Tuesday Nov 19, 2024

EP85 The Next Oil Frontier: Suriname's Path to Wealth or Woe

Summary:

In this episode, we provide a detailed analysis of Suriname's economic and political landscape, focusing specifically on its potential as a major oil producer. We explore Suriname's oil and gas sector, particularly Block 58, highlighting the discoveries made by TotalEnergies and APA Corporation. We discuss the country's infrastructure, legal framework, and potential challenges such as corruption, political instability, and the risk of the resource curse. We also explore Suriname's socioeconomic conditions, including its demographics, poverty rate, and the brain drain it is experiencing. Finally, we assess how the country can effectively manage its oil wealth to avoid the pitfalls of resource-rich nations and leverage its newfound potential for sustainable development.

Questions to consider as you read/listen:

1. How will Suriname's oil wealth affect its economic growth and social development?

2. What are the main challenges Suriname faces in managing its newfound oil wealth?

3.How can Suriname leverage its oil resources to advance its position in the global value chain?

Long format:

The Next Oil Frontier: Suriname's Path to Wealth or Woe

By Justin James McShane

In Episode 80, we examined the future of Guyana. https://www.geopoliticsunplugged.com/audio/ep80-the-future-of-guyana/ IN 15 November 2024, OilPrice.com published “Suriname Poised to Follow Guyana's Footsteps as Major Oil Producer”

https://oilprice.com/Energy/Crude-Oil/Suriname-Poised-to-Follow-Guyanas-Footsteps-as-Major-Oil-Producer.html#google_vignette and that begs us to likewise examine Surinam to see if and how their future differs from that of Guyana.

TL;DR:

Suriname, thanks to major offshore oil discoveries in the Guyana-Suriname Basin, has the potential to transform its economy, similar to neighboring Guyana. The country faces challenges like underdeveloped infrastructure, political instability, corruption, and the risk of the "resource curse" (economic and social stagnation despite resource wealth). Its oil and gas sector could significantly boost GDP and government revenue, with production expected to reach 200,000 barrels per day by 2028.

To avoid pitfalls and maximize benefits, Suriname must invest in infrastructure, education, and governance reforms while creating a clear plan for managing oil revenues, such as a sovereign wealth fund. If managed well, oil wealth could modernize the country and elevate its position in the global economy; otherwise, it risks falling into the same traps that have hindered other resource-rich nations.

Introduction:

Suriname stands at the cusp of significant transformation, poised to follow in the footsteps of its neighbor Guyana as a burgeoning oil producer. With major offshore oil discoveries in the Guyana-Suriname Basin, the country has a unique opportunity to harness its natural resources for economic development. Yet, like many resource-rich nations, Suriname faces a host of challenges, including infrastructure limitations, political stability concerns, and the potential pitfalls of the resource curse. By examining Suriname’s demographics, economic trends, and burgeoning oil and gas sector, we can evaluate whether it is indeed on the verge of an economic takeoff akin to Guyana or whether it will chart a different path shaped by its own unique circumstances.

INFORMATION

Thanks to major oil discoveries Suriname has the POTENTIAL of developing itself into a more modern country. However, it does have significant headwinds. While it will not become a regional power player, it will likely join the ranks of relevant countries in the hemisphere. Surinam is the most forested country in the world. The IMF expects Suriname's economy to grow by 3% in 2024, with inflation falling below 14%. The country is also recovering from the recession caused by COVID-19. Suriname is one of the smallest countries in South America, but it has one of the most ethnically diverse populations in the region. Its economy is dependent on its natural resources, most notably bauxite, of which it is one of the top producers in the world.

WHERE IS SURINAME AND WHAT ARE ITS BASIC STATISTICS?

Suriname is located in the northern part of South America, on the northeastern Atlantic coast. Suramine’s neighbors include: the Atlantic Ocean to the north, French Guiana to the east, Guyana to the west and Brazil to the south. Suriname is the smallest sovereign state in South America, with a land area of just under 165,000 square kilometers. The capital and largest city is Paramaribo, which is located on the north coast. Suriname is a tropical country with a diverse geography that includes rainforests, savanna, coastal swamps, and two mountain ranges. About 67% of Suriname's population lives in Paramaribo, the capital city. This means that roughly two-fifths of the country's population live in Paramaribo and its surrounding area. Most of Suriname's population lives in the north of the country, along the 386 km long coastal plain. The least populated county is Sipaliwini, which is located in the interior of the country. About two-thirds of Suriname's population lives in urban areas. Suriname is one of the least densely populated countries in the world.

Source: Wikipedia under WikiCommons

As of 2023, Suriname's population is 628,886. Suriname's ethnic groups include Hindustani, Maroon, Creole, Javanese, and mixed. Suriname’s official language is Dutch. Dutch is spoken as a mother tongue by about 60% of the Surinamers, while most others speak it as a second or third language. The other languages used in Surmise include Sranan Tongo which is an English-based creole language that is widely used as a lingua franca; Hindi which is a dialect of Bhojpuri spoken by descendants of British Asian contract workers; Javanese which is spoken by descendants of Javanese (Indonesian) contract workers and Urdu which is a prestige language for Muslims in Suriname.

The Dutch established a colony in Suriname in 1667, and Dutch became the language of communication between the Dutch, African slaves, and the Native Surinamese. Suriname gained independence from the Netherlands in 1975, but it remains close to the Netherlands in terms of culture, economics, and diplomacy.

POVERTY

According to the 2022 Suriname Poverty and Equity Assessment, the poverty rate in Suriname is 17.5%. This is based on the World Bank's upper-middle-income threshold of $6.85 per day in 2017 PPP. The assessment also found that 1.1% of the population live in extreme poverty, earning less than $2.15 per day. In 2021, 2.9% of the population was multidimensionally poor (which is a way to measure poverty that considers a range of factors beyond income, such as access to education, healthcare, and basic needs), and 4% were vulnerable to it. The Gini index, a metric for global inequality, shows that the Caribbean has high inequality compared to other upper-middle income countries. The poor have lower employment rates, with only about 40% of the poor aged 15 and older employed. The country's tumultuous political history is what a lot of scholars attribute as the root cause of persistent poverty in conjunction with over reliance on the mining industry, which is vulnerable to market shocks and contributes to 85% of exports.

Compared to Guyana, Suriname has a lower poverty rate, with estimates suggesting around 26% of Suriname's population lives in poverty compared to 43% in Guyana; meaning, while both countries face poverty challenges, Suriname is performing better in this regard based on available data.

NEET RATE

There isn't much information about the NEET rates in Suriname. However, we can look at labor force participation rates compared to other countries to glean some information about this area of global concern.

BRAIN DRAIN

Suriname is experiencing a brain drain. In 2020, 273,200 people left Suriname. Suriname is losing skilled workers and prospective students, especially in healthcare. Research by Beine et al. (2008) and Dulam & Franses (2011) suggests that Suriname is experiencing a net outflow of highly skilled migrants. Family migration is a primary reason for leaving Suriname. For example, between 2002 and 2011, over 9,000 Suriname-born migrants moved to the Netherlands for family reunification.

DEMOGRAPHIC CONCERNS

The proper way to look at whether or not a country is in demographic decline is to look at three variables: Total Fertility Rate (TFR), infant mortality rate and life expectancy. Ideally, you want a TFR is above the minimum replacement rate which is 2.1. You want a low mortality rate because having a high TFR but also a high infant mortality rate, then you will be in demographic decline. Thinking very myopically and morbidly, you do not want a long life expectancy because you will have a lot of non-working/non-producing folks that need to be supported.

Suriname's total fertility rate (TFR) was 2.322 children per woman in 2022 which is above the replacement rate of 2.1. This TFR has been stable around these numbers for over a decade. When we compare it to others we can see that Suriname’s TFR is above most if not all of the fully industrialized world. It is on par but slightly lower than Guyana.

Life expectancy is lower in Suriname than its cohorts which is bad from the individual and family connection perspective but is beneficial from a purely economic demographic point of view as the old generally are net “takers” of resources in their old age.

Infant mortality rates are dropping in Suriname which bodes well for their future population needs.

INFRASTRUCTURE

Suriname's infrastructure is focused in the capital city of Paramaribo, and frankly the country needs to improve it to support economic growth. Most of Suriname's infrastructure is in Paramaribo, which is the center of the country's roads, railways, bridges, imports, and exports. The main modes of travel and transporting goods are water, railway, and flight. Many roads and airport runways are unpaved. Suriname has around 28,000 miles of roads, most of which are unpaved. Roughly 19.16% of roads in Suriname are unpaved. The country has two main roads, the Northern East-West Link and the Southern East-West Link. Approximately 40% of paved roads in Suriname are in poor condition. Approximately 40% of unpaved roads are inaccessible during the wet season.

Suriname's bridges are being improved with the construction of new bridges and the replacement of ferries with bridges. The Jules Wijdenbosch Bridge is a two-lane bridge that connects Paramaribo to Meerzorg and is part of the East-West Link. It's the only major bridge in Suriname along with the Coppename Bridge. The Coppename Bridge connects Jenny to Boskamp. Bailey bridges span the Coppename and Nickerie Rivers near Bitagron and Kamp 52. The Corentyne River Bridge is a project being undertaken by the governments of Guyana and Suriname. The border bridge will be built using a Public-Private Partnership arrangement.

Suriname is developing a deep-water port (Port of Nickerie) and anSpecial Economic Zone. A mega deep-water facility being built by Phoenix Development Company, N.V. Havenbeheer, and Van Oord Dredging and Marine Contractors B.V. The port will include an oil jetty, a shorebase facility, and a multipurpose terminal. The design will integrate green energy, sustainable transport, and nature-based solutions. The Port of Nickerie in Suriname is expected to be completed in 2025. The first phases of the project were finished in the second quarter of 2023, and the Dutch maritime company Van Oord will continue to dredge the seabed for final completion.

Suriname's rail infrastructure is limited and primarily concentrated in the capital city of Paramaribo. It has 166 km of single track. Other tracks exist but are not in use.

The Telecommunications Company Suriname (Telesur) is the only provider of fixed-line and broadband services in Suriname. The fixed-line infrastructure is reliable in the coastal region, but poor in the interior. Suriname is connected to other countries by submarine cables, including the Suriname-Guyana Submarine Cable System and the Americas II fiber optic submarine communications cable. The mobile telecom market is much larger than the landline market, and Suriname is ranked 7th in the world for mobile telecommunications. The main players in the mobile market are Telesur and Digicel. Telesur runs a 450 MHz CDMA network, 900 MHz and 1800 MHz GSM, and a 2100 MHz 3G HSDPA network. Digicel is another local operator that offers reliable coverage, even in remote areas. In 2024, the 3G network coverage is estimated to be 95.76%. Suriname's mobile penetration is much higher than the regional average. This is because many Surinamese people have multiple phones from different providers. In 2024, the median mobile internet connection speed in Suriname was 48.37 Mbps.  

Reliable broadband internet connection can be found in the capital but not in the interior regions. Suriname's Online Service Index is 0.29, which is well below the regional average of 0.59 for Latin America and the Caribbean. In 2022, 69.1% of the population in Suriname used social media.

In 2024, Suriname is projected to have 98.13% of its population with access to drinking water, 99.17% with access to electricity, and 90.23% with access to basic sanitation.

ECONOMY

Suriname's economy is based on its natural resources. Mining accounts for nearly half of the public sector's revenue, and gold makes up more than three quarters of total exports. Its main exports surround bauxite, gold and petroleum. The Aluminium Company of America began mining bauxite in Suriname in 1916, and it became the country's main export. Gold mining is a significant part of Suriname's economy, and large-scale operations are run by China's ZiJin Rosebel Goldmines and Newmont. However, gold mining is controversial due to its impact on Indigenous people and child labor. Crude oil is a growing major export (more in its own section). Other exports from Suriname include: alumina, precious metal scraps, refined petroleum, rough wood, and bananas.

Suriname's mining industry accounts for about 85% of its exports and 25% of government revenues. The country's main trade partners are the United States, the United Arab Emirates, Switzerland, Liechtenstein, Trinidad and Tobago, the Netherlands, Belgium, and China.

Suriname generally encourages local and foreign investment, and has no sector-specific laws that discriminate against foreign investors.   Suriname's top import countries are the United States, the Netherlands, Trinidad, China, and Japan. Its top export countries are the United Arab Emirates, Switzerland, Trinidad and Tobago, Belgium, and the Netherlands. 

GDP

In 2023, Suriname's nominal GDP was $3.5 billion. In 2023, Suriname's GDP per capita was $5,454. This is lower than the global average of $10,589. Statistia forecasts that Suriname's GDP will increase by 22.36% between 2024 and 2029, reaching $5.98 billion. Trading Economics expects Suriname's GDP per capita to reach $7,410 by the end of 2024, and trend around $7,618 in 2025 and $7,846 in 2026.

Suriname's GDP and GDP per capita are expected to significantly grow due to the recent discovery of large offshore oil and gas reserves, with forecasts predicting a substantial economic boost once production begins, likely around 2028, leading to a significant increase in government revenue and investment in the country, potentially transforming Suriname's economy.

UNEMPLOYMENT

As of December 2023, the unemployment rate in Suriname is 8.00%. Here are some other recent unemployment rates for Suriname: 2022: 8.23%; 2021: 8.46%; 2020: 8.73%; 2019: 7.54%

There are significant issues involving child labor and related abuses particularly in the gold mining sector in Suriname.

EDUCATION LEVEL AND NUMBER OF UNIVERSITIES

The average number of years of schooling in Suriname is 3.8 years, which is lower than the global average of 8.7 years. This places Suriname 144th out of 150 countries in the world. More than 90% of children attend primary school, which is known as the "basisschool". The primary net enrollment rate is 98% and the primary completion rate is 100%. In 2021, 51.9% of girls and 31% of boys completed lower secondary school.

Suriname has one university, Anton de Kom University of Suriname, and several other higher education institutions. There are five teacher training colleges in Suriname. There are five higher professional institutes in Suriname. Suriname has 54 LBO schools, which are technical trade schools.

This education and skilled labor rate is a very strong headwind that Suriname faces in its development.

LABOR FORCE

Suriname's skilled labor force is growing in importance as the country works to strengthen its economy and support new industries. In 2023, Suriname's labor force was estimated to be 250,000 people. In 2023, the labor force participation rate for women was 44.7% and 64.1% for men. 43.5% of the labor force has primary education as their highest level of education. However, 30.2% of the labor market demands people with a university degree or vocational training, which is higher than the 9.4% of the labor force with that level of education.

THE OIL AND GAS SECTOR

Suriname's oil and gas sector began with initial exploration in the late 1920s, where oil seepages were reported, but the first commercially viable discovery only occurred in the 1960s when Shell found oil onshore, though it was deemed non-commercial at the time. The state-owned company, Staatsolie, later developed the Tambaredjo field in 1982, marking the start of significant oil production in the country, primarily focused on onshore operations until recent offshore discoveries. While initial exploration focused onshore, recent years have seen increased interest in offshore exploration, with significant discoveries made in the Guyana-Suriname Basin. Recent offshore discoveries have raised Suriname's profile as a potential oil producer, with several international companies actively exploring blocks in the region.

After years of speculation fueled by significant oil discoveries in Guyana, Suriname's offshore Block 58 has become central to its oil ambitions. TotalEnergies entered Block 58 in December 2019 by acquiring a 50% working interest from Apache Corporation. This acquisition included operatorship of the block. At that time, TotalEnergies paid a bonus of $100 million for the stake, plus their share of past exploration costs. After acquiring the interest, TotalEnergies, alongside Apache (now APA Corporation) both holding a 50% interest in Block 58 own the area free and clear of any legal disputes like the one that has embroiled Guyana. TotalEnergies and APA embarked on an exploration campaign. They made several significant discoveries in Block 58 from 2020 to 2022, namely Maka Central, Sapakara West, Kwaskwasi, Keskesi East, and Krabdagu. This phase of exploration involved substantial investment in drilling and testing wells to assess the block's potential.

Despite early optimism, concerns arose over the reservoir quality, the number of dry wells, and a high gas-to-oil ratio. Between 2020 and 2022, several discoveries were made, including Maka Central, Sapakara West, Kwaskwasi, Keskesi East, and Krabdagu. These discoveries raised expectations for substantial oil reserves similar to those found in neighboring Guyana. A notable dry hole was drilled at the Keskesi South-1 location. This well, although intended as an appraisal well, found non-commercial quantities of hydrocarbons. It was drilled about 6.2 km from the Keskesi East-1 discovery well. The lack of suitable reservoir-quality sands in the Campania target at this location led to its abandonment, highlighting the geological complexity of the area. The Bonboni-1 well, drilled in the northern portion of Block 58, encountered only water-bearing reservoirs in the primary Maastrichtian and Campanian objectives, despite being near known discoveries in the Maka-Kwaskwasi-Sapakara-Keskesi trend. This result was disappointing as it did not extend the known oil-bearing zones. These issues led TotalEnergies to delay the final investment decision until the problems were addressed.

TotalEnergies has made a significant commitment by investing $10.5 billion in the development of this block, named the GranMorgu project. This decision marks a pivotal step towards Suriname's oil production boom.

Suriname currently produces about 16,000 barrels per day from minor onshore operations, but with Block 58's development, production is expected to surge past 200,000 barrels per day by 2028. This increase could significantly boost Suriname's GDP, similar to what Guyana experienced post-oil production commencement. The oil boom is anticipated to lift Suriname out of poverty, with the GDP potentially mirroring Guyana's tripling between 2019 and 2022 due to oil revenues.

Suriname has implemented a favorable regulatory framework for oil operations, offering production sharing contracts with terms up to 30 years and a royalty rate of 6.25%, which is relatively low, attracting more investment into its offshore oil sector. There's speculation that by 2035, Suriname could be producing up to 650,000 barrels per day, making the Guyana-Suriname Basin a significant contributor to global oil supply growth. This development comes amidst global pressures to reduce carbon emissions, yet the economic benefits are seen as outweighing these concerns in the short term.

Source: TotalEnergies

The estimates for the amount of oil in Suriname's Block 58 have varied over time due to ongoing exploration and appraisal activities. Morgan Stanley's modeling in 2020 suggested that Block 58 could contain around 6.5 billion barrels of oil equivalent (boe), which would be developed across seven phases. TotalEnergies and APA's Recent 2023 Assessment (2023) appraisal of the Sapakara South and Krabdagu fields, which are part of Block 58, confirmed recoverable resources close to 700 million barrels of oil after drilling and testing three wells in August 2023. This figure specifically relates to these two fields but does not represent the total potential of Block 58. For the development plan named "GranMorgu", which primarily focuses on the Krabdagu and Sapakara oil discoveries, the gross estimated recoverable resources were cited as more than 750 million barrels of oil. This project covers the area where the appraisal drilling provided the above figures. The total oil in Block 58 might exceed these figures when considering other discoveries or prospects within the block. Initial optimism suggested potential reserves could be in the billions of barrels, similar to the estimates for the broader Guyana-Suriname Basin. However, actual recoverable reserves are more conservatively estimated now due to the complexities encountered during appraisal, such as high gas-to-oil ratios or less optimal reservoir quality in some areas.

It's important to note that these numbers can change with further exploration and development. The figures mentioned relate to recoverable reserves, which are not the same as total oil in place. Recoverable reserves are what can economically and technically be extracted with current technology. The actual oil in place could be significantly higher, but recovery rates vary, and not all oil in place is recoverable.

Therefore, while Block 58 has been confirmed to hold significant oil, the precise total amount of oil that can be economically extracted might still be subject to further evaluation as development progresses.

How does Block 58’s 6.5 billion barrels of oil stack up to other fields? The Stabroek block, operated by ExxonMobil, has discovered over 11 billion barrels of recoverable oil and gas resources, making it one of the largest offshore oil finds in the world in recent years. One of the largest oil fields in the world, Kazakhstan’s Kashagan field recoverable reserves are estimated at around 13 billion barrels of oil equivalent. While the North Sea has many smaller fields, the larger ones like Ekofisk or Statfjord each have recoverable reserves in the range of 1 to 3 billion barrels. Tengiz (Kazakhstan) is one of the deepest supergiant oil fields, with recoverable reserves exceeding 6 billion barrels. Fields like Lula (formerly known as Tupi) in the Santos Basin offshore Brazil have recoverable reserves estimated at around 6.5 billion barrels.

In terms of production capacity comparison among fields, we can look at that as a means of comparison too. The production capacity planned for the GranMorgu development (Block 58 in Suriname) is 220,000 barrels per day (b/d). At the Stabroek Block (Guyana) current fields like Liza Destiny and Liza Unity produce around 220,000 b/d each, with plans for further developments increasing this capacity significantly. Saudi Aramco's offshore fields like Manifa produce over 900,000 b/d, and Ghawar, the world's largest oil field, produces at a much higher rate, though it consists of multiple zones. When at full capacity, Kashagan (Kazakhstan) aims to produce around 370,000 b/d, but this has been subject to delays and operational challenges. The FPSOs in the pre-salt fields, like P-75 in Búzios (Brazil), can produce up to 180,000 b/d, with some platforms designed for much higher capacities as part of Brazil's push to become one of the top oil producers globally.

While Block 58 in Suriname holds significant oil reserves and has a planned production capacity that's substantial on its own, it falls into the category of large fields but is not among the absolute largest in terms of either recoverable reserves or current production capacity when compared globally. Block 58's recoverable reserves are considerable but are dwarfed by supergiant fields like those in the Middle East, or even some of the newer major finds like Stabroek. Its planned production capacity is robust, especially for a new development in a region previously less known for major oil production, but it's below the output of many of the world's largest fields but is comparable to Guyana.

GOVERNMENT REVENUE FROM OIL AND GAS

Following the oil discoveries in its offshore blocks, Suriname has been considering the creation of a Sovereign Wealth Fund to manage the revenues from oil and gas. This concept was introduced in legislation passed by Suriname's National Assembly in May 2017. While not explicitly called a "trust," President Chandrikapersad Santokhi has referred to directing oil revenues into a "prosperity and stability fund." This fund would serve similar purposes to a Sovereign Wealth Fund by investing in sustainable sectors, education, health, and infrastructure while also saving for the future. The establishment of such a fund involves legislative action, setting up governance structures, and defining investment policies. As of late 2024, the specifics of how this fund operates, including its exact structure, governance, and investment strategy, might still be in development or refinement stages.

POLITICAL STABILITY

Suriname's political stability can be assessed through various lenses, including its political history, current governance, economic conditions, and social factors. Suriname has experienced political instability in the past, notably during the 1980s when Desi Bouterse led a coup and established military rule. This period was marked by political assassinations, known as the "December murders," for which Bouterse was later convicted in 2019. After military rule, Suriname transitioned back to democracy in 1987 with a new constitution. However, political instability persisted with coups and attempted coups, particularly in the late 1980s and early 1990s. The 2020 elections saw a peaceful transition of power when former police chief Chandrikapersad Santokhi was elected president, defeating Bouterse. This transition was noted for being free and fair, indicating an improvement in democratic processes. Suriname operates with a multi-party system where coalition governments are common, which can lead to political instability if coalitions fracture, but also reflect a form of political inclusivity. Suriname is ethnically diverse, and while this diversity can enrich political life, it has also historically contributed to political tensions, especially in elections where parties often align along ethnic lines.

CORRUPTION

Corruption in Suriname is a notable issue that permeates various sectors of society, affecting governance, the economy, and public trust. There are consistent reports of corruption in public procurement, where contracts are often awarded based on political connections rather than merit or competitive bidding. This includes infrastructure projects, government service contracts, and the allocation of mining and timber concessions. While the judiciary has shown signs of independence, especially in significant cases like the conviction of former President Desi Bouterse, corruption within the legal system remains a concern. Bribery for favorable judicial decisions has been reported. Political patronage systems are deeply entrenched, with positions in government and state companies often filled based on political allegiance rather than competence. This practice significantly contributes to corruption. Suriname has laws in place to combat corruption, like the Anti-Corruption Law passed in 2017, but enforcement has been inconsistent. The law aims to criminalize corruption, set up a National Anti-Corruption Commission, and mandate asset declarations by public officials. The government under President Santokhi has expressed intentions to tackle corruption more aggressively, including promises to establish an Anti-Corruption Commission and to investigate past corruption cases. However, progress has been slow, and implementation challenges persist. The political will to fight corruption can vary with changes in government, and there have been instances where high-profile corruption cases were not pursued vigorously, suggesting a lack of consistent commitment. According to Transparency International's Corruption Perceptions Index (CPI). In 2023, Suriname scored 40 out of 100, indicating a moderate level of perceived public sector corruption. This score has fluctuated over the years, suggesting ongoing issues with corruption control.

Suriname serves as a transit country for cocaine produced in Colombia, Peru, and Bolivia, destined primarily for Europe but also for the United States and West Africa. Its location makes it an attractive route for drug traffickers. The country's geography, with vast areas of dense jungle and a relatively low population density, provides cover for drug production, storage, and trafficking activities. Small planes often fly drugs into Suriname from neighboring countries, utilizing numerous airstrips, many of which are unmonitored. Drugs are also smuggled via sea routes, either directly to Europe or via West Africa. The use of fishing boats, pleasure yachts, and even submarines has been documented. Traffickers use the porous borders with Guyana, French Guiana, and Brazil for land-based drug smuggling.

HOW TO EXAMINE INVESTING IN FOREIGN CAPITAL PROJECTS or FDI

Here are some of my bigger take aways:

Whenever you are going to make a capital investment in a foreign market as especially when it involves property, you’d do well to consider several things: respect for the rule of law for private property ownership and stability of the regime. Primarily, one looks for how long entrenched and how well developed the legal system is with respect to private property ownership and especially foreign ownership of property. You are also, of course, concerned about taxation. Finally, NIMBY related issues should be considered.  Here is what I found:

 RESPECT FOR PROPERTY RIGHTS 

Foreigners are legally allowed to own property in Suriname, but they must first obtain a residence permit. This requirement can complicate the process but does not inherently restrict ownership rights once obtained. Suriname's Civil Code and other related laws provide for the protection of property rights, including those of foreigners. The legal system allows for property disputes to be resolved through courts, although the judicial system has faced criticism regarding efficiency and corruption.

Suriname primarily uses Production Sharing Contracts (PSC) for its oil and gas exploration and production activities. These contracts define the terms under which foreign companies can explore, develop, and produce hydrocarbons in Suriname. All hydrocarbons are owned by the state, but the PSC allows the contractor (usually a foreign company) to recover costs and share in the profits from the hydrocarbons produced. The PSC specify rights to explore, develop, and produce, as well as obligations regarding taxation, environmental protection, and local content.

The Petroleum Law of 1990 governs the exploration and exploitation of hydrocarbons in Suriname. This law and subsequent amendments provide the legal basis for foreign companies to operate, ensuring they have rights to the hydrocarbons they find and produce under the terms of their contracts with Staatsolie (the state oil company) or the government directly. Suriname has signed bilateral investment treaties with several countries, which includes provisions for the protection of investments in the oil and gas sector, although these treaties focus more broadly on investment rather than specifically on hydrocarbons.

Suriname states that it has adopted an "open door" approach for bidding on oil and gas exploration blocks, signaling an intent to attract foreign investment by providing access to its resources. The government has tried to offer fiscal stability to investors to ensure that changes in tax or other fiscal policies do not adversely affect existing investments, although this stability can sometimes be tested by political or economic shifts.

While there have been no major publicized disputes specifically related to foreign oil and gas rights in Suriname, the general business environment includes arbitration. PSCs usually contain arbitration clauses for resolving disputes, which respects the international standard practice for handling such issues outside of local courts if needed. Suriname is a supporting country for the Extractive Industries Transparency Initiative (EITI), which suggests a commitment to improving transparency and governance in the oil, gas, and mining sectors, which indirectly supports respect for foreign investor rights by ensuring accountability.

TAXATION

The taxation of oil and gas in Suriname involves several key elements, structured to ensure that the state benefits from its natural resources while also providing an investment-friendly environment for foreign companies. Here's an overview based on the available information and common practices. Typically, a royalty is levied on the production of oil or gas. In Suriname, under PSCs, royalties are usually set at a rate around 6.25% of the gross production value. This rate can be adjusted based on specific contract terms or amendments in the law. Companies are allowed to recover their operating and capital expenditures from a certain percentage of the produced hydrocarbons before profit oil is shared. The cost recovery ceiling in Suriname has been known to be around 75%, meaning companies can recover up to 75% of their costs before profit sharing. After cost recovery, the remaining hydrocarbons (profit oil) are split between the state (or Staatsolie) and the contractor. The split can vary based on production levels, the rate of return (R-Factor), or other contractual terms but is designed to increase the state's share as profitability increases.

 Corporation Tax:

The standard corporate income tax rate in Suriname is 36% for profits from oil and gas activities. However, under the PSC framework, there might be provisions where the tax is handled differently, often through the profit oil mechanism where the government takes its share in kind, thus effectively taxing the company's profit.

Capital Gains Tax:

Suriname has no specific capital gains tax.

Withholding Taxes:

There's a withholding tax on dividends, which might be applicable to profits distributed by oil and gas companies to their shareholders, although specifics can vary based on double taxation agreements or fiscal stability clauses in PSCs. The specific rate can vary based on the tax treaty between Suriname and the country where the shareholder resides

VAT:

Goods and services related to oil and gas exploration and production are subject to VAT. Suriname has implemented VAT at a rate of 10%, but this can change, and there might be exemptions or zero-rating for certain transactions.

Import Duties:

Companies engaged in oil and gas exploration and production might benefit from exemptions or reduced rates on import duties for equipment and materials needed for their operations. These are usually negotiated within the PSC to encourage investment.

Wage Tax and National Insurance:

Suriname uses a progressive tax system for wage income, meaning the tax rate increases as income increases. However, exact brackets and rates can change with legislative updates. ◦ Employees in Suriname contribute to social security through payroll deductions. This system includes Old Age Pension (AOV) which are contributions for retirement benefits; and General Widows and Orphans Insurance (AWW) which are benefits in case of death of a family breadwinner. Typically, there's a flat rate or a rate based on income up to a ceiling. For instance, previously, this might have been around 3% to 5% of salary, but these figures can vary. Employers also contribute to these funds, generally at a higher rate than employees, to support the social security system.

OIL AND GAS INFRASTURCTURE

Suriname's offshore oil and gas infrastructure, particularly in relation to the developments in Block 58, is still in the early stages of development. Exploration activities in Suriname's offshore blocks, like Block 58, have involved the use of mobile offshore drilling units (MODUs). These rigs are not permanent but are moved in for exploration and appraisal drilling. For instance, rigs like the Maersk Valiant have been used for drilling operations. Extensive 2D and 3D seismic surveys have been conducted to map the subsurface geology, identify potential reservoirs, and plan drilling locations. This is a crucial part of the infrastructure setup for any offshore oil exploration. TotalEnergies has announced plans to develop the GranMorgu project with an Floating Production, Storage, and Offloading (FPSO) Vessel for the Sapakara and Krabdagu discoveries. It will act as a production platform, storage facility, and offloading point for oil, eliminating the need for pipelines to shore in the initial phase. The development includes plans for subsea wells connected to the FPSO via subsea production systems. This involves Subsea Trees and Manifolds for controlling the flow of oil and gas from the well to the surface and Subsea Pipelines which are short pipelines or flow lines from the wells to the FPSO. Onshore logistics bases are being developed or enhanced to support offshore operations. These bases handle the logistics for personnel, equipment, supplies, and maintenance services. As outlined above, there have been discussions about and definitive actions in developing facilities in Port Nickerie for oil and gas operations.

While not physical infrastructure, the development of local content through training programs for Surinamese nationals in oil and gas operations is crucial. This includes setting up facilities for technical training and education to ensure local participation in the industry. Staatsolie has developed programs like the NATIN (National Training Institute) Oil & Gas Program, aimed at providing Surinamese students with specific knowledge and skills in the oil and gas industry. This includes theoretical education in oil-related disciplines, practical experience, and focuses on increasing local capacity. Over the years, a number of local service companies have emerged that provide services ranging from logistics to maintenance for oil operations. While they might not have the depth of experience found in countries with longer oil histories, they are gaining expertise as the sector grows. While there is very limited experience in onshore operations, the offshore sector, particularly deepwater, presents new challenges where local expertise is very much less developed compared to international counterparts.

NIMBY AND ENVIRONMENTAL ACTIVISM

There have not been widely noted, high-profile, or sustained protests or movements specifically targeting the development of Block 58 in Suriname in the mainstream international media or detailed reports.

GLOBAL VALUE CHAIN

If one is a structuralist in terms of economic development and adheres to Rostow's five stages of economic growth, then clearly Guyana is in the “take off stage” as it meets all of the conditions for take-off but certainly is not in the drive to maturity, maturity or age of mass consumption stages yet.

Right now Surinam sits at the second lowest stage of the Global Value Chain (GVC) as a pure raw commodity exporter. To move up the GVC to the next level which is manufacturing and/or processed/refined commodity exporter is through the well known process of focusing on and providing:

Improving coordination

Governments must create a clear vision and ensure the private sector is involved and capital is deployed in an efficient and controlled manner. What activities will be incentivized through reduced taxation, grants, preferential loans and the like and what activities will be “punished” through strict regulation and/or taxation needs to be very clearly defined and outlined.

Attracting investment

Opening borders and attracting foreign direct investment (FDI) will help countries enter GVCs and advance up the GVC ladder.

Improving infrastructure

Countries must invest in modernizing communications, roads, railways, and ports.

Reducing border delays

Small steps like speeding up customs can help countries transition from commodity exports to basic manufacturing.

Upgrading processes and products

Countries can improve efficiency by adopting better technology, or upgrade the quality of their products by using higher quality materials or through the use of domestic design.

Investing in education and training

Countries must invest in education and vocational training to complement their GVC strategies.

Comment:

In fairness to Suriname, this entire oil and gas sector is very new to them. With the potential of overnight change of fortune in their country as seen in Guyana, it would be wise for them to plan how they plan to reinvest their oil and gas revenues to move up the GVC from mere pure commodity exporter to manufacturing or commodity refiner. As if today, there is no defined and unified vision as whether or not these funds will be segregated into a trust and if they are how and on what ordered priority they are to be used. This is an immediate need otherwise the country will likely default to the old “resource curse” situation. The "resource curse" is a paradoxical situation where countries rich in natural resources, like oil, gas, minerals, or timber, experience less economic growth and development compared to countries with fewer natural resources. This phenomenon suggests that instead of being a blessing, abundant natural resources can lead to detrimental economic, social, and political outcomes. Inflation, rent-seeking, volatility in revenue, conflict, worsening of economic inequities, a dependence culture as well as even more corruption are potential outcomes without such a vision.

Conclusion:

Suriname’s newfound potential oil wealth holds the promise of transformative economic growth, potentially lifting it from its status as a small commodity exporter to a significant player in the global energy market. However, realizing this potential requires strategic investment in infrastructure, governance reforms, and a clear vision for the future. The country’s ability to rise above the resource curse and leverage its oil revenues for sustainable development will determine whether Suriname can emulate Guyana’s recent successes and do better than it or become a cautionary tale which seems to be the path that Guyana is on. With prudent management, Suriname can not only strengthen its economy but also secure a more prosperous and equitable future for its people. The journey ahead is fraught with challenges, but it also presents an unprecedented opportunity for growth and modernization.

SOURCES:

https://oilprice.com/Energy/Crude-Oil/Suriname-Poised-to-Follow-Guyanas-Footsteps-as-Major-Oil-Producer.html#google_vignette

https://www.worldbank.org/en/news/press-release/2024/10/01/new-world-bank-strategy-to-boost-economic-resilience-and-inclusive-development-in-suriname#:~:text=With%20Suriname's%20forests%20covering%2093,civil%20society%2C%20and%20development%20partners

https://www.worldbank.org/en/country/suriname/overview#:~:text=The%20discovery%20of%20several%20offshore,and%20have%20negative%20environmental%20impacts

https://www.coface.com/news-economy-and-insights/business-risk-dashboard/country-risk-files/suriname#:~:text=Recovery%20gains%20slight%20traction.%20The%20deep%20recession,durably%20high%20gold%20prices%20will%20support%20exports

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https://blogs.worldbank.org/en/opendata/bridging-the-data-gap-to-tackle-poverty-and-inequality-in-the-ca

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https://borgenproject.org/causes-of-poverty-in-suriname/#:~:text=The%20smallest%20country%20in%20South,causes%20of%20poverty%20in%20Suriname

https://www.unicef.org/executiveboard/media/8311/file/2022-PL9-Guyana_and_Suriname_draft_CPD-EN-2021.11.15.pdf

https://www.unicef.org/media/117041/file/Guyana-and-Suriname-2021-COAR.pdf