Latest data emanating from government reveals that the state’s share of crude oil export revenues for 2018 was 94 percent higher than our earnings for the previous year (See front page story). Encouragingly, the near doubling of the public treasury’s take from oil production and export sales was derived from both increased production and rising prices for the commodity on the international market.
The out turn for 2018 evidences just how crucial Ghana’s crude oil endowment has become for the country’s economic good fortunes. Oil revenue has enabled Ghana to sustain its merchandise trade surplus, even at a time that both production and global market prices for both of its traditional exports – gold and cocoa – are stuttering. Indeed, the widening of Ghana’s trade surplus for the first quarter of 2019, as compared with the corresponding period of last year, is entirely attributable to the sharp rise in oil export revenues that have occurred between the two time periods.
In turn, the contributions of oil to the trade surplus has translated into similarly crucial contributions to the exchange rate of the cedi – simply put, without oil revenues, one United States dollar would likely have been exchanging for as much as GHc6 by now.
To be sure there is plenty more oil just waiting to be discovered, both off the shore of the Western Region where all the discoveries made so far are located and also onshore in the Volta Region where the geological surveys conducted and assessed so far by the Ghana National Petroleum Corporation point towards huge reserves under the ground.
However, Ghana needs to be circumspect as to the latest natural endowment that is being un-earthed, for several reasons.
Firstly, the upstream oil industry, like the gold mining industry before it, will remain an enclave one. Even if it generates several times the amount of hard currency revenues that the cocoa industry does, it can never have such a positive widespread impact that the latter does, providing incomes for hundreds of thousands of households in the rural hinterlands that are otherwise excluded from the economic opportunities available to urban dwellers.
Secondly, oil prices on international markets are not only notoriously volatile; they are near impossible to predict too. History is replete with wild swings in oil prices, very few of which were fore-seen with any appreciable degree of accuracy. This is because geo-political factors are as instrumental in generating oil price changes as economic factors. Thus, while Ghana can confidently look forward to increasing production levels there is no guarantee that this will translate into bigger revenues. If in doubt of this assertion just ask Nigeria.
But this newspaper’s biggest worry is the State’s attitude to borrowing against anticipated future oil revenues. History shows that virtually every major oil find has been followed by a visit to the Eurobond market. Indeed, Ghana’s first Eurobond issuance came just months after the discovery of the Jubilee oilfield in 2007. The latest one came on the back of the Pecan oilfield discovery at the beginning of this year.
To be sure borrowing in itself is not a bad thing; debt finance has been used to accelerate Ghana’s economic growth and development, a good example being the US$850 million loan from China used to finance our gas infrastructure.
However, we worry that the approach of every successive political administration over the past 12 years is forcing too much of Ghana’s oil wind fall to be used on interest payments to foreign commercial lenders rather than on the improvement of the Ghanaian economy and the country’s populace. An examination of Ghana’s public finances indicates that a huge chunk of its annual oil revenues has already been spent through earlier loans contracted and now Ghana is paying back plus debilitating interest costs.
Ghana and Ghanaians should be the main beneficiaries of the country’s oil wealth, not the foreign lenders who seem to benefitting the most now.