When Ghana struck oil in 2007, citizens expected the industry would bring them better lives and investors anticipated hefty profits from a rising African economic star. Six years later, all of them are complaining.
Lower-than-expected production from the offshore Jubilee field and funding a costly presidential election process in 2012 have left the West African nation struggling to deliver promised development projects while keeping its finances in order.
The situation underscores the complex reality of translating raw materials into prosperity on a continent notorious for the “resource curse” of graft, strife and mismanagement that has hit oil-rich countries like Nigeria, Angola and Equatorial Guinea.
Newly elected President John Dramani Mahama is walking a fiscal tightrope between ordinary Ghanaians demanding swift change and investors alarmed by the country’s ballooning debt.
A stumble could prove politically costly for Mahama and financially disastrous for Ghana as it seeks to retain its access to credit to fund rapid growth.
“Because of oil production, rising expectations in Ghana will have to be met. But at the same time, past policy choices constrain the room for maneuver and Ghana is toeing a very delicate line,” said Razia Khan, Africa analyst at Standard Chartered Bank in London.
Eschewing the deepest of cuts, Ghana’s 2013 budget plotted a middle-of-the road route intended to trim the deficit while using increased revenues to fund a jump in public spending.
Last month, Finance Minister Seth Terkper unveiled plans to pare the government’s deficit to 9 percent of gross domestic product (GDP) this year from 12.1 percent in 2012, while cranking up expenditures by 20 percent.
That disappointed economists who were expecting Ghana to reaffirm its commitment to a deficit of 6 percent of GDP – the target it set and then widely missed in 2012.
Rating agency Fitch had already downgraded the outlook for Ghana’s credit rating to negative from stable in February after details emerged of deteriorating public finances – a blow to its reputation as a model of African potential. ID: nWLA006W9
Total public debt rose by more than a fifth last year to $18.8 billion, versus $15.3 billion in 2011.
STUDYING UNDER TREES
Rare in a region where coups, civil wars, disputed elections and strong-arm rulers are the norm, Ghana has distinguished itself with six peaceful transfers of power via the ballot box.
That reputation allowed it to launch a $750-million eurobond in 2007 and helped it secure the accolade of hosting Barack Obama for his first African trip as U.S. president in 2009.
Across the capital Accra, evidence of new resource wealth abounds – brightly-lit multi-storey buildings, cranes looming over construction sites, well-paved roads and billboards advertising banks, cars and mobile phones.
But many Ghanaians remain excluded. An influx of rural workers hoping for jobs in Accra, has spawned a sprawl of outlying shanty towns and spilled vendors across the streets.
Standing in a trash-strewn courtyard, 49-year-old school teacher Monica Quansah wonders where the oil money is going.
“Our children are still attending school under trees,” she said. “Those of us in the city don’t have reliable power and water, let alone those in the regions.”
Grace Asantewaa, who voiced hope three years ago that oil would improve people’s lives, said she had yet to see any benefit: “Nothing has changed. We are even worse off than before because prices have shot up significantly,” she said behind her stall of tomatoes and chili peppers at the teeming Agbogbloshie market along a potholed road in the seaside capital.
Mahama won the presidency in December by tapping into public frustration at the slow pace of change for ordinary Ghanaians.
Among other things, he promised to build 200 new school blocks within his first four years, bolster crumbling water and power infrastructure, pave roads outside Accra and sustain economic growth at 8 percent or more.
But he was dealt a tough hand.
Technical hitches meant Tullow Oil’s Jubilee field, 80 km (50 miles) offshore and the prime engine for revenue growth, produced 72,000 barrels per day in 2012, well shy of a 90,000 bpd target.
A report last month showed Ghana received $540 million from the oil industry last year, far short of a projected $774 million. About $32 million of that was saved in Ghana’s two-year-old sovereign wealth fund, which was valued at about $72 million at the end of 2012.
Nigeria’s oil-fed sovereign wealth fund, by comparison, is worth about $1 billion.
A public pay hike and election spending after the sudden death of President John Atta Mills in July further squeezed finances. Simply organizing the voting last year cost $125 million – over one percent of planned annual public spending.
Ghana has missed its budget deficit target in every election year since constitutional rule was restored in 1992.
Vice President Kwesi Amissah-Arthur said the government chose slow fiscal consolidation to balance growth and stability.
“An attempt to correct the fiscal imbalance in one year would be extreme,” he said. “We’d be putting the brakes on at a time when we also have the responsibility to ensure economic growth to create employment opportunities for our people.”
The West African country ranked among Africa’s fastest growing economies in 2011 and attained a lower middle-income status, propelled by the 2010 start up of oil production.
With reserves of 800 million barrels of high-quality oil and potential for at least one billion more, the field makes Ghana one of sub-Saharan Africa’s top 10 oil producers. Tullow hopes to produce 120,000 bpd this year and 200,000 bpd by 2015.
Despite the budgeted spending jump, Ghana will struggle to fulfill the social projects planned this year, said Amissah-Arthur, who also chairs Ghana’s economic management committee.
“It means we could only be providing one or two of those school blocks this year and that’s not good enough,” he said, adding the government was seeking private sector investment.
Ghana is also grappling with power and water infrastructure problems that authorities say will require hundreds of millions of dollars to fix. Payments to private-sector healthcare providers and some public-sector workers are also in arrears.
Joe Abbey, economist at the Accra-based Centre for Policy Analysis, said the government must prioritize:
“There are verifiable deficiencies in our infrastructure. The most critical one is energy,” he said. “It’s a huge problem because every economic activity depends on reliable energy.”
In an ironic twist to the nation’s status as an oil producer, Ghanaian power utility, Volta River Authority, has been rationing power since September because it lacks the money to buy light crude after a subsea pipeline was damaged.
Ghana is hoping to start producing its own natural gas to generate power by year-end but until then residents will have to bear power cuts lasting 12 hours every other day.
In a sign the government is feeling the financial pressure, Mahama’s administration slashed fuel subsidies in February, resulting in a 20-percent rise in prices at the pump.
“We must learn to cut our coat to fit out cloth,” said Bruce Ayiku, a 53 year-old physician. “There’s too much extravagance around government machinery of late.”