By Justice OFFEI Jr
In his inaugural address on January 7, 2025, President John Dramani Mahama reaffirmed his administration’s commitment to fostering entrepreneurship as a key driver of economic growth and job creation.
He highlighted the critical role of small and medium-sized enterprises (SMEs) in revitalizing Ghana’s economy and emphasized his government’s focus on creating an enabling environment for young entrepreneurs to thrive.
This vision aligns with the NDC Manifesto’s promise to establish specialized financial institutions, including a entrepreneurs Bank and a Women’s Development Bank. These banks aim to provide targeted funding, capacity building, and financial inclusion for entrepreneurs in various sectors, ensuring that access to capital is no longer a barrier to business success.
The President’s speech reinforced this promise, signalling a renewed dedication to unlocking Ghana’s entrepreneurial potential through innovative policies and strategic investments.
Petroleum revenue management strategies
In the context of best practices, the posture of a country’s petroleum revenue management strategies predetermines whether or not there would be long term economic benefits or a negative economic impact.
Most importantly, natural resource revenues can cause Dutch disease which is a result of an economy being unable to absorb and efficiently utilize huge revenue inflows for the benefit of its citizens. Specific country contexts informs varying methods by which resources are managed; hence, there is no one-size-fits all answer to the management of resource revenues.
Nevertheless, Implementation and proper enforcement of best practices in resource revenue management is a way to surmount the negative impact of poorly managed resource revenues.
Resource rich nations like Ghana, through thorough non-partisan economic analysis, should select one or a combination of the following as their Best Practice Option to ensure that the revenues from natural resources meet the needs of the country in an effective and efficient manner;
- Budget allocation: where resource revenue spending is targeted at sectors considered to be priority areas through the government’s annual budget.
- Subnational jurisdictionsCountries that have a decentralized style of governance have the option of distributing revenues through sub national jurisdictions such as provinces, districts or municipalities. With this option, payments can be made by the company directly to the subnational jurisdictions or alternatively transfers are made from the government to the sub-region. Nigeria, Indonesia and Peru are good examples.
- Direct cash transfers to citizens:where governments directly handing physical cash to citizens to ensure a direct transfer of resource benefits to the citizens of the country and increase citizenry engagement in demanding accountability. Alaska is a good example.
- Natural resource funds: where government setup a fund from its resource revenue to serve as savings for future generations who may not have the benefit of exploiting natural resources. Where these funds are invested in global real and financial assets they are referred to as Sovereign Wealth Funds (SWF). A SWF provides an avenue for countries to implement counter cyclical fiscal policies in order to act as a buffer from global economic shocks. Chile’s SWF is a good example.
With a critical look at the Ghana’s Petroleum Resource Management Act (PRMA) 895, Ghana seems to follow the combination of Budget Allocation and Natural Resource Funds best practices.
In this publication, I seek to rethink Ghana’s petroleum revenue distribution through budget allocation for the entrepreneurship ecosystem in Ghana. Alternatively, how can we utilize petroleum revenue to drive and promote entrepreneurship in Ghana in the area of agriculture, manufacturing and innovation? To answer this in the context of my headline proposal, let’s look at the nature and quantum of Ghana’s petroleum revenue.
Petroleum revenue is generated from activities directly related to the production, exploration and sale of oil and gas called resource rent, which is the value of the resource minus production costs. It is also generated from activities not directly related such as taxes paid by companies in the industry.
These revenue constitutes the Petroleum Holding Fund (PHF). The Petroleum Holding Fund (PHF) is a general account located at the Bank of Ghana, which serves as the initial repository of all petroleum revenue due to the State. Thus, all allocations and disbursements are made from the Petroleum Holding Fund.
The money from the Petroleum Holding Fund is disbursed in accordance with the PRMA as follows: It is disbursed first to the national oil company (GNPC) to finance its operations and then to the Consolidated Fund (Annual Budget Funding Amount, ABFA) to support the national budget. Thirdly, it is disbursed to the Ghana Petroleum Funds (Heritage and Stabilisation Funds) for purposes of savings and investments, and lastly for exceptional purposes such as tax refunds.
According to Public Interest and Accountability Committee (PIAC) 2019 report, the total petroleum funds distributed since inception in 2010 till end of June 2019 is US$5.32 billion of which 38 percent went to the ABFA, 31 percent to GNPC, 22 percent to the Ghana stability Fund (GSF), and 9 percent to the Ghana Heritage Fund (GHF).
PIAC’s 2018 annual report revealed that a total disbursement from the PHF in 2018 was US$977,124,929.67, of which GNPC and the ABFA received US$305.27 million (31percent) and US$235.10 million (24percent) respectively of PHF allocations for the year. The GSF and GHF received US$305.72 million (31percent) and US$131.02 million (14percent) respectively.
The Startup Bank
These reports are enough evidence of the possibility of using 1% of the petroleum Holding Fund to establish a Startup Bank or Fund to support and strongly drive entrepreneurial activities in the area of Agriculture, Manufacturing (Production) and Innovation. The Fund can be targeted to support SMEs in;
- Hiring more workers
- Constructing sophisticated production/manufacturing facilities
- Equity financing
- Zero percent credits for agric entrepreneurs/farmers
- Grants for innovators
Using the 2018 annual total disbursement from the PHF as the benchmark and the rate of petroleum revenue performance, the proposed Startup Bank can receive or hold at least US$10 Million annually. This may not necessarily call for an amendment of the Petroleum Revenue Management Act (PRMA) simply because we can use the ABFA’s prioritized sector of investment to establish the fund.
The future of every economy is undeniably dependent on their incumbent Startup firms. It is not economically viable to tend to pay less attention to the investment regime of our entrepreneurial ecosystem; it is economic suicidal.
This call will go a longer way to shift our service driven economy to a production driven economy; creating the fiscal space for entrepreneurs to thrive and produce enough of what the nation consumes. We must begin to rethink the path of our economic growth as a nation by taking intrepid steps to make visionary actions that will affect the next generations to come.
List of countries or states already doing that includes Abu Dhabi and Dubai in the UAE, as well as other countries in the Middle East. India with their Oil Startup Fund is also a good example.
>>>the writer is a Policy Analyst & Entrepreneur
