Oil Find: Ghana should go the Botswanan Way

Compared to other African states, the on-going debate about oil find in Ghana has been more balanced and indicative of the emerging developmental wisdom. The reasons may vary, but what tie the arguments together are Ghana’s growing democracy and the vibrant, growing media. The practicalities will be seen from how Accra develop an oil and gas policy that will make it either different from other African states where either oil or dominant natural resource based economy has failed to alleviate poverty or draw parallel with others, such as Botswana, where a dominant natural resource has brought sustainable prosperity.

While former United Nations Secretary General Kofi Annan told Ghana’s Parliament that Accra should not “look to the discovery of oil as the panacea to the nation’s problems,” a lot of Ghanaians believe oil will be magic potion to resolving poverty. Panacea or not, many Ghanaians feel so. But in the natural resource-development scheme of things, as the Botswanans will tell Ghanaians, feelings are one thing and real hard thinking another.

In the larger scheme of the oil find, hard thinking will displace raw feelings, which is what Mr. Annan is saying, in using oil to assuage poverty. If ever there were an urgent case for study about energy windfall and poverty alleviation in the face of the oil find, it is Ghana's Akosombo Dam, the showcase of Ghana’s global energy feat – which energy gurus, come to think of it today, admit lacked the “long-term visionary approach” needed to manage the windfall from the energy sector. Akosombo Dam may not be oil, but in a mixture of weak policies and nature conspiring against the Akosombo Dam, presently, the water level drops at a frightening rate of 0.04 daily. In technical terms, it means one of two turbines generating electricity for domestic and industrial will go down soon, according to Mr. Kirki Koffi, director of Hydro Generation, Volta River Authority, managers of the Akosombo Dam, quoted by the Accra-based “Public Agenda.”

If such lackadaisical policies follow the expected oil windfall, Ghana is likely to follow other African countries where oil or dominant natural resource economy has not helped lessen poverty but has brought troubles, as Mr. Annan and some Ghanaians fear. But President John Kufour, as the key national optimizer, is hopeful this will not happen to Ghana, promising to study other African oil producing states to avoid the repeat of the natural resource curse. Ghana need not go far to learn how to avoid an eventual oil windfall and its impact. There is an African success story. Though a diamond and not oil producer, Ghana could learn from Botswana. Botswana reveals that the key to avoiding the troubles of the impending oil windfall is credibly healthy institutions.

In their futuristic oil exploitation, some Ghanaians think Accra should establish the right institutions to help spread the oil wealth nation-wide. This is to correct empirical evidence “in almost every resource rich country in the sub-Saharan region” where “governments pursue short-sighted, predatory policies that guarantee long-run economic stagnation. As a result, poverty persists and human capabilities remain limited.” In “The Political Foundations of Development: The Case of Botswana,” Scott A. Beaulier (of Mercer University, USA) and J. Robert Subrick (George Mason University, USA), explain that Botswana did this by established the right institutions through skillful and successful appropriation of its values and traditional institutions in policy-making, bureaucratizing, and consultancies in dealing with its booming diamonds production and the broader development of the country. Also, Botswana did not use the thriving diamond wealth on military expenditures during its first decade. The interface of these features clarifies Botswana’s success.

Having set up the appropriately adequate institutions to handle its booming diamonds production, unlike the Sierra Leones and the Democratic Republic of the Congos, in the climate of astonishing understanding of its environment, Botswana rolled out remarkably prudent macro-economic policies, underpinned by sound discipline that midwifed its flourishing diamond production and ushered in its over 25-year long-running prosperity. Scott A. Beaulier and J. Robert Subrick, once again, in “Mining Institutional Quality: How Botswana Escaped the Natural Resource Curse,” argue that “The story of Botswana helps development economists and policymakers understand how an institutional weak country can develop in the presence of significant natural resources.”

How Botswana did this? Beaulier and Subrick report that the central issue is not “low taxes” or “balanced budgets” or “free trade” or “a respect for property rights,” or “monetary restraint,” or the fact that “resource endowment will not hamper their economic development,” as some Ghanaians and some experts argue as policy reform for Africa states endowed with natural resource wealth. Rather, Beaulier and Subrick argue that while they do not dispute such policy reforms to deal with windfalls from natural resource wealth, “for most countries, escaping the resource curse requires more than good policy—it requires political institutions that reinforce the reforms, stable legal institutions, and a whole lot of luck. These are some of the lessons that can be learned from a close study of Botswana.” And this is why Ghana should go the Botswanan way.