A New Source of Additional Revenue for Ghana: Oil

A New Source of Additional Revenue for Ghana: Oil - “Black Gold”.

Presented by GhAG (Ghanaians for Accountable Government)

In an interview with BBC, the President, Prof Atta Mills expressed joy over Ghana’s Oil find. He said, “even without oil we [Ghana] are doing well…with oil as a shot in the arm, we [Ghana] are going to fly”. Every Ghanaian is excited about the oil discovery. The New Legon Observer stated most emphatically that “all manner of people [Ghanaians] are expecting their woes to end. Many believe that they will now see the famous “middle income status” in their lifetime. Such is the wishful thinking. (New Legon Observer, 20 March, 2008, p.2)

In spite of our excitement there is a strong negative feeling about what the oil discovery will do for Ghana. These negative reactions cannot be ignored because of the propensity of our [Ghanaian] leaders to hoard our wealth for their selfish and inconsiderate benefits.

We, Ghanaians for Accountable Government (GhAG), have decided that before the oil becomes a “curse”, as Ghanaians have rightly been afraid of, we want Ghanaians to be well informed and to demand accountability and responsibility from the government. This demand should be totally devoid of partisanship, i.e., NPP, CPP, NDC, etc. Our governments have clearly demonstrated that their biggest problems have been corruption, insincerity, irresponsibility, lack accountability and integrity. We [Ghanaians] should not sit down passively and let the politicians and crooked businessmen “eat” the oil money. GhAG encourages every Ghanaian to join us in demanding for accountability and responsible governance from our leaders.

With or without oil, Ghana must move forward through the institution of the rule of law. The track records of successful nations have indicated that there is only one way out of our poverty status – discipline, with accountability and integrity, and commitment to responsible citizenship. Those of us who have ever worked with the Americans would acknowledge and marvel about their commitment, hardworking and dedication to their country first and everything else second. For example, while Americans don’t pray in their public schools, they pledge Allegiance to the Nation as the first thing in the morning in Kindergarten, Primary, Middle and High Schools and will sing the national anthem at almost every occasion or event, be it national or local, public or private. The citizens and the government alike always put America first and Ghanaians can do the same for the prosperity of our country.

It is the opinion of GhAG that civic education (bringing awareness to the people) should be revived and revamped. Ghanaians should demand effective civic education from the government. In this case, the people and the leaders alike would understand their civic responsibilities, duties and rights, as a people, and allegiance to the country. As General Kutu Achampong, a former Military Head of State, stated, Ghana must become “one nation, one people, and one destiny” which was a call to civic discipline. Our multi-party democracy has to mature to the level where every Ghanaian will accept civility and the rule of law as a principle and the ultimate goal of our civic self education.

The oil revenue is crucial to the development of Ghana and as such, GhAG will like to provide a snapshot of some of the recommendations of few countries that depend on oil revenues as their major source of income.

Efficient oil management does not recommend using oil revenue for consumption spending. Oil revenues should be used principally for the enhancements of non-oil sectors of the economy to increase the overall wealth of the society even when the finite [oil] resource is depleted. GhAG is not suggesting that Ghana should directly follow the footsteps of other oil producing nations. However, GhAG is suggesting that Ghana can use some of the recommendations of successful oil producing nations that we have provided below as case-studies from Uganda, Norway, and Nigeria. These recommendations are guidelines only for you [the Ghanaian] to determine what the government can and should do if the circumstances fit. “A wise man learns from his mistakes but a wiser man learns from the mistakes of others”.

Success stories of oil producing nations

Case Study 1: UGANDA
Uganda’s oil discovery was symbolically announced on 8th October, 2006 though it was publicly known that oil deposits had been discovered some ten years earlier. The government conducted a two-day National Seminar on “Managing Oil Revenue in Uganda”, in Kampala, July 2008, which produced an Oil Policy Note (OREA Knowledge Series: No1, Managing Oil Revenue in Uganda, March 2009). However, in wait of the oil production,
1. The government was proactive and undertook trips to Libya, Trinidad and Tobago, and Norway, among other countries, to acquire as much information and knowledge as possible on the socio-economic impact and the technical requirements of oil production.
2. The government sent a number of students to foreign universities for courses in petroleum engineering and related subjects for potential job-openings in the wake of the oil production. This youthful group eventually spearheaded the search for additional oil fields and laid the grounds for the “Government Oil and Gas Policy”.

The seminar made it clear that commercially viable exports of oil would not be realized until 2013. Further, it pointed out that
1. managing oil and gas revenue begins with managing domestic expectations;
2. identifying all the stakeholders that will be involved or impacted by the resultant oil resources – both the production and revenues;
3. the stakeholders should include (but not be limited to) local communities, civil society organizations, the broader Uganda Public, national and local governments, Parliament, Oil companies and local private sector and business communities;
4. instituting mechanisms to ensure “oil blessings” instead of “oil curse” because oil wealth has negatively affected many African nations through increased corruption in public affairs, political instability, environmental degradation and increased inequality.

With the above points in mind, the Government of Uganda adopted policies to mitigate the so-called “oil curse” that could lead to poor governance and civil war. The seminar’s recommendations were for the government to demonstrate social responsibility by:
1. Meeting the needs of the host communities (i.e., ensure that they get a fair deal);
2. Protecting their sources of livelihood (mainly agriculture);
3. Caring for the environment;
4. Avoiding false information to the public;
5. Providing good governance, transparency and accountability, a higher priority;
6. Avoiding unnecessary speculations and unrealistic expectations;
7. Identifying with the aspirations of the people and responding to their concerns which attitude could promote support for reforms including difficult policies that call for sacrifices;
8. Modeling the oil revenue management alongside that of Norway where direct participation of the politicians had been avoided and revenues linked to the National Budget

GhAG recommends that the Government of Ghana learn from these simple steps in order to provide an accountable and responsible management of the oil production and revenues.

Case Study 2: NORWAY
A case-study of Norway’s oil management indicated that after years of oil revenue failures, Norway adopted a system that made the Ministry of Finance, the “owner of the oil revenues” while the Central Bank became the “operational manager”. With efficient democracy in the system, this approach made Norway a success story in oil production and revenue management. In pursuance of transparency and accountability in managing the oil revenues, Norway established a fund called “The Petroleum Fund” into which all petroleum revenues were deposited. This fund reflected the total financial assets from the petroleum sector (both revenue stream and return from associated investments) and was linked directly to the State Budget; not as a separate institution but as an account from which the government could draw to finance budget deficits. The Petroleum Fund was managed with a high level of transparency embodying regular and frequent reporting and disclosure of information. (OREA Knowledge Series: No1, March 2009, p.15).

GhAG notes that Ghana is not a pioneer in the oil production business. However, GhAG recommends that the Government of Ghana could adopt Norway’s style of separation of “ownership” and “management” with modifications to suit our circumstances and needs.

Case Study 3: NIGERIA
Since 2003, Nigeria has been implementing several economic reforms to reverse their so-called “Oil Curse” and bad policies. Nigeria was the first to join the Extractive Industries Transparency Initiative (EITI) in 2003 followed by Ghana in 2006. EITI is an organization which aims to improve accountability and transparency in oil revenue management. Before this, the Nigerian oil sector was generally seen as corrupt and non-transparent institution.

To improve the public’s perception of corruption and bad oil revenue practices, Nigeria carried out a financial, physical and process audit of its oil and gas sector for the period 1999-2004. The report was shared widely with the public. The 2005 and 2006 audits are ongoing. Oil production and revenue managements were the core of the oil revenue reforms with the realization of the following benchmarks: $25bn in 2004; $30bn in 2005; $35bn in 2006; $40bn in 2007 and $53bn in 2008 which was later raised to $59bn. Any revenue above the annual benchmark was saved in an Excess Crude Oil Accounts. A Fiscal Responsibility Act was enacted committing the Nigerian government to fiscal prudence, sound financial management, greater transparency and accountability, and improved inter-governmental coordination. Nigeria also established a Stabilization and Saving Funds, which was used for clearing both the Paris Club Debt and Power Projects. A Cash Management Committee was also established and an economic diversification was encouraged. These precautions were taken to ensure effective oil revenue management.

In addition, the Nigerian government took into account the host communities’ concerns, requests. The Africawatch, a news magazine, drew attention to the problems the Nigerian government faced with the host communities. The author wrote, “It is such neglect and exploitation that led to the Nigeria Oil Industry’s problem in the Niger Delta, which produces the country’s cash cow”. And continued, “… after years of politely asking the Federal government in Lagos (and later in Abuja) to stop the neglect of the region and allocate some of the oil resources to the areas that produced the oil, the youth of the Delta picked up arms and have largely succeeded in creating Achilles heel for the oil industry in the Delta”. (Africawatch, December 2010 edition, p.14)

GhAG encourages and recommends that Ghanaians and especially the Government of Ghana to reflect, analyze, synthesize, brainstorm, compare and contrast, and finally draw conclusions as to how Ghana has performed and expects to perform on its oil production and revenues management.

The question from GhAG to all Ghanaians is,
“How can Ghana escape the oil curse?”


Please, send comments and suggestions to: ghagforghana@yahoo.com
And for more information, visit our website: ghagforghana.org

(Our group, GhAG, is a Non-Government Organization incorporated in the state of Virginia, USA. GhAG is non-partisan and non-tribal. We are the mouthpiece for the masses in demanding for ACCOUNTABILITY and RESPONSIBILITY from our leaders. The driving principles are leadership, integrity, selflessness, credibility and neutrality. Membership is open to all Ghanaians, in Ghana or the Diaspora. For membership information, questions and concerns on the above or any article, please, contact any of the following: Kwamina Panford, Kwaku Boah, Ken Atta-Boakye, Percey Wilson, Robert Hedidor, Dr Aaron Adade through our website). Thank you!