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Would Ghana’s oil lubricate her hopes and aspirations?

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Somewhere around the sprawling community of Lashibi, a young engineer bids his little daughter good bye as he watches tears stream down her cheeks. He would be gone for sometime. The night was heavy as the few street lights fought for space in the invading darkness in vain.

The oil company he works for called him hours ago hence the swift response and a long drive to Takoradi and beyond to wait for a helicopter to take him onto the oil rig erected some nautical miles from Ghana’s Western Shoreline.

Such young Ghanaian professionals are finding lucrative jobs near home since Ghana discovered oil in commercial quantities in July 2007 and began production in December 2010.

Takoradi is now bursting at its seams; all manner of people are migrating to this Ghanaian western harbour city which had seen better days, to feed on the hopes and goodies in an oil revenue environment.

It now attracts all the banner headlines for the right and wrong reasons and it certainly represents the exact picture of what Ghana may became as the West African nation trod the oil path.

The hot debate on the oil find is understandable although Ghana has a long unpalatable extractive industry history; gold, diamond, bauxite, manganese are still being mined but long years of digging, scraping ,pollution and the relocation of villages  have brought about few toilets and community centres and a distorted agrarian culture.

Oil is and will be the most important single fuel in the global energy mix in the foreseeable future; coal, natural gas, nuclear power, renewable and other sources will continue to supplement oil in meeting the world’s growing demand for energy. New mammoth consumers like China and India which will account for 43 per cent of global demand by 2030, continue to aid the rise in the price of oil and the search for new reserves as the United States of America, European Union and Japan, the big buyers, continue to seek new sellers.

The United States of America, the biggest consumer of oil, has seen its net imports of oil and petroleum products rise steadily since 1982 to fill the growing gap between indigenous supply and demand. Despite efforts to restrain imports dependence, the US imports around 60 per cent of its oil.

In the case of the European Union, her energy mix is strongly dominated by fossil fuels. In 2005, oil constituted approximately 37 per cent of the EU’s energy’s consumption, natural gas 24 per cent, solid fuels 18 per cent, nuclear power 15 per cent and renewable, six per cent. The EU members possess only 0.6 per cent of world’s proven oil reserves.

The European Union is expected to import 94 per cent of its oil needs as its collective energy security is fundamentally linked to the security of supply from the global fossil fuel markets.

Oil, therefore, now transcends trade and commerce as it seeps through every human endeavour making it one of the strongest determinants of global energy and economic security for generations to come.

The pessimist’s argument

In spite of the fact that huge revenues accrue from oil consistently, the political life and socio-economic development of most producing countries especially around Ghana leave a lot to be desired. The ‘resource curse’ or the ‘paradox of plenty’ which posits that abundant natural resources rather tend to pauperize the majority, comes in handy to shed light on the issue.

Corruption, fuelled by patrimonialism, ethnocentrism, greed and sheer incompetence normally result in anger, frustration and alienation by a section of society which may resort to war as oil resources are enjoyed by a few. Nigeria, Sudan and Angola are some of the examples used by pessimists to make their case.

Nigeria

The resource curse theory holds sway as political instability, conflict, and corruption abound in this country that had the potential of bankrolling peace, stability and democratic development in West Africa but as the facts will unveil, the discovery of oil and gas has brought about more harm than good.

Conflicts in Nigeria have been on-going since oil was first discovered four decades ago. Nigeria is Africa’s most populous nation ­home to more than 130 million people, or one-sixth of the population of the African continent.

Nigeria is potentially Africa’s richest country. As the world’s sixth largest producer of crude oil, it has done very little to promote other sectors of the economy like palm oil, groundnuts and tin thus making less effort in curing its Dutch disease as oil dominates the export bag of that country.

It has some of the lowest living standards in Africa. Surveys conducted by Nigeria’s Federal Office of Statistics show that in a 16 year period between 1980 and 1996, Nigeria’s poverty level rose from 28 to 66 percent. GDP per person in 1982 was $860, in 1996 it as $280, and now reported to be $290. Numerically, while 17.7 million people lived in poverty in 1980, the population living on less than US $1.40 a day rose to 67.1 million by 1996.

Home to 15 million impoverished people, the Niger Delta region produces 90 percent of Nigeria’ oil valued at about 340 billion dollars, yet it is one of that country’s poorest regions despite its oil wealth. Most people are struggling to survive on less than $1 a day . Away from the main towns there is no real development, no roads, no electricity, no running water and no telephones. Some members of the Delta’s militant youth pushed by grievance to seek redress by kidnapping and armed struggle have also succumbed to greed just as their politicians in Abuja steal and choke on their gluttony.

Out of about $300 billion dollars made out of Nigeria’s oil, it is estimated that about $50 billion disappeared overseas meaning stolen by corrupt officials. Shell and other western oil companies extract oil worth an estimated $150 billion a year in recent years from the area. A rough estimate is that Nigeria earns some $10 billion every year from oil.

Angola

Oil wealth affords the presidency in this southern African country the luxury to buy off opponents and build alliance with small parties willing to eat into the bases of bigger opposition parties as he eagerly builds a personalised type of presidential state.

The oil wealth is a handy tool used by the ruling elite in Angola to unjustifiably pay so much money to all those who have the potential to question their political legitimacy or demand accountability from them.

Coming from a long civil war that destroyed countless lives, homes, national infrastructure and scarred the psyche of the Angolan people, the ruling party (MPLA) sees the oil revenue as the perfect bait for attracting the disoriented and the war-weary within a grand scheme of political consolidation and conservation.

Sudan

In the case of Sudan, the Arab-dominated government uses the huge income to kill, disorganise and degrade its southern and western black populations.

Sudan has used oil revenues to perpetuate genocide against the black African population in Darfur and Southern Sudan as thousands flee their homes where some of the oil fields are located.

They have used war planes and arms purchased from China, the biggest investor in Sudan’s oil industry, to wipe out several villages and human beings as the search for more oil fields continue.

The matrix explained

A profound argument is made by experts that oil could be a viable weapon to oppress people by short-sighted leaders in embryonic democracies as they explain the link between oil wealth and oppression by postulating the following causal mechanisms; Rentier effect, Group formation effect and Failed modernisation effect.

When revenue accruing from the stamps, royalties, or export duties is used to mitigate social pressures a Rentier effect is achieved. Although some of these actions may be deemed as reducing the burdens of the ordinary person but in the long term they do not encourage citizenry’s demand for accountability and representation.

Generous budgets, low taxes or in the case of Brunei, no income tax, tend to pacify the masses fiscally and again the oil money gives self seeking leaders the financial muscle to buy off most potential dissidents whose determination and endurance cannot stand the test of time.

But as it is, people are not required to pay taxes, thus closing one of the key windows that would have offered them the opportunity to demand accountability from their leaders for their stewardship. This may be seen by some as an act of generosity but in fact, it is an ingenuous way of killing the spirit of probity and accountability: some of the tenets of democracy.

Politicians in many under developed countries are seen as the big men whose very significance rests on their ability to provide for the special ones – the clients who may be relatives or tribesmen. It must be noted that such leaders see the distribution of resources and values to their clients as more urgent than seeing to the aspirations of the whole country.  The workings of the formal political institutions are determined by the informal logic of clientelism.

The huge financial resource mobilised through the sale of oil could also be used to sow seeds of discord among like-minds in order to discourage the formation of groups or associations such as political parties, student unions or even progressive bar associations which may pursue the cause of political change or renegotiation. This phenomenon is called the ‘group formation effect’.

The last bit of the tripartite theory is the Modernisation effect-the failure of the modernisation theory in these oil rich developing countries. As the most exalted developmental paradigm of the 1960s, 1970s and the 1980s, modernisation theory clothed every national activity in most developing countries.

The economic model generated out of this construction formed the main pillars of western economic growth.

This strategy failed because issues like local narratives and knowledge structures were marginalized as everyday realities of the people were transacted and translated into objects of mere academic pursuit. The discourse also had a secular orientation that viewed religious values as obstacles to progress.

A story of the optimist

A country like Norway and Alaska, the geographically isolated member of the United States, have used oil resources to promote human centred development hence giving hope and hard facts to the optimist to tell his story.

Alaska

The Alaska state constitution affords common heritage rights of ownership of oil and other minerals for all citizens of the geographically detached American state. Citizen dividend checks are distributed every year in Alaska out of the interest payments to an oil royalties deposit account called the Alaska Permanent Fund (APF) created in 1976 after oil was discovered on the North Slope.

The APF is a public trust fund-a diversified stock, bond and real estate portfolio-into which are deposited the oil royalties received from the corporations which extract the oil from the lands of Alaska. The first citizen dividend check from the interest of the APF was issued in 1982 and was for $1000 per every person for everyone in Alaska who had resided in the state for at least one year. Annual citizen dividends have been issued every year since then, for a total of more than $23,000 per person. By redistributing the income of the state, Alaska is strengthening its tax base as such resources could be channelled into productive ventures. The link between tax payment and accountability and voter scrutiny of state policies cannot be overstated.

The issue here is that serious discussion amongst all actors in the political process takes place before any decision is made on the disbursement of oil revenue while keeping faith with laid down laws and conventions.

Norway

Norway, fourth richest economy in the world, is a model of prudent economic management of resource wealth, so states the IMF 2000 Article IV consultation with Norway. Norway is the top non-OPEC oil exporter, the world’s third-largest exporter of oil, and pumps about 3.2 million barrels per day. Norway’s oil and gas industry underpins the economy, providing up to 25% of the country’s gross domestic product. With a well groomed population of four and one half million, it rides on a steady growth rate, with almost no poverty in sight, unemployment does not make the headlines as in other developed countries.

Norway has a diverse economy based on agriculture, forestry, fishing and manufacturing, among other things, and its oil industry has developed amid much planning, bargaining, and public debate.

Norway struck oil in the North Sea in the 1960s. The secret of Norwegians’ ingenuous use of their oil resources is deeply embedded in the handling of the State Petroleum Fund which is managed by the national Norges Bank. Her Parliament created the oil fund in 1990. Norway’s high standard national administrative set-up, skilled judiciary, transparent and participatory democracy have made this feat possible

Why Ghana should fare better than her neighbours

Ghana discovered oil in commercial quantities in 2007 and began the actual drilling in 2010. At the time of the oil discovery, the country had practised democracy based on a popular constitution since 1993 with well established institutions of state such as the Parliament, Judiciary, counter-corruption institutions and a vibrant media.

Ghanaians got into the oil debate in a very appreciable manner although many aspects were not well informed. What is important is how the ordinary person on the street sees the need to contribute to the debate which will form the basis of the any future policy direction on the management of oil resources.

In any political system, the executive which is normally the most visible of all the organs of state would seek to have its way in matters of revenue utilisation which is sometimes based on sheer political considerations. This is where civil society should be more purposeful in its analysis of political, economic and social issues and make sure that contracts, revenue use and the development patterns are skewed in favour of the ordinary man and not the politician. Poverty is intrinsically linked to crime and violence.

Members of Parliament have an onerous task to demand answers and actions on the management of the oil revenue especially when they have the power over the purse.  The Public Accounts Committee is doing a wonderful job by openly holding state institutions to account before the general population. This action alone inspires confidence in Parliament and also sends a strong message to all handlers of public finances to sit up.

Luckily for Ghana, we do not have a visible autocrat whose legitimacy is gained and retained by military force and other forms of intimidation. In that environment, the bureaucracy or civil service exists as a means or conduit to siphone, grab and distribute resources as in the case of Equatorial Guinea, Angola and Sudan, which also have weak, corrupt and suppressed judiciary systems. Under such circumstances, the state controls and consumes most of the rent.

But in the case of Alaska and Norway where there are well established political institutions and traditions, oil revenue is used to build welfare systems and this was achieved through a more open and thoroughly debated distribution mechanisms. It can also be stated that under such conditions where the civil society is very active, where the degree of social consensus is high and where political legitimacy is constantly negotiated and monitored due to the highly educated and motivated electorate, oil revenue becomes a blessing.

Again, where the civil service is highly professional and insulated as the Judiciary fiercely remain efficient, independent and fearless, political decisions are carefully made since they could easily be challenged in the courts.

Well established governance structures have largely made it possible for Norway and Alaska to use their oil revenue effectively and that makes Ghana a good candidate for the effective management of her oil resources.

By Samuel Osei-Frempong

Source: GNA

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