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22.12.2011 Feature Article

Poverty Reduction And Oil Revenue: The Case Of Ghana

Poverty Reduction And Oil Revenue: The Case Of Ghana


The purpose of this presentation are;to delineate ways of reducing poverty which is a constant nightmare to any well-meaning Ghanaian; and to describe most appropriate ways of managing the "black" gold given to us by the Chief architect of the universe. When the United Kingdom firm Tullow Oil announced the discovery of the 600 million barrels of light oil offshore of Ghana in 2007, the whole country was throwned into a joyous mood. Thankful prayers were offered to God for such blessing during the preceding Sunday Church services across the country. If we are able to manage and equitably distribute the oil revenue to administer the needs of our poor folks, the country will be envied as the first of its kind in the African continent. Transparency, and a law that does not play favorite are essential especially when a country wants its citizens to benefit from the oil revenue.

“Resource Curse” is a well known phenomenon in the African continent and the mention of countries like Nigeria, Angola and Sudan sends fear down our spines. Many countries in the continent have struck the black gold in God knows quantity but the timeless question has been that to what end has the oil discovery been to the citizenry? Reaping oil's benefits demand a more sophisticated economic planning, fortified institutions to manage the inflow of revenue and a grounded social policy.

Oil and Gas benefits for Ghana can be channeled to fighting the poverty and inequality situation its citizens live in so as to avoid the infamous “Dutch Disease” as well as unnecessary rate of corruption. However, few oil producing countries have the needed policies and structures in place when the oil starts flowing. This therefore, account for the weaken governance, political instability and the high cases of poverty and inequality that are synonymous to the continent.

When oil was first discovered in commercial quantities in the Western Region of Ghana in 2007, the mood of the country was that of ecstasy, because the news came at a crucial time in the nation's development when sufficient capital investment is required to turn the economy around. Most Ghanaians, for that matter, have since been optimistic; believing that revenues from the oil sector will change the fortunes of the nation if well managed.

President John Kufuor too told the BBC that the discovery of oil would give a major boost to Ghana's economy.

According to him, "Oil is money, and we need money to do the schools, the roads, the hospitals. If you find oil, you manage it well, can you complain about that?

"Even without oil, we are doing so well, already. Now, with oil as a shot in the arm, we're going to fly," he said.

It has been proven that revenues generated from oil and gas in developing countries has undermined economic growth, deepen poverty and engendered conflict. Niger Delta is a case in point of this paradox. It was clear the costs of oil have been totally devastating. Occcupying an area of 70,000 km2 and being the largest river delta in Africa, the Niger Delta region which straddles three states [Bayelsa, Rivers and Delta] is overwhelmingly poverty-stricken.

In his article written in 2007, Stephen Yebaoh a Ghanaian Journalist and Researcher said that, "since 1960, Nigerian oil exports have generated staggering wealth, estimated at over $600 billion with the Niger Delta accounting for more than 75 per cent of earnings. Petrodollars have however failed to transform the lives of the people. Evident in the Niger Delta are extreme poverty, poor and non-existing basic infrastructure, inequality, entrenched marks of conflicts and environmental damages".

"Ghana has proven large oil reserves. The International Monetary Fund (IMF) projects that revenues from Ghana's oil production will reach $1.3 billion per year by 2013 and remain slightly above that level until 2022. Can the country with enormous petrodollars transform the livelihoods of the poor and the economy?" he continued.

It is a well known fact that, Ghana cannot jump into jubilation at this early stage of our production. We are surrounded by countries which are in conflicts as a result of the inequitability of the oil and gas revenues.

Gabon, Africa's fourth biggest oil producer in sub-Sahara still has more than 1.5 million living below the poverty threshold. Equatorial Guinea which is one of the fastest growing economies in the world as projected by the World Bank has an estimated annual per capita income of $11,000, yet, majority of its people are fruitlessly fighting to live on less than a dollar a day. Angola reaped a vast oil revenues comparable to total amount of international aid given to the world's sixty poorest countries. But Angola in 2008 was ranked 162nd out of the 177 countries in the United Nation's Human Development Index (HDI).

How different will Ghana be from others?

The oil industry has Multi-national Companies (MNC's) who are drilling the oil, the government; the citizens who should be the direct beneficiaries of the oil revenue and the development partners who help with a sponsorship package as the major stakeholders. The people of the land suffer from the poverty, inequality and violence that come from failed oil policies. Development Partners are focused on institutional reform and democracy promotion with little or no attention for the welfare of the citizens. The Multi-national Companies (MNC's) like the oil companies would want to maximize profit to satisfy their stakeholders and therefore had no interest in poverty reduction, democracy or eradication of inequality.

This, therefore, means that, the government shoulders the responsibilities to fight poverty and inequality through putting in place required policies based on transparency in the management of the revenue.

The Government of Ghana in its 2010 budget proposed oil and gas industrialization plan which i believe is essential at this hour.

The planned investment opportunities targeted by the government can be summarised as

(i) petrochemical industry targeting plastic products and pharmaceuticals

(ii) exploitation of important natural resources such as sea salt, iron ore, bauxite, limestone for cement, silica sand, methanol, ethanol, ammonia, urea for fertilizers and

(iii) manufacturing including production of glass bottles, steel mills operations, aluminium smelting and rolling mill operations.

I must be caution that Ghana has implemented different models of industrialization since independence without the success of a transformed economy – from Arthur Lewis Dual Economy Model, Import-substitution Model to Export-led Industrialization Model and now to an Oil and Gas Industrialization Model. The reasons for the failure of previous industrialization programmes among others were poor planning, lack of strong institution and financial constraints.

To ensure that the country does not descend into the mess known of oil producing countries across the continent, we need a strong oil management bill that promises accountability and transparency.

It is on this note that I want to laud our Parliamentarians for the passage of the delayed Petroleum Revenue Management bill.

The bill outlines clear rules for petroleum revenue inflows and outflows. It provides for the establishment of a Petroleum Holding Fund to which all petroleum receipts will be deposited, a Stabilization Fund to account for the effects of revenue volatility through expenditure smoothing; and a Heritage Fund to ensure intergenerational equity and create an alternative source of income for the future. Disbursements of the Holding fund are further provided in the bill as:

- 70% of benchmark annual revenues to the budget
- 21% to the Ghana Stabilization Fund and
- 9% to the Ghana Heritage Fund

What drew the attention of Ghanaians is the appropriateness of the Heritage Fund at the time the country is faced with serious developmental challenges.

According to Adam, Mohammed Amin in his 2011 article entitled Petroleum Revenue Management Bill Promises Greater Transparency And Accountability, "the question that remains unanswered in the literature on Future Generations Funds is whether the objective is sustainable income or sustainable impacts. That is, if petroleum revenues were invested in projects that would have sustainable impacts on future generations, could that be said to have achieved intergenerational equity? Whiles this question remains unanswered, most citizens in Ghana came to support the establishment of the Heritage Fund because of the emotional attachment of Ghanaians to their future generations; and also to give meaning to the sense of preparing oneself against the future".

Though the Petroleum Revenue Management bill promises greater accountability and transparency, delicate issues have been raised which are legitimate. However, the mandate of this work does not fall in such field.

When the government creates the platform for transparency as the Petroleum Revenue Management Act 851, citizens must be empowered to scrutinized activities of the men and the women who work directly in our fields. In other words, citizens must be by law empowered to request for documents especially when they are confident of misappropriation of oil and gas revenue. However, at the present moment and the with the unpassage of the Right to Information Bill (RTIB) this role will be difficult to be carried on.

Also, to ensure that foreigners do not monopolise the commercial production of the nation's oil, the government must carry out a capacity building for its citizens. This will bolster the participation and interest of the citizens on issues of oil and gas. Students must be given scholarship to study oil and gas management either locally or oversea for subsequent employment for the forward march of the country.

Ghana has a lot of good prospects in years ahead should we manage and equitably distribute our oil and gas revenue to fighting poverty which is swallowing up our poor people. Though the government cannot shoulder all the responsibilities, a conscious and concerted effort from the end of our government will be enough for the people to carry on thereoff.

We do not have to descent into the gallows of conflict before we began to take the right of our people to benefit from resources extracted from our land seriously.

It is sadistic to remark that for over sixty-years (60) of gold, diamond, and bauxite mining in Ghana, the returns from this God-given natural resources have been trickling and have since not filled up just one bucket for it to be distributed to our people. Lack of accountable legislation has been cited as one of its challenges. This is why the Petroleum Revenue Management Act 851 is in the right direction yet we can do more like petitioning Parliament to facilitate the passage of the Right to Information Bill which may be rottening in the cabins of Parliament.

For our country to win the future, we have to make life better by judiciously managing and distributing equally without playing favorites the revenues internally and externally generated by our Government. It is not late we can do better people of this greatly-small country.

Austin Brako-Powers
(District Tourism Officer - Ghana Tourism Authority)

Tel: 0242 628164
Email: [email protected]

Auxtyn Attah-Brako
Auxtyn Attah-Brako, © 2011

This author has authored 84 publications on Modern Ghana. Author column: AuxtynAttahBrako

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