A critical investigation on the prospects and challenges of oil discovery for national development and diplomatic relations in ghana

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Natural resources make a significant contribution to national economic growth that cannot be overstated (Dartey-Baah, Amponsah-Tawiah & Aratuo, 2014). Countries that have seen economic development via the utilization of natural resources have a long history. Natural resource richness has underpinned the growth of countries such as Norway, Russia, the United States, and Botswana (Ackah, 2016). Oil and gas resources, in particular, have played an important role in countries’ growth. Their effects are seen across the economy, and their significance in diplomatic relations cannot be overstated. Oil and gas resources have underpinned the growth of several countries, such as Canada and Norway, by ensuring a constant supply of energy (Dartey-Baah, Amponsah-Tawiah & Aratuo 2014). It has also contributed in terms of increased income, job creation, and technical advancement.

Oil and gas resources provide great potential for low-income nations’ economic development, but bad management of these resources may have disastrous implications for the nation’s foundations. The discovery of resources such as petroleum in underdeveloped nations has frequently sparked not just joy, but also hope for economic liberation. However, in the majority of oil-rich nations, perplexing effects emerge after a few years of resource extraction (Sachs and Warner, 2001). Countries like Nigeria, which has had the same Gross National Product (GNP) for 40 years despite its huge petroleum resource endowments, and others like Iran and Venezuela, which have had a negative 1% growth rate for over 33 years, have been used as instances in academic writing (Gylfason, 2001).

Any continent can be affected by the curse. However, because to the rising amount of hydrocarbons discovered on the continent in recent years, Africa has been a focal point of substantial study and attention (Obi, 2014). (Lesourne & Ramsay 2009). Africa, notably in the Gulf of Guinea, is a continent having a considerable amount of oil. Nigeria, Angola, Cameroon, Chad, Congo-Brazzaville, Equatorial Guinea, and Gabon produced around 5,120 million barrels per day in 2007. The Gulf of Guinea alone generates 7.1% of the world’s total oil production (Lesourne and Ramsay, 2009, 8). Despite this, the continent has several challenges, ranging from resource-related wars to poor socioeconomic growth.

Nigeria, Africa’s top oil exporter since the mid-1960s, maintained a per capita GDP of approximately $325 between 1965 and 2000, while spending over $350 billion in oil rents (Same, 2009). Conflicts over oil exploration are widespread in Nigeria, resulting in regular assaults on oil infrastructure. It is estimated that 500,000 barrels of oil were lost owing to such assaults and their disruptive consequences between 2005 and 2008. (Obi, 2014). Oil from the Chad-Cameroon Pipeline alone produced 140,000 barrels per day in 2004, and rose to 180,000 barrels per day in the first half of 2005. However, the oil appears to have had little influence on social consequences at the home level. The military spends a large portion of the money, leaving little for social expenditures to help the 80 percent of the population who live in poverty (Pegg, 2006).

Much of the research on the so-called “resource curse” shows a negative relationship between national resource endowments and economic growth (Sachs & Warner 1999). Following Sachs and Warner, the research has focused on understanding the processes through which natural resource richness affects growth. Natural resource richness, according to this logic, causes some phenomena that has an impact on growth (Alexeev & Conrad, 2009).

The so-called curse is transmitted through a variety of channels, including real exchange rate appreciation, which causes the nonrecourse export sector to contract (Corden & Neary 1982); rent-seeking and corruption, which slow growth (Mehlum et al. 2008); large swings in commodity prices, which cause macroeconomic instability (van der Ploeg & Poelhekke 2010); and the interaction of resource r (van der Ploeg 2011).

Because of its importance as a source of structural power, the subject of oil and gas occupies a critical position in international relations for collaboration or confrontation (Silverstein, 2002). Oil and gas’ strategic location forces global superpowers such as Europe-America, China, Japan, and others to fight for diplomatic alliances with any nation that discovers it, particularly African ones. This diplomatic competition usually manifests itself in a variety of ways, including state visits and military alliances in the case of Euro-American nations, soft loans and infrastructure development aid in the case of China and Norway, and strategic partnerships in the case of China and Norway (Kirkland, 2004). For example, the multiple wars in Nigeria’s Niger Delta and the numerous uprisings in Syria are only two examples (Bloomfield, 2008).

Despite the negative socioeconomic consequences of petroleum resources, governments will continue to seek out oil inside their borders since its existence provides promise for economic transformation if the resource is effectively managed. For example, in an interview with the British Broadcasting Corporation, Ghana’s then-President, John Agyekum Kufuor, voiced his delight at the discovery of oil, claiming that it would convert Ghana into an African Tiger (BBC News, June 19, 2007). This confidence is bolstered by the fact that oil still accounts for around 70% of global energy use (Energy Information Administration, 2018). Liquid fuel remains the world’s leading energy source, according to Amoasah (2011). As a result, oil is one of the most valuable economic assets, and every country that discovers it is ecstatic about the opportunities it presents for boosting national economic growth and development.

The 50th anniversary of Ghana’s independence was marked with the finding of commercial quantities of oil by a partnership of two oil firms, Kosmos Energy (America) and Tullow (Anglo-British), in June 2007 near Cape Three Point in Ghana’s Western region, widely known as the “Jubilee Field” (Gyampo, 2010). The oil find, according to Ackah (2016), has sparked a fresh surge of enthusiasm and expectations among Ghanaians. Following that ecstatic moment, President John Agyekum Kufuor emerged in public, holding a glass of champagne in one hand and oil in the other, and delivered an impromptu (the meeting was not scheduled, the media was summoned during an emergency meeting) statement to the press. In his address, he declares that he will be remembered as the President who presided over the commercial discovery of oil.

He characterized the finding as a “shot in the arm” that would propel Ghana forward, and predicted that Ghana will become an African Tiger in only five years (BBC, 19 June, 2007). To kick-start production, Ghana convened the National Forum on Oil and Gas Development, which examined topics that would shape the industry and allow production to begin as soon as feasible (Kumah-Abiwu, 2017). Government officials, Civil Society Organizations (CSOs), and policymakers were invited to participate in regional meetings to help formulate legislation that would regulate the industry.

In order to turn oil money into national economic development, the government leapt into commercial oil production in a relatively short time. The production ushered in a slew of new exploratory firms from throughout the world. Given the poor track record of Sub-Saharan African governments, it is understandable that Ghana’s oil and gas finding has ramifications for the country’s national economic growth and diplomatic ties.

1.2 STATEMENT OF THE PROBLEM

The contribution of oil and gas resources to economic development and diplomatic relations has piqued academic interest around the world, particularly in the nineteenth and twentieth centuries, when many countries, particularly in Western Europe and North America, were progressing toward industrialization (Lynn, 1997). According to Kumah-Abiwu (2017), oil’s relevance in international relations extends beyond its status as one of the most significant commodities in world commerce. For example, the works of Lynn (1997) and Gelb (1988) remind us of how countries like Norway, the United States of America, and Saudi Arabia have relied on an uninterrupted supply of energy from oil and gas resources to develop their economies, and how oil has helped to boost their GDP and infrastructural development by creating jobs.

However, according to Humphreys, Sachs, and Stiglitz (2007) and Bloomfield (2008), oil and gas resources have had negative repercussions for certain nations that have discovered them. They said that the rise in terrorist activity in Syria and the revolutions in Ukraine was linked to oil. The repeated uprisings in Nigeria’s Niger Delta, the high incidence of corruption, and the regular terrorist attacks are all due to oil and gas, according to Bloomfield (2008). Furthermore, oil is to blame for the wars in Sudan that led to the country’s split and Muammar al Gaddafi’s assassination. As a result, the discussion of the oil and gas industry is not new in the literature.

Gyampo (2010) used Nigerian instances to back up his claims that oil discovery has ramifications for democratic institutions. This usually occurs when the nations from where the exploratory firms originate intervene in the institutions to defend their own interests. They accomplish this through manipulating institutions through sophisticated diplomatic methods such as formal state visits, trade contacts, treaty signing, financial assistance, and so on, in order to guarantee a cheap supply of oil and retain their political power (Oskarsson & Ottosen, 2010). Nammei (2016) bolsters this thesis by claiming that Western countries are less adamant about pressuring poorly governed but resource-rich countries to democratize.

Oil is one of the most important sources of world power and plays a vital role in both economic and social growth; as a result, the subject of oil plays a major role in international relations for collaboration or conflict (Humphreys, Sachs & Stiglitz, 2007). According to the literature, Ghana’s oil and gas discovery has repercussions for the country’s economic development and diplomatic relations.

Tullow Oil, located in the United Kingdom, and its US partners Kosmos Energy and Anadarko Petroleum reported two large energy finds off the coast of Ghana in June 2007, in the middle of a worldwide food and oil crisis. According to Gyampo (2010), the Ghanaian government was confident that oil production would begin in 2010, and that this finding would have a large beneficial impact on the economy and lessen Ghana’s dependency on oil imports. According to Kumah-Abiwu (2017), there was a widespread belief among government officials and the general public that Ghana had struck gold. Ghana would be liberated from the shackles of donors and international financial institutions, allowing it to pursue a more self-sufficient, growth-oriented development strategy. Panford (2010 & 2017) emphasized the importance of a solid institutional foundation in order to prevent the resource curse syndrome that has plagued many African countries that have discovered oil.

Despite several efforts to strengthen the theoretical foundation of Ghana’s oil and gas business, the existing literature on Ghana’s oil and gas industry ignores the economic and diplomatic consequences of the oil and gas finding. This thesis attempts to address that vacuum by assessing the effects of Ghana’s oil and gas discoveries on the country’s economic development and diplomatic ties.

1.3 OBJECTIVE OF THE STUDY

The primary aim of this study is to investigate the prospects and challenges of Oil discovery in Ghana for National development and also diplomatic relations. Thus, the following objectives;

1. To examine the extent to which the regulatory framework of the oil and gas industry supports the socio-economic development of Ghana.
2. To assess the impacts of the oil sector on the economic development of Ghana.
3. To ascertain how the oil discovery influence Ghana‘s diplomatic relations.
4. To determine the challenges faced in the discovery of oil in Ghana.

1.4 RESEARCH QUESTIONS

The following questions guide this study;

1. To what extent does the regulatory framework of the oil and gas industry supports the socio-economic development of Ghana?
2. What are the impacts the oil sector on the economic development of Ghana?
3. How does the oil discovery influence Ghana‘s diplomatic relations?
4. What are the challenges encountered in the discovery of oil in Ghana?

1.5 SIGNIFICANCE OF THE STUDY

Because of the poor track record of other African countries that have discovered oil and gas, this study is important because the data will assist determine whether Ghana is an exception.

Knowledge of the sector’s governance will aid the government in formulating efficient policies to manage the industry for maximum advantages as well as find chances for socioeconomic growth, which will aid in managing Ghanaians’ high expectations for oil discovery and exploration. The study will give insights into the consequences of the oil and gas sector, as well as serve to answer Ghanaians’ many expectations about the industry’s future.

It will add to our understanding of Ghana’s oil discovery, as well as ongoing discussions in the fields of development studies and global political economy about the political economy of natural resource management, as well as the ongoing debate about how Ghana can effectively govern the oil and gas sector.

1.6 SCOPE OF THE STUDY

This study will only cover the prospects of oil discovery on the National development of Ghana and also in aiding its diplomatic relations with other countries. The challenges in the discovery of oil will also be looked into. Hence, institutions, ministries and Government Agencies that are link to the oil sector will be serve as the participants for this study.

1.7 LIMITATION OF THE STUDY

The study’s conduct was hampered by a number of factors, the most significant of which was some participants’ unwillingness to provide certain information for security and other personal reasons. However, such information was not critical to the research’s main findings, so the findings were still valid without it.

Due to a lack of funds and required pages for the study, the number of interviews that could be conducted was reduced. However, the information gathered during the interviews was sufficient to draw conclusions about the research findings.

1.8 DEFINITION OF TERMS

1. OIL AND GAS INDUSTRY:Includes the global processes of exploration, extraction, refining, transporting, and marketing of petroleum products.
2. NATIONAL DEVELOPMENT:Simply refers tothe overall development or a collective such as socio-economic or political as well as religious advancement of a country or nation.
3. DIPLOMATIC RELATIONS:Simply refers toa relationship between two countries

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