Ghana begins to tap oil, but can it avoid the 'resource curse'?

While politicians in Ghana's capital, Accra, toasted the birth of the West African nation's oil sector last week, disquiet grew in the booming coastal oil town of Takoradi.

“We are all suffering. All the fish, all the tuna, gather around the light on the oil-rig at night and stay there during the day. The government has to compensate us,” says Joseph Tetteh Narh, explaining that the mile-wide no-go area surrounding the offshore oil rig that began pumping just last week has cut local fishermen's catch by two thirds.

As Ghanaians flock to Takoradi to profit from the expected oil boom, residents claim rent prices have quadrupled and landlords are forcibly evicting tenants. Traffic now clogs the streets, slums are swelling, hospitals are swamped, unemployment and drug use are on the rise, and commercial sex workers swarm downtown at night, says Donkris Mevuta, executive director of Friends of the Land, a local nongovernmental organization.

To make matters worse, oil production has brought just 600 jobs to the town so far, he says, underwhelming expectations.

Now local rulers are demanding a cut of oil revenues and transparency advocates are questioning whether the country is ready to avoid the type of corruption and instability that has crippled the progress of fellow West African oil producer, Nigeria.

“Politicians have left people expecting very high returns. The very limited space the people have for participation [in the oil industry] is a recipe for disappointment and conflict,” says Mr. Mevuta. “Oil is a blessing, but the way we manage the environmental and social impacts will show whether it is a curse.”

Local chiefs demand 10 percent of oil revenues

In spite of being the source of much of the country’s gold, manganese, bauxite, timber and cocoa exports, lawmakers have long neglected Ghana’s Western region, says Awulae Agyeifi Kwame, a traditional chief from the western town of Nsein.

In November, Mr. Kwame and other chiefs took a petition to Parliament demanding ten percent of oil revenues for the Western region to develop its poor infrastructure. Although Parliament rejected the proposal, it stoked debate about how to distribute the windfall, which government estimate will be around $400 million in 2011 and increase as production ramps up.

“Since [independence from Britain in 1957], we [in Western Ghana] have been cheated,” Kwame says, wrapped in a thick Kente cloth that resembles a toga. “We all want to see the success of the industry, but not at our expense.”

Although Kwame downplays any hint of violence, his sentiments echo those of militants in Nigeria’s Niger Delta region, who attack pipelines and kidnap expatriate oil workers in a purported battle against the theft of its oil and in protest at the environmental devastation.

“If our voice is not heard, there are those who might handle it in a more radicalized way,” Kwame says.

Is Ghana prepared for the flow of oil?

The problem with oil, says Nicholas Shaxson, author of ‘Poisoned Wells: The Dirty Politics of African Oil’, is that the question “who gets what?” starts to dominate local and national politics. It can be incredibly divisive.

“Aid makes rulers accountable to donors, tax makes rulers accountable to citizens, and oil makes rulers accountable to nobody,” says Mr. Shaxson.

Alex Vines, head of the Africa program at the Chatham House think tank in London, worries that Ghana is unprepared for the flow of oil. He points out that Ghana still relies on the 1984 Petroleum Exploration and Production law.

“It still has no new law, no regulations, and no regulator. It's not too late to deal with these shortcomings, but muddling through is inefficient and could be very costly,” he said in a statement on the Chatham House website.

In its 2010 report, the Revenue Watch Institute in New York said that Ghana has “scant revenue transparency,” in the extractive industries, ranking it alongside such stragglers as Angola and Equatorial Guinea.

Reasons for optimism

Despite the anxieties, the World Bank highlights reasons for optimism, shared by politicians and some analysts in Accra.

Unlike many other oil-producing African nations whose oil sectors dominate the economy, making them prone to conflict and corruption, oil proceeds will account for just 6 percent of domestic government revenues in 2011. The oil sector will be dwarfed by established cocoa and mining industries and managed by one of the region's most stable governments.

“It’s a bit of oil, not a whole lot. So it’s not enough to give you the 'Dutch disease' and a curse,” says Ishac Diwan, country director of the World Bank, referring to a Dutch discovery of gas in the 1960s that boosted the currency, undermining other exports.

"Oil is not so big that it could just shift this country into a different political path. It's not a tsunami," he said.

Mr. Diwan says Ghana’s strong institutions, vibrant civil society, and relatively good record on corruption puts it on a firm footing to avoid the resource curse that blights its fellow African economies of Nigeria, Equatorial Guinea, and Angola.

"I just can't see big corruption happening. Hidden bank accounts in Switzerland and lots of money disappearing -- this is not Ghana."

Investment in cocoa offsets oil

Nii Anyetei Ampa Sowa, a research analyst at the Ghanaian think tank Databank, says Ghana’s heavy investment in cocoa should offset the effects of Dutch disease.

Citing the closely fought 2008 election, where the incumbent John Kofi Agyekum Kufuor stepped aside, a rarity in African politics, Mr. Sowa says the country is stable and unlikely to be drawn into conflict over oil.

“The razor-thin margin that the current government won [by in the January 2009 election] – for that not to have caused trouble gives credit to us as Ghanaians," says Sowa. "I would use that as capital to say that the odds of strife happening, or people rigging [the vote] to stay in power, are low.”