Thursday, 21 August 2014

Will Ghana’s $498 Power Compact deal with the US be enough to bring about much needed transformation to its energy sector?

On 5th August 2014,  U.S. Secretary of State, John Kerry, and the President of Ghana, John Dramani Mahama, signed the second Millennium Challenge Corporation Compact (MCC), the Ghana Power Compact, worth $498 million.

As expressed in speeches by Mr. Kerry, President Mahama and the CEO of the MCC prior to the signing ceremony, this second compact is geared towards transforming Ghana’s power sector, that is:
  • investments in projects focused on distribution to make Ghana’s energy sector financially viable and capable of attracting private investment;
  • funding of initiatives supporting greater energy efficiency and cleaner renewable energy to enhance reliable electricity;
  • reform of critical policies and regulations.
Undertaking these measures within the compact should eventually bring about growth in the Ghanaian economy as they noted.

The signing of this second compact is timely for several reasons, but significant among them are the following.

Timely relief for Ghana’s energy-starved industry and consumers? 


First and foremost, Ghana’s power sub-sector has been hit by supply shortfall since 2012, culminating into one of the longest load shedding of electricity (or what is popularly called in Ghanaian parlance ‘dumsor, dumsor’) for the 72% of the population with access (PDF) as well industries.

This situation has affected adversely all end-users to varying degrees as well as the economy. In particular, a number of industries have suffered financially due to the prohibitive costs associated with the purchase and running of diesel/petrol generators in their day-to-day activities.

The signing of this second compact will signal a certain level of hope for all end-users of electricity in the country because of the possible improvement that will be witnessed on power supply reliability.

Opportunity to accelerate Ghana’s transition to a green economy


Secondly, Ghana has initiated measures that will ensure that her economic growth and development are along a low carbon path (PDF) to help tackle climate change mitigation and adaptation.

Credit: afh_hq - Flickr
(CC BY-NC-SA 2.0)
Although Ghana only contributes a minuscule percent (0.5 percent) to the total global Greenhouse Gas (GHG) (PDF) emissions, the impact of climate change on all the sectors in the economy and the very poor people is substantial.

Not only will the transformation of the power sector, especially the enhancement of renewable energy supply, help in the mitigation of GHG emissions, the spillover effect of abundant energy supply will also boost the activities of all sectors to result in the envisioned low carbon growth.

Thirdly and related to the second reason is Ghana’s pursuit of the transition to a Green Economy (PDF), which will serve as a vehicle for achieving sustainable development and poverty eradication.

With support from United Nations Environment Programme (UNEP), the country has already undertaken a Green Economy Scoping Study (PDF), which shows that sectors including agriculture (cocoa and fisheries), forestry and logging, energy (electricity), and industry (waste) present great opportunities for the transition to an inclusive green growth. While a full green economy assessment of these sectors is currently underway, the nation has already started mainstreaming green economy indicators into the next 3-year Medium-Term Development Policy Framework (2014-2017) – Ghana Shared Growth and Development Agenda (GSGDA) II after the expiration of the GSGDA I (2010-2013) (PDF).

Will the “carrot and stick” conditionalities approach work?


There is no doubt that this second compact agreement with the U.S.A is vital for the inclusive green growth agenda of Ghana. 

However, as many people including politicians observed immediately after the signing ceremony, many conditions have to be adhered to before the nation can access this fund. Some politicians have even doubted the country’s ability to access the fund as a result of these "carrot and stick" conditionalities. One, however, argues that they are important not only to get the leadership and institutions to act decisively and help usher in much needed reform in Ghana’s currently inefficiency-riddled power sector. As my colleague Ana Pueyo has observed, a number of constraints have prevented sufficient investments in electricity infrastructure in African countries, including weak regulatory framework, ineffective reforms, etc., and certain measures are needed to offset them.


Vital measures for ensuring the success of power sector development in Ghana


This second compact agreement is therefore a watershed in the power sector development of Ghana, but can only be realised if measures such as the following are given attention.

  • Strong leadership and good governance are very imperative. Particularly, the leadership of the country should be bold enough to take tough decisions that are right for this compact and not for politically expedient reasons. 
  • The leadership needs to pay attention to available scientific evidence to inform the policy decisions that will be taken. In this regard, research activities, findings and recommendations of various scientific studies such as the Green Growth Diagnostics for Africa Project that relate to the overarching goals of this compact are indispensable in shaping some of the policy options to adopt.
  • Greater stakeholder (private sector, civil society, academia, sector players) consultation is needed in order to build consensus around the measures to be adopted.

About the author

Simon Bawakyillenuo is a research at the Institute of Statistical, Social and Economic Research (ISSER) at the University of Ghana, Legon. His key research interests are renewable energy, environment, climate change and rural development.

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