Ghana’s New Oil and Gas findings: Boom for the Country

Ghana’s recent findings of oils and gas reserves have created a wave of hope for the economy of the nation. These reserves would open new avenues for international investment and trade. Ghana is one of the most attractive markets in the Sub-Saharan Africa. The discovery of commercial quantities of oil and gas off the coast of Ghana in June 2008 has given rise to high expectations and optimism for improved prospects for rapid economic development and poverty reduction.
Ghana first discovered the offshore reserves in 1970. The discovery of natural resources was tended to be associated with appreciation of the real exchange rate, leading to what is often referred to as “Dutch Disease.”  The reserves could not fetch real positive reception for resources in the international market leading to price fluctuations and relatively volatile fiscal revenue.
The Ghana National Petroleum Corporation (GNPC) was established in 1983 by the government to promote the exploration and production of oil. The production till 1990 was negligible and the export was not much of a profit then. With the recent development, the production export is considered to boost the economy of the country.
The International Monetary Fund (IMF) projects that revenues from Ghana’s oil production will reach $1.3 billion per year and remain at or slightly above that level until 2022. Under projections on Government revenue from Phase I of Jubilee Field production, the World Bank estimates the maximum available for budgeting to be US$250 million on average between 2011 and 2029.
Official production and commercialization of Ghana’s oil started in December 15, 2010. The benefits would accrue to the country in the upstream, midstream and downstream sectors of the oil economy could be economic, social and technological. Economic benefits, the country stands to gain from increased growth of its Gross Domestic Product. Revenues from oil are expected to be sizable, being estimated to average about 5 percent of GDP.
The Development eventually aims to bring social benefits. The Oil income will finance and invest in basic and higher-level public infrastructure. Ghana’s oil income could finance scientific research into threatening diseases, environmental protection, and basic infrastructure like roads, alternative power, urban water and sanitation, health and education. The World Bank Report “World Bank on the Economy-Wide Impact of Oil Discovery in Ghana, 2009” estimates that Ghana’s infrastructure financing gap ranges between US$ 350 and 800 million. The provision of public infrastructure through increased budgetary allocations complemented by oil revenues could serve as an enormous boost to meeting the development needs of the country.
The Provision of infrastructure has spillover benefits for the entire society in the form of enhanced political stability and increased access to basic human needs. Present and future citizens can be made better off by having a significantly larger share of revenues invested in domestic infrastructure while saving to cushion the economy against volatilities in oil prices. The oil find could attract private investors. The proliferation of investments from multinational companies would benefit the country in terms of employment and foreign exchange generation.
There could be extensive technological benefits. Ghana’s oil and gas resources have the potential to create local value premised on the use of technology. This is particularly important in terms of job creation, income generation, business expansion, and ensuring industrialization drive. In the same vein, Ghana through its local content and participation policy could benefit immensely from transferred industrialization. The technological benefits could be evident in operationalization of local industries specializing in fertilizer production for agriculture modernization and LNG (Liquid Natural Gas) for domestic and industrial purposes.
Ghana has evolved into a stable and established democracy throughout the last two decades. The production and development in the extraction of oil and gas would profoundly bring further developments to the country.  The country continues to show good performance on democratic governance, arising from strong multi-party political system, growing media pluralism and strong civil society activism. Ghana progressed from 41st to 30th position out of 179 countries and 3rd in Africa according to the ‘Reporters Without Borders’ 2013 Press Freedom Index report. The 2012 report of the World Wide Governance Indicators places Ghana between the 50th and 60th percentile on political stability, government effectiveness, and regulatory quality, rule of law, control of corruption and voice and accountability. This performance reflects the positive effects of an improving environment for democratic governance, coupled with a gradual improvement in the effectiveness of public institutions and persistent economic growth, resulting in Ghana attaining a lower middle income status.
Ghana’s growth prospects are positive in the long-term, as suggested by econometric models which predict average per capita growth rates of 4 to 6 percent for 2014-24. One should expect that oil revenues will bridge the expenditure-revenue gap of any government.
Ghana, as with many other developing economies faces the challenge of meeting the objective of rapid growth and development against the constraint of limited fiscal space. In the past, Ghana has relied on foreign aid to supplement domestic taxes to meet its development challenges. The country’s revenue previously was dependent on foreign aid but with the extraction of oil and gas; Ghana has an additional source of financing its development. Ghana has recently been accorded the lower middle income status. This means that aid from the traditional sources is bound to change. Essentially, these two events suggest that the importance of foreign aid will reduce as oil revenues become important.  Oil and gas revenues have the potential to finance rapid economic progress for the country.
Oil revenues can impact on the macro economy through three main ways. First, it has the potential to increase overall economic growth within the economy, as the revenue supports public investment. Second, oil revenues can help government to become fiscally more responsible. This is because in the past both foreign aid and tax revenue have encouraged a relative switch to capital spending compared to recurrent spending. Finally, it is expected that oil revenues would impact positively on macroeconomic variables such as interest rates and inflation by reducing domestic borrowing.

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