By: Mohammed Amin Adam
OIL AS A WINDOW OF DEVELOPMENT OPPORTUNITY
1. Economic Base line
While it is important to adopt international best practices for the management of our oil revenues, wholesale application of models of other countries is dangerous.
It is important that before first oil in December 2010, the country’s economic managers should produce baseline economic report describing the state of the economy before oil revenues and also conduct simulations of different scenarios of oil revenue based investments.
This will guide how revenues will be allocated and deployed into the economy. In the absence of such analysis, the following investment proposals which have been highly researched in Ghana in terms of their social and economic benefits to our country should engage our attention under our current circumstances. We don’t need to do big things. Big things have little impact.
I also do not support bulk and blanket allocation of oil revenues by sectors through the budget as the government proposes to do.
Several years of budget support from donor funds have only come to maintain the status-quo and therefore, we have been unable to measure the impact on our economy of donor financing of our budget by more than 30%. Specific programme financing should be the rule.
This does not only maximize the impact of programme financing but also ensure monitoring and accountability.
2. Investment areas
(i). Girl-child education – Girls of today will grow to become women, mothers, family managers, business people, etc. Therefore, spending on programmes that support girl child education, increased enrolment of girls, retention in school, scholarships for higher education, etc will enhance the nation’s capacity to develop faster.
(ii). Microfinance for women – Women have been proven to be good economists and financial managers even when they have no professional qualifications.
Therefore, if they are economically empowered from oil revenues, it will not only double the size of the productive economy but their children are also raised well and soundly with appropriate emotional balance and confidence in themselves, which are essential ingredients for national development.
In Brazil for example, such support for women is contingent on school attendance by their children.
(iii). Small scale industrial development – The small scale businesses have been the backbone upon which many economies have been built.
In Ghana, the small scale sector contributes more to the economy than the big factories do.
However, most of them are in the informal sector without access to capital. Most of them do not pay taxes and they have no proper records of their business transactions.
It is important to target small scale businesses and support them with capital and training.
They should also be organized and registered accordingly to formalize their operations. Apart from helping to grow the economy, this proposal will also facilitate mobilization of non-oil tax revenues to finance the budget.
(iv). Development of non-traditional exports – Ghana’s non-traditional exports have not grown significantly over the years.
The export profile is therefore still dominated by the traditional commodities of cocoa, gold, and timber. Oil will be added soon.
In the event of a ‘Dutch disease’ occurring through the injection of massive oil revenues to the economy, the traditional exports suffer more.
These exports are more tied to global financial movement and are also patronized by most of the advanced countries whose currencies dominate the global market. Non-traditional exports are patronized more by regional neighbours and other developing countries that have no capacity for producing synthetic substitutes.
By increasing the value of non-traditional exports through provision of capital, training and access to markets; and with falling values of traditional exports, the country will be pursuing the path of export diversification, an essential factor for accelerated economic development.
(iv). Infrastructure financing – These include energy production using the natural gas from our oil fields to power the industrial sector of the economy, roads and bridges to reduce business cost, and institutional infrastructure such as telecommunication to reduce transaction costs are also feasible.
3. Political economy
Most of the problems caused by resource management are attributed to weak political economy. Ghana must improve public financial management by reforming the public sector, reducing business cost through the inactions of public officials; involve citizens in decisions and providing accountability mechanisms including public and strong parliamentary oversight.
The country also needs to legislate transparency and accountability initiatives such as the Freedom of information legislation, the EITI and actually embracing the EITI++, and ensuring greater transparency beyond the EITI by removing confidentiality and stabilization clauses in petroleum agreements.
4.Environmental Governance
The doom of most oil-rich countries have manifested in the environmental sector. Natural gas flaring, destruction to forest and community farms through pipe-laying and during on-shore oil production and pollution of water bodies as well as destroying marine life, thus endangering the livelihoods of communities, have been some of the examples of how oil boom has become a doom in some countries.
Strong environmental laws backed by strong institutions to implement the laws are urgently needed before first oil.
The delay in the development of the Petroleum Regulatory Authority Bill ahead of first oil is a dangerous trend for the country.
Most government officials have often referred to PNDC Laws 64 and 84 as the regulatory laws for the petroleum sector.
But these laws were made during military dictatorship without public input and most of the provisions not backed by modern trends in the petroleum regulatory regimes.
For instance, the government policy for gas flaring is zero tolerance, yet the current petroleum regulatory regime provides for gas flaring under some broad circumstances.
Flaring for operational efficiency may be understood but how is the allowable flaring level determined. The sanctions regime is also insulting.
For instance, under the current regulatory proposal, companies that flare gas of about 1000 cubic feet are sanctioned to pay 12 penalty units.
The abuse of these sanctions is most likely as the cost is negligible. Let not forget that Newmont recently agreed to pay a fine of about US$7 million for cyanide spilling. But how can this money restore the health and environment of the communities affected.
This same practice will continue in the oil sector. Therefore, we need preventive mechanisms which are more effective than sanctions regimes.
CONCLUSION
Ghana is on test as it prepares for oil production. But oil endowment itself is not a doom. How it is managed could make it a boom or a doom.
While it requires a lot of sacrifice and patience to make the boom work for the economy, the country cannot equally ignore the higher price to pay if the oil resources are not managed well.
Although Ghana’s oil reserves of 1.8 billion barrels is small relative to Nigeria’s almost 40 billion barrels, the proceeds from the oil could provide relief for financing the budget gap or the development financing gap which have been features of our economy over several decades.
I trust the intelligence and innovativeness of the Ghanaian but these must reflect in the results from our test five or 10 years from now.
We have no excuse to fail because our own experience in the mining sector and the experiences of our oil producing neighbours should spur us on to avoid the past mistakes. Can we do it? ‘Yes we can.’