The Guyana Symbolism

THAT NATIONS RISE and fall over the course of history is well known. That they can do so in the short course of the present is less appreciated. The tiny country of Guyana, long famous for its cricket and Indian diaspora, is today the richest country on South America’s mainland in terms of per capita income. What is remarkable is that two decades ago, at the turn of the century, Guyana was among the poorest countries on the continent. Unsurprisingly, Prime Minister Narendra Modi has chosen to stop over in South America’s biggest recent success story en route to Delhi from the G20 in Rio.

Cynics would point to nature’s bounty for Guyana’s phenomenal rise, from a per capita income of just $1,500 in 2001 to over $20,000 today. While it is true that Guyana has grown rich courtesy major discoveries of offshore oil in the last decade, correlating its prosperity to the existence of oil is simplistic.

If the possession of fantastic oil and gas reserves were a guarantor of prosperity, Venezuela ought to be South America’s richest country. Indeed it was, on the same metric as Guyana is today—per capita income. At the turn of the century. At the time when Guyana was at the bottom of the table. Today, Venezuela finds itself towards the bottom of the continent’s pecking order, having lost around 75 per cent of its national wealth or GDP in the last decade.

What explains the difference in the trajectories? The role of government. Guyana had been explored for oil and gas and written off several times over several decades from the 1960s. However, a favourable policy regime, open to foreign investment and generous in its terms, and a proactive government that courted investors and technological advance, enabling deep-sea exploration more efficiently, combined to yield bumper discoveries. Oil production began in 2019—exploration had started some years earlier—and within five years, the tiny country of less than a million people is producing almost 1 million barrels per day (more than India’s total). The growth in its oil production between 2020 and 2023 was the highest among any non-OPEC country, except the US and Brazil. The best lies ahead.

Guyana has been aided by an oil bounty but there are other countries on the South American continent, like Uruguay and Chile, that have attained high-income status with pro-market, limited-government policies

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In contrast, Venezuela, which has the largest proven reserves of oil of any country in the world has failed to harness the wealth properly because of perverse government policies. The socialist government of Hugo Chávez rode the oil bounty in the first decade of the 21st century with massive redistribution programmes. However, the heavy-handed state was bound to kill the golden goose. And it did, decisively, under the leadership of his successor Nicolás Maduro. A sharp fall in crude oil prices did not help but the souring of relationships with investors, inadequate investment in oilfields, mismanagement of the macroeconomy, sanctions from the US all came together to create a perfect storm. Few countries have seen such a spectacular collapse in their living standards and GDP in such a short time.

Coincidentally, the other most telling example of a collapse of an economy and declining living standards (though not as a spectacular as Venezuela) also comes from South America—Argentina. Incredibly, Argentina has managed to inflict crises upon itself repeatedly over the last hundred years such that a country which was among the richest 10 in the world a century ago now straddles the ranks of emerging economies. A long tradition of statist economics which led to bloated governments, unaffordable welfarism and over-extended regulations killed investment and enterprise. Last year, the country chose to elect the rightwing Javier Milei, a political outsider, to restore some semblance of normalcy and, hopefully, dynamism to Argentina’s economy.

There are lessons for everyone. Growth is not pre-ordained for emerging economies. It is possible to become poor after reaching middle-income or even high-income levels. And it can happen quickly if the government runs amok. At the same time, with responsible government, and pro-investor policies, it’s possible to become prosperous. Guyana has been aided by an oil bounty but there are other countries on the South American continent, like Uruguay and Chile, that have attained high-income status with pro-market, limited-government policies.

That’s a common lesson from history, in its long and short forms.

About The Author

Dhiraj Nayyar

Dhiraj Nayyar is chief economist, Vedanta Ltd, and the author of Modi and Markets: Arguments for Transformation

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