Tuesday, December 1, 2009

My Thoughts on Ghana's Looming Oil Woes

To preface, I should state that I believe in property rights, limited government and free enterprise, although I must say that oil agreements aren't easy to deal with, especially when property rights are involved. This entry was prompted by Craig Murray's piece, "Oil Must Benefit Ordinary Ghanaians" -- I coudn't stay mum after reading his views on the issue.

So, Kosmos Energy, which bought $4 billion shares in Ghana's oil is considering selling their shares to Exxon Mobil. According to Murray, the contract entered into by Kosmos Energy and Ghana National Petroleum Corporation (GNPC) gives the latter rights to be the first to refuse, should Kosmos decide to sell its shares to another company. If this information is in fact accurate, then government intervention is necessary now that Kosmos is interested in selling its shares to Exxon Mobil. It is also safe to say that Kosmos breached an aspect of the agreement based on this information. But, none of these details has been officially confirmed so it is best to analyze the situation based on available information.

Property rights infringement in Africa has been a problem for both domestic and foreign investors. In the case of Kosmos-Exxon-GNPC, Kosmos Energy reserves the right to sell its shares to whomever it chooses, unless of course, it did concede to something else -- which leads to the question: If in fact there was an agreement to not sell shares to a third party without the consent of GNPC, why then will Kosmos attempt to do just that? If GNPC indeed imposed such rules with intentions to carefully monitor the source of funding to the company that owns shares in its property, I would understand, although it would bother me much. The intrusion and level of government control comes too close to infringement of property rights, in my opinion. I would like to see the Ghanaian government impose taxes on transactions instead, which goes to benefit the nation in the long run.

The most logical thing to do, if the Ghanaian government decided to take the taxation route, would be to use the money to develop the country to boost the economy through programs that would facilitate this. The unemployment rate would positively be affected since there will be more jobs created not only through money received from taxes but also from oil activities.

The government appears to be determined to take advantage of this oil to benefit average Ghanaians. President John Atta Mills has urged Kosmos to consider ordinary Ghanaians as it moves forward with oil activities. It also seems that the Ghanaian government is approaching the oil and its development with extreme caution, and rightly so. The country has witnessed what the "curse" can do to a nation - we need not look too far.

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