1.0  Introduction

The main objective of OPEC is to control the amount of oil exported or used for other purposes. This policy ensures that member countries dispose off their oil at a price where there is equality between marginal cost and marginal revenue. By restricting the amount of oil disposed, price of oil moves up thus enabling member countries to set prices that ensure they maximize their profits. Economists believe that OPEC is an economic cartel due to monopolistic intentions of their member countries. Currently, over two thirds of all oil reserves in the world are controlled by OPEC member countries. This organization experiences the main constraint in its effort to achieve its objective. Historically, member countries have not been loyal to the organization and have been disposing product at a lower disposal value. This has made its maintenance become difficult (Duncan & Derek 2005).

It has also become difficult to prevent non-member countries from entering into the OPEC market. This is because not all countries producing oil in the world are members of OPEC. As a result, some countries have sold as much oil as they need benefiting from the initiative made by OPEC member countries (Afrimedia International  2000).

For instance, in 1973, there was a restriction by OPEC regarding the level of oil production among member states. There was also a substantial increase in prices to $5 a barrel. There were a number of wars, changes in prices, and political disturbances, which resulted in decline of the oil supply. This resulted in unavailability of oil leading to more difficulties in obtaining the resource in many parts of the globe. When the disposal price of oil is high in the world, economical use of the commodity is applied, and most countries try to produce their own oil as much as they can (Butler 2004). There has also been a research in the field of renewable energy caused by economic disturbances of dependence from oil resources.

Many OPEC member countries have also been involved in cases of cheating to raise production levels to boost profits.  Many loyal member countries of organizations such as Saudi Arabia have made attempts to persuade its counterparts to stop cheating (El Malakh 1982). The problem of cheating has now been solved by eliminating certain restrictions on the amount of oil that a country needs to export or produce. If Ghana joins this organization, it is likely to experience these behaviors of member countries. This would affect its economic performance in the amount of gains from production of oil.

Ghana possesses relatively modest resources, and it is not certain that the resources will contribute to economic improvements. As a result of high liquidity deficits, the country’s economy is expected to improve with the discovery of oil (Cq Researcher 2009). However, if there is no sufficient preparation, there are chances that the resources associated with oil will be adversely affected to the level that it may result in reduction in per capital income in the actual terms after initial periods of the discovery.

Ghana, like all other countries, experiences similar challenges; the main issue is consideration of the capacity of leading political leadership to provide the right information regarding the allocation of revenues from the oil industry. There are various options that can be used to ensure discretionary use. Furthermore, the conditions for professional control over oil revenue and its allocation by disclosure of contracts need to be reviewed with full implementation of the recommendations in the budget. There is a need to ensure transparency to be certain that home grown approach is used in case of misappropriations by the government. There is also a need to eliminate impediments in the economy of Ghana to ensure rents are generated and suboptimal investment decisions are made. There are certain actions that are regarded effective steps towards effective use of oil.

Ghana is also able to improve its transparency in the allocation of oil revenues by adoption and implementation of Freedom of Information Act and assurance there is accountability in matters such as: publication of reports regarding the use of revenues. It also involves the right disclosure of bidder’s documents and disclosure of the correct documents. Besides, there is a need to ensure increased allocations for agricultural, as well as public goods. This is because the agricultural sector is one of the most affected by oil-boom and oil bust in Ghana (Dias & Begg 1994).

When it comes to investing in agriculture, the discovery of oil may assist Ghana in the fight for such conditions as improvement of feeder roads, provision of extension services, supply of water and power, as well as irrigation facilities. By investing in these sectors of the economy, the quality will be improved significantly (Allen 1979). This motivation has resulted in the act of implementing certain principles of allocation of oil revenues on agriculture. However, a number of them are likely to take time to complete, and there is a need to ensure the right sequence and priorities to raise the level of transparency and ensure macro-economic stability is restored as oil boom starts in 2012. Risks of delays of implementation of structural reforms can be minimized by adopting techniques, which ensure risks are minimized, and the right amounts of the budget are channeled in the coming years.

Ghana is among the nations in West Africa that have experienced a lot of economic challenges such as reduced balance of payment and natural disasters. There have been a range of attempts that had been implemented to ensure there is a breakthrough in situations of the economy. Lastly, it has been found that Ghana is one of the countries that have oil reserves in on the Ghana’s Continental Shelf (GCS). There were suggestions that it was necessary to improve the economy. This has led to the establishment of a legal framework of exploring Oil and Gas industries by President Kufour for the first time in the history of Ghana.

The exploration has been successful, and the country is likely be a participant of Organization of the Petroleum Exporting Countries (OPEC), whose function is to coordinate and make policies regarding petroleum universal among the member countries and also to ensure that the interests of the member countries are safeguarded individually, as well as in whole.

As the country prepares for the production of Oil, the question is “Will the country be able to maintain its Oil security or not?” (Clements 1992). This paper explains this difficulty in a critical manner regarding the effects of oil exploration on the economy of Ghana. It also provides a practical recommendation that would be beneficial to meet the difficulties that may affect the economy of Ghana in Oil exploitation.

1.1. Background of the Study

Oil security is a condition where production of oil does not result in negative consequences on the economy of the producing countries. For the case of oil exporting countries, it is a condition where the amount of oil imported is high enough to meet their demand for the commodity. For both exporters and importers of oil, it is essential to have security for the commodity in an effort to accomplish economic improvement, political stability, and security of the country. Consequently, Oil security is considered as a condition where there is a continuous supply of Oil for different purposes and quantities at prices that can be afforded to the people (Hawdon 1985). It is also considered as a situation where a country and all people living in it have access to oil and its products at affordable costs for the purposes of future use. Availability of sufficient amount of oil ensures there is no risk of disruption of supply.

The definition of oil security is a matter based on conditions and time. There are a number of challenges involved in the Oil industry (Gifford 1998). These challenges are experienced by both countries in OPEC membership, as well as those outside OPEC. Some of the challenges that have been observed to affect Oil producing countries include high oil prices, high level of dependence on imported oil by some countries, large amounts of investments needed for exploration of Oil, effects of Oil exploration on environment, and the need to ensure climate change does not take place. Another challenge is the need to ensure that natural disasters do not occur.

Oil is also regarded as one of the most influential economic resources for countries that produce the commodity. In these countries, it is regarded one of the resources that contribute to increased revenues that assist in improvement of economies (Clarke 2010). There is a number of areas where oil is used in industries such as power industries that also contribute to generation of income for countries that produce oil. Generally, oil is considered beneficial to both the producer and consumer (Cq Researcher 2009). There have been challenges of ensuring oil security as illustrated by the 1974 embargo. In this year, the importance of oil in the world was experienced by the effects of shortages of oil products for use in various areas. There was a need to ensure certain guidelines are followed to provide oil security.

In the 1970’s, it was argued that oil security was mainly concerned with low supply and elevated prices of oil; currently, it does not only include shortage of supply, but also matters such as political considerations, natural calamities, and terrorism (Harkinson 2003 ). There has been a need to expand oil security demands to incorporate the entire energy sector and its components.

1.2. Purpose Statement

Countries that have oil deposits have been observed to improve tremendously in economic improvement. However, studies indicate that countries that produce oil face not only a number of opportunities, but challenges as well. These factors have affected their economies in one way or another. Countries that produce oil had seen that there was the need to devise ways of optimization of legislation regarding oil exporting. The result was the formation of OPEC to assist them in devising solutions to their problems. To every member of this organization, there are certain regulations that affect the level of exports and imports of oil products or oil itself. There is a need to determine the effects of oil discovery on improvement of the economy, infrastructure, political stability and oil price stability of nations that are members of the union. The research also involves an analysis of the manner in which these member countries allocate their oil revenues in various sectors of the economy. This involves the study of consequences that older members have experienced since they joined the organization and the effects that the organization has brought to the effectiveness of its oil industry. These effects have been studied on the basis of economic growth and increased gross domestic product of these member countries. Other effects that will be discussed include; the level of peace maintenance in member countries and the level of cooperation regarding the price at which oil needs to be exported. This paper explains ways in which OPEC membership would be beneficial or detrimental to the economy of Ghana.

1.3. Research Questions

In order to understand effectively the effects of oil discovery and exploitation in Ghana, a number of guide questions were developed. They are:

  1. What are the ways in which Ghana is likely to benefit from oil exploration and a membership in OPEC?
  2. Are there any implications that are likely to face Ghana’s economy as a result of discovery of oil in the country?

1.4. Hypotheses for the Study

To allow the research to be carried out effectively, a number of hypotheses were formulated to act as tentative answers to the research questions. The following are the formulated hypotheses:

a) There are more benefits that Ghana will gain in a result of becoming a member country of OPEC than bad implications.

b)  There is a relationship between the oil wealth and improvement of people’s livelihood in a country.

c)  Ghana’s economy will improve as a result of discovery of oil in the country.

1.5. Limitations of the Research

Some of the limitations of this study consist in:

- Firstly. It does not seek to interview on challenges that are experienced by OPEC countries such as the consequence of high cost of energy;

-  Secondly, the research also does not focus on the matter regarding the effect of devaluation of the U.S dollar on the value of oil products in other countries;

-  Thirdly, the study does not explain the negative consequences of exploitation of oil on the economy of Ghana. These issues include regulation of the amount of oil that Ghana could export or the existence of cartels that are involved in selling of oil at cheap prices lower than those recommended by OPEC. It would be recommended that future research focuses on these issues.

Fourthly, the study does not include other OPEC member countries in the research in order to maximize the accuracy of the answers provided by the respondents from Ghana. It is recommendable to conduct new research with interviewing managers from other countries such as Nigeria, Libya or Angola.

2.0. CHAPTER 2: Literature Review

2.1. Brief Theory

There are a number of debates and tests by economists on the various theories concerning OPEC influence on the oil market by personal initiatives, action measures taken by semi autonomous governments, or by means of concerted plans executed by organizations in general. There have been questions whether OPEC was successful in its cartel operations. Whatever one’s argument concerning this matter, it is clear OPEC countries have controlled marketing of its oil in a manner that is independent to the scarcity of crude oil.

Despite the rise in OPEC oil reserves in 1973-1985, there was a reduction in production by nearly half in the twelve month period with a noted fall from 31 million barrels per day to 16 million barrels per day in 1985. Presently, OPEC is a substantial cartel in oil distribution.

OPEC history is divided into three phases. The first phase covers the period between 1960 and 1970. The main goal of OPEC was to ensure its members obtained maximum profits for its oil. Government’s share of the profits was increased from 50% to 80% through the imposition of taxes, as well as administrative requirements by OPEC member countries by introducing tax reference prices, which improved tax base and consequently government share (Brock & Elzinga 1991). In this phase, OPEC did not increase the overall price for its oil, and there was no intention of the possibility of such a feat. This is because initially, the main concern for OPEC was to win a better part of the oil reserves rather than improving its control of price for oil.

The next phase of OPEC development involved collective responsibility of coordinating actions with the goal of reversing the decline in oil prices that had occurred immediately after World War II. There were a series of agreements among OPEC member countries such as Iran and Libya. It was unilaterally agreed that tax reference should be raised by 21% for oil from OPEC member countries. It was the period when the Arab-Israeli conflict began in 1973 at the conferences convened by OPEC to review issues of exchange rates. This conflict made Arab member countries declare an embargo on sale of oil to Israel and its allies such as United States and Netherlands. Despite no significant effect of the embargo on the amount of oil imported by these countries, it caused a lot of worry in the market and created a need to keep inventories of oil reserves (Afrimedia International 2000). Prices in the spot markets were driven up to unexpected levels, which made OPEC ministers aware that their oil was more valuable to the world market than of any other individual oil producer country. In 1974, the price of oil was $11.25 per barrel, an upsurge from $2.18 that had been established two years earlier.  There was a steady increase of the posted price during the 1970’s by agreements among OPEC member countries, but there was a slight reduction of a real price due to the rise in level of inflation.

The third phase in evolution of OPEC took place in 1980s where members of OPEC were willing to offer discounted sales for their oil below the level provided by the actual OPEC price to ensure they maintained or increased their share in a dwindling oil market. As a result of reduced consumption and increased OPEC oil supplies, there were reduced levels of sales and falling prices for oil (Schunurr & Swatuk 2012). The need to deal with excess oil in the market led to the imposition of ceilings on the amount of output for each member country. The trend continues up to today, where there are regular members meetings at equal intervals to give a review of the conditions in the market and update their quotas to ensure support and defense of the market price at the recommended range.

Conflicts of interests have occurred where there is a need to determine countries that deserve large quotas and the recommended price for OPEC oil. Members of OPEC union that have low-cost and high amount of reserves, may take a broader perspective concerning future and may even set considerably high prices due to the possibility of induced technological innovations that may result into other forms of energy (Congress 2006). Member countries having low amounts of reserves and poor revenue goals that are  likely to be vulnerable to a risk of this kind and less likely to be affected by high prices. There are also internal disagreements among OPEC member countries that are likely to emerge again.

There is also concern regarding geopolitical tensions and serendipitous occurrences among OPEC member countries (Hawdon 1985). A better part of OPEC’s historical impact is not made up of agreements for purposeful plans for the cartels, but as a consequence of the clash of interests that have gone beyond the petroleum industry. In the previous thirty five-years, a large portion of oil reserves found in OPEC countries had been as a result of reservation taken out of production due to military disagreements. The cartels have been involved in a lot of work to ensure discipline and restricted output. Due to this reason, the capability of OPEC to manage marketing of oil remains still untested. This paper also explains the Cartel theory of Oligopoly as an explanation for the consequences that may happen if Ghana joins OPEC.

2.2.  The Cartel Theory of Oligopoly

A cartel is referred to as a group of companies that come together to make collective decisions and output policies. Factors that contribute to oligopolistic markets are (Kuzemko & Belyi  2012). Cartels have been observed to be popular in markets in which there are few players, and each player is not influential in the market. In some countries, cartels are not legalized, but, generally, there are no regulations for the formation of cartels in other parts of the world. OPEC is a good example of an international cartel. This is because all member countries meet on the annual basis to determine the amount of oil that each member country will produce.

In order to increase market dominance, oligopolistic enterprises may join the cartel and cooperate with it to determine the amount of output that each country will be allowed to produce, as well as the price that would be charged (Harkinson 2003). This system of cooperation enables these cartels to behave like monopolists. For instance, a firm that operates in an oligopolistic market shows a horizontal demand curve for the sale of its oil. On the other hand, if the firm joins forces with other countries to form a cartel such as OPEC to make a decision with regard to the output price, it would be observed that the countries will face a downward trend on a demand curve, similar to monopolistic markets. The profit maximizing choices of OPEC is similar to those of monopolistic markets.

Members of the cartel choose a collective output level that ensures their marginal revenues that equals total marginal costs. The sale price for the cartels is based on market demand curve (Hawdon 1985). Generally, cartels tend to behave like monopolists by producing less and charging more than what is expected in a perfectly competitive market. The table below gives a summary of the oil market domination of OPEC countries as a result of formation of cartels.

Year

 OPEC Share of noncommunist word output (%)

Capacity utilization (%)

Market Share (%)

1975

65.4

69.7

11

1980

63.2

65.1

12.7

1985

41.7

40.1

12.6

1990

50.7

59.6

12.8

1995

52

55.4

10.7

2000

53

53

14

Table1. OPEC Cartel Share in the world market between 1975 and 2000

OPEC has been dominant in marketing of oil in the world and has been affected activities that provoke oil demand all the time (Coakley 2003). Consequently, if Ghana joins OPEC, it will be able to control the market in West Africa based on the characteristics of cartel oligopoly.

2.3. Benefits that may result if Ghana joins OPEC

The major role of OPEC is to coordinate the policies concerned with petroleum among member countries. The prime members of this alliance are Kuwait, Iraq, Venezuela, and Saudi Arabia. However, any oil producing country has the right to join. Members of OPEC realize several benefits from this membership. As a result of discovery of oil ongoing in Ghana, it is likely to become a member of this alliance. This paper explains some of the benefits of being a member country of this union.

2.3.1. Brings Unity with other Countries

The major objective of OPEC is to ensure member countries interest of having common policies towards marketing of oil is achieved (Ascher, 1999). If Ghana becomes a member of this alliance, its cooperation with other countries involved in production of oil will be improved. The main purpose for the establishment of OPEC was to bring unity against Western oil exploiting companies, which tried to ensure the lowered price of the commodity (Harkinson 2003). The amount of oil produced by OPEC member countries is nearly 45% of the overall crude oil produced in the entire world.  This is an indication that any attempt that this alliance takes with regarding oil distribution is to be felt in the entire world (Akabzaa 2000). Consequently, if Ghana joins the alliance, it will be termed as a major contributor with reference to countries in the industry of oil marketing. It will also have a greater command in oil market in West Africa. The membership will enable the country to connect with colleague oil producing countries in Africa such as Nigeria.

2.3.2. Regulation of oil prices

As member countries of OPEC are involved in production of a high amount of oil, it has the influence over the overall price of oil in the world market. Countries that are members of the union hold annual meetings to come up with decisions affecting oil production. During the meetings, conditions of the oil market are considered. In addition to that, issues of demand and supply are considered as a factor for regulation of oil (Tsikata 1997). Membership in OPEC will also ensure that Ghana sells its oil at the right price so that it does not dispose the commodity at low price compared with other OPEC member countries. The matter concerning security of demand is very significant for OPEC member countries. In order to achieve stability of market, OPEC ensures that there is a security of demand and supply, as well as reliable and easy access to the right level of energy. The incentive to engage in the right amount of investment can be significantly increased when there is predictable confidence and reliable demand for oil.

Membership in OPEC also ensures that counties in the developing world have a stronger voice in their commitment towards achieving ad satisfying market needs to make its consumers satisfied with its oil (Gifford 1998). However, OPEC does not always tolerate very high or very low prices for its oil. It considers such extreme prices as less sustainable and has the characteristics of volatility. The organization has always ensured that prices are moderated despite the limited influence it has on factors beyond its control. However, its presence in the market has ensured there is enough supply in the market during all the present period that is faced with a number of difficulties.

2.3.3. Results into Growth of the Economy

The main objective of OPEC is to ensure its member countries advance economically and are less harmful to the environment. A number of policies have been unified for enforcement to the countries that ensures those who invest their capital in the industry get the right amount of returns. Consequently, there is no possibility of any country lagging behind with respect to economic growth (Cq Researcher 2009). This implies that the economy of Ghana is likely to improve greatly based on the principles used by OPEC in managing its oil resources. Despite being a new member of the union, its oil and natural gas industry will improve as fast as those of older member countries.

The qualitative aspect of the need to ensure that challenges facing mankind are tackled is also among the goals of OPEC for all its member counties (Roser 1996). As a support statement, oil industry has always ensured that environmental credentials are improved by addressing the issues of pollution and ensuring quality of air (Duncan & Derek 2005). The major countries at the forefront of this campaign have been OPEC member countries by coming up with many developments over the years. There is also the requirement of ensuring the challenges brought by climatic changes are met, and the right technological options are put in place to make good use of oil and gas with little possibility of emitting carbon wastes.

An example of effort that has been made by many OPEC countries is carbon capture and storage (CCS) that is applied to areas where carbon emissions take place such as power stations and areas with industrial activities. These causes of pollution account for over half of the total amount of carbon released to the environment. Member states of OPEC also use the policy of CCS in conjunction with oil CO2 recovery by ensuring carbon dioxide is stored, as well as increasing the amount of oil reserves in the fields (Down & Stocks 1977). If Ghana implements the use of CCS, it will contribute significantly towards the level of CO2 emissions; and can result in appearance of viable business opportunities for oil sector. In addition, OPEC has also ensured that it takes the good example by providing clean oil and gas technologies through initiatives such as clean development mechanism in respect to the common principle of differentiated responsibilities. Consequently, if Ghana becomes a member of OPEC, it will be able to learn these policies of environmental protection and keep its country free from pollution.

2.3.4. Assurance of Stability of the Market

There is also a commitment of OPEC towards ensuring stability of the market by securing supply at the right prices. This is significant in maintaining the right amount of oil in reserve that can be used to balance the market and assist in keeping the amount high enough for effective supply. As a consequence of being a member country of OPEC, Ghana will hasten the potential of OPEC to affect world oil market if it does not participate in marketing of oil (Mayer & Farooq 2007). By joining this alliance, it is possible for Ghana to have control over its oil resources and become one of the commanding powers in marketing of oil. Joining this organization also makes the country come up with ways of ensuring its oil reserves are managed to ensure steady delivery to the market and sold at the right prices.

2.3.5. The Possibility of Benefiting from Ruling out Production Cuts

OPEC member countries recently decided that they would stick to the present production curbs instead of reserving a lot of their oil. This decision has made many oil consuming countries comfortable as it is clear that any production cut has adverse effects on the price of oil and improvement of the economy of the world.

A meeting of OPEC-member countries took place on May 28, 2011 with another meeting scheduled for September to enable ministers have the chance to examine their options regarding the level of oil export regulations. There has been an agreement among member countries that production would be cut by 4.2million barrels per day after reduction of oil prices from $147 a barrel to an amount closer to $ 40 a barrel. If Ghana joins the alliance, it will enjoy the production cuts by being able to market its oil at the right price without being controlled by OPEC rules (Schunurr & Swatuk 2012).

According to the meeting held in Vienna by the International Energy Agency, selling of oil at cheaper prices had resulted into trillions of income for OPEC countries. The participants at the meeting agreed that it was necessary to reduce the price of oil given the strains that are facing the global economy. They concluded that the worst occurrence that they could witness is the sudden increase in oil prices. By lowering the price of oil, demand would be high. This is an economic stimulus plan that, when implemented, can result in improved economy of OPEC member states. Other countries that were strict at observing OPEC regulations are also likely to benefit from the initiative as they would leave the burden of observing the rules while other cartels are benefiting from low-priced oil exports. There are plans to ensure compliance is achieved as much as possible (Butler 2004). The result is that there will be an agreement in virtually all areas that OPEC will supply its oil. This is an indication that Ghana will be able to supply its oil to all countries willing to import its oil. There will be no disagreement caused by being a member country of OPEC.

Therefore, it is assumed that the economy of the world will improve greatly, and prices will be fair. However, the main matter that needs consideration is the issue of compliance and price cut. Russia had also reported that they were pleased by the decision by OPEC countries to decrease the level of oil distribution (Congress 2006). This is an indication that it will accept the importation of oil and oil products from OPEC countries such as Libya and Nigeria. The result is that these economies will improve due to availability of markets in almost any country in the world.

2.3.6.Improvement of Infrastructure

The discovery of oil in Ghana can play a significant role in development of infrastructure of the country. This will be achieved through the development of roads, and railroads (Aryee 2001). It will also lead to the improvement of smaller communities living in regions around the oil fields by the provision of good infrastructure and employment opportunities.

2.4. Challenges that may result if Ghana joins OPEC

There are various problems that may affect the economy of Ghana as in becoming a member country of OPEC. This involves oil security in terms of demand for domestic use and security of supply for export. According to Ghana’s Jubilee Field, there are reserves of about 600 million barrels of the resource in addition to natural gas.  According to estimation of International Monetary Fund (IMF), this field is likely to earn the country as much as $20 billion by the year 2030. This is an indication that Ghana would no longer be oil consuming state but an exporter of the commodity from the year 2012 (Madeley 1999). As preparations are underway for extraction of the resource along the coast of the country, there are worries regarding problems associated with exploitation of oil that include; physical insecurity of the people and facilities (Veiga & Beinhoff 1997). Other problems include availability of the right level of transport by land or sea to the right places and stable political conditions for investment in the oil industry.

2.4.1. Existence of Oil Cartels

While Ghana will be trying to ensure that it adheres to all the rules recommended by OPEC, some countries will not be fully loyal to the rules. This may be observed in a situation where some countries sell their oil at a cheap price while Ghana will be selling its oil at the price determined by OPEC. Their level of production of oil will also be highly compared with the production levels recommended by OPEC (Wood 1999). The revenues for countries involved in cartel activities will be highly compared with those that are loyal to OPEC rules. This may be influential to Ghana, and it would opt to engage in the same act of disobeying recommendations of OPEC by producing more oil than the recommended quota. It may result into depletion of oil reserves of the country and the difficulty of maintaining the prices of oil by OPEC member countries. This practice is likely to reduce due to a high demand for oil from developed countries such as China and Middle East that require more oil for operations of their industries. The demand of oil particularly in these countries is increasing day by day; demand for oil has been high despite the existence of cartels in the OPEC.

Other western countries may also become interested in oil reserves of Ghana and would have high demand for its oil (Afrimedia International 2000). They would invest in its exploitation and extract the oil to their satisfaction and storage. These countries may then decide to dispose this oil when the disposal values of oil are elevated and get maximum revenue for the resource. They would, therefore, benefit from their sales of the commodity in comparison with Ghana.

Furthermore, Ghana may experience difficulties as a member of OPEC due to the competition for world markets from the side of countries which are not members of the organization such as Russia and Kazakhstan. As a consequence of lack of OPEC's control over these states, they would use technology to develop nationalistic streaks. Non OPEC countries will be selling their oil at a high price compared with the price set for Ghana’s oil by OPEC (Ascher 1999). Ghana would also lack access to engineering expertise and equipment from non OPEC countries such as Russia (El Malakh 1982). This will result into low level of exploitation of its oil reserves.

Furthermore, it is true that the economy of the world is slumping at a fast rate while OPEC continues maintaining high price for the commodity (Ghana Minerals Commission 2006). If OPEC continues to set high prices for its oil, there will be friction with oil importing countries. There will be disagreements between America and OPEC member countries that may lead to their denunciations. Since Ghana will be a member of this organization, it will also be affected by the denunciations made against OPEC member countries.

As a consequence of being a member country of OPEC, Ghana will have to advocate for high prices for its bio-fuels while justifying low prices for ethanol and biodiesel (Otto & Barberis 1994). The result is that people will not benefit much from the existence of oil in the country and people will have a preference for fuel efficient cars and other types of cars such as hybrid cars (Akabzaa 2000). The demand for fuel consuming cars is likely to reduce tremendously. Countries in the neighborhood of Ghana such as Benin, Cameroon, and Nigeria that could benefit from oil from Ghana would not because of high price of the commodity. They will have to develop drives that ensure there are fuel efficiency as well as spending much of their resources for researches in other areas of the energy sector (Brock & Elzinga 1991). This is an indication that the act of becoming a member of OPEC is likely to result in destructive consequences on the economy of Ghana.

2.4.2. Attacks

If Ghana joins OPEC, the management of its oil resources will be based on the recommendations of OPEC. These recommendations may not be applicable in matters regarding security of its oil resources (Davis 1998). Security issues may be exacerbated due to armed conflicts and terrorism attacks and national disagreements. There is a probability that the country’s defense forces may not allow the implementation of OPEC regulations in managing the oil reserves in the country (Campbell 2003). They may not be willing to protect the pipelines and political stability would not be achieved. This turmoil will cause low level of exploitation of oil resources that may result in low demand for oil produced by Ghana.

Furthermore, there are chances that local terrorists are involved in a conspiracy to attack the oil reserves. This was experienced in Nigeria where there were happening Al-Qaeda attempts of attacks on the poorly protected oil reserves for a number of years. The procedure is likely to develop in Ghana, which is a close neighbor to Nigeria (Hawdon 1985). These attacks may result in improving the defeating security measures that have been incorporated to protect the oil refineries. These threats of attacks by terrorists may require the government to employ more security measures for protecting these reserves (Weber-Fahr 2002). Technical experts involved in operating facilities at the pipelines may also be threatened, and they would not perform their duties effectively.

2.4.3. Infrastructure Security

Many security issues related to the oil exploitation in Ghana have arisen; for instance, the existence of cables that go through other countries to supply other countries. There is a need to monitor trans-border pipelines crossing the land to other regions to ensure they are not trespassed or encroached by unauthorized persons. The government will have to set aside resources that will ensure these facilities are protected (Gifford 1998). This will result in extra expenses in the exploitation of oil resources. If these facilities are expensive, government will unable   to get them or replaced destroyed pipelines. Generally, there may be extra expenses involved in installation and maintenance of oil facilities that may not be under the capability of the government to control (Warhurst 1994). As a consequence of its coastal location, Ghana has the authority to establish regulations for cables and pipelines that go through its territory.

Beyond the sea and land area under the control of Ghana, the country has a general right to apply its laws in controlling the areas by laying its cables and pipelines (Schunurr & Swatuk 2012).  The laying of cables and pipelines at the coastal strip should be a subject of the country’s coastal control such as the right to prevent or minimize the levels of pollution from the pipelines.

2.4.4. Tankers

Tankers have the freedom to navigate any part of the sea, but their operations are regulated by exclusive economic operating areas. Ghana as a coastal state may not have the authority to control foreign tankers within the deep sea, but when these tankers are within 200 nautical miles from the economic zones of the country, there may be a need to enforce legislative laws of the country in their control. The government of Ghana has the authority to control the frequency of their docking at the coast and the duration of their stay at the coast. It also has control over the level of pollution that the tankers are allowed to emit to the environment (Campbell 2003). It is feared that membership in OPEC may make a country less concerned with controlling the amount of pollution produced by these ships (ILO 2005). The government may also be less concerned hoping that OPEC rules will apply (Eggert 2001). The consequence is that no regulations will be applied in controlling pollution or charging the tankers for overstaying at the coast of Ghana.

Furthermore, there may be threats such as hijacking of tankers by pirates. The fact that Ghana is a member of OPEC will not make this problem solved. Furthermore, it will be worsened by the belief that the oil industry has made the country successful in marketing oil. This will make pirates believe that they can benefit more from oil if they hijack these tankers.

2.4.5. Offshore Installation

Customary International Law is aware of each coastal country’s sovereign rights for its resources along the coastline. There is an agreement concerning the sovereignty of the rights of Ghana over the resources along its coastline. The country has jurisdiction over the development and use of resources found along its continental shelf. It has authority over any facilities and installations found along its coastline (Hilson 2001). As a coastal country, Ghana has control over installations on the basis of customs, fiscal, health as well as safety measures and laws of immigration. Despite these rights of jurisdictions, the country is usually faced with unexceptional difficulties regarding offshore installations in the form of fishing and activities of navigation (Aryee 2001).  As a result of being a member country of OPEC, the country is likely to be less concerned with the security of these installations. Occasionally, the country may relinquish some of the powers of control over the coast to OPEC (Duncan & Derek 2005).

2.4.7. Lack of Government Implementation of its Foreign Policies

As an outcome of being a member country of OPEC, the government of Ghana will not have enough control over the allocation of revenues from the sale of oil. It is likely that OPEC rules would restrict the manner in which the gains from the disposal of the resource are distributed within the economy. Projects that are known to be beneficial to the country will not be funded easily due to these restrictions (Coakley 2003). The revenues from oil may also be diverted to payment of membership fees and other compliance requirements which may reduce the overall amount of revenue obtained from the sale of oil.

Furthermore, more OPEC policies will be applied in controlling the pricing and distribution of the commodity (Warhurst 1999). The government will not have authority over the method in which these policies are applied. The policies will be beneficial to some members of the union considerable while Ghana will be less beneficial due to lack of autonomy in decision making.

2.5. Summary of the Literature Review and Recommendations for Ghana’s Oil Industry

The literature review above indicates that Ghana is likely to improve economically as a result of discovery of oil near its coast. In spite of being an OPEC member, the benefits are likely to result into enough revenue that can assist in settling foreign debts or improvement of infrastructure of the region. This paper provides an inquiry into the benefits that would be contributed to the economy of the country in addition to difficulties that may be encountered. Despite being a member country of OPEC, there are potential challenges that need to be addressed as the country enjoys membership benefits (Development Project, London. Chamber mines. Accra 2009).

One of the approaches for addressing the challenges is to make its stand on foreign policies stronger and commits the management of oil extraction to OPEC by developing trade ties with other countries that are likely to bring more income compared with the sale through OPEC (Iddirisu & Tsikata 1998).  Ghana needs to amend its foreign policy by following the examples of countries such as America, South Korea, Japan and Russia that have strong foreign policies regarding the use of oil for infrastructural development. These countries do not export much of their oil. Instead, they use it to improve their roads, hospitals and provision of education (Thomson & Joyce 1997). Ghana can opt not to become a member of OPEC and channel its oil resources into similar activities (The Institute of Statistical Social and Economic Research 2001). The navy of the country also needs to be effectively equipped with the right arms to curb any attempted foreign invasion on the plants used for oil exploration and extraction. The reservoir also needs to be protected from foreign attackers (Campbell 2003). If Ghana joins OPEC, it needs to learn protection measures.

Ghana also needs to intensify its relationship with other neighboring countries such as Togo, Ivory Coast, Burkina Faso, and Nigeria by promoting other activities such as sports to improve friendship. It is also necessary to improve national commitment to oil security and availability and demonstrate its predictability by installing committees to ensure the efforts are implemented. A representative of this position would be a person whom advices the National Security Council and has the skills to coordinate energy policies of the country across various levels of government.

There is also a need to put in place proper structures that assure the health and safety that may come up in the oil industry. Ghana’s Ministry of Energy needs to regulate the operations of oil and gas processors to ensure they abide obey these guidelines. This measure should be taken in response to a similar case that took place in the United Kingdom in 1988 when a disaster took place at Piper Alpha Oil Company near the shore. In the disaster, 167 employees were killed due to deteriorated health and safety issues at the company. Statistical information shows that this disaster resulted into a loss of $ 123 billion due to destroyed property and compensations. If the right amounts of measures are not put in place, Ghana is likely to experience the same consequences (Ascher 1999). Given the level of its development, these loses can result into heavy burden in terms of replacement of lost property and compensation.

There is also the need for the country to learn that there has not been a tremendous success in improving its economy with revenues from other minerals and other resources (Aryee 2001). It is needed to make drastic changes that guarantee success in economic improvement as a result of exploitation of oil.

Ghana needs to become independent in its decision making and not leaving the role to international organizations such as OPEC. By participating actively locally and exercising management of oil and natural gas resources, more Ghanaians will be involved in estimating the revenue that they need to get from the oil industry (Gifford 1998). Furthermore, there is a need to prevent the culture of negotiation in deals by learning from previous cases and make better deals ensure there are improved negotiations as the country prepares the best contract arrangements for the benefit for its people.

Time may not be considered as a constraint for the government of Ghana in improving its petroleum sector. There is a need to develop autonomous timetable or further improvement of the Petroleum Industry (Richards 2002). The faster the process, the higher the chances of making mistakes that could result into a reduction of management efficiencies of the oil and gas industries of the country. It is required that the process goes as slow as it possible in this next stage of the project.

Furthermore, Ghana needs to be aware of corruption in the oil sector. It has been observed to be highly prevalent in countries bordering Ghana such as Nigeria. Nigeria has experienced resource curse due to corruption in the oil industry (Afrimedia International 2000). The government of Ghana needs to encourage effective management of the oil industry to enable exploitation of oil and gas resources effectively and allocation of revenues for intended purposes (Omalu & Zamora 1999). The allocation of resources from oil and gas industry should also be subject to opinions of the leaders and the public. If these regulations are followed, politicians and oil management personnel will not be held accountable of misused of oil revenues for their personal benefits. It will also ensure that they deal with matters regarding oil and natural gas cautiously to prevent being accused.

It will also ensure that strategic approaches that are only applicable in Ghanaian coast will not be used. On the contrary, OPEC’s universal rules will be applied in controlling activities along the coastline of the country.

CHAPTER 3

3.0. Research Methodology

A group of research professionals conducted a research in some of the oil companies in Ghana to determine the effects of oil discovery on the economy of that country.  The study involved conducting surveys and interviewing managers of those companies through interviews and questionnaires. The managers were provided with guide questions regarding their estimation of effects of discovery of oil on the economy of Ghana. They were also interviewed about the effects of discovery of oil in Ghana.

3.1. Data Collection Methods and Analysis

A total number of 30 managers were issued with questionnaires. Out of these respondents, 40% had experience of more than 20 years in economic effects of minerals while the remaining 60% had experience of less than 20 years of experience in the same field. Demographic, as well as geographic dispersion of respondents were noted, and a total number of 20 managers were male while 10 were female. The number of managers from rural companies was 20 while those from urban companies were 10.  The questionnaires required the participants to give their ideas on the possibility of their country being beneficial to membership of OPEC. It also required them to give their opinions on effects that the discovery of oil will have on their economy. The questionnaires also required them to suggest some of the ways in which challenges facing oil exploration should be addressed to ensure production is efficient.

The questionnaires were collected and sampled for analysis. The table below shows the list of benefits to the managers’ beliefs that would be brought by membership in OPEC.

Benefits

Number of times mentioned

Providing jobs at all times of the year

26

Assisting Rural population

20

Strengthening government

18

Stabilization of oil prices

15

Improving cooperation among OPEC member states

10

CHAPTER 4

4.0. Results of the Study

According to the response from the study, it was found that exploration of oil in Ghana will contribute significantly towards the generation of revenues for the government. The managers responded that this revenue will be obtained from activities such as taxes, rent, royalties, and fees. The respondents also reported that the discovery of oil will result into support for other institutions such as health facilities and bring cooperation among African countries. The other response is that discovery of oil in the country will result in improved infrastructure of the country by contributing in development of railroads leading to oil refineries and communication network in these places. They also reported that the industry will lead to development of smaller communities that live in areas where mining takes place by means of power plants that will be installed near the companies to provide the local residents with the right amounts of power, electricity, and basic services at reduced costs.

The results of the survey showed similarity with the effects of oil discovery identified in the literature review in areas such as provision of employment for the local Ghanaians. For instance, the managers reported that the least amount of wages received by an employee in the oil industry is about $70000 per year. They also reported that once the oil refineries star operating, each will employ about 260 employees with at high salary. They also reported that the total GDP of Ghana will improve significantly due to the discovery of oil in the country.

The respondents agreed that household incomes will also increase as a result of discovery of oil in the country. The other benefit that the respondents explained is that it will lead to increased hire rates for residents of the country. The other benefits reported in a result of discovery of oil are provision of opportunities in business.

Keeping exports constant and ensuring stability of the price of oil were also reported as some of the benefits.

It was also reported that membership in OPEC ensures there is a steady supply of oil by keeping the right amount of stocks. They also explain that meetings held on annual basis have ensured that OPEC rules are amended to fit various challenges faced by oil industry.

4.2. Recommendations from the Research

The responses from the respondents were studied, and the following are their suggestions: One of the recommendations that could be used to meet the challenges facing oil industry in Ghana is to prevent degradation of the environment. The respondents explained that it is possible to lose a lot of economic resources due to destruction of environment in the result of oil exploration, transport, and marketing. To ensure that the looming environmental pollution is curbed, it would be necessary to ensure that efforts are made by local government, as well as NGO’s and community agents to improve economy in areas where oil explorations take place. They responded that the community can be affected by oil spills. Thus they recommended the formation of oil spill committees comprising of regional leaders and youth from oil producing communities. They proposed that the guidelines for operations of these committees should be provided by the government under Ghana National Petroleum Company (GNPC). They showed strong agreement that active participation of NGO’s, local government, and the entire community in management of oil spillage could contribute to a considerable reduction in cases of clashes that are common in many oil producing areas in the world.

The other recommendation by the respondents was the participation of Environmental Protection Agency with ensuring their regulations and guidelines would be implemented. They also recommended that “pollute-pay” principle should be applied so that multi-national oil companies pay for the damages they have caused to the surrounding inhabitants.

It is also recommended that more measures are put to ensure that the revenues from exportation of oil are directed towards important projects in the country to contribute to economic growth. Accountability the expenditures needs to be made by keeping the right records of expenditures and income from the oil industry.

In addition, the country needs to prevent any possibilities of participating in cartel operations to ensure other countries that do not produce oil benefit from Ghana’s oil. Policies also need to be simple to bring assurance in involvement in trade in oil and oil products with Ghana.

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