Ghana’s venture into oil production, which began with much optimism following the discovery of significant reserves in the Jubilee field in 2007, has evolved into a complex issue.
The country is currently embroiled in a pressing debate over the fairness of the deals it struck with international oil companies (IOCs) and the potential benefits of delaying production to develop its capacity.
Revenue Disparities
A key concern is Ghana’s relatively small percentage of revenue from oil production.
While oil extraction has brought in billions of dollars, Ghana’s share remains limited.
For instance, in 2022, Ghana’s oil income was around $1.43 billion, which reveals a substantial gap compared to the total value of the oil extracted.
This disparity is rooted in the contracts negotiated with IOCs, which often favour the foreign companies that provide the technology and expertise needed for extraction.
The terms of these contracts have sparked criticism, particularly given that countries like Nigeria and Angola, despite facing similar challenges, have managed to secure better deals over time.
Nigeria, for example, has renegotiated its Production Sharing Contracts (PSCs) to increase its revenue share to 40-60%, whereas Ghana’s share often falls between 13% and 15%.
The Capacity Question
One of the major arguments in this debate is whether Ghana should have delayed its oil production until it had developed the capacity to manage the extraction independently.
Proponents of this view cite Norway as a model where the government took time to build local expertise and infrastructure before fully exploiting its oil reserves.
As a result, Norway retained a significantly larger share of the revenue, ensuring broader economic benefits for its population.
In Ghana’s case, the decision to move forward with production without fully developing local capacity was driven by immediate economic needs.
Former Energy Minister Boakye Agyarko has commented on this, noting that while the urgency to generate revenue was understandable, it may have led to missed opportunities for more significant long-term gains.
Similarly, Professor John Asafu-Adjaye of the African Center for Economic Transformation (ACET) has pointed out that Ghana’s reliance on foreign companies has left it vulnerable to less favourable terms.
Comparisons and Lessons
Comparing Ghana’s situation with that of other oil-producing nations provides further insight.
Despite early challenges, Angola and Nigeria have successfully improved their revenue shares through renegotiation and local capacity building, providing a hopeful model for Ghana to follow.
However, the initial phase in these countries, much like Ghana’s, was marked by contracts favouring the foreign companies involved.
Ghana has seen more promising developments in natural gas.
The Sankofa Gas Project, a beacon of hope, began in 2018 and is expected to generate substantial revenue, serving as a potential model for how Ghana could better leverage its resources.
The Sankofa Gas Project has been highlighted as a prime example of what can be achieved when local interests are better aligned with national goals, offering a promising path for Ghana’s future.
Strategic Outlook
The key for Ghana will be to balance meeting immediate economic needs and building the capacity to extract more excellent value from its resources.
This may involve renegotiating existing contracts and increasing local content in the oil and gas sector.
Local content, a crucial aspect in the oil and gas industry, refers to the percentage of goods, services, and personnel sourced locally. Increasing local content can significantly boost the local economy, create jobs, and foster the development of local expertise and infrastructure.
Increasing local content can boost the local economy and create jobs. It may also involve diversifying the economy to reduce dependence on oil revenues.
As with many resource-rich countries, Ghana’s broader challenge is ensuring its natural wealth translates into long-term prosperity for its citizens.
Building a more resilient economy will require better deals with foreign partners and strategic investments in education, infrastructure, and governance, which will provide a solid foundation for the future and reassure stakeholders about the path ahead.
These investments include improving the quality of education to build a skilled workforce for the oil and gas sector, developing infrastructure to support the industry, strengthening governance to ensure transparency and accountability in the sector, instilling confidence in the sector’s operations and making stakeholders feel secure about the future.
While Ghana’s oil exploration has brought significant revenue, the current model raises essential questions about fairness and future strategy.
As global energy markets evolve, Ghana’s leaders must carefully navigate these challenges to secure a more equitable and sustainable future.
