Ghana Petroleum Funds Take Shape

Ashby Monk

I noted earlier this year that Ghana was considering a new SWF to sequester a portion of their imminent oil revenues, which are set to start when their Jubilee energy field commences operations later this year. It is expected that income generated from this project could reach $2 billion a year, which has created a sense of urgency in Ghana to begin planning for the management of these rents.

Accordingly, Ghanas’ Ministry of Finance and Economic Planning has just released a Preliminary Proposal for a new oil revenue and management law. As if on cue after yesterday’s article, a major component of this Proposal is to ensure that Ghana does not suffer the ‘resource curse’:

“In putting together this proposal, we have been keenly aware of the so called “oil curse” that has come to be associated with oil rich, developing countries.”

As I argued at length yesterday, commodity funds are crucial in this regard. They facilitate ‘stabilization, sterilization and savings’.

As such, a key part of this Proposal is to establish two new SWFs. Indeed, Section 13 sets out the basics for the new Ghana Stabilization Fund and Ghana Heritage Fund (the “Ghana Petroleum Funds”). The Ghana Heritage Fund will be used to preserve Ghana’s oil wealth over the long-term, while the Ghana Stabilization Fund will fill short-term budget gaps. The specific objectives of thee funds are as follows:

“(a) Cushion the economy from the impact of unanticipated petroleum revenue shocks and safeguard macroeconomic stability. (b) Cushion the impact on or sustain public expenditure capacity during periods of revenue shortfalls whether caused by a fall in prices of crude oil or natural gas, or through produc-tion changes. (c) Generate alternate stream of income to support public expenditure. (d) Provide a heritage, through the Ghana Heritage Fund for future generations of Ghanaians from savings and investment income derived from petroleum revenue.”

In reading through this document, I couldn’t help but be impressed with the transparent and professional job the Ministry of Finance is doing. From public consultations in all regional capitals to a commitment to transparency and accountability informed by international standards of best-practice, it’s an impressive Proposal. For anybody curious as to how a developing country goes about setting up a SWF, it’s worth reading in its entirety. As best I can tell, it touches all of important points described by Udaibir S. Das, Yinqiu Lu, Christian Mulder, and Amadou Sy in their recent paper. For example, the Proposal strictly defines the transfers, allocation and outflow of oil revenues to and from the various SWFs. It’s pretty thorough.

My only concern then is with the governance of the new funds. As best I can tell, the Minister makes all the investment decisions:

“The Minister shall be responsible to oversee the collection, disbursement and the over-all management of the Ghana Petroleum Reserve Accounts…The Minister shall not make any decisions in relation to the investment strategy or management of the Ghana Petroleum Reserve Accounts without first seeking the advice of the Investment Advisory Board.”

So the Minister only has to consult with the Investment Advisory Board? In addition, it looks to me as of the Advisory Board is itself entirely political. The President can appoint and fire board members almost at will. Ideally, I’d rather see an independent investment committee making investment decisions.

Still, I’m not all that worried in this case because the Proposal rigorously defines the “qualifying instruments” that the fund can invest in. These are internationally denominated government debt instruments and currency deposits. Nothing too aggressive.

Anyway, it is fascinating to watch Ghana’s petroleum funds take shape. they look pretty good on paper, but as a friend of mine says, “the proof of the pudding will be in the eating.”

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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