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The Golden Age Beckons

Ghana was the first country in sub-Saharan Africa to gain independence from the UK in 1957. Gold, cocoa and oil are the sectors that fuel its economic growth. Future goal: energy independence.

by Eni Staff
1 min read
byEni Staff
1 min read

The discovery of oil and natural gas fields, just over ten years ago, has accelerated Ghana's economic transformation. Oil and gas exploitation has reduced the country’s exposure to the volatility of oil prices, decreasing its dependence on imports, ensuring gradually more stable and cheaper supplies, and reducing poverty. Natural gas has taken a leading role in electricity generation and in the quest for greater energy autonomy. Today Ghana is one of the most dynamic and fastest growing economies in West Africa. However, oil production is not the only element that has made its development possible. The government also aims to support traditional sectors, from textiles to cocoa, to diversify the structure of the economy, especially in the context of the economic crisis connected to the COVID-19 pandemic and with a growing debate on the role of renewable energy in the energy transition.

Big steps forward for the economy

Until 2007, Ghana was unaware that it was rich in oil. “We must thank the Lord for giving us this natural resource” said President Atta Mills on December 15, 2010 at the inauguration of the first oil and associated gas field 60 kilometers from the southwestern coast. Jubilee (as the oil field is known) had been identified three years earlier as having estimated reserves of 660 million barrels. It is currently producing 150,000 barrels a day. Young people, entrepreneurs, farmers: everyone is “jubilant”, says NJ Ayuk in his book “Big Barrels”: Ghana is on the way to becoming a new oil producer in West Africa.

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Ghana aims to transform energy into a key sector for the country's economic development but wants to avoid falling into the trap of depending on resources. The model is based on the economies of Southeast Asia that have used oil and gas to develop their manufacturing industry. The internal availability of resources allows the country to reduce its vulnerability to oil prices on the international market, guaranteeing stable supplies at affordable prices, and therefore a greater degree of energy security. According to data from the World Bank, in 1991 the country had a poverty rate of 47.4%. By 2012, poverty had fallen to 12.1%. Today it is one of the fastest growing African economies, along with Ethiopia and Côte d'Ivoire.

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There has been no shortage of setbacks in the history of this transformation. After the golden twenty years, 1995-2015, an expansionary fiscal policy dried up the reserves. Following the economic crisis of 2015, when the collapse in the oil price and very high debts forced the Ghanaian authorities to negotiate an extension of their credit line with the International Monetary Fund (IMF), praise came above all from Washington. For 2019, the IMF predicted a growth rate of 8.8%, placing Ghana among the fastest-growing economies in the world. The official data published last April by the Ghana Statistical Service set the growth of the Gross Domestic Product (GDP) at 6.5%, lower than expected but still an increase on the 6.3% recorded in 2018. For 2020, before the outbreak of the pandemic, the Fund had forecast an even higher growth rate of 9.3%. The COVID-19 annus horribilis will deal a severe blow to the economy: real GDP declined to 1.2% in quarter one, from 1.9% recorded in quarter four of 2019. Oil production has undoubtedly accelerated growth in the country. Along with the traditional sectors, it has allowed the economy to diversify. Albeit with a few discordant signals.

Not only gold: originally it was cocoa

When Ghana overtook South Africa as the world’s biggest gold producer in 2019, it owed its success to three factors: competitive costs of mining activities (which date back to the beginning of the 19th century); significant economic openness; new development projects.  

But for 40 years Ghana has also excelled in another sector: cocoa bean production. Ghana is the second largest cocoa exporter in the world after Côte d'Ivoire: the two countries together produce 66% of the world's cocoa. Exports amount to around 2 billion dollars a year. Conversely, chocolate imports barely reach 8 million. A gap that a new class of entrepreneurs wants to fill, strengthened by the new demand for chocolate with a more cosmopolitan flavor that has developed among the growing middle class. This has led to chocolate factories being set up that exclusively serve the domestic market, particularly thanks to Chinese investments and a strong push towards digitalization.

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More chocolate, please

Interview with Jeanne Donkoh, the founder of chocolate factory Bioko.

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The discovery of oil: a blessing

Let's go back to 2010, the year when the first oil field was inaugurated. Africa’s “golden child” - a definition coined by the international community in the early 2000s - can count on a stable democratic system, following the transition to a multi-party system in 1993, a free press, and a dynamic civil society.  Ghana is aiming to protect the domestic market and raise the standard of living of a population of nearly 30 million, in search of a sustainable development model for the entire African continent.

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Since President Nana Akufo-Addo came to power in 2017, the development of agri-food has been central to his policy to reduce dependence on imports. The World Bank is celebrating his efforts to raise employment rates and ensure access to education. Not all these goals have been achieved, the report notes. This is demonstrated by the data.

According to the Ghana Statistical Service, the industrial sector - including oil and gas - contributes 34.2% of GDP. The role of oil, especially in the last three years, has increased significantly, rising to 4.5% from 0.6% in 2016. Today it is second only to gold (7.1%), but it is not the only sector driving the economy. Gold remains the most exported product; the service sector accounts for almost half of gross domestic production; agriculture - driven by cocoa beans - accounts for 18.5%.  

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And agriculture should be more supported precisely by the resources generated by the oil and gas, the director of the Africa Center for Energy Policy (ACEP), Benjamin Boakye, tells us in an interview. The development of the oil industry risks discouraging the government developing other growth drivers. In 2013, the contribution made by agriculture to the country’s GDP was much higher, equal to 21.7%. Overall, the non-oil sector is still strong but has been shrinking slowly, from 6.5% in 2018 to 5.8%.

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The collapse in the price of oil and the impact of COVID-19 have widened the internal debate about the need to accelerate the process of economic diversification. Ghana is not lacking in determination to rebalance its economy. The country shows a significantly lower degree of dependence on oil and gas than other producing countries in sub-Saharan Africa, such as Nigeria, Angola and Gabon. Similarly, there appears to be a clear strategy to break free from a dependence on imports of raw materials and accelerate regional integration. The country's strong support for the new African Continental Free Trade Area (AfCFTA) is also significant in this respect. The Ghanaian Parliament was among the very first to ratify it, confirming the Pan-Africanism that has always characterized Ghana. Last April, Accra won the competition to host the headquarters of the Secretariat.

Energy to light the country

Until 2007, biomass energy consumption amounted to 49%. In 2016, the use of biomass dropped to 39%.  The use of hydrocarbons and a strong push towards electrification have transformed the energy sector. Today Ghana continues to develop both upstream and midstream infrastructure. In addition to Jubilee, the other two main fields - TEN and Sankofa – are concentrated in the Tano Basin. Three companies are active in the sector: Eni, the Norwegian Aker and the African Tullow. In 2019, Ghana produced almost 200,000 barrels a day. Oil is destined for export: crude oil is a major export (4.57 billion dollars in 2018). Gas, on the other hand, is essential to meet internal consumption, which is growing at a rate of 10-15% per year, and to fuel the electricity sector.

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Before the development of OCTP (2018), the Ghanaian offshore exploration project, in which Eni is heavily involved, Ghana fueled its power plants mainly with oil and gas imported from Nigeria via the  West African Gas Pipeline (WAGP). It also used a large hydroelectric power plant on the Volta River, in the south-eastern area of the country: the Akosombo dam, built in the 1960s by the Italian Salini Impregilo - the biggest artificial lake in the world. These sources still play an important role in Ghanaian electricity generation, but the growing contribution of gas from OCTP will gradually help Ghana achieve greater energy independence.  

Ten years ago, supplies were not enough: the lake was insufficient to meet the energy needs of an African country that boasted of providing access to electricity for 84% of the population in 2018. In addition to this there was some discontinuity in Nigerian supplies. As a result, a massive blackout caused many industries to fail. Ghana had been one of the hubs of the textile industry in West Africa: the crisis wiped out the textile companies and only three have survived.

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More than oil alone

Interview with the Director of the Africa Center for Energy Policy (ACEP), Benjamin Boakye.

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The country was thus forced to review its energy policy. Encouraged by the World Bank and the International Monetary Fund, the Accra government identified gas production as the key to ensuring the diversification of the energy mix and the stability of low-cost supplies, also leveraging private investors. Thus, Eni's project, which consists of producing oil for export and gas for internal consumption, was welcomed.

At the same time, this policy of building a large number of power plants has created a problem of overcapacity. Every year, the government finds itself having to pay 450 million dollars to independent producers for electricity that goes unused. Experts believe that the sector needs to be reorganized, particularly to thin out an extremely overcrowded market, dominated by state-owned companies in some sectors, and by obstacles that impede the progress of other sectors. Particularly renewables.

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The debate about the development of solar power is struggling to achieve a concrete solution. The goal of achieving an energy mix in which renewables will account for 10%, initially planned for 2020, has been moved forward to 2030. The authorities may theoretically be interested in developing renewable energy projects (the General Plan for Renewable Energy was published in 2019) but, given the availability of resources, they continue to favor more profitable projects related to oil and gas. The completed conversion of the Karpowership 2019 to generate electricity from oil and gas is significant as it contributes to reducing the carbon footprint in the energy transition.

The impact of COVID and recovery forecasts

After three consecutive years of high rate economic growth, in 2020 the country risks recording the lowest growth in the last 37 years, warns the IMF. The budget deficit to GDP ratio also risks expanding to 10%, the largest in six years, nullifying the effect of fiscal discipline efforts. Rising inflation, a weak currency and a restrictive monetary policy are also having an effect as the country prepares for presidential elections next December. With the collapse in the price of oil, the country’s revenues have also shrunk. The energy sector has always influenced the country's economic performance and the balance of its public accounts. The recovery will have to wait until 2021, said the governor of the Bank of Ghana, Ernest Addison. But the turbulence in the oil market has not affected the activities of Eni, the only company currently carrying out exploration activities: the other energy companies are not planning to increase production.

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Good Morning Ghana

Good Morning Ghana

A modern country tied to its traditions. Gabriele Cecconi photographic report illustrates the economic development of Ghana and the vitality of some of its historical sectors, from cocoa to textiles.

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Photographer Gabriele Cecconi traveled to Ghana to illustrate the facets of an emerging economy. What emerges is an image of a dynamic country pushing strongly for urbanization but still tied to fishing. A country that is making big steps forward without forgetting its traditional sectors, from cocoa to textiles. These images show how the growing role of oil & gas in economic development is balanced by the desire of the Ghanaian government to strengthen other growth drivers.