This week in the UK, news of a £90 million Lottery win launched a media frenzy and a barrage of questions about what the winners would do with the cash – keep the day job or, go shopping? In 2007, Tullow Oil found a significant oil reserve under the sea off Ghana’s Gold Coast. The IMF estimates that the Jubilee Field will generate $30 billion of revenues by 2030 in a country where 30% of the population are living on less than $1.25 per day. The Lottery advised the UK winners to take an immediate holiday to consider their options. Kofi Annan, a native of Ghana and former UN President, urged Ghana’s Government to ask Norway for advice on what to do about oil. He did not suggest Nigeria.

people of ghana

There's more to oil than oil

Ghana was the first African country granted Independence and, by the Jubilee of 2007 had held 4 (soon to be 5) democratic elections against a backdrop of peace and stability; control of corruption; solid macro economic management; poverty reduction and an effective social contract. The capacity of any government to collect taxes and provide social services sums this stability up: in 1990 Ghana collected 12% of GDP and this had grown to 24% by 2005. Primary school enrollment over the same period grew from 54% to 65%. Will Ghana’s oil have a transformative or, a destructive impact?  The jury is out.

In 2008, Africa produced 12% of global oil. And yet, as Nigeria and, Angola demonstrate all too well, very little of the surplus has made it to the slums of Luanda or Lagos. Nigeria’s oil industry employs about 100,000 people out of a population of over 100 million and, the record of high corruption from the croneys that fawn to the oil industry and ignore the citizenty is detailed and all too depressing. By the way, Indian IT has been a massive driver of growth but, despite this employs no more than 2 million people. The point here is that no developing or emerging economy should be dependent on a single industry. Witness the UK and its dependence on the Financial Sector during the current Recession. It is the reason why the UK is the sick man of the EU in terms of growth.

Oil can either be a blessing or a curse and this is largely down to good governance and leadership. Take Norway and its Sovereign Wealth Fund which, by 2008 had reached $325 billion. Like that of Abu Dhabi, revenues from oil have been managed for the benefit of future citizens and diversification into other industries has been encouraged. Then, there is Alaska, where oil revenues from the 1970s have been pushed into a fund whose principal cannot be spent without amending the State Constitution. Unsustainable social welfare projects have been challenged and investments have been made on the global stage – all paid for from investment income. Then, there is Botswana where the wealth from gem class diamonds has been invested in infrastructure and education.

The fact is, as Paul Colliers work so cogently argues, the correlation between natural resources and civil wars or crippling corruption is alarmingly high. Unintended consequences have been well documented in a series of seminal articles (Collier & Hoeffler) and, in Wars, Guns and Votes (2009) the glare turns to the plain fact that democracy has far too often been bought and power misappropriated. So, when you have a stable Democracy like that of Ghana, you have to deal with it like an exotic fruit. Carefully.

Let’s turn to how Ghana can be transformed without wrecking hard won equilibrium.  

1. Governance. President Obama chose Ghana as the destination for his first trip to Sub Saharan Africa. It was a message all about good governance – and something to do with the fact that 25% of US oil is sourced from West Africa.

There are so many examples of oil revenues ending up in the hands of cronies serving to wreck the social contract with massive gaps between rich and poor; rural areas and dangerous urban sprawl. New President John Atta Miller’s declaration, made in March 2009, that all future agreements with companies to develop the nation’s oil and gas will be subject to disclosure is a strong initiative in the right direction. Accountability, transparency and responsible resource management are key. This and possible on-line auctions will make corrupt deals harder to set up and hide.

2. Vision. Oil must become a means to enable a diversified economy and not an end in itself. Ghana starts well. Already, it is the world’s second biggest Gold producer ; produces 20% of world cocoa beans and, has an opportunity to build a sustainable timber industry. It has significant reserves of bauxite and, industrial diamonds. All of these industries can benefit from a concerted effort to improve connectivity to local and global markets.

More to the point, there is scope to build an inclusive economy through Agriculture transformed by logistics and connectivity of remote rural areas to national and global markets – especially in the Northern Region. Nigeria, as ever, provides a cautionary tale abandoning foreign revenue earners such as palm produce, groundnut, coal, tin to depend almost exclusively on oil.

3. Ghananess: An ugly word but worth unpacking. Kofi Annan advised Ghana to take advice from Norway to avoid the oil curse. Let’s look to India for a sense of a unique market that can help to maintain the social contract. Kishore Biyani, founder of the Future Group, rejects any notion of taking concepts from the Developed world and launching them in India. Using his profound insight into Indianess, he splits the market into three key segments: India 1. This represents 14% of the demographic diamond – the wealthy. Kishore has built his business on India 2. These are the tradesmen, the drivers and those who work for India 1. Then, India 3 is the rest of the population.   

Much can be done using this model. For example:

– Retail outlets. Future Group spent $50,000 transforming one of their new stores into something that India 2 would relate to – ripping out the uncluttered minimalism of shopping malls from London to Dubai. Instead of disciplined merchandising, a chaotic mundi or souk style look-and-feel was encouraged. Dust was left on boxes – because this illustrated that the box had been travelling and therefore the produce likely to be fresh! The retail experience has to be authentic. Better to improve distribution and hygiene standards in a traditional market than open up alien stores. Have a look at Street Fresh. Read Biyani’s It happened in India.

– Understand what people need. Again India. Take a look at CavinKare and the work of founder C.K. Ranganathan. With 72% of Indias population live in rural areas and only 8% use shampoo. The total penetration of shampoo was 14%. So, he launched sachets. This is a profound insight. The majority world can’t afford big bottles of shampoo. Better to give them a means to buy what they need – daily. There are many examples of this type for Ghana to learn from.

– Aspiration. As money comes into Ghana, people will look to upgrade their homes. Take Mabati Rolling. Mabati is a Swahili word meaning rolled metal roof and they do what it says on the tin. Kenyans want to shift from thatched to more permanent roofing and the company now has over $100 million of a $180 million market. Like sachets for shampoo, our emphasis on local insight would learn that many Kenyans build their homes one room (one sheet of rolled steel) at a time.  

– Remittances. Visitors to Accra will notice construction in newer suburbs which has, largely, been financed by Ghanaians abroad. Remittances stand as the country’s second largets source of foreign earnings, less than the gains from gold exports but greater than that from cocoa. This is an important constituency – as with many African countries – and, it has a voice.

4. Infrastructure. Like a variation on transhipment, many oil producing countries ensure that the black gold is exported without moving through the host country – leaving intact poor infrastructure; an empoverished customer base; all held together by the cloying petty corruption of local officials. Ghana can deliver the above vision and, transform the quality of life through logistics.

Infrastructure investments need to be made into Ghanas other industries – see above. For example, the Northern Region would benefit from a fertiliser industry that could improve yields and, a number of research projects to improve farming practice. Aggregation facilities could be developed to provide services for small farmers and, investments in moile telephony could provide the connectivity to make it work. See: this Blog for the work on rural roads by Steve John’s caringfornature. See: Post below – Transforming Infrastructure. 

5. Local finance and direct cash distribution. Ghana needs to develop the approach of Norway or Alaska – a soverign wealth fund that benfits the citizenry. Direct cash distribution to people on $400 per year could make an impact that, using IMF estimates on income, could yield up to $80 per adult; that is $50 per person. This will transform quality of life across the board.

Further, as the work of the Grameen Bank amply demonstrates; from Bangladesh to the Bronx, traditional banking copes badly with poor customers lacking assets or other such collateral. Micro finance has done much to open up opportunities for all types of business veture or transaction – especially those led by women. There are limits covered elsewhere on this Blog. However, technology can transform both the distribution of any direct cash distribution and, the ways in which it can be deployed.

In Kenya, a mobile phone system called M-PESA has been developed to offer cash transfer facilities that dispense with the need for bank branches on the ground. Such branches could slow down distribution and, in any case, as studies by Lagos University in Nigeria amply demonstrate: 86% of Nigerian bank notes carry microbes that cause diarhoea.

6. Affordable technology. Instead of trying to deliver a high tech logistics network, Ghana could become a catalyst for the simply modal ideas championed by Transformational Logistics. This means a focus on: adaptability, affordability andaccessibility to the widest population. For example,  

– Manual Distribution Centres. Coke have developed these in several markets. See: Tielman Nieuwoudt and Supply Chain Lab on this.

– Design. As Paul Polak in Out of Poverty (2008) puts it: “Thinking of poor people as customers instead of recipients of charity radically changes the design process … which has to focus on things that they value.” Affordable small-plot irrigation is one of the areas that design could champion – water lifting; water storage and, water distribution. Market or shelf ready packaging is another. What about flat pack gazebos made from recycled cardboard that can be deployed post harvest to reduce exposure to the sun. The whole idea should be to champion design that can move farmers from subsistence to new income. 

– Jobs where the people are. Oil booms and gold rushes throughout history act like a demographic magnet pulling people from remote rural districts and from beyond the borders to settle in places that soon become towns; then, cities and then urban sprawl. The Majority World live in shanty towns. What can be done to enhance connectivity to rural areas and develop strategies to enable people to work where they are rather than having to move. Of this and asymetrical investment – more later. 

7. Affordable Healthcare. Again, T L affords many examples of how this can be deployed. Have a look at eChoupal and their rural broadband. Have a look at Airtel and Apollo Hospital Group’s work in India on Healthcare in remote rural areas – using mobile phones. It is not only Obama that can see the benefits of healthcare for all. What greater dividend to give Ghana in a continent plagued by AIDs that healthcare that works.

8. Affordable energy. An irony of Nigeria and Angola is that the vast majority of the population don’t have access to consistent power supplies. Croneyism and corruption has warped the market. Ghana has an opportunity to make sure that their story is different. Further, Ghana has the opportunity to go beyond oil and launch a meaningful Renewables industry that will complement the Jubilee Field.

– Green living. What about clusters of villages powered from a central hub driven by a combination of solar or biomass power? Each hub village could house vital services such as a clinic and a school. And using eChoupal style ideas develop market access for all sorts of products. As noted elsewhere, TVS sold 37,000 motorbikes into remote rural districts of India using eChoupal.

– Green supply chains. Ghana could use windfall taxes to fund leapfrog technologies based on sustainable low carbon futures – see other Posts on this Blog. Think of solar energy in the Northern Region to power sustainable agriculture and, experiments with bio mass.

9. Skills. T L champions a focus on skills development as the single most effective step to create sustainable growth. Investments without the skill to implement what is planned will fail. Ghana has a stunning opportunity to become a training hub in all of the industries cited above for West Africa or even, Africa as a whole. Stability provides the platform and investment would enable it to happen.  

A number of important studies have covered the curse of oil. For example, Todd Moss and Lauren Youngs, Center for Global Development Working Paper 186 (October 2009). So many of them point to the need for good governance. And yet, the implication seems to be that it is the developed world that provides the template. Why?

T L champions innovation from the informal market and, with pre-colonial Tswana society in Botswana, a model of Governance from Africas roots instructs. There, commoners were allowed to make recommendation and criticize chiefs. This encouraged participation and limited the power of elites – perhaps a lesson for those who think that democracy delivers from the ballot box alone.

T L is all about building a logistics toolbox relevant to the developing and emerging world. Case Studies about FMCG (Fast Moving Consumer Goods) products finding a better, cheaper and faster way to a supermarket in, say, Hull is not the way to deliver products in the shackled continent of Africa – a place where Corporates may be forced to develop BYO (bring your own) Infrastructure. Logistics techniques have to be adaptable, affordable and, accessible to more than those who study for an exam.

For me, Aidan Heavey of Tullow Oil sets the tone : “Ghana is incredibly fortunate that it has found oil today and not 30 years ago.” Back then, lucrative deals forged by the oil companies served to create a platform for croneys rather than citizens to enjoy the fruits of natural resources. Now, Ghana could build from solid achievement to date and become a byword for sustainable development. A place where research and fresh practice could deliver inclusive value chains capable of transforming the quality of life and, building solutions to be applied elsewhere. An ideal place to develop Transformational Logistics?

* Thanks to Aaron for asking me the question.