What Happens To Oil Dependant Ghana When Oil Prices Hit $100 A Barrel? - CPP

These words formed the main topic of discussion at the CPP‘s Monthly Forum at the International Students House, London, United Kingdom.

Speaker after speaker denounced the current NPP government for failing to address important issues affecting our country in a timely manner – water shortages and the current power cuts resulting from electricity load shedding were top of the list.

“Why did they not act sooner? it was the same with the cocaine menace in our country until the country was disgraced”, said Nana Serwaa.

Dr kwabena Duffour – former Governor of the Bank of Ghana , who was an invited guest speaker was unfortunately called away at the last moment and could not address the forum.

Nii Armah Akomfrah – CPP (UK&Ireland) Branch Chairman and Nana Oduro-Kwateng, Vice Chairman Lead the debate on what many in the audience thought was one of the biggest problems facing our economy today. The main issues of the debate were that:

• There is a growing demand for crude oil from the world’s largest economies.

• The IMF has warned of a permanent “oil shock” and high energy prices for 20 years to come.

• There is doubt about the level of oil reserves in the world and issues about deliverability, with the production problems in the North Sea and Nigeria, the occasional labour unrest in Venezuela, tropical storms affecting production in the Gulf of Mexico, American disagreement with Iran on its Nuclear programme.

• World Consumption remains at over 80 million barrels per day, with consumption growth predicted at over 2.7million barrels per day.

• That International oil prices has posed a risk to our economy with major pressure on inflation. Prices in 2006 had been US$64 per barrel in January, US$74 per barrel in August and now stand at about US$60 per barrel All demonstrating a need for Ghana to prepare for higher prices. That US$100 per barrel cannot be ruled out in the nearest future.

The Forum further noted that Ghana’s total import bill in 2006 was approximately $6,900m of which about 20% i.e. $1400m was on oil. Domestic financing of our Budget required borrowing of approximately Cedis 2,2OO billion, with 40% of our annual budget requiring foreign aid and assistance to enable us balance our books.

Much of the borrowing was the result of transfers to the Tema Oil Refinery (TOR) because of the oil price rises.

The Forum concluded that another 40% increase in crude oil prices would affect our economy in many ways but chiefly:

• An Increased Public Sector Borrowing Requirement (PSBR)

• Growth of the domestic debt

• Higher cost of borrowing

• Increased reliance on foreign loans and aid.

• Threaten the NPP governments entire macroeconomic framework for the medium term guided as it is by the governments objectives under their Ghana Poverty Reduction Strategy ( GPRS II)

The meeting further concluded that apart from the price of crude oil, the wholesale price, sales volume, refiner profit margins, taxation and the Ghana governments implementation of the full “cost-pass-through” policy via the National Petroleum Authority(NPA) affects the price at petrol pumps to the consumer, and this cannot be sustained when prices reach $100/barrel.

The CPP faithful gathered acknowledged that the Government had told the nation that its disinflation process “contained inflation despite the turbulence on the oil market, allowed growth in liquidity to support increasing output growth”.

The question that CPP economists were asking was how much liquidity growth would be needed to counter a 40% rise in Crude Oil prices?” They were quick to urge that the NPP Government at the minimum needs to embark on a massive “import substitution policy” in line with the policies of the last CPP government.

Knowing the NPP governments’ fondness for tackling important issues confronting Ghana at the eleventh hour when the proverbial horse has bolted, the men and women gathered at the CPP’s London Forum felt it their duty to begin to raise these issues now.

The country needs to know what this Government plans to do when Oil Prices hit $100/barrel.

Forward Ever

R.N.A Akomfrah

Chairman for Convention People’s Party (CPP UK & Ireland) Secretariat cppuk@hotmail.com cppyouth@gmail.com