On June 18, 2007, British oil company Tullow Oil announced the discovery of a large oil reserves off the coast of Ghana. Tullow Oil had previously forecasted the reserves would produce approximately 250 million barrels of light oil. However, once the company began drilling, it was discovered that there was actually about 600 million barrels of light oil with the possibility of even more being discovered after actual oil extraction commences.
Although oil is not expected to start flowing for several more years, concerns have increased regarding the overall impact of oil related profits on the future of Ghana. The forecasted beneficial economic gains seem positive at face value, however fears of increased corruption, crime and violence are tempering the overall enthusiasm.
We believe Ghana’s established democracy and organized system of governance will aid in its ability to reduce problems encountered by the onset of wealth obtained from oil-related profits. However, corruption will remain a significant issue. Many other African countries obtained oil riches prior to having mature governmental systems to manage such wealth and as a result have been unable to subvert associated corruption and crime.
Ghana’s Economic Boom
The recent oil discovery is expected to result in an economic boom in Ghana. Since taking office in 2000, President John Kufuor has focused on improving Ghana’s economy. So far, there has been significant progress in reducing inflation and borrowing costs. President Kufuor has also made fighting corruption a priority of his administration. Despite the progress made to date, corruption remains a significant problem.
President Kufuor has pledged to use oil revenues to improve the infrastructure of the country. In particular, he has said he will spend the money on schools, roads, and hospitals. He has said that unlike several African countries that have squandered oil revenues through corruption, Ghana will manage the oil revenues responsibly with a “zero tolerance” corruption policy. President Kufuor has predicted that Ghana will become an “African tiger” economically. With the expected oil boom, there will likely be an increase in foreign direct investment in Ghana, which is hoped to further Ghana’s overall economic interests and growth.
Oil in Africa
The discovery of oil in Ghana is part of a larger focus oil companies have placed on oil exploration in Africa. Major oil producing nations in Africa include Nigeria, Angola, Sudan, Cameroon, Equatorial Guinea, and Gabon. As part of the continued emphasis on oil in Africa, foreign countries such as China and Indonesia have significantly increased their presence and investment throughout the region. With the increasing price of oil in recent years, combined with increasing instability in the Middle East, Africa is expected to continue to become increasingly important to multinational oil companies.
Future Concerns
Many of the top oil producing countries in Africa are plagued by corruption, crime, and civil wars. The top oil producing countries also are among the least democratic in Africa. Much of the cause of these problems is rooted in the discovery of oil decades ago. Following decades of dictatorships, Ghana has emerged as one of the most democratic and open societies in Africa.
We believe the discovery of oil after Ghana has become an established democracy will likely assist in tempering or preventing many of the problems that have plagued other oil producing countries in Africa.
We remain concerned at the levels of poverty and corruption in Ghana, however, we believe the discovery of oil will generally lead to positive developments in Ghana.