Persistently low oil prices have had a devastating effect on the economies of all major oil producers/exporters including Ghana who have been accustomed to a price regime of over $100/b estimations. The lifting of sanctions on Iran and its ability to quickly ramp up to pre-sanction (2012) levels of production and exports has made the market even more liquid and exerted downward pressure on oil prices. This has had negative impacts on the oil and gas exploration been done in the country with delays in various projects.
Ghana’s austerity measures for economic survival from the oil shocks
In 2011, the structure of the Ghanaian economy changed dramatically as the commercial production of oil led to a significant GDP growth of 14.0 percent, making the country the highest growing economy in sub-Saharan Africa. After the oil prices collapsed, the major oil producers and exporters found themselves in a challenging situation and Ghana could not be left out. As falling oil revenues were not sufficient to balance government budgets, austerity measures had to be resorted to.
Since 2011, Ghana has been receiving oil revenues which was estimated to continue for the next 20 years and beyond. Crude oil exports increased from US$2.8 billion in 2011 to US$3.9 billion in 2013 but dropped to US$3.7 billion in 2014. Correspondingly, total government oil revenues (which comprised of carried and participating interest, royalties, surface rentals and taxes) increased from US$444.1 million (16.0 percent of total oil exports receipts) to US$978.8 million (26.3 percent of total oil exports receipts) over the period.
The continuous decline of crude oil prices presented serious fiscal challenges to the government. Although the country’s oil output was expected to remain unchanged at 102,033 barrels per day in 2015, the government was forced to revise down substantially the oil revenues indicated in the 2015 Budget as a result of the oil price slump on the global market. Total oil revenues for fiscal year 2015 dropped by a whopping 58 percent, from GH₵4.2 billion to GH¢1.8 billion.
In an effort to sustain Ghana’s economic growth, while finding it difficult to keep the economy growing at the desired pace; the government had to take some unpopular measures. Austerity measures, downsizing, delaying of some major projects, removing energy subsidies, and draining of the heritage funds which was published in the 2015 Public Interest and Accountability Committees (PIAC) report that, a colossal amount of $222 million dollars was withdrawn from the Heritage Fund by the Bank of Ghana.
These are some of the many immediate measures that oil producing/exporting countries are undertaking to cope up with falling oil revenues of which Ghana is not an exemption. The question is for how long they can survive if such a unique situation persists over an extended period of time?
The development benefits that Ghanaians expect from the oil and gas industry will not come if the terms under which the resources are being developed are bad. In countries where natural resources had contributed to development, the focus had not only been on getting revenue but getting as much of it as possible and additionally making the best use of it and ensuring the activity galvanized other economic activities in the country.
Oil is in poor health and it’s a fragile bubble liable to burst; hence, the country should understand that oil should not be the main engine of growth for the economy.
Ghana can look beyond the oil and gas exploration through diversification of the economy. Low global oil prices should put positive pressure on the private and public sector to diversify the economy. The impact of low oil prices is to make government realize that, the country cannot rely on oil forever. It creates an urgency to actually invest into new sectors such as manufacturing, educational sector and agriculture sector.
Government revenue for the budget from Oil has declined and this should put pressure on government to ensure fiscal discipline.
The poorer global oil prices should be a good wake-up call for government and the private sector to look beyond oil by reducing expenditure on activities which do not add revenue to the national account. Fiscal discipline must be engaged in by government by to ensure that, monies are not withdrawn from the various account with the oil revenues be it the Annual Budget Funding Account (ABFA), Ghana Heritage Fund (GHF) and the Ghana Stabilization Fund (GSF).
Norway, of course, always had its natural resources; but it was only with the advent of educated labour that it became possible for the Norwegians to harness those resources on a significant scale.
Human capital accumulation was the primary force behind the economic transformation of their economy. Norway’s natural capital was secondary matter. Human capital accumulation can lift living standards without natural capital (as in Japan and Singapore, for example), but natural capital is of little help or worse without the human resources necessary to harness it (a case is in point is Congo).
In conclusion, Ghana cannot solely rely on the oil and gas exploration in the country to boost the economy. If Ghana can follow the steps of Norway by investing in human capital, diversification into industrialization, then the country will be on the path of development
By: David Aduhene Tanoh