"We're going to really zoom, accelerate, and if everything works, which I pray will happen positively, you come back in five years, and you'll see that Ghana truly is the African tiger, in economic terms for development."
That was the comment of the former Ghanaian President John Kufuor in the year of 2007. The reason for this enthusiasm was the discovery of oil reserves on Ghanaian territory. But while corks are popping in Accra, there are also some concerns being raised. Ghana has experienced solid economic and social development within the years before finding the oil. Now that oil has been found, one should not forget that there are many countries in Africa which are rather cursed than blessed with natural resources. This phenomenon is known as the resource curse or more specifically the oil curse. The oil curse predicts that oil abundant countries experience lower growth than countries which are not having great resources. By saying African tiger Mr. Kufuor actually refers to East Asian states which are known for their magnificent economic boost. However, they achieved this economic development although -or maybe even because- they were having no resources at all.
But that is not the full story. In fact countries that have reached a certain threshold of institutional quality, tend to enable its economy to, some sort of, bypass the curse.
In the research I conducted back in 2011, my observation was that Ghana can be compared with Botswana. People will now ask: Why Botswana? Do they have recently found oil? NO, they did not but there entire economy is based on another mineral, that is, at the second glance, not much different from oil – Diamonds. In Africa’s history diamonds have –at least- prolonged many conflicts in various regions, perhaps even more than oil.
Botswana did it before
Botswana is indeed one of the shining positive examples from the least developed continent. When the landlocked country became independent in 1966 it was one of the most economically challenged countries in the world. At that time Botswana had 12 kilometres of paved roads, 22 graduates from university and 100 from secondary school. Good economic policy and stable institutions made it possible for the country to gain from its natural resources. Then Botswana experienced enormous growth within the years 1966 and 2007. But was has happened in Botswana that did not happen in Sierra Leone (war-torn diamond abundant country)?
Recent comments and contemporary paradigms
To answer that question, I would like to comment on a recent article published in the Foreign Affairs Magazin, titled “Petroleum to the People”. In this excellent piece the authors discuss Africa’s coming resource curse—and how to avoid It. In doing so, they suggest some sort of direct transfer of cash to the people, which is then taxed. This concept should lead to more accountability and transparency at the government level. A recent post by “the International” written by Alexandra Kerr describes the other side of the same coin by underlining and demanding the importance of transparency from both the industry and the government.
Ghana goes Good Governance
While I personally agree with the first article, I want to add something that is not fully addressed. The article states that “Even Ghana, the most liberal and stable democracy in West Africa, could fall victim to the problem of oil revenues.” While I will have no tool to prove that Ghana could not fall victim, I simply do not think so because of the following: Good Governance.
Good Governance is one of the factors that may be ruined by windfall rents, but we have measures that suggest that Ghana will not end up in a, what economists call a grabbers equilibrium. Grabbers are defined as identities which target rents from natural resources by using all their capacity to do so. The ratio of grabbers to producers is determined by the institutions of country. If the ratio become too high for the economy to handle (this is not clearly defined) the grabbers will take over and the institutional quality will go down.
Grabbers? Not in Ghana!
Only time will show whether Ghana will be a true African tiger or not. Forecasts, however, may be done when taking into account the theory and thereby seek to find out if certain policies conducted would be successful. The theory and the literature on the resource curse is well-established when it comes to determining why a country has been curse or why a country finds itself in a situation that prohibits it from developing, but here the question is what can a country do to gain from its natural wealth.
But, Ghana seems to have already learnt a lot from the best performers as they are providing an excellent framework to engage in these policies. The findings of this study also show that the Petroleum Revenue Management Act is able to facilitate the government with a legal and policy framework that enables them to challenge every aspect of the resource curse.
Indicators to be observed
The Petroleum Revenue Management Act suggests the following distribution of oil based revenue (see graph).
If Ghana’s government is able to maintain its tax base, to be accountable to its people (currently the Ghana’s government was able to allocate a solid tax-based income. Measured as tax revenue as a percentage of GDP, the government managed to allocate a tax revenue that measures 12-14% of the GDP in the last years. This is higher than the rate of Germany, for example.) and to maintain the policies outlined in the Petroleum Revenue Management Act (PRMA), Ghana will be on a solid path to lift the resource curse. Similarly, these two factors can be taken as tool to verify the vulnerability of Ghana’s institutional quality or the quality of the governance to come. In other words, as long as the tax remains the same (or shrinks a little, due to the structural changes) and the concept outlined in the PRMA, I would think Ghana is on a solid track towards becoming a true African tiger.