7 Policy pointers to next govt on extractive sector
Ghana’s 2016 election is an important opportunity for political parties to share their key priorities in the extractive sector with citizens. Despite significant improvements, the country continues to struggle to effectively manage its natural resources, with planning challenges and inconsistent implementation of policies still the norm.
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This election brief provides more targeted recommendations on the extractive sector for the next government:
• Develop an extractive sector vision and plan
Ghana’s history of shaping and delivering long-term national development plans has been disappointing.
To effectively leverage opportunities in the extractive sector, the next government should strengthen extractive sector planning and increase citizen involvement across all aspects of decision-making.
The next government should ensure that development priorities are costed and published. A clear and coordinated vision for the extractive sector guides governments to develop a strategy that is comprehensive and inclusive.
An immediate priority of the next government should be to articulate clear development objectives to guide the management of oil, gas and mining resources within a broader national development plan for Ghana.
• Ensure the Petroleum Revenue Management Act (PRMA) is consistent with Ghana’s overall fiscal framework
Effective and efficient management of petroleum revenues requires a framework that smoothens year-to-year expenditure in order to address revenue volatility, ensures long term fiscal sustainability, and uses a stable and fair revenue sharing formula.
Ghana’s oil and gas sector, while burgeoning, contributes only a small fraction of the country’s GDP; this may dwindle even more if crude oil prices fall further.
After five years of oil production, important lessons have been learned from the implementation of the PRMA. Although the PRMA has effectively delivered improvements in transparency in revenue allocation and utilisation, it has not adequately addressed issues related to revenue volatility, expenditure smoothing, or contributed to overall fiscal sustainability.
This is partly due to the lack of a synchronised public financial management framework capable of addressing Ghana’s growing fiscal challenges.
The new Public Financial Management (PFM) Law is part of Ghana’s broad-based reforms to improve fiscal discipline and sustainability. With the PRMA only focused on the petroleum sector (a small part of the economy), growing economy-wide fiscal challenges could continue to undermine its objective as a fiscal framework.
The next government should ensure that the PRMA is situated within and consistent with an overall public financial management framework for Ghana.
• Deliver fiscal responsibility for the long term
Managing the ‘resource curse’ requires careful macroeconomic management.
This means careful control of overall expenditure, the budget deficit and debt accumulation. Ghana’s inability to control key areas of macroeconomic policy making has led to a fiscal crisis that has undermined the country’s development prospects.
The next government should commit to developing fiscal responsibility reforms and build consensus on these issues.
Overspending, particularly during election years, has led to a doubling of Ghana’s budgeted fiscal deficit and placed the country on a track of increasing vulnerability to external economic shocks, including commodity price volatility.
These developments come with damaging economic consequences. The next government should commit to implementing reforms and support consensus-building on headline matters of fiscal responsibility. As in other resource-rich countries, it is important to consider legislative limits on growth in overall expenditure, the size of the fiscal deficit and limits on debt.
• Ensure efficient and transparent exploration and production operations
In order for Ghana to generate optimal returns from its extractive sector agreements, the next government must ensure all processes that lead to the decision to extract; the licensing processes are efficient and transparent for both companies and government.
Ghana has made important strides towards a more transparent licensing process by enacting a new petroleum law that introduces competitive bidding in the oil and gas sector. However, the mining sector still operates under a first-come-first-serve system which sometimes fails to allocate rights to companies with the necessary technical and financial capabilities.
Ghana has also moved to enact a legal basis for the collection and maintenance of beneficial ownership data—an important step to support ongoing efforts to guard against potential corruption (particularly in extractives), tax abuse, and money laundering.
However, concerns remain over the scope of information from the register that would be made available to the public.
The next government should commit to the effective implementation of the governance provisions on exploration and production in the new petroleum law, develop clear and transparent qualification criteria for greenfield exploration, and further support the ongoing public beneficial ownership disclosure process in Ghana.
• Strengthen the work of internal and external oversight actors in extractives
A government committed to long-term governance improvements and tackling corruption must invest in the capacity and the role of both internal and external oversight actors, and support efforts that enhance their work. Easy accessibility to information is critical to the work of oversight actors, yet they continue to face accessibility challenges in Ghana.
The right-to-information bill will have been discussed in Parliament for more than eight years by the end of 2016.
The next government should ensure that the information bill is reviewed to align with existing transparency and accountability mechanisms, passed into law, and effectively implemented to improve accessibility to information across the various sectors.
The Public Interest and Accountability Committee (PIAC), tasked with external oversight of petroleum revenue management, remains reliant on donor-support but still struggles to meet its core objectives, owing to insufficient funds.
While legislative changes have been attempted to provide reliable funding for PIAC by stating their source of funding as petroleum revenues, they still face disbursement challenges. The next government must firmly commit to timely and adequate financing of PIAC.
The Ghana Extractive Industries Transparency Initiative (GHEITI) has met significant success as it drives forward key policy discussions and oversees transparency in the sector. The new government should continue to support this important work and ensure that such consultation and disclosure.