GHANA’S energy transition strategy must take into account the country’s current economic circumstances and future survival needs, economists and experts in the energy space have warned.
With a Gross Domestic Product (GDP) of about $72 billion and annual tax revenue of less than $6billon, the experts contend that the energy transition budget is very significant and raises several questions.
“How will Ghana be able to finance the transition considering its present economic situation ? Which critical investments could be sacrificed for the energy transition commitments? How does the government intend to deal with the potential revenue losses as a result of the transition from fossil fuel to cleaner energy sources?” the experts wondered.
Chairman, Civil Society Platform on Oil and Gas (CSPOG) and Co-Chair of the Ghana Extractive Industries transparency Initiative (GHEITI), Dr Steve Manteaw and Dr Alex Ampaabeng, economist with the Natural Resource Governance Institute (NRGI) expressed these concerns during a training session for selected journalists and Civil Society Organisations (CSOs) in the Eastern region.
The training programme was to get participants to among others understand how the energy transition will impact on the Ghana’s domestic revenue mobilisation efforts, understand the policy options for managing the potential revenue decline from Ghana’s oil sector and assess revenue mobilisation opportunities for other critical minerals.
Ghana’s economic woes
Ghana’s growth slowed to 3.2% in 2022, down from 5.4% in 2021. The slowdown affected mostly the non-extractive sectors, as the recovery in gold exports supported extractives growth.
With a debt to GDP of about 104%, the country has suspended the payment of its sovereign debts in a bid to avert depletion of its foreign currency reserves.
The country has recently implemented a domestic debt exchange programme (DDEP) which has negatively affected most businesses and individuals leading to heavy losses for bond holders
Banking sector vulnerabilities have increased because of the cedi depreciation and the impact of the concluded DDEP. Implementation of progamme is already impacting the country’s financial sector due to the heavy exposure of banks, insurance companies and pension funds to government debt. It is estimated that 42.1% of government domestic debt is held by these entities.
With a distressed financial sector, investor confidence is relatively dull even though managers of the economy remain hopeful of recovery, on the back of a bailout arrangement with the International Monetary Fund.
Dr Manteaw recalled that between 2011 and 2021 Ghana made US$6.2 billion in oil revenues and “between 2021 and 2070 when Ghana plans to transition, lie 50 years so holding all things equal and assuming depleted resources would be replaced in equal measure, Ghana could earn US$31 billion.
He contends that even though petroleum revenues do not dominate the national budget (6% – 12%), for a debt distressed economy, the loss of such revenues could pose substantial fiscal disruption for the country.
To transition, countries need to develop new technology, especially in renewable energy production and storage. Dr Manteaw maintained that it will require investments in research and development, noting that “petroleum revenues afford such financing opportunity.”
Dr Ampaabeng lamented that Ghana’s energy transition would undoubtedly have major implications for the country’s revenue mobilisation efforts, especially at the time when the economy was in dire straits, and government was struggling to meet its revenue targets, in the wake of a general foreign aid crunch. It is therefore crucial that government in pursuing the transition framework averts its mind to the existing economic challenges.