Ghana produces 174,000 barrels of oil per day, ranking as the 25th largest oil producer in the world. In slightly over 10 years, Ghana has received more than $6.5 billion in oil profits.
An impressive earnings for a nation with a per capita income of $2,137, it is extremely difficult to reconcile Ghana’s recent economic difficulties with the notable increase in oil revenue. There is a high prevalence of economic hardship among working populations. Public sector and middle-income employees are battling to feed their families.
Prices of basic commodities have skyrocketed close to 50 per cent in less than 12 months. These developments have attracted global attention. Economists in particular are drawn to the stark contradiction between a significant boost in oil revenues and the country’s growing rates of poverty.
Research
Studies and discussions have focused on the impact of oil revenue on the living standards of the working classes. The corpus of current knowledge on how oil earnings impact the living standards of vulnerable populations is scattered over many scholarly journals.
As academics, it is our responsibility to critically analyse the claims and provide information to support the formulation of inclusive growth policies.A meta-analysis of the empirical evidence shows that the country’s poverty rates would continue to rise despite oil earnings.
According to the World Bank, 80 per cent of oil revenues benefit only 10 per cent of the population. Revenues generated from the oil and gas sector are widely speculated as a “resource curse,” a condition common to all African nations rich in natural and mineral resources.
The ‘resource curse’ theory contends that the abundance of natural resources undermines economic growth and development. Endowment of natural resources alone does not guarantee economic prosperity and equitable development.
Despite high output in the oil and gas sector, the economic conditions of the average Ghanaian have not improved.
It is interesting to assess how Ghana suddenly went from being the shining star of Africa in 2019 to being a heavily indebted country in 2024. Ghana’s debt is projected to hit a staggering 99 per cent of the GDP by the end of 2024.
In the recent past, the economy grew by eight per cent, which was the fastest in the world. Ghana became a model of economic progress in Africa. Many experts argue that Ghana will not be able to recover from the economic crises and earn decent profits from the oil industry due to a lack of technical knowledge in drilling large quantities of oil.
Despite the industry’s lucrative partnerships with oil multinational firms, the country continues to lose significant petroleum revenues.
Multinational corporations have persistently defaulted in payment of service rentals to the country, resulting in low oil revenues. Several factors have been attributed to this.
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The most significant factor is that the Public Interest and Accountability Committee (PIAC), which was set up to monitor petroleum revenues, has woefully failed in their mandate.
Massive allegations of widespread corruption plague the oil industry. The establishment of an accountability committee to supervise the oil sector is insufficient to combat allegations of corruption, unless policies to prevent resource mismanagement are revised.
Despite evidence of the transfer of oil revenue to various sectors of the economy, including the Free SHS, railroads and service delivery sectors, through annual budget funding, the identification of profitable avenues for investment of the oil revenue has not yet been explored.
It is necessary to identify the high-priority areas where the income should be invested. Revenue is currently allocated to beneficial but unprofitable economic sectors. It is not surprising that communities have grown dissatisfied with how oil revenues have impacted livelihoods.
People in the oil villages have lost their livelihoods since the discovery of oil. In these communities, the social ills caused by forced displacement are getting worse. Community leaders contend that social and corporate responsibility are quite disconnected from the local development goals of the areas.
The reality is that uncontrollably high inflation makes it difficult for the government to alleviate economic hardship in the country.
Critics and economic analysts attribute the rising cost of living to excessive borrowing, reckless spending, corruption and inadequate domestic policies that drive inflation.
Unfortunately, the measures taken by the Bank of Ghana to curb inflation have not been effect
The economy has slowed down as a result of the Cedi’s continued depreciation against the US dollar. Factories are shutting down, thousands of people are losing their jobs and widespread suffering has become the order of the day.
The writer is a Lecturer and Senior Policy Analyst. Economics and Applied Mathematics Department, GIMPA.