GHANA TELECOM UNIVERSITY

IMPACT OF OIL AND GAS REVENUE ON GHANA’S ECONOMY

A CASE STUDY ON SCHOOLS IN CAPE 3 POINT,

WESTERN REGION OF GHANA

BY:

OBENG KOFI CLIFF

MSC. OIL AND GAS MANAGEMENT

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CHAPTER ONE

INTRODUCTION

1.0 BACKGROUND

Ghana, a developing country that discovered oil and gas in commercial quantity has been named

Africa rising star in development with success stories. Due to experiences from other African

countries like Nigeria and Zambia show that properly managing resource bonanzas remains a

challenge for developing countries. Clemens et al. (2009) stated that wrong strategies to

allocating and using resource revenues can harm the process of economic and social

development instead of accelerating growth.

Advocates of a strategy named “conservative”, argue that government spending of mineral

windfalls mostly leads to Dutch disease effects, with exchange rate appreciation and competition

for domestic resources causes a reduction in the competitiveness of non-oil sectors, and

corruption further undermines effective spending (Auty 1990; Eifert et al., 2002; Gelb and

Turner, 2007) on social amenities such as schools, to improve and increase local human resource

management in the country.

However, many are those who argue that, the discovery of oil and gas in commercial quantities

in Ghana will be a curse to Ghana if the revenue to be generated from it is not effectively utilised

for the development of Ghana. Gary (2009) reported, the discovery of oil and gas is “Ghana's

Big Test: Oil's Challenge to Democratic Development”. It is upon this that, it called for

investigation into the impact of oil and gas revenue on Ghana’s economy, case study on Cape 3

Point schools, in Western Region of Ghana.

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However, the idea of natural resources being the major economic growth driver became the

subject of everyday media headline since Ghana discovered oil and gas in 2007. In light of this,

the term “resource curse” which refer to implications of over-dependence of country’s economic

development on the extraction of natural resources mostly oil and gas, is growing in its

popularity in which Ghana is one of them.

The net revenue from oil production will be large in proportion to the Ghanaian economy within

short possible period. Looking at the oil and gas industry of any economy is one of the main

sources of revenue as it increases government revenue and it highly contributes to economic

performance (Blanchard, 2009). But one will ask how far has the Ghana’s oil and gas has

impacted on her economy through education since exploitation and in terms of revenue

generation and mobilization.

According to NDLC (2010), oil and gas resources will be developed to ensure that the industry

becomes a major anchor for national growth and development. It will provide opportunity for

diversification of the economy, as well as capacity development to support the needs of a modern

industrial society. Priority policies will focus on increasing access to petroleum products at prices

that support the development objectives of the nation, paying attention to protecting the

environment and implement a transparent revenue management policy to ensure the oil and gas

resources benefit Ghanaians, especially on education.

However, Jubilee field’s estimated reserves, as of October 2009, amount to 490 million barrels of

high-quality oil and justify commercial exploitation should barrel prices exceed US$30 and

increasing discovery in other part of the country. Such a level of proven reserves puts Ghana on

par with neighbouring Cameroon (400 million barrels) and above Cote d’Ivoire (100 million

barrels), but below Nigeria (36.2 billion barrels). Based on a long run price assumption of US$75

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per barrel, the World Bank estimates potential government revenue at US$1.0 billion on average

per year between 2011 and 2029. Therefore, oil discovery will primarily impact the economy by

cushioning the budget of the nation (Africa Trade Policy Notes, 2011).

Boohene and Peprah (2011) stated that, due to the huge financial resources that can accrue from

oil and gas industry, its role in a country’s economic development cannot be over emphasized.

Collier (2012) who is a world renowned economist and an oil and gas expert, said by

appropriately saving and investing the revenues from oil, Ghana’s economy could rectify its

initial shortage of developmental capital, in the process enjoying a phase of growth in excess of

global rates and of such, Ghana should invest oil and gas revenue in domestic economy wisely so

that its impacts can be felt across all lives of Ghanaians.

However, Ogbonna, (2012) disagreed by stating that, oil and gas revenue which is supposed to

be a source of finance for economic development has turned out to be a bone of contention

between many interest groups, precisely the government, oil and gas companies and the general

public at large.

From all that have been said concerning Ghana’s oil and gas and its revenue, it calls for study

into the impact oil and gas revenue have on Ghana’s economy. Making this study possible to

address oil and gas revenue issues and its aims is to make a number of contributions on impact of

oil and gas revenue has on Ghana’s economy especially on education.

First, it will be one of the outstanding empirical studies in the Ghana’s oil and gas revenue to test

and investigate the impact of revenue from oil and gas discovered has on Ghana’s economy by

applying oil and gas revenue to priority areas of development such as education. Secondary, this

study will add to the body of knowledge related to Ghana’s oil and gas and provide an in-depth

analysis of Ghana’s oil and gas revenue on addressing Ghana large fiscal and external imbalance,

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and cushion the negative impacts of the current global economic crisis facing education in

developing nation Ghana (World Bank, 2009). Thirdly, Educationalist and financers will make

good use of how far the oil and gas has impact on Ghana education and impacts to the citizens of

Ghana.

1.1 STATEMENT OF THE PROBLEM

There has been a lot of debate on revenue to be and accruing from Ghana’s oil and gas before

and after commencement of productions. Much of this discussions center on the uses of

petroleum revenue, local content, environment impact of the oil and gas industry, the social

impact and benefits due to Ghanaians. All the above mentioned are matter of importance but

little have be centered on the impact that Ghana oil and gas revenue will have on her economy

especially on social economic life of Ghanaians through education.

Many publishers and researchers (Boohene and Peprah, 2011, Gary, 2009, RWI, 2007, Schubert,

2006, Clemens et al., 2009, Diao and Clemens, 2010) have revealed that oil and gas will go long

way to help develop the economy. On centrally, World Bank (2009) reported categorically that,

oil revenue will not be large enough to radically transform Ghana, it could, if improperly

managed, impose enough stress on non-oil sectors to severely undermine Ghana‘s medium term

development prospects. Hence the huge premium and responsibilities are put on Ghana‘s

successive authorities to wisely manage the oil wealth to promote the development of the non-oil

sectors especially improving human capital development via education.

However, many researchers (Adu-Amakwah, 1999; Alfers, 2009; Adei and Kunfah, 2007) have

reveal that Ghana has provisional mandatory national policy with regard to management of oil

and gas revenue and its mobilisations. A draft policy document and committee set up to manage

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revenue accrued from oil and gas are mobilized to aid government budget and other

developmental sectors. But little attention has been drawn to the impact of oil and gas revenue

has on Ghana’s economy since productions. GNPC faces many criticism when it comes to the

management of Ghana’s oil and gas revenue and impacts it has on the economy; all is due to

little attention it has received.

Dapatem (2012) published on 9th July in the front page of Daily Graphic that, Ghana earns $ 903

million from oil; with remark made below ‘‘bodies demands transparency at GNPC’’ simple

because there have be little supportive information that tells every Ghanaians how the state’s oil

and gas revenue has impacted on Ghana’s economy after lifted 5.9 million barrels of crude oil.

With above remarks, there is the needs to investigate the increase in transparency in how oil and

gas revenue is allocated, restore fiscal sustainability and responsibility of oil and gas revenue

management, remove the bottlenecks in non-tradable sectors, increase the provision of

agricultural public goods and introduce stabilization mechanism for managing oil price volatility

in Ghana.

However, this study will therefore, identify the impact oil and gas revenue in Ghana has on

Ghana’s economy since production and its effects on education and sustainability of the future

generation. It is also expected to address issues relating to sharing of oil and gas revenue to

sectors that needs immediate attention which can boost development specifically education.

The study will try to answer the following questions: (Center on the town and specific)

1. What will be the positives impact of oil and gas revenue on Ghana education?

2. How will the negatives impact of oil and gas revenue affect education?

3. How have Ghanaians (citizens) benefited from oil and gas revenue since explorations?

4. How will the future generation (Ghanaians) benefit from oil and gas revenue?

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 5. How sustainable is Ghana oil and gas revenue for Ghana’s economy?

1.2 AIMS AND OBJECTIVES OF THE STUDY

The aim of the study is to identify the positive and negative impacts the oil and gas revenue has

on Ghana’s economy in terms of education such as school building, provision of learning

materials, and others that aid teaching and learning. It also aims at developing critical insight

about management of Ghana’s crude oil revenue, effects on immediate selected amenity and

sustainability of future generations.

The main objective of the study is to access the impact the oil and gas exploration in Ghana,

revenue have on Ghana's economy specifically on schools, citizens, future generations and the

state. The study will be sub grouped into the positive and negative impacts Ghana will and

experiencing due to the revenue accrued from the exploration of Ghana’s oil and gas. Based on

the findings, assess will be on the strategic implications facing the educational sectors, citizen,

future generations and the state as a whole.

The specific objectives of this study are grouped into positive and negative impacts as follows:

1. On the Students of Cape 3 Point, Western Region of Ghana.

2. On Schools in Cape 3 Point, Western Region of Ghana.

3. On future generations of Cape 3 Point Communities.

4. On the township as a whole.

1.3 SIGNIFICANCE OF THE STUDY

The study will make a number of contributions on impact of oil and gas revenue has on Ghana’s

economy. It will further add to existing body of knowledge with regard to Ghana’s oil and gas.

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First, it will be one of the outstanding empirical studies in the Ghana’s oil and gas revenue to test

and investigate the impact of revenue accrued from oil and gas discovered has on Ghana’s

economy. Second, this study will add to the body of knowledge related to Ghana’s oil and gas

and provide an in-depth analysis of impacts Ghana’s oil and gas revenue have on citizens,

selected amenity, future generations and the state as matter of developing Ghana’s economy.

The result that will be achieved in this study may be useful in improving the management of

Ghana’s oil and gas revenue. It will also be useful to government by ensuring the urgent and

immediate formulation and enforcement of policies and standards that will enhance oil and gas

revenue management in upcoming Ghana’s crude oil peak. Educationalist and other professionals

will also have reference to make with regard to oil and gas revenue impacted on developing

human capacity in terms of education. The study will provide knowledge that the state will have

solid reference and as a guide to improve upon budgeting for Ghana’s oil and gas revenue and

effective uses of the crude oil revenue especially on education.

Citizens of Ghana will also benefit from the results this study will provide. The result will also

communicate the impacts the crude oil have on the citizens with regard to tutors’ employment.

The outcome of the study will also divulge the impacts of oil and gas revenue has on schools that

will be a yardstick for checking development of the economy and finally as blue print that future

generations can assess the uses and benefit left for them by the management of Ghana crude oil’s

revenue for sustainability purpose.

1.4 SCOPE

Conceptually, the study focused on the pertinent issues of Ghana’s oil and gas revenue, impacts

of Ghana’s crude oil revenue on schools and impact it has on Ghana’s economy. For citizens of

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Ghana, selected areas are Cape 3 Point, Ghana Education service, Ministry of Finance and

Economic Planning, Ministry of Energy, GNPC and the State as a whole.

The above categories were selected because they are considered to be those who manage, felt

and benefits from the oil and gas revenue accrued. The study therefore, consider the citizens of

Ghana, the impact Ghana oil and gas has on their lives with regard to uses of accrued revenue

from the crude oil to provide and sustaining Education/schools curtaining solely on Cape 3 Point.

Furthermore, study intend using the Governmental ministries to give information relating to

management and sustainability of Ghana crude oil revenue and provide how far this have

impacted on Ghana Education center on Cape 3 Point.

Geographically, Cape 3 Point is area near the Jubilee offshore, where crude oil production are

taking place and much impacts might be felt by the township. Of such the study intend using the

Cape 3 Point to assess the impact the oil and gas revenue have on the town’s education.

1.5 ORGANISATION OF THE STUDY

The study is organized into five chapters. Chapter two reviewed literature on the theories and

concept of Ghana’s Oil and gas, History of Ghana crude oil, management of Ghana oil and gas

revenue, impacts of crude oil revenue on education, Oil revenue and the government budget,

Ghana oil revenues and sustainability of future generation.

In chapter three presents the profile of the study area to provide basis for understanding the study

components. A detailed research methodology was also undertaken. In chapter four, results of

data collected was analysed and presented. The major findings, recommendations and conclusion

were the focus of chapter five.

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CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This review is conducted to help establish the basis for the research especially in identifying the

areas where gap exist as well as in making informed decision about the most suitable modeling

processes for developed for processing data in order to facilitate the achievement of the

objectives.

This chapter reviews the literature on concepts and theories of Ghana oil and gas revenue,

impacts on education and school infrastructures, sustainability of future generation’s education.

However, given the positive and negative impacts of oil and gas revenue on Cape 3 Point

Schools, there is a wealth of literature on the topic. Much of this literature, however, focuses

explicitly on impacts Ghana oil and gas revenue has on her economy specifically on Schools in

Cape 3 Point township.

Dominant theories of economic growth have suggested that significant relationship exist between

national income and economic growth. That is, when income is invested in an economy, it results

in the growth of that economy. For example, Harrod (1939) and Domar (1946) models state that

growth is directly related to savings (unspent income). Similarly Yakubu (2008) suggests that

income from a nation’s natural resources (e.g. petroleum) has a positive influence on economic

growth and development. Contrary to this opinion expressed above, other studies on this subject

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matter, found that natural resources income influences growth negatively. That is, an increase in

Income from natural resources does not necessarily result in an increase in economic growth. For

example, Sachs and Warner (1997) using a sample of 95 developing countries that included

Indonesia, Venezuela, Malaysia, Ivory Coast and Nigeria, found that countries that have a high

ratio of natural resource exports to GDP which appears to have shown slower economic growth

than countries with low ratio of natural resource export to GDP. Similarly, Collier and Hoeffler

(2002), is of the opinion that increase in natural resources income does not result in increase in

economic growth. This is so because they found that 23.0 per cent of countries that are

dependent on oil exports are likely to experience civil war in any five-year period compared to

0.6 percent for countries without natural resources. During each of these periods, there was no

economic growth. Yakubu, (2008) also supports the argument that increase natural resources

income does not result in increases in economic growth but result in vicious development cycle

(i.e. violent and adverse development). According to him, increase in natural resources income

encourages rent-seeking in the economy whereby all economic units, whether public and private,

domestic and foreign have overwhelming incentives to seek links with the state in order to share

in the resource pie. This incentive for rent-seeking penalizes productive activities, distorts the

entire economy and hinders economic growth.

In theory, proponent of oil-led development (for example Yakubu (2008) and Hoffman (1999))

believes that countries lucky enough to have petroleum, can base their development on this

resource. They point to the potential benefits of enhanced economic growth and the creation of

jobs, increased government revenues to finance poverty alleviation, the transfer of technology,

the improvement of infrastructure and the encouragement of related industries. To say the least,

Nafziger (1984) says that some countries’ case is increasingly degenerating to a state of chaos as

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petroleum income is brazenly mismanaged while the basic national institutions such as

electricity, energy, education, road, transportation, political, financial systems, and investment

environment have been decreasing and inefficient, the infrastructure is still poor, training and

talent of human resource is scarce (Chironga, et al, 2011).

2.1 History of Ghana Crude Oil Discovery

During British colonial era, Ghana was called “Gold Coast” for its inexhaustible minerals

deposits. After independence, it has being the reverie and policy of every government to explorer

crude oil in Ghana.

Historically, exploration for crude oil reserves in Ghana had been very limited due to the high

risk nature of its terrain and low oil price. However, according to Afrikan Post (2008), between

1898 to the late nineties an estimated hundred exploration wells had been drilled in Ghana with

no significant discovery except for the Saltpond oil find in 1970 by US firm AgriPetco ( Asafu-

Adjaye, 2010).

It is well-known historical fact that the US Diasporas’ Mr.Ken Ofori- Atta who established the

Ghana stock exchange (Databank), Dr. Manny Tuffour who established the Aniwaa Hospital at a

location near Kumasi, Mr. Kofi Amoah who brought Western Union to Ghana and many others

in various professional disciplines in Ghana have been trail blazers of solid investment to Ghana

crude oil discovery.

The former Chief Executive of GNPC Mr. Tsatsu Tsikata and Mr. Sekyere Abankwah, Mr. Moses

Boateng and the exploration team led by Nana Boakye Asafu-Adjaye, supported by the Mr.

Thomas Manu for their untiring efforts in promoting Ghana's hydrocarbon potential overseas in

the past.

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Dr. Kwame Bawuah- Edusei is a physician trained in Ghana and specialized in Family Medicine

in the US. In 1994 Dr. Kwame took a medical team to Ghana to work in deprived areas and small

villages around the Volta Lake, Buduburam refugee camp, Nima in Accra , Akwatia Zongo and

other places. Dr. Kwame later initiated medical missions to the Northern parts of Ghana as a

follow up. Mr. George Owusu on the other hand is a trained Environmental scientist and worked

in the energy industry for about twenty years and rose to the rank of Commodity manager for

Shell oil Company in the US. He was a known community leader in Houston, Texas at the time

of his retirement.

Mr. George and Dr. Kwame formed group called E.O. Group partnership with purpose of

distributing ICT equipments, books, office furniture and others to various traditional bodies to

the youth in Ghana in the late 1990. In 1999, the partners embarked on a job creation venture to

reduce poverty. Their first business venture was the formation of E-link Inc. in 1999 to use

satellite technology to transfer data between West Africa and United States. The other partners in

this venture were Mr. Kwabena Darko of Darko Farms and one Mr.Yaw Sarpong. The venture

folded in 2001 due to some challenges. However, Mr. George Yaw Owusu and Dr. Bawuah-

Edusei reformed to E.O group in 2002 to focus on the potential energy industry in Ghana.

NUEVO 1998, Dana 1999, Hunt oil 1999, Fusion oil and gas from Australia in 1999, Santa Fe,

2000 are companies with much effort to explore crude oil and yielded no viable commercial

discoveries in Ghana. Because of this, oil companies all over the world regarded Ghana as risky

and expensive with unfriendly petroleum business agreement. As a result, the E.O Group sought

to convince international oil companies to come to Ghana and overcome all the biases of Africa

and invest in what had become known as the “grave yard”.

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Greater Houston Partnership being helpful in 2001, from Houston, Texas dedicated of promotion

of business worldwide, Mr. Owusu organized a conference in Houston to enable Ghana's energy

experts from GNPC and the Energy ministry address the industry on the offshore hydrocarbon

potentials in the Country. Worldwide companies attended the conference, out of many, Vanco

Energy devoted to come to Ghana but the E. O. interacted with experts and GNPC, partnered

with Ennex Energy of Ireland, came to Ghana and left immediately after evaluation of

investment risk. The E. O. group solicited interest from Texaco, Oxy, Shell, Hess, Addax

Petroleum of Switzerland and the Chinese oil company but all were reluctant because of risk.

With risk, it costs over 80 million of US dollars a day to drill single oil well.

Mr. George Owusu met Kosmos Energy and formed partnership to review Ghana’s data and

initiated negotiation of Petroleum Agreement, whereby E. O. group was entitled to 3.5% working

interest with Kosmos Company. West Cape Three Points Block received interest of two

companies namely Sahara Petroleum and Africa Petroleum along with Kosmos/E. O. Group

submitted their applications but GNPC approved Kosmos/E. O. Group at merit due to proven

track record, caliber of experts and financial base behind them.

The agreement between Kosmos/E. O. Group and GNPC was in accordance with Petroleum Law

and was approved by the GNPC Board, the ministry of Energy, and upon approval by Cabinet

was presented for ratification by Parliament in July 2004.

However, it took Kosmos took three years from agreement signing date to drill four wells finding

accumulated hydrocarbons in Ghana offshore dated June 2007, making history in Ghana and

Africa as a whole (Ian, 2009).

2.2 Oil Revenue

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Oil revenue refers to the income earned from the sale of crude oil. According to Budinam (2008)

oil is one of the dominant source of government revenue. Since the oil discoveries in Ghana, it is

becoming one of the government revenue dominant factor in Ghana’s economy. Nafziger (2006)

and Ibaba, (2005) state oil producing countries’ economy has the potentialities of becoming

leading economies of the world before the year 2020 if their abundant crude oil wealth, human

and natural resources are properly managed and corruption mitigated. From the above, it indicate

that human resource are available but the ability to carry on productivities has become the core

problem of Ghana in an attempt to reduce unemployment. However, government policies to

address is enshrined in achieving employment for many Ghanaians into the oil and gas industry

so that more revenue from the Ghana crude oil will stay in Ghana to aid development of the

nation.

2.2 Ghana Oil and Gas Revenue Management

The overall responsibility for the control of Ghana’s oil industry is vested in the Ministry of

Energy. The Ghana National Petroleum Corporation (GNPC) oversees the upstream petroleum

industry (exploration, development, production and disposal of petroleum) while the National

Petroleum Authority (NPA) oversees the downstream petroleum industry (refining/processing,

storage and distribution of petroleum products).

However, as oil and gas revenues are exhaustible, they provide budgetary flexibility, the

opportunity and additional resources to develop the economy. Given that these

resources are temporary the broad objective of managing the resources should be to support

the non-oil productive sector in order to foster broad-based diversified and robust economic

growth especially on education.

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From the above, Prempeh and Kroon, 2012 stated government collects taxes, bonuses,

government share of production and royalties generated from oil and gas extraction and other

payments to citizens either direct or indirectly by the oil and gas company and their activities

form the oil and gas revenue. Whereby usually, several government entities collect different

types of payments from oil and gas production.

However, the main government agency responsible for collecting revenues from the oil and gas

sector is the Ghana Revenue Authority. The Petroleum Revenue Management Act mandates the

Ghana Revenue Authority (GRA) to assess, collect and account for all petroleum revenue as

defined in the Act.

According to Osei and Domfe (2008), size of total oil revenue is expected to be equivalent to 25

percent of GDP and government oil revenue at about 10 percent of total government revenue by

2015. But one will ask how will this revenue be managed? Upon this that CEPA (2010) came out

with questions as follows, should the revenue be used for government investment in public

infrastructure to stimulate economic activity? Should the government use the windfall to

reduce government debt and thereby lower interest rates and boost private sector

investment? Should the extra income be used to provide more education, health care and other

public goods to improve the quality of life or transferred directly to citizens through tax

cuts or citizen dividends? This questions are critical, because it becomes problem to the

government especially when the nation is underdeveloped or developing.

One of the more common fiscal rules for management of oil and gas revenue by oil

producing countries is to convert oil wealth into financial assets so that the income so

earned from these assets will support a stable level of government spending on economy

development activities such as education (Collier, 2007). This will maximize the intertemporal

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welfare while leaving a substantial amount of financial savings for future generations

(Hajime et al.,2004).

CEPA (2010) went on further to ask, what decision should be considered as to what form any

savings must oil and gas revenue should take. That is in financial assets form or invested

domestically or abroad? There is the final issue about how the investment in the domestic

economy if any, may be split between the public and private sectors.

It will be possible if number of policy rules and prescriptions are considered in management of

oil and gas revenue and continues implementation and contributions of long term policy that can

facilitates the progress of development and sustainability of future generations as essences of

conventional wisdom for the nation.

Surprising, it appears to be the stand of the Petroleum Revenue Management bill. The bill takes

the position that savings should be held as financial assets abroad. If held abroad, then there is

hope for the sustainability of future generations as returns on it will be used in developing the

immediate social amenities such as building schools and improving educations. Rodrik (2004)

added that, government participation in the development of specific activities as a means of

increasing local content of industrial activity, thereby promoting economic development in

education.

2.3 Oil and Gas Revenue and Education

For a developing nation like Ghana, there is the needs to develop human capital and is done via

schools where proper learning and training are carried on within confounded atmosphere where

teaching and learning can take places. However, meeting this has not always being possible due

to unavailability of funds to carry on such social development.

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However, one of the problems of natural resource abundance is that it may, pervasively and

cause a nation to neglect human capital development, this is what AfDB (2009) called it as the

same basic causes and effects of the above in reference to negative genuine saving. High levels

of natural resource revenues can thus divert attention from diversification and wealth creation,

including from education institutional and human development (World Bank, 2006; and Ploeg,

2007).

The logical expression of such a potential correlation between resource abundance and neglect of

human capital development would, in the medium to long term, be reflected in a low basic

human development status. The United Nations Human Development Index (HDI), a

comparative measure of life expectancy, literacy and standard of living in countries worldwide,

provides a standard means of measuring human well-being and country development status in

terms of education.

However, Ghana has a huge amount of natural resources, the country’s living standards have

been witnessing a steady decline due to corruption and mismanagement of the resources

(McNeal, 2006). He also pointed out to the failure of Ghana to invest more to improve its

educational system which is still poor and lacks any real infrastructures, performance

measurement and innovation.

Rugh (2002) mentioned that not enough being spent on education by the government which is

trying to meet the projected very high demand on skilled and professional workers to meet the

demanding increase of qualified personals for the oil and other sectors of the economy. Prokop

(2003) also added that more expenditures are needed to improve education in Ghana and he

blamed the weak education system as the reason for not having enough skilled workforce and

saw a huge gap between the education results or output and the needs of the economy.

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Hence countries that uses oil and gas revenues such as Indonesia and Chile have played an

important supporting role in growth and structural transformation so far education is concerned

(Temple 2003). However, according to Clemens et al. (2009), cross-country empirical evidence

suggests that the impact of resource inflows critically depends on initial conditions, especially on

the strength of institutions and human capital development through education (Brunnschweiler

2008; Bulte et al. 2005; Gelb and Grassman 2008). Therefore, more attention need to be draw

closer to human capital development by the uses of oil and gas revenue to build and improve the

existing schools.

2.4 Interrelationship between Economic Growth and Democracy

There is an extensive literature on the interrelationship between economic growth and democracy

(Przeworski et al., 2000) having impact on education. Democracy is said to undermine

investment simple because of populist pressure for increased demand for expansion and

improvement of schools infrastructures and some it seems to block good economic policies and

reform because the governments in democratic societies are exposed to pressure from particular

interests. However, autocratic governments are believed to be better suited than democracies to

oppose pressures for the redistribution of income and resources coming from the poor majority

of the population not having assess to better education and its related resources (Alesina and

Rodrik, 1994).

With refers to recent studies by Robinson et al. (2006) modelled a situation in which politicians

in developing countries seem to have quite a large amount of autonomy from interest groups

which was also follows from the group formation effect postulated by Ross (2001), where

increased oil wealth permits government to thwart the formation of social and pressure groups to

political rights, or even influence the outcomes of elections, and increase resource misallocation

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without proper attention to educating the nation which can reduce those pressures and result

harmony in the rest of the economy (Mehlum et al. 2005). For example, in a study of effects of

the oil boom in some nations such as Nigeria, Gavin (1993) found that human resource in all

sectors contracted with the only exception being the service sector, which included government

employment resulting to a highly bloated public sector. However, government paid huge wage

bills (for example single span salary). More importantly, this effort was seen as a deliberate

Government paid huge wage bills. Ross (2001) found that oil rents do inhibit democratic

governance not only in the Middle East, but also in other oil exporting countries like Indonesia,

Malaysia, Mexico and Nigeria. Furthermore, oil does greater damage to democracy in oil-poor

states than in oil-rich ones. Thus oil inhibits democracy even when exports are relatively small,

particularly in developing and underdeveloped nations making ways for the nation to start

concentrating in sectors that can empower the human resource development of the nation to

focus towards sustainability of nation’s future human capital through education.

The majority of studies investigating the economic growth-resource curse nexus use a version of

the neoclassical growth model (Solow, 1956), augmented to include measures of human capital

(Mankiw et al., 1992) and such transmission mechanisms such as educational institutions,

democracy or Dutch disease. Studies are yet to incorporate all these different transmission

mechanisms in a single model for empirical analysis to assess their various implications for oil

exporting African nations (Olomola, 2007) in which Ghana is not exempted.

2.5 Economic Growth after Oil Discovery

Concern over the impact of great wealth on a society goes back at least as far as the writing of

the 14th century philosopher Ibn Khaldun (1332–1406) in which he identifies the fifth stage of

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the "state" as one of waste and squandering (Ibn Khaldun, 1967), More recently, concern about

the potential negative impacts of being a natural resource (oil and gas) producer emerged among

development economists in the 1950’s and 1960’s. Initially, Nurkse (1953) and Rostow (1960),

accentuate the positive role of natural resources in economic growth and development.

Moreover, this concern is associated with Prebisch (1964) and Singer (1950). They also argue

that primary product exporters would find themselves disadvantaged in trading with the

industrialized countries because of deteriorating terms of trade. Hirschman (1958), Seers (1964)

and Baldwin (1966) reinforce this negative consequence by arguing that linkages from primary

product exports would be limited compared to manufacturing, although by contrast some tried to

argue that primary products could promote economic growth (Roemer, 1970; Lewis 1989).

The major theoretical literature on the resource curse focuses on the structural mechanisms of the

so-called Dutch disease (Matsuyama, 1992; Sachs and Warner, 1999 and Torvik, 2001). There is

a very large body of work that tries to establish a negative relationship between abundance of

natural resources and poor GDP performance (Auty, 1986; 1993, 2001, Bulmer-Thomas, 1994;

Lal and Myint, 1996; Ranis, 1991; Sachs and Warner, 1995b, 1997, 1998 and Auty, 2001a) found

that between 1960 and 1990, the per capita incomes of resource poor countries grew between

two to three times faster than those of the resource abundant countries.

To many economists the tendency of natural resource-rich countries to experience low economic

growth is a conceptual puzzle. Economists consider natural resources to be a potential source of

income, some of which is saved and converted into capital to support increases in future output

levels. For example, resource rents may be used for the construction of roads, the ICT systems,

health care and educational programs. Several countries did benefit from their natural wealth.

For example, the nineteenth century resource booms in Latin America stimulated economic

21
progress. More specifically, Ecuador experienced a significantly higher income per capita level

after its boom (Sachs and Warner, 1999). Similarly, Sachs and Warner (1995) point out that the

industrial revolution in the UK and Germany was possible only because of the vast deposits of

ore and coal. As a more recent example, Norway manages its natural resource abundance well

and converts it into economic prosperity (Sachs and Warner, 1995 and Gylfason, 2000, 2001).

Moreover, they point out that natural resource discovery, the resulting sudden increase in income

may lead to sloth and less need for sound economic management and for institutional quality.

Natural resource abundant economies benefit less from the technology spillovers that are typical

in manufacturing industries because the exports of these industries are harmed by an appreciation

of the local currency, for example through the inflationary pressure resulting from increased

domestic demand (Sachs and Warner, 1995, 1999; Gillis et al., 1996 and Gylfason, 2000, 2001).

Finally, as the natural resource sector expands relative to other sectors, the returns to human

capital decrease and investments in education decline (Gylfason, 2001).

The literature has emphasized the importance of human capital in the process of economic

growth. Moreover, human capital can be considered as a complementary input to physical

capital. Hence, based on the literature and more specifically considering the extension of Solow

(1956) model, human capital and physical capital could be included in the empirical model. The

model assumes that GDP is produced according to an aggregate production function technology

based on the well-known Cobb-Douglas production function. There are many sources of human

capital. Becker identifies four main sources: schooling, on-the-job training, health and

information. All of which are said to improve the physical and mental abilities of the individuals,

thereby raising their productivity and wages. Of these, empirical researches have focused mostly

on schooling.

22
2.6 Impacts of Oil and Gas Revenue on Ghana’s Economy

Within the context of the Ghana Petroleum Revenue Management Law, petroleum revenues

include gross revenue, royalties, and additional oil entitlements, initial carried interest, revenues

from government participation in petroleum operations, corporate income taxes from upstream

and downstream petroleum companies, returns on investments of petroleum funds and capital

gain tax from sale of ownership of any petroleum rights.

Some of oil producing nations are characterised with the Dutch disease (Bloomfield 2008;

Hartzok 2004; National Academy of Sciences 2003; UNCTAD 2007) and resource curse (Auty,

1993) as result of loss of foresight to other sectors that can effectively aid the nation in terms of

development in its socio-economic prospects, social amenities, improvement/training and

increasing the nation’s human resource in which education cannot be exempted in this regard.

However, Diao and Clemens (2010) added to the above that, discovery of offshore oil is seen by

many as an important new source of income, and an opportunity to overcome persisting

structural weaknesses in exports and the economy as a whole, and raise Ghana's prospects of

becoming a frontrunner in African development. Whilst the presence of substantial amounts of

oil and gas reserves has been identified by many authors as a potentially mixed blessing for oil

producing countries (World Bank 2006). RWI, (2007) also added that, revenues from these

natural resources (oil and gas) could provide a strong endowment for building a dynamic and

robust economy.

However, Ian Gary (2009) reports that the discovery of Oil and gas is “Ghana's Big Test: Oil's

Challenge to Democratic Development”. Making Ghana sweat crude oil marketable and

profitable. In light of this, it took Former President John A. Kufuor (BBC, 2008), to make

23
emphatically statement of, “Oil is money, and we need money to build the schools, the roads, the

hospitals. If you find oil, you manage it well, can you complain about that? Even without oil, we

are doing so well, already. Now, with oil as a shot in the arm, we’re going to fly”. Indicating

Ghana latest source of inflows is impacting on development and sustainability of future

generation.

Moreover, the discourse on the oil development nexus in Africa is often predicated on the view

that oil breeds corruption, misgovernance, human rights abuses and violent conflict and this

perception is clearly a spin-off of the ‘Dutch disease’ and ‘resource curse’ (Gary and Karl 2003;

Human Rights Watch 2002; Coalition for International Justice 2006; Obi 2007; Ross 2004).

According to OPEC Review Paper (2004), oil dependent states have performed 1.7% worse in

terms of economic growth than non-oil states in recent years. Oil discovery bring promises and

raises expectations for the future, especially given the country’s development needs.

Therefore, when such promises are being felt by the citizens, the result is what Ghana Energy

Summit (2011) stated, the impact of Ghana’s new oil and gas industry are already being felt

across the nation and employment is booming. But did not take into an account the various forms

of mismanagement on part of the oil industry, influx of political misfits, weak political system

coupled with corruption, mismanagement of oil revenue, lack of sound regulatory framework,

land disputes, the misuse of oil power and the inequitable allocation of oil revenue among others,

the government come up the dream of achieving economic growth; is shattered (World Applied

Sciences Journal 11, 2010).

Also, oil exports as a revenue source for development don’t seem to work (Schubert, 2006),

simple because the first set of challenges concern the capture of oil resources by groups or

individuals specially those near exploration areas is to satisfy their personal interests rather than

24
the public and the end result is challenges of management and use of a volatile, uncertain, and

exhaustible source of revenue from the oil.

In fact, Ghana may already be experiencing “Dutch Disease" with recent rapid growth in foreign

inflows (Harberger, 2009) because in the short term, oil revenue could help Ghana address its

large fiscal imbalances, also brings well-known challenges, particularly in terms of institutional

and macroeconomic absorptive capacities (Africa Trade Policy Notes, 2011).

Careful management of oil revenue is a new and important challenge for the government. Booms

in oil have been often associated with negative economic and social development outcomes in

many African countries in which Ghana is not exceptional.

According to Osei and Domfe (2008), the size of total oil revenue is expected to be equivalent to

25 percent of GDP and government oil revenue at about 10 percent of total government revenue

by 2015. With such oil revenue inflows, Ghana's nonoil exports will be negatively affected if the

government spends its oil revenue as fast as it comes in.

For smart use of oil revenues, Ghana should create an oil fund to slow government oil spending,

and use oil revenue to finance productivity-enhancing public investment such as health,

education, road and transport, national security and sustainability of future generation. Public

investment can mitigate the negative effects of oil revenue spending but must be carefully

targeted to be effective and efficient.

This will help in avoiding natural resource-abundance been associated with slow growth (Sachs

and Warner, 1995), greater inequality and poverty for a larger majority of a country’s population

(Gravin and Hausmann, 1998; Ross 2004), corruption of political institutions (Lane and Tornell,

1999; Ross, 1999, 2001), and more fundamentally, an increased risk of civil conflict (Collier and

Hoeffler, 2001).

25
Studies show that education as a form of investment especially suffers in resource- rich countries

(Gylfason 2001). When states start relying on natural resource wealth, they seem to forget the

need for a diversified and skilled workforce that can support other economic sectors once

resource wealth has dried up.

As a result, the share of national income spent on education declines, along with high school

enrollment and the expected years of schooling especially for girls. While the costs of such

declines might not be felt in the short term, as capital-intense activities take up a larger share of

national production, their effects are likely to become more significant in the longer run as soon

as economies start trying to diversify.

It is possible to understand this bias in terms of the nature of the sources of wealth. When a

country’s wealth depends on investments in manufacturing or other productive activities, human

capital investment is an essential part of wealth creation. When a country’s wealth arises from an

endowment of natural resources, however, investment in a skilled workforce is not necessary for

the realization of current income. Without a focus on wealth creation, or sustainability,

insufficient attention will be paid to investments in human capital (or other productive

investments.) (Humphreys et al, 2008).

Report by the World Bank on the Economy-Wide Impact of Oil Discovery in Ghana (2009)

suggests that “oil revenue could allow narrowing [the] infrastructure gap”6 and underscores that

“upgrading Ghana‘s infrastructure could potentially add four percentage points to the per capita

GDP growth. Adam (2011), said in the wake of increasing expectation of a positive impact of

Ghana's oil revenues on the lives of the citizenry; it is becoming clear that such impacts will be

difficult to tell if oil revenue/expenditures in Ghana's budget are not disaggregated. Once the oil

revenues are not disaggregated in the budget, it will be difficult to tell how much has been

26
allocated to the various sectors. He further stated the budget does not go beyond this to spell out

how much of oil revenue is allocated to a particular sector.

When determining to what extent a country benefits from the extraction of its natural resources, a

distinction is often made between direct and indirect returns. Direct returns refer to the country’s

share of the export revenues from the natural resource, and are often in the form of royalties,

taxes and dividends. Indirect returns refer to how the economy may benefit indirectly from the

extraction process. This can be through the creation of jobs, improvements in the skills of the

national workforce, or through the use of small and medium sized local companies as

subcontractors or service delivery suppliers. The positive impact of the oil revenue has been

trivial, in others; the impact has even been harmful to the economy (Gary, 2009).

2.7 Impacts of Oil and Gas Revenue on Ghana’s Education

Quality of education in Cape 3 Point (Ghana) can best be described to be abysmally low. Being

predominantly rural with outright absence of some of social amenities such as potable water,

stable electricity, hospitals/clinics and safe access, coupled with the daunting roads terrain,

teachers refuse posting to schools in most parts of the Western Region in which Cape 3 Point is

included. As Abraham and Leigha (2007) rightly note, “teachers everywhere in the world are

important agents of human and national development”. The absence of teachers in any education

institution means that no school exists there.

Ghana conveys its recognition (at least on paper) the place of education in national development.

However, education shall continue to be highly rated in the national development plans because

education is the most important instrument of change, any fundamental change in the intellectual

27
and social outlook of any society have to be preceded by an education revolution which are

always in the heart of any government in power.

Not much has been done however, by the Ghana Government to ensure that qualified teachers

are attracted and retained in good numbers in schools located in rural areas in Ghana such as

Cape 3 Point there must incentives that can courage tutors to have desire of being posted and

retain.

Kadzamira (2006) in a study on “Teacher motivation and incentives in Malawi” made a finding

which vividly describes the situation of most schools in rural communities in which Ghana is

experiences it, that is “remote rural schools are chronically understaffed due mainly to high

teacher turnover and the refusal of teachers to be deployed to schools in these areas”. The reason

for their refusal has merit, the absence of all social amenities coupled with the fact that “living in

thatched houses with mud walls without running water and electricity (and with its attendance of

unstable power) is not an attractive prospect” (Kadzamira, 2006).

Apart from dearth of teachers, schools in the Western Region, particularly the rural oil/gas-

bearing communities lack conducive environment for learning. The conditions under which

pupils/students and teachers learn and work respectively can best be described as daunting and

very challenging. In rural communities that really near the shore of the crude oil and gas reserves

or infrastructures are, “the working environment is deplorable with dilapidated school structures,

insufficient teaching and learning materials” (Kadzamira, 2006).

With follows of or attendance of poor quality of education in Ghana, most youths lack the

requisite preparation to compete for more prestigious job placements in oil companies working

in and around their communities. They settle for the menial jobs, when available. It is the

practice of multi-national oil companies to set highly demanding recruitment requirement in

28
which the ill-prepared Ghana youths readily fail, and hence lose out in the quest for employment

resulting to foreigner taking place of Ghanaians in oil and gas employment opportunities due to

lack of required schooled knowledge, skills and competences to be employed. In light of this the

study intend to find the impact oil and gas revenue have on Ghana economy using schools as

bases to assess merits and demerit from the oil revenue having in Cape 3 Point.

2.8 Functional Education in Cape 3 Point Schools

Zeilberger (1961) in Obanya (2003) thesis sees functional education as “education that comes

from the child’s needs, and that uses the child’s interests as a mechanism for activating him

towards his desirable activities”. The purpose of functional education is to develop the life of the

mind that acts from the wholeness of organic life, with relation to practical life in the present and

in the future (Zeilberger, 1961; Obanya, 2003). This authority further contends that functional

education enables the learner to gain thinking habits and develop the technical means needed in

solving practical problems. According to the International Educational Strategist, and a foremost

Nigerian educationist Obanya (2003), functional context education says that “the situation in

which the child is growing, and the one he is going to live in, should determine the way

education is carried out, including what is taught and how it is to be taught and learned”. This is

in concert with Ghana Education Service goal which is “the acquisition of appropriate skills and

the development of mental, physical and social abilities and competencies as equipment for the

individual to live in and contribute to the development of his society” (Federal Republic of

Nigeria, 1998).

29
The purpose of education if it must hold any meaning is to acquire the skills of understanding

life situations, adapting to it and acting to influence it by contributing to its development

(Obanya, 2003).

Functional education could have different variants, namely: as applied in literacy programmes,

vocational education, science education, teacher training, and in educating persons with

disabilities. Whichever variant that is applied must lead to solving day-to-day problems as they

come, as well as improve living conditions of recipients. This paper however is interested mainly

in vocational and science education variants since the bulk of oil exploration activities are

science and technology (vocation) based. Vocational education refers to skills needed by the oil

companies and the rest of the labour market, while science education refers to the abilities

needed to consolidate the habits of scientific behaviour (Obanya, 2003).

This writer contends that functional education in the context of this paper is that type of

education which will equip youths of the oil-rich Niger Delta region with adequate scientific,

vocational and cognate knowledge and competencies to compete effectively for job placements

within their environments. This corroborates Obanya’s (2003) position that functional education

focuses on the learner, within the context of him or her becoming a fully functioning member of

society, and with a view to equipping him or her with meaningful manner with the aid of using

available revenue especially from newly inform from oil and gas.

However, have far have the newly oil and gas revenue has impacted on the economy with regard

to Cape 3 Point schools as based for assessment.

30
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