(Reuters) - As Ghana awaits the first riches from one of Africa's top oil finds of the decade, expectations on the street are high and rising.
"I believe in the oil," said grocery vendor Grace Asantewaa from behind her meager stall of tomatoes and chili peppers at the Agbogbloshie market in the capital Accra.
"We are sure everything will change in the name of Jesus," predicted the 36-year-old mother-of-two, echoing widespread dreams of a more comfortable life once production from the Jubilee offshore field gets going in December this year.
With reserves of 800 million barrels of high-quality oil and potential for at least one billion more, the offshore Jubilee field could make Ghana the fifth largest oil nation in sub-Saharan Africa after Nigeria, Angola, Sudan and Gabon.
But first it must avoid the mistakes of others in the Gulf of Guinea, which the U.S. National Intelligence Council expects to provide a quarter of American oil by 2015 and which this year is already shipping record numbers of oil cargoes to Asia.
The International Monetary Fund predicts that if Ghana uses the windfall from the 2007 discovery wisely, it could reach the status of a middle-income country within a decade.
That would lift it from its World Bank rank of poor state alongside Haiti and Liberia to the more comfortable league of the likes of Morocco and Thailand -- a game-changer in a country where a third of the 25 million population are in poverty and foreign aid accounts for nearly 10 percent of national income.
"How do we lift it, transport it, consume it, and finance it?" U.S. emerging markets broker Jonathan Auerbach said on a trip to Ghana, of the questions oil raises.
"Accept it," he said. "This is the great game for Ghana."
Mention Nigeria to Ghanaians and there is an instant recoil at their own possible fate: oil-fueled civil strife, rampant political corruption and the paradoxical outcome of declining living standards that they have seen for millions of Nigerians.
Congo Republic and Angola have suffered internal conflicts partly fueled by jostling over oil. Aid watchdogs say Chad, whose oil is exported through the gulf, broke pledges to use energy revenues to ease poverty and bought arms instead.
Tiny Gabon and Equatorial Guinea have been more peaceful, but their petrodollars have bypassed the people to fund their elites' luxury real estate and sports cars, according to evidence for a French anti-graft hearing last year (the trial was blocked on a technicality).
Ghanaians fear the "resource curse" -- when a find becomes an albatross round the neck of a country as other industries are crowded out, its leaders become corrupt and its public finances fluctuate at the whim of volatile energy markets.
"Country after country make big promises and then go on to make the same mistakes," said independent consultant Antony Goldman, who has studied oil's effect on Nigeria and others.
"It would be wrong to underestimate how potentially toxic oil can be to a fairly simple economy," he cautioned.
With Jubilee's first oil due to start pumping in December, Ghana still has much to do to ensure it not only avoids its curse but also reaps the full blessing.
Rare in a region where coups, civil wars, disputed elections and strong-arm rulers are the norm, Ghana has distinguished itself this decade with two peaceful transfers of power from one political camp to another through the ballot box.
It has also moved ahead of most African states in fighting corruption, outdoing countries such as Senegal, Zambia and Tanzania on a World Bank scale of anti-graft efforts.
That reputation allowed Ghana to launch a $750 million Eurobond in 2007 and won it the accolade of hosting Barack Obama for his first African trip as U.S. president last year.
FROM NORWAY TO TRINIDAD...
But as the petrodollars come closer, so do questions about how successfully Ghana will manage them.
President John Atta Mills' center-left government has taken advice from oil states including Norway and Trinidad and Tobago on how to handle the cash inflows, but has yet to present detailed plans to parliament.
Opposition lawmakers complain there is little time for proper debate on the complex oversight arrangements for the oil accounts and how the money should be spent. They fear the government will ultimately rush through weak legislation.
"We are not hurrying -- that is the unfortunate thing," said opposition leader Osei Kyei-Mensah-Bonsu, adding he had seen no sign by end-April of a draft oil revenue and management bill.
Keith Myers of UK-based consultancy Richmond Energy Partners said Ghana should be careful to avoid the fate of other African states which have struggled with regulatory shortfalls and the lack of home-grown expertise.
He noted concerns about the role to be played by state-owned Ghanaian National Petroleum Corporation.
"In Ghana's case, this means that GNPC at the moment has the role of both regulator and operator," he said.
Investors were rattled by government moves last year that pointed to a trend for one government to overrule deals struck under its predecessors.
For instance, the current government has said it wants to "re-engage" with British mobile operator Vodafone Group (VOD.L) over its 2008 purchase of a majority in Ghana Telecommunications, notably over control of a strategically important fiber-optic network.
Ghana has also defended its resistance to what sources close to the deal said was a $4 billion accord for U.S. giant Exxon Mobil (XOM.N) to acquire stakes in Jubilee from privately held Kosmos Energy, insisting on its right to first refusal.
"The resource belongs to the people of Ghana ... and we decide how we want that resource to be used," Vice President John Dramani Mahama said in an April 27 interview.
Mahama rejected suggestions the Kosmos and Vodafone affairs have tarnished Ghana's pro-investment image, saying the government hoped by end-May to wrap up talks with Kosmos over the future of the stake.
Officials say options include the sale of all or some of the stake to Ghana, which could need to draw on third-party finance.
"A 'winner takes all' electoral topography has emerged," said IHS Global Insight Nana Adu Ampofo, noting that Vodafone's purchase and Kosmos' entry into in Jubilee had both taken place under Mills' predecessor, John Kufuor.
"Measures to improve transparency ... are vital, even more so in light of impending oil rents," Ampofo warned.
...AND ON TO MALAYSIA
While Ghanaians voice real grievances about patchy access to health, education and basic utilities, the local economy is in a better position than most in Africa to absorb the oil cash.
Under Kufuor, Ghana won debt relief that helped halve its foreign liabilities. Mills has in 16 months cut inflation to under 12 percent from over 20 percent and slashed the public deficit to 10 percent of output from an inherited 24 percent.
A stable cedi currency and expectations of single-digit inflation this year have allowed the central bank from late 2009 to trim the prime rate by 3.5 points to 15 percent.
This should only be the start. Initially modest oil revenues together with infrastructure spending and an economic recovery are forecast to push growth to 20 percent growth next year -- triple that in 2010 and one of the world's fastest rates.
To picture what an oil success story would look like, Ghana draws inspiration from an Asian state which used hydrocarbons as a springboard to become a top electronics exporter.
"We are always looking at Malaysia," said Sampson Akligoh, senior analyst at Accra-based Databank Group investment house. The Muslim nation has the same population as Ghana but its $381 billion-a-year economy is over 10 times bigger.
Behind Malaysia's success was a drive to cut reliance on oil by diversifying into the booming 1970s electronics markets.
For Ghana, diversification could come thanks to the extra 100 million cubic feet per day of Jubilee gas which could provide cheap energy to push into new sectors. Mills is already speaking of an aluminum industry based on its bauxite reserves.
Yet a truly broad-based economy will only emerge if the local financial sector is on board. Here, Ghana has work to do.
Despite an appeal from Mills himself, local banks have been slow to track the central bank rate cuts, citing the risk of default as justification for keeping rates at around 30 percent.
"That is inefficiency," complains Databank's Akligoh. "We need the banking sector to support small companies so that when a smart guy has an idea he can implement it."
NEITHER NIGERIA NOR EQUATORIAL GUINEA
Foreign investors looking to bet on Ghana's brighter future have found quality opportunities can be lacking.
With an African debt rally taking the yield on Ghana's Eurobond to a record low of around 6.3 percent last month, many are focusing on the 35 companies on the Ghana Stock Exchange.
But with local state pension fund SSNIT sitting on hefty stakes in sought-after banking and consumer stocks, shares are in short supply and daily trade volumes rarely reach $1 million.
"Ghana appears to be the most settled and investor-friendly. But in Nigeria you have the opportunities," said Tony Schroenn of Mauritius-based KuraCapital investment house.
The Ghana Stock Exchange is out to change that, pushing for more local and foreign firms to seek a listing while encouraging SNNIT to create liquidity by juggling its portfolio around.
Broker Auerbach acknowledges equity is in short supply but argues Ghana's low market capitalization -- which at just 15 percent of gross domestic product is half the ratio in Kenya -- suggests something else to those prepared to shop around.
"What does that tell you? Cheap with value, particularly if you apply next year's anticipated GDP growth rate," he said.
With six months to go before the scheduled start of oil output, the government has already moved to keep domestic expectations of a bonanza firmly in check.
The finance ministry in March told Ghanaians the state would see an average of just $800 million a year from the oil between 2011 and 2029, noting that even if this went straight into their pockets it would mean a mere $75 a year at its peak in 2017.
That may be conservative, assuming as it does an average oil price of $65 a barrel compared with market levels of $79 in early May. It also put total output at just 500 million barrels by 2029 with an initial 120,000 barrels a day.
But it shows Ghana will never rival two-million-barrel-a-day Nigeria or be an oil rentier such as tiny Equatorial Guinea, whose 250,000 barrels of daily production could make all its 500,000 people rich beyond their dreams if fairly distributed.
Goldman and others suggest the modesty of Ghana's oil wealth may yet prove a boon, particularly if it lessens the risk the labor-intensive cocoa sector will suffer as demand for oil pushes the cedi up and makes other exports less attractive.
According to this theory, Ghana will tick along as a minor producer, using oil proceeds to gently turn around the economy while investing in health, education and other basic needs.
Change will be slower than many Ghanaians want, and the government will face temptations to press on the accelerator by increasing borrowing -- always risky when the value of the main collateral swings like a pendulum on world markets.
In fact the region's first true oil success story may not look like one for years -- and will only materialize at all if Ghana can find the resolve to pursue and build on its strong political and economic track record.
But as Richmond Energy's Myers noted: "If it is ever going to work, it should work in Ghana." (Editing by Sara Ledwith and Ron Askew)
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