| Ghana’s Economy Essay
The chapter delineates the design used, study area, instrumentation and procedures employed in this study. The benefits and rationale for each approach adopted in the study will be expressed in details. This will enhance understanding of the study in a better way. The aim of the study is to determine the economic consequences related to Ghana OPEC membership. This will determine the effectiveness joining the organization and the expected repercussion.
The research design adopted is a descriptive study. Both qualitative and quantitative approaches will be used in the study to supplement each other in gathering the required amount of information and data. This will ensure that the conclusion made will be reliable and valid. It is worth noting that using the two approaches will lead to highly feasible recommendations. Qualitative research is an exploratory procedure seeking comprehension of social or human problems (Adam 2009). Adam (2009) argues that conducting a qualitative research excavates adequate data needed in drawing reliable inferences.
In this approach, the researcher uses distinct approaches of inquiry and explorations. In this type of study, the researcher analyses information obtained from secondary data and other researchers. According to Ghauri (2005), qualitative method is highly applicable for descriptive. Sandelowski (2000) argues that descriptive studies depend on perceptions, sensitivity, and sensibility of the researcher. A quantitative research design, on the other hand, adopts positivist philosophy of explaining the goals of research with the support of numbers and statistical data to quantify phenomena (Sandelowski 2000). Descriptive approach of study is associated with reliability and easier agreement among researchers. Mostly, the researcher employed a qualitative, descriptive approach with minimal quantitative approach. Judging by the nature of the research, exploratory, qualitative approach seemed to suit the study more than quantitative one, which is involved in explanatory study.
According to Sandelowski (2000), qualitative, descriptive studies are likely aimed at comprehensibility of the result as they happen in their normal setting. The wording is of much concern in descriptive studies as compared to studies such as phenomenological or narrative ones (Strauss & Corbin 1998). As opposed to quantitative studies, qualitative studies allow the research to input personal perception of the data. This enhances the suitability of the information and data collected in relation to the topic under evaluation. The choice to include quantitative method was motivated by the fact that the study needs supportive statistical data, which cannot be changed by the researcher while emphasizing the facts.
The issue of context sensitivity, which is more experienced in qualitative research, carries ample significance in this study. The research acknowledges that human behaviors are more influenced by situations and environment. Therefore, the setting context is crucial in this study. Being a member of OPEC is a distinct situation that can influence the economy of Ghana in a different way from any other organization. Moreover, the choice of the country, Ghana, offers a convenient ground for drawing conclusion or generalization to other nations with almost equal oil production capacity.
Ghana is one of the West African countries sharing boundaries with Ivory Coast to the west, Togo to the east, the Gulf of Guinea to the south, and Burkina Faso to the north. The Ghanas economy has a varied and wealthy resource foundation. For example, the agricultural industry contributed 37.30% of GDP with 25.30% direct from the industry and 37.50% from services. According to 2008 World Bank GDP (PPP) per capita ranking, Ghana was positioned the 140 in the world with US$ 1,452 (World Bank 2008). When Ghana oil started flowing in 2011 and before, the prospect that oil generates were high among its citizens. This was amid Ghanas macroeconomic crisis, which is of significance to the countrys economy. Oil reserves are quite modest judging on the international standards and consequently may not transform the economy into an oil dependent one. However, there are the reserves that are large enough to influence it either positively or negatively. Objectively, the Ghanas economy is expected to have high developmental returns from oil exploitation. Save for sufficient preparation, there are high chances of misuse and misappropriation of oil revenues, where it can cause a decline in per capita revenue speaking in absolute terms after the first years of production (World Bank 2009).
Sampling is the process of selecting a representation of the population understudy. In studies that involve secondary sources of information, sampling involves selection of the boundaries or the extent to which the researcher will explore. Cherry (2000) identified two types of sampling approaches: traditional social science and phenomenological approach. Traditional social science involves selecting samples from a study population. On the other hand, phenomenological approach involves the selection process that relies on theoretical developed study.
This study will employ phenomenological approach since most of the data used in the study is from secondary sources. The researcher used the purposive sampling method due to its appropriateness in the nature of the study. The selection of data using this method enables the researcher to possess the information rich sources for profound analysis. The sampling method also improves utility of data obtained from shallow sources. The data used was restricted to that related with the production and exportation of oil among the member states.
The researcher used surveys to obtain secondary data sources. The choice of the survey method of data collection was motivated by several advantages. Surveys are preferred since they have high representativeness, cost efficient, enhanced effectiveness in data gathering, improved statistical vitality, and reliability of results (According to Experiment-resources.com, 2012). Generalization of the result is enhanced through the use of survey as the tool of data collection since the population under evaluation is well represented. Interview and focus group discussion were found appropriate for collecting views from respondents. The information targeted was based on research objectives as outlined in chapter one. Secondary data was obtained through an intense number of case studies.
Interviews were conducted using two approaches one on one and over the phone. Secondary data was collected through extensive search on available documentation, past researches, websites, and journals related to the economic consequences of OPEC membership.
Ethics refers principles that differentiate what is right or wrong, good or bad in a given context. The ethical considerations were given much emphasis in this study included confidentiality, anonymity, privacy, consenting, and understanding the possibility of conflict of interest. Confidentiality and anonymity are to ensure that the name of the informants is not disclosed in the analysis where opinion was to be generalized. This ensures that the researcher can obtain adequate information from respondents without fear of litigation. Anonymity is upheld by using codes instead of actual names of the respondents. According to MacMillan and Schumacher (1997), all persons in the research should be concealed from the public by employing anonymity.
Seeking consent for participation in a study is also a crucial step before embarking in a study. Consent involves fully understanding the role, positive and negative effects of participating, and the clear clue of the study topic. It should not be forced or gained through persuasion (Cherry 2000).
Validity refers to the extent to which the tools and the result of the study reflect the intended point of evaluation of what was being measured. On the other hand, reliability reflects the degree of generalization of the results (Saunders et al 2009). The two aspects can be evaluated using a number of approaches. Validity is enhanced by means of pre-testing the tools of data collection. This ensures that hiccups in the process or the tools are determined earlier enough to allow prompt corrections. Reliability in the study is achieved through the use of an adequate study sample in comparison to the study population. In assessing the two aspects in reference to this study, Lincoln and Gubas (1985), criteria will be employed. The model focuses on credibility, dependability, substantiality, and transferability (Kwasi 2010).
This captures the extent to which the research work can be the sort to give reliable information or data. Dependability is grounded on researchers integrity, honesty, and objectivity. Personal attributes, interests, or feelings should not be given priority in dictating the progress and the result of the study. As much as possible the researcher should be objective, as well as truthful and uphold integrity in research work. Lincoln and Guba (1985) acknowledge that despite the fact that research should be reliable; no two researches will be alike. This is caused by the difference in approaches and the fact that researchers may belong to different schools of thought. In enhancing dependability, the researcher should clearly delineate the procedures and design to use, be rationale, and support his research in every step.
Lincoln and Guba (1985) argued that the extent to what a research can be generalized depend on the readers opinion. However, a research can increase the degree of generalization through supporting the ideas with ample literature and facts. According to Kwasi (2010), transferability of research result can be judged by the degree linkage between the present and the past results. Forecasting the trend of the future research can be grounded on the transferability. Credibility of information is based on the authenticity and trustworthy of the explanation, support and judgment depicted from the study.
Credibility of this study was achieved through observing a number of factors. Ethical considerations were given a nod of concern; thus, reliability of the data collected is not questioned. The conclusion arrived at is based on step wise analysis of the both the literature review and the data collected. Secondary sources were compared before idea being introduced. This ensures that possible differences in the information whether resulting from errors or shortages were cleared, thus reducing propagation of errors (Kwasi 2010).
Under this criterion, the focus is shifted to the degree of subjectivity. The researcher should reduce the extent to which his / her personal perceptions are reflected on the study. This was achieved through maintaining objective of the research strong through out of the study. The conclusion and recommendation are minimally affected by personal opinion, but rather drawn from the research analysis.
The researcher employed three aspects of information gathering. Subjective deductions and judgment from the opinions employed were based on and the researchers expertise on the topic under evaluation. Secondly, secondary information gathered from varied sources of information formed an aggregate basis which inferences were drawn from. In addition, the primary data from surveys also formed a foundation vital in the process of evaluation of the economic consequences.
Economy is the heart of every development in a nation. Every individual or institution should have a sound understanding on the repercussion in their decisions, which may directly or indirectly affect the economy. Understanding the economic consequences of decision that we make empowers the decision making body; thus, minimal negative impact will result from policies, laws, and agreements that a government or an organization will participate. According to Humphreys (2005), economy is more or less of a recipe. The quality of inputs determines the effects or impact of output.
Some of the positive influences that Ghana can benefit from include the beneficial OPEC policies aimed at improving the environmental and political atmosphere of the country. Environmental policies are aimed at reducing the environmental pollution resulting from oil pollution. OPEC supports research based on determining the scientific measures that can be used to reduce green gas effect consequences. Politically, the country will be shielded from west interferences due to the fact that the countries have a strong bargaining power. The western countries and those which have a strong hold in the political power game rely on the OPEC oil, while the members will depend on technology and market for their oil. As the OPEC marked it 50 years anniversary, the organizations secretariat emphasized on the slogan supporting stability, fuelling prosperity. The slogan reflects the dedication the organization has in ensuring that the oil market remains consistent with little cases of oil fluctuations. Being a member of such an organization offers greater chances in becoming a vital pillar in the oil industry. Ghana can be able to push for its intended development programs regarding the oil industry, which can result in the increased oil production. However, it is worth noting that progress in individual member is much better outside the organization than when attached to the organization. This is because once under the organization, there are ample policies, which may conflict with the nationals policies, thus threatening membership relationship.
Oil has both positive and negative economic effects. The positive consequences include improvement in the Gross Domestic Product resulting from the revenue generated from oil. The exploration, production, refining, exportation, and retail trading sectors create employment avenues. This help in increasing the living standards of the citizens. Joining OPEC will ensure that the country enjoys the available market, which will be minimally affected as long as the country continues to produce oil. In addition, the country stands a better chance of increasing it budget spending. It will boost social development.
This is part of the OPEC schemes in helping the consumers to benefit from revenue generated from the oil sales. The organization has been involved in funding developmental programs in several countries. The member countries take the large chunk of the resources aimed at helping in the developmental projects. Social responsibility can also trigger utilization of local resources, which are underutilized of unharnessed. Involving the society in the community based programs will be a vital step in boosting the economy. However, Ghana will be ruled out from benefits realized from the OPEC Funding for International Development (OFID) established in 1976 with a focus on strengthening financial ties between members and developing and poor countries. This is drawn from members contributions.
Being a member of the organization will call for sacrifices from Ghana to the further development of other countries. It has positive and negative aspects. Positively, the country will participate in charity service among countries that are in need. This will in a way establish a strong relation with the varied countries. Though the contribution is made freely, being a member increases the feeling of being obliged to offering a share. This may end up increasing the funding for the external development reducing the internal development capacity. Therefore, the countrys economy will end up being affected negatively.
The funding from the organization has been of significance in purchasing military equipment from the USA. According to data from the Ministry of Defense, Saudi Arabia has been the principal beneficially of this relationship (Ministry of Defense 2012). The fact that the country is in OPEC gives it an added advantage and security in securing military weapons. Apart from the OFID, OPEC has other international aid bodies, such as the Arab Bank for Economic Development in Africa (BADEA) and the Arab Trade Financing Program (ATFP) among others.
Based on the political incentives and the feeble nature if national institutions in Ghana, what are some of the measures that ought to be taken to alleviate such issues? As Collier (2006) advocated caution should be emphasized to avoid a situation where one size fits all approach, especially in the developing countries since they have limited resources. With such a consideration in mind and enough information at hand, Ghana ought to make some kind of a forked approach in addressing issues of transparency and accountability. This includes coming up with a current and immediate, short-term measures to minimize the political and governance risks, as well as to improve accountability.
The second aspect involves the sustaining these measures through a reformed public sector aimed at bringing commitment and comprehensiveness in the void left by national institutions in medium-term measures. It is worth noting that this second set of mechanism acts as support ways in enhancing accountability and transparency since the feeble institutions and political interests can dominate if these measures are not well implemented. With these facts in mind, it is worth looking at the direct mechanisms which are focused towards a consensus building in regard to the Ghanas oil resource utilization.
The clear ways on how oil rents will be managed and used are supposed to be created. This is at the planning stage by ensuring a consensus is reached in regard to oil revenues. This also allows development of an independent body that will look at the management of such interests. Sao Tome is a superb example of a country that has put in place such measures of what will be done with the oil rents and how it will be done. Moss (2009) observed that since such models, which succeed, have an influence on such independent bodies, with an interest in holding the government accountable, as well as, observing responsibility in management of resources, non-oil interest groups should be included. This is because they are affected by mismanagement of oil resources. It involves the inclusion of the civil society groups, the agricultural sector, and those in need to stabilize the rural communities as it happened in Indonesia.
In this point, a significant first step in Ghana was started in 2008 and sought to address how the fund would be managed, especially in effect to those that are direct beneficial and those who they can be affected by mismanagement. This was after regional discussions throughout the country with all the stakeholders forming a governance body in oil resource management. However, up to now, there have been minimal chances of advanced discussions with these stakeholders on oil rent utilization and management. It would be pertinent to hold negotiation and put key emphasis on non-oil stakeholders interests, especially those of the agricultural sector, and avoid being overtaken by the interests of the leading oil companies.
The private sector can be substantially affected by mismanagement and lack of competitiveness in the oil industry through depreciation of currency, while the local and rural societies may be faced with more the devolved power and resource distribution at the local stages. Clarity should be sought since it is unclear whether there are other bodies that benefit until the government presents the oil revenue management plans by using rents for the right purpose. It would be advisable to compensate the locals whose life will be affected by the environmental hazards associated with the oil production, such as fishermen.
This mechanism must provide clear cut specifications such as, which government institution will facilitate concession auctions and how they will be monitored, how the information will be transparent and available, as well as the officers who will head these organizations. In addition, the mechanism should outline the authorities and line of command in the in the organizational structure
Based on experiences of other countries, the Ghanas parliament may consider the following while introducing new laws for governing the oil sector: coming up with an independent body which will not be appointed nor funded by the president or the executive, having a variety of stakeholders in oversight committees, specifying on differences of interests between members of various mechanisms, having understandable rules and responsibilities, as well as, implementing well defined plans, giving the committee’s power to carry out investigations, exploration and ruling up to when the judiciary can do this effectively.
Going with the current fiscal regime, the World Bank has put the GOG revenue at US$ 1 billion annually from 2009 to 2011. Comparing the national GDP and revenues, which does not count in grants, they hit US$16.1 billion for the national GDP and US$ 3.7 billion for revenues in 2008. Considering numerous factors that could influence the oil revenue estimates confirms that oil revenues are quite sensitive. This is due to parameters, such as fixed extraction costs and higher or lower oil prices. Phase 2 of the Jubilee field will lead to the increased production rate as it has the capacity to produce as much as twice that of Phase 1, but will be launched after the completion of the first one. This will lead to an increment to peak levels of the total revenue estimated to be from US$ 7 billion starting the year 2015. Although production costs are not well identified, it is expected that going by economies of scale and sunken appraisals, bigger revenues should be realized compared to those of Phase 1.
The progressive organization of the fiscal administration of the prices shows that the government would benefit more due to an increase in the net share of the cash flow from Phase 2 than it did in Phase 1 (World Bank 2009). With 80% of the projected income going to the GOG and it being directed to other productive fields of the economy, most of going to the non-oil industries, a long-term economic growth is established, which will be much stable and sustainable. This evades the negative impacts of over-depending on oil in financing the government budget, which sometimes leads to deficits.
The type of ownership in oil producing companies and agreements with the government can include some kind of commitment of capital. For example, the development of the whole of the Jubilee field is expected to cost US$ 6-8 billion. The composition of ownership in the field has a projected 80%, and more of the capital being invested in the country increases the Foreign Direct Investments (FDI). The risk involved here is a possible 20% being left in the country while the rest goes to the foreign investors. However, recent agreements have seen the amount going to the country increase by 12.50% as presented by the GNPC.
According to a report by GNPC (2009), on the Jubilee fields, there have been local investors who were given the go ahead to put offshore oil exploration and production plants. The results will be wealth accumulation where the investors will have committed resource in their endeavors with prospects of benefits from future returns. The increased earnings by local investors provide more investments within the oil sector and other sectors in the country, thereby enhancing economic-wide effects from the oil-related revenue.
The bumper US$ 1.3 billion that Ghana spent in 2009 up to October to fund its oil import bill exposes the nations to the challenges of inflation. This is especially in times of the price going up in the foreign oil markets. This causes a disturbance and imbalance in the relationship between the prices of fuel and correspondence to the effect prices on goods and services. For example, a 1% hike in the price of fuel contributes to more than 1% increase in the price of goods and services. The effect is high produce, consumer indices, and hence inflation. Ghana does not and will not have control over the oil prices in the international market. However, transportation and other expenses experienced with importation of crude oil will be reduced when domestic explorations start. This can lead to a reduced end-user price since middlemen would be able to recover and minimize the costs at the reduced costs per unit. This could help reduce the inflation rates. Again, flourishing oil production can lead to the improved exchange rates, and this could, therefore, improve the strength of the Cedi compared to other foreign national currencies.
A deal has been reported between the GNPC and Tullow in the Jubilee fields on recruitment of operations staff where around 60-70% will go to the Ghanaians. Further, a 90% projection plan for the positions to be filled by the Ghanaians is under way to run within the next 5-10 years. These employment positions will generate income to the locals and, hence, help in upgrading their living standards.
Takoradi, a coastal town in Ghana, is functioning as the home to some of the oil fields and has seen significant and rapid infrastructural developments, such as roads and building to house offices. This will have an effect on the social and economics of the locals and country whose benefits go the locals. Corporate social responsibility has been publicly endorsed to the oil firms in Ghana and put under watch. This includes support of learning and education, health services providence, as well as, sanitation. The companies are expected to submit their quota in improvement of social life through corporate social responsibility actions.
Power supply interruption and rationing have been a headache for the GOG and the citizens for long. This has been due to the reliance on the Akosombo hydroelectric power project and the Takoradi thermal power plant. The thermal plant uses natural gas and crude oil, which increases the production costs and affects the supply of electricity. The plant will stand to benefit with the oil exploration and production since it is nearer the oil fields and, hence, would have a constant and cheaper oil and gas supply. This would mean a regular and sustainable power supply for the domestic and commercial users.
Ghanas fiscal recurrent balance has dropped significantly in the last four (from 8.3% to 2.1% of GNP) years putting its capacity to use oil income in funding of investment projects (Revenue Watch Institute 2011). This was as a result of the increased energy subsidies, as well as raised public sector wages. More threat to this balance comes from lack of a cost-recovery measure, unsolved issues concerned with the payroll management, and the promised single spine payroll reforms. With concessional borrowing being at 5% and the recurrent balance at 2%, Ghana and its development partners can only fund 7% of its investment expenditure, which is less than the projected 10-11% required to bridge the gap in its infrastructural development.
The countrys oil production is lower compared to that of the other members of OPEC. The quota system is mainly based on the production of oil per country. It means that the countrys proportion of the market share is limited. Judging from other members trends in membership, the countrys future on the same, is limited. Indonesia withdrew its membership after realizing that the benefits gained from the organization were becoming insignificant compared to its natural gas exportation. Apart from Indonesia, other countries that have pulled out of the organization include Ecuador and Gabon.
Going by the 2011 Financial Year Budget proposal, there are some indicators of the state of the economy, which include: firstly, the countrys GDP registered a higher 4.1% growth rate compared to that of Sub-Saharan Africa, which was at 2.0%. Second, fiscal deficits on a cash basis went down from 14.5% of GDP in 2008 to 9.7% of GDP in 2009. Thirdly, inflation reduced consecutively for 16 months from 20.74% in June 2009 to stand at 9.38% in October 2010, which is the lowest recorded in the last 20 years. Fourth, the gross international reserves by at the end of October 2010 had surpassed three months of import cover at US$ 3,973.0 million in comparison to the reserves as at December 2008, which were at US$2,036.2 million and could not cover two months of import fully. Finally, the Cedi became strong and valuable by 0.1%, 2.2%, and 5.4% against the US Dollar, the Sterling Pound, and the Euro respectively.
If the above facts are to be considered, the economy of Ghana is concluded to be on stable grounds. The economy is targeted to grow even more rapidly with the income got from oil revenue since Ghana is one of the states with a suitable investment climate. Ghanas speeded up policy divestiture, capital accountability and liberalization, tax incentives and improved local financial reforms, and noteworthy FDI have been observed. FDI in Ghana went up by four times from about US$159 million in 2005 to US$ 636 million in 2006. The GOG has noted the need for creation of jobs and increased revenue from taxes and has, thus, focused more on the realization of youth employment policies. Also, from lessons learnt from Nigeria and Norway on the effects of Dutch disease, the GOG is coming up with intervention measures and strategies to refurbish the non-oil sector.
Ghana is slowly building up itself as a solid democracy and has had a moderately stable political environment where the rights and freedom of its citizens have been well looked at and respected. The strong legal system by the judiciary has empowered the state institutions, which provides the experience needed to accelerate actions concerned with legal processes involved in the frameworks used to govern multinational companies operations. To increase transparency on the payments done to the government, Ghana has joined the Extractive Industry Transparency Initiative (EITI), and bills are tabled in the parliament even those involving activities oil industries. Caution should be exercised not to think that the growth in the economic rates corresponds to the per capita income rates. This is because the Ghanas economy is a free market affected by the prices of the international goods market.
Though the economy is stable, most of the Ghanaians survive with less than US$ 1.25; which is the world poverty line. Even after joining the EITI, the freedom and right of information are yet to be founded, which blocks the hard for citizens to inquire information from public officers. Expectations are high to better the living standards of the Ghanaians, especially those who are negatively impacted by oil extraction and production with the coming together of all the stakeholders.
Most of the people who were affected were the locals, especially the fishermen in the oil fields. Considering that a ban that had been put on fishing and there was no other measure being put to ensure the sustenance of the lives of the locals, except for the promise of filling in the short term and medium employment vacancies, which will be created, there have been serious repercussions on the livelihoods of these residents. This is because negotiations have still being held on the chances of hitting the 90% direct local employment target who must have expertise in the oil sector.
The clause indicating that the job opportunities are for those who are skilled in oil extraction and production locks out the local Ghanaians from this argument. All is not lost as the locals have employment chances in subsidiary business, such as telecommunications, catering, banking, insurance, and transport, which have many opportunities for the locals and those who have immigrated to the area in search of jobs. Most of the youths in the area are expected to join the National Youth Development (NYD) to develop some professional skills that would make them eligible for employment.
The oil firms doing the exploration and production need to do more in supporting the local society by fulfilling promises and commitments in improving their livelihoods. A compelling example is Tullow Ghana Limited, which has done a lot: renovating a science laboratory in a high school, as well as digging and construction of 26 bore holes and wells in western Ghana. Also, in unity with Sight Savers International, the two have supplied Mectizan tablets to over a thousand people and have put plans to construct a high-tech hospital for the locals.
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