Ghana

Ghana stands at a crossroads: Its historic 2007 oil discovery is expected to create a windfall in an extractives sector dominated for centuries by gold mining. As Ghana plans for this new oil wealth, it must also work to extend its efforts on transparency to this new and volatile arena. Read a full profile of Ghana.
April 2, 2013

Precept 8 states that revenue volatility ought to be addressed through gradually and smoothly building up domestic expenditure and investment from resource revenues. Doing so involves making instrumental and design decisions on resisting spending pressure, adapting to absorption constraints and managing volatility.  The paper by Stefanski et al provides a number of insights on managing resource revenues in a low income country.

 

Stefanski et al examine how Ghana ought to best harness revenues from its recently discovered oil. This is done by addressing two major questions; firstly, should the windfall be saved or spent? This is a matter of choosing between domestic consumption benefiting the current generation or investment in foreign assets, benefiting future generations and investment in domestic assets. This decision is not one of absolutes but lies on a continuum between investment and consumption. The authors recommend for Ghana to bring its spending forward if that spending is used to promote growth through investment. 

 

Secondly, how should those windfalls be used? Focusing upon investment, three options are considered:

     - With regards to alleviating capital scarcity it is argued that if foreign debt stock is increasing the cost of borrowing, the focus should be reducing that debt. Borrowing costs are reduced, in turn stimulating investment.

     - With regards to accumulating foreign capital in a Sovereign Wealth Fund it is argued that doing so is beneficial as a temporary measure for stabilizing oil volatility.

     - With regard to accumulating domestic capital, the paper finds that for Ghana it would be optimal to invest heavily in domestic assets for the duration of an oil boom. 

 

The paper also takes into consideration that Ghana does not have a steady business cycle model and that oil shocks are a common occurrence. As such, for an anticipated shock it is recommended that domestic capital be consumed before and accumulated during the shock whilst slowly returning to a non-oil growth path afterwards.

 

Access the report here.

March 25, 2013

Recognizing that resource projects can have both negative and positive local economic, environmental and social effects, Precept 5 outlines the internationally accepted frameworks governing resource extraction. The report provides insights on the decision to extract and some of the challenges and successes of mining companies in providing benefits to local communities.

The International Council on Mining and Metals report assesses the positive and negative socio-economic impacts of mining projects in Ghana. Evidence is drawn from a mine operated by AngloGold Ashanti. At a national level mining in Ghana has provided a strong positive influence upon the recovery of macroeconomic growth post 1986. Additionally, those living close to mining operations have benefited from poverty reduction and improvement of social welfare indicators. However, local communities feel not enough is being done. This is partly attributable to unmanaged expectations, such as that AngloGold Ashanti would take over local government functions in the absence of public service delivery.

 The report suggests that only a minimal critical level of governance is required in specific areas to enable economic recovery in sectors such as mining to occur. In the case of Ghana, mining companies developed their own ad hoc responses to the absence of governance institutions. In concluding, the authors retrospectively consider whether mining ought to have continued with an absence of governance, finding that the effectiveness of social action was reduced but benefits did ultimately reach local communities, thereby suggesting that the right decision was made in continuing with mining. 

 Access the report here.

May 16, 2011

Last month, Ghana’s Civil Society Platform on Oil and Gas issued a ‘Readiness Report Card’ on stakeholder preparations for the potentially transformative—and disruptive—impact of oil revenues from the Jubilee Field, where commercial extraction began in December 2010, marking Ghana’s debut as an oil producer. Drawing on best practice guidelines, including the framework provided by the Natural Resource Charter, five stakeholder groups assessed the preparations for the impact of operations and revenues estimated to reach $1bn per year over the next decade. Prominent amongst the efforts examined was the landmark Petroleum Revenue Management Act (PRMA) passed by the Parliament of Ghana in March.

The report gave Ghana an overall ‘C’ rating across each stakeholder group assessed—a fair, improved performance, with a mixture of optimism and foreboding about how much further there was to go.

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