July 6, 2009
Obama Right to Highlight Ghana’s Success, But Will Oil Be the Spoiler?
By Todd Moss
President Obama’s first visit to Africa will be to Ghana. This is no surprise: Ghana is a close U.S. ally and has been in many ways a model of both political and economic reform. Its track record over the last twenty years: five successive democratic elections, two peaceful transitions of power between parties, sustained high rates of economic growth, and a healthy reduction in poverty rates.
Ghana’s future forecast has recently become a little murkier, however. A consortium of prospectors found oil off its coastline in the summer of 2007, and expectations are that real pumping will begin next year. The IMF projects that the government could be earning up to $1.3 billion per year from black gold by 2013. Sounds like a wonderful windfall for a country doing many of the right things already.
But the record on oil is more of a cause for worry than celebration. Nigeria seems to have little to show for the
$231 billion it has earned from oil since 1970. Instead, the country has become synonymous with corruption and Nigerians are actually poorer today than they were forty years ago. One plausible reason for this paradox: when a government gets a large part of its revenue from natural resource “rents” that it doesn’t do anything to earn, accountability to its citizens weakens. The normal bargain of paying taxes in exchange for services evaporates and citizens no longer expect (or demand) much from the public officials. This may be why oil is also associated with a whole host of social “bads” like corruption, poor macroeconomic management, bad governance, conflict, and poverty (See the seminal works from Alan Gelb and Terry Karl).
Ghana’s oil does not necessarily have to mean the end of its good run. Norway, Botswana, and other countries have found ways to avoid the natural resources curse. Ghana itself has done a pretty good job managing revenue from its gold mines and it is an active member of the Extractive Industries Transparency Initiative. The trick for Ghana will be to find a way to both shed light on its oil sector and strengthen the incentives for people to hold their government accountable. Colleagues and I are working on just such a proposal. Watch this space.
July 7, 2009 at 11:26 am
todd: I’d be keen to see this, as I write on EITI. could you find some time to chat with me?
July 7, 2009 at 12:30 pm
The trouble with poor, oil rich countries is being overwhelmed by foreign oil multinationals. The OPEC group, excluding weak members like Nigeria, did very well although they started dirt poor. They had/have a strong business model based on a national oil company that is professionally managed. This model is being reproduced in Latin America as the Bolivar initiative under the leadership of Venezuela, although hatred for Chavas blinds researchers to the benefits of regional oil cooperation. African oil producers haven’t bonded together the way MENA and LA oil industries are doing. The emphasis should be on building a professionally managed African oil company for the region.
Say hi to nancy for me.
July 7, 2009 at 5:19 pm
Ghana’s actual record in the gold mining sector is a cause of concern as the country expands to the much more lucrative oil sector. In addition to the environmental and social costs of mining, Ghana has lacked the capacity to collect revenues and audit payments from the sector and a World Bank report in 2008 said that “increases in metal prices mainly translate into benefits for operators.” The challenges Ghana’s faces with the growth of the oil industry are deep and broad and threaten to overhelm the notable gains made in developing institutions for democratic accountability. Oxfam America and the Integrated Social Development Centre in Ghana have laid out an agenda for reform in the report 2009 report “Ghana’s Big Test: Oil’ Challenge to Democratic Development” available at:
http://www.oxfamamerica.org/publications/ghanas-big-test
July 8, 2009 at 11:38 am
Hi Todd, i am a Ghanaian resident in Ghana and working with ISODEC, a civil society organisation that has been working on the EITI in the last few years (ISODEC actually represents CSO interests on the national multistakeholder committee).
Generally, i agree with your analysis on the oil find in Ghana however a point worth commenting on is your assertion that Ghana has done a \pretty good job\ in managing its gold revenues. Well i am not sure that is exactly the case. Indeed many concerns have been raised by many analysts and public officials about what Ghana has to show for around 100 years of mining. Large mining enclaves around Obuasi and Tarkwa, to mention a few, have very little to show for this mining record. Indeed as part of the EITI process, a Consultant was engaged to attempt reconciling payment of mining revenues by companies one side with receipt by the government revenue agencies on the other. Todd, you will have to read the Aggregator’s report to see what i mean. For instance there was little evidence to show that government was receiving the 3% royalty it was actually entitled to. There were also issues about non-payment of other revenues streams due government, among others.
Ghana has a lot more to do in my opinion to turn this oil find into a blessing… getting the regulatory regime right,providing linkages from upstream to downstream activities, strengthing public institutions (including revenue agencies) and manageing expectation are all important variables in the equation.
July 9, 2009 at 4:49 am
As military and hegemony of the strongest currencies, oil is a strategic factor in the world to generate development and the few countries that have it as a gift of the nature must accelerate the steps to spread the income of it by developing their nations. Mr Obama is open to understand the really of develping countries. Therefore it is the right time to start the cooperation among the richs and the poors to stabilize the world economy and avoid the deepen of the financial crisis.
July 13, 2009 at 1:48 pm
Thanks for all the good comments, especially the points on the gold sector by Chachu and Ian. I am aware there are problems in the mining sector, but my point was that it does not seem to have overwhelmed the GoG in the way that, for instance, competition for oil rents overwhelms everything in Nigeria. My sense is that gold has been, by a long shot, positive for Ghana. I may be wrong.
I look forward to more commenst once we have the paper released. Soon!