A new report examines whether the oil discovered in Ghana can propel the country to prosperity or leave it doomed to experience the pitfalls of other African oil nations.

Ghana, one of Africa's most peaceful and relatively prosperous countries, is on the verge of an oil boom that could bring billions of dollars into the country. Ghana's newly elected National Democratic Congress (NDC) government has high hopes that the country's oil revenues will help accelerate its efforts to meet UN Development Goals by 2015. But such an achievement is only possible, say the producers of a new report, if the Ghanaian government, international donors and civil society take a number of critical steps. Without these, there is a high likelihood that Ghana will become yet another African country cursed with oil.

The report 'Ghana's Big Test: Oil's Challenge to Democratic Development' was written by Ian Gary, Senior Policy Advisor for Extractive Industries at Oxfam America and launched in London in February 2009. It follows the discovery of the major offshore 'Jubilee' oil field which has generated enormous interest in Ghana's oil production potential.

The report, which was co-produced by the Integrated Social Development Centre (ISODEC) a Ghanaian NGO that promotes social justice and human rights, identifies the critical steps that should be taken by all stakeholders to Ghana’s success in the face of this coming oil boom.

Ghana, one of Africa's most peaceful and relatively prosperous countries, is on the verge of an oil boom that could bring billions of dollars into the country.

In 2008, Africa produced 12.5% of the world’s oil and saw enormous investment and exploration across the continent. Yet this resource has seen relatively little return for the average citizen and, in fact, Oxfam argues, the resource rich countries in Africa have actually experienced lower growth rates than countries with scarce resources.

"In too many countries, oil booms have bred corruption, underdevelopment, social conflict and environmental damage," says Gary, pointing out that Ghana's oil discovery presents the country with its next 'great test' – channeling revenues back into its national development.

The 2007 "Jubilee" oil find has been described as one of the largest recent finds in Africa. By 2011, estimates are that Ghana will be producing approximately 120,000 barrels of oil per day, along with significant quantities of gas.

The Jubilee field has 600 million barrels of proven reserves and 1.2 billion barrels of probable reserves. According to the International Monetary Fund (IMF), revenues coming into Ghana's government from oil and gas could reach a cumulative $20 billion over a production period of 2012-2030 in Jubilee field alone.

Since the Jubilee field announcement in 2007, there has been a 'black gold rush' with companies such as Lukoil of Russia, Sahara Energy Fields of Nigeria and Young Energy Prize of Luxembourg, to name a few, expressing their interest.

Ghana is no stranger to extractive industries and, in addition to being the second largest gold producer on the continent, also exports bauxite, manganese and diamonds. The country has experienced a recent boom in mining investment and, in 2007, Ghana produced almost 2.5 million ounces of gold.

Yet this increase in investment and production, Gary argues, "has yielded relatively little in government revenues and local development, engendered increased conflict between companies and local communities, caused the removal of families from their lands, and increased environmental degradation."

According to the report's author, Ghana history in terms of its natural resources such as gold - which led to the country's name of the Gold Coast during the colonial era – and mining holds lessons for how it should deal with its newest discoveries.

"Oil wealth tends to erode democratic accountability," says Gary, "and Ghana's challenge will be to ensure that the right institutions and transparent policies are in place before oil production starts."

The country's previous NPP government was responsible for launching a 'homegrown' effort to tackle the challenges of the oil era and established a number of technical committees that brought government staff together with expatriate Ghanaians to address issues ranging from fiscal regime to gas utilization. While some of these deliberations have been made public, says the report, key details remain secret, including oil contracts and the development plan for the Jubilee field.

Ghana has an enviable record of good governance and stability and has made some progress on economic diversification.

Nevertheless, the revenues expected to be generated by the oil find could potentially add to the country's overreliance on commodity exports that are subject to price swings which make development planning difficult.

But what is Ghana likely to get as its take from the finds? "Ghana has a long history of low royalty payments from major gold companies operating in the country who also benefit from tax holidays and other incentives," says Gary.

Ghana's projected take, he says, could range from 38-51% or higher, depending on oil prices and internal rates of return.

The 2007 "Jubilee" oil find has been described as one of the largest recent finds in Africa. By 2011, estimates are that Ghana will be producing approximately 120,000 barrels of oil per day.

For Ghana to avoid the 'resource curse' seen by other African countries, says the report, "the needed institutions, regulations and transparency measures should be in place early on to avoid the corrosive and corrupting effects of oil booms seen elsewhere in Africa."

This requires the country to take control of the pace of the development of its petroleum sector in order that "commercial developments do not outstrip the capacity of the government and society as a whole to meet the myriad challenges."

The report advocates the establishment of transparent revenue and payment practices, open and competitive contract bidding and active monitoring and participation by civil society. It also recommends that the Ghanaian government brings to a halt its 'open door' policy of signing new licenses while it organizes an open bidding round and allows the country's legal and institutional framework to "catch up" to the pace of oil development.

"While these steps are not, by themselves, a simple recipe for overcoming the threats of the coming oil boom," says Gary, "it is difficult to see Ghana succeeding without them."

2010 to 2011 will see significant revenues flowing into the country and Ghana's experiences with its mining sector have shown the weaknesses of government to properly collect revenues and audit payments from gold-mining companies. Questions also remain about what, if any, of the initiatives taken by Ghana's previous government will continue, says Gary. If, however, skills sharing and capacity building in supporting civil society and the media can happen, "I am optimistic that there will be opportunities for reform."

"An active, independent and free civil society, combined with a strong independent media sector, will be vital to helping Ghana survive the governance challenges."

The problems of resource-rich countries combating the 'resource curse' have recently risen to the top of the international development agenda with efforts to increase revenue transparency across the oil, gas and mining sectors.

The Extractive Industry Transparency Initiative (EITI), a voluntary initiative designed to increase transparency of payments by companies to government, recently held its fourth global conference in Doha.

Ghana was an early and enthusiastic adopter of the EITI and has published reports under this initiative. However, according to the Oxfam report, the country has not been fully committed to extend this work to the petroleum sector and should be encouraged to do so.

The country's success in budget transparency could also be improved, with the country receiving 49% out of 100 by the Washington-based Open Budget Index on budget transparency.

"In exchange for technical assistance and project finance, donors should insist on full transparency and participation of citizens and civil society in the decisions regarding the development of the petroleum sector and oversight of natural resource wealth," says Gary.

"An active, independent and free civil society, combined with a strong independent media sector, will be vital to helping Ghana survive the governance challenges posted by the coming oil boom."

The full report can be found at:  www.oxfamamerica.org