Project finance and investment in the oil and gas industry in developing countries: a case study of Ghana

Abstract

Raising start-up and working capital are challenges faced by indigenous oil and gas entrepreneurs in many developing countries. The absence of sufficient collateral, good business plans, and high interest rates are barriers to acquiring bank loans in Ghana. The study was to identify possible avenues for funding oil and gas projects and challenges indigenous firms (SMEs) within the oil and gas value chain encounter in accessing funds. A questionnaire survey was performed with some banks and oil and gas service providing companies in Ghana. We showed that SMEs have lower success rate in accessing bank loans compared to well-established firms due to repayment risk. Therefore, financial institutions could resort to the project finance method to reduce such risk for projects within the oil and gas industry. We conclude that project finance is a viable avenue for SMEs to finance oil and gas projects in developing countries despite the associated bottlenecks.