ESTIMATING THE EFFECTS OF THE DEVELOPMENT OF THE OIL AND GAS SECTOR ON GROWTH AND JOBS IN GHANA (2015–30): A MODELLING AND VALUE CHAIN ANALYSIS ESTIMATING THE EFFECTS OF THE DEVELOPMENT OF THE OIL AND GAS SECTOR ON GROWTH AND JOBS IN GHANA (2015– 30): A MODELLING AND VALUE CHAIN ANALYSIS Date June 17th, 2018 (Rev. 7 - final) Description Prospective Economic Assessment ESTIMATING THE EFFECTS ON GROWTH AND JOBS OF THE DEVELOPMENT OF THE OIL AND GAS SECTOR IN GHANA (2015–30): A MODELLING AND VALUE CHAIN ANALYSIS II Estimating the Effects of the Development of the Oil and Gas Sector on Growth and Jobs in Ghana (2015–30): A Modelling and Value Chain Analysis. Commissioned by IFC to Ramboll Associates, E3 Modelling, VIS and funded by the Let’s Work Partnership. Redacted Version 1. The Executive Summary and report of the Evaluation entitled ‘Estimating the Effects of the Development of the Oil and Gas Sector on Growth and Jobs in Ghana (2015– 30): A Modelling and Value Chain Analysis’ has now been redacted for public disclosure in accordance with IFC’s 2012 Access to Information Policy, following the Procedure for Development, Management and Disclosure of IFC Evaluations effective on January 20, 2016. 2. The attached redacted version reflects the following adjustments: • Redaction of sensitive or confidential information related to financial and proprietary information shared by and used with the consent of IFC clients (e.g. revenues and profits). This information was originally used in the estimations of economic effects of specific investments. 3. Questions on this document should be addressed to Evgenia Shumilkina ([email protected]) and Miguel Angel Rebolledo Dellepiane ([email protected]). III ACKNOWLEDGMENTS The core team for the study Estimating the Effects of the Development of the Oil and Gas Sector on Growth and Jobs in Ghana (2015–30): A Modelling and Value Chain Analysis was led by Ioanna Gkolemi (Ramboll Associate), Leonidas Paroussos (E3 Modelling), Miguel Angel Rebolledo Dellepiane (IFC), George Seferiadis (VIS), and Evgenia Shumilkina (IFC). It included Jon Bøgelund, Søren Løvstad Christensen, and Rafaela Igler from Ramboll; Brigid Commey and Marian Ewurama Wiredu from IFC; Maria Alexandra Aslanoglou from VIS; and Kostas Fragkiadakis and Panagiotis Fragkos from E3 Modelling. The study benefited from several rounds of reviews by James Frederick Cust, Thomas Farole, Nils Handler, Tomomi Tanaka, and Erik von Uexkull from the World Bank; Masud Z. Cader, Christine Ann Gonzalez, Jan Olivier Imhof, Halah-Al-Jubeir, and Liane Asta Lohde from IFC; and Lenin Humberto Balza Angulo from the Inter-American Development Bank. Useful input and guidance for the evaluation was provided by Michael Geiger, Shinya Nishimura, and David John Santley from the World Bank; Raghavan Narayanan from the Independent Evaluation Group of the World Bank Group; and Jonas Tago Ayeri, Issahaku Budali, Marina M. Diagou, Omar Chaudry, Shane Rory Clancy, Lance Crist, Vincent Arthur Floreani, Natalie Halich, Veronica Nyhan Jones, Joseph Akwasi Kuma, Camilo Mondragon Velez, Elam Muchira, Ronke- Amoni Ogunsulire, Kirstin Ingrid Roster, Didier Savary, and Ana Maria Torres Soto from IFC. Let’s Work partners include the Asian Development Bank Group (ADB), African Development Bank Group (AfDB), Austrian Federal Ministry of Finance (BMF), Department for International Development (DfID), European Development Finance Institutions (EDFIs), European Investment Bank (EIB), Inter-American Development Bank (IADB), Islamic Corporation for Development of Private Sector (ICD), International Labor Organization (ILO), International Youth Foundation (IYF), Ministry of Foreign Affairs of Netherlands Overseas Development Institute (ODI), Private Infrastructure Development Group (PIDG), Swiss Secretariat for Economic Affairs (SECO), World Business Council for Sustainable Development (WBCSD), and World Bank Group (WBG). The authors thank Let’s Work colleagues for feedback and advice on this work. IV CONTENTS 1. Executive Summary 1 Introduction 1 Findings at the Macro Level 1 Findings at the Upstream Oil Value Chain Level 3 Going Forward 5 2. MOTIVATION and country context 6 Motivation 6 Key Macroeconomic Indicators 7 The Power Sector 8 The Oil and Gas Sector 11 3. Methodology 18 Introduction 18 CGE Model 18 Value Chain Analysis 19 Survey 19 Analysis 20 Study Limitations 21 4. Analysis and Findings 22 Introduction 22 Potential Growth Scenarios 22 Full Scenario: Macroeconomic Implications of Discovering the Oil and Gas Fields in Ghana 31 Potential Effects on the Upstream Oil and Gas Value Chain 39 Employment Effects 41 Local-Supplier Effects 48 Constraints for Local Suppliers 54 5. Conclusions and Recommendations 60 Main Emerging Conclusions 60 Recommendations for Ghana and the Development Community 61 Potential Follow-up Research 62 6. additional References 65 V Appendix A: Ghana demographics 67 Appendix B: The power sector 68 Appendix C: Overview of the cge model 75 Appendix D: Output and empoyment multipliers 83 Appendix E: Players in the ghanaian oil, gas, and power sectors 86 Appendix F: Sectoral value added 90 Appendix G: The jubilee, ten, and sankofa fields 91 Appendix H: Typical components of an oil and gas value chain 104 Appendix I: The ghanaian oil and gas value chain 114 Appendix J: Back-to-office mission report 133 Appendix K: Sme survey design 136 Appendix L: Locally provided goods and services to the upstream oil and gas sector 150 Appendix M: Job-training and sme capacity-building initiatives 152 Appendix N: The gem-e3-g model 156 BOXES Box 2.1: Overview of the Ghanaian Electricity System 9 Box 2.2: Definition of Local Content 14 Box G.1: Reserve-Based Lending 96 Box G.2: Ghana National Gas Company Investment 97 Box I.1: Local Content 127 FIGURES Figure 1.1: Estimated Effects on the Overall Unemployment Rate (2015–30) 2 Figure 2.1: GDP of Ghana, 1996–2016 (2005 US$) 7 Figure 2.2 GDP Components in 2015 8 Figure 2.3: Projected Production Profile: Crude Oil and Natural Gas (2018–25)12 Figure 2.4: Main Actors along the Value Chain 13 Figure 3.1: Building Blocks of the Study’s Methodological Approach 18 Figure 3.2: Value Chain Analysis Investigation Tools for Collecting and Verifying Quantitative and Qualitative Information 20 VI Figure 3.3: Framework for the Analysis of the Local Contribution to the Upstream Oil and Gas Value Chain 20 Figure 4.1: Transmission Channels for the Oil and Gas Sector 22 Figure 4.2: GDP Gains from the Construction of the Oil and Gas Fields 26 Figure 4.3: Stage 1: Estimated Sectoral GDP Effects, Domestic versus External Economies, Compared to Reference Scenario (US$ billion) 28 Figure 4.4: Estimated Change in Electricity Prices in Stage 2 from Reference Scenario (% change) 29 Figure 4.5: Stage 2 GDP Increase Compared with Stage 1 and Reference Scenario 30 Figure 4.6: Stage 3 GDP Increase Compared with Stage 1, Stage 2, and Reference Scenario 31 Figure 4.7: Full Scenario Factors Contributing to GDP Growth versus Reference Scenario in 2011–30 32 Figure 4.8: Full Scenario Estimated Export Growth (Relative to Reference Scenario) and Sectoral Share of Domestic Production (2015–30) 33 Figure 4.9: Full Scenario Sectoral GDP Estimated Effects, Domestic versus External Economies Compared to Reference Scenario (US$ billion) 34 Figure 4.10: Estimated Effects on Overall Unemployment Rate and on Labor Force by Sectors (2015–30) 35 Figure 4.11: Full Scenario Variants to the Use of Government Oil and Gas Revenues, 2015–30 (FTE jobs added, by sector) 37 Figure 4.12: Oil and Gas Price Projections, 2015–30 39 Figure 4.13: Typical Offshore Oil and Gas Value Chain 40 Figure 4.14: Employment in the Oil and Gas Sector 42 Figure 4.15: Direct Employment by a Major IOC 43 Figure 4.16: Direct Employment in the Gas Midstream sector 43 Figure 4.17: Indirect Employment 44 Figure 4.18: Direct Oil and Gas Employment of a Major IOC (technical positions) 45 Figure 4.19: Direct Oil and Gas Employment of a Major IOC (management positions) 46 Figure 4.20: Ghanaian Employment in the Midstream (number of management and technical positions) 46 Figure 4.21: Educational/Professional Training Provided by a Major IOC (expenditure and number of persons trained) 47 VII Figure 4.22: Proportion of Required Specialties required Covered by Ghanaians over Time 48 Figure 4.23: Registered Suppliers with the PC (2012–17) 48 Figure 4.24: Ownership Categorization of Registered Suppliers, 2017 49 Figure 4.25 Annual Sales for a Sample of 84 Local Companies (US$) 50 Figure 4.26: Share of Local Suppliers by Type of Service and Proportion of Suppliers, 2016 51 Figure 4.27: Proportion of the Total Goods and Services Provided to the Oil and Gas Sector by a Sample of Local Suppliers 51 Figure 4.28: Contracted Amounts, Local and Foreign Services, Six IOCs (2010–16) (US$ million) 52 Figure A.1: Population Projections 67 Figure A.2: Labor Force of Ghana 67 Figure B.1: Total Final Energy Consumption in Ghana, 2014 70 Figure B.2: Final Energy Consumption by Industry, 2014 70 Figure B.3: Ghana Load Curve, 2017 71 Figure C.1: Economic Circuit of the GEM-E3 Model 76 Figure C.2: Consumption Structure of the GEM-E3 Model 77 Figure C.3: Investment Decision of Firms 79 Figure C.4: Trade Matrix for Ghana and the Rest of the World 80 Figure C.5: Steps Followed to Perform Scenario Analysis with the GEM-E3-G Model 81 Figure D.1: Estimated Multipliers on GDP and Employment (per US$1 million of additional revenue) 84 Figure G.1: Daily Oil and Gas Production in Ghana until 2030 92 Figure G.2: Oil and Gas Production