Part 2: Ghana Petroleum Funds--Reimaging the State in the Global Sphere: An Inventory of Sovereign Wealth Funds as Regulator and Participant in Global Markets

(Pix (C) Larry Catá Backer 2014)

This Blog Essay site devotes every February to a series of integrated but short essays on a single theme. For 2014 this site introduces a new theme:  Reimaging the State in the Global Sphere: An Inventory of Sovereign Wealth Fund as Regulator and Participant in Global Markets.

There have been a number of studies that have sought to provide an overarching structure for understanding SWFs. The easiest way to to this is tp find the largest and most influential funds and then extrapolate universal behaviors or characteristics from them.  This is a useful enterprise, it may erase substantial nuance that itself might provide the basis for a deeper understanding of SWFs within globalization and in the context of a state system in which not all states are created equal.  In this sense, while the large SWFs are better known, they do not define the entire field of emerging SWF activity. This study provides a brief critical inventory of the emerging communities of sovereign wealth funds. Each post will consider a different and less well known SWF.  Taken together, these brief studies might suggest the character and nature of the emerging universe of SWFs, and their possible rationalization.

This Post considers the new Ghana Petroleum Funds.

Like other funds created to manage revenues from the exploitation of natural resources, the Ghanian sovereign wealth funds have their origins in petroleum. 

Since oil discovery in Ghana in 2007, different policy frameworks have been drafted to guide O&G industry. Currently Ghana’s O&G industry is governed by the following laws and regulations: Petroleum Revenue Management Act (PRMA) 2010, Petroleum Exploration and Production Bill 2010, Petroleum Income Tax PNDC Law 188, Environmental Assessment Regulation 1999, Ghana Model Petroleum Agreement. The PRMA 2010 makes provision for the creation of a petroleum account from which should be established Ghana Stabilization Fund (GSF) and Ghana Heritage Fund (GHF). These SWFs are created with the objectives of stabilizing the economy and also securing the future of generations to come when oil resources would be depleted. The GSF seek to provide a cushion to budget imbalances due to unanticipated revenue shortfalls caused by a fall in the petroleum price or through adverse production changes. The GHF seek to  provide an endowment to support the welfare of future generations after the underground petroleum has been depleted. The same act assigns day-to-day operational management of these SWFs to the Bank of Ghana. (Francis Ayensu, Managing Ghana's Oil Revenues: Ghana Petroleum Funds (GPFs), Asian Journal of Humanities and Social Sciences (AJHSS) 1(2):148-161 (August 2013), p. 157).

The Sovereign Wealth Fund Institute identifies a number of funds that together might constitute the Ghana SWF: (1) The Ghana Heritage Fund ($54.9 million June 2012); Ghana Stabilization Fund ($14.4 Million June 2012).  (Sovereign Wealth Fund Institute--Ghana).  The two funds together are collectively referenced as the Ghana Petroleum Funds.  The Ghana Petroleum Funds were established by The Petroleum Management Revenue Act, 2011 (Act 815), may be accessed HERE. (Summary Ghana Petroleum Revenue Management, 3 May 2010).  The Stabilization Fund was created "to cushion the impact on or sustain public expenditure capacity during periods of unanticipated petroleum revenue shortfalls." (Act 815, § 9). The Heritage Fund  was established to receive excess petroleum revenue and to "provide an endowment to support the development for future generations when the petroleum reserves have been depleted). (Act 815, § 10). 

Experts have described Ghana’s Revenue Management Act — passed more than a year after the first oil was pumped from the country’s Jubilee Field — as an “innovation.” The law outlines clear mechanisms for collecting and distributing petroleum revenue. It specifies what percentage should help fund the annual budget, what should be set aside for future generations and what should be invested for a rainy day.

Petroleum revenue contributed 4 per cent of the government’s total capital spending in 2011. The funds went mainly to investments in road infrastructure, but also to building the capacity of the oil and gas sector, repaying loans and strengthening agriculture, most notably for fertilizer subsidies.

As Mr. Kuyole told Africa Renewal, “The law has made it possible to ensure that all revenues collected from petroleum production are being accounted for, because the money goes into one particular fund before disbursement is done. Without such a law in place, it would be virtually impossible to monitor receipts from the sector.”

In devising its law, Ghana borrowed from best practices in Norway, Timor- Leste and Trinidad and Tobago, which have developed laws to better govern oil and gas exploration and production, and to manage the revenues. (Efam Dovi, Ghana’s ‘new path’ for handling oil revenue, Africa Renewal, Jan. 2013).

Public notices are published on line by the Bank of Ghana. The record of receipts for the Fund are to be publicly reported.  Act 815, § 8. An annual Budget Funding Amount (Act 815, § 61) an annual amount allocated for current spending from petroleum revenues, is also fixed--an amount that varies over the life of the petroleum reserves. (Ibid., § 27-28). These are guided by a set of priority spending categories (Act 815, § 21).

The funds are constituted through the Bank of Ghana and do not exist separately in corporate or other entity form. The Bank of Ghana is responsible for the day to day operations of the fund (Act 815, § 26).  The Minister of  Finance is charged with setting the overall policy for the investment of the SWFs (Ibid., § 25), including the construction of the investment universe (Ibid., § 27).  An Investment Advisory Committee advises the Minister (Ibid., § 29-39), including on the development of the benchmark investment portfolio and general investment policy in line with the overall objectives of the SWFs. The SWFs embrace a formal adherence to transparency principles (Act 815, § 49) bounded by the "highest internationally accepted standards of transparency and good governance." (Ibid). The Finance Minister is delegated power to enact regulations, including operational and management guidelines for the management of the SWFs (Act 815, § 60). These are in the process of enactment as of the date of the first Report from the Finance Minister (march 2013).


The first report of the Finance Ministry on the Petroleum Funds was delivered March 2013 (2012 Annual Report on the Petroleum Funds, Submitted by Hon. Seth Terkper (Minister of Finance) to Parliament Republic of Ghana (5 March 2013).   An Operational Management Agreement is to be entered into between the Bank of Ghana and the Finance Ministry (Ibid., § 64-65).  This was executed at the end of 2012.  The Investment Advisory Committee was constituted in 2011 (Ibid., § 66-67). By the end of 2012, the Ghanian SEFs reported a net return for the SWFs of about $260 Million, the bulk of which was allocated to the Stabilization Fund (Ibid., § 63).

Ghana is currently debating the cost and utility of capturing natural gas flared in the petroleum extraction process (Ghana: The Gas Infrastructure Project - a Wake Up Call for Ghana, AllAfrica.com, Feb, 3, 2014). More importantly, there is debate about current spending of petroleum funds.

With barely three years into the production of oil in commercial quantities in Ghana, renowned economists say revenue accrued from the oil sector has been spent on non-priority areas including art and culture, adding that those oil revenue which went into road projects were shared like ground nut, a major food staple in northern Ghana.

This is contrary to the Petroleum Revenue Management Act (PRMA) which in accordance with Sector 21(5), named four priority areas approved by Parliament for the Annual Budget Funding Amount (ABFA) expenditures for the period 2011-2013. These areas are: expenditure and amortization of loans for oil and gas infrastructure; road and other infrastructure; agric modernization; and capacity building including oil and gas.

However, oil money was spent on art and culture, and other non-priority areas especially in the year 2013, a Professor of Economics at the University of Queensland, Australia, Prof John Asafu-Adjaye said this at a roundtable on the Petroleum Transparency and Accountability Index (P-TRAC Index) 2012 Report in Accra.

. . . . .

Dr Amin stated: "While the projects funded from oil and gas revenues may have long-term economic prospects in project communities, the short-term social and economic impacts during the construction phase have been severely limited, as contractors mostly bring workers, food and materials from non-project communities."

"Ghana is therefore not deriving value for money from the infrastructure projects funded with oil revenue as most of the projects had been delayed, operating under costly extensions and leading to cost overruns. The money is supposed to be used for investment to improve living conditions of the people", he stressed at training workshop for journalists held recently.

(Masahudu Ankiilu Kunateh,  Ghana's Oil Cash Shared Like Ground Nut, AllAfrica.com, Jan. 7, 2014).

 Ghana's SWFs stucture is grounded in best practices.  Whether the Ghanian state has the institutional strength to fully implement the SWFs plan represented by Act 815 remains to be seen.  What is clear, though, is that Ghana intends the SWFs to provide a disciplinary mechanism for internal spending for development.  It's pathway to income appears to serve a secondary and consequential purpose to the primary one of internal development.