Since its independence in 1957 Ghana has steadily molted, for quite some time now embodying a success story on the African continent with regard to democratization, development and growth. The first half of 2007 then symbolized a momentous time for the country on the Western African coast: in March it was able to celebrate its 50th anniversary of independence. Just some months later another event sparked a new round of emotional outpouring, but this time jubilation was accompanied by trepidation. In June 2007, a consortium of foreign, international oil companies (IOCs), led by Tullow Oil, announced significant oil findings off the coast at an exploration well in the West Cape Three Points license. All of a sudden Ghana became an oil-rich country.
Ghana is a country with a population of about 26 million people, located at the Western African coast with neighboring states Côte d’Ivoire, Burkina Faso and Togo. It represents West Africa’s second largest economy after Nigeria and SSA’s twelve largest (African Development Bank 2012: 1). Over the last decade Ghana has enjoyed a sustained average growth rate of 5.1 percent per year, making it one of the fastest growing economies on the continent (almost a percentage point higher than the average country in SSA). Moreover Ghana ranks among very few countries with positive per capita GDP growth over a relative long period of time (since 1984) (Breisinger et al. 2012: 5). Worth mentioning is Ghana’s growth rate in 2011, amounting to a stunning 14 percent and herewith one of the highest growth rates in the world in that said year. In 2013, Ghana’s economy is forecasted to grow at a rate of 7.5 percent.
Fig. 1: Real GDP growth in Ghana compared to its ECOWAS and SSA peers, 2003-2013 (African Development Bank et al. 2012 adapted by author)
Despite its economic success, the Ghanaian economy has been displaying several distinct characteristics of a typical developing country. Recent GDP growth is mainly driven by high commodity prices and Ghana’s output and exports from cocoa, gold and, of course, oil. In general, looking at the composition of GDP by sector, agriculture accounts for 24.6 percent, while industry and services make up for 27.4 percent and 47.9 percent respectively (see Fig. 2). Although the value added of the agriculture sector in the total economy has been declining, it is still higher than the average SSA country (12.1 percent) and the average LMIC (16.5 per-cent). Hereby the bulk of the labor force (56 percent) works within the agricultural sector, whereas industry and services lag behind with 15 percent and 29 percent respectively – this structural spread of labor has not really changed over the last twenty years (Central Intelligence Agency 2013).
Looking at recent sector growth rates, the strongest performance came from the industrial sector, which grew by 36.2 percent, of which mining and the quarrying sub-sector (including petroleum) accounted for an impressive 225.4 percent – unquestionable the oil sub-sector played the most important role here. Besides the construction and electricity sub-sectors recorded growth rates of 17 percent and 13.7 percent respectively. The service sector as the leading contributor to GDP grew by 4.2 percent, community, social and personal service activ-ities could be named as the main growth driver with 12 percent. Finally, although the cocoa sub-sector grew by 14 percent (with overall crops growing at 5.4 percent), the agricultural sec-tor in total with just 2.8 percent expanded under target due to a sharp decline in reforestation activities, leading to a drastic contraction of forestry (African Development Bank et al. 2012: 4 f.).
Fig. 2 (left): Value added as percent of GDP by sector, 1984-2011 (World Bank 2013 adapted by author)
Fig. 3 (right): Importance of manufacturing, 1984-2011 (World Bank 2013 adapted by author)
In July 2007, a consortium of IOCs led by Tullow Oil and Kosmos Energy discovered light, sweet crude oil and associated gas in commercial quantities on the Western coast of Ghana. Former president John Kufour (presidency from 2000 to 2008) then announced enthusiastically that the country’s new “black gold” will help Ghana to become an “African tiger” (BBC NEWS 2007: 1 f.):
"Oil is money, and we need the money to do the schools, the roads, the hospitals. If you find oil, you manage it well, can you complain about that? Even without oil, we are doing so well. With oil as a shot in the arm, we're going to fly. […] My joy is that I'll go down in history as the president under whose watch oil was found to turn the economy of Ghana around for the better." (BBC News 2007: 1 f.).
Ghana’s oil reserves are relatively modest by international standards, and will thus not radically transform the country into a petrostate where oil becomes the major sector. Nonetheless, they are already substantially large enough to possibly affect the country’s economy and thus the future development path as a whole. Estimates of Ghana's total commercial oil reserves lie between 490 and 3,000 million barrels (e.g. see Dessus (2011), Boakye et al. (2012), BP (2013) or Tullow Oil (2013)) - yet they are being revised frequently in the course of new discoveries.
Even if the reserves are at the upper end of estimates, Ghana’s potential 3 billion barrels are out of all proportion to major oil producers such as Venezuela with 296 billion, Saudi Arabia with 265 billion, Canada with 175 billion or Iran with 151 billion barrels. However, in comparison to other countries in SSA, Ghana could become the fifth biggest oil producers on the continent after Nigeria, Angola, Sudan and Gabon, if upper estimates were to be true and most reserves were accessible. As Tab. ! shows, with potentially 120 barrels of oil per head, Ghana is relatively small in terms of reserves per capita, albeit it surpasses coun-tries such as Uganda, Cameroon or Cote d'Ivoire. Also in terms of barrel of oil per dollar of GDP Ghana would not get at the continent’s major oil producers, but again would score better than other countries such as Uganda and Cameroon.
Tab. 1: Ghana (with different estimates of oil reserves) and other oil-producing countries in SSA by oil-related indicators, 2011 (own compilation)
Prospects of financial flows from oil exports for the next years and decades see Ghana's potential oil revenues dwarf both aid, remittances, and foreign direct investments (FDI), hereby offering a big opportunity for the country in terms of mobilizing additional domestic revenues. But since estimates of Ghana's total recoverable reserves vary widely, so is the situation regarding the possible rewards from the oil fields. In fact, estimates of Ghana’s potential oil revenues depend on a number of vari-ables that complicate an exact revenue prediction – yet even an approximate prediction is difficult.
The main reasons for this uncertainty can be attributed to following four factors:
(a) the barrel price and its long-term prediction, which varies between 60 and 120 US-Dollar;
(b) the daily production rate (dependent on the infrastructure, such as Floating Production Storage and Offtake (FPSO) vessels), which is expected to reach its maximum of 120,000 barrels per day in 2013, but potentially could be increased by additional investments;
(c) the operating or production costs, which for Ghana’s deep sea oil production are estimated to lie between seven and twenty US-Dollar per barrel; and finally
(d) the effective government share of total reve-nues, which is expected to range between 40 and 55 percent (Kastning 2011: 13, Friedrich Ebert Stiftung 2013: 1 f.).
Again, although oil will not turn Ghana into a petrostate, it will generate a considerable portion of the Ghanaian government’s annual income. Given an oil barrel price of 75 US-Dollar, according to estimates from Van der Ploeg et al. (2011: 2) at peak production revenues from the Jubilee field alone will make up for about 30 percent of the government’s total income. Therefore, Ghana’s nascent and emerging oil industry presents one of the greatest challenges the country has ever faced. Although Ghana has an enviable track record of good governance and stability, oil wealth tends to erode democratic accountability. This is why it is Ghana’s fundamental challenge to ensure that appropriate and accountable institutions, as well as transparent and long-term orientated policies are in place to benefit from the oil wealth.