Diplomatic;• Courtesy;• Business;• Tourist; and• Student.WORK PERMITS: A foreign national seeking employ-ment is required to apply for a work permit with the Ministry of Foreign Affairs. The permit is good for the duration of the business contract signed between the expatriate and the employer, up to a maximum of three years.TAX TREATIES: Guyana currently has treaties with the following countries:• Canada;• CARICOM member states; and• The UK.


30 GUYANA TAX

OBG would like to thank PwC for its

contribution to THE REPORT Guyana 2020

Net property of a company (GY$) Property tax rate (%)

On the first GY$40m 0

On every dollar of the next GY$20m 0.5

On every dollar of the remainder 0.75

Property tax

31


GUYANA VIEWPOINT

Angelique Bart

Delicate balanceAngelique Bart, Managing Partner, PwC Guyana, on reforming the tax regime to benefit citizens and the nascent energy industry

Guyana’s economic activity has historically been dependent on the export of rice, gold, bauxite and timber; however, given multiple recent discoveries the country is on track to become one of the largest oil-producing countries in the world. US energy giant ExxonMobil and its partners announced in December 2019 that they had produced Guyana’s first commercial crude from the offshore Stabroek Block. The crude was subsequently exported, offi-cially making Guyana an oil exporter.

The projected tax revenue from the discovery and related industries are expected to rapidly transform Guyana on every social and economic level in the coming years. The country has already started to face the inevitable growing pains associated with this transformation. Thankfully, Guyana is in a unique position to benefit from both the positive lessons and missteps of its neighbouring countries, which are veterans in the petroleum industry. The extent to which Guyana and its citizens will benefit from the economic upswing can in part be predicted by the legislative and policy framework that is being put in place today. The government recently announced that it has brought in an international oil and gas law firm to revise, replace or develop legislation for Guyana’s petroleum sector.

Given the government’s current caretaker sta-tus, it is restricted from introducing or amending legislation and as such, any legislative changes will only be introduced after the March 2, 2020 general elections. Through its mining industry, Guyana has a long history of exploiting and depleting its non-re-newable natural resources, an experience that will guide the legislative and policy-planning of its virgin petroleum industry. To maintain competitiveness with other oil and gas jurisdictions, Guyana will have to implement tax legislation comparable among oil-producing countries, while ensuring that the people of Guyana get their fair share of tax revenue

from the depletion of their non-renewable natural resources. Guyana will also need to simultaneously implement macroeconomic policies to prevent or limit the effects of an oil boom, so-called Dutch disease – rapid inflation, spikes in the cost of liv-ing and corruption in general. The implementation of mandatory international corporate governance standards at government boards and statutory bod-ies from a policy perspective may add a level of transparency that will go a long way in avoiding some of the pitfalls several older petroleum-producing countries still face today. Legislation and policies addressing local content requirements and sover-eign wealth funds are key to future development and may serve as the defining elements for continued growth for successive generations.

From an international trade and tax perspective, Guyana has three double tax treaties with Canada, the UK and CARICOM, and negotiations are ongoing for a fourth with the UAE. Given its projected rapid economic development, Guyana is in a strong posi-tion to negotiate future treaties. Guyana’s general tax legislation is relatively progressive, allowing for the submission of returns and payments digitally. With the exception of a few unique sections, pro-fessional international tax practitioners will find the general language familiar. The potential impact of allocating a portion of future tax revenue to the digitalisation of the country, including the revenue authority, and the resulting accountability and effi-ciencies cannot be overstated.

It is undisputed that Guyana has a bright future, however, to realise the country’s true economic potential and to yield the benefits that will ulti-mately redound to the population will require strong legislative reforms as well as sustainable economic policies. They must balance the delicate equation of attracting foreign direct investment, while protect-ing the exploitation of Guyana’s natural resources.

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