Fear behind the euphoria

It was a long time ago but I vividly remember it because I was green with envy when the then Nigerian head of state General Yakubu Gowon told his compatriots on national television: ‘Fellow Nigerians, our problem is no longer money, but how to spend it.’ I was only a teenager during those oil boom days of the 1970s when millions of Ghanaians migrated to the greener pastures of Nigeria. If only we had oil in Ghana, I often said to myself. Little did I know that dream would actually become a reality, and that my puerile envy of Nigeria was misplaced.

History shows that rather than being a blessing, oil and gas can be a bane for many poor countries, leading to corruption, wasteful spending and instability. Too often, oil money that should go to a nation’s poor ends up in the pockets of the rich or being squandered on palaces and massive showcase projects. A classic case is Nigeria, now the world’s eighth largest oil exporter where, despite half a century of oil production and half a trillion dollars in revenues, poverty has increased, corruption is rife and violence persists in the oil-rich Niger Delta. Having endured some of the worst consequences of oil wealth, Nigeria is now taking some of the most deliberate steps to correct the problem.

In December, Ghanaians celebrated as President John Atta Mills opened the valve at the Jubilee Field to mark the start of commercial oil production in the country. The field has about 500 million proven reserves and a potential of more than a billion barrels. It is projected that oil production will provide about $400m to the 2011 budget and $1bn annually in subsequent years. Despite the general euphoria, there is widespread fear that the black gold may become more of a curse than a blessing. Many Ghanaians fear that oil revenues may overwhelm the nascent institutions and positive reforms and derail economic growth.

These recent reforms and accompanying economic success have led to predictions that Ghana may, with accelerated growth as a driver, achieve the historic milestones of realising the Millennium Development Goals and middle-income status by 2015. The growth rate necessary to deliver on such forecasts would have to be fuelled by a number of positive inputs including donor assistance; non-concessional loans, which have been made possible by improved risk perceptions; sustained fiscal responsibility; conservative monetary policy; and continued investment in infrastructure and institutional capacity.

Ghana has achieved growth that is the envy of other African countries and has improved governance to achieve growing investor confidence. Nonetheless, it remains tarred with a legacy of corruption that has toppled several post-independence governments and that surveys indicate a considerable problem at the national and particularly at the local and district levels. Ghana also suffers from challenging institutional capacity hurdles that will require considerable time and technical assistance to build to levels capable of administering effective management and oversight of its extractive industries, particularly hydrocarbons.

Despite Ghana’s considerable accomplishments in establishing macro-economic stability and improving budget management, Ghana faces daunting challenges to ensure that oil revenue is managed in a manner that will benefit current and future generations. As a young democracy with large trade and fiscal deficits and extensive infrastructure and development needs, Ghana will be challenged to exercise fiscal discipline and strike a balance between current and future spending.

The overall control of the petroleum sector is vested in the Ministry of Energy, but it is the state-run Ghana National Petroleum Corporation (GNPC), which has practical authority over the sector according to laws established in the 1980s. GNPC has been granted exclusive responsibility for commercial petroleum operations as well as regulatory and enforcement responsibilities. Petroleum agreements are subject to cabinet and parliamentary ratification. Some Ghanaian officials believe that ‘the technical capacity does not exist anywhere else in the government to effectively manage GNPC’s current responsibilities’. The officials further note that Ghana would require significantly more engineers and hydrocarbon expertise.

This is one reason why the government must continue to seek assistance from successful oil producing nations like Norway to manage the resource. Education and health are sectors that Ghana can and must fund from its own resources. Foreign assistance should fill critical gaps in those important sectors while concentrating efforts to build technical capacity for government institutions to manage and guide government policy-making and decisions and deliver effective oversight. Oversight also requires substantial investment in civil society. Ghana has a head start but will be scrutinised closely both by its own citizens as well as its neighbours, in the hope that oil becomes a blessing for the country.

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