By Sarah Lawson and Marina Tolchinsky
The discovery of oil off Ghana’s coast in 2007 sparked both excitement and concern.
While the actual finds were modest in comparison with regional oil powerhouses such as Nigeria and Angola, it was estimated that oil exports could bring $1 billion in gross annual revenues.[1] As the country began production, policymakers created a Local Content Policy to ensure the economic benefits of the oil industry were conferred to the Ghanaian people. Local content can be defined as the inclusion of Ghanaian-originated labor and services in the oil value chain and can range from direct employment of Ghanaians to the procurement of goods, such as cement and use of local caterers, from Ghanaian-owned companies.
Ghana’s recent Local Content and Participation in Petroleum Activities Bill passed in 2013 sets a goal of 90 percent local content in the industry in the next decade. While the bill sets medium and long-term goals for various sub-sectors of the industry, it is still highly ambitious. Many Ghanaians have lauded the high targets, arguing they are necessary to ensure Ghanaians benefit from oil extraction. However, the feasibility of implementing the bill is questionable, due to the exceptionally high targets, lack of enforcement mechanisms, and substantial capacity challenges that exist for both Ghanaian businesses attempting to enter the oil market and individuals seeking employment in the industry. If these capacity challenges are not addressed, the bill is in danger of becoming just lip service to the concept of local content. Ghana must take steps to create a broader plan to develop capacity for local content, involving significant investments in the services sector and training for a technical labor force, in addition to the creation of an enabling environment for both domestic and international businesses.
In January 2014, we traveled to Ghana to explore the economic impacts of the oil sector through 20 interviews with members of the local and national government, civil society and development organizations, and the international oil industry. Our interviews took place in Accra and Sekondi-Takoradi, the capital city of the Western Region where the offshore oil production is located. Ghana offers the opportunity to examine early impacts of the oil industry on local communities, as well as the current governance framework for the industry. As a lower middle-income country with stable democratic institutions and lessons learned from its challenging experiences in the mining sector, Ghana has the potential to become a model for oil industry management in Africa.
In the four years between the discovery of oil and the commencement of production, Ghana embarked on a public debate for how to best manage petroleum revenues, resulting in the landmark Petroleum Revenue Management Act (PRMA) of 2011—the only legislation to be created in Ghana through public consensus. Beyond simply establishing an institutional framework for revenue management, the PRMA also created a Heritage Fund to conserve part of the revenue for future generations and an oversight committee with members from outside the government. While the topic of revenue management has continued to create controversy, watchdog civil society groups maintain an active role in holding the government accountable through coalition-building and vocal media participation. Since 2011, Ghana has continued to restructure its oil industry governance, establishing a new Petroleum Commission to rectify a prior conflict of interest with the Ghana National Petroleum Corporation (GNPC). Plans are currently being made to reform the PRMA in 2014. In addition, Ghana formed the 12-member Public Interest and Accountability Committee (PIAC) to act as a monitoring force for oil revenues. While the PIAC has generated high-level, objective reports on the government’s revenue management, it’s hampered by its member’s lack of technical expertise and the absence of funding to perform its work.[2] It may be too early to judge the effectiveness of the institutional framework, and capacity issues surely do remain, but Ghana has shown a commitment to using democratic platforms to attempt to implement best practices in oil revenue management.
Although Ghana has not yet reached full production in its main oil field, residents of coastal communities in the Western Region have already begun to perceive negative social and environmental impacts from the industry, creating a risk of future social unrest. Jobseekers have flooded the “oil city” of Takoradi, intensifying demand on urban infrastructure, particularly water and sanitation. Additionally, heavy-duty trucks carrying equipment have placed unsustainable pressure on roads infrastructure. The arrival of wealthy oil employees has caused real estate prices to spike, and many complain about substantial traffic congestion in the city. Interviewees also recounted instances of land taken without just compensation for industry development. Oil entities are even perceived to have harmful effects on Takoradi’s social fabric by causing a rise in prostitution.
Outside Takoradi, fishermen in coastal communities attributed their decrease in fish caught to the oil industry, citing schools of fish drawn to the bright lights near the rig, nets damaged by vessels, and increased maritime traffic. Communities also witnessed an unprecedented number of sperm whale deaths.[3] However, due to the lack of baseline of data, the correlation between the oil industry’s activities and the environmental effects has not been established.
In order to mitigate the perceived negative impacts of the industry, Ghana must find a way to extend the economic opportunities of the oil industry to the local population. While the majority of the people we spoke with characterized the economic impact of the oil industry on Ghana’s economy as a whole as positive primarily due to the increased revenue, many responded that the effects on Takoradi’s local economy were either negative or neutral. Young Ghanaians in Sekondi-Takoradi felt the economic opportunities they expected from the discovery of oil had failed to materialize. Both the Ghanaian government and international oil companies, the latter who own 90 percent of Ghana’s oilfields, have struggled to channel these high expectations into concrete opportunities for employment.
Many feel that the answer to sustainable economic development in Ghana lies with the development of local content. The limited number of jobs directly created by the industry, combined with high levels of poverty and an absence of relevant skills, have presented formidable barriers for Ghanaian employment in the oil sector. Additionally, Ghanaian companies seeking to offer goods and services to the industry lack the access to financing and expertise necessary to capture business opportunities. Interviewees stated that foreign companies are providing services as basic as catering. These missed opportunities prevent Ghana from reaping the potential benefits of its new industry.
Two initiatives funded by Ghana’s main oil operators have commenced for the purpose of increasing local content capacity. These include a technical training program at a local university and a center to provide oil-specific business training to Ghanaian small and medium enterprises. Some oil companies have also offered scholarships to secondary schools and university programs in petroleum and gas management. Additionally, some of Ghana’s universities have begun to offer oil and gas relevant programs. Although these initiatives are positive first steps, so far the international oil companies have taken the lead in developing these programs.
As Ghana expands oil production, it must take steps to ensure that the export of oil not only increases GDP, but also substantially contributes to economic well-being. We recommend:
In a number of interviews, respondents identified the services sector as a key point of entry for Ghanaians. The services relevant to the oil industry are many and include basic services such as catering and driving along with more specialized services such as procurement of relevant equipment, well drilling services, and freight-forwarding. The Local Content Bill identifies these sectors, but does not present a comprehensive plan for meeting its ambitious targets. With sector-specific training, as well as general training in health, safety, ethics, and environmentally-friendly practices, Ghanaian small and medium enterprises could be seen as viable providers of services up to the international standards required by oil companies. With the high volume of low-skill workers eager to find employment in the oil industry, the services sector could be an attractive source of economic growth in the short-term.
The Ghanaian government should invest in human capital with the goal of capitalizing on the opportunities created by the oil industry by developing skilled Ghanaian oil and gas professionals. Competition for technical jobs such as petroleum engineers is intense—less than 1,000 personnel are needed offshore in the Jubilee field.[4] Ghanaian participation in this sector of the industry is more challenging, as it takes years to train technical workers and companies prefer experienced professionals for the challenge of off-shore oil work.
Although Corporate Social Responsibility programs can be valuable, the real value-added from oil companies is their expertise in the oil sector. Ghana must leverage this expertise by ensuring that future contracts contain extensive Trainer of Trainer programs to assist in building Ghanaian skills and capacity.
Moreover, to increase human capital, the government, in partnership with oil companies or international donors, could invest in training technical workers abroad and ensuring continuing education programs back home in Ghana. The current small-scale oil sector program at Takoradi Polytechnic, funded with a $6 million grant from Tullow, should be continued and scaled up.[5] With these holistic initiatives, Ghanaians can begin to see a true economic and skills benefit from oil extraction. These improvements also benefit oil companies seeking to expand operations in Ghana. With 22 new discoveries and new companies vying to enter the market every day, well-trained Ghanaian labor will be easier to recruit, retain, and promote into leadership.
To foster an enabling business environment, Ghana should ensure policies regulating the oil industry are implemented consistently. This will allow for long-term business planning and sustained growth. The government can also make available increased seed and working capital for Ghanaian small businesses in the oil and ancillary services sector, organize additional trade shows and matchmaking opportunities between domestic and international companies, and offer tax incentives to foster entrepreneurship for domestic companies. These measures have the potential to assist both domestic and international businesses.
Balancing inclusive economic growth with the needs of business is a challenge. Utilizing the oil sector to further Ghana’s economic development will require creative management of oil companies to translate extraction into sustainable job creation and growth. Striking this balance will be critical for Ghana’s future.
[1] Africa Centre for Energy Policy. “How a Good Law May Not Stop Oil Money From Going Down the Drain,” July 2013. Page 14.
[2] Mohammed Amin Adam, interview with authors, January 6, 2014.
[3] Solomon Ampofo, interview with authors, January 13, 2014.
[4] Thomas Kastning, “Basic Overview of Ghana’s Emerging Oil Industry,” Friedrich Ebert Stiftung, 2011, 6.
[5] Ken McGhee, interview with authors, January 14 2014.
Sarah Lawson and Marina Tolchinsky are Master’s Candidates in African Studies at the Johns Hopkins University School of Advanced International Studies (SAIS). In January 2014, they traveled to Ghana to complete their thesis research. Sarah Lawson graduated from Tufts University in 2008, after which she served as a Kiva Fellow in Benin and assisted in developing and managing USAID agriculture and land projects in D.C. for three years. Marina Tolchinsky graduated from University of Southern California in 2013 after performing research in Mali and studying in South Africa. Last summer, she worked with Innovations for Poverty Action (IPA) on an impact evaluation in Ghana.
