Can Ghana benefit from Norway’s oil experience?

There’s a lot of talk in Ghana about Norway, the country that has made oil work for its citizens. Ghana is looking to the Norwegian experience for insights into how best to manage its oil resources. The Norwegian Agency for Development Cooperation has an Oil for Development Program in Ghana that seeks to develop long-term institutional cooperation in the oil sector. Through this program, the Norwegian government is providing assistance in competence and capacity building within resource management, revenue management and environmental management.

Can Ghana benefit from Norway’s oil experience? Are lessons from Norway applicable in Ghana?

I came across an interesting article in the South African press about Norway and what, if anything, South Africa can learn from the Norwegian oil experience. The author, Carlos Amato, raises some questions about the differences between Norway and South Africa, noting in particular that while Norway wasn’t rich before it struck oil, it was equitable. These differences will likely complicate transferring the “Norwegian model” to South Africa.

Ghana is not South Africa, of course, but there are similarities. Here’s the article from The Sunday Times:

Oiling the wheels of well-being

Norway has been championed in Africa as a model for the successful national control of natural resources. For four decades, the Norwegian state has owned a large stake in its oil and gas industry, and the resulting flood of money has helped create an economic wonderland.

The world’s second-richest country per capita after Luxembourg, Norway controls the world’s biggest sovereign wealth fund. It is also a deeply equitable society: boasting an admirable welfare system, the world’s leading human development index rating and a Gini coefficient second only to neighbouring Sweden.

But one of the architects of Norway’s oil policy warns that national ownership was not in itself the key to attaining this near-Utopia – and should not be seen as a silver bullet for economic justice in South Africa and other resource-rich African countries.

“Redistribution has nothing to do with national oil companies, but with how the government uses the revenue,” says Farouk al-Kasim, an Iraqi-Norwegian geologist who co-drafted the 1971 law that established Norway’s state oil firm and regulator.

“It doesn’t matter how it comes to the Treasury – through taxation or through state participation. The resource’s value to society depends on policy and the absence of corruption. Corruption is one way of ensuring that the revenue doesn’t go to all the citizens.

“In the case of the South African mining industry, (national ownership) doesn’t make economic sense,” says al-Kasim. “The risk in mining is very high compared to oil – and why should you put taxpayers’ money into risky operations?”

In 1968, aged 23, al-Kasim left a stellar career in the Iraqi Petroleum Company for Norway. He and his Norwegian wife Solfrid had met and married during a stint in London, and their young son, who suffered from cerebral palsy, needed treatment that only the Norwegian health service could provide.

At the time, nobody anticipated the abundance of black gold lurking off the Norwegian coast. But on the day he arrived in Oslo, al-Kasim popped in at a government ministry to ask about oil work. He was snapped up as a consultant to analyse the results of North Sea exploration.

Al-Kasim surmised that a big strike was coming – and in 1969 the vast Ekofisk field was discovered.

The Norwegians had been wary about striking deals with the oil giants. That early caution proved priceless: with the true scale of the asset now established, they could play hardball.

“After Ekofisk, the political climate changed, and full control of the industry became a very prominent political objective,” says al-Kasim.

“Parliament decided that the Norwegian share of future licences should be at least 50%. That ratio lasted till the end of the 1980s, when it became clear that retaining a 50% share in risky blocks was not advantageous.”

In 1971, al-Kasim and another official spent an inspired weekend at a cabin on a fjord, brainstorming the details of the Norwegian oil model. Their document became a white paper and a law that provided for a symbiotic partnership between the state and the private sector.

Forty years on, that balance is still working. Statoil, the national oil company, was partially privatised in 2002, with the state retaining a 67% stake.

Private-sector rivals take care of the riskier exploration work. A strong independent oil directorate polices compliance and competition.

“This is a socialist nation that believes strongly in private enterprise, and in co-operation with private enterprise,” says al-Kasim. “Our oil model is a marriage between the private sector’s enthusiasm, creativity and aggression and the state as guarantor of social welfare and joint decision-maker.”

Every krone of the Norwegian state oil bonanza is funnelled into the government pension fund, which at the end of 2010 was worth more than $525-billion (about R730000 per citizen) and growing. Because that money is in markets all over the world, it doesn’t overheat the domestic economy.

Hence the non-oil economy is fit and formidable. Unions are powerful, but have long acted in constructive partnership with business, often adjusting their demands to exporters’ market conditions. Oil engineers in Stavanger are lavishly paid, but not disproportionately so: they do not earn vastly more than Oslo plumbers or Trondheim schoolteachers.

The prosperity can seem surreal. When you sell a flat in Oslo, Europe’s fastest-growing city, your asking price is not a fantasy price, as it is elsewhere in the post-crisis West. It’s merely a reserve, triggering a bidding war between buyers, with the winning offer as much as 25% higher. That sounds ominous, but there’s nothing irrational about the boom. Fundamentals don’t get sounder than Norway’s.

While the country wasn’t rich before it struck oil, it was equitable. Indeed, it was the lure of socialised health care that brought al-Kasim and his family northward. “The Norwegians are a people who are used to sharing with each other,” he says. “As a nation they are great individuals, but they have learned that if they don’t stand together they will not have a chance.”

Some historians trace Norway’s egalitarianism back to the Black Plague of 1349, which killed 60% of the population and almost all of the upper class. The survivors were self-reliant peasant farmers, tradesmen and fishermen; to this day, Norwegians pride themselves on a lack of deference to authority, aristocracy or capital.

The legacy of equality has been deepened by the welfare system, which began in the 1930s. With social safety nets under attack from austerity cuts all over the rich world, Norway’s suite of benefits is growing. There is broad acceptance that the system is fair and efficient: voters are happy to keep paying high taxes in exchange for the security of free, high-quality health care and education.

Parents get one year of parental leave to be shared between them, of which three months is reserved for each parent. This means mothers get back to work sooner, and this improves both the country’s GDP and its fertility rate. As is so often the case in the Nordic model, a social entitlement more than pays for itself by unlocking human capital. Happiness is a productive condition.

If there is a lesson for South Africa to be drawn from Norway, it’s that the old opposition between vigorous capitalism and stagnant socialism has been exposed as false. Norwegians have won for themselves the best of both worlds, by pragmatically pursuing a national consensus that fairness and profit can and should co-exist.

Of course the oil helped, but the secret of Norway’s success is not that the people have shares in oil. It’s that the people share the conviction that all their futures are shared.

Carlos Amato | 09 July, 2011 22:50

 

 

This entry was posted on Sunday, July 10th, 2011 at 2:56 am.