Africa

Ghana strives to beat the resource curse and turn oil into a blessing

Aerial walkway through the rainforest at Kakum National Park in Ghana. Photo by Barbara Borst

Aerial walkway through the rainforest at Kakum National Park in Ghana. Photo by Barbara Borst

By Barbara Borst —

Nigeria lies less than 200 miles from Ghana along the western bulge of Africa – close enough to show Ghanaians how dangerous oil wealth can be for a developing country.

Mohammed Amin Adam, a leader of the citizen movement that insists on openness and accountability from government and oil companies, says Ghana has achieved something many developing countries struggle to do: It has passed the legislation needed to regulate and oversee oil development.

 published in October 2012 on tutawaza.com

“As Ghanaians also know, we are very good at passing good laws, but the implementation of laws is largely our problem,” said Amin, who now coordinates the extractive industries program at Ibis Ghana, a non-profit development group. “If we are not able to implement them, we will not be able to avoid the resource curse.”

Activists and observers who know Ghana well say it has a better chance than most developing countries to beat this problem: It has democratic government, growing and vigilant citizen organizations, support from the World Bank and donor governments, even oil companies that say they want to do it right.

Katherine Bain of the World Bank says there has been a good faith attempt by both citizens and government officials in Ghana to set the institutional building blocks in place – more than she has seen in any other country.

“I would love to see an African country beat the resource curse,” added Bain, who was country program manager in Ghana until her transfer to bank headquarters in Washington last year.

Freida Quagraine of the Civil Society Platform on Oil and Gas, a coalition of advocacy and research groups, says the key to success is empowering the general public to understand the issues and to demand accountability.

“We all believe that Ghana can succeed and become an example to the sub-region,” she said. “I think the government believes it. It’s relatively easier to call government. I think they’re progressing.”

Jacob Hobenu, who founded Ghana Oil Watch as an online, informational non-profit, says the high level of public engagement on the oil issue has driven politicians to build a more accountable and transparent system for managing oil revenue. He believes Ghana will not make the mistakes it made in the gold mining industry.

But Victor Brobbey of the Center for Democratic Development, a prominent Ghanaian think tank, doesn’t see such a cheerful picture. Citizen groups have worked hard, he said, but their influence is limited. The new laws are similar to ones for mining that he says are “fairly susceptible to patronage” and haven’t brought clarity about the way mining royalties are spent. He added that tensions already are rising in the region closest to the oil discoveries.

Both the government and the oil companies active in Ghana are determined to do it right, according to Toni Aubynn, former corporate affairs director for Tullow Oil Ghana, which heads the exploration and development consortium.

“Of course it’s dangerous,” Aubynn, who left Tullow in October to become chief executive officer for Ghana’s Chamber of Mines business association, said of the resource curse. “That is pushing the government and (oil industry) operators to guard against it.”

“Tullow wanted to be part of successful oil development in Ghana, an example of an oil company that supported a country to avoid the curse,” he said of his time there. “Tullow believed oil should not be a curse; it should be a blessing.”

Blessings and curses

Development specialists use the terms “resource curse” and “Dutch disease” to describe the high correlation between vast wealth from oil or minerals and vast political and economic problems – corruption, mismanagement, political repression, the collapse of other industries, worsening poverty.

In much of Africa and elsewhere in the developing world, mineral wealth underground or offshore belongs to the nation, rather than to individual land owners. Central government controls those rights. Oil or mining companies – most of them large foreign corporations – must bargain with officials and pay royalties to the treasury on the wealth extracted.

Where central government is democratic and institutions are strong, this can produce revenues to develop the whole society and to set aside for future generations. Norway’s government website explains that the country has done both since the discovery of North Sea oil in 1969.

Even when the wealth is well managed, a country runs the risk of catching “Dutch disease” – as the Netherlands did after discovering natural gas reserves offshore in 1959. The “disease” occurs when the sudden influx of money – investments in and revenue from oil or mining – drives up wages and currency exchange rates. Rising currency and wages make the country’s agricultural and manufacturing products too costly to compete on world markets. Thus, the rest of the economy withers as the oil or mineral sector grows.

When central government is not democratic, the oil or mineral royalties rarely reach the populace. Instead, authoritarian rulers increase their power and personal wealth from the public coffers, bribes and other arrangements, while the public grows poorer, services deteriorate and oppression increases.

Nigeria’s oil was discovered in 1956, just four years before the country gained independence from Britain in a flurry of optimism. Oil has played a significant role in the country’s problems: a cruel civil war in the late 1960s, numerous coups d’etat and long periods of military rule, violent protests and major pollution in the oil-endowed southeast, conflicts over distribution of oil monies.

In such a climate, corruption flourished. Nigeria’s last dictator, Gen. Sani Abacha, may have looted between US$2 billion and US$5 billion during his rule (1993-1998), according to Transparency International, the anti-corruption group. The Stolen Assets Recovery Initiative of the World Bank and the United Nations Office on Drugs and Crime reports that Switzerland, Britain and other countries’ banks have repaid about US$1 billion to Nigeria. Since Nigeria returned to democratic rule in 1999, civilian leaders have struggled to make headway against the monumental problem of corruption.

Nigeria produces about US$60 billion worth of petroleum products a year, according to the Organization of the Petroleum Exporting Countries, of which it is a member. Despite its oil wealth, 54 percent of its population lives in poverty, according to a 2010 UN Development Program report.

Chad provides another cautionary tale. Although oil was discovered there in the 1960s, decades of civil wars and dictatorships deterred investors. In 1999, leaders of landlocked Chad wanted a World Bank loan for an oil pipeline to the Cameroon coast. Urged on by advocacy groups, the bank set loan conditions, including that 70 percent of the country’s budget go to poverty reduction, that funds be set aside for future generations and that citizen groups participate in monitoring oil revenues.

Chad went along with the conditions, but only until it had enough oil money to pay off the loan, in 2008, and walk away from the agreement.

Ghanaians don’t want what Nigeria got or what Chad did. They have made that clear by inviting guest speakers from Norway, Nigeria and other countries to public conferences on what to do, and what not to do, about oil.

Fishing boats in the coastal port of Elmina, Ghana. Photo by Barbara Borst

Fishing boats in the coastal port of Elmina, Ghana. Photo by Barbara Borst

Ghana’s Jubilee

Ghana was proudly celebrating 50 years of independence from Britain, when Tullow Oil announced in June 2007 that it had discovered commercially viable oil fields under the Atlantic 40 miles (60 kilometers) off Ghana’s southwest coast. In honor of the occasion, the find was dubbed the Jubilee field.

Tullow, which started in Ireland in 1985, estimates that up to a billion barrels of oil can be recovered from that field alone. Exploration continues in other parts of Ghana. The Jubilee partnership includes Kosmos Energy, Anadarko Petroleum, the Ghana National Petroleum Company, and Sabre Oil and Gas.

Expectations ran high, but the news did not bring unmitigated joy. From the start, some Ghanaians fretted over the impact oil might have. The government organized a conference on oil in November 2007 and included some citizen groups. In 2008, as a hot race for the presidency got under way, advocacy groups united to demand accountability, researchers recommended new legislation and prominent Ghanaians warned of potential perils.

Their worries focus on protecting Ghana’s democracy and its progress toward widespread economic development. After several coups and years of military rule, Ghanaians regained civilian government in 1992. They have deepened democracy through repeated multiparty national elections. Not once but twice a ruling party has lost a close presidential race and yet ceded power, waiting four years for a rematch – no small achievement in Africa or anywhere. Ghanaians have a strong record on resolving problems peacefully and are proud of two prominent Ghanaians – former UN Secretary General Kofi Annan and then-President John Kufuor – for helping Kenya through a post-election crisis in 2008.

Bad examples of oil development in the region provoked one set of worries in Ghana. Another came from the country’s own experience in the extractive industries. Gold has played a singular role in Ghana’s history, providing wealth for centuries, particularly to the Ashanti kingdom in the country’s core. It also inspired Arab traders to cross Africa’s deserts and European explorers to come by sea in search of Ghana’s gold. The slave trade and colonization followed, with the British dubbing the territory the Gold Coast.

In the modern era, gold, like oil, involves massive, high-tech extraction methods and serious environmental risks. The royalties that companies pay for mining rights go to central government, where it is hard for the public to oversee their dispersal. Numerous citizen groups monitor the gold mining industry to push for improvements in wages, environmental protection, compensation to displaced communities and other controls.

Ghana educates many people for leading positions in gold mining, though few of the farmers displaced by large mines have the skills to get such jobs and few Ghanaians have the technical training for the oil industry. The country’s other major exports – cocoa and timber – contribute more jobs. Agriculture accounts for more than half of all employment.

Whitewashed forts built by Europeans from the 15th century onward still dot the coast, glaring reminders of the slave trade that loom above the palm-fringed beaches and fishing villages that are among Ghana’s poorest communities. The castles are now UNESCO World Heritage sites that draw many visitors, including the Obama family in 2009.

Just inland, the landscape turns to soaring rain forests where cocoa plantations grow among tropical hardwoods and provide rural families with a lucrative crop. But the forest is not pristine; logging (legal and illegal) and small-scale gold mining (legal and illegal) have shredded portions of it. In the east, a large dam at Akosombo Gorge blocks the Volta River, creating an enormous lake and what was once enough hydroelectric power for the country. The northern third of Ghana is drier, much of it savannah. Its population is predominantly Muslim, in contrast to the high proportion of Christians elsewhere, and is much poorer than the rest of Ghana.

Accra, which has three whitewashed forts, is a teeming, rapidly modernizing capital. More than two million residents crowd into its slums along the sea and the banks of Korle lagoon or spread out in its comfortable suburbs, home to the rising middle class.

 Much accomplished

Ghana was just cresting the first hill on the development trek as it discovered oil. It was about to reach middle-income status as a country. It had cut its poverty rate drastically to 30 percent of the population living on US$1.25 a day or less, the UN Development Program reported in 2010. Knowing that oil money could speed that progress, or drive it backward, citizens began to take action.

Mohammed Amin, who was then with Publish What You Pay, launched the Civil Society Platform on Oil and Gas. Advocacy groups, academics, international non-profits, the World Bank and donor countries began working to shape the regulations needed to govern the new oil sector.

Jacob Hobenu of Ghana Oil Watch says citizen activism has been “very effective,” starting with the decision to unite as the Platform on Oil and Gas in order to press political leaders on legislation and oversight. He also lauds the prime time television show “The Oil and Gas Knowledge Series,” which reached a broad public with interviews of experts.

On the government side, he praises the finance ministry’s decision to conduct two years of public hearings in all 10 regions of the country and to report to the president on the findings. Ghana’s government accepted Norway’s assistance in creating the revenue management system, and members of parliament received training in oil revenue management, he noted.

Richard Hato-Kuevor of Oxfam America said Ghana’s citizen groups have grown rapidly since the return to democracy and quickly stepped up to the new challenge of oil. Oxfam brought in American lawyers to review oil and gas contracts in Ghana; their work helped advocacy groups insist on strong laws and regulations. Oxfam also worked closely with Ghana’s ISODEC (Integrated Social Development Centre) on the 2009 report “Ghana’s Big Test,” which analyzes the oil industry and makes detailed recommendations to the government, oil companies and donors.

The first oil flowed from the Jubilee field in December 2010. But it was not until April 2011 – five months after the flow started – that parliament passed the Petroleum Revenue Management Act to manage the industry. The act created the Ghana Heritage Fund, the Public Interest and Accountability Committee and other bodies for monitoring the funds that oil generates. The Act states that the intention is to “…provide the framework for the collection, allocation and management of petroleum revenue in a responsible, transparent, accountable and sustainable manner for the benefit of the citizens of Ghana…”

Officials at Ghana’s Ministry of Energy and at its Extractive Industries Transparency Initiative office did not respond to repeated requests for comment, but government websites and press releases describe their roles.

The finance minister reported to parliament in November 2011 that the total volume of crude oil pumped by that point was nearly 3 million barrels, earning the government US$337.3 million. A third of the money went to the budget, US$54.8 million to the stabilization fund, US$14.4 million to the heritage fund, and US$156.1 million to the Ghana National Petroleum Corporation to shoulder its share of costs in the partnership. The budgetary funds are to be spent on previously announced priorities, including agriculture and infrastructure development.

Before the oil discovery, Ghana brought its gold industry into the Extractive Industries Transparency Initiative (EITI), a voluntary system for getting oil and mineral companies and the governments to which they pay royalties to go public with the basic facts of their interactions. The idea is to cut corruption. Ghana has complied with EITI standards for its gold industry and added its new oil and gas sector to the commitment.

On its website, Tullow Oil Ghana publishes its petroleum agreements, deeds of assignment, environmental impact assessments and payments to the government. It notes that these are “published at the request of, and with the approval of, the Government of Ghana.”

Toni Aubynn, formerly with Tullow Oil, sees EITI membership as an important safeguard for the country because it requires openness from government and industry. In Nigeria, he said, the “huge opaqueness of government” came about because the country was under dictatorship during much of its oil boom. Ghana’s government has set the right priorities, he added, with its commitments to investing oil revenues in agriculture and infrastructure and to using natural gas to produce energy for other sectors, so that all parts of the economy can flourish.

Ghana’s efforts to get control of oil benefitted from considerable support from the World Bank. Katherine Bain said her organization played a more active role than it has in other countries, helping to establish a national round table on oil and gas. When the government sponsored a conference in November 2007, soon after the oil discovery, the bank brought in speakers from Norway, Canada, and Trinidad and Tobago to talk about their countries’ positive experiences with oil. There was a sense of urgency about the talks; oil was expected to begin flowing more quickly than with most discoveries.

The World Bank also produced research on oil and gas policies that became part of the national debate on how to handle oil. Because of its long role as a lender to the Ghanaian government, the bank was able to meet with the finance and energy ministries, offer technical assistance, sponsor debates and provides grant money from a  US$2 million governance facility grant to help citizen groups prepare, Bain said.

“I think there are people both in government and in civil society who have made incredible efforts … to get this right,” Bain said, but she added that the secret will be in the details of implementation and oversight.

 Worries persist

The World Bank, for all its impact in developing countries, is not the biggest player in Ghana’s oil fields, as Bain readily acknowledges. In fact, as Ghana rose to middle-income status, the bank’s part in its economy shrunk from $450 million annually to $300 million. Donor governments are pulling back as well, in order to concentrate their aid on the world’s poorest countries, she added.

China has a far bigger role today than does the World Bank. It is thirsty for oil to fuel its industrial growth. In December, the Ghanaian government announced that it had signed a 15-year, US$3 billion loan facility agreement with China Development Bank that includes commitments by UNIPEC Asia, China’s largest oil trading company, to purchase Ghanaian oil in support of loan repayment.

Richard Hato-Kuevor of Oxfam and others question whether the terms of the loan agree with all provisions of Ghana’s revenue act. He worries about the effects of locking up part of the oil production in a loan repayment system. But, despite the large Chinese loan, he sees the World Bank and its partner, the International Monetary Fund, as retaining significant positive influence after decades of work in Ghana. Ghanaian leaders, he said, have learned that these are “institutions they don’t joke with.”

Mohammed Amin sees three major problems so far. Oil companies say they are still recouping their costs and, thus, aren’t making taxable profits, he said, and members of parliament have not yet mastered the complexities of oil contracts, making it difficult for them to monitor the industry. He called the national Public Interest and Accountability Committee “a toothless bulldog” unable to enforce its decisions about the government’s use of oil revenues.

“Our public financing system is weak and prone to leakage and corruption,” Amin added.

Many observers said that a spike in public spending is common in election years. With a presidential contest due in December, they expect extra spending this year. But few see a major problem with that spending.

For Freida Quagraine of the Platform on Oil and Gas, one of the big worries is the difficulty of getting information on oil contracts before they are signed and on proposed laws early enough for public responses.

“You want documentation. It’s not that it doesn’t exist, but certain people don’t want you to get it,” she said, adding that the self-interest of politicians is another concern. “They end up not thinking about the whole population; they end up thinking about themselves.”

Though optimistic overall, Toni Aubynn admits that the rush from oil discovery to production poses risks.

“It outpaced the ability of the country to develop strong institutions,” he said. “There is a gap between the desire and the ability of institutions to handle all the things that come with oil.”

The risks, he says, include unrealistic expectations among Ghanaians. Few have the skills needed for oil-sector jobs, he said, though training has begun.

Preparing for the long haul

Mohammed Amin of Ibis Ghana says his country has some distance to go to beat the resource curse. It still needs training programs for oil jobs, more skills among local and national citizen groups, and special attention to coastal areas that feel the first impacts of the oil boom, he said. Advocacy groups are developing an oil accountability index to strengthen the monitoring side.

The problems in Nigeria may yet have a salutary effect in Ghana, he says, because oil companies don’t want to encounter the problems that Shell and others faced in the Niger Delta – protests against the companies, kidnapping of oil workers, sabotage of oil pipelines and other facilities. These were “big lessons for oil companies,” Amin said.

Aubynn says that Nigeria’s troubles are on the minds of Ghana’s oil developers.

“Nigeria got it wrong from the beginning,” he said, adding that Tullow Oil isn’t working in Nigeria and doesn’t want to be connected to the resource curse.

“Tullow wants to become a leading oil and gas exploration company in Africa. They want to do it right,” he added. “I could only speak for Tullow, but Tullow is the operating partner. In terms of the Jubilee partnership, the attitude was the same.”

Beyond the companies, Aubynn sees strengths in the larger society.

“The difference Ghana has from other countries that are afflicted by the resource curse is the vibrancy of its politics, democracy and media,” he said. “I think these combine to provide some assurance that we will not fall into the trap.”

Citizen groups are pushing a number of initiatives to try to keep Ghana democratic and in charge of its oil industry. For Freida Quagraine, that means keeping the general public mobilized to demand accountability.

“If we empower people to understand the issue themselves, it’s more effective,” she said. She works to enable rural communities to hold district assemblies to account and national groups to monitor central government and the oil industry. Religious organizations are active on these issues all over the country, she said. People want to be sure that oil strengthens, rather than undermines, agriculture.

At the Center for Democratic Development think tank, Victor Brobbey credits citizen groups with making oil contracts available to the public, ensuring greater local content for oil-related services and helping to create governmental oversight bodies. However, Ghana’s monitoring depends too much on the executive branch and should be diversified, he said.

For Jacob Hobenu of Ghana Oil Watch, public engagement on oil issues is strong and can help keep politicians on track.

“The political will to ensure full implementation of EITI in Ghana is good and signals that government understands the importance of transparency in the oil and gas (industry),” he wrote in an e-mail. “The main obstacle is Political will to do the right thing without fear or favour.”

At Oxfam, Richard Hato-Kuevor remains worried about whether government is both willing and able to deliver on its promises to manage oil in a fair and open manner.

“Will it come to fruition?” he asks. “The way things are going, the picture doesn’t look good.”

But he sees the active involvement of so many Ghanaians as a promising effort.

“Civil society will be engaged in this for a very long time,” he said. “This is an issue that comes to stay.”

 

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