Oil Receipts and National development

Concerns get worrying when you factor in the unstable character and the difficulties of running an oil economy. The truth is that the oil industry generates money but it does not create an economy. It’s a narrow industry which does not employ a lot of people. Moscow has more millionaires than any other city in the world with their source of wealth traceable to Russia’s oil industry but Russia’s economy is short of pride. Unless there is a well thought out plan to deploy revenue, it creates layers of difficulties to economic development than it may help. The Middle Eastern countries provide us with further insight where oil money has led to misplaced priority and continuous arm race. The situation becomes more acute for economies that heavily produce crude for export. Apart from a quick sigh of barrels been loaded into ships for export the ordinary person would have no idea of what goes on in the industry.

In Saudi Arabia, continuous inflow of oil money means there is more money in the country but fewer jobs for the people. The economy for ages remains less diversified. The scenario gets worse when populist sentiment begins to set in. That is when the people begin to feel that the oil is in fact been used against them. Our eastern neighbours Nigeria and the continuous drama in the Niger delta region is the template. Nigeria’s oil grinding machine has been grinding for decades but oil receipt has never manage to turn the economy round let alone provide a decent life for the local people on whose land the black stuff is produced.

For a new entrant like Ghana it’s always going to be daunting. Oil may be a very difficult commodity to manage but it not intrinsically bad to an economy as its sometimes made to sound. The set backs out there tell us that the oil industry comes with a possible downside. There are winners and losers. The winners are those that effectively plan to keep a lid on its potential downside. Norway, Scotland, America and more recently Qatar are example of countries that have combine oil together with other areas of their national economy to generate a great result.




The initial challenge for us to surmount is two fold.

-    Ghana will need a transparency regime that ensures that every oil rent is on the table
-    A new a economic arrangement with a strategic plan that would make way for oil receipts to open and broaden the base of the national economy.


Any realistic mechanism to management Ghana’s oil revenue must start with a legal framework. Such a legal instrument would provide for the creation of a separate account for the management of oil revenue. This idea is not new with hints of good reception among observers. Norway operates a similar scheme .The object is to keep oil proceeds separate from other sources of government funding to allow for a clearly picture of what comes in and what goes out of the account. But more fundamental is to handicap governments from wonton resort to the oil money each time their cash strap – a situation that characterised countries with allegations and counter allegation of misappropriation of oil wealth.

The problem with corruption and mismanagement of national resources in our part of the world is that the bulk takes place down the process line in the award and the execution development programmes. This means greater strength in our existing anti corruption institutions and the bringing of people before the law court for accountability is still fundamental. To achieve this, a stronger will at the authority level and awareness of the importance of such commitment at the public level remain a common ground for any positive results. It is hard to say if our present authorities have shown enough of this will but motivation of government employees in exchange for greater professionalism is another area that has to be covered in addition to holding them to the rules of the game. 

The media for the last two decades had been at the forefront in defining the direction of this country. And their input in reporting what goes on in and outside government is perhaps the biggest surety of protecting the oil receipts. There is however a further challenge to the media and that is to accelerate the movement of this country to the state where the society immediately distance itself away from individuals alleged to have been involved in corruption. Human beings have tendencies to betray and breach trust. It does not matter how much we have known them and in what capacity. There is no point to stay split on witch hunting or no witch hunting. Society has to be quick in directing such people to go make their defence in court.

But making sure that the oil money is safely seated in the account is only a starter. This country would need a special arrangement in which oil receipts is plough back in to national development for the benefit of the people. A couple of theories are already making their way on to the frontline. Whacky as it sounds is Todd Moss proposal that Ghana mimic Alaska’s policy of cash in hand for the citizens of this country. That an account be open for every Ghanaian and the annual proceed made from oil be reimbursed as a share of the national revenue. On one side the idea may sound informed. The principle is to avoid the old age government indigestions and to make way for the people to have a connection with the oil revenue in their lives as a safeguard to the potential divisive element of oil resources. The problem is the position is not supported by economic prudence and the policy becomes even less desirable if you work in specificities.

Alaska is part of the federal state and receives a wider national budget support. More to that Alaska is a unit of the leading economy in the world. Economic interplay among the 50 states of America alone is enough to keep Alaska going strong. Ghana as a single economic unite by itself does not have any of those luxury. And even more revealing is the point which other observers have equally pointed out, its remotely less clear how an approximate amount of 500 dollars a year – as predicted - can adequately incentivize an angry natives who believe oil exploration on their soil is not providing enough for their well being to desist from been violent.

What the people of this country need is not a daily “chop money” as Todd Moss appears to suggest but to be born and live in an environment that provides for development and opportunity. With this as the bar set, it should not be difficult for nation to work out how to put its oil revenue to use. Ghana can either use its revenue accruing from oil exploration to balance government’s budget or better still let it stay separate with its own long term financial plan. For reasons of effective eye keeping on performance the later sounds more pleasing for Ghana’s case. Whichever path we choose, it has to be supported with an economic policy that allows for a steady reengineering of the national economy. The catch point of such a new economic plan has be a long term formula for bolder and sustained investment in identified areas of the national economy with visible potentials for widening the national economic base. 

Recent governments have been quick to point to commitment to creating enabling business environments. The reality is that emphasis is sometimes disproportionately placed on monitory policies for businesses to stay strong and flourish. Keeping the radial on monitory policies to facilitate economic activities is good but actual economic growth and expansion is pivoted on infrastructural capacity. Development in IT infrastructure and coverage across the country is leading the way. Ghana needs more investment to go into infrastructural development to make way for other areas like transportation network to catch up the trend in the IT industry. A lot of business transactions can take place on phone and other medium of communication but after deals are sealed factors of production have to move and they would have to move as efficient as possible.

This country is not necessarily big. Either by rail or road, it needs a transportation network that can cover Accra to Kumasi in 2.5hrs and 5hrs to the north. Similar networks would have to connect other parts of the country to ease off physical barriers that keep parts of the country difficult to access. If a tourist on a holiday in Ghana from the Americas or Europe decides to visit Elmina castle to understand black history it wouldn’t take much for him to add Ashanti culture to his shopping basket if it wouldn’t take much energy to reach Kumasi. The economic effect here is it’s not only the tourism industry in the central region that benefits but Asante region as well.

Energy supply for some years now has remained a huge hangover on the country’s development prospect. In fact much of any realistic economic performance projections depend on what happens in this department of the national economy. Nothing is much harder for a business entity to take than to operate below capacity simply because energy supply to operate at full capacity is not available. That taking to macro economics means national economic contraction in the face of available opportunities for expansion. It is easy to think that the country’s taking to oil production may resolve the energy constraint. Well, that is not necessarily true. Even dynamics in the oil industry with echoes of more carbon free sources of energy is such that it is to tell where the train would stop next. No country would be able to dodge any possible shift. This means early income from oil should offer us the opportunity to diversify and invest more with an eye on new technologies to evolve as a guarantee to achieving energy sufficiency.

There is nothing more refreshing than to be told in the news that individual Ghanaians  are taking harder initiative to cut open other areas of new economic activities such as health tourism. If you want to create job and affect lives that is the way forward. We need to extend the economy in different directions. People will get into jobs by themselves. To the government the additional revenue that oil will bring in is the biggest opportunity to do this and to extend the national economic base further.

Cocoa is such a massive industry in the west. It’s like a staple food they live and feed on it. Ghana is known as a Cocoa producing nation but it’s hard to believe that Ghana is in fact making most out of the cocoa industry. A tour of cocoa farms across the country gives the impression that it’s an industry in wary.  Many of the farms are generational farms which has pass hands over time. That does not support any understanding that it’s a specialize area of the economy with a meaningful plan to achieve continuous growth. The former government’s initiative to support farmers with an annual spray of cocoa farms is a positive steps but this is one piece of the national economy that need more investment and development. It needs a growth strategy that takes in account the volume in hectors of farm that is added to the industry each year.

The length it takes to begin to plough back investment from cocoa production sometime acts as a disincentive to new farmers who may want to have a go. To offset this it would not be out of place for government to adopt a policy to subsidies new farmers to attract more entrants. Europe has developed special areas of their agriculture industry for years through subsidies, the additional source of income gives us the flexibility to also develop specialize areas like cocoa production. 

Economies do evolve; the western economies had once again evolved. The shift this time round is from industry and manufacturing base economies, to what is known as the brain economy. They mainly design product and outsourced them to production heavens like china for production. Recent innovations in the financial industry are all trends in this new economic phenomenon. Traces of this new development are already filtering into our economy. Ghana apparently hosts over 20 banks in a cut throat competition to offer various products to customers. The irony is far less than 20% of the county’s population own bank accounts. What that tells us is that Ghana would attain maturity in other areas of economic development before it effectively takes to higher versions.

Manufacturing and industrialization is one of part of our economic life that has not quite taking off yet. To get manufacturing going there are two ways out, get more foreign manufacturing companies into the economy or grab the bull by its horn to get our own manufacturing companies running. The former so far has not worked. The answer is simple; our economic indicators are not there yet, to keep those foreign companies scrambling to invest in our economy. Honda would not outsource its production to Ghana if it is not going to have enough energy to keep its processing plant running 24 hours.

The alternative is the way forward. And perhaps if we would have to get other companies abroad to believe in us that we would meet their demand should they choose to outsource production to this country, we may as well have to prove that with our own initiatives. But so far the capital intensive nature of manufacturing and industrialization has always made it a hard ground to break. A huge chunk of our exports still do leave the economy in a raw state. Prioritizing oil rent for the development gives us the platform to give manufacturing a real kick start. And after the initiatives that the western governments took to save their economies from  near collapse following the financial crisis its certainly not an item of debate for anybody to question a governments physical involvement of the state in any area of national economy that it thinks is key to the interest of the state.

And there would always be ways to do this. Where there are existing initiatives government can expand it with state investment and where there is none the government can always start. In case we feel less comfortable calling such initiatives state companies mainly because of past experiences we can give such organizations another configuration. Let just say they are companies with government as the main shareholder with the possibility for government to downsize over time and make way for private equity. The key thing is to ensure that they are independently managed like any the private company. 

The thing about manufacturing that makes it imperative for economic expansion is that if this country has heavily sold cocoa to the outside world in the form of cocoa seeds, now we are moving on. We tell the world our cocoa would come to you in the form of cocoa paste or butter. The effect of this is the rest of the world is not only going to pay a bit more for our cocoa because a lot more work has gone into it but more jobs are created down the production line. If you apply this same principle to our gold, timber, fruits etc by converting them to more superior commodities more people are going to be in job than ever. And note manufacturing has a subtle way of multiplying economic activities in ways you can’t possibly imagine. More manufacturing means there would be the need for more containers of storage, more boxes for packing and more design work to keep standard high. Thus making more opening, for other companies to spring up.

What is more, expanding areas such as manufacturing to get more people in job is not a benevolent gesture from government. Apart from the social pact side to it, there is a greater economic effect. It calculates that more people in job means more indirect tax and more revenue for government business. Governments would be better placed to provide quality education, better health care and more policing to support the cycle of national development.

Finally any plan to develop this country economic wise, has to give equally greater attention to our cities and regional capitals. In fact city regeneration is another modern means of creating wealth. It is not only for the purposes of tourism but as commerce continue to globalized companies are on a constant look out for cities that they can use as a hub of their regional operation. The greater the quality of a city, the more the chance that it would attract more of this global trotting companies as base of operation. Ghana’s strength lies in the steady growing strength and success story of our political institutions that has so far kept the eyes of the west watching. As trust in those institutions increase  cities like Accra given a new look can take advantage and get established as safe heavens for business activities within the west Africa sub region and beyond. Dubai is first case example of how iconic makeover to a city can lead to increase economic activity.

The big thing about Ghana’s oil find is that for once it gives the country a greater grip over its development agenda. Our governments would have more options over their development initiatives. The ordinary tax payer would be keen to see more stuff going on around him but he is not equally daft to expect New York City brought to Accra in two years. However, one thing is clear, if Ghana can prioritize this new income to fit its unique economic situation 20 years and beyond of oil life would bring a lot of economic development.


Credited: Enoch A. Addotey
University of Leeds
& University of London Graduate.

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