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The Oil Curse Must Be Prevented

oilA resource person and lecturer, Prof. Larry Diamond from Hoover Institution, Stanford University in addressing the audience mentioned that Africa is on the cusp of a major new oil boom. Today, about six African countries derive a major source of their revenues from oil.  Within the next 10-15 years, another twelve countries in West and East Africa will become significant oil exporters, adding another $60-100 billion total in income from oil.
2010 Gulf of Mexico oil disaster

2010 Gulf of Mexico oil disaster

Again, oil wealth has been a curse for almost all developing countries. Oil wealth in lower-income countries results impairs economic growth and human development, increases economic volatility, degrades the quality of governance, undermines democracy and political freedom, and increases the risk and severity of civil war and political violence.

For instance, about $400 million of Nigeria’s oil benefit has gone missing and it’s sitting in town houses in London etc.  All of these therefore, enable the continent to be more corrupt.  Prof. Larry says,’’Africa needs vigorous and politically prudent leadership to address some of these problems.’’

Furthermore, ’’Civil society must work must work together with other bodies of accountability, and it’s time for a country to think outside the box for accountability.’’

In a related development, ACEP says $2 billion has been paid to government so far as a result of the oil find and inflows as a result of the exploration.  The challenge with this growth, however, is how it can be transformative.

One prominent way oil wealth subverts democracy and good governance is by displacing taxation as the main source of government revenue‘’. No taxation,   no representation.’’ Without taxation of citizens for productive economic activity, the bonds of responsibility and accountability between the state and its citizens rapture, and governance descends into a ‘’protection racket’’, a conspiracy by public officials to loot public resources.

Data from MO Ibrahim Index of African Governance show that the major African oil producers have the worst human development performance of any set of African countries. By contrast, the fifteen sustained democracies of Africa none of which is yet a significant oil exporter have the best performance in human development.

The Stanford University professor went on to state that there is a pressing economic, political and moral imperative to consider how to more effectively and transparently manage windfall oil wealth before the next wave of it descends upon Africa.

I recommend ‘’oil to cash’’, the Alaska model, as a promising innovation that can reduce the scope for corruption and increase citizen engagement with the state and incentives to monitor the state. Under this model, a portion of the states oil revenues is distributed directly to all citizens as annual dividends.  In Africa, mobile banking may help provide a means for the reliable and automatic distribution of this revenue.

This assertion has been supported by Dr. Mohammed Amin Adam, Executive Director, Africa Center for Energy Policy (ACEP).  He says that in 2014, Ghana is to receive $700 million on oil, and therefore if it were to be distributed by per capita, each person will receive $32 per year.

So in looking at Ghana’s module on spending oil money, Mohammed Amin Adam clearly thinks that productive spending through infrastructure development is the way to go, however Ghana seems not to be doing well in efficiency on how money is spent.  ‘’Because natural resources are finite resources, it is important to put its benefit to judicious use for all Ghanaians.’’-he says.

Although the Public Interest and Accountability Committee (PIAC)  has been set up as a statutory body to ensure accountability and efficient use of oil money , another framework may be needed and quite appropriate or perhaps a Public Investment Management Plan and Law can be developed with a fiscal legislation framework to support the Petroleum Revenue Management Act (PRMA),

Similarly, an open and competitive bidding process for contracts and licensing for oil discoveries is essential in ensuring transparency as stipulated by regulation 4 of the Local Content Regulation.

The lecture was organised by CDD-Ghana in collaboration with ACEP on the topic, ‘’Managing Windfall Wealth: How Oil Resources Can Generate Development Rather than Decay.’’

Source: Malise Otoo/ Spyghana.com

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Reporting Oil and Gas project was launched on 4th June 2009atTakoradi, Western Region, Ghana by Penplusbytes (PPB – www.penplusbytes.org) with the vision of providing a one stop online information and knowledge about Ghana’s oil and gas sector
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