The world is full of paradoxes and in Africa there are many examples: Ghana is one of the poorest countries in the world, despite being Africa’s largest producer of one of the most valuable resources: gold. (paradox) Not only that, Ghana is also the continent’s oil producer. Although its oil industry has been dealing with years of decline, In recent months it has been experiencing an unexpected renaissance. According to the latest report from the Public Interest and Accountability Committee (PIAC), crude oil production in Ghana increased by 10.7% in the first six months of 2024 compared to the same period of the previous year, breaking a trend of annual decline which had lasted for five years. This resurgence is significant for the country, which is seeking to diversify its sources of income and reduce dependence on gold.
Crude oil production in Ghana began in 2010when the country made its first major foray into the oil industry. However, existing fields experienced a decline in their production levels (decline phase) over the past few years, leading to total barrels produced in 2023 falling to their lowest level in five years. In terms of barrels per day, the production of Ghana hit its peak in 2019 with a pumping of more than 218,000 barrels per day. Since then and with the covid involved, the country’s industry experienced a decline that led crude oil production to fall even below 160,000 barrels per day. Now, the oil industry is starting to wake up.
“We hope that the increase in production in the first half of 2024 will be maintained, thus reversing the annual declines,” commented Isaac Dwamena, coordinator of the PIAC Secretariat, in statements to the agency. Reuterswho highlighted the organization’s optimism regarding the future of the industry. Meanwhile, the economy is growing around 3%, with a per capita income of about $2,200. Although Ghana is one of the poorest countries in the world, it is much more developed than its neighbors such as Senegal or Mali.
In total, crude oil production in the first half of 2024 reached 24.86 million barrels, in contrast to a drop of 13.2% in the same period of 2023. This rebound is mainly due to the Jubilee South East (JSE) project, operated by Tullow Oil, which began its activity at the end of 2023 and has revitalized the performance of the Jubilee oil field, the first to be developed in the country.
More oil, more income
The JSE project has been crucial in restoring dynamism to the industry, at a time when Ghana needs to strengthen its economy after the pandemic and the fall in raw material prices. In addition to increasing oil production, oil revenue increased by 56% year-on-year, reaching $840.8 million in June 2024, representing vital income for the government.
According to PIAC, oil revenues contribute about 7% of the government budget, reinforcing the importance of the sector in Ghana’s economy. This increase in income will allow the country to advance its investment and development plans, as well as face the financial challenges derived from inflation and the cost of living, which have affected a large part of the population.
Gas follows oil
Gas production also experienced an increase in the first half of 2024, with an increase of 7.5%, reaching 139.86 million standard cubic feet. This growth in gas production complements the recovery of the energy industry and represents an additional boost to the national economy. Gas has become a strategic resource for Ghana, which seeks to ensure a stable energy supply for its industry and reduce dependence on costly imports.
Despite this renaissance, the industry faces both natural and technical challenges. Dwamena highlighted that existing production fields need careful management to maintain extraction levels and minimize disruptions. Additionally, Ghanaian law requires oil companies to allocate at least 12% of the project to the state in the form of free and loaded interest, a condition that may discourage investors, Dwamena said.
“The State can take between 15% and 20% of interest charged, depending on the negotiations, and this has been a disincentive,” he explained. With the aim of continuing to boost production, Ghana plans to sell more exploration rights. The government’s strategy is to prevent fossil fuels from being trapped and unused in the subsoil, especially in a context of global energy transition. In the long term, Ghana seeks to generate additional income to support this transition, betting on a balance between the production of fossil fuels and the development of renewable energy sources.
Currently, several international companies operate in Ghana, such as Eni, Tullow, Kosmos and PetroSAwhich represent a combination of technical experience and investment capacity necessary to expand and modernize the sector. These companies have committed to making additional investments that could further increase production and, thereby, generate a constant flow of income for the State.
However, competition and regulatory complexities in the region underscore the need to improve investment conditions for Ghana to remain attractive in the competitive African energy market. The growth of the oil sector could mean a major economic transformation for Ghana. Unlike its gold sector, which has been a traditional source of income, oil development allows the country to diversify its economy. With oil revenues, the government has the opportunity to finance infrastructure projects and social programs that benefit its citizens, in a country where the poverty rate continues to be a challenge.
The case of gold
Ghana is one of the hot spots in the world in terms of gold production. It is the largest gold producer in Africa and ranks sixth in the world. In 2023, 4 million ounces were produced in the country. Gold has become a more than essential commodity for Ghana’s economy, contributing around 7% of GDP.
Ghana’s gold mines are spread across most of the country and the history of mining dates back hundreds of years. However, a form of mining known as artisanal, illegal or small-scale mining has become the most popular (unproductive and dangerous). Although it is recognized by law as a legitimate source of livelihood, Evidence shows that more than 85% of small-scale mining operations are still carried out in the informal and illegal sector of the economy outside of state regulation.
Artisanal mining, now found in 14 of Ghana’s 16 regions, has become an important source of income for poor people living in rural areas. It employs more than a million people and accounts for 40% of the gold produced in Ghana, according to the country’s Minerals Commission, which regulates all gold sales. But illegal small-scale mining operations wreak havoc on the environment, agriculture, cocoa production and drinking water supplies.
With these prospects, Ghana emerges as an example of how African countries can harness their energy resources to foster economic growth and improve their position on the global stage. Even the International Monetary Fund has praised some of the policies that the Government of Ghana is undertaking that involve the use of this money from oil or gold as a source of financing.
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