A boom and a test for Ghana

Ghana opens its oil taps, joining the growing club of sub-Saharan crude producers but will it become the latest victim of the dreaded 'oil curse'?

A young worker works in a cocoa farm. Ghana is renowned as a cocoa producer.
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On December 15, a delighted John Atta Mills, the president of Ghana, turned a big black wheel on an offshore oil platform to bring his country into the fold of African oil producers.
That marked the start of production from the deepwater Jubilee oilfield, discovered three years ago and named to mark the 50th anniversary of Ghanaian independence in 1957.
But this celebration had an edge to it, born of trepidation that Ghana's pursuit of oil riches to lift its people out of poverty could all go badly wrong.
"After a long wait, the day has come," Mr Mills said. "But . it means we are assuming a serious responsibility. And especially for those who are in leadership positions, we must ensure that it becomes a blessing, not a curse."
He had reason for concern. In neighbouring Nigeria, the biggest sub-Saharan oil producer, the scramble to exploit that country's huge petroleum deposits has spawned violence, pollution, inflation and widespread societal disruption.
Cronyism and government corruption for years ensured that the flow of petrodollars into the populous west African country merely widened the gap between rich and poor.
Ghana, meanwhile, has already weathered its first oil scandal.
This year, the US department of justice closed an investigation into the link between the Texas-based Kosmos, one of two foreign companies that discovered the Jubilee oil, and EO, a small Ghanaian company founded by Kwame Edusei and George Owusu, two political allies of the country's former president John Kufuor. Washington found no evidence of violations of the US Foreign Corrupt Practices Act, yet Ghana continued its own investigation into allegations that EO had used access to senior government officials to gain an interest in the West Cape Three Points oil block and obtain unduly favourable contract terms for itself and Kosmos.
"For once I am almost tempted to believe it when people say that oil finds are a curse," Mr Kufuor told the Financial Times in October.
"That word corruption is the most abused word. They say it, they allege it, you challenge. There is no proof and yet they won't leave you alone," said the seasoned statesman, who stepped down last year as Ghana's president after completing his constitutional limit of two four-year terms. "Spreading the wealth all over to make everybody hopeful: that should be the overriding preoccupation."
The furore led to the collapse this year of a proposed US$4bn (Dh14.69bn) takeover of Kosmos by ExxonMobil because of opposition from Ghana, as the country's national oil company tried to pull together a consortium to buy the Texas company's Ghanaian assets. But last week, Ghana called a truce, granting Kosmos immunity from criminal or judicial proceedings over past events.
Output from the Jubilee field, which the UK's Tullow Oil, the co-discoverer and operator of the field, estimates may contain up to 1.8 billion barrels of recoverable oil, will start at 120,000 barrels per day (bpd) and is expected to double within three years.
That is not much by global standards. Nigeria, an OPEC member, pumps about 2.6 million bpd. But the IMF predicts that annual government revenue from oil exports could reach $1.55bn in 2019, accounting for almost 4 per cent of Ghana's GDP.
By that measure, oil could have a bigger impact on the African nation than North Sea oil development had on the UK. Apart from oil export revenue, concurrent gas exploitation could transform the domestic economy if it is properly handled, with the timely build-out of infrastructure, fuelling new power plants and providing feedstock for fertiliser production.
In theory, that could be a boon to the country's important farm sector, much of which is in remote areas that lack connection to the national power grid.
"Ghana's agricultural sector - and the 70 per cent of Ghana's poor who live in rural areas and whose livelihoods depend on farming - stands to benefit from the surge in demand for agricultural commodities as well as the increased public revenues available for agriculture-related investments," a World Bank study says.
But there is a catch. "International experience shows that the competitiveness of the agricultural sector is often hurt from a natural resource discovery," the bank says.
The crop that could be most critically affected is cocoa. Ghana is the world's second-biggest exporter of cocoa after its western neighbour Ivory Coast. If a rapid influx of petrodollars and property speculation combined to escalate the value of the Ghanaian cedi relative to major currencies, the country's export-oriented cocoa plantations would become uneconomic.
This has already happened in Nigeria, which used to be a major exporter of cocoa and other crops. Several other west African oil producers, most notably Angola, have also succumbed to the so-called Dutch disease and are now net agricultural importers despite huge endowments of fertile, well-watered land. The consequences have included rapid urbanisation, as redundant farm workers have flocked to the cities to seek jobs, and the growth of huge slums.
"It is worth remembering that Nigeria's once vibrant cocoa sector never recovered from the effects of the oil booms of the 1970s and 1980s," the World Bank notes, while urging Ghana to invest its oil revenue in rural infrastructure to protect the competitiveness of its "agricultural value chains".
"Robust agricultural growth is a precondition for achieving middle-income status by 2015," the bank asserts.
Ghana's government has been studying successful oil exporting states such as Norway for clues on how to handle its expected oil boom. The trouble is that because of their extreme climates, the world's most successful oil economies, including Norway, Saudi Arabia and Abu Dhabi, were never major agricultural exporters.
Ghana will have to plot its own course. By doing so successfully it could create a road map for others to follow on the most economically disadvantaged continent.
"This is not business as usual," the World Bank says. "The lessons from many countries experiencing a sharp inflow of oil or other mineral revenues suggest that Ghana's policymakers will have to pay particular attention to the agricultural sector to ensure that its competitiveness is not undermined nor inequality increased."
"However," the bank says, "the potential for increased public expenditure from oil revenues is also a unique opportunity to enhance competitiveness, foster agricultural growth, and reduce poverty."
Those indulging in chocolate treats this holiday season should pray that Ghana gets it right.