Key political risks to watch in Ghana, Posted by Menelik Zeleke

By Kwasi Kpodo

ACCRA, Feb 1 (Reuters) - Ghana joined the club of oil-producing nations in December, offering it the chance to transform the fortunes of its aid-dependent economy.

Yet other countries have seen how the blessing of oil can turn into a curse, crowding out other sectors of the economy while triggering public spending sprees, official corruption and even fuelling insecurity.

Here are some of the risk factors:

THE OIL WINDFALL

A string of discoveries in the Jubilee offshore oilfield from 2007 mean Ghana is confident of total reserves there of around 1.5 billion barrels with more likely in adjacent sites.

First oil was pumped on Dec. 15, 2010, with initial output normalising at 120,000 barrels per day (bpd) and rising to 250,000 bpd by 2013 -- squeezing Ghana into the list of the world's top 50 producers.

Aside from the state-owned Ghana National Petroleum Corporation (GNPC), major players in Jubilee include UK-listed operator Tullow Oil Plc, U.S.-producer Anadarko Petroleum and privately held U.S. energy firm Kosmos. In August, Kosmos cancelled the sale of its 30.875 percent stake in the West Cape Three Points block and 18 percent share in the Deepwater Tano to ExxonMobil, a deal Ghana said was in breach of Kosmos' commitments. Kosmos has subsequently said it was not interested in selling its stakes.

What to watch:

-- More ownership manoeuvring. Kosmos now says its dispute with Ghana has been resolved.. There has been speculation for months of a team-up between Chinese oil giant CNOOC and GNPC on a joint bid for the Kosmos assets.

-- More oil finds. Tullow announced on July 26 its Owo-1 exploration well had discovered a new oil field closer to Jubilee and that it was assessing its size.

THE ECONOMY

Oil is an unpredictable, potentially game-changing new factor for the economy. President John Atta Mills' government hopes the new revenue stream can help consolidate Ghana's new middle-income status with the ranks of Iran or Egypt.

That was obtained when the statistics office announced in November that a rebasing of national accounts to more accurately reflect the economy had pushed per capita income to an estimated $1,318 against an existing estimate of $753.

Yet some of the shine has come off the oil story, with the IMF scaling back its forecast both for the impact of the oil revenues and its GDP growth forecast.

However, in a mid-January forecast, the World Bank sees Ghana's as the fastest growing economy in sub-aharan Africa with a projected growth rate of 13.4 percent this year, easing to 10 percent in 2012. The Bank's projection compares with the government's own new projection of 12.3 percent.

Firm commodities prices are expected to provide a cushion to the economy and Ghana is determined the oil rush will not damage its gold and cocoa sectors.

There are fears that the current political stalemate in top cocoa grower Ivory Coast could paralyse that country's cocoa industry and force traders and exporters to turn to Ghana with their produce. Industry watchers say some 30,000 - 40,000 tonnes of Ivorian beans have been smuggled into Ghana through the porous borders, despite reported monitoring measures outlined by Ghanaian authorities to protect their premium beans from adulteration.

Ghana is upbeat about producing a record 800,000 tonnes of cocoa in the current season due to good weather and improved farming techniques.

What to watch:

-- What happens to the oil money. Parliament delayed the passage of the oil revenue bill until early February after failing to sift through numerous proposed amendments before it rose for Christmas.. The money is currently being held in escrow and further delays will raise questions about future use of the new income.

-- Inflation. The 2011 budget predicts inflation -- which dipped to 8.58 percent in December, lower than the Central Bank's own forecast of 9.2 percent -- will fall to 8.5 percent by December 2011 and 7.0 percent by 2012. Some question whether this will be possible given the oil boost to the economy, utility price increases and recent public sector wage hikes.

PUBLIC FINANCES

The 2011 budget seeks to narrow the country's public deficit to 7.5 percent of GDP in 2011 from 9.7 percent this year, and forecasts that revenues from a series of tax hikes -- including on income, foreign supplier services, and transport -- will complement oil revenues to finance spending.

What to watch:

-- Ghana goes to the market for new funds. Finance Minister Kwabena Duffuor said Ghana was planning to launch a delayed $500-700 million Eurobond by this year -- double the issue it previously mooted. Duffuor said the launch, which was originally scheduled for December last year, was still on the cards.

-- How Ghana uses $13 billion worth of credit accords with China signed in September. Accra has said the agreements will be drawn on gradually as projects that require funding arise and only after financing terms are agreed.

FOREIGN INVESTORS

By African standards, Ghana has a good name on governance. In corruption watchdog Transparency International's rankings, only Botswana, Mauritius, Cape Verde, South Africa and Namibia were seen to be tougher against graft in sub-Saharan Africa.

Yet the wrangling over the Kosmos stake in the Jubilee field unsettled some investors, as did October 2009's news that Ghana wanted to renegotiate British mobile phone giant Vodafone Group Plc's $900 million purchase of a 70 percent stake in the national phone company, Ghana Telecoms. Standard & Poor's cited concerns over public finances and oil sector regulation in its decision to downgrade Ghana's sovereign rating to "B" from "B+", while others said such concerns were overdone..

Portfolio investors focus on the country's debut $750 million Eurobond. It is currently yielding around 7 percent against a launch yield of 8.5 percent.

Investors in Ghana's then paper-based bourse struggled to wind down positions when the global slowdown hit stocks in 2008. The GSE All-share index finished the year up 58 percent but the gains were wiped out last year. Despite the advent of automated trading in late 2008, daily trading rarely tops $1 million.

What to watch:

-- The performance of the local stock exchange. A series of interest rate cuts in 2010 helped the All-share index to gain 32 percent over the year. How will the arrival of oil revenues affect the bourse?

POLITICS

Mills' victory in a broadly free and fair December 2008 election was a rare example in the region of power changing hands through the ballot box smoothly. Since then, Ghanaians' main gripe is that economic policy has failed to live up to promises to raise living standards and tackle unemployment.

What to watch:

-- Public disappointment with the impact of the oil windfall. Ghana forecasts that oil will bring only about six percent of GDP this year with an average $800 million to the public purse a year through to 2029. Even if that were distributed directly to Ghanaians, it would mean a mere $75 a head at its 2017 peak.

Disenchantment among Ghanaians expecting quick riches could be an issue at the 2012 election.

-- Signs Mills is looking for a second term. In an interview last year, Vice-President John Dramani Mahama told Reuters: "I know that by 2012 my president would have done enough ... that Ghanaians would give him a second term in office."

Mills has christened 2011 as an action year, hoping to meet some of the expectations of Ghanaians ahead of next year's polls. He is expected to make some changes in his cabinet after a minor reshuffle early January. Ghana has recently come under criticism after Mills announced he would not contribute troops to possible regional military force to remove embattled Ivorian leader Laurent Gbagbo out of power.