27 November 2012

Ghana: Oil, a Silent Driver of the 2012 Elections


The conduct of politics in Ghana has never been the same, after huge deposits of commercially viable hydrocarbons were discovered off the country's coast in 2007, with commercial production starting in 2010.

Although Ghana's oil reserves are relatively modest by international standards, forecasts are that it will soon be awash with petro-dollars, which if managed properly, could accelerate socio-economic development.

In the 2008 general elections, oil played out as a major contending issue, silently driving the agenda of the campaigns of all the contesting political parties which had an eye on the additional revenue oil brings into the national purse.

Initial production target was 120,000 barrels per day, and based on an assumed price of crude oil selling at $75 per barrel, Ghana was billed to earn an additional revenue of $1 billion on average annually.

This additional inflow was considered enough to significantly drive the development efforts of the government which wins the polls, and analysts have been quick to conclude that the oil factor played significantly in the 2008 elections.

With just over a year in government, the late President John Evans Atta Mills, at a historic ceremony in the Western Region, turned the valve for Ghana's first oil production in December 2010.

Oil money, however, found its first expression in the 2012 budget statement presented to Parliament by the Minister of Finance and Economic Planning, Dr. Kwabena Dufour.

The government's share of oil, according to the Budget Statement, amounted to 2,980,720 barrels, which raked in an amount of $337.3 million (GH¢506.0 million). This figure, however, fell short of the targeted revenue, due to production shortfalls.

With only 10 days to the December 2012 general elections, the world looks on to see how Ghana pulls through to consolidate herself as the beacon of Africa's democracy, as the contesting political parties run up their campaigns.

Issues on education continue to dominate the political landscape, as it finds various expressions in all the manifestos of almost all the contesting parties in the December elections.

However, the debate on free Senior High School education, proposed by the New Patriotic Party (NPP) seems to be blazing the trail of the campaign messages of the two main contending political parties -the ruling National Democratic Congress and the main opposition New Patriotic Party - as they battle their way to the old slave house which houses the seat of government.

Nana Addo Dankwa Akufo-Addo, flagbearer of the main opposition New Patriotic Party, set the agenda with his ambitious free Senior High School (SHS) education manifesto promise.

At the heart of the NPP flagbearer's vision to transform the country into an industrialised state, is the proposal for a free SHS, including technical and vocational education, which is aimed at building the requisite human capital base to support the transformation programme.

The ruling National Democratic Congress, on the other hand, has dismissed the viability and sustainability of a free SHS in the interim, espousing the provision of the country's Constitution, which provides that governments make education progressively free.

Again, the ruling party argues that building the necessary infrastructure at the basic level is a prerequisite to the implementation of free secondary school education.

"The major policy trust would be the attainment of universal access to secondary education by 2016," the NDC stated in its 2012 Manifesto.

In the ensuing debate about the feasibility or otherwise of a free SHS, a simple fact emerges, that none of the parties oppose the provision of quality education at all levels, save the timing and source of funding.

But, silently driving the agenda of these proposed development projects of the political parties are petro-dollars trickling in from the country's oil fields.

During a debate organised by the Institute of Economic Affairs held in the Western Region, the NPP presidential hopeful pointed to revenue from the oil fields as a major funding of his free Senior High School policy, while reiterating that his commitment to the policy was not only about winning the December elections, but about preparing the country's next generation.

"Clearly, the most equitable manner in which our nation and our people would benefit from the oil revenue is to ensure that they are used on the two most critical aspects of our national life - our education and our health care," says Nana Akufo-Addo.

To him, investing oil revenue in building the human resource of the country through education and quality health care is the best the way to go as a developing country.

"If at the time the oil resources run out...we have a transformed Ghanaian population - educated - which has access to good healthcare, we now have the basis to sustain the development of our nation, not for one year, not for two years, but for generations to come."

The National Democratic Congress, on the other hand, has on its priority list, infrastructural development.

This is captured in the executive summery of the 2012 Manifesto of the NDC, where it states: "Our infrastructure development will be intensified to accelerate the transformation of Ghana into a full middle-come status," thus indicating the striking difference in how the two front-runners of the 2012 general elections seek to utilise the revenue from oil.

Where the two converge, however, is on the commercialisation and development of the gas component of the oil find.

Energy Economist Mohammed Amin Adam, however, says: "What both parties are doing is grounded in the history of economic development, relating to the use of resource revenues for development, in what has come to be known as resource-led development."

He made reference to Malaysia, Trinidad and Tobago, where these countries spend their oil revenue on industrial development and education respectively.

However, he holds the opinion "that once you find oil, your credit worthiness increases, and so you become attractive for securing loans. So, if you take loans for infrastructure, which can pay for themselves and the loans eventually, it is better to do so."

He, however, cautioned against over-reliance on oil revenue for national development.

"I will like to caution that even at the peak of production, from all the discoveries put together, Ghana will still not be an oil dependent country, where more than 30 percent of its budget will come from oil revenues. Therefore, non-oil revenues will continue to be the leading source of revenue for financing development."

He added: "The nation should not make any mistake of over-relying on elusive expected oil revenues at the expense of efforts of generating more tax revenues."

The Center for Policy Analysis (CEPA), in its recent economic review, projected an overall GDP growth to slow down from 14.1 percent in 2011 to 8.5 percent in 2012 -- a sharp decline of 5.6 percentage points. Subsequently, CEPA projects overall economic growth to rebound to 10.5 percent in 2013, and then fall back again to 9.0 percent in 2014.

CEPA attributes the volatility in the growth projections to changes in expected production levels of oil from the Jubilee oilfield.

Technical difficulties at the Jubilee oilfield have led to shortfalls in the projected production of 120,000 barrels per day.

The field is currently producing at 70,000 barrels per day, while efforts are being made to raise production levels to 90,000, and eventually the 120,000 barrels by 2013.

"We are currently doing around 70,000 barrels per day, and while doing that, we are also looking at various ways of enhancing the production to around 90,000 barrels by the end of this year, and probably ramp up to 120,000 barrels next year," Aidan Heavey, Chief Executive Officer of Tullow Oil has stated.

Other estimates suggest that foreign exchange earnings from oil production will constitute up to 35% of government revenue when oil production peaks at about 500,000 bpd by 2018.

Revenues from oil are significant enough to spur stiff rivalry between the various political parties, which by virtue of annexing the seat of government, gains control over these inflows.

In the 2008 elections, the National Democratic Congress won the polls by 952,599 votes, representing 54.46% of valid votes cast, while the NPP pulled 796,541, representing 45.54%.

The margins between the frontrunners, according to analysts, are too close for the comfort of any of the two main contending parties, and with petro-dollars at sight, the stakes are certainly high.

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