Suriname and Caribbean Regional Integration

Suriname’s economy is heavily reliant on commodities, in particular oil, gold, and to a lesser extent, bauxite. When commodity prices are up, the country enjoys strong growth and boom-like conditions; when prices are down, Suriname suffers with economic contraction, fiscal problems, and large swings in its external balances. One of the major tasks for this small country, located on the northeast shoulder of South America, facing the Atlantic, and with a population of close to 560,000 people, is to find a path beyond commodity boom-bust cycles.

Over the next decade, the development of oil and gas reserves in the Guyana Shelf and the challenge for better wealth management face Suriname. In many regards, what happens on the Guyana Shelf will determine where Suriname heads in the future—toward more balanced growth, helped by prudent management of oil revenues, or caught in the problematic oil curse of endemic corruption, misallocation of resources, and weak institutional development that has afflicted many other oil producers.

Suriname’s Economy: Quick Snapshot

 

2013

2014

2015

2016

2017

2018

Real GDP %

2.9

0.4

-2.7

-10.5

-1.2

1.2

Inflation

4.1

3.9

25.1

52.4

9.1

12.3

Financial bal./GDP

-7.1

-7.9

-9.3

-6.1

-4.1

-2.1

Central gov. debt/GDP

31.6

29.0

45.7

67.8

60.7

54.4

Current acct. bal./GDP

-3.8

-7.9

-16.8

-2.8

9.4

6.1

Gross int’l reserves in months of imports

NA

NA

0.2

0.9

1.4

1.9

Source: International Monetary Fund, October 2017.

Suriname’s history has been dominated by links to global commodity markets, including sugar, which did much to people the former Dutch colony. Bauxite later came into play and until the early twenty-first century was the dominant industrial activity. But nothing lasts forever. Bauxite’s fortunes were hurt when Alcoa, in Suriname since 1916, signed an agreement in 2015 with the government on the terms of its departure and since has wound down its operations.

Bauxite was replaced in recent years by gold, which emerged as the key export. Oil production, largely driven by online wells, added to the export mix in the 2010s. Despite the change in commodity exports, the economy remains heavily dependent on the extraction business. According to the World Bank, the extraction, processing, and trading of gold, oil, and to a lesser extent, bauxite directly account for about 30 percent of gross domestic product (GDP) and over 90 percent of exports. In the same light, mining and quarrying are major sources of employment, accounting for over 20 percent of total employment. Rounding out this picture, about 10 percent of government revenues are directly linked to gold production in the form of corporate income taxes, royalties, and dividends. There is also a sizable informal economy, much of it related to illegal mining and logging, which makes its own contribution to the country’s economy.

Suriname’s oil industry is largely in the hands of the state-owned Staatsolie. The company was founded in 1980 and has responsibility for the exploration, production, refining, and trading of crude oil and derivatives, including fuel oils, gasoline, and automotive diesel. According to the company, it has produced over the past 35 years 109 million of barrels of oil, onshore. Additionally, it operates the country’s electricity generation industry and provides bunkering and transportation services by tanker trucks and barges to local ports.

The significance of major oil discoveries in neighboring Guyana’s offshore region have not been lost on Suriname or other international oil and gas companies. On the Staatsolie website the following is noted: “With an estimated resource potential of 13.6 billion barrels (P50), the United States Geological Survey (USGS 2012) ranks the Guyana-Suriname Basin 2nd in the world for prospectivity among the world’s basins—explored and unexplored.”

In the 2016 annual report of Kosmos Energy , an exploration and production company, it was noted: “Beyond Mauritania and Senegal, we continue to gather and analyze seismic data to deepen our understanding of the offshore basin Suriname, where we believe our acreage is an extension of the play opened in neighboring Guyana. Our goal is to mature prospects to be ready to drill in 2018.”

Kosmos Energy is not alone in exploring oil offshore in Suriname. Other companies engaged in offshore Suriname include Ireland’s Tullow Oil (which in October 2017 plugged and abandoned the Araku-1 exploration well, but stressed that it “remained fully committed to exploration in Suriname and Guyana”); Malaysia’s Petronas; Norway’s Statoil; and the United States’ Apache, Chevron, and Hess.

Although Suriname’s offshore fields have yet to generate the excitement of Guyana’s, the potential for major finds is there, hence the involvement of foreign oil and gas exploration companies. Nonetheless, the potential of new oil wealth represents a substantial challenge for Suriname. How equipped is Suriname if there is a future large cash flow?

Suriname has a number of challenges that it needs to address. According to the World Bank, Suriname’s economy is already heavily dependent on commodity exports. Those export industries do not pass on a large number of jobs to other parts of the economy, and there is a weakness in the quality of education. The last causes skills mismatches, which limit the ability of Suriname’s labor force to take advantage when there are upswings in the economy (as in the period to 2015).

There are also concerns over corruption. In a 2015 report the World Bank, International Finance Corporation, and Multilateral Investment Agency addressed the issue: “This has been exacerbated by the absence of adequate governance standards and legal and regulatory frameworks in the business environment. In addition, weak corporate governance, social and environmental standards in large industries, including extractive industries, have limited the sustainability and positive social impact of their growth.”

Other sources have mentioned corruption as a negative factor in conducting business in Suriname, with problems in government procurement, issuance of licenses, taxation, and customs. And then there is the delicate issue of President Desi Bouterse’s own legal complications related to drug trafficking. Moreover, his son, Dino, is serving a 16-year prison sentence after pleading guilty in New York to charges of drug trafficking and providing material support to a terrorist organization.

Where does this leave Suriname and future oil revenues? Considerable work will be required to strengthen the country’s institutions and their governance. At the same time, the country needs to upgrade its educational system to deal with what could be greater labor demand from the oil sector and diversify its economic base. There is also a pressing need to deal with climate-change-related issues, such as the low-lying nature of the coastal areas, where much of the country’s population lives. The country suffered considerable disruption from floods in 2006 and 2008, and flooding and rising sea levels is something that will need a proactive stance.

Essential to the above mix is the creation of a “rainy day” or sovereign wealth fund (SWF) that handles the country’s oil wealth, makes certain that it is allocated to both economic and social needs, and does not end up siphoned away into private bank accounts in offshore financial centers. A sovereign wealth fund could be established with the help of the World Bank or other multilateral institutions to function much like Norway’s SWF. Like Suriname, Norway is a relatively small country and blessed with oil and gas wealth. It has done an admirable job, in a fair and transparent way, to redistribute national wealth through Norwegian society, something for Suriname to think about.

In planning for the future and the possibility of more substantial cash flows Suriname also needs to give thought to what it will do when its oil peaks, when fossil fuels are replaced in a more dramatic fashion by alternative energy sources, and how it works with its neighbors in the Caribbean in dealing with energy demand. These will be increasingly more important issues if and when the big finds are made. It would hardly be the only country thinking along these lines, as reflected by Saudi Arabia’s Vision 2030, which looks to a time when oil plays less of a role in the Arab country’s future.

Another factor for Suriname to consider is the impact of the development of the Guyana Shield concept , a geographic-geological construct combining the three Guyanas. While relations among Suriname, Guyana, and French Guyane have been generally cordial and Guyana and Suriname are both Caribbean Community (CARICOM) members, the bulk of exports from the three are to countries outside of the region. Suriname’s major export markets are the United Arab Emirates, Switzerland, and Belgium; Guyana is fourth and Trinidad and Tobago is fifth. On the import side, the United States, the Netherlands, China, Japan, and Germany dominate. However, the three Guyanas might find a more fruitful area of cooperation in energy issues when oil and gas exploration moves at a more robust phase.

A new round of oil wealth, if managed prudently, could force some of the changes Suriname needs, touching on its educational system, the state and private sectors, climate-change-related issues, income disparities (between the coast and interior), and the need for greater economic diversification. Suriname needs to take heed of what the U.S. writer Mark Twain once said, “The secret of getting ahead is getting started.”

Scott B. MacDonald is a senior associate with the Americas Program at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2017 by the Center for Strategic and International Studies. All rights reserved.

Scott B. MacDonald