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Filling a truck with diesel fuel at a Ghana Oil station in Accra: One of Africa's newest oil producers, Ghana has put into place laws and institutions to help ensure that oil revenues are not wasted or diverted, but benefit the country's development.

Photo: Panos/Jenny Matthews

When the oil rigs started pumping crude off the coast of Ghana鈥檚 Western Region in December 2009, many people hoped for better living standards and development. But some worried that the country did not have the necessary laws to properly manage the new revenues. They wondered whether Ghana would be able to break the 鈥渃urse鈥� that has often marked Africa鈥檚 oil and mining industries: decades of extraction that often saw only a few getting richer but the majority getting poorer, economic distortions caused by improperly managed resource wealth and hardly any money set aside for times when commodity prices dip or the wells dry up.

For Ghana, examples of such problems are very close to home. Nigeria, its West African neighbour 鈥� and the continent鈥檚 largest crude producer 鈥� saw successive governments deplete the estimated $400 billion earned from crude oil sales since the 1970s. Besides, Ghana鈥檚 own record in managing mineral revenues after a hundred years of gold mining was not the best.

But it seems that a new dawn has broken. Steve Manteaw of the Civil Society Platform on Oil and Gas 鈥� a coalition of civil society groups that promotes transparent and accountable management of oil and mineral wealth 鈥� told Africa Renewal that 鈥淕hana is on the right path because it has in place a law that governs how the oil revenue is collected and managed.鈥�

Emmanuel Kuyole, Africa regional coordinator of the Revenue Watch Institute, an international non-profit policy body headquartered in听New York but with a major office in Ghana, hopes that this law 鈥渃an听stand the test of time.鈥澨�

Law an 鈥榠nnovation鈥�

Experts have described Ghana鈥檚 Revenue Management Act 鈥� passed more than a year after the first oil was pumped from the country鈥檚 Jubilee Field 鈥� as an 鈥渋nnovation.鈥� The law outlines clear mechanisms for collecting and distributing petroleum revenue. It specifies what percentage should help fund the annual budget, what should be set aside for future generations and what should be invested for a rainy day.听

Petroleum revenue contributed 4 per cent of the government鈥檚 total capital spending in 2011. The funds went mainly to investments in road infrastructure, but also to building the capacity of the oil and gas sector, repaying loans and strengthening agriculture, most notably for fertilizer subsidies.

As Mr. Kuyole told Africa Renewal, 鈥淭he law has made it possible to ensure that all revenues collected from petroleum production are being accounted for, because the money goes into one particular fund before disbursement is done. Without such a law in place, it would be virtually impossible to monitor receipts from the sector.鈥�

In devising its law, Ghana borrowed from best practices in Norway, Timor- Leste and Trinidad and Tobago, which have developed laws to better govern oil and gas exploration and production, and to manage the revenues.听

Independent oversight

Rarely are citizens鈥� groups given a chance to oversee how natural resource revenue is managed in Africa. That is why experts have hailed the creation of Ghana鈥檚 Public Interest and Accountability Committee (PIAC) under the provisions of the petroleum revenue law. Civil society groups lobbied vigorously for the 13-member committee. With membership drawn from organized professional bodies, think tanks, pressure groups and traditional institutions, among others, the body serves as a platform for public debate on how petroleum revenues are spent.

The PIAC also monitors and evaluates compliance with the law by the government and other institutions, provides an independent assessment of petroleum production and receipts, and publishes its findings in half-year and annual reports. A report issued in May 2012 covering oil production in 2011 found that its revenues provided the government with considerable fiscal relief, thereby enabling it to shift more funds into development programmes. But it also noted that the government did not fully comply with all the law鈥檚 provisions. The Revenue Watch Institute commented that the report 鈥渟ets new standards for accountability.鈥�

The law alone, experts say, does not solve all the problems. Mr. Kuyole notes that it needs to be backed by appropriate regulations determining how the government spends its annual budgetary allocation, among other things.

Continuing challenges

African governments often lack the capacity to effectively monitor resource production, and thereby to determine accurately how much revenue they are owed. Yusupha Crookes, the World Bank鈥檚 country director in Ghana, recently commented, 鈥淎 mining fiscal regime is only as effective as the combined administrative capacity of the government institutions charged with enforcing it.鈥�

Mr. Crookes argued that 鈥渋t is important to have systems and processes in place to effectively address oil, gas and mining tax payments administration,鈥� since 鈥渢he general tax system may not be efficient enough for the extractive sector.鈥�

Mr. Kuyole of the Revenue Watch Institute agrees. In Ghana鈥檚 case, he stresses the need to put in place all the various committees provided for by the law, and to strengthen institutions like the Petroleum Commission and the unit of the Ghana Revenue Authority involved in monitoring production and the determination of revenue.

Ghana may need to look at how revenue paid by mining companies is determined and at who is calling the shots, says Kwaku Boa-Amponsem of Boas and Associate, the lead consultant for the Ghana Extractive Industries Transparency Initiative鈥檚 multi-stakeholders group.

Sometimes all that is needed is to make the law clearer. In Ghana, complexities under the tax law in computing mining royalties meant that firms paid the lowest rate for many years. After a review of the law last year, revenues are now expected to increase substantially.

New frontiers

Across Africa new oil fields are being discovered. Chad, C么te d鈥橧voire, Liberia and Mauritania have all discovered oil in commercial quantities. And in the last couple of years new discoveries have been made in Angola, Cameroon, Gabon, Niger and Sierra Leone, while extensive exploration is ongoing in a number of others. East African neighbours Kenya and Uganda are poised to become major oil producers in the near future.

Dr. Manteaw of the Civil Society Platform on Oil and Gas thinks there are lessons for Ghana and for African oil-producing countries more generally. 鈥淲here countries have effectively used natural resources to transform their economies and the lives of their people,鈥� he points out, 鈥渢he countries themselves have been active participants in the sector and work towards ownership by buying shares in the producer firms or reinvesting the revenue and living off the dividends, like Botswana.鈥�

Professor Paul Collier, director of the International Growth Centre, a UK research institute, expressed similar views during a recent visit to Liberia. He said that the discovery of oil there could either end poverty or increase it, depending on which road Liberians follow: 鈥淚f you find yourself at the听crossroads, it鈥檚 your determination听that can lead you to the case of Botswana or Ghana and not other worse oil scenarios in the world.鈥澨�

After decades of oil production and billions of dollars in revenue unaccounted for, Nigerians are hoping that the country鈥檚 new Sovereign Wealth Fund 鈥� if managed well 鈥� will improve living standards. Angola, Africa鈥檚 second largest oil producer, is also considering setting up such a fund.

Overall, Mr. Manteaw argues, the processing of licences and negotiation of contracts in Ghana and other countries 鈥渕ust be made transparent through competitive bidding.鈥� For its part, Ghana has started well and needs to stay the course, he says. 鈥淒oing for mining what Ghana has done for oil should be the future for managing the wealth from Africa鈥檚 vast natural resources.鈥濃��