UNIVERSITY OF GHANA BUSINESS SCHOOL (UGBS)

Research Design and Qualitative Techniques

LECTURER:

Enusah Abdulai; ID:

Professor Boateng Richard

10599125

PROJECT
Research Proposal
Title: Appraisal of Control Mechanisms in Oil Revenue Management in
Ghana
Topic: Oil Revenue Management

Content

Page

Introduction
Background..3
Problem Statement..3
Research purpose.4
Research question4
Literature Review6
Research methodology and Schedule9
References..10

Research Title:

Appraisal of control Mechanisms in oil Revenue Management in Ghana

Research Topic:
Oil Revenue Management

1.0 Introduction
a. Research background
A historical overview indicates that Ghana's oil and gas industry has passed through a number
of significant stages prior to discovery of huge oil and gas endowments in the Jubilee Field of
Cape Three Points in the Western Region. Despite the fact that Commercial quantities of
offshore oil were discovered in Ghana in the 1970's, production was still negligible in the
1990's (Nancy, 1994). The government of Ghana established the Ghana National Petroleum
Corporation (GNPC) in 1983 to promote exploration and production of oil, to this extent the
company entered into agreement with many foreign oil exploration firms (Nancy, 1994) and
by the latter part of 1990, Ghana had drilled 31 wells resulting in three discoveries; Cape
three Points, Saltpond, North and South Tano (Ghanaoilinfo, 2013) and by 2007 significant
accumulation of oil and gas deposits were discovered.

Wearing a safety gear and blue overalls, on the 15th December 2010, the third president of
the fourth republic of Ghana (the late John Evans Atta Mills) turned a valve at FPSO Kwame
Nkrumah oil rig to signify that Ghana has joined the club of oil-producing nations and It was
estimated that such exploration would bring about $1 billion revenues directly to government
annually hence stimulating the potential for national development and economic growth
(World Bank report, 2009);
Notwithstanding the potential benefits, the history of oil rich countries both in Africa and
other continents call for concern. Empirical evidence and history suggest that in most cases
countries upon discovery of oil resources and other natural resources tend to have slower
economic growth rate coupled with corruption, deterioration of security, neglect of other
economic sectors, environmental problems among others. Impliedly, this means that
receiving windfall oil revenues into national coffers do not in themselves guarantee positive

results to the economy concerned; however, the extent of prudent and effective management
of such revenues determines the result it generates.
Though many researchers (including..) have conducted studies on how to manage Ghanas
Oil and gas revenues, one can hardly find a study , if any that seeks to appraise how effective
oil revenues have been managed so far

b. Research Problem
Common sense and normal economics would literally argue that large oil revenue inflow
should stimulate development in a nation, nonetheless most empirical evidence suggests the
opposite to the extent that those nations rather tend to suffer from the paradox of plenty or
"resource curse" (Stevens,2003).
Ghana is now an oil rich-economy. Potentially, this is very good news as it will provide the
finance needed for transformation and development. However, the historical records of oil
discovery in developing countries are deeply worrying. Often oil leads to the curse of
plunder, the few expropriating revenues that should benefit the many and the present
generation unsustainably consuming revenues that should benefit the future, Collier (2012).
What is more, the Dutch disease, revenue volatility, corruption, conflicts and insecurity, poor
institutional structure, Environmental pollution among others are prominent factors causing
doom to oil rich economies and thus not making them realize the boom aspects of oil
discovery and exploitation.
These worrying situations has the potential of making Ghana's oil find fall prey to the
paradox of plenty or resource curse where the oil find becomes a "curse" other than
"blessing; It is against this background that have prompted the need to undertake this
research work to appraise the effectiveness of existing control mechanisms in oil revenue
management and make potent recommendations to enhance the positive impacts of oil
exploration on the Ghanaian economy.
c. Research Purpose
The study seeks to appraise/evaluate the effectiveness of current control mechanisms in the
management of oil revenues in Ghana. Implicit in this research purpose is the researchers
recognition of the fact that affluence lies not (only) in the abundance of resources at one's

disposal but the extent to which such resources have been well managed for social
benefit/welfare; as a result, the study also seeks to make post appraisal recommendations
geared towards the efficient and effective management of oil revenues in Ghana.

d. Research Objectives
OBJECTIVES OF THE STUDY
The main objective for undertaking this work is to appraise the effectiveness of current
control mechanisms in oil revenue management in Ghana; accompanying objectives include
a)

To evaluate Current control measures in oil Revenue management in Ghana.

b) To identify Factors that can make Ghana's Oil discovery a Curse other than blessing.
c)

To identify measures to put in place to mitigate these potential problems.

d) To draw lessons from other Oil Rich Countries and make recommendations for Ghana's
Oil sector.

e. Research Question
The proposed study seeks to answer the questions below
a)

How can revenues from Ghana's Oil sector be managed to enhance its positive impacts

on the economy?
b)

Is there any such thing like natural "resource curse" or the paradox of plenty?

c)

What are the factors that can make Ghana's Oil find a curse other than blessing?

d) What measures can be put in place to militate against the "resource curse" effect on
Ghana?
e)

What lessons can Ghana learn from other oil rich countries?

2.0. Literature Review

Affluence lies not (only) in the abundance of resources at one's disposal, rather, affluence is a
function of the extent to which such resources have been well managed and put to optimum
use for the benefit of all (Collier, 2013). Often oil leads to the curse of plunder, the few
expropriating revenues that should benefit the many and the present generation unsustainably
consuming revenues that should benefit the future, Collier (2012). What is more, the Dutch
disease, Environmental pollution, conflicts and insecurity, corruption, poor institutional
structure, revenue volatility, and among others are prominent factors causing doom to oil rich
economies and thus not making them not realize the boom aspects of oil discovery and
exploitation (Auty, 1997).
Auty (1998) and Mikesell (1997) have both argued that revenue volatility can have a direct
relationship with resource curse. The basic argument is that oil, gas and mineral revenues are
very volatile, especially driven by violent fluctuations in prices over relatively short periods
of time, Stevens (2003).
Mikesell (1997) found that between 1972-92, regions with high primary export shares
experienced terms of trade volatility two to three times greater than industrial countries in the
same period.
Potentially this volatility could cause a variety of problems since unstable revenue profiles
make it very difficult to pursue a prudent fiscal policy. This creates problems in the economy
ranging from aggravating investor uncertainty to "stop go" spending policies, Stevens (2003).
The probability that windfall revenues from fluctuating export prices would be consumed
rather than invested cannot be left out (Sachs and Warner, 1998) although empirical evidence
does throw doubt on this view (Macbean, 1966; Behrman, 1987).
The permanent income hypothesis holds that windfall gains are most likely to be saved and
invested than consumed; Sachs and Warner 1997 however found no strong evidence to
suggest that resource rich countries have higher savings rates.
In resource-rich countries, it is often easier to maintain authority through allocating resources
to favoured constituents than through growth oriented economic policies and a level, wellregulated playing field. Huge flows of money from natural resources fuel this political
corruption. (Steven, 2003 (2003) differentiates corruption from rent seeking stating that

Corruption is simply stealing resources while rent seeking can be viewed as a normal
legitimate human reaction based on self-interest. The distinction somehow is blurred.
Having large amounts of money to play with is bound to increase the temptation for
corruption and rent seeking on the part of the decision makers (Leite, 1999). However, this is
a complex and controversial area. Mbaku (1992) uses Ghana as a scenario where he argues
that corruption can be seen as rent seeking behaviour. Nonetheless be it corruption or rent
seeking, both divert resources from the promotion of the greater good (Steven, 2003), also,
corruption and rent seeking behaviour imposes greater losses on the economy and hence has
the tendency of diverting social benefits into private hands (Bhagwati, 1992).
Auty (1998) similarly argued that such behaviour distracts attention from goals of long-term
development towards maximizing rent creation and that rent seeking creates extremely
powerful lobby groups who are able to block much needed economic reforms.
Nonetheless, (Sampson, 1975; Yergin 1991) argued that such issues are far from clear-cut, an
important dimension is what happens to the rewards of corruption and rent seeking once they
have been secured. If they are used for productive investment within the economy, the
outcome will be very different than if they are used for conspicuous consumption or to
enhance foreign bank accounts.

To overcome the challenge, Revenue sterilization can be a potent term contextually implies
not bringing all the revenues gained from oil exploitation into the country all at once, and to
save a portion of the revenues abroad in special funds and bring them in slowly (Collier,
2012. Sterilizing revenues in developing countries is politically difficult as there is often
pressure to spend the oil revenues immediately to alleviate poverty, but this ignores broader
macroeconomic

implications.

Sterilization will reduce the spending effect, alleviating some of the effects of inflation
Stevens (2003). Another benefit of letting the revenues into the country slowly is that it can
give the country a stable revenue stream, giving more certainty to revenues from year to year.
Also, by saving the boom revenues, a country is saving some of the revenues for future
generations. A typical example is the case of Norway where government is limited to spend a
maximum of 4% of oil revenues and the rest saved in the government pension funds.

Sudden windfall of resource revenues in developing countries often circulate in the context
of weak administrative structures, insecure property rights, nonexistent judicial constraints
and strong political ambitions that causes want in the midst of plenty oil resources (Elbers
2012) and as such the need to develop proper and functioniong institutions can help benefit
fully from oil exploration. Notable among oil curse preventers is transparency, it refers to
visibility or accessibility of information regarding usage of funds accrued to the government
from the oil sector as well as actions taken by the government regarding the oil industry
(Moreen 2006).
Increasing information disclosure is the key ingredient to overcoming resource curse in the
extractive sector. In a dissertation submitted to RAND corporation by Moreen (2006),
Moreen argued that the need to ensure transparency between companies and governments in
relation to how government spend oil revenues as well as how government manages oil
backed Loans is very fundamental to avoiding the resource curse since the absence of
transparency does not make available the information needed to allow accountability.
With adequate disclosure of information, constituents can debate the best use of Oil revenues
and constructively criticise wrong use of oil incomes as well as pressure government to spend
responsibly (Kaufmann, et al. 2002; Browne 2004; the International Monetary Fund 2005).

3.0 Methodology
The Study will basically review the Ghana Oil Revenue Management act, the Ghana
Petroleum act, and the Ghana Heritage fund Act and use it to analyse reports issued by the
Ghana oil Industry Transparency report, Government Report and other reports by Policy
think thanks regarding management of oil revenues and draw conclusions.
Research Limitations and delimitations
Though very relevant, the research dwells solely on secondary qualitative data, any future
research that considers quantitative approach or mix method will be great
a. Project schedule
The Proposed Project is scheduled to commence January 2017, if the needed support is
achieved

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