Nicolas Westcott, British High Commissioner to Ghana

Edited transcript

INTRODUCTION: The British discovered oil in the North Sea in the 1960s and it had a transformational effect on the British economy. What can Ghana learn from their experience and what are the many British companies currently in Ghana doing there?

David: Your country discovered oil just around the same period Nigeria discovered oil . How is it that in the case of Britain oil didn’t become the curse many in Africa know it for? Did you ever think of it as a potential curse?

Nicholas Westcott: It was a surprise to the UK when we discovered oil. It was not something we were expecting. We had oil companies, but they had experience in producing oil from the desert sand in Arabia and not in the cold wet sea.  So the industry in some ways had to grow from scratch and it was a new opportunity we had to seize and we had to adapt ourselves to. In the course of adapting to build that industry we made some mistakes and we learnt a great deal; and I hope Ghana can learn but ultimately it’s been a tremendous benefit to the British economy and I hope these are some of the experiences we can share and some of the expertise we can help bring to Ghana.  

David:  Is the British oil industry in decline?

Nicholas Westcott: it is at its peak at the moment but it hasn’t yet started trending down.

David: When oil was first discovered how significant was it as a contributor to the national GDP?

Nicholas Westcott: At the outset it wasn’t. It consumed our investments but now it’s between 5% to 10% of the GDP. We have half a million people (in one way or another) employed by the oil and gas sector. Interestingly only 30,000 people actually work for oil companies and the bulk of employment is in the supply chain related service industry but it has generated a great deal of wealth within the economy as a whole.

David: So you were never concerned about oil being a source of social turmoil, were you?

Nicholas Westcott:  The only source of political concern was on the part of the Scottish people fearing that these resources found off their own coast would be sucked south for the benefit of London and the southern parts of the islands. Therefore making sure that the Scottish people and their local governments were fully involved in the development process was an important part of it. There was some nervousness there. There were debates on how the money was to be used as well. Whether it should be set aside for future generation (like the Norwegians) or whether it should be put into sovereign wealth funds (like in the eastern countries) or whether it should be used immediately for the benefit of the people.

David: What did you opt to do?

Nicholas Westcott:  We decided that the oil revenue was best placed along with the other revenue that came from the people or the industries in the country and then could then be used for whatever priority the British parliament agreed on. So to some extent it was absorbed into the overall income that government had. It did enable us to do a number of things which would have been hard to do. On one hand we were able to invest considerably in national infrastructure and secondly it funded the Thatcherite revolution of the British economy which was fairly drastic and quite painful, cutting back on nationalized companies through privatization and rationalization. It has enabled the British economy to grow from strength to strength.

David:  Wasn’t there a phase in the development of the industry in the UK when the state was a key player?  For example BP was a nationalized company, wasn’t it?

Nicholas Westcott:  Yes it was for a while. Interestingly the development of the North Seawas private sector led and we realized two things; we had some expertise in BP which at the time was a nationalized industry but was then put back into the private sector. That meant we had some expertise in oil but not everything we needed. We still had to bring in expertise from Oil Companies in the United States.

David: So it’s not entirely surprising to see lots of them here in Ghana, is it?

Nicholas Westcott: Not at all. For a while around Aberdeen you would find Americans walking around but we needed their expertise; we needed to learn from them otherwise it would take twice as long if we waited for our own citizens to be trained to take up all the jobs. So we were very happy to have outside investors come in to bring their expertise to help develop the field while sitting alongside them learning.

David: So the key thing was to learn from them and in the long term take up the positions they occupied.

Nicholas Westcott:  The government of that time took a very explicit view which was that “the oil sector must be private sector led but the British companies must have an absolutely equal opportunity to get involved”. We had very few British manufacturing companies then who produced machines, engines etc. for oil industries but we had an engineering sector that was very good at building all kinds of machinery. What the government did was to open its tender to all British companies and they found a mechanism that ensured that all British Companies were aware of the offers around. A lot of them took advantage of the opportunity by putting in bids and that helped generate what is now a very extensive British industry supplying the oil sector.

David: In other words the British Oil Industry was actively cultivated, more or less.  Now Ghana has found oil and there is a lot of talk about local content development to ensure participation by Ghanaian businesses. Others suggest that there should be much more pro Ghanaian regulation. What do you think of all this and did you have to go through that as well?

Nicholas Westcott: The British approach was that British companies and the people were encouraged but not subsidized.   They had to compete with their own ability which means a globally competitive oil industry. A lot of companies who are now coming here looking for opportunities to bring their expertise and provide as good value as you’ll find anywhere else in the world. This is because we made them compete and so they became competitive. We certainly helped train people; we encouraged people to set up training institutes. Today, the universities in Scotland have a very good faculty for oil skills.

David: Is it correct to say that you also understood that British Petroleum had to be in place for Britain to benefit?

Nicholas Westcott: There is a role for a national oil company to be involved and you see that in most economies.

David: To be involved..so it’s not necessarily about ownership?

Nicholas Westcott: No; for a government owned entity to be involved, for it to be effective and competitive in the long run, it has to be privatized. BP had to be privatized. As long as government kept its hands firmly on it, it was not going to be as effective and efficient as it was expected to. What you need to retain in government hands is an adequate regulatory structure and an adequate taxation structure so that the government can enforce the necessary laws for environmental protection, for protecting its own revenue, and also encouraging continued investments; making sure that it is efficiently attractive to the private sector so that those companies would want to come and invest.

David: Government ensuring that the people and communities benefit and at the same time ensuring that foreign companies find the industry sufficiently attractive is a delicate balancing act, isn’t it?    

Nicholas Westcott:  As you know the UK has had very strong socialist traditions, we could have taken the socialist approach but we didn’t. However, those that have taken this approach find out that it looks good in the short-term but in the long-run it doesn’t work.

David: Sometimes I think we get too stuck in the philosophical issues. Perhaps it just makes business sense for government to get involved with ownership initially, grow local capacity and then proceed to hand over to the private sector and focus on its role as regulator?

Nicholas Westcott: It is when you’ve got the expertise already. If you don’t have the expertise already in place, to impose strict government control from the outset will simply delay the development of the skills and you cannot insist that everybody employed be Ghanaian. But then also you’ll have to wait for 5 to 10 years before you’ll have enough Ghanaians who are trained in the right level of skills to develop the industry or you could go ahead and bring your expertise from outside whiles Ghanaians are learning. I spent some time on one of the rigs at the jubilee field and most people on the rig were expatriates but there were two Ghanaians (one from GNPC and the other from Tullow) sitting there, watching everything. They were learning. I know Tullow Oil has already taken 15 Ghanaians to their headquarters in the UK for training. These people will grow up in the industry, the same way British people suddenly found interest and now a large part of British oil industry is indigenous.

David:  Gold mining has been taking place in Ghana for over a century and foreign companies have been at the forefront of it. You would expect that Ghana would be the place for acquiring the best skills in mining led by local Ghanaian institutions, but that’s not the case.

Nicholas Westcott: I wouldn’t say it’s not entirely the case because I’ve been to the University of Mines in Tarkwa, which provides excellent training.  But still you’ll want people to go to the University of Mines in South Africa because they have longer experience and greater expertise and likewise it makes a lot of sense for people to go overseas now to learn oil mining skills. I know the University of Mines is developing an oil faculty. Similarly other universities would.  You would always need the diversity because you can’t do everything yourself.

David: Must we be worried about British companies and expatriates coming in their numbers to work in Ghana’s oil and gas industry?

Nicholas Westcott: There is nothing to worry about. They are bringing in expertise to make available knowledge to Ghana to develop the resource that is here. That will enable first oil to be achieved in a record breaking time and therefore you need to bring in the skills. You’ll find a lot of Scottish accents around and maybe in 10 years time you’ll find Ghanaians working maybe in the North Sea, the Gulf of Texas etc. These people coming in are resources that are being used for the early development of Ghana’s own resources. For example, Tullow brought in the Eric Raude rig which is a state-of-the-art facility and it’s doing a tremendous job. The technical challenges are huge. From the rig, tubes go through 2 miles of water and then through another mile of rock before you reach the oil.  To do that with accuracy is a phenomenal achievement and you need people with the right skills to manage that because it’s not an easy task, which is why that rig cost a million dollars a day just to run. To think that rig will be here for 18 months before any oil is produced, it is really a big investment. The Ghanaian state could try to find that money, but the private sector here will do it for the government and the revenue that is produced will be shared.  Just like what was done in the UK, but in the case of the UK the government made sure that we got a fair share of the revenue that came in.  I’m told that over the years since 1968, the UK industry has generated about 230 billion dollars and about 50% of the revenue came to the government. Obviously, the companies invested fairly huge sums and so they needed to make that money back; so you need a deal that is fair for both and that is perfectly possible to find. There are examples around the world that I know GNPC have been looking at and learning from. But if you make the regime too tough for the industry, they won’t come and invest and you won’t be able to get access to the oil. If you make it too lax then the people of Ghana lose also.

David: Given that you come from a country that has experience in this sector, do you feel that Ghana is doing the right things?

Nicholas Westcott: I think Ghana is doing a very good job at developing its industry but to some extent the jury is still out. The Ghanaian government has taken time to look at examples from elsewhere and it’s very wise to look at examples from other countries. Gaining experience from around the world is a good thing. There are two big risks both of which are being addressed but they need constant attention. The first is the risk of haste. If you are so desperate to get the oil as quickly as possible, you end up cutting corners or you strike deals that are not good in the long run.  The companies are as keen to develop first oil as quickly as the Ghanaian government does and that is fine. But it means very hard work for everybody and it means the government keeping up with what is going on. And if it takes too long to process some of the decisions the whole thing will slow down. The second thing is transparency.  Transparency is vital in any sector but particularly in the oil sector and that is in many ways your best guarantee against things going off the rails. The issue of corruption in the sector could be remedied through applying rules that exist now in the extractive industries like the Transparency Initiative. There are the experiences in other countries of how to put in place sufficiently transparent regulatory structures, where people can see where the money goes, companies can see what’s going on in the government and the people can see what is going on.  That is very important because it inspires confidence in the people throughout Ghana, particularly people of the western region and investors. 

David: Is there some benefit for the people of the Western Region by virtue of being close to the oil resource?

Nicholas Westcott: Yes there is. Aberdeen is the capital of the Scottish oil industry. It is now a prosperous town; it is well run locally. The local government (Town Council) there learnt how to use the oil industry for the benefit of the local people. They get revenue from the companies who are operating out of there and they use it well to develop their own infrastructure and to train their people so that they can benefit from the industry. But you can’t force people into this industry; companies must be able to choose people who are capable of doing these jobs. The local authority can do their bit in developing infrastructure and help train the people so that they can benefit from the industry that exists there.  But you can’t stop people coming in from outside because that will choke off the industry itself.  

David: So they will benefit anyway because they are close to the resource and services will be required for the operations?

Nicholas Westcott: As long as there are enterprising people there who will deliver the service that is required, then they can benefit. The local authorities can also make the effort to encourage people and I know there are training institutions that are being set up there to train people specifically in oil business and that’s an excellent idea. The smartest people from Western Region can also develop their skills locally and use them locally to bring in wealth locally.

David: In the final analysis, oil is just another commodity with all the pitfalls associated with focusing on primary commodities, isn’t it?

Nicholas Westcott: The growth of the United States was based hugely on commodities like agricultural produce, mining produce etc.

David: Without value addition?

Nicholas Westcott: The primary form was the origin of it, but it also developed other commodities for local consumption. One of the important things about the Jubilee Oil Field is the gas which was a similar circumstance for the UK as well; where the oil was the core part of it but in fact the gas became the most important part of it. The gas was brought on shore and for the whole British economy there was a huge boost from cheap energy. I remember in my own home we were connected to the North Sea gas in the 1970s. It was clean, efficient and reliable; and that had a big transformational effect throughout the British economy and I know there is the intention here to use the gas supplies of the Jubilee reserves to produce electricity. The exports of raw materials are no harm to any economy, its how you manage it and how a country is able to develop added value or ancillary benefits. The gold mining industry here has been for the benefit of this country and so was the export of cocoa

David: I don’t know many ordinary Ghanaians who will agree with you on that when you say gold mining has been beneficial.

 Nicholas Westcott: Ok, it has taken time but the people of the Western Region have gained employment; and the companies have gotten better developing their corporate social responsibilities and I think you have the opportunity now with the jubilee field to have companies commit themselves. With cocoa the benefits were spread throughout the country. The development of raw materials does not lead to underdevelopment; it’s how you use it. Now this country can’t use all the oil it will produce and you will need to sell it on the world market and it will produce a stream of revenue over a period of 20 years or more. The key point here is using the revenue wisely.

David: Looking at Cocoa, don’t  you think Ghana would have gained a lot more benefit if value had been added, rather than just selling raw cocoa beans?

Nicholas Westcott: Yes, but those industries should develop on their own accord. If you have a competitive advantage or if you could attract investors who will build cocoa processing facilities here at a competitive rate then, that’s fine but if they can’t do that competitively, you are still better exporting raw materials because you will end up subsiding these manufacturing industries when they should be producing and paying tax to the government.

David: Britain is getting more and more active here. What is it that excites Britain about Ghana?

Nicholas Westcott: Ghana is now on the map for the UK but to some extent we have always been here because of the long historical links between the two countries. More so than ever now, Ghana is on the map of Britain because of two reasons; the oil industry and secondly it is such a great example of how an African country can develop politically and economically and that provides a great incentive for British business to come here. When President Mills was in London, he expressly gave the message about Ghana’s openness to business and a lot of British companies are taking up that challenge. Particularly in the oil sector we have expertise and companies dealing with research, risk management, hose manufacture and all kinds of service industries. They are all coming here. We had one trade mission last year and there are two more coming in this year. We have long standing British investors here like Unilever and Cadbury alongside the new ones like Tullow and Vodafone coming in here because Ghana is a land of opportunity and I think Ghanaians who live in the UK who are finding times are hard there  may even be better coming back here.

David: Thank you very much for coming.

 

First Broadcast29th August 2009, TV3 Ghana