FCIT, FICB, FCCE, C.A. (Gh), MTP (SA), MPhil (Econs), LLB (Hons), BL
Managing Consultant
WTS Nakyea & Adebiyi
(Tax Attorneys & Solicitors)
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Ghana’s oil is expected to flow before the end
of the 2010 fiscal year.
Inasmuch as the reserves have been identified
to be modest by international standards,
there are high expectations that it will
transform our economy.
This notion is what raises concerns as to the
challenges and opportunities to the country.
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The period 2003-2008 showed that Ghana
had improved on its hitherto average of 4%
annual growth rate to a medium-term annual
growth rate of about 6%.
The story was not pleasant in 2008 in respect
of fiscal deficit which rose above 14% of GDP.
The overall budget deficit equivalent to 9.4%
of GDP was pursued in 2009.
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In the 2010 budget, government is targeting
an overall fiscal deficit equivalent to 7.5% of
GDP.
The expectation above makes people wonder
whether government intends to rely on the oil
revenue to attain the set target.
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It has been a difficult challenge for many
countries across the world on how to manage
their oil revenues.
Such countries include
Nigeria and Venezuela.
Ecuador,
Mexico,
Nigeria used its oil revenue for investments in
capital and infrastructure in the 1970s and
1980s but today, living standards have
dipped.
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The greatest challenge is whether the
government would avoid the risk of using its
revenue from the oil to fund the budget
instead of investing in productive sectors.
Transparency. Whether government will abide
by the Extractive Industries Transparency
Initiative which places emphasis on full
disclosure and publication of reports on
revenue and their use.
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Dutch disease. The danger of concentrating
on the newly found resources, oil to the
detriment of already existing sectors and
resources.
How do we develop local content? How can
the government assist in resources Ghanaian
entrepreneurs to venture into the oil sector
and fill the local content gap?
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The opportunity to use the revenue from oil
to fund poverty reduction programmes.
Strong investments in human development
and capital infrastructure which would boost
investor confidence to grow the economy.
Boost in allied industries as in gas, to bring
down energy tariffs.
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Developing reliable energy supply to boost
agriculture. A shift from reliance on solar for
drying our cash crops – cocoa, gari,
groundnuts, etc.
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Oil Fund. The Fund be invested in low-risk
securities abroad, and all interest earned
flows back into the Fund.
Each year Parliament has to approve transfers
from the Fund to finance budget deficits. The
amount to be withdrawn is limited to keep
the Fund operational and must be calculated
each year anew.
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Transparency and accountability are ensured
via different mechanisms:
(i) A Petroleum Fund Consultative Body which
consists of representatives from various
sectors of society should be put in place.
(ii) Investment Advisory Board needs to be
put in place.
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Before the withdrawal of money from the
Fund, Parliament must consult the Petroleum
Fund Consultative Body.
The Government must provide Parliament
each year with an annual report including
financial
audit
results,
receipts
and
withdrawals, a balance sheet, development of
the Fund and advice from the Investment
Advisory Board.
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Information about oil company payments to
the Government should be a requirement
under the Petroleum Fund Law.
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Inasmuch as countries such as Norway and
Timor Liste have very good systems of
managing the use of oil revenue to reduce
their budget deficits, Ghana has to tread with
caution so as not to over rely on the oil
revenue to finance budget deficits. This is
because oil price shocks may end up
widening the budget deficit rather than
reducing it.
Abdallah Ali-Nakyea
FCIT, FICB, FCCE, C.A. (Gh), MTP (SA), MPhil (Econs), LLB (Hons), BL
Managing Consultant
WTS Nakyea & Adebiyi
(Tax Attorneys & Solicitors)
P. O. Box KD 66
Kanda-Accra