GUYANA: POLITICAL INSTABILITY TO SUSTAIN POLICY RISK FOR OIL COMPANIES

On 12 March, a partial vote recount of the ballots casted in the Region Four on the 2 March general elections was suspended for a second time following renewed allegations of fraud. Electoral observers are set today to resume the verification of the votes in the area, but it is yet unknown when a winner will be announced. Nevertheless, the Guyana Elections Commission is likely to finalise the electoral results before the 17 March constitutional deadline.

Background
 

·    General elections in Guyana took place on 2 March, with the ruling Partnership for National Unity and Alliance for Change (ANPU-AFC), led by President David Granger, and the opposition People’s Progressive Party (PPP) of Irfaan Ali, as main contenders. Both coalitions appealed to the population with promises of increased wealth, higher salaries and better working conditions stemming from the expected 86% GDP growth forecasted for this year as a result of expected oil exports from the newly discovered offshore fields.

·    Nevertheless, allegations of vote fraud in the Region Four (the most densely populated) sparked week-long protests after vote tallies in the area were allegedly manipulated to favour the ruling party over the PPP. One protest-related fatality was recorded during the week and hundreds were injured by rubber pellets, as PPP supporters clashed with riot police in the capital. Amidst a volatile security environment, both the ANPU and the PPP declared victory, with Granger claiming to have won by two seats in the 65-seats National Assembly, and Ali claiming a victory by three seats.

·    As a result of the allegations, on 5 March the US, Canada and the EU called on President Granger to avoid an “unconstitutional” transition of government based on a vote tabulation process that “lacked credibility and transparency”. Similarly, a delegation of prime ministers from Caribbean countries travelled to Georgetown on 11 March to assist the national electoral body in solving the political dispute that arose as a result of the contested vote.

·    This year’s elections are particularly significant for Guyana, as they are the first ones to be held since significant oil discoveries were made over the last years. Most notably, in 2015 a consortium led by ExxonMobil announced the first discovery of oil reserves in the offshore Stabroek Block in the Essequibo Region, an area which is currently disputed between Guyana and Venezuela. Since then, in December 2019 ExxonMobil started oil production, and in January the first shipment of crude sailed towards the US, marking the country’s debut into the global oil market. Estimates by the International Monetary Fund forecast that the economy will expand by 86% in 2020 and that GDP will triple over the next five years as a result of oil production.

 
Social and economic stability will be pivotal for foreign investment in the oil and energy sector
 

·    Regardless of the outcome of the vote recount, political instability is likely to persist, as both parties will face pushback from the opposition by leveraging vote misconduct allegations. Furthermore, the expected wealth coming from oil production will pose significant socio-political challenges for the future administration, as the country continues to suffer from endemic corruption, high rates of poverty and weak infrastructure. Social and political stability will therefore depend on the government’s ability to effectively manage oil revenues to boost broader social development and prevent a sharp rise in wealth inequality.

·    Guyana continues to be highly divided along ethnic lines, notably between the Afro-Guyanese and the Indo-Guyanese communities. As such, support for political parties is also ethnically fragmented, with the former backing President Granger’s APNU and the latter endorsing the PPP. Considering the renewed inter-party conflict, political polarisation along ethnic lines is therefore set to remain after the next president is announced, hindering social and government stability and heightening the risk of domestic unrest.

·    Policy risk for foreign companies operating in the oil and energy sector will also be a growing concern should Irfaan Ali be announced the next president. Ali’s political agenda is widely based on renegotiating signed contracts with ExxonMobil and other oil companies, as they are perceived to overly favour private enterprises at the expense of the country’s social development. Should Ali be elected, a stronger commitment to social programmes and job creation is likely to be demanded from foreign companies operating in the country, while stricter operating conditions are likely to be imposed on future contracts.

·    In general, the oil boom is likely to expose foreign oil and energy companies to an increase in common crime and piracy in the long-term, as the number of workers, international travellers, and cargo shipments also increases. Most notably, local criminal groups are likely to capitalise on the increased influx of foreign nationals to the country, and particularly to Georgetown, to carry out low-level acts of criminality driven by prospects of quick financial gains. Similarly, ships and cargo vessels are likely to be vulnerable to incidents piracy and theft, as criminals look to steal valuables and merchandise.