Keeping Ghana going

November 15, 2013 | Latest Featured Articles

By Sarah Kiggundu –

Ghana is located in West Africa, bordering the Gulf of Guinea, between the countries of Côte d’Ivoire, Burkina Faso and Togo. This nation has a population of just over 25 million people. Over the past few years, West Africa has enjoyed an economic revival due to an abundance of hydrocarbon resources in the region. The successes from Ghana’s Jubilee oilfield and the discovery of additional offshore oilfields (and findings further west in Sierra Leone) are indeed cause for enthusiasm. Ghana, which already has large mineral reserves and an extractives sector primarily dominated by mining, is expected to match middle-ranking African oil producers such as Gabon, Equatorial Guinea, Congo-Brazzaville and Sudan – eventually becoming an African oil heavyweight such Angola or Nigeria. These newly discovered oilfields are expected to be brought into production within the next five years and this is intended to put Ghana on the map as an African oil producer. It is also hoped that the ‘oil renaissance’ will encourage countries such as Côte d’Ivoire to rekindle interest in West Africa’s hydrocarbon resources.

In the case of Côte d’Ivoire, although the first six-year civil war ended in 2004, the conflict had the effect of reorganising trade patterns in the West African region with producers and traders opting to seek alternative routes to trade centred with Côte d’Ivoire. The second Ivorian civil war, which broke out in March of 2011 has since ended. Recent finds of light oil off the coast of Côte d’Ivoire, adjacent to Ghana’s Jubilee Field are not projected to impact Ghana’s operations in the Jubilee Field.

Furthermore, this find is not expected to lead to a dispute between the two countries.

This paper will assess the impact of that the oil and gas industry has had on the Ghanaian economy and the effectiveness of the governmental agencies appointed to enforce environmental policy and regulations.

Ghana’s economic outlook

In the 1990s, Ghana was considered to be one of Africa’s success stories and was regarded as a model for free-market innovation on the continent. By the mid-1990s Ghana’s gross domestic product (GDP) growth rate was between 4% and 4.5% per annum. This was due to a comprehensive structural readjustment agenda referred to as the Economic Recovery Programme (ERP), which was initiated in 1983, in collaboration with the World Bank and the International Monetary Fund (IMF). These developments brought about a substantial decrease in poverty levels. From the periods of 1991 to 1992 and 1998 to 1999, the percentage of poverty-stricken individuals declined from 52% to just under 40%.

Between 1990 and 2007, the economy grew at a mean rate of 4.7%; and between 2003 and 2007, the growth rate averaged at 5.9%. In 2009, Ghana signed a three-year Poverty Reduction and Growth Facility with the IMF to advance macroeconomic stability, private sector development, human resource development and to implement good governance practices. Owing to sound macroeconomic management, GDP was respectable for the period between 2008 and 2012. The past two years, however, have seen the GDP decline from 14.4% in 2011 to 7.1% in 2012.The economic growth peak in 2011 was partly due to the start-up of oil production in the last quarter of 2010. Overall, 2011 saw Ghana being ranked sixth of the world’s fastest growing economies.  The GDP in 2012 was mainly driven by oil revenue, the services sector, and a decent export performance of cocoa and gold. The medium-term growth outlook is positive owing to investments in the extractives industries, public infrastructure, and commercial agriculture. As a result, GDP is projected to be 8.0% in 2013 and 8.7% in 2014.

During the 1980s, policy reforms to liberalise the economy highlighted the importance of the agricultural sector as a crucial component to economic reforms – this was for the simple fact that the poor are mainly concentrated within rural areas.  Though the oil and gas sector has boosted industrial growth, this had negative impacts on the performance in the agricultural and manufacturing sectors. Additionally, Ghana’s 2020 vision offers the agricultural sector a larger role to play in the economy, yet recently economic growth in the agricultural sector has been weak with the lowest growth rate in 2012 of 2.6% – only a 0.8% improvement over the 2011 growth rate.

Over the years, there has been a decrease in inflation. In 1995, inflation was 71%. By 2007, inflation had declined to 10%. This can be attributed to tighter monetary policies and the increasing independence of the Central Bank.

Despite the recent economic developments, Ghana is classified as a low middle-income country by the World Bank. Whilst significant progress has been made towards many of the Millennium Development Goals (MDGs), the important challenges relate to MDG 4 (to reduce child mortality), MDG 5 (aimed at improving maternal health care) and MDG 7 (geared towards ensuring environmental sustainability). Ghana’s developmental indicators fair poorly when compared to other countries within the same middle-income ranking.

Consumption patterns have been a significant driver of growth and private sector consumption levels in particular have proved to be the largest contributors overall. On the whole, investment in the country is expected to increase due to improved private sector resilience, investments in the oil industry and from draw-downs of loans from China for infrastructure projects. Between the period of 2011 and 2012, export levels increased but are expected to decline in 2013, as oil production stabilises. Oil, gold and cocoa account for 85% of total exports and, since 2009, the value of gold and cocoa alone has risen by more than 90%.

Gold is not only country’s top foreign-currency earner but the most important mineral currently mined in Ghana, accounting for over 90% of mining sector revenue. The mining sector, in particular, accounts for 47% of the nation’s total exports. Currently, oil has displaced cocoa as Ghana’s second most valuable export in 2012 with shipments estimated to be worth US$ 3 billion according to the Central Bank. With a stable economic growth of roughly 8% and strong democratic institutions, Ghana is attracting considerable foreign direct investment. To further solidify economic transformation, realignment is required in the way of fiscal spending priorities, for example, maintaining tight monetary policies and advancing its middle-income status ranking, whilst promoting inclusive growth.

Global trends and oil production in the Jubilee Field

Global oil demand is expected to rise by 8% between 2012 and 2018 to 96.7 million bpd. This evidence is based on optimistic IMF global economic growth assumptions – forecasted to be between 3 to 4.5% per annum, during this same six year period. It is believed that US shale oil will meet the world’s new oil demand in the next five years, regardless of whether the global economy improves or not, and this will eventually affect the Organisation for Petroleum Exporting Countries (OPEC) production levels. There are, of course, counter arguments with regard to whether shale oil will meet demand growth levels or whether the impacts of US shale oil are greatly embellished.

The increase in US oil and natural-gas production is expected to shift the balance of power, providing the US with greater leverage, especially in times of political crises or to prevent oil producers from achieving their financial or geopolitical goals. Despite this market threat, from increased US shale oil production, African oil producers are now targeting the Asian and European markets. West African nations are not the only countries feeling the pinch. The OPEC members have cut the forecasted oil demands this year, owing to US growth production numbers. Cheaper oil has negative repercussions for OPEC countries, as well as states that are heavily reliant on their energy industry.

Ghana’s Jubilee oilfield is located in the Atlantic Ocean, approximately 60 km offshore between Deepwater Tano and the West Cape Three Points Blocks. What has come to be known as the Jubilee Oil field was developed by Tullow Oil. The equity partners are Tullow Oil, Kosmos Energy, Anadarko, Ghana National Petroleum Corporation and PetroSA. Extraction of the Jubilee field, Ghana’s first major offshore oilfield, began in December 2010. Since extraction began in 2010, production levels have ranged between 80 000 and 90 000 bpd. After a few technical alterations, production levels are now at 120 000 bpd. Oil production is expected to more than double to 250 000 bpd as oil output rises. Currently, production levels are at 48% of the targeted total. Taking all of this information into account, revenue from oil production is still anticipated to forward the country’s middle-income status.

Ghana’s environmental enforcement agencies

Green growth is particularly important for developing countries owing to the fact that they are more vulnerable to the economic and social impacts of environmental degradation. Furthermore, these nations are often dependent on the exploitation of natural resources for economic growth. As a result, many developing countries have embarked on domestic policies to develop mechanisms to address these issues – through carbon taxes, green energy funds, renewable energy systems and so forth. What has been found is that there are few holistic ‘green policies’, strategies and institutional systems in place. Green growth is a matter of economic policy and sustainable development policy. This concept embodies two key elements. The first involves continued inclusive economic growth, which is much needed by developing countries in order to reduce poverty levels. The second involves improved environmental management, which is crucial to address resource scarcities and the impacts of climate change.

In Ghana, since 1989, sizeable advances have been made towards sustainable development and this can be partly attributed to its 1991 environmental policy, which prioritised environmental issues on the country’s development agenda. The Ministry of Environment, Science and Technology is an organ of state with the goal of establishing a broad scientific and technology base that will encourage sustainable development within Ghana as a whole. The Environmental Protection Agency (EPA) forms part of this branch of government. EPA was formed under the Environmental Protection Agency Act as an agency responsible for protection, conservation, and management of the natural environment through policy and legislation enforcement. This agency is a leader in terms of issuing environmental permits, directives and supervision of pollution control mechanisms. EPA is known for enforcing compliance using the Environmental Assessment Administration procedures. This agency works closely with stakeholders, especially state organisations with equal mandate to enforce legislation. Compliance monitoring is managed through its Environmental Quality Department. This department responds to complaints through issuing statutory notices and site visits to inspect facilities. Should the aforementioned actions not be effective, legal action is taken to address non-compliance issues.

Governmental institutions such as the EPA, the Ghana National Petroleum Corporation (GNPC), the Ghana Maritime Authority (GMA), and the Security Services have important roles to play in prioritising the environment whilst ensuring the emerging oil and gas industry is exploited appropriately.

By the late 1980s Ghana was experiencing rapid industrialisation. The government commissioned experts to review existing policies relating to environmental protection. A new strategy was required in terms of addressing the key environmental issues, such as land management, water resource management, mining, human settlements and the creation of an environmental monitoring or data system to track progress. The National Environmental Policy and the National Environmental Action Plan (NEAP) were produced and adopted as a framework for implementation of an action plans for sustainable management of the natural environment.

Finding the common ground: economic development and environmental integrity

Ghana has witnessed remarkable economic growth within a relatively short period of time since the discovery of offshore oil in 2007. Though this sector is still in infancy, progress and development has been positive, as these successes have resulted in an increase of foreign direct investment to the country. These successes are commendable. Improvements, however, must be made in the way of the agricultural and manufacturing sectors, which have under-performed in recent years. The IMF projects that Ghana will need to create 6.7 million jobs over the next 20 years. The oil and gas industry alone cannot fill this employment gap and an over-reliance on this industry would be counter-productive, in terms of maintaining decent economic growth levels. It must further be noted that the agricultural sector is the largest employer in the economy.

With regards to environmental protection, organs of state that are mandated to ensure environmental compliance have strict codes of conduct that must be adhered to. It is still much too early to be able to conclude as to whether these governmental agencies will be able to effectively enforce adherence of policy to the oil and gas industry, especially since this industry is driving economic development. With the case of the mining industry, discussed earlier in the paper, it can be seen that the importance of maintaining environmental integrity can often be disregarded. Furthermore, the issue of illegal mining is also a problem that must be corrected.

The importance of green growth is becoming a widely accepted principle and studies have shown that implemented strategies can have positive impacts in the manner of addressing resource scarcities. A question to ponder – can prioritising environmental integrity remain a priority in comparison to economic development in Ghana? Research suggests that regulation of the oil industry is lagging behind as oil production levels are on the rise.


Sarah Kiggundu, Consultancy Africa Intelligence, South Africa, examines the West African oil boom and environmental sustainability in the Ghanaian oil industry.