Ghana's "Luck": The Oil/Gas Co-Efficient

It's been over three years since Ghana first struck (black) gold in June 2007, and while the euphoria around the find has somewhat diminished, most Ghanaians still have high hopes for our "new" resource. Then, as now, I am highly skeptical about our oil find and probably more pessimistic than optimistic about its potential for growing Ghana's economy. Until now, I've kept pretty mum about the issue, but given that the first production of oil is set to start next month - in a couple of days - I think it's time to break the silence.

While there is no set formula for development, many economists turn to income level to determine growth in an economy. Others would also look at education, health, the influence of technology and so on as determinants. With regards to Ghana, I believe that henceforth, our development will be greatly influenced by what I'd like to introduce as the oil-gas coefficient. So there you have it people, a historic moment is upon us. Will Ghana become the "African Tiger" that former President Kuffuor alluded to, or will the Dutch disease claim yet another victim, doing away with a bright future at the snap of its fingers? That, my friends, is the question.

Historically Speaking

To be fair, let me say that Ghana's oil has the potential of being the greatest thing that ever happened to us. If, and I repeat, IF we have the necessary frameworks, policies, institutions and so on in place. Unfortunately for us, our dear country, like most of Africa, has a bad reputation when it comes to management of natural resources. Look no further than the gold, cocoa, palm oil and shea butter industries and you'll see that we haven't the slightest inkling of how to be consistent in tapping into the potential of natural resources. Worse than that is our reputation for not compensating the people whose livelihoods are wrecked due to "new" discoveries or developments. Take the people living along the Akosombo Dam who are almost always in one scuffle or another with the government over compensation, or the inhabitants of Obuasi, Akwatia and other mining areas. We hardly keep our promises to our people, why should the oil babies be any different?

The Dutch Disease
A day after the oil find announcement, I posted a note on Facebook asking what people thought about our new visitor. Many of the Facebook respondents expressed concern that the oil would be mismanaged and that pre-existing sectors like the cocoa sector would be neglected in its favor: a typical case of the Dutch Disease. Today, people still dread the infamous Dutch Disease which succeeded in crippling even advanced countries like Norway at some point in their oil history, and is still wrecking havoc in Nigeria. What many people don't realize is that the Dutch Disease has already moved into Ghana, suitcase in hand and smoking pipe perched to the side of its lower lip. As this CEPA article indicates, oil is already drawing attention away from cocoa. Until the oil find, the Western region of Ghana had been a primarily fishing community, with inhabitants making their living through this life-long occupation. Unfortunately, many fishermen in the Cape Three Points area, where the oil was found, are having to look elsewhere, with some hoping to secure jobs within the very oil industry that is already causing sleepless nights for them. If Ghana's history with natural resource management is anything to go by, oil will find itself on the dusty shelves right next to all the other natural resources we have been blessed with, yet are incompetent and/or unwilling to build our nation with. Now, more than ever, we need to make diversification a national priority. We no longer have the luxury of thinking we can sustain a nation like ours on one resource.

Expectation (Mis)Management & Transparency
As far as I am concerned, the oil discovery and production is the easy aspect of Ghana's new reality. What will determine whether the oil-gas co-efficient will have a positive or negative impact on our present and future is the management of expectations and how transparent our government and leaders are about what's going on. The Ghanaian government has had months, even years, to prepare its people for dealing with the new reality of oil. If I were to give a grade on how well they've managed expectations and been transparent, I would give a D - and that's being lenient. For one thing, too many people still think that oil is going to miraculously save Ghana, and are consequently dropping their current occupations to venture into the oil sector which, as it turns out, probably won't employ too many Ghanaians anyway.

Fortunately or unfortunately, as with any business, jobs tend to go to the most competent, most skilled professionals. Given the fact that Ghana just discovered the oil, and that prior to this discovery, our focus in the oil sector was limited to refinement and so on, it wouldn't be a far cry to say that the precious few jobs that the sector will birth would most likely land in the hands of other nationals. Again, we're already seeing this, and not only are Ghanaians losing jobs to expatriate professionals, the country is also losing billions in income tax revenue. Why? Because the necessary frameworks are not in place to monitor the situation. Now, you have numerous Ghanaian youth and professionals literally switching up their academic focus areas to venture into oil and gas, extractive industries and what-not. What's going to happen when they spend their hard-earned money on all this education and graduate, only to be told that there are no jobs in what is supposed to be a new sector?

From the layman to the most skilled of professionals, the status quo seems to be that oil will make everything right in Ghana. Sounds vaguely like the Obama effect, where many Africans thought that then Senator Obama's ascension to the U.S. presidency would solve all of the continent's problems. If that is anything to go by, it is evident that the presence of a new player on the national or international scene doesn't guarantee anything. What will determine the outcome of the equation is hard work, how well we manage expectations and the new resource, and how honest our leaders are on what is going on in the industry. While the Ghana government has held a number of public forums to introduce its plans to Ghanaians and other stakeholders in the oil industry, it is not enough. So long as there is still speculation and questions about things as simple as "What is government's percentage stake in the oil proceeds," there is not enough transparency. Without transparency, you'll have misguided expectations skyrocketing, and I feel sorry for whoever will be appointed to clean up that particular mess.

Proposed Usage of Oil Revenues

Oil production hasn't yet started, however, there is no shortage of proposals floating around about what the oil revenues should be used for. While the government takes its sweet time in notifying the nation about its actual stake in the oil proceeds - generally-speaking, it seems the government is assured a 10% stake - people have wasted no time in counting chickens before the eggs are hatched. There are various figures floating around, but it is estimated that Ghana will receive about $1billion annually as proceeds from oil, approximately $40-$50 per Ghanaian annually. Obviously, the real revenues could be slightly different after all costs are deducted. During a panel event in Washington, D.C. in April 2010, Mohammed Amin Adam, National Coordinator of Publish What You Pay, elaborated on some of the proposed projects which include a) debt financing, b) a western region development fund, and c) a heritage fund (for educating future generations of Ghanaians) d) general development projects. Last I checked the government hasn't yet decided what the oil revenue will be used for, however, considering the actual figures on expected revenues is still up in the air, there is only so much planning one can do. It would also be good to note that Ghana's oil production is expected to last only until 2030. Meaning we need to maximize our use of the proceeds while stocks last.

Personally, I would rather we have nothing to do with the oil or its proceeds. First of all, we would be making a huge fuss out of nothing if, assuming the government has actually done away with all its shares and only has a 10% stake, we take into account all the fees associated with building infrastructure, paying professionals, handling (or should I say not handling) public relations, and so on. Maybe I'm being overly pessimistic (and I would love more than anything to be proved wrong) but the way I see it, the oil revenues are akin to pirate bounty which should be buried for future treasure hunters to unearth. Of the three proposals I've heard of so far, I believe the heritage fund is the best. Debt financing should not be linked to our oil revenues as it will only result in further problems. You can't bank your integrity on a sector as volatile as oil. An even more risky venture would be to use petroleum and oil reserves as collateral for loans , which although prohibited in the proposed Petroleum Management Bill, is being reconsidered by some politicians.

While the people of the Western region should be compensated for the rummaging going on in their backyards, I don't think the proceeds should be dedicated to a Western region development fund. This is not because I don't think the Western region has development concerns. Far from it. Rather, given how ethnocentric Ghana is, particularly where politics is concerned, such a move would send a wrong signal to other deprived communities in the country. For instance, during the Oxfam panel earlier this year, a question was addressed to Ghana's current ambassador to the U.S. about the feasibility of such a fund. In response, the ambassador stated that if the Western region could make such a claim on the revenues, then it would be fair for the Ashanti region to demand compensation because, after all, most of Ghana's resources come from that region. Take note, this is a leader who is supposed to be representing the interests of the entire country, not his ethnic affiliation. If someone as "open-minded" or "exposed" should have such notions, what do you think the average Ghanaian would say if there were a hint of preferential treatment towards the Western region? Already, some Western regional chiefs descended upon parliament to request authorization for their 10% stake in oil revenues. Although their request was rejected, it is a warning to us. Unless there is some transparency and real answers about this entire process, you can bet that people from the Northern, Eastern, and Southern regions - and even neighboring countries as Cote d'Ivoire attempted to - will throng to claim what they think is "rightfully" theirs.

As stated previously, in my humble opinion, the Heritage Fund for Education would be our best option for utilizing what meager proceeds will be left after paying the necessary dues. Ghana really needs to save for a rainy day, and what better platform to use than to contribute to the education of future generations? We have after all promised free basic education numerous times in the past. This would be an ideal opportunity to deliver on those promises. Additionally, it would help us evade the Dutch Disease to some degree since there wouldn't be any specific expectation of oil solving all our current problems. Consequently, we would still be relying on (hopefully all ) our existing sectors to push on towards accelerated development. Finally, all these ethnocentric claims about who deserves what would be dealt with, as the Heritage Fund would be for all the regions.

Ghana's Stability: A Risky Gamble
From all indications, Ghana isn't yet ready - institution, skill-base, legal framework-wise - to manage our new resource. While I might wish that this weren't so, or that the oil had never been found, what is done, is done. Now what we need to do is move forward together, making sure that everyone is on the same page, and that the interests of Ghana as a nation are put above everything and everyone else. Some of the basic questions the government needs to come clean on include what the real projected revenue after deducted costs is, what its total stake in oil proceeds is, which bodies are responsible for ensuring accountability and tracking due diligence and how much is being paid out to the oil companies. Based on the recent oil spillage in the US, it goes without saying that we need to have some sort of environmental plan to ensure that minimal damage is done to the ecology of the oil areas, as well as the human inhabitants. We also need to cushion the sector against any backfalls should there be a change in government. Without knowing what the real state of affairs is the government won't be able to effectively manage expectations.

It is the responsibility of each of us as Ghanaian citizens to keep ourselves informed and involved. Attend public forums like Saturday's BarCamp Takoradi which focused on the oil and gas sector. Check out Ghana Oil Online for a database of oil-related news pieces. Also see Ghana Oil Watch or follow their postings on twitter and facebook. And hey, it can't hurt to pray either. They do say that God is a Ghanaian, right? Either way, Ghana's peace and stability is too precious a thing to hinge on something as volatile as oil.