Saving Ghana from Itself

When Barack Obama picked just one country to visit on his maiden voyage to Africa as U.S. president, it was no surprise he chose Ghana. The West African country of some 22 million people has been a peaceful democracy for nearly two decades. Its economy has grown steadily since the early 1980s while the number of Ghanaians living in poverty has plummeted. Ghana has mostly contained the fraud and theft that rots other economies and avoided the maladies affecting so many of its neighbors.

But Ghana’s greatest test is yet to come. A major offshore oil project will soon produce about 200,000 barrels of crude per day, delivering a windfall of profits. Gold and cocoa exports, the driving forces of the economy for more than a century, will both be surpassed by oil almost immediately.

The worry is that oil will do to Ghana what it has done in too many other places: destroy its economy and poison its politics. A library’s worth of studies have linked natural resources to conflict, authoritarianism, corruption, and high poverty — directly threatening the very things cited as evidence of Ghana’s economic and political progress. "Unlocking the secret of what enable[s] … poor countries to successfully lift the resource curse can spare millions," writes editor in chief of Foreign Policy, Moíses Naím. And luckily, Ghana still has another year or so to build its defenses. But as Naím points out, nobody has yet figured out how, exactly, a country can successfully stave off the worst of oil’s ills.

For Ghana, Nigeria’s experience looms especially large. The country earned more than $200 billion from its huge oil reserves between 1970 and 1999, but over that time, the average Nigerian grew poorer. Rather than develop the country and build a future, oil created a politics obsessed with dividing spoils. Other than what not to do, Ghana doesn’t have much to learn from Nigeria.

Another neighbor, Chad, is also a failed experiment in resource management, exposing the pitfalls of expecting a national oil savings account to do the trick on its own. As part a massive pipeline loan from the World Bank, Chad agreed in 2001 to pay oil proceeds into a Citibank account in London meant to fund social services such as healthcare and education. But once the pipeline was built, there was nothing to stop the government from simply reneging on the deal. And, in 2008, it did.

Successful natural resource exporters such as Norway, Chile, and Botswana each have something, by accident of history or just good luck, that Nigeria and Chad lack: a powerful political bloc with an interest in holding the government accountable for responsible resource management.

So what should an oil-bonanza country do if, like Ghana, it lacks any such constituency? It should do what Alaska did: Give the oil revenue straight to its people. After a major corruption scandal in the U.S. state in the 1970s, Anchorage created an oil-revenue fund and, starting in 1982, paid dividends to citizens as a deliberate check on abusive state power. Last year, every Alaskan got a check for $3,269 in the mail.

What works in chilly Anchorage might work in tropical Accra, too. What better way for the country to generate intense public scrutiny overnight than give every citizen a direct claim on oil cash? And once the payouts are established, what politician would dare risk the wrath of voters by scrapping them?

There’s an added bonus for a country like Ghana, where average annual incomes are still under $500: putting cash directly in the hands of very poor people. Rather than waiting for the money to trickle down through inefficient public services, people could choose how to spend their oil bonus straight away. Based on current projections, every citizen could receive about $85 per year by 2013 — not enough to make them quit their jobs, but enough to give a real boost to poor families.

Some may worry that this would deprive the government of the funds it needs to build schools and roads. But Ghana’s government already collects a healthy 24 percent of GDP in revenue. And receipts would grow with the handouts, since Ghana already has consumption taxes in place. Some portion could still be set aside as national savings, and rules could be enacted to smooth payments over multiple years, mitigating concerns about volatility.

The most critical question will be finding a fair and practical way to distribute the money. New technology can help. Biometric cards or mobile phones could easily be adapted as a means of accounting and delivery. Mobiles are already a popular means for money transfer, and people without phones could either use a prepaid airtime card to received funds or even use a portion of their first oil check to purchase a low-cost handset.

Ghana can save itself from the oil curse by simply handing over the cash directly to citizens. This may sound like a radical proposal, but given what havoc oil has wreaked on other places, the riskier path is in fact the most judicious one.