Ghana is set to join the world’s league of oil producing countries when commercial production of oil begins in the country in the last quarter of the year. The first 120,000 barrels of oil is expected in November, according to Tullow Oil, the major stakeholder in Ghana’s nascent oil industry.
But questions still linger as to whether the country which is an agriculture economy is ready to become an oil economy.
The Vice President John Dramani Mahama has told Britain’s Think Tank, Chatham House during a briefing over the weekend that the country has taken the necessary steps to prepare itself to becoming an oil economy, according to a report by the Wall Street Journal.
He was quoted as saying that “schedules for oil production are well ahead, oil has the potential to be very much transformational for our economy.”
Mahama said the government has done extensive consultation with a number of oil producing countries including the U.K and Norway, in addition to Nigeria and Gabon, to understand their experiences and help prepare an appropriate legal and fiscal framework.
Expectations are high among many Ghanaians that when the oil begins to flow, the economy will improve.
Indeed, the Bank of Ghana has said that the country’s GDP will grow above 20% when the oil starts flowing.
Milison Narh, a deputy governor of the central bank has said the country’s economy will see real GDP growth of above 20% in 2011 as a result of the oil production.
He said initial oil production is projected to constitute 17% of Ghana’s GDP.
But a Ghanaian Think Tank, the Centre for Policy Analysis (CEPA) has warned that the country’s economy is likely to suffer the phenomena known as ‘Dutch disease’ when the oil begins to flow.
According to CEPA when Ghana enters the oil era, an exchange rate effect symptomatic of the Dutch Disease is expected. The exchange rate effect, together with the yield on Ghana’s Eurobond source of information on the country risk premium on Ghana and the rate of inflation would be key considerations in the deliberations of the Monetary Policy Committee (MPC) of the Bank of Ghana (BOG) for the determination of both the real and nominal policy rate (prime rate).
CEPA indicates that considerable investments were made in cocoa at the turn of the last century. From about 1911, cocoa cultivation emerged as the dominant productive activity in the country. Since then, the cocoa sector has served as an important source of:
· livelihoods and employment;
· central government revenue; and
· foreign exchange earnings.
Thus, over the last 100 years, in a fundamental sense, Ghana could be said to have had a cocoa economy.
Anecdotal evidence has it that some Ghanaians desire that the exchange rate of the cedi reverts back to parity with the US dollar. In CEPAs view that would be the onset of the Dutch Disease.
The Dutch Disease is so named because of the destructive effect such as choking off the growth and employment potentials in non-oil sectors on the Dutch economy of the discovery of substantial gas reserves in the 1960s. It is a form of the resource curse. It originated from the nominal and real appreciation of the exchange rate that resulted from the large inflows of foreign exchange earnings from the Dutch export of gas. Effective management of the exchange rate will therefore be critical, if oil is to enhance our growth prospects and if Ghana is to avoid the ills of the Dutch Disease, it said.
Ghana has the largest oil field to be discovered in West Africa in the last 10 to 15 years. The oil field, the Jubilee oil field according to Tullow Oil contains 1.5 billion barrels of oil and has 17 wells. The Jubilee oil field and Tweneboa, are said to hold a total of 2.9 billion barrels of oil together.
Tullow has alos said it will put Ghana among the world’s top 50 oil producers when production begins.
Currently, discussions are going on in the country as to what the country’s crude oil should be named.
There is no doubt that when oil production begins, it will certainly begin a very significant era in the country’s history and it has the potential to make a remarkable impact on the country’s economy.
By Emmanuel K. Dogbevi