Oil Must Benefit Ordinary Ghanaians 41


Ghana’s discovery of major oilfields is set to transform the country. But there has been little public debate on the fundamental effects that this will have, or even on upcoming short term government decisions that will have a major impact. So I contribute a few thoughts to encourage debate with my Ghanaian friends.

So far, there has been more interest in the international media than in the Ghanaian media over the question of whether the Ghanaian government will allow Kosmos Energy to sell its stake in Ghana’s bonanza Jubilee oilfield to Exxon Mobil for over 4 billion dollars, as Kosmos and Exxon Mobil have already agreed.

But Ghanaians should be very keenly aware of what is happening. The issue raises complex questions which go to the heart of the future of Ghana, a future that will be radically influenced for good or for ill by Ghana’s new position as an emergent oil rich state.

It may help to isolate and consider the following issues involved in the case, each of which is both critically important for Ghana, and a vexed point of dispute in Ghana’s vibrant political culture.

So let us look at Kosmos in the context of:

Property rights and state interference in the economy

Benefit to Ghanaians from Ghana’s mineral resources

The struggle between China and the West for influence in Africa

Environmentalism

Corruption

Property rights and state interference in the economy

To start with property rights, it has been put to me by Western diplomats in Accra that the government interference in Kosmos’ desire to sell its shares to Exxon Mobil is a signal that the NDC has not changed its spots, and is still a statist party opposed to free enterprise. But I am not sure that is fair on the NDC. Oil and gas concessions are not simple property rights. They are governed by long complicated contracts setting out many and onerous obligations on the owner of the concession, including for example obligations to carry out agreed exploration programmes.

A senior government minister has told me that Kosmos’ contract includes a clause giving GNPC a right of first refusal should they decide to sell, and that Kosmos agreed a deal with Exxon Mobil in breach of that clause. If that is true, then it is Kosmos, not the government, who are in the wrong. I would stress that I have not myself seen the contract and this is the province of the lawyers. But there are plenty of legitimate reasons why there should be such a clause. For example, it would be most undesirable if a single company were to buy up all Ghana’s hydrocarbon assets, establish a local production monopoly, and become an overwhelming power in the state.

Equally, the state would not wish concessions to go to a company who were interested in shutting down Ghanaian production to boost the oil price from their production elsewhere, were technically incapable of production, or were funded by drugs money. I hope that those examples illustrate that there can be a legitimate role for state intervention: the question is whether such intervention should be exercised in this case.

But the right that Kosmos do have is to receive the fair market price for their share. That must be at least what Exxon Mobil have offered. The Ghanaian government do not have any right to force Kosmos to sell to another buyer for less than the 4 billion dollars. That would indeed constitute an unfair infringement in property rights. But the right the Ghana government does have is to impose tax on the transaction.

Benefit to Ghanaians from Ghana’s mineral resources

Which leads us to the question of how ordinary Ghanaians will benefit from the oil. Here, there is one remedy that requires instant governmental action: whoever Kosmos sell to, the transaction must be heavily taxed as a massive capital gain.

An investor deserves their profit. Kosmos have bought their share of the concession, and had exploration expenses. Let us estimate that Kosmos expenditure at a generous 500 million dollars. The price they agreed with Exxon Mobil is reported variously at 4 or 4.5 billion dollars. To take the lower figure, that leaves them with a capital gain of at least 3.5 billion dollars.

The taxing of that 3.5 billion dollars must be the first major benefit to Ghana from its new oil industry. Ghana must here and now set down a marker that it is not, on oil, going to be ripped off to little general benefit, as it has been by the gold industry. The necessary amendment to the oil law must be rushed through so that Kosmos’ super capital gain is taxed at a minimum of 40% – whoever they sell to.

It is well established internationally that tax rates can be varied, windfall taxes can be imposed, and that national taxation approved by the legislature cannot be deemed limited by prior contract. Kosmos would complain, but a complaint that they only pocketed 2 billion dollars, not 3.5 billion, should be given limited sympathy. The tax should have to be paid by the purchaser direct to the government of Ghana, with Kosmos paid only the net sum after tax.

An empty government Treasury has added to the problems of the.world economic depression to make life very difficult for people in the Ghanaian economy this year. That tax money – around 1.5 billion dollars – should be pumped into programmes which boost employment and economic activity. I would prioritise social housing and water, both of which need urgent attention in Ghanaian cities.

As a side issue, with gold at over $1,000 an ounce, I would strongly recommend the Ghanaian government to slap an immediate windfall tax on the gold producers.

You cannot consider the question of how ordinary Ghanaians will benefit from the oil, without looking at the terrible warning of Nigeria. The country has become a byword for corruption, fraud, thievery, drugs and violence. It may not be politically correct to say it, but we all know it is true. Because of Nigerian oil, Ghana is theoretically up to now a much poorer country than Nigeria, but in fact ordinary Ghanaians have a much better living standard than ordinary Nigerians (and yes, I have lived over three years in each country). Nigeria’s institutions have collapsed – to give just one example, Ghana’s universities thrive whereas even the great University of Ibadan is a literal wreck.

How does Ghana avoid becoming another Nigeria and escape the “Curse of oil”?

When Nigeria started pumping oil, its currency appreciated dramatically (and was kept artificially still higher). It became cheaper to import food than to grow it. Nigeria’s agriculture and rural economy collapsed. For example, in just ten years Nigeria went from being the World’s largest exporter of palm oil to being the world’s largest importer of palm oil. With the rural economy shattered, there was a massive population influx to the cities. But the oil wealth was monopolised by a small elite, and the majority found only squalor and degradation.

The first economic priority for Ghana once the oil starts flowing must be to keep the Cedi value low. Very low domestic interest rates, and the discipline to isolate a healthy amount of oil revenue in offshore development funds, will be an essential part of this strategy. At the same time, revenue must urgently be directed to rural infrastructure, to increasing farm prices and developing agro-processing industry, on a scale not previously attempted. Ghana already has a major problem keeping young people in farming. Think how much this will worsen when oil starts to flow. If the rural economy collapses, much of the weft of Ghanaian society will go with it, such as meaningful chieftaincies.

Plans to increase electricity generation and replace and extend Ghana’s aged electricity distribution network are an essential part of a policy to encourage economic activity and production throughout Ghana, not just in the oil centres. The failure of NEPA to provide a reliable nationwide electricity supply has been one of the chief causes of Nigeria’s failure to win economic development from oil.

Tax and royalties from oil production alone, nor the economic activity generated by offshore oil production and downstream industry, will generate the government revenue required to achieve all these things. For that reason, my answer to the Kosmos conundrum would be for GNPC itself to purchase the shares, at the price that would have been paid by Exxon Mobil. Hugo Chavez, while I am sceptical of his democratic credentials, has shown what a determined government can do for social equality with oil money. GNPC has offers on the table from major banks to fund the acquisition.

The struggle between China and the West for influence in Africa

China has an active policy of seeking to extend its influence in Africa, at the expense of Western influence. The Kosmos deal, and indeed the development of Ghana’s petrochemical resources, has become mixed up in this. As known to the Western embassies in Accra from their government contacts, rather than Exxon Mobil, the Ghanaian government wishes the stake to go to the Chinese National Offshore Oil Corporation.

That has made international news headlines, as a competition for an African mineral resource that pits China and the USA in head to head conflict. The US Embassy in Accra and the Obama Adminstration certainly see it that way. I suspect the Chinese Embassy do too.

Having just come back from Washington, I would assure you that the Americans are going to be very unhappy with Ghana if Exxon Mobil are blocked by the government, just in order to give it to the Chinese instead. If the Ghanaian government forces the sale to the Chinese for less than the Americans were prepared to pay, that would cause widespread outrage in the international community.

The clue is in what I just wrote: “Competition for an African mineral resource”. Those who kid themselves that either side is in this primarily for altruistic reasons, are easily deceived. Outsiders want African resources; that has been the truth of African contact with the rest of the world for centuries. That is not to say that there is no altruism in the relationship. From the West, I think of it as guilt money for slavery and colonialism. But whatever the motivation, the truth is that Ghana has over the years received hugely more free aid money from the UK and US than it ever has from China – totalling billions of dollars – and that it will do so this year too.

When asked by Ghanaian friends about .the relationship with China. I always tell them that, if offered genuinely free money, they should certainly take it. Equally, if these Chinese buses are reliable (time will tell) and cheap with good credit terms, certainly buy them. But the much vaunted billions in Chinese aid for Ghana is not readily apparent. Have you seen it? There are some football stadia – not a huge economic driver. The Bui project is a soft loan, not a gift, and the capital price is inflated.

Aspects to the Chinese way of doing things come with what aid there is. In particular the importation of low level Chinese labour, including convict labour, rather than giving jobs to local people, and some very unfortunate Chinese attitudes to employee relations and to Africans in general.

The government is working on a plan whereby the Chinese would get Kosmos’ part of the Jubilee field in exchange for building undersea gas pipelines, and the Chinese would also develop the onshore storage facilities, and perhaps refining and downstream industry too.

The problem with this plan is that that the Chinese do not want to pay 4.5 billion dollars upfront for the Kosmos concession. But if not they, who would pay Kosmos? Kosmos can certainly be taxed. Kosmos can within reason be controlled over to whom they sell. But the absolute right which Kosmos must retain is to sell their share at the market price.

The sums of money involved are mind boggling – that a share of less than a quarter in just one field is selling for over 4 billion dollars, shows how the economics of oil will dwarf the rest of the Ghanaian economy. That is why so many companies are anxious to be involved. That goes not just for the production from fields, but for all the downstream activity too. What worries me is that there appears a government determination to hand control of the bulk of Ghana’s nascent hydrocarbon related development to the Chinese, rather than deal on the basis of fair and open competition.

To say that there is a lack of transparency would be an understatement. A convoluted deal with the Chinese over Jubilee, pipelines, processing and downstream is being put together without anyone else being invited to tender. As far as I can see, it would give the Chinese Kosmos’ stake in the Jubilee field, with the Chinese paying much less than it is worth.

I may be wrong. It may well be that the Chinese proposal genuinely involves a huge aid component, or is of high quality and competitively priced. But in that case, they would only benefit from an open process.

Environmentalism

There is no such thing as an environmentally friendly hydrocarbon industry. Production is messy, and use of the end product pollutes and causes climate change. There is no point in pretending otherwise.

But Exxon Mobil’s record on controlling local pollution effects at the point of production is abysmal. Their record in Nigeria (and Alaska) is appalling from the point of view of environmental degradation, community relations, repression and major corruption. They have a reputation as the most irresponsible polluting oil corporation in the World – with the exception of the Chinese National Offshore Oil Corporation, who are even worse.

It is worth a note in praise of Tullow Oil, partners and operators in the Jubilee field. An Irish company, their commitment to Ghana and to local employment and procurement has been exemplary.

It is vital for the future that a large part of the energy generated by hydrocarbons, and the resulting revenue, is devoted to funding the industrial development of renewable energy technologies. Ghana has great potential for wind energy, solar energy and above all wave and ocean current energy. Major projects in these areas should be developed with oil revenue.

Corruption

Those Ghanaians who have been fortunate enough to acquire stakes in Ghana’s oilfields, are set to become the richest people in the land. Their families may be in a dominant position in Ghanaian society for generations. There is an understandable concern for who those Ghanaians are, and how they acquired their stakes. That seems to me a perfectly legitimate area for investigation, perhaps initially by the parliamentary energy committee.

Many government ministers are at least partly motivated in their opposition to the proposed Kosmos/Exxon Mobil deal by a belief that those close to ex-President Kuffour own a share in Kosmos, with the inference that the share was corruptly obtained. I do not know if that is true. I have not seen any evidence. If there is evidence, let it be properly investigated and acted on. If there is no evidence, forget it. But do not let us have policy in the most vital area dictated by partisan rumour.

Strangely, it is bipartisanship which is most worrying me. I pray that Ghana will never become corrupt at all levels like Nigeria, even though we know that oil brings that tendency. Yet there appears to be very little vigour in investigating and prosecuting corruption.

Both President John Kuffour and President John Atta Mills, on coming to power after defeating the previous government in election, appear to have taken the same view. As I see it, they judged that in Ghana’s new democracy, it is essential that when the government changes, it should be seen by all that vindictive action is not pursued against members of the other party. Only a very small number of middle ranking figures have suffered from anti-corruption action.

These were the actions of wise and generous hearted men. But the danger is that this forbearance can result in a toleration of corruption. A situation can even arise where the political class as a whole see the public purse as something they can loot, with the parties taking turns as they go in and out of power, and all the politicians agreeing not to pursue each other for corruption.

I am not saying that Ghana has reached that stage. I am saying that it is a danger and that you can be too tolerant. I first became known in Ghana when I warned of increasing corruption in the last years of the Rawlings administration. The same thing happened, only on an even bigger scale, in the last two years of the NPP government.

Let me put that in perspective: Ghana’s governance is still great compared to any other African country, and a huge amount of development has been achieved by generally first class government in the last decade. Corruption flourishes everywhere, including the UK. But it must be fought with more single-minded purpose than I see at present. With oil revenue coming, it is essential that the line against corruption is now drawn.

Let me conclude by saying that I offer these opinions simply as a friend of Ghana. They are entirely my personal view. Now that I am retired I can give an honest opinion without reference to the British government, IMF or World Bank ?” all of which would disagree strongly with many of my views here. Ghanaian policy is of course for Ghanaians to decide. I merely hope that I may provoke some thoughts useful to that purpose.


41 thoughts on “Oil Must Benefit Ordinary Ghanaians

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  • Abe Rene

    The Ghanaians ought to know about this article. It couldn’t be more important. Maybe you should become a special advisor to the Ghanaian government!

  • Dayo

    You really love Ghana. The article is incisive. I hope they will read it and act on it.

    Thanks for this article

  • derek

    A very thoughtful and interesting article. It deserves a wider readership.

    I hope oil can be a blessing to Ghana and not a curse.

  • Charles Crawford

    Nice job.

    Not that I am an expert, but I just don’t see how they stop the Ghanaian currency appreciating given the scale of what is likely to happen to the economy as all that oily money starts sloshing around.

    “At the same time, revenue must urgently be directed to rural infrastructure, to increasing farm prices and developing agro-processing industry, on a scale not previously attempted. Ghana already has a major problem keeping young people in farming. Think how much this will worsen when oil starts to flow.”

    Huh? Why should young Ghanaians stay in boring farming just because the government wants them to do so? Some of your ideas are a tad too collectivistic? Why not use the money to make Ghana the high-tech Singapore of Africa?

    But all in all, a bracing analysis. Thanks.

    Charles

  • Roderick Russell

    Will Ghana experience the “curse of oil” or the “blessings of oil.”

    Those who have experienced the “blessings of oil” tended to encourage the competitive development by multiple companies from several countries. This requires full support for property rights (and obligations). Though often heavily regulated, the regulations are transparent and equal for all.

    Craig, I fear that you may have answered the question yourself when you write “a government determination to hand control of the bulk of Ghana’s nascent hydrocarbon related development to the Chinese, rather than deal on the basis of fair and open competition. To say that there is a lack of transparency would be an understatement.” An excellent article. Roderick Russell

  • Duncan McFarlane

    Interesting read Craig – you obviously know your stuff on Ghana from all the time you’ve spent there – and i agree that oil can end up doing nothing for most people in a country, or even making their lives worse – e.g Ogoni and other Niger Delta tribes in Nigeria who’ve got polluted drinking water, hardly any fish or birds left to eat and military occupation and attacks after some of them turned to kidnapping oil workers.

  • Duncan McFarlane

    Charles Crawford wrote “Huh? Why should young Ghanaians stay in boring farming just because the government wants them to do so? Some of your ideas are a tad too collectivistic? Why not use the money to make Ghana the high-tech Singapore of Africa?”

    Well since most Ghanaians are peasant farmers (? – I’m guessing here based on books i read a decade ago on Africa) and since the country will be better off if it’s able to produce most of it’s own food rather than having to rely on imports – or on exporting the raw product (e.g coffee) only to have to pay far more to import the processed one (e.g coffee) – Craig’s suggestion of investing in agricultural processing seems like a good one to me – maybe oil refineries too so they don’t end up like Iraq with vast oil reserves but having to pay a fortune for petrol refined from their oil in other countries.

  • Jon

    Some excellent analysis Craig, and it’s great to see a call for decent taxation on these kind of windfalls, as well as warning what negative effects oil discovery can bring to a country.

    But I wonder if I can press you to expand on your scepticism of Chavez’ democratic credentials? It is tiresome to regularly hear pro-US news pieces from the BBC et al, which imply that Chavez is an egotist, a demogogue or a dictator, and it’d be surprising for you to fall into the same mainstream trap.

    Needless to say, Chavez has commanded substantial support amongst ordinary Venezualans (especially the poor majority), the levels of which would put support for a Bush, a Blair or a Brown to significant shame. Meanwhile the aggression and intervention in Latin American countries from the US, both historical and current, must be taken into account.

    Sometimes conservative opponents of the Bolivarian Revolution cite the refusal to renew a transmission license of a commercial television station. But this is hardly extraordinary: if an agressive foreign power was heavily propagandising in support of a coup against an elected leader in any ostensibly democratic country (US, UK, Western Europe, etc), would it be tolerated, do you think?

  • Craig

    Jon –

    The left are starry eyes about Chavez – and they always respond to criticism by saying “But he has the support of the majority who love him”

    Maybe so – I am not denying he was democratically elected. But even if you have the support of 99% of the poulation, that does not justify you in suppressing the view of the other 1%. It’s not just the TV station. It’s the university, it’s three newspapers etc. And the leftist arguments “But my enemies don’t deserve free speech because they are the dangerous stooges of imperialist powers about to invade me” has justified tens of millions of murders over the decades.

    I’ll do a Chavez post sometime where we can argue. But this post will be confined only to Ghana.

  • Polo

    Fine piece of analysis.

    Hope Ghanaians are aware of it. World needs more of this down-to-earth stuff.

    There is only one answer to cash-crops versus community.

    Hard to see, though, how large scale corruption can be avoided (anywhere) with the big sums involved.

  • technicolour

    Craig: Have you seen “The Revolution Will not be Televised”? Anyone remotely interested in Venezuela, politics, power, documentaries, coups and people should. You can get it on google video. Chavez was far too nice to his enemies at the end, I thought.

    As for Charles’ “boring farming jobs” he probably hasn’t experienced the hi-tec industry at the normal low level; where the hi-tec consists of training people to say “Hello, my name is Nigel and I am calling on behalf of”, and the shift work destroys families and communities. He is thinking romantically, as they possibly were, of a black Lexus.

    Isn’t Singapore is the equivalent of a large shiny prison camp for most people?It was, according to a Singaporean I met in Kashmir.

  • MJ

    One possibility you don’t discuss is that Ghana nationalises its oil wealth and establishes its own national oil company, hiring foreign technical expertise where necessary. This has worked very well in Norway (and indeed Venezuela) and is a model that seems to both maximize wealth distribution and minimize corruption.

    I feel Ghana would do well to avoid selling out either to the US-controlled multinationals or to the Chinese because these options will almost inevitably lead to Ghana becoming a victim of disruptive and violent global geopolitics.

  • MJ

    Sorry, GNPC are the Ghanaian National Petroleum Corporation – that is who I suggest should take over the stake.

  • Jon

    Thanks Craig. I shall look forward to discussing Chavez/Venezuala when you get a chance to post. It has recently become topical again; with what is happening in Columbia, I fear we are seeing another example of where US interventionism under Obama hasn’t changed.

  • Jon

    Technicolour: I’ve not seen that, and will look out for it. In the same vein, I would recommend Pilger’s “War on Democracy” – contains plenty about the US-sponsored attempted coup against Chavez.

  • Kwasi Appiah

    Incisive and broad-minded as always. With your permission (I hope) I am making copies of this made and sent to friends of mine working in the Ministries and at the Castle. Those who have internet access I have already alerted to. Some know you, Craig, and have differed with you in the past. But on this, to a man and (a woman), they tell me, “he is spot right on”. Keep up your work.

  • mary

    http://news.bbc.co.uk/1/hi/england/london/8361486.stm

    Stumps of 10 trees from a rainforest, complete with their roots, will be placed around Trafalgar Square to highlight the issue of climate change.

    Laser beams will mark the height the trees would have reached in the wild in comparison to Nelson’s Column.

    The trees, logged legally in Ghana, will highlight deforestation in countries like *Ghana which has lost 90% of its rainforest in the past 50 years*.

    Ghost Forest by artist Angela Palmer will inhabit the square until Friday.

    The installation will go up at the central London location in the early hours of Monday morning.

  • mary

    Jon @2.01am

    You mention of John Pilger reminded me of this article by him on the disgraceful treatment of the people of West Papua and the rape and pillage of their assets. Reading it made the gorge rise in my throat and then hearing the testimonies of the child migrants to Australia this morning on Radio 4 today made me even more angry and very sad.

    We have a vile heritage.

    Free the Bird of Paradise

    http://www.morningstaronline.co.uk/index.php/news/content/view/full/83262

  • anno

    Thanks for raising all these issues Craig. No doubt the world’s colonisers are debating the same issues from the other end of the telescope. I remember the sons of African colonial parents at school telling me that Africa was the best place to be after a nuclear war and I have never trusted their motives since. I am particularly worried about Obama claiming and then pressing by force some false legitimacy for the US from his own African roots. The worst curse of oil is invasion by helpful criminals like Blair/Bush at God’s behest.

    I don’t know much about Africa except from Africans I have met. Nigeria appears to have created its own peculiar hell from its people’s own particular mindset of competing to scam the best. Dubai has created another kind of monster where electricity is free and all sense of economy has been lost. Arabic has a word, Israf, which combines the meaning of ‘waste’ and ‘exceeding God’s boundaries’. Centralising populations and creating cities jammed with huge, brand new cars may solve the problems of manufacturers but it certainly doesn’t help anyone else.

    I have a strong feeling that if the green technology of solar PV, locally produced electricity is made available as a condition of obtaining oil contracts as well as other essentials, like water and communications, this might mitigate the drain of people from rural areas to city misery. I would have thought that the Chinese have valuable experience to offer, if only they could be forced to implement the pre-oil developments before the oil curse occurs. As you know, solar energy can be used for hot water and steam power and adsorption cooling. Plenty of meat for new industries in which Ghana could become a world leader. There so many more interesting things to do in life than corruption and power.

  • George Dutton

    16 November 2009

    “China continues its aggressive pursuit of Africa’s resources”…

    http://tinyurl.com/ygjvmjw

    October 27, 2009

    “AFRICOM and America’s Global Military Agenda: Taking The Helm Of The Entire World”…

    tinyurl.com/yhb7xez

    “Benefit to Ghanaians from Ghana’s mineral resources”

    I don’t think so.

  • Neil Craig

    The problem is to use the money in a way which, as you say, encourages real economic activity. Rather than social housing, which is prok barreling for the politically connected here & would be moreso there they should expand transport facilities – better port, airport & road facilities. Add to that the ending of taxes, particularly those on building, which in turn means cutting a lot of taxmen, inspectors, regulators & other sticky fingered types.

  • fm gakpo

    It’s my first time ever to comment on any socio-political and economic debate of any country. l place great importance to this piece by Mr.Murray, an enlightened oppinion and a must read by all our leaders in ghana. As an ordinary citizen just like my fellow citizens, l do have some reservations about some of his suggestions(priorities of investments) but on the balance of objectivity, i believe these ideas if fine-tuned could see a strong Emerging african power within 21st century and beyond. God bless Ghana and Africa.

  • technicolour

    I’d like to see Charles Crawford respond to my points about

    a) the reality of ‘hi tec’ industries for low paid workers

    b) the reality of life in Singapore

  • Frazer

    Not only Exxon etc, have a friend who works for the Chevron/Texaco conspiracy and she assures me that they will be bidding…interesting to note that they are very interested in this and also have several people in Accra at tha moment…no doubt that they landed in Ghana with suitcases full og USD.

  • Frazer

    Not only Exxon etc, have a friend who works for the Chevron/Texaco conspiracy and she assures me that they will be bidding…interesting to note that they are very interested in this and also have several people in Accra at tha moment…no doubt that they landed in Ghana with suitcases full of USD.

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