By Stephen Gordon - Monday, May 13, 2013 - 0 Comments
Tom Mulcair’s recent article for the Institute for Research on Public Policy (IRPP) raises perhaps more questions than it answers about the NDP’s positions on the economics of energy and the environment. Here are a few key passages:
An NDP government would establish a comprehensive upstream cap-and trade system to meet our international commitments to fight climate change and rigorously enforce environmental laws here in Canada.
We’ve heard this before, but we still don’t know very much about what this system would look like. Does “comprehensive” mean “applicable to all GHG emissions”? What are the estimated costs to consumers? What measures will be taken to compensate low-income households for these costs?
By Stephen Gordon - Tuesday, April 2, 2013 at 9:00 AM - 0 Comments
The U.S. is a natural point of comparison for the Canadian economy for many obvious reasons. But Australia is an even better point of reference when is comes to certain aspects of our economy, especially in the last decade. Both countries are a major exporters of natural resources and have undergone significant transformation over the last decade.
The surge in commodity prices increased the terms of trade — the ratio of the price of exported goods to the price of imported goods — in both economies, but the effect in Australia was far stronger than what we saw:
By Stephen Gordon - Tuesday, March 12, 2013 at 6:00 AM - 0 Comments
So Dutch consumers are roughly 10% better off than they would have been, but companies have been able to compete only by paring their profit margins.
“The Dutch disease,” The Economist, November 26, 1977
Talk about burying the lede. That sentence appears at the end of the 10th paragraph of the much-referred-to but rarely read article in The Economist that coined the phrase “Dutch Disease.” In the normal course of things, a 10 per cent increase in consumers’ purchasing power would be the stuff of banner headlines, but, for some reason, The Economist chose to hide that point deep into the story and qualify it with a caveat about how hard it had become for companies to compete. (The answer to that, by the way, is: “So what if producers are struggling?” What really matters is consumer welfare.)
My take on the Dutch Disease debate can be summed up as follows: Why are we calling it a disease?
The Economist was reporting on the difficulties Dutch manufacturers were having in the wake of the discovery and exploitation of natural gas reserves in the Netherlands in the 1970s. The parallels with the recent Canadian experience are obvious: the surge in the prices of oil and other commodities that began in 2002 has been accompanied by a fall in employment in the Canadian manufacturing sector. (Here I’m going to concentrate on the period 2002-2008; the recession complicates the analysis of the last four years.)
No-one can plausibly deny that the increase in resource prices during 2002-2008 led to a reduction in manufacturing employment. But this shift was part of a labour market adjustment that produced broad-based increases in wages and incomes — and broad-based increases in wages and incomes are good things.
The rest of this post is based on a presentation I gave at a the symposium on Dutch Disease organised by the University of Calgary’s School of Public Policy held in Toronto on March 6-7. (It was there that the University of Alberta’s Andrew Leach drew my attention to that remarkable quote.)
By The Canadian Press - Tuesday, March 5, 2013 at 1:59 PM - 0 Comments
CALGARY – A belief that a commodities boom has caused a decline in Canada’s…
CALGARY – A belief that a commodities boom has caused a decline in Canada’s manufacturing sector is being challenged by two reports from the University of Calgary’s School of Public Policy.
The first argues that manufacturing has been in decline for the last 50 years and cannot be blamed for the recent runup in the value of the Canadian dollar.
It also says data indicates that employment in manufacturing has been falling over the last 35 years for most members of the Organization for Economic Co-operation and Development — including countries that don’t have substantial natural resources.
By Stephen Gordon - Tuesday, February 12, 2013 at 7:00 AM - 0 Comments
The debate over “Dutch Disease” tends to focus almost entirely on what happened in Canada between the oil price surge in 2002 and the onset of the recession in 2008. Employment in the manufacturing sector fell by more than 300,000 during this period, but this number is almost never put into context.
Firstly, the share of people employed in manufacturing has been on a secular decline in industrialized countries for at least the last forty years:
It’s worth pointing out that this trend was established several decades before Chinese manufactures appeared on world markets.
Here are manufacturing employment levels, scaled so that all countries are equal to 100 in 1971 :
Canada is the only country in these graphs where manufacturing sector employment is still on par with what it was forty years ago in absolute terms. (The bump you see in the Canadian data from, roughly, 1995 to the late 2000s will be the subject of an upcoming post.)
The most important thing to note is that the manufacturing employment cycle has been going on for decades. We’ve seen this before, and we’ll doubtlessly see it again.
Update: Data source is the FRED data base at the St Louis Federal Reserve.
By Colby Cosh - Thursday, December 13, 2012 at 9:29 AM - 0 Comments
The aftereffects in Alberta of the Nov. 26 Calgary-Centre federal byelection, carried off by Conservative Joan Crockatt with just 37 per cent of the vote, have officially become super hilarious. The reader will recall that the two main challengers for a Conservative seat in a relatively liberal-friendly part of Calgary were the capital-L Liberal Harvey Locke, who has spent decades as a top wilderness preservation advocate and all-around Nature Boy, and the Green Party’s Chris Turner, an urbanist author and magazine writer who uses the word “sustainable” with a frequency best characterized as “intolerable”. In short, the two parties both nominated professional environmentalists, neither of whom have done a whole lot else with their lives. We could all probably have anticipated a problem here.
How does a Green candidate run against a Harvey Locke? Turner was shrewd and cynical enough to find an answer: berate the older guy as an out-of-touch Seventies green who, as Locke had admitted in an interview, didn’t even move to Calgary from Banff until it looked like there might be a Commons seat available amid Cowtown’s dark Sanatic mills. (Asked by your correspondent if she approved of this campaigning style, Elizabeth May observed that the GPC is not one of those old-fashioned “top-down parties” in which the leader orders candidates about.) Locke, for his part, spluttered that his young rival was a “twerp”. Continue…
By Aaron Wherry - Tuesday, October 30, 2012 at 9:26 AM - 0 Comments
The Saskatchewan Party has released an ad that uses Thomas Mulcair to attack the candidates for leader of the provincial NDP.
The SaskParty has injected itself into the NDP leadership contest, releasing an ad attempting to link the four contenders to comments made earlier this year by federal NDP leader Thomas Mulcair … “The people of Saskatchewan, I think, need to know where the leadership candidates for the NDP are on Mr. Mulcair’s statement on dutch disease here in our province,” said SaskParty cabinet minister Bill Boyd.
It’s a debate Erin Weir, one of the four contenders in the race, is happy to have. “I think our federal NDP leader, Tom Mulcair, raises a valid question,” Weir said. “Saskatchewan has lost 5,500 manufacturing jobs since Premier Wall took over.”
It’s interesting to see a party running attack ads against another party’s candidates for leadership instead of waiting to see who wins that leadership race.
By Stephen Gordon - Friday, September 7, 2012 at 3:43 PM - 0 Comments
With any luck, today’s speech by Bank of Canada Governor Mark Carney will be the final word on the ‘Dutch Disease’ debate in Canada:
Some regard Canada’s wealth of natural resources as a blessing. Others see it as a curse.
The latter look at the global commodity boom and make the grim diagnosis for Canada of “Dutch Disease.”1 They dismiss the enormous benefits, including higher incomes and greater economic security, our bountiful natural resources can provide.
Their argument goes as follows: record-high commodity prices have led to an appreciation of Canada’s exchange rate, which, in turn, is crowding out trade-sensitive sectors, particularly manufacturing. The disease is the notion that an ephemeral boom in one sector causes permanent losses in others, in a dynamic that is net harmful for the Canadian economy.
While the tidiness of the argument is appealing and making commodities the scapegoat is tempting, the diagnosis is overly simplistic and, in the end, wrong.
By Aaron Wherry - Friday, September 7, 2012 at 2:17 PM - 0 Comments
Mark Carney takes on the Dutch Disease debate.
Some regard Canada’s wealth of natural resources as a blessing. Others see it as a curse. The latter look at the global commodity boom and make the grim diagnosis for Canada of “Dutch Disease.” They dismiss the enormous benefits, including higher incomes and greater economic security, our bountiful natural resources can provide. Their argument goes as follows: record-high commodity prices have led to an appreciation of Canada’s exchange rate, which, in turn, is crowding out trade-sensitive sectors, particularly manufacturing. The disease is the notion that an ephemeral boom in one sector causes permanent losses in others, in a dynamic that is net harmful for the Canadian economy.
While the tidiness of the argument is appealing and making commodities the scapegoat is tempting, the diagnosis is overly simplistic and, in the end, wrong. Canada’s economy is much more diverse and much better integrated than the Dutch Disease caricature. Numerous factors influence our currency and, most fundamentally, higher commodity prices are unambiguously good for Canada. That is not to trivialise the difficult structural adjustments that higher commodity prices can bring. Nor is it to suggest a purely laissez-faire response. Policy can help to minimise adjustment costs and maximise the benefits that arise from commodity booms, but like any treatment, it is more likely to be successful if the original diagnosis is correct.
By The Canadian Press - Friday, September 7, 2012 at 1:47 PM - 0 Comments
CALGARY – Canada’s reliance on oil is “unambiguously good” for the country as a…
CALGARY – Canada’s reliance on oil is “unambiguously good” for the country as a whole — not just the West — Bank of Canada governor Mark Carney said Thursday in a speech that called for more pipelines and dismissed fears about so-called Dutch disease.
Rather than blame high-priced oil and other commodity exports for the decline in manufacturing, central Canada should get in more on the bounty by building pipelines and refineries to where the markets are in Ontario and Quebec.
“Higher commodity prices are unambiguously good for Canada,” he told a conference of business leaders and international policy-makers in Calgary.
“The strength of Canada’s resource sector is a reflection of success, not a harbinger of failure.”
Canadians should find new ways to take advantage, said Carney. He points out that eastern Canadian consumers are importing oil at prices that average $35 a barrel more than what western heavy oil producers receive.
“New energy infrastructure — pipelines and refineries — could bring more of the benefits of the commodity boom to more of the country,” he said.
By Aaron Wherry - Wednesday, June 13, 2012 at 1:16 PM - 0 Comments
A report from the OECD sees signs of Dutch Disease in the Canadian economy.
The Organization for Economic Co-operation and Development warns in a report released Wednesday that the run-up in commodity prices is leading to an uneven economy in Canada. And it says the country needs to do more to develop non-resource aspects of the economy in order to maintain high levels of employment and an equitable distribution of wealth across regions…
“I don’t think you can really deny it,” Peter Jarrett, one of the report’s authors, said in an interview. ”You can’t explain the entire pattern of the history of manufacturing just by exchange rates. That goes too far. But anyone who argues it has no effect is clearly not looking at the data.”
By Adam Goldenberg - Sunday, June 10, 2012 at 3:15 PM - 0 Comments
Never heard of the Sherbrooke Declaration? You’re not alone.
Adam Goldenberg is a J.D. Candidate at Yale Law School and was chief speechwriter to Michael Ignatieff.
“Paging Dr. Dix,” B.C. Premier Christy Clark told a fundraising dinner in Vancouver last week. “You’re trying to cure a disease that doesn’t exist. And the medicine might just end up killing the patient.”
The disease, of course, is Dutch, and the politics are simple. By pitting natural resources against manufacturing, the federal NDP has hamstrung its brothers and sisters in the West, and handed the centre-right governments of B.C., Alberta, and Saskatchewan a misstep to build a dream on. Our oil, gas, potash, and uranium pay for our schools and hospitals, they say—and cheap daycare in Quebec, too.
“I know it’s my job to fight for families,” Ms. Clark thundered on Tuesday. “Not in Quebec, but families right here in British Columbia.” One thing is sure: B.C. families can get used to hearing that line.
Unlike the Liberals or the Conservatives, the NDP’s provincial and federal wings are one and the same; in B.C., Adrian Dix’s party is also Thomas Mulcair’s. And so, after Mr. Mulcair mused about “Dutch disease,” it fell to Mr. Dix to plug the hole in the dike. He chose not to, and has instead refused publicly to condemn his federal boss, which may be for the best—his private thoughts are probably too coarse to print.
But though Mr. Mulcair’s message on the economy is most troublesome for his Western co-partisans, another NDP policy is a more serious liability under the law: the Sherbrooke Declaration.
Never heard of it? You’re not alone. Few NDP policies have been less publicized in English Canada. Adopted in 2005, the policy document was part and parcel of the NDP’s mating dance with Quebec. “The NDP would recognize a majority decision (50 per cent + 1) of the Quebec people in the event of a referendum,” it states. “The NDP recognizes as well that the right to self-determination implies that the [Quebec National Assembly] is able to write a referendum question and that the citizens of Quebec are able to answer it freely.”
For the NDP, the Sherbrooke Declaration represented a major, if unheralded, change of heart. Five years earlier, NDP MPs had voted to support Jean Chrétien’s Clarity Act, federal legislation that grants Parliament the power to decide whether a referendum question—and a potential “yes” majority—are sufficiently clear to give the Quebec government a mandate to negotiate secession.
Despite the Sherbrooke Declaration—and his own past opposition—NDP leader Jack Layton pledged his support for the Clarity Act during the 2006 election campaign. By 2011, as legions of former Bloc Québécois supporters turned orange, the Sherbrooke Declaration was back, just below the surface. And earlier this year, Mr. Mulcair made it official: “Democracy is 50 percent plus one,” he told Reuters. “Period. Full stop. That’s it.”
Is it? The Supreme Court, in its 1998 decision in Reference re Secession of Quebec, ruled otherwise. “Democracy,” it held, “means more than simple majority rule.” In the Court’s words, only “a clear majority vote in Quebec on a clear question in favour of secession would confer democratic legitimacy on the secession initiative.” And just what constitutes a “clear majority?” The Court was coy: “It will be for the political actors to determine what constitutes ‘a clear majority on a clear question.’”
Under Mr. Mulcair, the NDP has decided that a majority need only be simple to be clear, and that Quebec alone may judge the clarity of the question. Never mind that Parliament has written nearly the opposite into law.
And so we return to the unfortunate Mr. Dix. He will be, if today’s polls hold true, the next Premier of B.C., and he will lead a governing party that opposes the formula for secession devised by the Supreme Court of Canada and enacted by Parliament. Would a Dix government accept a simple majority vote as sufficient to begin breaking up the country? Given his unquestioning acquiescence to Mr. Mulcair’s other policy positions—most recently resource development—the answer would seem to be yes. And in the event of a referendum, Victoria’s position would be anything but irrelevant; according to the Supreme Court, a “clear majority on a clear question” would give Quebec a mandate to negotiate secession, which “all of the other participants in Confederation would have to recognize.” That includes the Government of B.C.
Unless and until Mr. Dix opens up some daylight between himself and his federal sibling, he runs the risk of handing Ms. Clark yet another rhetorical cudgel of Mr. Mulcair’s making, in an election campaign that’s otherwise Mr. Dix’s to lose. Sure, he can try to dodge questions about Quebec and Dutch disease—but if he does, he’ll be skating in wooden shoes.
Follow Adam Goldenberg at @adamgoldenberg.
Related Maclean’s links:
By Aaron Wherry - Monday, May 28, 2012 at 11:50 AM - 0 Comments
Harris-Decima checks in with the electorate.
Recently, NDP leader Thomas Mulcair has made comments regarding the impact of the oil sands on the Canadian economy. Have you read, seen or heard something about these comments?
By party affiliation, only a majority of Conservative voters (53%) were aware. By age group, only a majority of those over 50 were aware. Awareness was lowest among women, those 49 and younger and those in Quebec.
By John Geddes - Monday, May 28, 2012 at 9:17 AM - 0 Comments
The NDP and the Tories are more than happy to spar over the Alberta oil sands boom
A fracas unfolding on Parliament Hill almost always follows a predictable path. One side, either the government or the opposition, seeks partisan advantage by pushing some issue onto the agenda. Then the other tries to squelch it. If a cabinet minister is discovered overspending on orange juice, for instance, the opposition aims to prolong her misery, while the government strives to change the channel. But the extended, bitter contretemps over Thomas Mulcair’s assertion that Alberta’s oil sands development hurts Canada’s manufacturing exports by pumping up the value of the loonie didn’t follow that well-worn course. When Conservatives accused him of dividing the country by begrudging western Canada its economic success, Mulcair—far from trying to sidestep their attacks—met them head on and even seemed to relish throwing fuel on the fire.
It was a rare case of both sides seizing on the same acrimonious argument as a potential political winner. If they continue to see it that way, this regionally sensitive clash over economic and environmental policies could be a defining factor in framing the choice between continued Conservative rule and the NDP alternative. So get ready for “Dutch disease” to claim a key place in the vernacular of federal politics. The term was coined back in the 1970s to describe Holland’s dilemma when offshore gas discoveries boosted the Dutch currency’s value, making the country’s exports more costly, thus hurting its manufacturers. Mulcair blames Canada’s case of Dutch disease for about half of 500,000 manufacturing jobs lost, mostly in Quebec and Ontario, after Stephen Harper’s Tories won power in 2006. He charges the Conservatives with sacrificing the entire manufacturing sector. “Their priority,” he says, “is the unbridled development of the oil sands.”
By From the editors - Friday, May 25, 2012 at 11:10 AM - 0 Comments
Mulcair’s references to Dutch disease obscure his environmental criticisms of the oil patch
Federal Opposition Leader Thomas Mulcair says he doesn’t regret bringing up the issue of whether Canada suffers from “Dutch disease.” He might be the only one. The newspapers have been so full of this phrase for the last few weeks that the very sight of it must make most of us want to grab and assault the first person we can find named Van Der Whatever.
It would be some comfort if the Dutch disease debate had been handled impeccably in the press, but it hasn’t been. Dutch disease is a theoretical phenomenon in economics that occurs when high prices for raw resources attract capital and labour away from advanced manufacturing, rebalancing an economy in a hard-to-reverse, welfare-diminishing way. If the resource boom is strong enough to jolt the currency upward, that’s a double whammy for the manufacturers, to the degree they are dependent upon exports.
But a resource boom only becomes a “disease” if the economy doesn’t react with equal efficiency when the resource runs out or the price declines, because the manufacturing sector has shrunk and its markets can’t be recaptured easily. The concern is that there are beneficial “spillover” effects of having advanced manufacturing that are more easily lost than recouped; if a country loses a computer-chip factory, for example, it might not be able to open it again later, because the closure discouraged young people from getting the kind of engineering education you need to make and market chips.
By Aaron Wherry - Tuesday, May 22, 2012 at 8:00 AM - 0 Comments
… this is a fight that we’ve been looking for. We see this as a defining element of the next election campaign in Canada. We are leaving a less diversified economy by the choices. The very fact of the matter is, is the Conservatives are failing to enforce legislation that exists now. Polluter pay is a basic principle that all Canadians can agree upon. That’s the base of the problem. Right now we’re not enforcing several statutes federally; the Fisheries Act, the Migratory Birds Act, the Navigable Waters Act, these are all things that should be included in the real costs of the oil sands. Instead, the federal government is failing. Stephen Harper’s government is failing to enforce that legislation. Polluter pay is the base of this whole debate.
For those of you keeping track of trends in alliteration, note that Dutch disease is out and polluter pay is in.
By Aaron Wherry - Thursday, May 17, 2012 at 9:00 AM - 0 Comments
The NDP leader is scolded by Saskatchewan Premier Brad Wall.
“Here’s someone who wants to be a national leader, who, for the sake of politics, I think, would risk the economic advantage of the country,” Wall said. ”I work for the people of Saskatchewan and if Mr. Mulcair is wondering for whom I am a messenger, I am a messenger for the people of Saskatchewan and for the economic interests of this province.”
And dismissed by B.C. Finance Minister Kevin Falcon.
“Of course not. The prime minister or the finance minister has never phoned me to suggest what we should be saying about ignorant comments that a national leader may say,” he said. “I’m just telling you exactly what I think about those comments. When I read them, at the time, I was shaking my head. I just could not believe it,” he added.
Alberta Premier Alison Redford expands on her concerns via Facebook.
His claims about unregulated development and disregard for the environment are false. I would also like to make it clear to Mr. Mulcair that as Premier of Alberta I expect that someone would have the courtesy to properly inform themselves rather than making disparaging comments about Alberta.
By Aaron Wherry - Wednesday, May 16, 2012 at 1:35 PM - 0 Comments
Two weeks after he made a diagnosis of Dutch disease, Thomas Mulcair is dismissing the premiers of Alberta, Saskatchewan and British Columbia and Alison Redford is tweeting her disappointment in Mr. Mulcair. As to the central economic question, the Institute for Research on Public Policy has a new report.
The results are more nuanced than conventional wisdom would suggest. Only 25 of the 80 industries (accounting for about one-quarter of total manufacturing output) show a significant negative relationship between the US-Canada exchange rate and output. The effects are most pronounced in small labour-intensive industries such as textiles and apparel. Larger industry groups such as food products, metals and machinery are much less adversely affected by the strong dollar, and these minor problems have generally been offset by strong growth in demand. Interestingly, automotive industries do not show symptoms of the Dutch disease; their weakness stems from cyclical changes in demand and lagging productivity growth.
On balance, the evidence indicates that Canada suffers from a mild case of the Dutch disease, which warrants a commensurate policy response. It is difficult to implement national policies to directly counteract the rising exchange rate (policies such as investing resource revenues in foreign assets, as Norway does), because resource revenues are under provincial jurisdiction. However, Ottawa can use additional federal tax revenues stemming from natural resource booms to invest in infrastructural and other activities that bolster the competitiveness of the manufacturing sector as a whole.
See previously: The Dutch, oil and Thomas Mulcair
By Aaron Wherry - Wednesday, May 9, 2012 at 9:30 AM - 0 Comments
Stephen Gordon considers the question of Dutch Disease.
The appreciating Canadian dollar has little to do with the decline in manufacturing; employment has been declining worldwide for decades. Changes in relative prices are more important. Producer prices for manufactured goods have increased by about 15 per cent since 2002, while the Bank of Canada’s commodity price index has more than doubled. Any attempt to promote manufacturing exports by depreciating the dollar is doomed to fail, since a lower Canadian dollar will also benefit resource exporters. Capital and labour will always move from sectors where prices are soft to sectors where demand is strong, regardless of what the exchange rate is doing.
By Aaron Wherry - Monday, May 7, 2012 at 9:00 AM - 0 Comments
Thomas Mulcair worries that we’re suffering from Dutch Disease.
NDP leader Thomas Mulcair said Saturday that, because of the way it raises the value of the Canadian dollar, other parts of the country are paying a price for the prosperity enjoyed by natural resource sectors such as the oil sands in Alberta. “It’s by definition the ‘Dutch disease,’ ” Mulcair said Saturday on the CBC Radio show, The House.
The “Dutch disease” is a reference to what happened to the Netherlands economy in the 1960s after vast deposits of natural gas were discovered in the nearby North Sea. The resulting rise in its currency was thought to have caused the collapse of the Dutch manufacturing sector, and Mulcair said the same thing is happening in Canada. “The Canadian dollar’s being held artificially high, which is fine if you’re going to Walt Disney World, (but) not so good if you want to sell your manufactured product because the American clients, most of the time, can no longer afford to buy it.”
Dalton McGuinty has expressed similar concerns. The OECD has also raised the issue. Jack Mintz says Dutch Disease isn’t happening here. Stephen Gordon questions the concept. The Current considered the diagnosis in March. More research here and here.
By Colby Cosh - Thursday, March 15, 2012 at 6:29 AM - 0 Comments
Ex-Colleague Coyne has an excellent column on the emerging political split between the resource-extracting parts of the country and the sentimental nationalists who think every drop of bitumen and chip of timber sent abroad makes baby Jesus cry. I noticed one snippet, though, which goes to show how even the most trend-aware and detail-oriented columnist (that’s what he is!) can be held prisoner by persistent images of the past: Continue…
By Paul Carlucci - Tuesday, January 10, 2012 at 2:29 PM - 0 Comments
The West may be paddling an ocean of debt and disorder–naught but austerity and tatty lifestyle reductions–but Africa is booming, especially Ghana, one of the world’s fastest growing economies in 2011.
In this West African nation, it’s the era of oil. Tapped just over a year ago in the Gulf of Guinea, the Jubilee Oil Field contributed seven per cent of the country’s 14.6 per cent growth last year. A reported 23 million barrels were lifted out of the field in 2011 by Ireland’s Tullow Oil and other stakeholders. The Ghana National Petroleum Corporation, a 13 per cent shareholder, lifted $344 million-worth.
But discoveries of vast natural reserves are notoriously a tricky thing to manage. There’s the text-book case of the Netherlands–which economists dubbed the Dutch Disease–, where natural gas reserves found in the 1960s lead to an appreciation of the local currency that eventually chocked a number of domestic exporters. And then, of course, there’s Nigeria, where billions in oil wealth did little to relieve the wretched poverty of the Niger Delta region.
Ghana is having its own share of troubles. Critics say millions have already been lost in unpaid corporate taxes and a skewed royalty system. Meanwhile, the oil-propelled growth has failed to create jobs or spur development in a country that, despite its recent elevation to lower-middle income status, still struggles with grinding poverty in its urban, rural, southern and northern regions.
“The growth associated with oil development is false-growth because the investment does not have direct bearing on the economy,” says Mohammed Amin Adam, an energy economist and the national oil coordinator of Publish What You Pay Ghana, an advocacy group. “Development hasn’t kept pace with growth,” he adds. Despite the GDP numbers, “more and more people are coming under the poverty line.”
There are three issues the government needs to address if it wants to turn Ghana’s oil sector into a ground-level growth machine, says Adam. The first revolves around supply side economics. Ghana is largely an import-based economy. It ships away its raw materials–gold, timber, cocoa–for production elsewhere, then buys back finished products. The influx of oil revenue, says Adam, is playing up this dynamic, swelling up demand that can’t be met domestically. If the supply side can’t match the rise in demand from the inflow of oil revenue, the result will be inflation, he says.
And the oil money is feeding another beast: corruption. Unquestionably, Ghana is not new to the problem. An anti-corruption NGO recently estimated that the country loses $4 billion a year to pernicious seepage, and Transparency International ranked it 69th out of 183 countries in its 2011 Global Corruption Perception Index. But civil society watchdogs worry that the oil bonanza will ratchet up greed in 2012, an election year, and beyond.
Bribes and graft, in turn, will “increase the cost of investment,” predicts Adam. He’s talking about general investment, including in non-oil sectors, where the potential lies for Ghana to create the jobs it needs. The oil boom, in fact, has been largely jobless. Unemployment was at 11 per cent in 2000, according to the latest census, but the government plainly admits it doesn’t know how many people are out of a job these days. One thing is for sure, though, pouring more of the oil money into the agricultural sector would help put people to work, says Adam. Agriculture made up about 16 per cent of Ghana’s GDP in 2011, and that’s where a big portion of the country’s permanent jobs are. “Depending on how we spend the money in the non-oil sector that have higher growth potential, higher employment potential, like agriculture, then that could help the country,” muses Adam. A planned Heritage Fund is meant to address these sort of ideas about how to use the oil money. Alas, it only accounts for only nine per cent of that revenue.