Ghana Curse

Ghana first discovered oil in 2007 but commercial production began in December 2010. Before and after such periods, the Ghanaian economy had experienced some positive and negative outcomes. In July 2007, her currency was devalued. This resulted in an exchange rate of 1 USD=GH¢ 0.9285 (Monetary and Time Series Data). Thereafter, the cedi continued to depreciate even in the face of oil exploitation. In addition, the country was given a HIPC relief in July 2005 as a result of the surge in debts. On the brighter side, Ghana received a B+ by Fitch, a London based rating agency due to her strong economy (Amoako 2010, pp. 1, 3). In addition, there was a decline in budget deficit and inflation was reduced to single digit due to tight fiscal policies

2. RESOURCE CURSE

a. Background

Day in day out, some countries discover an abundance of natural resource in the form of oil and minerals. In the case of Ghana, her oil reserves were discovered by Kosmos Energy in 2007. While some may see it as a blessing, others may see it as a curse. How can these minerals and oil reserves be a curse when they generate huge foreign exchange? These resources become a curse when they do more harm than good. This curse may come in the form of slow growth, a decline in her tradable sector due to the appreciation of her currency among others. In most cases, the new opportunity found is embarked upon at the expense of existing opportunities (goods that are exported by a country). Most authors argue that countries that do not have an abundant natural resource perform better than countries with an abundant natural resource. A reason for this argument is the presence of the Dutch disease in those countries. While the prices of exports are quoted in foreign currency, the prices

The Economist used the term in 1977 when describing events that happened in the country upon the discovery. The inflow of foreign exchange due to the exploitation of oil and gas led to an appreciation of the domestic currency. Thus, her exports became expensive and were not competitive on the international market. This had negative impacts on her manufacturing sector. At the end, the Dutch industrialization suffered some setbacks. Hence, the term Dutch disease was born. Dutch disease can be explained in two ways. First, countries that receive an increase in their Official Development Assistance (McKinley, 2005). Finally, countries that have an abundant natural resource as explained in most literature. ODA type of dutch disease occurs when there is a decline in exports due the appreciation of a currency as a result of the inflow of foreign aid. On the other hand, Dutch disease associated with a resource is defined as the shift from the hitherto productive sectors such as agriculture and manufacturing to the non-tradable sectors such as resource export and construction industry (Humphreys et al. 2007). In other words, there is a decline in the price competitiveness of exports as a result of currency appreciation stemming from a new booming resource sector (Nchor, Kolman, Střelec and Darkwah,