Researching the politics of development



Transnational capital and the political settlement of Ghana’s oil economy

7 July 2015
By Kojo Asante and Giles Mohan.

How has Ghana – one of Africa’s most celebrated democracies – managed its newfound wealth since it struck oil in 2007? This is a profoundly political question that goes to the heart of the resource-development nexus. Our project under the ESID research centre seeks to unpack the ways in which Ghana’s politics shapes its engagement with oil companies and how it governs the ways oil wealth is used. It has resulted in three main findings:

  • First, we found that Ghana’s national oil company is acting as an effective broker between domestic elites and international oil companies. However, oil licences were still being negotiated on terms favourable to external actors, due to existing structural inequalities between the two parties around issues like access to capital in the oil sector. .
  • Second, both domestic bureaucrats managing oil institutions and businessmen using ‘front companies’ play an important role as brokers for inward investments in the nascent oil and gas sector.
  • Third, so far oil revenues have been used largely for short-term political gains rather than long- term investment that can promote inclusive forms of development.

Given Ghana’s political system, should we have expected these findings? We can account partly for these patterns of oil governance by looking at the nature of Ghana’s prevailing competitive clientelist political settlement. Drawing on work by Oduro et al., the features of Ghana’s competitive clientelist political settlement include a dominant president and executive whose dominance is undercut by a reliance on informal networks to boost its holding power; and a de facto two party system that has generated intense competition within and between the two parties (the ruling National Democratic Congress and the opposition New Patriotic Party), leading to two electoral turnovers over the last five elections since a return to multiparty democracy in 1992.

Furthermore, institutions remain weak, even though there are ‘pockets of effectiveness’ like the Ministry of Finance and Bank of Ghana. State-business relations are characterised by the short-term goals of primitive accumulation and party financing, which undermine development. Finally, governance processes, and the hegemony and legitimacy of the state are structured and reinforced by a prevailing idea of Ghana as a ‘unitary state’ that should be protected and secured.

Ghana’s take in the first round of oil block licensing has been criticised for being relatively low compared with other African countries. The suggestion is that this is as a result of weak bargaining powers of the national oil company, the Ghana National Petroleum Corporation (GNPC).

Our findings suggest that it is more to do with the weak relationship between the GNPC and political elites. On assumption of power in 2001, the pro-market NPP government focused on restructuring the GNPC to make it attractive to private sector participation. As part of these reforms, the previous fiscal regime, which sought to obtain state share of net-oil of between 65 percent and 55 percent, post cost recovery, was replaced by a new regime that reduced the government share of net oil to between 55 percent and 45 percent. The GoG take included equity interest in the oil block, royalty rate on the gross production, taxes and additional oil entitlements. This was resisted by GNPC technocrats whose previous leadership during the Rawlings’ NDC regime had focused on achieving resource sovereignty.

From 2009, Ghana returned to a state-centric approach to oil governance following the return to power of the NDC and the appointment of the old leaders of the GNPC onto the Board and management. The schism between political elites and technocrats, however, is likely to continue because of the competitive clientelist nature of the political settlement, but may be tempered by repeated rounds of institutionalisation that make it difficult to change prevailing ‘rules of the game’.

GNPC is not the only broker of inward investment in the oil and gas sector in Ghana. Front companies set up by domestic capitalists with ties to the ruling coalition are also important to the relationship between transnational capital and the sovereign state.

This is best exemplified by the case of the American company, Kosmos Energy, and the Ghanaian company, E.O. Group. The relationship between the owners of the E.O. Group and the NPP administration reflects the nature of state-business relations under Ghana’s political settlement that favours transnational capital at the expense of promoting domestic capitalists, except if they are party sympathisers and financiers. This continued when the NDC took over in 2009, in the case of the contract involving AGM, GNPC and MED Songhai, where the Minister for Energy exercised his discretion under the local content law to enable a known ruling party financier to participate in the shareholding of the oil block.

Though oil revenues are yet to reach the optimum projections of $1bn from Jubilee Field production, Ghana’s spending patterns so far are not promoting inclusive forms of development. Drawing direct financial resources from royalties, taxes and equity interest held by GNPC and indirect resources from the collateralisation of oil for loans, oil revenues have been spread thinly when used for infrastructure projects like roads and to finance election spending. In the election year of 2012, 11 percent of oil revenues allocated for direct budget support went to the Office of the President compared to 9 percent for agriculture modernisation. This dropped to 4 percent in 2013.

These insights are possible because of our focus on the links between elite coalitions and transnational actors and the contested terms in which the new investment in a nascent oil and gas sector is negotiated. The absence of this type of spatial political dynamics, particularly the transnational and national-local dynamics, in the analysis of resource politics is well noted by scholars like Michael Watts. This paper is an attempt to use the Ghana case in an iterative way to develop the links between transnational capital and coalition politics within a political settlements framing.

Read the full paper: ESID Working Paper 49: Giles Mohan and Kojo Pumpuni Asante ‘Transnational Capital and the Political Settlement of Ghana’s Oil Economy