Suriname and Guyana: Countries in Transition

Image: The South Drain Canal border crossing facility on the Guyanese side of the Corentyne River. Source: Caribbean National Weekly.

The private sector plays an important role in the economy of the Caribbean. The regional private sector accounts for 60 percent of the available jobs according to the CARICOM secretariat. Small and medium-sized enterprises (SMEs) account for 40 percent of the regional GDP. The revised Treaty of Chaguaramas signed on the July 4, 1973, establishing the Caribbean Community (CARICOM) included the CARICOM Single Market and Economy, deliberately focused on establishing an environment capable of supporting the development and viability of SMEs.

SMEs were heavily impacted by the COVID-19 pandemic in the past two years. The Inter-American Development Bank (IDB) carried out a survey with nearly 2,000 firms in 13 Caribbean countries and the results showed that 36 percent of smaller firms reported a workforce reduction because of the pandemic. The International Monetary Fund (IMF) also estimated that there was a fall of economic activity in the region by 9.9 percent which was higher than in Latin America for the same period, which was 6.8 percent in 2020 (Pereira and Yañez-Pagans, 2021).

Although the COVID-19 pandemic affected the regional economy, economists predict a more positive outlook for Suriname and Guyana because of their recent offshore oil discoveries. With billions of barrels of proven reserves between the two, Suriname and Guyana represent the next oil frontier. The discoveries have attracted considerable investment from Exxon Mobile, Total, and Apache and will create opportunities for the struggling economies of Suriname and Guyana. These developments have led some government officials in Guyana to predict a 500 percent expansion by 2030 (Cohen, 2021). They have also led the Government of Suriname (GoS) and the government of Guyana (GoG) to emphasize different ways forward by renewing old partnerships with Brazil and French Guyana, but also by strengthening internal governance and financial structures; and implementing policies and laws to get the most out of the offshore industry. Within the current milieu of developments these countries needs to have a long-term vision to overcome the short-term development needs for underserved communities. An overview of the economy of Guyana and Suriname

Guyana

Since its independence from the United Kingdom in 1966, Guyana has struggled economically. The British centered the country’s colonial economy around plantations and cash crops, which partly explains its current underdeveloped status. Today, pristine rainforest, mining (bauxite and gold), fishing, and traditional agriculture (rice and sugar) make up its main economic assets. The commodities of sugar, gold, bauxite, shrimp, timber, and rice represent nearly 60 percent of the country’s GDP alone (Moody’s Analytics, 2022).

Table1: Guyana, selected indicators.

Source: the World Bank, for all categories.

The country was not always in the best economic situation, but in recent years the economy has enjoyed low inflation and moderate growth according to the IDB (Wenners and Bollers, 2018, 5). In 2007, the IDB also cancelled Guyana’s USD $470 million in debt. Since 2008 the country has benefitted from rising commodity prices and entry into the CARICOM single market, which taken together has broadened its export market. These three developments have had a positive impact on Guyana’s economic growth, which is demonstrated by the country’s real GDP growth of 2.8 percent annually in the period between 2000 to 2018. Comparatively, Guyana had faster growth than other Caribbean countries like Jamaica, Barbados, and the Bahamas (Gauto and Mooney, 2021, 9). Between 2018 and 2020 Guyana’s GDP grew by an average of 17.8 percent, which can be attributed to oil production. Today, Guyana has sufficient reserves, a stable currency, and manageable public debt.

Despite COVID-19, the Guyanese economy still expanded vigorously in 2020-2021. Total GDP grew by 14.5 percent in the first half of 2021, while non-oil GDP grew by 4.8 percent according to the Ministry of Finance. According to the Minister of Finance of Guyana, Dr. Ashni Singh, subsequent oil discoveries will cause 47.5 percent GDP growth for 2022—the world’s highest forecast. Thus, Guyana’s oil exports will continue to drive economic growth and will have positive spillover effects for the non-oil economy.

Although the oil and gas sector will catalyze socio-economic development, the GoG will also be pursuing a sustainability agenda. Officials will do this by implementing a Low Carbon Development Strategy (LCDS) as outlined by Minister Singh. This proposed strategy emphasizes the following activities: 1) integrating Guyana’s forest and climate services with emerging global carbon markets; 2) supporting Guyana’s economic transformation through cleaner, cheaper energy; 3) investing in resilience and adaptation sectors to counter climate change; and 4) contributing to the global effort to address climate change and biodiversity loss (Singh, 2022, 22).

The oil and gas developments in Guyana should be considered a transitional phase in the development of the country, considering the fact that there is a mounting pressure from environmental groups for the country to look toward alternative, cleaner energy sources. With 85 percent of its land area covered by tropical rainforest, the country has a very good foundation to transition into a modern, green economy.

Suriname

Suriname, like Guyana, also had a plantation economy. After the country gained its independence in 1975, the economy depended on Dutch aid and bauxite exports from the U.S. company Alcoa. In 2015, Alcoa stopped its Surinamese operations which prompted an immediate deficit, thus underscoring the economy’s high level of dependence on the bauxite industry. The financial crisis of 2015 also had a great impact on the economy. According to the IMF, Suriname’s debt to GDP ratio leaped from 75.6 percent in 2018 to 145.3 percent, and was spurred by its shrinking GDP and currency devaluation (IMF Western Hemisphere Report October, 2020). Suriname’s challenging situation is corroborated by the World Bank’s data (see Table 2), which shows a debt increase in the period between 2018 to 2020 and a real GDP contraction of 15.9 percent in 2020. In 2020, the country’s overall fiscal deficit stood at 13.4 percent of GDP with a primary deficit of 9.7 percent of GDP.

Currently, gold represents approximately 80 percent of exports, while the broader mining sector represents 30 percent of public sector revenues. Multinational investment and Staatsolie (a state-owned oil company) run most of Suriname’s mining operations. Another income source is agricultural products (bananas, citrus fruits, coconut, and palm oil), plywood and other timber, and shrimp (primarily exported to North America). Suriname, like many other small economies faces many challenges. Though the economy is open, the bulk of its activity is heavily dependent on the mining sector and needs a broader economic base. Much of the country’s income is based on commodities and natural resources revenues.

Another challenge is that the country has a sizable debt burden, consisting of private, public, and international debt. Public debt in 2020 was 148 percent of the GDP alone. Furthermore, there are important vulnerabilities within the domestic banking system according to the International Monetary Fund (IMF, 2019, 6). Suriname’s biggest creditor is the U.S. investment firm Oppenheimer, with significant amounts of debt also held by the IDB and China (its largest sovereign creditor) (European network on Debt and Development, 2021, 1- 4). Fluctuating exchange rates for foreign currencies, a shortage of available foreign currency, and lacking trust in financial institutions add to these debt challenges. Altogether, these financial hurdles have far-reaching implications for other institutions.

The economy of Suriname, just like Guyana, was also impacted by the COVID-19 pandemic, which exacerbated the current economic crisis. A study published by The Association of Surinamese Businesses (VSB) in June 2020 shows that the pandemic had an impact on 99 percent of businesses in Suriname. There were declining revenues in the information and communications technology (ICT) and trade sectors of over 50 percent, in tourism close to 100 percent, and in industry 60 percent.

Table 2: Suriname, selected indicators.

Source: the World Bank.

The current government has acted vigorously to tackle these macro-economic challenges by drafting a roadmap that is supposed to bring change. The proposed program, is divided into three phases: 1) the “Urgency Phase”; 2) the “Stabilization and Modernization Phase” and 3) “The Development and Modernization Phase.”[1]

The country is now in “The Development and Modernization Phase” where a new monetary policy, the reserve Money Targeting Regime, is being implemented. This policy aims to achieve a reduction of the inflation to 26 percent by the end of 2021 and to 9.6 percent by the end of 2024. The Central Bank of Suriname (CBvS) and the Ministry of Finance have agreed that monetary financing of the government’s deficits will not be possible (Stichting plan Bureau Suriname, 2021).

The discoveries by Total Energies and APA Corporation at the Maka Central, Sapakara West, Kwaskwasie, and the Keskesi East-1 well, in Block 58, offer further cause for optimism. However, it is important that these discoveries translate into tangible benefits for the underserved communities in these countries.

It is obvious that Suriname is in an economic disadvantage economic position compared to Guyana, because of the former’s socio-economic crisis and its many outstanding loans. But, because of oil, both countries have developed an increased regional importance.

Small and medium-sized enterprises

SMEs are the backbone of many economies as globally they represent 90 percent of companies and account for 70 percent of employment. They play an important role in the economy of the Caribbean as well and represent anywhere between 70 to 85 percent of Caribbean business. SMEs also contribute up to 50 percent of total employment and account for approximately 60 to 70 percent of gross domestic product (GDP) in emerging economies (Maharaj, 2021).

This sector generates employment opportunities and improves livelihoods, allowing money to stay closer to the communities they operate in. Similarly, these businesses are very important to the further development of Guyana and Suriname. Most of the Guyanese business sector is considered SMEs. The Small Business Act of 2004 in Guyana defined small business as: any business that has profit-making as its motive, employs 25 people, has profit-making as its motive, and either has revenues of G$60m or less or assets of G$20m or less. (Jagdeo, 2004, p3-4). In Guyana, SMEs struggle with high bankruptcy rates, difficulty building credit, and lack of adequate financing/collateral.

In Suriname, unlike in Guyana, small businesses are considered any business with 250 or less employees (Ministry of Economic Affairs, Business, Technology and Innovation, 2019).[2] SMEs are encouraged by the Ministry of Business and Industry, which has a department responsible to facilitate their growth. (Other organizations support SMEs too, including the Institute for SME,[3] which focuses on training and coaching and the Association of Small and Medium Enterprises in Suriname.[4] Approximately 80,000 employees work in the SMEs (in agriculture, hospitality, construction, restaurants, stores, and services) in Suriname. They face the following challenges: lack of adequate strategic planning, production of low-quality products, weak product development, and poor product management. Production costs are also relatively high, which affects the stability of these enterprises. The small domestic market and limited financing options (hobbled by high interest rates) are also challenges for Surinamese SMEs.

Although both governments recognize that SMEs will play an important role in stimulating their respective economy, neither have set up a program that targets SMEs in the offshore industry. The Small Business Bureau (SBB) of Guyana administers a revolving fund of USD $5 million through a local commercial bank. This fund is used as partial security to incentivize the commercial banks to lower the interest rate on loans for the SMEs. However, according to the Guyana Chronicle, the SBB’s current efforts are “not sufficient” to ensure the success of Guyanese SMEs. The Ali administration of Guyana, in power since 2020, has so far assisted 700 businesses to enhance their capacity through grants and they reportedly plan to increase the number of small businesses grants in 2022. For their part, the University of Guyana’s Institute for Energy Diplomacy has focused funding on educating, training, and preparing Guyanese students for work in the oil and gas sector and provides a course load specifically focused on energy industry development. The GoG could build off the university’s program to provide young entrepreneurs the resources to start SMEs centered on supporting the offshore industry. In Suriname, DAI Global LLC conducted an industrial baseline study in 2021, on behalf of Staatsolie, and found that domestic companies will not be able to fill many of the positions created by the new offshore industry because they only have experience in the onshore oil industry. Much of the capacity and know-how for the offshore industry is simply not available in Suriname. That said, the country does offer a Master of Arts in petroleum at the Anton de Kom University—the only degree of its kind in the Caribbean. The vocational schools and other educational institutions have no recorded program that focusses specifically on this sector.

With the right incentive structures, the GoG and GoS can stimulate SMEs, which will have positive spillover effects in other sectors and wider society, especially for vulnerable communities.

Vulnerable Communities and Local Content

Vulnerable communities, according to the United Nation, are communities that live in poverty without access to safe housing, water, sanitation, and nutrition and those who are stigmatized, discriminated against, marginalized by society, and even criminalized in law, policy and practice (UNDP, 2021). In Suriname approximately 26 percent of the population live in poverty compared to the 43 percent of Guyana that live on less than USD $5.50 per day.

The situation in Guyana and Suriname are similar when it comes to the rural-urban divide according to a report by United Nations, Economic and Social Council. Access to digital and physical infrastructure, education, healthcare, and other amenities differ greatly between the mostly urban, coastal regions and rural, interior ones. The report finds that interior regions have a higher rate of poverty and worse economic outcomes across the board. The difference between the coastal and the rural regions exacerbates the development challenges of these countries. For example, in Guyana’s Potaro-Siparuni region ninety-four percent of residents live in poverty (Sekhani, 2017). Encouraging SMEs to connect rural, coastal regions with poor and vulnerable communities can reduce poverty significantly. This can be done by creating opportunities for SMEs through Local Content Policies (LCP) like the bill that Guyana signed into law in 2022, which prioritizes Guyanese nationals and companies in the procurement of goods and services for the oil and gas industry. The bill will build Guyana’s human resource capacity and pave the way for foreign enterprises to benefit from future spillover effects, thus encouraging a positive feedback loop. A similar LCP or amendment needs to drafted to create opportunities for vulnerable and poor communities in the interior to escape poverty. Local content policies should truly be local and seen as a partnership between every sector of the domestic economy and international business interests to uplift the broader economy and society.

Suriname, on the other hand, has not yet drafted a local content bill. The GoS started to engage with stakeholders to draft an LCP geared toward the offshore industry. The GoS expects to release a draft sometime in 2022.

Conclusion

Stimulating SMEs to include poor and vulnerable communities needs to be part the long-term vision for the GoG and GoS to reduce poverty across the board. This strategy will have positive spillover effects by connecting the country and creating a self-sustaining, localized economy that can benefit all communities. In order to achieve this goal, it is important to enact robust LCPs. This will allow the members of communities to benefit in terms of connectivity, employment, opportunity, and education. Suriname and Guyana have the potential to become petrostates in the Caribbean. If this development is to pass, oil wealth must be used as an instrument to push equitable development. It is important that the offshore oil industry brings lasting benefits to the future generations of underserved communities.

A second important aspect is that these countries need to consider is that they are two of the greenest countries in the world and are highly vulnerable when it come to the impact of climate change and natural disasters. A Sovereign Wealth fund that also invest in a Green and Blue economy would be one step in a more sustainable direction.

Mavrick Boejoekoe is the founder of the Youth Education and Leadership Foundation and a director at the Suriname Ministry of Regional Development and Sports. He is also an alumni of the Hubert Humphrey Fellowship program.

Footnotes:

[1] The coalition agreement 2020-2025 (De regeer akkoord 2020-2025) regeerakkoord_2020-2025.pdf (gov.sr)

[2] Het Ministerie van Economische Zaken Ondernemerschap en Technologische Innovatie

[3] Instituut voor Midden—en Kleinbedrijf in Suriname (IMKB)

[4] Associatie van klein—en Middelgrote bedrijven in Suriname (AKMOS)