Ghana's new oil wealth - curse or cure?

Michael Dynes

Ghana, like most African countries, is grappling with an uncertain short-term outlook as a result of the global financial crisis, and especially its impact on the country's burgeoning trade and budget deficits

But unlike most of its continental counterparts, it is bracing for the dawn of a new age of plenty that is destined to propel the impoverished west African country into the ranks of sub-Saharan Africa's top oil producers.

As President John Atta Mill's newly elected National Democratic Party (NDP) struggles to contain inflation of 20 percent with interest rates of 18.5 percent, rein in a roaring budget deficit which hit 14.9 percent of GDP in December, and tame a trade deficit that topped 20 percent of GDP - due largely to last year's twin spikes in food and fuel prices - it knows that the arrival of the country's new oil wealth is now less than 18 months away.

The off-shore Jubilee oil field discovered by AIM-listed Anglo-Irish Tullow Oil is due to begin production sometime around the second half of 2010. Oil exports are expected to reach 120,000 barrels per day by the end of the year, and are forecast to double that a few years down the line.

Exports of 120,000 bpd at $50 a barrel would see about $1 billion a year in revenues accruing to the national treasury, a figure that could soon double if oil prices recover to the $100 a barrel mark that many market analysts anticipate once the global economic recovery gets underway.

Oil - and cash - on this scale is going to change the structure of the economy, currently running at around 44 percent agriculture, 30 percent services, and 26 percent mining. Ghana, currently the world's second largest cocoa exporter, and Africa's second biggest gold producer, will soon change beyond all recognition.

Receipts from oil sales could soon rival, and may exceed, revenues from cocoa and gold, which were around $3 billion dollars in 2008. Tullow Oil's announcement in March that it had raised $2 billion in loans from international banks to help develop the off-shore oil and gas reserves - at a time when commercial lending elsewhere in Africa has all but dried up - is a clear indication of the scale of foreign investor interest in the country, which is likely to accelerate dramatically as government spending plans follow.

All sectors of the economy - banking, finance, information technology, construction, food processing and manufacturing, are bracing for the boom. Ghana's economy, which grew by 7.3 percent in 2007, and is expected to slow to 5.9 percent in 2009, could nonetheless see growth rates double the following year as the oil wealth starts to arrive.

How this new wealth is managed will determine the country's fate for decades to come. In the short-term the oil money will help shore-up the strength of the cedi, which has been under severe pressure over the past 18 months. In the longer-term, however, currency appreciation could destroy the competitiveness of the rest of the economy, and bring large-scale unemployment in its wake.

But it is the threat of corruption among the political elites that remains the biggest worry. Will the NDP go the same way as so many other oil-rich rich countries where oil revenues have been siphoned off for personal gain rather than deployed as a cure for development needs? Only time will tell. But Ghanaians only have to look next door at Nigeria to see what will happen if they fail to make the right decisions.