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Opinions of Saturday, 23 January 2010

Columnist: Osei, Nana

Oil: black gold or the devil's poop?

by Nana Osei

The answer to this question depends who you ask. If you ask the rulers of the Kingdom of Saudi Arabia, the discovery of oil has brought immeasurable wealth and global clout of cataclysmic dimensions. A drop in the 12 million barrels the Kingdom produces daily send shockwaves to the world oil markets. However, if you ask King Tom Mercy of the Oru Sangama village in the Niger Delta who is profiled in Peter Maass’ enlightening book on the subject, “Crude World”, the discovery of oil in his backyard has invoked a "resource curse” that has wrought environmental havoc and brought economic destitution to his people.

The imminent drilling and exportation of oil in the Jubilee field near West Cape Three Points and Deepwater Tano blocs in the Western Region is being likened to the second coming of Christ. The difference here, it seems, is that nobody is destined to go to hell. While such euphoric expectations of Ghana's impending oil paradise is logical given that oil revenues will bring a lot of money to Ghana, experiences of discovery of the oil manna in other African countries, howbeit, from the bowels of the earth, has been far from the utopian picnic being anticipated in Ghana.

Yes, Ghana is different from most of its African oil rich forebears in many respects. It has some big pluses going for it. It is an open democracy, has a free press, it is politically stable and is blessed with remarkably informed and sophisticated middle class. This backdrop draws in sharp contrast with Equatorial Guinea, Angola, Gabon and even, Nigeria. At least, in theory, one expects that oil revenues accruing from royalties will be used for the people’s business. The natural narrative flowing from this premise is that the press will dig and expose any shenanigans, Parliament; particularly, the opposition will cry foul and the executive branch will be forced to investigate and prosecute wrongdoing. Perhaps, the Kosmos brouhaha is bellwether of how alleged corruption cases will be handled.

Significantly however, an even more overarching question is whether oil revenues will make a positive impact on the life of ordinary Ghanaians. Reiterating an earlier point, precedents close by and far away, indicates most oil rich countries do not fare that well and here are some of the reasons why:

Unless oil revenues and exploration activities are leveraged to encourage secondary or collateral economic activities such as refining, local support services, as Mr. Maass notes in his book, the drilling of oil in itself will not generate a lot of jobs. The simple reason is that oil drilling is not a labor intensive enterprise. Regardless of whoever ends up with drilling rights, be it the Chinese or American, they will not employ a lot of Ghanaians. If you throw in the fact that the engineering, technical and vocational manpower that will deployed on the oil rigs will most likely be expatriate staff, it leaves you with a less sunny job creation prospect. The Americans are likely to "import" their engineers and even roughnecks from Texas. The Chinese are even worse in this regard and might do same by bringing labor from perhaps Sichuan province. They have demonstrated their reluctance in hiring local labor in most of the construction they have undertaken in Ghana and elsewhere in Africa. Unless Ghana government contractually, insists on employment quotas, not a lot of jobs in drilling oil will go to Ghanaians.

Whether we admit it or not, oil revenue is a bounty of happenstance and because of its windfall nature, it is amenable to a lot of pilfering and theft by those who control it, sometimes in connivance with multinational oil companies and Western financial institutions. The complexities of oil and gas contracts somehow enable that. Deals are sometimes struck in secrecy with kickbacks to conniving government officials. It is common knowledge that a sizeable amount of the $400 billion in oil revenues which has accrued to Nigeria has been stolen by its politicians. Legion of other examples from Equatorial Guinea to Russia bear ample credence to this fact. In contrast, revenue from locally contrived economic activities such as cocoa and timber are derived from the sweat and brow of our local farmers. With cocoa, vegetation has to be cleared, seedlings have to be sown, rain has to fall and trees have to be tendered. The same applies to corporate and personal incomes taxes which are derived from deliberate local economic endeavors. Conversely, countries which have oil are fortunate because of the presence of relevant geology which bears the hydrocarbon. In most cases, baring minimal investments in exploration which are in any case outsourced to foreign oil prospecting companies, countries which ultimately develop their oil resources for commercial production play a subsidiary role in that effort. Because of this subtext, oil revenues are analogous to hitting a lottery jackpot. The same level accountability that will otherwise pertain to other economic endeavors is simply lax or non existent. If this phenomenon is not understood and factored into policy choices concerning the utilization of oil revenue, Ghana might not fare better than Equatorial Guinea or Nigeria.

It is no secret that Ghana's economy is greatly shored up by donor aid and international institutional lending. There is no gainsaying that with the advent of oil revenues, this is going to change. The question is whether without the watchful oversight of the World Bank or the IMF, supplanting institutional financial support or a part thereof, with oil revenue will come at the expense of accountability.

An esoteric, but still relevant question is whether Ghana will catch the Dutch disease which is a theory used to explain the negative impact of the sudden dependence of a country's oil revenues to the converse decline of other hitherto thriving sectors of its economy. Will the opiate dependence on oil revenues cripple other sectors of the economy such as manufacturing or even cocoa? This happened in the Netherlands after the discovery of natural gas in the North Sea led to the decline in manufacturing. Even though the Dutch have recovered nicely, can Ghana recover if this malaise which has struck almost all the developing countries which discovered oil? Does Saudi Arabia, Venezuela, Angola, and Gabon etc, have other meaningful economic sectors other than oil. They appear not. A cognate but no less pressing issue is concomitant twin brother of over dependence is how the fortunes of oil rich countries ebbs and flows with the price of crude oil. It is depressing to see how Russia, which also has oil and gas at the mainstay of its economy, went from boom to bust in only a few years.

Ghana should not count its chickens before they are hatched. The imminent drilling of oil will only be good if its benefits are properly leveraged to sustain other sectors of the economy. Instead of mindlessly plunging the revenues into developing ostentatious projects such as Nigeria did with the Ajaokuta Steel plant which has not produced an once of steel after they spent billions of dollars on it, the revenues should be used to improve the quality of education and support Ghanaian entrepreneurs. Doing so will be charting a different, not the familiar but wretched path blazed by other oil rich African countries. Kingsley Nana Osei, Albany, New York