Is “Oil Fund” all Ghana needs to defeat the Resource Curse?

Even with the estimated 1.8 billion barrels of crude oil (compared with Nigeria’s 36 billion barrels of crude oil) making 50,000 barrels a day within months of the start-up this year, Ghana cannot sidestep the nagging challenges of the curious phenomenon-the ‘resource curse’. It has been proven that most countries with large endowments of natural resources including oil and gas perform worse with respect to development and good governance.

The economic aspects of the resource curse are evident in the pattern of exchange rates and the exaggerated fear of Dutch Disease. It is believed that the large influx of foreign currency from the export of oil and gas creates excessive demand for a country’s currency and as such raises the value of its real exchange rate. Oil and natural gas development also tends to shift investments away from other viable sectors of the economy. Another dangerous aspect has to do with corruption, the canker that has registered its feat in most oil-rich countries. Corruption continues to assume scary dimension in countries including Gabon, Equatorial Guinea, Nigeria, Venezuela and several others.

To confront this paradox, several countries have been moved to establish ‘Oil Funds’ that would engineer an economy to progress and cushion it from turbulences caused mostly by volatility of oil prices. In Ghana, several bodies, organizations and individuals have raised the need for the government to set up an ‘Oil Fund’ that would prolong revenue generation for the benefit of posterity and for prudent management of oil wealth that the country would garner.

The burning question is that, is the ‘Oil Fund’ all the country would need to avoid the resource curse? This article seeks to highlight the salient issues in governance and institutional building that would help sustain and increase the capacity of any oil fund.

How viable are Oil Funds?

The case for the economic and political significance of oil funds remains very bleak. It is now argued by some economists that oil funds are no more effective than other measures for mitigating the threats of Dutch Disease. Oil funds which usually serve as “Savings Fund” or “Stabilization Funds” have , however, been established in countries including Norway (Norwegian State Petroleum Fund), Kazakhstan (National Fund), Azerbaijan (State Oil Fund, SOFAZ), Chad (Chad’s Revenue Management Plan) and the State of Alaska (Alaska Permanent Fund). It is known that savings fund sets aside a portion of oil and gas revenue for the future or current development needs whilst stabilization fund tends to provide cushion for budget from turbulences caused by oil price volatilities. Whilst funds in Norway have brought significant gain, the case of Chad is nothing to write home about. As part of the preconditions for World Bank financing of the development of the Doha oilfields and the Chad-Cameroon pipeline, Chad was compelled to set up oil fund. Despite the fund, Chad continues to be one of the most corrupt countries globally apart from the fact that poverty among the people is high. It was no wonder that Transparency International's Corruption Perceptions Index for 2005 named Chad as the most corrupt country in the world. Also, the BEAC, Banque des États de l’Afrique Centrale, the joint government-civil society committee in Chad responsible for overseeing oil revenue expenditure has easily been manipulated by the president resulting in mismanagement. This situation is not different in Kazakhstan and Azerbaijan. According to the report by Caspian Revenue Watch, “Caspian Oil Windfall: Who Will Benefit?”-Overview and Recommendations, the funds in these two countries suffer governance flaws, including the lack of accountability and transparency. In Azerbaijan, there is ostensibly no civil society participation and members of the oversight body are appointed by the president. These are the structural weaknesses that are largely evident in Chad, Kazakhstan and Azerbaijan.

What then can Ghana learn from these experiences in her bid to make better management of oil and natural gas revenues? Candidly, oil funds do not necessarily translate into better revenue management.

The Startling Reality in Ghana

There is no gainsaying the fact that Ghana needs to establish an oil fund to manage and prolong the benefits of its potential oil wealth to ensure inter-generational equity. According to the Finance Minister, Dr. Kwabena Duffuor, as reported by the “Ghanaian Times” on January 28, 2010, the government is to set up a sovereign wealth fund for oil money which is estimated to have an upside of around $2 billion when production ramps up. It is indeed a promising start only if this decision would not be a mirage. Nonetheless, it is imperative to put forward that for optimum gain, factors in governance and the necessities of the oil fund should operate in tandem. If the opacity that surrounds the flow of revenue streams in the mining sector is repeated then certainly, there would be no need to set up an oil fund.

The crux of my argument is that the country needs accountability, openness and transparency to defeat the resource. And what makes these three pillars meaningful in any democratic dispensation? Ghana ought to rejuvenate its institutions and governance structures to solve the paradox of plenty.

Most importantly, regulatory and legal framework in the oil and gas sector and in managing the oil fund should be made operational. Would Ghana have the capacity to enforce the laws that would govern the oil industry?

With regards to the sustainable use of the wealth generated, the oversight role of parliament, informed civil society organizations and citizens would provide the impetus towards making oil revenues beneficial to all Ghanaians. The reality of the case is that parliament has been completely left out when it comes to the shareholdings and transactions that are transpiring in the Jubilee fields. Indeed, it was not surprising when Hon. Moses Asaga, MP for Nabdam and Chair of the Parliamentary Select Committee on Mines and Energy accused the Ministry of Energy and the GNPC of withholding vital information on oil sector transactions and policy related matters from parliament. The oversight role of parliament for now has been undermined since they have been made oblivious of what is happening in the sector. This was especially the case with the jostling for Kosmos’ share of the Jubilee Oilfields by oil giants including ExxonMobil, BP and others, assumed sophisticated dimension.

In Sao Tome and Principe, the National Assembly (parliament) is required under the Oil Revenue Law to conduct yearly public plenary sessions to discuss general oil and gas policy. Again, ministers, the auditor general and the oversight board answer questions from parliamentarians and discuss the activities of the oil fund. For Ghana, this should take the early stage to enhance the oversight role of parliament in ensuring better oil wealth management. There should be no room for extensive secrecy provisions in the regulatory framework for the sector as far as the role of parliament remains effective.

Also, in Sao Tome and Principe, the Oil Revenue Law created a new independent oversight body, the Petroleum Oversight Commission which is made up of governmental and civil society members. It is no wonder Sao Tome and Principe remains one, if not the first, of the corruption-free oil-rich countries apart from practical management revenues. It is very important that we follow suit. This would increase the awareness of what pertains in the sector including the commitment to transparency and checks and balances. The country needs a statutory oversight body aside from the indispensable role of parliament in order not to create fertile grounds for corruption and mismanagement. The impending oil and gas draft regulation bill should clearly specify the role of parliament and as such making it the highest body in oil revenue spending and management.

The statement by the Deputy Minister of Energy, Emmanuel Armah-Kofi Buah, that the Ministry of Energy would oversee the disbursement of funds in the “Oil and Gas Business Development and Local Content Fund” leaves much to be desired. Here, it is definitely the adherence to the political disincentives in the country where virtually the executive wields leverage even over parliament. This situation would allow public spending for personal gains. Ideally, the role to oversee and monitor the disbursement of funds should solely be assigned to an independent oversight body and parliament respectively. Parliament should exercise the authority of debating, approving and scrutinizing petroleum agreements, government transactions in and out of the oil fund.

Concerning the role of civil society organizations, there is a seemingly brighter step since Ghana is blessed with vibrant groups that are always in place to have a say in government decisions. But in the context of the oil sector, are civil society groups empowered enough to meet the difficult challenges ahead? It is worthy of note that an oil fund with small number of actors operating in nontransparent and poorly linked manner would encourage misappropriation and abuse of power. The outcome of the issue here is that limited roles of CSOs mean that the tool for ensuring transparency and openness in the oil sector is made ineffective. The Extractive Industries Transparency Initiative (EITI) is the best medium that can enjoin the role many actors, from government representative to civil society organizations.

Again, what is always significant is for the ordinary Ghanaian to be educated and made informed of what goes on in the oil and gas sector. This is to clamp down on possible uncontrolled grievances that may cause revolts.

Conclusion

It is crystal clear that “Oil Fund” alone cannot cause a miracle for Ghana. The bottomline of the issue is that parliament should not be sidelined in all phases of activities in the oil and gas sector. It does not really matter whether funds are held in an offshore depository or in domestic institutions, the related factors as stipulated provide grounds for consideration. Let us learn from the positives of oil funds in Norway, Sao Tome and Principe and Alaska. And we need not follow the footsteps of Chad, Kazakhstan and Azerbaijan. We can gain a lot from “Oil Fund” by ensuring comprehensive transparency and accountability premised on Parliament’s oversight role, an independent oversight body [without president appointments], empowered civil society organizations and the unflinching commitment to the principles of EITI. Watch out for Part II!

The author, Stephen Yeboah is at the Department of Planning, Kwame Nkrumah University of Science and Technology, Kumasi-Ghana. [stephenyeboah110@yahoo.com]