Is Ghana’s oil a curse or blessing?

Nigeria Oil Rig Workers11 October 2013, Accra – The west African state of Ghana could use the revenue from its oil exports for the benefit of all. Instead, the politicians ignore their own laws. This is a great risk, experts say.

Ghana began exporting oil in 2010. How can it prevent its politicians being struck by the ‘oil curse’ and corrupted by shady funds? What can it do to ensure that entire sections of the economy, whole regions and the population as a whole benefit from the new revenues?

In, short, can it ward off the disadvantages that often accompany the discovery of lucrative raw materials? For Benjamin Boakye, an economics expert with the African Center for Energy Policy in Accra, the answer to these questions is simple: the laws that already exist must be implemented.

Ghana has the reputation of being a stable and democratic model state in a troubled region. The new laws introduced for the oil industry contain all that is necessary for a positive development, Boakye said in an interview with DW. “The challenge lies in their implementation.”

When oil was first discovered off the coast in 2007, Ghana seemed determined to do everything right. After extensive discussions with experts at home and abroad, a wide-ranging raft of legislation was passed. For example, a law regulating the distribution of the oil revenue specifies how much of this income the government may spend and on what.

Oil revenue diverted

One aim was to ensure that the profits would be used to benefit certain sectors of the economy and parts of the country as specified in a list of priorities. That was to prevent the Ghanaian economy as a whole focusing too strongly on oil, to the detriment of other sectors such as agriculture in which more than half the Ghanaian workforce is employed.

But the reality looks rather different, says Boakye, who has closely examined government expenditure. He found that oil revenue had been used to finance various road-building projects – in areas which already had a relatively good infrastructure but not in places where the money was needed more urgently. Large sums of money “even higher than those for a prioritized area like agriculture” had gone straight into the presidential budget, Boakye told DW.

Such irregularities could be a sign that corruption is creeping into Ghana’s oil sector, says Carsten Ehlers, Africa correspondent of Germany Trade and Invest, the economic development agency of the Federal Republic of Germany.

“The rules governing local content have in the past often led to a clear increase in corruption and nepotism,” Ehlers told DW. Local content refers to obligations to employ local people and foster skills and technology transfer.

The government in Accra is now debating new legislation intended to boost local benefits from the raw materials sector. Under the new law, Ghanaian companies would have a share in the oil industry, at first five percent, rising later to between 60 and 90 percent. That would apply to all companies actively involved in oil production in Ghana and their suppliers.

Ehlers criticizes that the draft law allows the oil minister to select on his own the companies which would benefit from this highly lucrative arrangement. If the decision lies with a single person, Ehlers says, then there is a real risk that companies whose managers are known personally to the decision-maker are more likely to be selected.

Ghana less at risk than Nigeria

Despite such reservations, Ehlers does not think that the resource curse will hit Ghana as hard as Nigeria. There, it is estimated that up to six billion dollars (4.4 billion euros) of oil revenue are embezzled or stolen annually.

In Ehler’s view, the scale of production in Ghana is much too small. Ghana’s oil revenue in 2012 amounted to some 500 million dollars. Production is just over 110,000 barrels, less than a tenth of the amount produced in Nigeria, Africa’s largest oil producer.

With its relatively small-scale production, Ghana does not need to fear the so-called “Dutch disease,” Ehlers says. This is the name given by economists to the process by which the export of raw materials leads to a strong revaluation of the currency which then damages other branches of the national economy because their products become too expensive on international markets.

It is too early to say whether the benefits from oil will outweigh the negative developments being observed, says Benjamin Boakye. The country has appropriate legislation and it is not only up to the government to ensure it is implemented. “We as members of civil society have to push hard so that the government applies the laws that it makes,” he said.

– DW

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