Ghana: A New Oil Power?

When President Barack Obama announced that he would make Ghana his first stop in sub-Saharan Africa, he said it was because of their recently successful election and growing record of good governance. He did not say it was because Ghana is a potential new oil power, but apparently, this West African nation is about to join the ranks of petroleum-producing neighbors such as Nigeria, Equatorial Guinea and Gabon.

According to a blog report by Todd Moss of the Center for Global Development, an oil find from the summer of 2007 could develop into as much as US$1.3 billion a year in new revenue for Ghana by 2013. He wonders in his column whether Ghana’s good governance will be undermined by this new oil wealth as Nigeria was corrupted by the lure of easy money. He points out that Nigerians are poorer today than they were 40 years ago before their oil boom.

African oil producers have often experienced an expansion of corruption because of windfall oil profits and a weak tax system. Governance has suffered as leaders, not beholden to taxpayers, skimmed oil profits for their personal use and corruption became the order of the day. Usually, this was because of a lack of established public institutions. Ghana has such institutions and has willingly submitted to the Extractive Industries Transparency Initiative to open its mining operations to public view. Ghana is a country whose democracy has improved dramatically from an earlier era of repeated military coups and negligent management of the economy.

Ghana has a functioning tax system with moderate tax rates producing about 20.8% of its gross domestic product. Nevertheless, Transparency International ranks Ghana 69th out of 179 countries in terms of transparency. Even Ghanaians are skeptical of its institutions ability to handle corruption. One poll showed that the Ghanaian courts are seen as the least trusted institution just behind its police. The new oil revenue will pose a challenge for Ghana to fortify its institutions before the petroleum tide sweeps away its governance gains.

Ghana is an African star, but if we want it to remain so, now is the time to help Ghana from losing its democratic gains. Criticizing them later is not an option because we already know what unchecked oil revenue can do to leaders and their governments with even the best of intentions.