| |
 |
|
ThisWeekGhana.com becomes the D-O-T
before the dot com
|
|
|
 |
|
|
Commentary Page
We invite commentaries from writers all over. The subject is about
Ghana and the world. We reserve the right to accept or reject
submissions, but we are not necessarily responsible for the opinions
expressed in articles we publish......MORE
|
|
Ghana’s oil discovery: Lessons from Nigeria
By Dr. Olajide Damilola
THE news filtered around the international media recently that
Ghana will start pumping its oil, estimated to be a minimum of 1
billion barrels in reserve. However, this news has been met with
both joy and fear. Joy because this means Ghana now joins the
league of oil producing countries,with the attendant streams of
petrol Dollar in revenue.
There is the fear of the so-called oil resource ‘curse’ or the
paradox of
plenty - often used to describe a situation in which countries
blessed
with abundance of natural resources such as oil tend to have
worse
economic and development outcomes. This economic phenomenon is
sometimes called the Dutch disease.
Macroeconomics traditionally offers some insights into how the
‘blessing’
of abundant natural resources might turned into a ‘curse’
overtime. This
may occur when the revenue from oil exports initially leads to
increase in
real exchange rate and wages. This increase in turn will
eventually damage the other productive or tradable sectors of
the economy, such as the agriculture and manufacturing, as they
become less competitive in world markets.
On the government front, the revenue from oil exports will more
likely
result in higher government spending (e.g. on education, health,
etc.),
but this is more likely to be financed through deficits in
anticipation of
higher oil revenue that are vulnerable to vagaries in world oil
prices.
Overtime, as the real sectors of the economy are exposed to
international competition, the revenue from oil also becomes
volatile due to exposure to global commodity market shocks, and
this leaves the economy largely dependent on oil revenue.
Yet it would be very naďve to jump to the conclusion that all
resource
abundant countries are ‘cursed’. Whereas not all resource-rich
countries
have experienced the resource ‘curse’ phenomenon, one wonders
why
generally, the resource abundant countries (e.g. Nigeria, Sierra
Leone,
Angola, and Venezuela are all resource-rich) seem to lag behind
countries with less resources (e.g. the Asian tigers: Hong Kong,
Korea, and Singapore are all resource-poor) in economic growth
and development.
These diverging experiences have been associated with the
quality of a
country’s institutions in managing the natural resource. The
institutional
explanation focuses on how a country’s institutional arrangement
shapes
the distribution of rents or the allocation of entrepreneurship
between
productive and rent-seeking activities (grabbing) in the
country. An
institutional arrangement can be producer friendly or a grabber
friendly,
depending on relationship between rent-seeking and productive
activities in the polity.
Rent-seeking relates to gains through manipulation or
exploitation of the
economic/political environment, rather than through economic
transactions that genuinely increase wealth through
entrepreneurship. Thus, an institutional arrangement is producer
friendly when rent-seeking and entrepreneurial (productive)
activities are complementary. This means that rent-seeking
activities do not crowd out entrepreneurial activities.
It is a grabber friendly when these activities are competing. In
this
regard, unproductive activities are beneficial, for example due
to a weak
rule of law, ineffectual or malfunctioning bureaucracy, and the
presence
of unstable or corrupt institutions. Hence, people expend extra
resource
to gain access to the control of resources, which provides
incentive to
easily divert actual or expected revenue stream from oil
exploration
activities to unproductive activities.
With credible institutions however, resource abundance attracts
entrepreneurial resources into productive activities, implying
higher
economic growth and development. In a grabber institutional
environment, natural resources abundance push aggregate income
down, which makes the majority of the people worse off. More
resources raise income and people are better off when
institutions are producer friendly.
The institutional approach described above supports the evidence
showing that the resource ‘curse’ phenomenon only occurs in
countries with weak or ineffectual institutions, whereas this
does not appear to be so in countries with credible
institutional environment. Just as natural
resources remain a blessing for countries such as Botswana,
Canada,
Australia, and Norway, the same cannot be said about countries
such as
Nigeria and Venezuela.
To date, the Economic Freedom of the World index (EFW) provided
by the Fraser Institute, Canada, provides the most
comprehensive, objective and accurate measure of a country’s
quality of institutions. This is measured by the degree of
economic freedom prevailing in the country, covering 141
countries of the world. The key components include security of
property rights, size of government, legal structure, access to
sound money, freedom to trade internationally as well as
regulation of credit, labour and business.
Each of these components are scored for each country to arrive
at an
overall EFW index (ranging between one worst to 10 best) and the
associated rank of the country amongst 141 countries. The
quality of
institutions in Ghana has improved considerably in nearly three
decades,
with the overall EFX index increasing from 2.9 in 1980 to 7.0 in
2008,
representing an increase of 141 per cent. In relative terms
(relative to
other countries), Ghana’s ranking has improved from the bottom
25th
percentile (105 of 141) in 1980 to the top 50th percentile (70
of 141) in
2008.
These figures are consistent with the average performance in
resource-rich but curse-free countries such as Botswana,
Indonesia, Australia and
Norway. Ghana openness to international trade has been a major
contributor to this performance. Based on the evidence of
Ghana’s performance in terms of quality of institutions in the
last three decades or so, it is less likely that Ghana will
suffer from resource ‘curse’, compared to countries such as
Venezuela and Nigeria.
No doubt, the discovery of oil will put the Ghana’s
institutional
arrangements to test, which should be a key source of fear. This
is the
fear that the quality of existing institutions might become
unsustainable
as it happened in Venezuela, where the discovery of oil appears
to have
actually destroyed quality of her institutions overtime.
Venezuela’s rank
declined from the top 10 per cent in 1980 to the bottom two per
cent in
2008, ranking only better than Angola and Zimbabwe on the EFW
ranking. Nevertheless, the cost of starting a business and
associated bureaucracies is still high in Ghana relative to
other resource rich but curse-free countries. Also, Ghana still
ranks relatively lower (less than 5.0) in a few labour market
indicators and the integrity of the legal system.
Thus, it is suggested that oil exploration should be matched
with policies
aimed at improving these low ranked areas, coupled with efforts
to sustain the quality of existing institutions, including
openness to international trade, labour, credit, and business
regulations, and the size of government. In other words, for
Ghana to escape the ‘curse’, its oil
discovery should be matched with improving and sustaining the
quality of its institutions.
Dr. Olajide is a Senior Research Fellow with Initiative for
Public
Policy Analysis, a public policy think tank in Lagos.
|
|
|
|
|
|
|
 |
 |
 |
The Power of Positive Thinking in
2011
Commentary, Jan 10, Ghanadot - We are bombarded
by negative messages and toxic language from our
clients, television, radio, newsprint, the internet,
friends and some family members on a daily basis. With
all the negativity that abound, how can we stay
positive? ...More |
|
|
Matters arising, Article 71 and
the Chinery-Hesse Commission’s Report
Commentary, Jan 14, Ghanadot - A constitutional
issue was raised when a member of Parliament (MP) for
Atwima Mponua, Mr Isaac Asiamah, described as
“unconstitutional the current salaries being paid public
office holders listed under Article 71 of the 1992
Constitution,” as reported on December 29, 2010 by a
Daily Graphic on-line article.....More
|
|
|
|
|
|
Ghana’s oil discovery: Lessons
from Nigeria
Commentary, Jan 13, Ghanadot - The news filtered
around the international media recently that Ghana will
start pumping its oil, estimated to be a minimum of 1
billion barrels in reserve. However, this news has been
met with both joy and fear. Joy because this means Ghana
now joins the league of oil producing countries,with the
attendant streams of petrol Dollar in revenue..
...More
|
|
|
Understanding the Present
Political Crisis in Cote d’Ivoire
Commentary, Jan 10, Ghanadot - That Alassane
Ouattara won the election in Cote d’Ivoire on November
28, 2010, is acknowledged even by his opponent, Laurent
Gbagbo. The problem arose only because the
constitutional council subsequently ruled against
certain poll counts in Ouattara’s strongholds in the
north of the country...More
|
|
|
|
|
|
|
|
|
| |
SPONSORSHIP AD HERE |
|
|
|
|
|
|
