sovereign wealth fund took a step forward last month: forward,
at least, from its position as little more than a couple of
accounts at the central bank. A new investment advisory
committee – headed by one of the best-known figures in
Africa’s business and financial community
– was inaugurated and held its first meeting in
According to the 2011
Petroleum Revenue Management Act, the committee is supposed to
formulate the fund’s investment strategies for the
minister of finance, Kwabena Duffuor. This includes guidelines
on asset-allocation and targeted returns.
The law says transparency should be a fundamental principle of
management of the state’s new-found oil wealth.
However, Euromoney understands that the investment committee
decided at its initial meeting to make no official announcement
either on its inauguration or membership, which is appointed,
according to the law, by the president, John Atta Mills, with
advice from Duffuor.
|John Atta Mills at
a ceremony marking the first flow of oil from the Jubilee
offshore oil field in 2010
committee includes a traditional leader from the
country’s oil-producing west coast, someone from
the central bank, as well as Ghanaian experts on law and
development policy. The chairman is Kofi Bucknor, a Ghanaian
former treasurer of the African Development Bank, and more
recently known as the main point man for investments in Africa
by Saudi billionaire
Prince Al-Waleed Bin Talal.
"The committee has been
set up as prescribed by the law, and payments have been to the
fund as required," Bucknor tells Euromoney.
But according to another
member of the committee, government action in setting up
structures to manage the oil industry, including oil revenues,
has been tardy. When discussing management of the new industry,
including formation of the investment committee, the source
says: "The government is firefighting. [...] I was not the only
[member of the investment committee] confused about the purpose
of our role."
According to the source,
such problems have meant that, although the act says the
committee should meet every three months, it has decided to
meet every month, to try to ensure it is better able to perform
its duty. Meanwhile, the investment committee’s
scramble to get up and running has raised questions over how
effectively the body designed to ensure compliance with the
Petroleum Revenue Management Act – the Public Interest
and Accountability Committee – has been able to fulfil
Revenues from oil started
to flow into Ghana’s state coffers last year from
exploitable reserves discovered offshore four years ago. The
interval from oil discovery to production has been particularly
short, partly because Ghana is eager to reap the profits.
"Pressure to spend has
been higher because of the oil discoveries, so in that sense
Ghana has been an oil economy since at least 2008," says
Sebastien Dessus, the World Bank’s lead economist
The rapid development of
the oil industry and the associated challenges for the
government have made it critical to assure investors that a
framework is in place to save oil money when energy prices are
high. In 2007 Ghana issued a benchmark debut 10-year Eurobond,
as did another African oil exporter, Gabon. Both bonds
mentioned oil revenue in their prospectuses and in recent
months rising oil prices have supported both
Partly thanks to oil, GDP
growth in Ghana last year was 13.5%, according to the IMF.
However, oil-price volatility means oil revenue is not without
risks for the government’s finances.
As is not unusual for
countries in an oil boom, Ghana has already seen rises in
property prices and construction, particularly in the
oil-producing west and in the capital, Accra, which is also
becoming something of a hub for West Africa. Some of the bigger
local banks are getting hungrier for risk because of the oil
boom. They are financing nascent construction frenzy.
If there is a bust, the
banks’ systemic importance could be a contingent
liability. Meanwhile, in addition to local-currency debt and
the $750 million Eurobond, the China Development Bank agreed a
$3 billion loan to Ghana last year, for infrastructure
developments carried out by Chinese contractors. It too is
collateralized against oil revenues.
Partly because of
overspending during the last election in 2008, Ghana went to
the IMF for a programme, which is due to expire in June. Mills
is up for re-election in December, and the cedi has already
lost about 15% of its value against the dollar over the past
On February 15 this year,
the central bank said currency volatility and what it termed
fiscal pressures were behind its decision to increase the base
rate by 100 basis points to 13.5%.
The wealth fund should
protect the government against all this. From 2011, according
to the new law, a minimum of 30% of the Ghanaian
state’s projected oil revenues should have been
flowing from the overall oil-revenue pot at the central bank
– the Petroleum Holding Fund – to the
subsidiary Ghana Stabilization Fund and Ghana Heritage Fund.
While the latter is for when the oil runs out, the former is to
support the budget when oil revenues fall below