Winter 2013

Goodluck Ghana: Lessons From Nigeria’s ‘Oil Curse’

Ashley Elliot

In July 2009 Barack Obama chose Accra, the vibrant capital of Ghana as the location for his first major policy speech on Africa. In between references to his father and the jazz legend Louis Armstrong, the freshly minted US President highlighted the country’s recent history of repeated democratic transitions of power, improving governance, emerging civil society and impressive rates of economic growth. In Ghana, you show us a face of Africa that is too often overlooked by a world that sees only tragedy or a need for charity,” he pronounced.

Obama’s visit did not go unnoticed in the rest of the continent. In Nigeria, Africa’s most populous nation, the Nobel Prize winning writer Wole Soyinka was particularly robust. If Obama decides to grace Nigeria with his presence, I will stone him. The message he is sending by going to Ghana is so obvious, it is so brilliant that he must not render it flawed by coming to Nigeria any time soon.” Few could have voiced the distinction between the West African nations with such clarity.

In the years following Obama’s visit, Ghana has become a poster child for international development. The trend for peaceful elections, orderly change of government, and a burgeoning young middle class has only burnished this image still further. With a reassuring core of civil servants driving Western-style policies, and industrial quantities of crude offshore, Ghana soon became a natural target for serious investors.

Signs of a bright future emerged two years before the much-heralded presidential visit when Tullow Oil struck oil in the offshore Jubilee Field. Then President John Kufour gleefully declared: With oil as a shot in the arm, Ghana is going to fly”. Inevitable mutterings of a resource curse’ and dire warnings that Ghana would slide inexorably towards the corruption and chaos of Nigeria reverberated around the policy-making establishment in Accra. But when oil first came online in 2011, and Ghana’s economy spiked by an extraordinary 15 per cent, the pessimists began to wonder whether Kufour had been right after all.

Of course, balancing the vast financial advantages of energy production while remaining a stable democracy and economic reformer was never going to be easy. But for Ghana, at least, the Nigerian experience, serving as easy shorthand for the ruinous impact of Africa’s petroleum industry, was all too clear. For Nigeria, the link between hydrocarbons and political instability is longstanding. It can be traced back to the young country’s descent into the Biafran civil war in the immediate aftermath of decolonisation.

Today, rents from the bounty of the creeks and mangrove swamps of the Niger delta account for 80 per cent of Nigerian government revenue. Corruption is rife, epitomised by a predatory elite that has siphoned more than $400 billion into private bank accounts. Beyond the privileged few, average Nigerians must cope with environmental devastation, regional insurgency and barefaced economic inequality. A country that was selfsufficient in the 1960s is now the world’s second largest importer of rice as the country’s agriculture shrivelled under the pressure of a petrodollar-hardened Naira. Even in the vital energy sector, recent reforms have been stymied. The draft Nigerian Petroleum Industry Bill, a nominally radical blueprint for reform, has languished in the national assembly for half a decade. Vested interests have disrupted its passage, and provisions to allocate ten per cent of oil profits to Niger delta communities have further inflamed regional and ethnic tensions. The results are clear to see. Nigeria’s oil output today hovers around 2 million bpd, around half the potential maximum. Exploration is drying up.

The same cannot be said of Ghana. Risks of civil conflict or widespread ethnic strife remain negligible. Yes, political governance often seems better in appearance than reality, and the strength of the executive is a concern, but the roots of Ghana’s strong democratic traditions remain intact.

A year after Tullow’s began work in earnest the country was rocked by the death of President John Atta Mills. What followed was a model of smooth constitutional transition. Vice-President John Mahama of the ruling New Democratic Party was swiftly sworn into office. Crucially, his accession to power was bolstered by cross-party support.

The system was tested again later the same year. A gruelling presidential election campaign ended with the two leading candidates separated by just 325,000 votes, and yet the polls passed off peacefully. John Mahama’s 50.7 per cent victory was judged free and fair by international observers. A subsequent challenge to the result, lodged in Ghana’s Supreme Court by Mahama’s defeated rival, ran its constitutional course and was eventually thrown out. The system survived.

Political resilience has been buttressed by commercial success. In important respects, Ghana has achieved more in the management of its oil sector in two years than Nigeria has in 50. Before first oil, the country passed crucial legislation to improve management of the sector, including a Petroleum Revenue Management Bill. A new national oil company, the Ghana National Petroleum Corporation, gives Accra an indigenous vehicle for the negotiation of contracts, the regulation of exploration and production. It also allows the government to participate directly in the oil sector.

A heritage fund along the lines of Norway’s storied model has been created to preserve some of the newfound wealth. Simultaneously, the government has directed around 30 per cent of oil receipts into a second stabilisation fund to guard against price fluctuations and external shocks.

Given their complexity, it is impressive that these new mechanisms have gelled so quickly. In a short space of time, around $1 billion in revenue has been collected without significant dispute between the government and oil companies. The Central Bank has played its coordinating role with aplomb. Years faster than expected, a new National Petroleum Commission has taken over the remit to oversee licensing and regulation. This removes the National Petroleum Corporation’s previous conflict of interest, where it acted as both a regulator and an industry player. An independent and spirited Public Interest and Accountability Committee, inaugurated in 2011, provides a degree of oversight and keeps tabs on the government’s management of the sector.

In its initial stages in the early 2000s, Ghana’s fledgling oil industry was not a wildly popular destination for international investment. Reforms and serendipity have changed this. Since 2012, both Eni and Total have entered talks with Accra to initiate capital-intensive exploration programmes. Compare this with Nigeria, where only five deep-water wells have been drilled since 2010. In the same time period, 25 have been developed in Ghana.

While the first steps have been decidedly positive, Ghana’s reforms have still some way to go. A draft Petroleum Bill for both exploration and production has yet to be passed. Senior appointments to the Petroleum Commission, the National Petroleum Corporation and the National Gas Company have been delayed, leaving key institutions in limbo.

The start date for the production of electricity from the Atuabo plant, the first to be supplied by gas from the Jubilee field, has been pushed back time and again. The government has dithered over new upstream projects, including Tullow’s Tweneboa, Enyenra and Ntome complex.

Economic vulnerabilities remain. The headlines are of blistering poverty in the northern savannah belt, rapid demographic change, and rising unemployment. Fewer than 30 per cent of Ghana’s bulging coastal population have formal-sector jobs. An anaemic manufacturing sector, stymied by power shortages, contributes only nine per cent of GDP. Deteriorating soil fertility in the cocoa regions has increased pressure on farmers of Ghana’s most important cash crop.

President Mahama’s administration, therefore, faces a slew of difficulties, not least a budget deficit that doubled in 2012, and foreign exchange reserves that now cover less than three months of imports. The markets have demonstrated their concern. Fitch downgraded Ghana from B+ to B in October. And yet Ghana continues to display BRIC-like economic expansion. Though far from 2011’s highs, 7.9 per cent growth in 2012 is no mean feat.

The argument over Ghana’s young oil sector will rumble on: growing pains are inevitable. The GNPC could overreach, trying too soon to become the next Petrobras, bruising international oil companies in the process. A false start for the natural gas sector is possible, and the government, eager to show a social dividend, might demand that oil companies sell gas to the domestic power sector on the cheap.

These are minor concerns. Step back and the picture is encouraging. Ghana today has few problems it did not have before the discovery of oil. The country will soon have far greater means at its disposal to solve them. With the continued resilience of its political institutions as a backstop, Ghana’s preparedness to reform suggests that Accra has learnt salutary lessons from Africa and further afield.

Look once more at Nigeria and its efforts at reform. Ghana started to reform its nascent energy sector far earlier. Accra’s reforms attempt to go deeper. Of course Ghana will have to keep up momentum. If that does not count as a success story, it will have to do.

Ashley Elliot is an adviser to the iTSCi initiative. He previously worked for the World Bank and a UKbased risk consultancy. He lives in Dar es Salaam, Tanzania.