Introduction

Ghana has a history of oil exploration dating back to 1896. The recent discovery of
oil reserves may be a mixed blessing. The experiences of other countries like
Angola, Nigeria and Venezuela shows that the discovery of oil becomes a ‘curse’
rather than a ‘blessing’. This essay explains the concept of the “Dutch Disease” and
explores specific the lessons that Ghana can benefit from. Many reasons are
advanced to buttress the dire need of a strategy for managing Ghana’s new oil
industry. It highly recommends the pursuance of a downstream value addition chain
backed by a strong political will and commitment to sound economic policies to
transform Ghana into an industrialized economy.

Record of Oil-Rich Countries: Lessons for Ghana

Ghana discovered its first major oil find on 18 June 2007, announced by the Ghana
National Petroleum Corporation (GNPC) with its partners, Kosmos Energy and Tullow
Oil. The discovery of oil is often seen as a one way ticket to economic growth and
development. However, the record of oil-rich countries has been very dismal in
terms of improvements in the lives of the people. For instance, from 1965 to 1998,
in the Organization for Petroleum Exporting Countries (OPEC) Gross National
Product (GNP) per capita growth decreased on average by 1.3%, while the rest of
the world was on average by 2.2% (Wikipedia,2008).

Thus, a “paradox of plenty” and “resource curse” have become two commonly
used phrases to describe the impact of oil wealth on the economies of the oil
exporting countries. The most common influence of oil boom on economies is cited
as the ‘Dutch disease’. It is an economic phenomenon in which the revenues from
natural resources exports damages a nation’s productive economic sector by
causing and appreciation of the real exchange rate coupled with a decline in the
Agricultural Sector and the competiveness of the manufacturing sector. It was
named after the decline of the manufacturing sector in the Netherlands following
the discovery of natural gas in the 1960’s. Researchers identify 3 challenges
associated with crude oil. They point out that: they are extremely volatile,
unpredictable and large relative to the total exports, and GDP.Corruption, conflict
and excessive borrowing and inequality characterize oil rich nations. The prospects
of this oil find brings to the fore the need to develop a strategy for managing the oil
industry. To prevent the oil from becoming a curse, there should be effective
participation of the local people in the immediate vicinity of the oil production,
promoting transparency in accounting for oil revenues, investing oil rents and
adding value to the crude oil.

Involving the Local People

Ensuring effective participation of the local people averts inequality and conflicts
which usually plague oil rich countries. To ensure community participation and
avoid the Niger delta and Cabina province situation, there has to be a policy of
training and technology transfer. Skills training should be offered to the youth in the
area especially since they are active participants in riots. This will give them the
necessary capacity to take advantage of the numerous business openings that will
be created as a result of the citing of the oil companies. The Oil and Gas Forum
(2008) concurs: “Develop people and enterprise capabilities to allow local business
to take ownership of the oil industry”.

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Ensuring Petroleum Sector Transparency

Promoting transparency in accounting for revenues is a sure way of preventing

corruption and mitigating poverty. Oil revenues have rarely helped reduced poverty
as demonstrated by levels of poverty in countries such as Nigeria and Angola. It is
suggested that the whole legal framework be reviewed. Parliament should amend
the law to oblige the government to publish all budgetary documentation and other
fiscal information, open and competitive bidding process. Notwithstanding the
existing procurement law, it is advised that, a separate legal instrument be
introduced to deal with the huge activity and inflows in the sector. The oil
companies must be mandated to disclose their income which is not the practice in
the mining sector. Additionally, civil society and the public at large should be made
aware of all information relating to the proceeds.

A Petroleum Fund: The Norway Model

Investing oil revenues can ensure we cope in bad times. The most common
influence of oil boom on economies is cited as the ‘Dutch disease’. In this vain the
establishment of petroleum is recommended. The Norway model readily offers
useful lessons. The fund should be set up by an act of parliament which will make it
mandatory for the government to publish a comprehensive quarterly report on the
fund’s status. Furthermore, the fund should be run by the central bank with auditing
made the responsibility of the Auditor- General. It is advised that the fund be an
integral part of the budget. On the other side, consensus must be built on how to
spend the oil wealth to avoid the macro instability that Ecuador experienced as they
did the reverse.

Value Addition: The way to go?

Ghana should pursue a downstream value addition system to ensure that the oil
benefits the entire population and diversity in the economy. This is inevitable as oil
and gas employ little labour directly and the extraction offers little potential for
creating a more diversified domestic environment. This may well meet the
expectations of Ghanaians, who expect the new oil wealth to be translated into new
jobs, boosting their incomes. Major derivatives from crude oil include; rubber, tyres,
varnish and paints. Chemical engineering graduates together with allied
professionals in the refinery industry should be mobilized. Also, there should be the
establishment of a national tool center to manufacture or replicate the needed
machinery and equipment.

New Commitment to Action

There should be a strong political will and a conscious effort to ensure that this oil
find inure to the benefit of Ghanaians. Notwithstanding the fact that, no single
mechanism is likely to produce a silver bullet. Our past socio- economic experiences
indicate that pursuing a downstream value addition is the way we should go and be
factored into the overall national development agenda.

References:

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Government of Ghana. National Forum on Oil and Gas Development; Draft report.
Accra: Government of Ghana.

Wikipedia. Oil Curse. 2000. http://en.wikipedia.org/wiki/Oil_curse#cite_note-2

(accessed May 6, 2009).