Oil Curse

In many ways Ghana serves as a model among African countries. Compared to many other West African nations it has been very stable in recent years. Ghana's peaceful election last year and the successful transition of government from one party to another this year were considered the pinnacle of the country's progress, which was highlighted by US President Barack Obama's visit to Accra this summer.

But after the recent announcement by oil giant ExxonMobil that it was buying a four billion-dollar stake in Ghana's Jubilee oil field, the country is now facing a task that may be even more challenging than the democratic reform process it has undergone: To prove that it can not only successfully deal with a powerful multinational, but also that the windfall that is generated by what is considered to be one of Africa's biggest oil fields doesn't end up in the pockets of a few insiders, but improves the wealth and well-being of Ghana's society.

"The stakes are very high," writes Ian Gary, an expert in extractive industries, in a report about Ghana's oil find and its consequences for society for the international aid agency Oxfam. "While many Ghanaian government officials are confident they can meet the challenge, oil's threat to democratic development should not be underestimated."

High stakes, big profits

While the stakes are high, so is the profit. According to an estimate by the International Monetary Fund which is cited by Gary, Ghana's government can expect revenues from oil and gas up to 20 billion dollars during the production period between 2012 and 2030 for the Jubilee field alone.

So what are Ghana's chances to avoid the spell of the so-called oil curse?

"I think that Ghana could really be one country which could be a positive example to the world and it could also be profitable and beneficial for the country," Claudia Kemfert, an energy specialist at Berlin's economic research institute DIW, tells Deutsche Welle. "Ghana could really profit from this deal and also from the oil market." What's required, adds Kemfert, is that Ghana's government puts in place a good political strategy on how it wants to use the oil revenues.

Talking to Deutsche Welle, Ulrike Bickel, an energy expert with Germany's Catholic Relief Agency Misereor, is more skeptical: "We obviously see the danger that Ghana could also become a victim of the oil curse, that its oil wealth won't benefit the people and that oil revenues just like in neighboring countries, vanish instead of being spent on health, education or sustainable social development."

While Bickel points out that Ghana, a country without previous experience in the oil sector, has taken positive steps such as signing on to the so-called extractive industries transparency initiative, which mandates its members to openly document the flow of revenues, she adds that it is still far too early to tell whether it will be implemented.

Negative example

An example that positive declarations and good intentions don't necessarily translate into enforceable action is Chad. "Before the World Bank agreed to a large loan for the Chad-Cameroon pipeline there was an agreement that a fund for future generations would be created and that up to 70 percent of the oil revenues would be used for priority social sector developments," says Bickel. "But as soon as the oil revenue started to flow, Chad's government, which was fighting a civil war, dissolved the fund for future generations and extended the priority sector developments to include national security. That means the oil revenue is used to buy large quantities of weapons."

That doesn't mean that agreements and declarations aren't useful. They definitely are. But reality eventually is the ultimate test whether those agreements are fulfilled. Ghana, say the analysts, among developing African nations, is perhaps best prepared to manage its oil wealth carefully.

As Oxfam expert Gary wrote in his report on Ghana: "Oil wealth tends to erode democratic accountability. Ghana's challenge will be to ensure that the right institutions and transparent policies are in place before oil production starts." Currently oil production at the Jubilee field is scheduled for 2010.

Author: Michael Knigge
Editor: Rob Mudge