GHANA: Report Warns of ‘Resource Curse’ Ahead of Oil Boom

By IPS Correspondents Reprint | | Print |

Marina Litvinsky

WASHINGTON, Mar 5 2009 (IPS) - The recent discovery of oil in Ghana could undermine its democratic development, warns the international aid agency Oxfam America and the Integrated Social Development Centre (ISODEC) in Ghana.

The report, “Ghana’s Big Test: Oil’s Challenge to Democratic Development,” issued Thursday, says that Ghana’s weak institutions might not be ready to handle the burdens of an expected influx of cash from a burgeoning oil industry.

On the verge of an oil boom that could bring millions into the country, the report says, 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 makes extensive recommendations to the government, oil companies, donors, civil society and journalists to move quickly but deliberately in the face of the coming oil boom.

The 2007 discovery of the major offshore ‘Jubilee’ oil field has generated enormous interest in the country’s oil production potential. Analysts warn that Ghana’s government, led by newly elected President John Atta Mills, should be careful to guard against the “resource curse” which has devastated other resource rich African countries.

“In too many countries, oil booms have bred corruption, underdevelopment, social conflict and environmental damage,” said the report’s author, Ian Gary, a senior policy advisor for extractive industries at Oxfam America. “Ghana’s challenge as ‘oil hot spot’ will be to ensure the right institutions and transparent policies are in place before production even begins.”

Last year, Africa produced 12.5 percent of the world’s oil through significant investment and exploration throughout the continent. But the continent’s rise in the oil sector has yet to translate into tangible benefits for Africa’s poor. Resource rich countries in Africa have actually experienced lower growth rates than countries with scarce resources.

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, Ghana still remains poor. According to the report, almost 80 percent of Ghanaians live on less than two dollars a day. The new National Democratic Congress (NDC) administration is facing a widening budget deficit, weakening currency and rising inflation.

Finance Minister Kwabena Kuffuor presented the government’s new budget to parliament Thursday. The budget forecasts growth to fall to 5.9 percent in 2009, from 6.2 last year. It aims to cut the fiscal deficit to 9.4 percent of gross domestic product (GDP) by the end of 2009, down from 14.9 percent at the end of 2008. The new government hopes that oil revenues will help accelerate the country’s efforts to meet the anti-poverty U.N. Millennium Development Goals by 2015.

The start of oil production is scheduled to begin in late 2010 or 2011 and estimates are that Ghana will be producing approximately 120,000 barrels of oil per day, along with significant quantities of gas. The International Monetary Fund 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.

Though the last 20 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. Many are worried that without proper regulations in place before the start of drilling the oil boom will spell the same fate.

“Oil wealth threatens the growing democratic accountability that has been built in our country’s history,” said Steve Manteaw, media and campaign coordinator for ISODEC in Ghana. The government must “manage the oil sector in a way that benefits all Ghanaians.”

According to the report, the previous New Patriotic Party (NPP) government launched a “homegrown” effort to tackle the challenges of the oil era, establishing technical committees composed of government staff and expatriate Ghanaians to address issues from the fiscal regime to gas utilisation.

The state oil company, the Ghana National Petroleum Corporation, has made some disclosures to the public, but key details remain secret, including the oil contracts as well as the development plan for the Jubilee field.

The new government “does not have a clear national policy for the oil sector,” Manteaw said.

A second revision of the petroleum regulatory authority bill, first drafted by the NPP government, is now being discussed in parliament.

The recommendations set out by the report include transparent revenue and payment practices; advising companies to volunteer to disclose their payments and contracts and participate in Ghana’s Extractive Industries Transparency Initiative; open and competitive contract bidding; and active monitoring and participation by civil society.

The report also recommends that the government enact a moratorium on signing new licenses, so that they can organise an open bidding round and allow the country’s legal and institutional framework to ‘catch up’ to the pace of oil development.

While the oil discovery has attracted the attention of many eager foreign investors, the report cautions that Ghana must control the pace of the development of the petroleum sector so as to not let commercial developments outstrip the capacity of the government and society as a whole to meet the myriad challenges.

“Pacing can lead to better negotiating deals (over time),” added Oxfam’s Gary.

While the oil boom will certainly infuse Ghana’s economy with needed investments, it is important to remember that this oil boom “is not going to transform Ghana,” said Clive Armstrong, lead economist in the oil, gas, mining and chemical department at the World Bank. “Government spending is predicted to increase by only about 10 percent.”