News / Africa

Ghana Faces Multiple Warnings Over High Oil Growth

An oil rig for oil exploration is pictured at the Port of Takoradi, Ghana, December 4, 2008 (file photo)
An oil rig for oil exploration is pictured at the Port of Takoradi, Ghana, December 4, 2008 (file photo)
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While Ghana's oil-fueled economy is now forecast to grow as much as 16 percent this year, the highest rate in the world, economists are warning there remain serious risks the current boom will not be beneficial to most Ghanaians.

An expected 2011 growth figure of 16.3 percent for Ghana's gross domestic product was stated in the recent "African Markets Revealed" report by South Africa's Standard Bank.

A more moderate estimate of 13.6 percent growth for the year was issued last month by Ghana's government.

Whatever the exact number, the jump in growth, which was at five percent last year, is due to Ghana's emergence as an oil producer.

Economists warn there are many risks in this sudden growth, including the so-called "Dutch disease". This can happen when exploiting natural resources leads to a stronger national currency and a subsequent decline in other economic sectors. The name was given after economic problems in the Netherlands followed that country's discovery of a large natural gas field in the late 1950s.

Chris Jackson, a senior economist with the World Bank, repeated the warning at a Thursday Washington event focused on Ghana's future.

"We have got oil, (so) we have got the potential implications of Dutch disease with exchange rate appreciation and the damage that that can do the non-oil booming sectors," Jackson said.

Jackson gave the example of export-crop farmers, whose goods, such as pineapple or cocoa, would become more expensive and less competitive globally.

Ian Gary, an oil expert with Oxfam America, warned Ghana's Jubilee oil field, which went online in December 2010, is underperforming and producing about 80,000 barrels a day, rather than the expected 120,000 barrels.

Gary also expressed concerns that new laws, which took years to craft, are being ignored, such as saving current oil profits to absorb future shocks in world oil prices.

"Instead of putting the surplus into a savings account, the way that the revenue management act called for those were put directly into the budget for spending this year. Another issue that has arisen is the $3 billion loan with China for infrastructure and that loan violates the provisions of the revenue management act.  The revenue management act allows oil to be used as collateral for loans up to 10 years but this would be a 15-year loan," Gary said.

Economists also worried about the so-called oil curse, whereby large oil revenues lead to an abandonment of other economic sectors, environmental degradation, conflict and large-scale corruption.

David Throup, with the Center for Strategic and International Studies, said Ghana's current political structure may not be suitable to ensure a fair distribution of oil wealth.

"It is a highly centralized political system with an excessively strong presidency.  The president is the center of all patronage and I think the pervasiveness of patronage politics in Ghana does corrode political institutions," Throup said.

The panelists stressed next year's scheduled presidential election, with control of a bigger economy at stake, could be, in their words, fierce.

They also warned the oil boom has not led to much job creation so far, with estimates of more than 80 percent of young people in urban areas still working in the informal sector.

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