GODWIN NNANNA
Ghana enters oil age with wary eye on neighbours, particularly Nigeria. Will it learn from their mistakes or is the world going to see another African success go sour? Africa can ill afford that.
If projections go right, Ghana will formally begin commercial exploration and exportation of its oil resources next year. The economic mood in the country has changed significantly since June 2007 when the announcement of the discovery was first made. The West African country which until its independence 52 years ago was known as the Gold Coast because of its rich gold reserve hopes to, in less than a year’s time, join the league of the exporters of the new gold as oil has come to be known.
The reason for the excitement among Ghanaians is not far fetched. With oil even the poorest of countries can wield enormous power. Weaker nations can use their oil-fueled influence to play more powerful nations off each other. They can lobby for more-favorable trade deals, increased direct assistance and better loan rates. Libya, Nigeria, and Sudan are examples of African oil-producing nations that have used their oil wealth to flex muscles at international levels at various times in history. Beyond the continent, Iran and Venezuela are other examples.
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Oil boom and shifting global politics are giving African countries like Angola, Equatorial Guinea, and Sao Tome and Principe their best development chance in decades. Now Ghana is in queue. Estimates are that Ghana will be producing between 120,000 and 150,000 barrels of oil per day, along with significant quantities of gas. The International Monetary Fund, IMF, has predicted that government revenues from oil and gas could reach a cumulative 20 billion dollars – from just the Jubilee field – over a production period from 2012 through 2030. The Ghana National Petroleum Corporation, GNPC, estimates revenue levels of almost US$3 million per day, or some US$1.6 billion per year.
One third of the world’s new discoveries of oil since 2000 have taken place in Africa. Since 1990, the petroleum industry has invested more than $30 billion in exploration and production activity in Africa. Experts projects that not less than $60 billion additional investment will be spent before 2012. But the oil producers are among the sickest countries in Africa. They present an economic study in contrasts.
Most Africans have seen little benefit from this influx of oil drillers and investment. Because of an economic paradox known as the resource curse, the people are often hurt by exports of their country’s oil. Economists call this phenomenon the Dutch Disease because it was observed in the Netherlands after natural gas was discovered in the 1960s in that country’s portion of the North Sea. The Dutch manufacturing sector withered as the gas industry grew. Some commentators have pointed to Norway as a possible example of the way in which Africa’s oil-rich countries might conduct themselves.
Since Ghana’s discovery of oil in Ghana, discussions in many circles have centered on how the country can avoid the resource curse. Norway, the world’s third largest oil exporter behind Saudi Arabia and Russia, salts away a large share of its wealth in a national pension fund, now worth more than $300 billion. The fund is invested only passively in non-Norwegian stocks and bonds. Finally, the enhanced revenue from such investments is allocated to social services like roads, schools, houses, and health centres, and is given out as loans to small-scale businesses.
The model limits the temptation of politicians to use the money for pork-barrel projects. It has been nicknamed the future-generations fund. Norway a small, homogeneous country of about five million people was relatively advanced when its oil began to gush. It already had the sorts of public institutions that enabled it to prudently manage its newly found wealth. Steve Manteaw of Integrated Social Development Centre (ISODEC), a local NGO, said Ghana is not developed enough to employ this model and cannot afford to put money away in a fund when it has so many immediate needs.
Many who worry about how Ghana’s oil will impact on the poor in the country readily point to gold, a commodity the country has mined for about a century now. According to the Ghana Extractive Industries Transparency Initiative, after 100 years of mining gold in this country there is little to show [for it] in these communities. Though the last 30 years have seen a boom in mining investment in Ghana, this has led to small government revenues, increased conflict between companies and local communities, and the removal of families from their lands and increased environmental degradation. Promises by government to share out the gold wealth fairly with local communities have been nothing more than empty. Many are worried that without proper regulations and monitoring in place before the start of drilling the oil boom will spell the same fate.
Ghana’s Big Test: Oil’s Challenge to Democratic Development a report released in March by Oxfam America and ISODEC has warned that Ghana’s weak institutions might not be ready to handle the burdens of an expected influx of cash from a burgeoning oil industry. Ghana must make significant changes to support transparent, accountable and efficient development of the industry and the billions in government revenue it will generate, the report notes. We must develop a Ghanaian model that will factor in our peculiarity, but incorporating all best practices across the world, Manteaw said.
Many Ghanaians have already begun countdown to the 2010 dateline. Within government circles, the excitement is huge. The new government led by John Evans Atta Mills, a former university law teacher, is seriously under pressure to deliver on his promises of a better Ghana the campaign slogan that earned him victory in the presidential elections last December. The government has tagged 2010 as Ghana’s year of real change. For many ordinary Ghanaians who danced expectantly to Mills’ campaign music yerisisem (literally meaning we are changing), change means only one thing “more cash in the pocket”.
But will this happen as soon as many expect? Not very likely. Some analysts believe that when the oil eventually begins to flow, hard thinking will displace raw feelings. Kofi Annan, former United Nations Secretary General, is one of those who believe such hard thinking must start early. Addressing the Ghanaian parliament after retiring from the UN, the former UN chief told the law makers that he was happy that he retired from the United Nations to a united nation and would want the status quo to remain the same oil or no oil.
The realities on ground presently do not suggest that it would be jamboree from onset. The new government is under pressure to reduce Ghana’s huge fiscal deficit which currently stands at 14 per cent of gross domestic product (GDP) and trade deficit which spiraled to 17 per cent under the previous government. Tackling the twin deficits is an overwhelming concern. One thing that the oil find is sure to end in the nearest future is the country’s huge oil import bill.
Ghana remains different from most of its neighbours. It is an African success story, said Ian Gary of Oxfam. Ghana is one of the most peaceful and relatively prosperous countries in West Africa. The democratic election of Mills in January, in the closest vote in Ghana’s history, makes the West African nation one of the few African countries to successfully transfer power twice from one legitimately elected leader to another. However, the country still remains poor. According to the report, almost 80 percent of Ghanaians live on less than two dollars a day.
As participants at an oil and gas forum held last month in Accra by Zenith Bank acknowledged, there is one way to avoid the curse of oil. Ghanaians need to know what oil companies are paying their government, and how those revenues are used. They can look at laws that govern these resources, and ensure that oil money pays for teachers and school desks instead of a new bullet-proof Mercedes for the minister of energy or the president’s son.
Since coming to power, the present government has been engrossed in a campaign to recover government cars taken away by former ministers and heads of government agencies in the previous administration. Such actions, some say, are pointers to the fact that containing greed in government circles would be one of the major challenges an oil-producing Ghana will invariably contend with. How that will impact on electioneering and the country’s thriving democracy remains to be seen.
According to Chris Hufstader of Oxfam, the choices in Ghana are pretty clear: will the government use money from recent offshore oil discoveries to build more schools, hospitals, roads, and hire doctors and teachers? Or will Ghana go the way of Nigeria, a country with more than 80 percent of the population living on less than $2 a day while the government rakes in nearly $60 billion a year from oil?
Increasing transparency and responsible management of oil revenues is also about security. ISODEC director Manteaw, says that in coastal areas near the offshore oil fields he is seeing young people organize groups to protect their perceived interests. This is frighteningly similar to the advent of armed conflict in the Nigeria’s Niger delta, where the military recently staged a major offensive.
We will not sit down for the wealth to elude us, we are ready to fight for what rightfully belongs to us, warned Asagyefo Ogyeahohoo, the traditional chief of one of the communities whose shores will soon play host to oil exploration activities. Drawing on the experience of Nigeria, Manteaw believes that excluding local communities in the decision-making process would breed mistrust that could trigger the sort of conflict witnessed in the Niger Delta region. Dialoguing with the communities to agree on a formula for distributing the oil wealth is a right the communities cannot be denied.
Nigeria’s oil industry has long been the most glaring example of the resource curse. While Nigeria is Africa’s largest oil producer, the peoples of the Niger Delta where the crude is extracted have seen their homelands turned into a wasteland. The millions of dollars of oil revenue accrued every day have done nothing for the 70 per cent of Nigerians who live on less than $1 a day. In the Niger Delta, farmlands and fish stocks have been destroyed amid environmental degradation brought on by oil spills, deforestation and the notorious practice of gas flaring, which continues despite being banned. Nigeria presents every lesson in the mishandling of oil wealth that Ghana must learn from.
Several factors may help Ghana avoid the oil curse, according to Blake Lambert, an African analyst. The first is the quantity of Ghana’s discovery: if the forecast of up to 600 million barrels is accurate, then those reserves are a fraction of Nigeria’s 35 billion barrels and Angola’s 10 to 12 billion barrels. It is arguably small enough to prevent oil from getting too tight a grip on the economy, which would lead it to overpower other sectors of the economy, causing them to wither away. What also favors the country is its sense of national unity, often missing in its regional neighbors who have been blighted by civil wars. Ethnicity in Ghana is not as deeply ingrained or divisive as it is in countries like Nigeria and Sudan.
Ghana must also ensure that the oil companies play by the rules. The large oil companies are concerned about environmental, corruption and human rights issues in the western world where there are structures in place guarding against abuse. In Africa and other developing countries where these structures are not in place, they have no scruples in forsaking these standards. Ghana must realize that oil is a finite resource and ensure that the revenue from it is used to diversify the economy instead of being snatched into private foreign accounts. United Arab Emirate and Bahrain are two good examples of oil-producing countries have utilized their petrodollars to diversify their economies.
In 2006, oil and gas revenues accounted for only around 3 percent of Dubai’s gross domestic product (GDP) of 46 billion US dollars. It is expected that the country’s oil reserves will run out within the next two decades. Yet the economy is booming thanks to the promotion of tourism and the positioning of the country as a shoppers’ paradise.
