What is Ghana Doing to Mitigate the Effects of the `Resource Curse`?
This article discusses Ghana’s attempt to avoid the problems of other oil-producing nations on the continent.
Tonbara Ekiyor, Intern, Organized Crime and Money Laundering Programme, ISS Cape Town Office
The discovery of natural resources in many African countries has rarely resulted in a direct improvement in the lives of the citizens. Nigeria and Gabon are textbook examples of the “resource curse,” while Botswana is viewed as an anomaly due to its capable and efficient management of natural resources. African states that have recently discovered oil – such as Namibia, Sao Tome and Ghana – are learning from the experiences of their predecessors, and are determining economic development strategies to be funded by petro-dollars. Ghana recently launched an industrial policy that looks to avoid the mistakes made by Nigeria. The plan has been lauded as the most comprehensive since the post-independence nationalisation efforts of the Nkrumah years, however, more sector specific policies are necessary.
The two policy documents titled Ghana Industrial Policy and the Industrial Sector Support Programme (ISSP) outline a five-year plan for the industrialisation of the economy, including Ghana’s oil production. The primary goals of the policy include expanding the productive development and technological capacity in the manufacturing sector and promoting agro-based industrial development. Ghana’s Minister for Trade and Industry Hannah Tetteh, said in a keynote address at the launch of the Industrial Policy in June, that this will help “achieve [a] reduction in poverty and income inequalities”. Still, there are a number of questions remaining about whether these policies will effectively promote the continued diversification of the Ghanaian economy, ensure effective corporate tax measures are in place, and expand Ghana`s manufacturing sector.
The policy aims to diversify the country’s exports despite the discovery of oil, so as to prevent the controversial “Dutch disease,” a phenomenon in which the affected country’s exchange rate rapidly appreciates, on account of the increased demand for the Ghanaian cedi, thus making exports more expensive. Ghana has previously attempted to avoid this problem in the cocoa sector through the Ghana Cocoa Board, which set fixed prices for cocoa, to prevent fluctuating cocoa prices from adversely affecting the exchange rate. The fact that Ghana is the second largest exporter of cocoa allowed it to do this. It could however be trickier with oil, as the prices are determined by OPEC. Regardless of whether Ghana becomes a member, oil pricing will have to be externally determined in order to be competitive. The industrial policy is therefore an attempt to take control of the economy from within the state before the volatilities of the oil market determine economic policy.
The policy and the ISSP however do not appear to offer effective mechanisms to prevent capital flight and transfer pricing that countries around the continent suffer from. While there is a clear need to develop the local manufacturing base, a major shortcoming in the policy document is that it does not articulate the incentives to be given to foreign businesses to invest in the local manufacturing industry. Foreign investors have been attracted to other resource rich African states, by the lure of low taxes and little or no regulation on financial flows. This is potentially problematic as the experience of transfer pricing at mining houses in Zambia shows. However, the problem is not limited to mining. Ernst and Young’s 2010 Global Transfer Pricing Survey revealed that top executives in Oil and Gas companies ranked transfer pricing as one of the main issues to be dealt with.
The significant provisions made for the development of local oil refinery and associated manufacturing are necessary, as the absence of local oil refineries promotes tax evasion practices. The export of crude oil results in the loss of a large portion of the investment that could be injected into the oil producing economy. Nigeria, for example, exports most of its crude oil and imports fuel. The problem is that Nigeria loses the revenue that should accrue from the refining process. The development of a local manufacturing base might enable Ghana to prevent such capital flight.
Additionally, there are political issues that need to be addressed. Alex Vines, an analyst of London-based Chatham House, stated in December 2010 after an expert meeting on oil management that there needs to be a separate National Petroleum Policy dealing with issues surrounding oil and gas, from which a Petroleum Bill should be developed that includes the requirement of an independent regulator. The argument is that the de-politicisation of the manner in which petroleum revenue is to be spent would see the funds go to poverty reduction and the development of infrastructure. The experiences of other African states have shown that the sudden windfall from crude skews the priorities of even political parties with the best intentions. As such appointing an independent body to regulate the manner in which oil revenue is allocated might improve the chances of its efficient distribution.
While several questions loom large over Ghana’s oil policy, it has taken some other very positive steps toward ensuring the oil production remains as transparent and accountable as possible. Ghana’s membership of the Extractive Industries Transparency Initiative (EITI), might ensure that the revenue paid to it by foreign oil companies can be accurately audited and well accounted for. The EITI, developed in 2002, is the industry standard for increased transparency in the oil, gas and mining sectors. There are also initiatives within the country such as the Civil Society Platform on Oil and Gas (CSPOG) and Publish What You Pay (PWYP) Ghana that were vocal in their support for the contentious clause in the Petroleum Revenue Management Bill that prohibited petroleum revenue being used as “collateral for debt, guarantee or other liabilities of any other entities”, as it was argued that scrapping the clause could lead to unchecked spending by current and future governments.
Its proximity to Nigeria makes Ghana all too aware of the implications of the “resource curse”. Although Ghana is not expected to produce nearly as much crude oil as Nigeria does per day, the efforts being taken to implement policy to manage the expected windfall from what they do produce is indicative of a probable alternate outcome.
