FCIT, FICB, FCCE, C.A. (Gh), MTP (SA), MPhil (Econs), LLB (Hons), BL Managing Consultant WTS Nakyea & Adebiyi (Tax Attorneys & Solicitors)

 Ghana’s oil is expected to flow before the end of the 2010 fiscal year.  Inasmuch as the reserves have been identified to be modest by international standards, there are high expectations that it will transform our economy.  This notion is what raises concerns as to the challenges and opportunities to the country.

 The period showed that Ghana had improved on its hitherto average of 4% annual growth rate to a medium-term annual growth rate of about 6%.  The story was not pleasant in 2008 in respect of fiscal deficit which rose above 14% of GDP.  The overall budget deficit equivalent to 9.4% of GDP was pursued in 2009.

 In the 2010 budget, government is targeting an overall fiscal deficit equivalent to 7.5% of GDP.  The expectation above makes people wonder whether government intends to rely on the oil revenue to attain the set target.

 It has been a difficult challenge for many countries across the world on how to manage their oil revenues.  Such countries include Ecuador, Mexico, Nigeria and Venezuela.  Nigeria used its oil revenue for investments in capital and infrastructure in the 1970s and 1980s but today, living standards have dipped.

 The greatest challenge is whether the government would avoid the risk of using its revenue from the oil to fund the budget instead of investing in productive sectors.  Transparency. Whether government will abide by the Extractive Industries Transparency Initiative which places emphasis on full disclosure and publication of reports on revenue and their use.

 Dutch disease. The danger of concentrating on the newly found resources, oil to the detriment of already existing sectors and resources.  How do we develop local content? How can the government assist in resources Ghanaian entrepreneurs to venture into the oil sector and fill the local content gap?

 The opportunity to use the revenue from oil to fund poverty reduction programmes.  Strong investments in human development and capital infrastructure which would boost investor confidence to grow the economy.  Boost in allied industries as in gas, to bring down energy tariffs.

 Developing reliable energy supply to boost agriculture. A shift from reliance on solar for drying our cash crops – cocoa, gari, groundnuts, etc.

 Oil Fund. The Fund be invested in low-risk securities abroad, and all interest earned flows back into the Fund.  Each year Parliament has to approve transfers from the Fund to finance budget deficits. The amount to be withdrawn is limited to keep the Fund operational and must be calculated each year anew.

 Transparency and accountability are ensured via different mechanisms: (i) A Petroleum Fund Consultative Body which consists of representatives from various sectors of society should be put in place. (ii) Investment Advisory Board needs to be put in place.

 Before the withdrawal of money from the Fund, Parliament must consult the Petroleum Fund Consultative Body.  The Government must provide Parliament each year with an annual report including financial audit results, receipts and withdrawals, a balance sheet, development of the Fund and advice from the Investment Advisory Board.

 Information about oil company payments to the Government should be a requirement under the Petroleum Fund Law.

 Inasmuch as countries such as Norway and Timor Liste have very good systems of managing the use of oil revenue to reduce their budget deficits, Ghana has to tread with caution so as not to over rely on the oil revenue to finance budget deficits. This is because oil price shocks may end up widening the budget deficit rather than reducing it.

Abdallah Ali-Nakyea FCIT, FICB, FCCE, C.A. (Gh), MTP (SA), MPhil (Econs), LLB (Hons), BL Managing Consultant WTS Nakyea & Adebiyi (Tax Attorneys & Solicitors) P. O. Box KD 66 Kanda-Accra