Assessing the Economic Impact of Oil and Gas Production on Ghana's Economy

Since the discovery of oil in the offshore coast of Ghana in 2007, the nation has had increased expectations on possible accelerated economic growth and development. This oil and gas if managed well has the possibility to transform a structurally week economy into a self-sustain economy. Likewise, if not well managed can lead to social, economic and political instability as it can be seen in some oil rich countries where their economies are characterized by corruption, poverty and conflict.The aim of this study was to find out the economic impact of oil and gas production on Ghana’s economy. The research employed the analysis of secondary data from the World Development Indicators, World Bank. Data were processed and analysed using SPSS statistical software. Simple linear regression analysis was performed to analyse the impact of oil rents on Ghana’s economy.The study revealed that revenue accruing from oil rents affect GDP growth positively and therefore considered impactful on Ghana’s economy since it represents net addition to capital stock. Averagely, Ghana has been experiencing GDP growth of 6.1% per annum with average contribution of oil rent being 1.8% per annum (20002018). The regression analysis shows that a percentage increase in oil rents will lead to a corresponding increase in GDP growth by 0.788 % per annum, which is approximately 1% per annum. It was also revealed that there has been a paradigm shift in Ghana’s economy from an agrarian to a more industrialised and service oriented economy with gradual increase in oil discoveries since 2011.

new act was adopted establishing that any natural resources on the shelf belongs to the Norwegian state, and that only the King has the authority to award licences for exploration and production. The Norwegian state's participating interest was divided in two: one part linked to Statoil and one to the State's Direct Financial Interest (SDFI) in the petroleum industry.
During the beginning of the 21 st century, the Norwegian shelf was opened up to more types of companies as a way of ensuring sound resource management. The big international oil companies that were already established on the shelf were combined by other types of companies that could perceive different kinds of commercial opportunities in Norway's petroleum resources (Norwegian Petroleum Directorate, 2020).
Since production started on the Norwegian continental shelf in the early 1970s, petroleum activities have contributed to more than 15,700 billion in current NOK (Norwegian krone) to Norway's GDP. And does not include related service and supply industries. So far, only about 47 % of the estimated recoverable resources on the Norwegian shelf have been produced and sold (Government.no, 2020).

Nigerian Oil and Gas Industry
Crude oil exploration and production in Nigeria began under British colonialism. This was in spite of the fact that, the industrial sector was one aspect of the Nigerian economy the British were most reluctant to develop (Okorobia and Olali, 2018) Oil was discovered in Nigeria in 1956 at Oloibiri in the Niger Delta after half a century of exploration. Nigeria joined oil producing countries in 1958 when its first oil field started producing 5,100 barrels per day. In 1970, the end of the Biafran war coincided with the rise in the world oil price, and Nigeria was able to reap instant riches from its oil production. Nigeria joined the Organization of Petroleum Exporting Countries (OPEC) in 1971 and established the Nigerian National Petroleum Company (NNPC) in 1977, which is state owned and controlled company. By the late sixties and early seventies, Nigeria had achieved a production level of over 2 million barrels of crude oil per day. Even though, production figures dropped in the eighties, 2004 saw a total rejuvenation of oil production to a level of 2.5 million barrels per day. Petroleum production and export play a major role in Nigeria's economy and account for about 90% of its gross earnings. This dominant role has overshadowed agriculture, the traditional mainstream of the economy, from the early fifties to sixties (NNPC, 2020).

Investment in Ghana's Economy
Foreign Direct Investment (FDI) is a strategy aimed to encourage existing investors to reinvest in Ghana's economy. Reinvestments will encourage new foreign investors to enter Ghana' economy. New investments by existing foreign investors in mining, agribusiness, telecommunications and financial services are expected to contribute to the increase of employment, exports, foreign exchange receipts, tax revenues and economic growth. Ghana provides a variety of incentives for foreign investors which include tax holidays, capital allowances, locational incentives, customs duty exemptions and other inducements. These are specified in the relevant statutes and applied fairly with relevant legislations (UNCTAD, 2003).
As a result of much effort done by the government to attract potential investors into the country, inflow of foreign direct investment in Ghana has grown rapidly since 2006. Investors enjoy reasonable conditions and rights for investing in Ghana. Greater Accra region received most of the registered projects compared to the other regions in Ghana. The rate at which investment was allocated to service sector has changed and much attention being focused on the manufacturing sector (Yeboah, 2018).
Moreover, the accessibility of oil and its capacity to attract foreign investment does not guarantee economic development. However, the establishment of appropriate institutions, mechanisms and policies would ensure efficient use of oil revenue to sustain economic growth. Oil production could attract foreign direct investment and contribute to the economic development of Ghana only with requirement that appropriate oil revenue management policies are implemented (Dah and Khadijah, 2010).

Government Policies and Oil and Gas Resource Management
Government policies and oil and gas resource management fall into two main regulatory bodies: Legal and Regulatory Frameworks and Petroleum Sector Agencies:

Legal and Regulatory Frameworks
According to the Law Reviews (2020), under the Constitution of Ghana, all untapped natural resources including oil and gas resources are vested in the President of Ghana for and on behalf of the people of Ghana. Therefore, the right to explore and develop such resources is subject to agreement or license granted by the government

Petroleum Sector Agencies
A presentation made by Shamo (2013), on the petroleum sector agencies, outlined the following major responsibilities of various agencies within Ghana's petroleum industry. The key responsibilities are as follow: Regulates environmental issues in Oil and Gas Shamo (2013). Ministry of Energy and Petroleum.

The Concept of Resource Curse
There is a proposition that an abundance of a natural resource is associated with declining national standards of living rather than prosperity. This is as a result of dependence on a single natural resource for export, for instance, oil or gas. It was first realised that resources might be a curse in the 1990s, when it was noted that oil-rich countries were not growing as quickly as others. Going forward, economic analysis found strong support for the idea, although it is still debated. Empirical or proven confirmation usually takes the form of relationships between resource availability and national economic performance. The economic causes are that dependence on one natural resource overshadows investment in manufacturing and agriculture, making them less competitive, while making the national economy over-reliant on a single commodity whose value in world markets might be volatile (Oxford Reference, 2021).
There are various reasons put forward to explain this resource curse, such as corruption, increase in exchange rate, foreign ownership and conflict. Nigeria, Zambia, Sierra Leone, Angola, Saudi Arabia and Venezuela are examples of resource-rich countries with relatively poor rates of economic growth. Resource-poor countries, such as Korea, Taiwan, Hong Kong, Japan and Singapore, on the contrary, have experienced better rates of economic growth. Furthermore, natural resources tend to be owned by firms with significant degrees of monopoly. In often times, these firms happen to be global multinationals seeking rent in other countries. This means that the profits from selling natural resources are taken primarily by a small percentage of wealthy foreign shareholders. It also means that profits flow back to the country of the multinational and do not directly benefit the developing economy (Economics help, 2021). This monopolistic ownership can equally raise a big debate concerning the arguments teased out by Lucas, Robert E. (1990) in his reviewed paper titled "Why Doesn't Capital Flow from Rich to Poor Countries?" ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.12, No.14, 2021

Sources and Types of Data
The research employed the analysis of secondary data from the World Bank's data bank. In order to determine the actual impact and true state of Ghana's oil and gas sector, secondary data on oil rents and gross domestic product (GDP) growth of Ghana, Norway and Nigeria were purposefully selected for analysis, since Norway is recognize as one of the successful oil-rich countries in the world and Nigeria being otherwise. Additionally, data on Ghana's Agricultural share of GDP, Service sector share of GDP and Industrial share of GDP were also collected from the World Bank's data bank for further analyses.

Data Analysis
The data were processed and analysed using SPSS statistical software. Microsoft Excel was also used to calculate figures and other statistical analysis. Tables and figures were used to present the data. Measures of central tendency and measures of dispersion were also used in the analyses. Simple linear regression analysis was performed to assess the impact of oil rent on Ghana's economy, with respect to GDP growth.

Contribution of Oil Rents to GDP Growth Model Estimated Regression Equation: Oil rents -GDP growth Model
An empirical analysis of the contribution of Oil rents to GDP growth was formulated with simple linear regression equation as follow: (2000 to 2018) Misini (2017), also used simple linear regression analysis as a more suitable and sophisticated model to compare unemployment and nominal GDP in Kosovo.

RESEARCH RESULTS AND DISCUSSIONS 4.1 Ghana's annual Oil Rents as a percentage of GDP
World Bank (2020), defined oil rents as the difference between the value of crude oil production at world prices and total costs of production. In some countries, earnings from natural resources, especially from fossil fuels and minerals, account for a sizable share of GDP, and much of these earnings come in the form of economic rents, which signifies revenues above the cost of extracting the resources.
With reference to (figure 5) below, there is an indication of general fluctuations in the contribution of oil rents to the Gross Domestic Product (GDP) of Ghana, with the highest record in 2011 and the least in 2009. Although, there has been fluctuations in oil rents share of GDP over the years, there has also been a significant increase since 2011. The appreciations in oil rent since 2011 could be linked to the significant increase in crude ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.12, No.14, 2021 78 oil production since the discovery of oil in large quantities in the year 2007 and good managerial practices.

Figure 2: Ghana's annual Oil Rents as a percentage of GDP (2000-2018)
Source: Author's computation from World Development Indicators. World Bank (2020). Available: https://databank.worldbank.org/source/world-development-indicators The occurrence in (figure 5) above confirms with what Civil Society Platform on Oil and Gas, Ghana (2011) said that the beginning of oil production was preceded by three and a half years of intense work by the consortium partners and with an investment of over $3.5 billion. They further asserted that Jubilee Field started producing 70, 000 barrels per day beginning December, 2010 and estimates were that by June, 2011, Ghana will be producing approximately 120,000 barrels of oil per day. The production rate is therefore expected to provide more than $400 million to the government's 2011 budget and around $1 billion per year to the country in the early years of producing oil.

Ghana's Real GDP and GDP Growth (annual percentage)
The (figure 6) below, represents Ghana's real GDP in billions of US dollars and its growth in annual percentage.

Figure 3: Ghana's Real GDP and GDP Growth (annual %)
Source: Author's computation from World Development Indicators. World Bank (2020). Available: https://databank.worldbank.org/source/world-development-indicators Ghana's Gross Domestic Product (GDP) has seen a steady growth over a long period of time, including the period between the year 2000 and 2018. Despite the fluctuations in GDP growth over the years, its impact has been positive, and therefore given a steady growth to real GDP in general. The appreciation in GDP growth could partly be attributed to the patterns of changes in the percentage share of oil rents accruing to the economy of Ghana. Comparing (figures 5 and 6) above, there is an indication of similarities in the patterns of GDP growth and oil rents, between the period of 2010 and 2017 with 2011 recording the highest GDP growth and oil rents share of GDP. This similarities between GDP growth patterns and oil rents share of GDP since 2010 could be ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.12, No.14, 2021 79 attributed to the impact of oil rent on the economy of Ghana.
According to International Finance Corporation (IFC) (2018), GDP in Ghana grew at an annual average rate of 5.8 percent for the period between 1996 and 2016. And the contribution of the oil and gas fields to the economy is the main reason for higher than usual GDP growth in 2010 to 2014. The growth in 2016 dropped by 1.2 percent from 2015, due to the damage to the turret bearing of the floating production storage and offloading vessel (FPSO) Kwame Nkrumah operating in the Jubilee field.

Percentage share of Oil Rents and other Key Sectors of Ghana's Economy.
Ghana was producing crude oil in smaller quantities until 2007 when Ghana discovered crude oil in large quantities. The discovery of crude oil in large quantities has since demonstrated an increase in oil rents share of GDP with the highest record in 2011. Figure 7 below, indicates trend in sectorial contribution towards Ghana's GDP. Ghana began as an agrarian economy with more of its GDP coming from the agricultural sector, followed by service sector, the next being industrial sector and oil being the least. In the year 2006, the trend in sectorial contribution towards GDP assumes changes with the service sector taken the lead with a tremendous increase. Since then the agricultural sector began to shrink with fluctuations. Although, the industrial and oil sectors experience fluctuations, yet they fluctuate with increasing effect.
The increasing effect of oil sector of the economy is an indication of growth, just as in the case of service and industrial sectors. The paradigm shift in Ghana's economy from an agrarian to a more industrialized and service oriented economy with gradual increase in oil discoveries is an indication of growth and development. This can be confirmed by Lewis two-sector economy where labour is shifted from a primitive agricultural sector to a more industrialized economy, characterized by an increased production as a result of industrial investment and capital accumulation in the modern industrial sector (Todaro and Smith, 2012).

Percentage share of Oil rents and other Key Sectors of Ghana's Economy
Oil rents share of GDP Agriculture share of GDP

The True State and Performance of Ghana's Oil and Gas Industry (2000-2018)
It is notably clear that Norway and Nigeria has more oil reserves than Ghana and therefore it is expected that Norway and Nigeria would have more oil rents than Ghana. Worldometer, an oil and gas portal gave a list of proven oil reserves by country and their percentage share of world oil reserve. The list ranked Nigeria on 10 th position with proven oil reserve of 37,070,000,000 and world share of 2.2%; Norway was ranked on 22 nd position with proven oil reserve of 5,138,767,000 and world share of 0.31%; and Ghana was ranked on 43 rd position with proven oil reserve of 660,000,000 and world share of 0.040%. Meanwhile, it is imperative to assess the patterns of oil rents among these three countries in order to ISSN 2222-1700(Paper) ISSN 2222-2855(Online) Vol.12, No.14, 2021 determine the true state and performance of Ghana's oil and gas sector, since Norway is recognised as one of the successful oil-rich countries in the world and Nigeria being otherwise. The patterns in (figure 8) below are indications that since the production of oil in large quantities in the year 2010, Ghana has been performing well with its percentage share of oil rents towards its economy. Also, despite the fluctuations in oil rents among the three countries, Ghana continues to appreciate, considering the initial contribution in 2000 to its contribution in 2018 where Ghana's oil rent almost converge (catch-up) with that of Norway despite the disparities in oil reserves between the two countries. On the other hand, Norway continues to experience gradual declination and Nigeria continues to experience sharp declination in oil rents taken into considering their initial productions in 2000 to their contributions in 2018. The continuous appreciation in Ghana's oil rents could be attributed to its continues discovery and good management practices as confirmed by Civil Society Platform on Oil and Gas, Ghana (2011) whereas, the continuous declination in oil rents of Norway and Nigeria could be attributed to declination in oil reserves or otherwise. Figure 8 below, is a representation of patterns in oil rents among Ghana, Norway and Nigeria. Source: Author's computation from World Development Indicators. World Bank (2020). Available: https://databank.worldbank.org/source/world-development-indicators

Impact of Oil and Gas Production on the Economy of Ghana
One of the objectives of this study is to assess the economic contribution of oil and gas production on Ghana's economy. In view of this, the following analyses were conducted to arrive at the said objective.

Descriptive Statistics
Before analyzing the model of simple linear regression and impact of oil rents on GDP growth of Ghana, the descriptive statistics of Ghana, Norway and Nigeria will be presented below for analysis. The (table 2) above shows the summary statistics of the variables used for the analysis of Ghana's oil and gas sector; these are the mean, maximum values, minimum values and the standard deviations. It shows that the minimum and the maximum GDP growth in Ghana between the period 2000 and 2018 were 2.18% and 14.05% respectively. Averagely, Ghana has been experiencing GDP growth of 6.1% per annum. Also, oil rents share of GDP had a minimum value of 0.28% and a maximum value of 5.31%, with an average contribution of 1.8% per annum. ISSN 2222-1700(Paper) ISSN 2222-2855(Online) Vol.12, No.14, 2021  The (table 3) above shows the summary statistics of the variables used for the analysis of Norway's oil and gas sector; these are the mean, maximum values, minimum values and the standard deviations. It shows that the minimum and the maximum GDP growth in Norway between the period 2000 and 2018 were -1.73% and 3.97% respectively. Averagely, Norway has been experiencing GDP growth of 1.71% per annum. Also, oil rents share of GDP had a minimum value of 2.70% and a maximum value of 10.88%, with an average contribution of 2.19% per annum. The (table 4) above shows the summary statistics of the variables used for the analysis of Nigeria's oil and gas sector; these are the mean, maximum values, minimum values and the standard deviations. It shows that the minimum and the maximum GDP growth in Nigeria between the period 2000 and 2018 were -1.62% and 15.33% respectively. Averagely, Nigeria has been experiencing GDP growth of 5.84% per annum. Also, oil rents share of GDP had a minimum value of 2.81% and a maximum value of 20.91%, with an average contribution of 11.93% per annum.
Ghana seems to have experienced a more steady growth with relatively little fluctuations in its percentage share of oil rents than Norway andNigeria (2000-2018). Also, with reference to the deviations in the mean values of the three countries, Ghana experience's a more steady growth in its oil rents than Norway and Norway also experience's more steady growth than Nigeria.

Impact of Oil Rents on GDP Growth of Ghana's Economy
Ordinary Least Squares (OLS) regression, specifically, Simple Linear Regression was used to analyzed the impact of oil rents on the economy of Ghana. It was observed that oil rents (predictor variable) was significant at 0.05 (5%) which is an indication of 95% level of confident the oil rents do affect the economy of Ghana. The (table 5) below shows the results of the regression analysis. It can be observed that oil rents had a positive impact on GDP growth, thereby impacting the economy of Ghana positively. The coefficient of oil rents (% of GDP) was 0.788, indicating that a percentage increase in oil rents will lead to a corresponding increase in GDP growth (annual %) by 0.788 % per annum. It is therefore obvious that under normal circumstance, increase in oil rents (ceteris paribus), will lead to a correspondent increase in GDP growth. Also, the R 2 indicates that 25.6% of the variation in GDP growth was explained by oil rents share of GDP or it is as a result of oil rents contribution to GDP of Ghana.
The study further revealed general fluctuations in the contribution of oil rents to the Gross Domestic Product (GDP) of Ghana, with the highest record in 2011 and the least in 2009 between the period of 2000 and 2018. Despite the fluctuations in oil rents share of GDP over the years, there has also been a significant increase since 2011. The appreciations in oil rent since 2011 could be linked to the significant increase in crude oil production since the discovery of oil in large quantities in the year 2007 and good managerial practices.
Ghana's Gross Domestic Product (GDP) has seen a steady growth over a long period of time, including the period between 2000 and 2018. Despite the fluctuations in GDP growth over the years, its impact has been positive, and therefore given a steady growth to real GDP in general. The appreciation in GDP growth could partly be attributed to the patterns of changes in the percentage share of oil rents accruing to the economy of Ghana. By conducting analysis on the key sectors of Ghana's economy, it was revealed that since the year 2006, the trends in sectorial contribution towards GDP have assumed changes with the service sector taken the lead, industry being second, the third being agriculture and with a good performance form the oil industry. The paradigm shift in Ghana's economy from an agrarian to a more industrialized and service oriented economy with gradual increase in oil discoveries is an indication of growth and development.
Ghana seems to have experienced a more steady growth with relatively little fluctuations in its percentage share of oil rents than Norway andNigeria (2000-2018). Also, with reference to the deviations in the mean values of the three countries, Ghana experience's a more steady growth in its oil rents than Norway and Norway also experience's more steady growth than Nigeria.
Finally, the research further revealed that since the production of oil in large quantities in the year 2010, Ghana has been performing well with its percentage share of oil rent towards its economy. Despite the fluctuations in oil rents among the three countries, Ghana continues to increase, considering its initial contribution in 2000 to its contribution in 2018 where Ghana's oil rent almost converge (catch-up) with that of Norway irrespective of wide disparities in oil reserves between the two countries. On the other hand, Norway continues to experience gradual declination and Nigeria continues to experience sharp declination in oil rents taken into considering their initial productions in 2000 to their contributions in 2018.