Ghana aims to avoid the 'oil curse'

President John Kufuor says he will put safeguards in place to ensure that newly discovered oil reserves will not be mismanaged.

The recent discovery of oil off Ghana's western coast is inspiring dreams of national wealth.

"Thank God for oil," says Sylvester Mensah, a hotel employee.

The country's political leaders are equally enthusiastic.

President John Kufuor recently said that oil will transform Ghana's economy into an "African tiger."

But while the discovery by London-based Tullow Oil of up to 600 million barrels in June has been hailed as a birthday present for the 50-year-old country, observers question whether Ghana, an oasis of stability in volatile West Africa, will find the black gold more of a curse than a blessing.

They hope Ghana can avoid the instability that has plagued other African countries as a result of their failure to prevent small cliques of elites from channeling most of the proceeds into their own bank accounts.

"We have opportunity of learning from the experiences or the failure of others," says John Boadu, a youth organizer in Ghana's ruling New Patriotic Party.

How oil has hurt African countries

The continent's leading oil producer, Nigeria, has received more than $400 billion since its boom began in 1970, yet its Gross National Income per capita is about 25 percent lower than the average for sub-Saharan Africa.

Corruption and poverty are rife, fuel shortages are endemic, and armed gangs regularly kidnap foreign oil workers and battle the Nigerian Army in the oil-rich Niger Delta.

The annual budget of Angola, Africa's number two producer, is $31 billion, but its official figures for infant mortality are the among the worst in the world.

"What most people don't understand about oil is that, not only does the money not filter through to the majority of the population, but it's much worse than that," says Nicholas Shaxson, an oil analyst at the London-based Chatham House think tank and the author of "Poisoned Wells," which examines how the resource affects countries. "It actively makes most people poorer."

Ghana, where about 40 percent of the population lives on a dollar per day, can ill afford that.

Safeguards to prevent corruption?

The government is scrambling to assure the public that corruption will not taint the fledgling industry and create the type of wealth disparities that have turned swaths of Nigeria into battle zones.

"We have to be careful with this find, and my government will start working immediately to ensure that the safeguards are not political but institutional and benefit the nation as a whole," said Mr. Kufuor.

What Kufuor means by safeguards, according to Deputy Energy Minister K.T. Hammond, is transparency measures to determine who produces the oil, who exports it, and where the money goes.

Mr. Hammond says Kufuor wants to create a system to identify those oil accounts "so that, at any point in time, we know how much money we have from the oil revenue and where that is sitting."

The government, however, has released few details as to how the safeguards would work.

Local activists criticize the government's willingness to tackle corruption, saying Kufuor's declaration of a zero-tolerance policy upon taking office in 2001 hasn't amounted to much.

Nii Moi Thompson, an economist who heads the Development Policy Institute, says the distribution of government money is transparent, but how those funds are used is not.

He says government officials frequently overcharge for projects that only cost a fraction of the bill, pocketing the extra money.

"If we cannot account for $20 million, then how can we account for $20 billion?" Mr. Thompson asks.

He says Ghana should create an oil revenue authority to emphasize autonomy and limit political interference.

Mr. Shaxson says other countries have tried to use a similar safeguard known as an oil fund to keep the money outside their borders in order to prevent misuse. That works better in theory than in practice, he says, because it creates a tempting pot of money for corrupt politicians.

His advice is simple: "Cancel the oil development or delay it so that production starts up very slowly."

That way, Shaxson says, there will not be a sudden inflow of money to distort the country's politics and to turn people's hopes into despair.

Ghana has a few things going for it

Several factors may help Ghana avoid the oil curse, analysts say.

The first is the quantity of Ghana's discovery: if the forecast of up to 600 million barrels is accurate, then those reserves are a fraction of Nigeria's 35 billion barrels and Angola's 10 to 12 billion barrels.

It is arguably small enough to prevent oil from getting too tight a grip on the economy, which would lead it, Shaxson says, to overpower other sectors of the economy, causing them to wither away.

What also favors the country is its sense of national unity, often missing in its regional neighbors who have been blighted by civil wars.

Kojo Pumpuni Asante of the Center for Democratic Development, a local think-tank, says ethnicity here is not as deeply ingrained or divisive as it is in countries like Nigeria or Rwanda.

This relative unity can be a bulwark against what Shaxson describes as the erosion of a shared sense of nationhood that often occurs after an oil discovery, leading to factional politics where officials scramble to line their own pockets and share the spoils only with cronies within their own ethnic group.

Hammond exudes optimism that Ghana will not succumb to the oil curse.

"It shouldn't be difficult," he says, "knowing where the money is sitting and knowing that the money is judiciously dispersed for the development of the country."