Poor Institutional Governance: The Bane of Managing Ghana's Oil Revenue

The Ministry of Finance and Economic Planning, Parliament, the Bank of Ghana, the Ghana Revenue Authority, the Auditor General, the Investment Advisory Committee, and the Public Interest Accountability Committee (PIAC) exist as public institutions under the PRMA. These institutions are assigned various roles under the PRMA, as discussed in section III below. Therefore, these institutions are necessary because it would be difficult to implement policies to achieve the goals under the PRMA. The existence of created institutions must bring order to society and reduce uncertainties.⁶ In other words, state institutions must offer solutions to society's problems, and their inability to perform this function warrants investigations to ascertain the reasons for their failure. This next section discusses the nature of institutions and the characteristics of good institutions that help manage oil revenue.

An institution is “a set of humanly devised behavioural rules that govern and shape the interactions of human beings, in part by helping them to form expectations of what other people will do.”⁷ Lin and Nugent argue that institutions may be formal or informal units.⁸ They classify the formal as comprising constitutions, agreements, and market exchange, while organisational by-laws with shared values, norms, customs, ethics, and ideology come under the informal.⁹ North defines institutions as “humanly devised constraints that shape human interaction.”¹⁰ The definition connotes rules meant for the efficient functioning of society because they set the basis for dealings in the community and reduce uncertainty by providing a structure for everyday life.¹¹

Rodrik¹² argues that for institutions to support growth, five things are required: secure property rights, regulation of institutions, establishment of institutions for macroeconomic stabilisation, social insurance institutions, and conflict management institutions. The interplay between these characteristics will strengthen the institutions’ quality, thereby positively impacting society.¹³ If institutions in resource-developing countries fail to exhibit these features, they will be powerless to affect the community.¹⁴

Two types of institutions were established in resource-rich countries through settlement by Europeans. In the colonisation of Congo, Belgium created “an extractive State.” Institutions did not advocate the protection of private property. There were no checks and balances against government expropriation, which resulted in the transfer of the colony's resources to Europe.¹⁵ However, in Australia, New Zealand, and Canada, the European settlers established institutions comparable to what existed in Europe, which championed private property and checked government power.¹⁶ This article argues that the mindset of the colonisers made it possible to set up two different types of state institutions in resource-rich countries.

On the one hand, if the institution exploited natural resources without adding value, such an arrangement did not assist the development of that country's state institutions but weakened them.¹⁷ On the other hand, establishing quality institutions enabled the resource-rich country to turn around its economy with resource revenues.¹⁸ A paradigm shift is required. This article suggests that resource-rich countries must establish quality institutions to assist with their development and shed the colonial outlook.

This article recommends that resource-rich countries examine the problem in the context of institutions charged with making and implementing policies. In developing countries, the poor governance of these resources creates the resource curse, not its existence.¹⁹ The quality of the institutions is crucial for resource revenue management by developing checks and balances to help reduce the adverse effects of natural resource revenues, including oil.²⁰

In developing resource-rich countries, resource wealth could have a detrimental impact on institutional quality, making the government susceptible to rent-seeking and inability to formulate economic policies.²¹ Resource-rich countries’ reliance on resource revenues discourages politicians from investing and building the capacity of the state institutions.²² They perceive that viable state institutions might challenge their authority in governance and on fiscal issues.²³ Politicians prefer the status quo because the development of state institutions supports transparency and accountability, which limits the exercise of corruption and unethical conduct by politicians.²⁴ This article argues that legislation meant to manage resource revenues should equip state institutions and make them autonomous to ensure the state's oil revenue benefits society. The quality of the institutions will also depend upon the competence of persons appointed to decision-making positions. This article submits that developing resource-rich countries must pay attention to these considerations to manage resource revenues.

Resource abundance contributes to low-quality institutions in developing resource-rich countries due to the appointment or election of ‘political candidates’ into positions of responsibility.²⁵ For example, ‘political candidates’ are individuals with political affiliations but lack the requisite competency for the job appointed to occupy.²⁶ First, many such persons holding positions in state institutions succeed in pulling apart institutions established to govern the resource revenues to their benefit or the constituency the individual represents.²⁷ Second, even with the appointment of persons with requisite qualifications...