Country Report Ghana at a Glance

Country Report October 2002

Ghana

Ghana at a glance: 2003-04

OVERVIEW Political activity will focus increasingly on the legislative and presidential elections, which are due in December 2004. The ruling New Patriotic Party will continue its investigations into abuses committed by the previous government, which is likely keep political tension high. Economic policy will focus on maintaining macroeconomic stability, though there is likely to be some slippage ahead of the elections. Real GDP growth is forecast to increase from 5% in 2002 to 5.3% in 2003, owing to a strong performance by cocoa and gold, before easing to 4.8% in 2004, owing to uncertainty over the elections. The cedi is forecast to depreciate from an average rate of C7,895:US$1 in 2002 to C8,424:US$1 in 2003 and C8,816:US$1 in 2004. The current-account deficit will widen from 2.9% of GDP in 2002 to 3.9% of GDP in 2003 and 5.3% of GDP in 2004, as imports and services debits increase.

Key changes from last month Political outlook • John Atta Mills and Kwesi Botchwey have put their names forward to become the presidential candidate of the National Democratic Congress. As they lead the two main factions within the party, internal tensions are likely to rise. Economic policy outlook • Despite lower than expected donor receipts, the fiscal deficit was below target in the first half of the year. In fact, weak inflows of donor assistance have hindered the implementation of development projects and therefore reduced government expenditure. The expected pick-up in donor inflows in the second half will not be enough to allow all the planned projects to be implemented, our estimate for the fiscal deficit in 2002 therefore remains 5.3% of GDP. Economic forecast • Year-on-year inflation has continued to fall—to 13.1% in August, compared with 13.5% in July—driven by lower non-food price inflation. This is in line with our forecast, and we expect inflation to fall from an average of 14.1% in 2002 to 10% in 2003 and 8.4% in 2004.

October 2002

The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group.

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Contents

3 Summary

4 Political structure

5 Economic structure 5 Annual indicators 6 Quarterly indicators

7 Outlook for 2003-04 7 Political outlook 8 Economic policy outlook 10 Economic forecast

13 The political scene

16 Economic policy

18 The domestic economy 19 Agriculture 22 Industry and mining 24 Infrastructure 24 Financial and other services

26 Foreign trade and payments

List of tables 10 International assumptions summary 12 Forecast summary 17 Cocoa exports 18 Transparency International’s Corruption Perceptions Index, 2002 20 Cocoa production 22 Rice production 22 Ashanti Goldfields: Ghanaian operations, Apr-Jun 2002 27 Main trading partners

List of figures 13 Gross domestic product 13 Real exchange rates 18 Ghana’s score in the Corruption Perceptions Index 19 Inflation 19 Exchange rate 20 Cocoa price

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Summary October 2002

Outlook for 2003-04 Political activity will start to focus on the legislative and presidential elections, due in December 2004. For the ruling New Patriotic Party, this means that it will have to show more visible progress in implementing its electoral promises, particularly in the area of infrastructure. The NPP will continue to investigate abuses committed by the previous government, which is likely to keep political tension high. Economic policy will focus on maintaining macroeconomic stability, though there may be some slippage ahead of the elections. Real GDP will grow by 5% in 2002 and 5.3% in 2003, because of strong performance by cocoa and gold, before easing to 4.8% in 2004, owing to uncertainty over the election. Greater fiscal discipline will bring inflation down from an average of 14.1% in 2002 to 10% in 2003 and 8.4% in 2004. The cedi is forecast to depreciate from an average rate of C7,895:US$1 in 2002 to C8,424:US$1 in 2003 and C8,816:US$1 in 2004. The current-account deficit will widen from 2.9% of GDP in 2002 to 3.9% of GDP in 2003 and 5.3% of GDP in 2004, as imports and services debits increase.

The political scene The former president, Jerry Rawlings, has called for a campaign of “positive defiance” against the government. The NPP and NDC have begun preparations for their party conferences in December, at which their candidates for the presidential election will be chosen. The NDC has elected a new Council of Elders. A low turnout at district assembly elections has increased the probability that in future they will be contested on a party basis.

Economic policy Electricity tariffs have been raised, by 60% and water tariffs by 40%, in pursuit of the government’s aim that all utilities should operate on a cost-recovery basis. The sale of 25% of the government’s stake in the Cocoa Processing Company has begun. A new Monetary Policy Committee has been set up at the Bank of Ghana. Ghana’s score has improved in Transparency International’s Corruption Perceptions Index.

The domestic economy Lower non-food price inflation reduced headline inflation to 13.1% in August. The depreciation of the cedi has slowed. Cocobod has projected a harvest of 390,000 tonnes in the 2002/03 production year (October-September). A project has begun to increase the domestic processing of cassava into cassava starch. Oil exploration has intensified: three companies have signed exploration deals with the government. A Financial Sector Strategic Plan, for co-ordinating growth in the sector, has been launched.

Foreign trade and payments Parliament has approved a controversial US$1bn loan from the little-known International Financial Consortium. Two groups of pineapple exporters have applied for certification to allow them to supply the EU market.

Editors: Paul Gamble (editor); David Cowan (consulting editor) Editorial closing date: October 1st 2002 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

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Political structure

Official name Republic of Ghana

Form of state Unitary republic

Legal system A new constitution, based on the US model, was approved by referendum in April 1992

National legislature Parliament; 200 members elected by universal suffrage every four years

National elections December 2000 (presidential and parliamentary); next elections due in December 2004

Head of state President, elected by universal suffrage for a maximum of two four-year terms; John Agyekum Kufuor was sworn in on January 7th 2001 for the first time

National government Cabinet, appointed by the president in January 2001

Main political parties New Patriotic Party (NPP), the ruling party; National Democratic Congress (NDC), the main opposition party; other parties include People’s National Convention (PNC), Convention People’s Party (CPP), United Ghana Movement (UGM) and National Reform Party (NRP)

President John Agyekum Kufuor Vice-president Aliu Mahama

Key ministers Attorney-general & justice Nana Akufo Addo Chairman of economic management team John Henry Mensah Communications & technology Felix Owusu Adjapong Defence Kwame Addo Kufuor Economic planning & regional integration Paa Kwesi Nduom Education Christopher Ameyaw Akumfi Energy Albert Kan-Dapaah Environment, science & technology Dominic Fobih Finance Yaw Osafo-Maafo Food & agriculture Courage Quarshigah Foreign affairs Hackman Owusu Agyeman Health Kweku Afriyie Information & presidential affairs Jake Obetsebi-Lamptey Interior vacant Lands & forestry Kasim Kasanga Local government Kwadwo Baah-Wiredu Manpower development & employment Cecilia Bannerman Mines Kwadwo Adjei Darko Parliamentary affairs Papa Owusu-Ankomah Private sector development Kwamena Bartels Roads & transport Richard W Anane Tour ism vacant Trade & industries Kofi Konadu Apraku Works & housing Yaw Ba ri m a h Yo ut h & s p o r t s Edward Osei Kwaku

Central bank governor Paul Amoako Acquah

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Economic structure Annual indicators 1997 1998 1999 2000 2001a 2002a GDP at market prices (C bn) 14.2 17.3 20.6 27.1 38.1 46.7 GDP (US$ bn) 6.9 7.5 7.7 5.0 5.3 5.9 Real GDP growth (%) 4.2 4.7 4.4 3.7 4.3 5.0 Consumer price inflation (av; %) 27.9 14.6b 12.4 25.2 32.9c 14.1 Population (m) 17.9 18.4 18.8 19.2 19.7c 20.1 Exports of goods fob (US$ m) 1,490 2,091 2,006 1,898 1,843 2,321 Imports of goods fob (US$ m) -2,128 -2,897 -3,228 -2,741 -2,688 2,805 Current-account balance (US$ m) -550 -443 -933 -413 -313 -171 Foreign-exchange reserves excl gold (US$ m) 480 377 454 232 265 365 Total external debt (US$ bn) 6.3 7.0 7.0 6.7 6.8 7.5 Debt-service ratio, paid (%) 28.5 20.1 17.7 16.2 15.3 11.7 Exchange rate (av) C:US$ 2,050.2 2,314.2 2,669.3 5,455.1 7,170.8c 7,895.4 October 1st 2002 C8,275:US$1

Origins of gross domestic product 2000 % of total Components of gross domestic product 2000 % of total Agriculture, forestry & fishing 35.3 Private consumption 81.4 Industry 25.4 Government consumption 15.3 Manufacturing 9.0 Gross domestic investment 24.0 Services 39.3 Exports of goods & services 49.2 GDP at factor cost 100.0 Imports of goods & services -69.6 GDP at market prices 100.0

Principal exports 2000 US$ m Principal imports 2000 US$ m Gold 702 Manufactures 1,650 Cocoa beans & products 437 Fuels 520 Timber & products 175 Non-fuel primary products 140

Main destinations of exports 2001d % of total Main origins of imports 2001d % of total Togo 17 Nigeria 21 Netherlands 12 UK 7 US 10 US 7 UK 9 Côte d’Ivoire 5 Germany 6 France 5 a Economist Intelligence Unit estimates. b IMF data show an average inflation rate of 14.6% in 1998, whereas according to the Bank of Ghana the rate was 19.4%; neither is likely to revise its figure in the short term. c Actual. d Based on partners’ trade returns; subject to a wide margin of error. .

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Quarterly indicators 2000 2001 2002 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Central government finance (C bn) Revenue & grants 1,900.4 1,538.5 2,085.2 1,775.5 1,808.3 n/a n/a n/a Expenditure & net lending 2,336.3 2,577.8 2,207.9 1,991.3 2,992.2 n/a n/a n/a Balance -435.9 -1,039.2 -122.7 -215.8 1,183.9 n/a n/a n/a Prices Consumer prices (Accra; 1995=100) 315.0 342.9 369.9 399.3 414.7 423.4 436.5 456.3 Consumer prices (% change, year on year) 27.0 39.3 41.0 38.1 31.7 23.5 18.0 14.3 Financial indicators Exchange rate C:US$ (av) 6,275.6 6,853.8 7,061.7 7,227.6 7,167.4 7,226.4 7,437.1 7,855.3 Exchange rate C:US$ (end-period) 6,515.4 7,047.7 7,204.9 7,227.0 7,156.7 7,321.9 7,690.3 8,043.4 Deposit rate (av; %) 32.8 33.5 33.5 33.2 32.2 24.6 18.2 14.8 Discount rate (end-period; %) 27.0 27.0 27.0 27.0 27.0 27.0 24.5 24.5 Treasury rate (av; %) 39.6 40.6 42.5 46.0 42.8 32.5 24.9 24.0 M1 (end-period; C bn) 1,986.2 2,607.5 2,778.0 2,697.1 3,867.8 n/a n/a n/a M1 (% change, year on year) 1.9 22.5 22.4 23.5 94.7 n/a n/a n/a M2 (end-period; C bn) 4,058.5 5,321.6 5,759.7 5,993.8 8,110.7 n/a n/a n/a M2 (% change, year on year) 13.2 38.4 44.6 43.3 99.8 n/a n/a n/a GSE all-share index (end-period;1990-1993=100) 856 858 900 933 956 959 1,018 1,224 Sectoral trends Gold price, London (US$/fine oz) 276.51 269.16 263.54 267.68 274.70 278.43 281.03 280.95 Cocoa beans exports (‘000 tonnes) 115.3 6.2 113.7 106.4 53.2 n/a n/a n/a Cocoa beans price, New York & London (US cents/lb) 41.2 40.0 49.6 47.4 45.7 55.2 67.6 73.0 Foreign trade (US$ m) Exports foba 481.4 448.7 508.7 516.9 468.8 432.7 n/a n/a Cocoa beans 118.7 7.5 112.2 98.5 52.7 n/a n/a n/a Gold 141.3 143.6 141.8 147.9 169.8 n/a n/a n/a Imports cifa -655.0 -912.4 -734.5 -731.8 -733.6 -757.0 n/a n/a Trade balance -173.6 -43.7 -225.8 -214.9 -264.8 -324.3 n/a n/a Foreign reserves (US$ m) Reserves excl gold (end-period) 237.2 232.1 163.8 123.1 230.8 298.2 382.8 n/a a DOTS estimates. Sources: IMF, International Financial Statistics; Direction of Trade Statistics; Bank of Ghana, Quarterly Economic Bulletin; Standard & Poor's, Emerging Stock Markets Review.

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Outlook for 2003-04 Political outlook

Domestic politics Political activity over the forecast period will increasingly focus on the presidential and legislative elections, which are due in December 2004. Initially it will concentrate on the nomination of the presidential candidates of the ruling New Patriotic Party (NPP) and the National Democratic Congress (NDC), the main opposition party, which has to be decided two years ahead of the poll. The president, John Agyekum Kufuor, is seeking the nomination of his party, the NPP. Nana Akufo-Addo, his closest rival in the previous presidential primary and the current attorney-general, has thrown his support behind the president, so the path appears clear for Mr Kufuor to be chosen as the NPP’s presidential candidate when the party holds its congress in December. The contest to become the NDC’s presidential candidate—also to be decided at a congress in December—is less clear-cut and reflects the party’s internal divide. So far, two candidates have emerged: the former vice-president, John Atta Mills, and a former finance minister, Kwesi Botchwey. Each is seen as representing one of the two main factions in the party, which are divided over whether to remain loyal to the former president, Jerry Rawlings, or steer the more independent course favoured by the new party chairman, Obed Asamoah. Mr Botchwey, presented as the preferred candidate of the Asamoah faction, is still much respected for resigning in 1995 after disagreeing with Mr Rawlings over economic management issues. Although Mr Atta Mills is seen as very close to Mr Rawlings, this may be to his advantage in the party primary. But it would not be viewed so favourably by the electorate and, should he win the nomination, he is expected to emphasise his independence. Recent efforts by a newly inaugurated NDC Council of Elders to reconcile Mr Rawlings and Mr Asamoah to enable the party to fight the 2004 elections as a unified force have had some success. Hopes are rising within the party that factionalism will end, and the contest to become the presidential candidate will indicate how realistic these are. The success of the NDP in resolving its internal conflict will have a significant influence on its performance in the 2004 elections. The NPP has been relatively successful in achieving its main manifesto goals of achieving macroeconomic stability and accelerating real GDP growth, but the government will have to speed up its economic programme if it is to win the confidence of the electorate. Infrastructure development is one area where the government is vulnerable, as there has been slower progress on this than under the last government. A recent US$1bn loan from the International Financial Consortium, a little-known group of investors, to be spent mainly on infrastructure projects, shows that the government is aware of this problem and should ensure that activity on many previously promised projects gets under way before the elections. (The loan has, however, caused concern among donors, the opposition and the financial community.) The NDC will benefit if the NPP is seen not to have fulfilled its extensive election promises. The National Reconciliation Commission, a judicial inquiry into wrongdoing by previous military regimes, will complete its hearings during the forecast period.

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It seems likely that it will have to deal with a flood of petitions about torture, abduction, disappearances and the confiscation of property under regimes led by ex-president Rawlings. The work of the commission will create tension between the NPP and the NDC, given the latter’s origin as a spin-off from the military rule of Mr Rawlings. The commission will review several high-profile cases, including that of the murder of three judges and a military officer in 1982 for which a member of the then ruling body, the Provisional National Defence Council, was convicted. Mr Rawlings has pledged to co-operate with the commission, which is to sit for about one year. The work of the Fast-track High Court, which is investigating allegations of maladministration and corruption against the previous government, may exacerbate political tensions. There will be a realignment among the smaller opposition parties ahead of the elections. The proposed merger between two Nkrumahist parties, the Convention People’s Party and the National Reform Party, seems to be on course and the leadership of both parties has confirmed the unity plan. It is not clear, though, whether the other main Nkrumahist party, the People’s National Convention, will join the alliance unless a significant role is assigned to its leader, Edward Mahama, and other leading party members. Is it likely that the Democratic People’s Party and the Every Ghanaian Living Everywhere party will break away from the Progressive Alliance, led by the NDC, and field their own presidential candidates. None of the minor opposition parties will be in a position—even if all proposed mergers go ahead—to challenge the NPP or the NDC.

International relations Ghana’s international relations will focus on regional economic issues. The government is supporting the creation of a West African Monetary Zone, consisting of The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone. The six countries were due to enter into monetary union on January 1st 2003, but none has satisfied the convergence criteria for membership and the launch has been put back one year, though this is also likely to be optimistic. In the wider African context, President Kufuor has thrown his weight behind the New Partnership for Africa’s Development (Nepad) and will push for G8 support as well as African adherence to the underlying principles of Nepad such as good governance and peer review. The government has condemned the recent coup attempt in Côte d’Ivoire, and tightened security along the border amid concerns about the possible impact it will have on investment in the region. Relations with key Western countries and the World Bank and IMF will be important as Ghana approaches completion point of the heavily indebted poor countries (HIPC) debt-relief initiative. A loan undertaken from the International Financial Consortium, a little-known group of investors, without the knowledge of the World Bank and IMF has strained relations and will ensure close scrutiny over the forecast period.

Economic policy outlook

Policy trends In the short term, economic policy will focus on maintaining macroeconomic stability, an important goal of Ghana’s poverty reduction and growth facility (PRGF) agreed with the IMF. The US$210m PRGF ends in November, but a new

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facility should be in place before the end of the year. The PRGF will set the framework of tighter monetary and fiscal policy for implementing the 2002-04 Ghana Poverty Reduction Strategy (GPRS). The GPRS prioritises infrastructure development, the modernisation of agriculture and rural development, the improvement of social services with particular emphasis on health and education, good governance, and private-sector development. Progress in these areas is likely to be mixed. The emphasis of infrastructure development will be on road construction, particularly the Accra-Yamoransa, Accra-Aflao and Accra-Kumasi highways. Government is aware of its failure to comply so far with its ambitious electoral promises on infrastructure development, and the controversial US$1bn loan from the International Financial Consortium announced in July indicates its commitment to dealing with this. Agriculture will get a major boost from a number of presidential initiatives for increasing rice and cassava output, with a scheme for processing the latter into industrial starch, and a presidential initiative for palm oil is expected later this year. In the run-up to the elections, the government will be under pressure to establish a national health insurance scheme, a major campaign promise. It is expected that a scheme of sorts will be set up, but it is unlikely to have national coverage in the short-term because of resource constraints. Instead, the government is likely to encourage the mutual health insurance schemes that are springing up in rural communities. Civil service reform will also be slow, as the government will be unwilling, for political reasons, to make the large number of redundancies required and vested interests inside the civil service will continue to block progress. The government has promised to deal with one of the main problems for the private sector, the lack of long-term financing. It launched the Ghana Investment Fund to provide long-term capital to small and medium-scale enterprises, and a loan guarantee scheme is currently in preparation. These initiatives suggest that the government will take a more activist role in supporting the private sector over the forecast period.

Fiscal policy The government’s promise to reduce the fiscal deficit to 2% of GDP by the end of its first term will not be fulfilled. It projected a deficit of 6.9% of GDP for 2002, but despite lower than anticipated donor receipts, the deficit in the first half of the year was below target. In fact, lower inflows of donor assistance have held up development projects and therefore reduced government expenditure. The expected upturn in donor inflows in the second half will not be enough to allow all the planned projects to be implemented, therefore the Economist Intelligence Unit estimates that the fiscal deficit for the year will be 5.3% of GDP. In 2003 stronger economic growth will help revenue to grow and fiscal discipline will continue to improve, and further privatisations will reduce government subsidies to parastatals. After the success of the three-year Government of Ghana Index-Linked Bonds, which have replaced shorter- duration Treasury bills, deferring principal payments of C1.04trn, the government will introduce additional medium-term instruments to stretch the maturity of government debt and to create a yield curve that further eases the fiscal burden. We therefore expect the budget deficit to narrow to 4.3% of GDP. As the 2004 elections approach, government fiscal discipline will slip, though

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not as much as under previous, NDC governments, and we are expecting the fiscal deficit to widen to 4.6% of GDP. As the government is committed to reducing domestic debt—which totalled C11.4trn (US$1.4bn), or around 25% of GDP, at end-June 2002—the deficit will be financed mainly by donor aid and privatisation receipts.

Monetary policy The Bank of Ghana (the central bank) will maintain a tight rein on monetary policy in an effort to keep inflation on a downward trend. This will be supported by tighter fiscal policy and, in particular, less use of Treasury bills to finance the fiscal deficit, as an increasing proportion of it will be covered by external assistance and privatisation receipts. Interest rates are expected to fall through 2003, though they may increase slightly in 2004 as fiscal discipline slips ahead of the elections. Steps to enhance central bank independence in 2002—the recent Bank of Ghana Act—will make the bank is less accommodating to government deficits. Lower T-bill rates will force domestic banks to increase lending to the private sector and should help to reduce the spread between lending and borrowing rates, which is currently around 12%.

Economic forecast

International assumptions International assumptions summary (% unless otherwise indicated) 2001 2002 2003 2004 Real GDP growth World 2.0 2.7 3.7 4.0 OECD 0.7 1.6 2.3 2.7 EU 1.5 0.9 1.7 2.2 Exchange rates ¥:US$ 121.5 124.0 126.5 130.5 US$:€ 0.896 0.955 1.073 1.053 SDR:US$ 0.785 0.768 0.734 0.745 Financial indicators ¥ 2-month private bill rate 0.17 0.10 0.10 0.35 US$ 3-month commercial paper rate 3.61 1.70 2.01 4.40 Commodity prices Oil (Brent; US$/b) 24.5 25.2 24.7 19.7 Cocoa (US cents/lb) 49.4 76.2 76.0 74.5 Gold (US$/troy oz) 271.1 307.0 315.0 320.0 Food, feedstuffs & beverages (% change in US$ terms) -1.9 14.6 13.6 0.4 Industrial raw materials (% change in US$ terms) 13.4 -9.8 5.5 10.8 Note. Regional GDP growth rates weighted using purchasing power parity exchange rates. The Economist Intelligence Unit forecasts a gradual recovery in global economic growth over the forecast period. Despite considerable monetary easing, consumer and business confidence in the US has been hit by a string of corporate scandals and falling (and volatile) equity prices, and the US economy is expected to grow by only 2.8% in 2003, after growing by 2.5% in 2002. Structural problems will continue to hinder performance in Japan and the EU, so the global recovery will have to wait until the US economy recovers in 2003, when real GDP growth of 3.3% is forecast. These forecasts are vulnerable to several downside risks, in particular that long-standing imbalances in the US

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economy will correct rapidly, or that US military action in the Middle East will lead to a prolonged spike in oil prices. These risks will help to strengthen the gold price, which we forecast will rise from an average of US$307/troy oz in 2002 to US$315/troy oz in 2003 and US$320/troy oz in 2004. Attempts by one buyer to corner the cocoa market, which was already tight, have caused a sharp increase in prices in 2002. Although we think that the price will fall from current levels, with global stocks expected to remain low the fall will be moderate. Therefore we are forecasting an average cocoa price of 76.2 US cents/lb in 2002, 76 US cents/lb in 2003 and 74.5 US cents/lb in 2004.

Economic growth Real growth of Ghana’s GDP is expected to be fairly robust over the forecast period owing to higher production and international prices for gold and cocoa, against a background of improved macroeconomic stability created by greater fiscal and monetary discipline. Cocoa production in the 2002/03 crop year (October-September) is forecast to increase to 390,000 tonnes from 336,000 tonnes in 2001/02 owing to favourable weather conditions, improved spraying against black pod disease and higher producer prices. Higher production will combine with high international prices to boost agricultural growth in 2003. Cocoa production and prices will remain high in 2004 which, combined with government plans to increase smallholder production of rice, cassava and other food staples, should stimulate growth in the agricultural sector. Gold production and prices are forecast to rise over the forecast period, boosting growth in the mining sector. Lower interest rates will help manufacturing, as will the government’s plans to process more cocoa and cassava domestically. Economic growth will also be supported by the government’s efforts to boost infrastructure spending as part of its poverty reduction strategy, although this will be partly offset by its attempts to control public-sector wages. Services revenue will gain from an increase in tourism, though growth in government services will slow in 2003 owing to greater fiscal discipline. Government spending will increase ahead of the elections in 2004, though the uncertainty due to the elections will generate will hit confidence. Overall, real GDP growth is forecast to increase from 5% in 2002 to 5.3% in 2003, because of the strong performance of cocoa and gold, before easing to 4.8% in 2004 because of uncertainty over the election.

Inflation Year-on-year inflation has fallen from a peak of 41.9% in March 2001 to 13.1% in August. A reduction in domestic financing of the fiscal deficit, supported by a provision in the new Bank of Ghana Act that limits government borrowing to 10% of government revenue in any particular year, should allow inflation to fall gradually to single digits over the outlook period. This is provided that a sharp fall in the cedi is avoided and there is not a food security crisis—food prices account for 50% of the total consumer price index. Overall inflation will fall from an average of 14.1% in 2002 to 10% in 2003 and 8.4% in 2004.

Exchange rates The cedi will continue to depreciate over the forecast period because of a persistent current-account deficit and the Bank of Ghana’s limited ability to intervene in the foreign-exchange market because of low reserves. However, given the favourable prospects for exports and donor inflows, we expect that the rate of depreciation will be moderate. We therefore forecast that the average rate

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will depreciate from C7,895:US$1 in 2002 to C8,424:US$1 in 2003 and C8,816:US$1 in 2004.

1 External sector After a very strong performance in 2002, export receipts from gold and cocoa, the two main sources of export revenue, are expected to remain high over the forecast period. Both gold prices and production are expected to rise over the forecast period, while cocoa production is expected to be 16% higher in 2003 and prices will remain around the current highs. We believe that the cocoa crop will fall slightly in 2004, reducing export revenue from this source. A number of presidential initiatives to boost production of cassava, textiles and palm oil should increase non-traditional exports, especially in 2004. The improved export performance will release more foreign exchange on to the local market, sucking in imports and widening the trade deficit from US$484m in 2002 (when shortages of foreign exchange limited import growth) to US$507m in 2003 and US$602m in 2004. Services debits will increase in line with the rising volume of trade and, although tourism receipts are expected to pick up, the services deficit is forecast to deteriorate over the forecast period. The income deficit will widen as debt-service payments rise, despite debt relief under the HIPC initiative. Strong inflows of donor support will ensure a healthy surplus on the current transfers account. Overall, the current-account deficit is forecast to widen from US$171m (2.9% of GDP) in 2002 to US$251m (3.9% of GDP) in 2003 and US$371m (5.3% of GDP) in 2004, as imports and services debits increase.

Forecast summary (% unless otherwise indicated) 2001a 2002a 2003b 2004b Real GDP growth 4.3 5.0 5.3 4.8 Gross agricultural production growth 4.0 5.0 6.5 5.3 Consumer price inflation (av) 32.9c 14.1 10.0 8.4 Consumer price inflation (year-end) 21.3c 10.5 8.4 8.0 Short-term interbank rate 41.0c 23.1 18.0 18.4 Government balance (% of GDP) -4.1 -5.3 -3.8 -4.5 Exports of goods fob (US$ bn) 1.8 2.3 2.5 2.5 Imports of goods fob (US$ bn) 2.7 2.8 3.0 3.1 Current-account balance (US$ bn) -0.3 -0.2 -0.3 -0.4 Current-account balance (% of GDP) -6.4 -2.9 -3.9 -5.3 External debt (year-end; US$ bn) 6.8 7.5 8.2 8.3 Exchange rate C:US$ (av) 7,170.8c 7,895.4c 8,423.8 8,815.7 Exchange rate C:¥100 (av) 5,900.4c 6,367.3c 6,659.1 6,755.3 Exchange rate C:€ (year-end) 6,452.8c 8,575.7c 9,170.4 9,396.2 Exchange rate C:SDR (year-end) 9,201.7c 11,124.3c 11,627.0 12,043.9 a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual.

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The political scene

Mr Rawlings calls for “positive The former president, Jerry Rawlings, has stirred up a controversy following an defiance” of the government address to supporters of the National Democratic Congress (NDC), the main opposition party, in Kumasi on August 9th. Mr Rawlings described the current administration as the worst in Ghana’s history and said that people should not wait until the elections to show their opposition, but should resort to “positive defiance” to end the “rot”. These remarks were not taken lightly. The government described the statement as potentially treasonable and the security services questioned Mr Rawlings several times about what he meant by “positive defiance” and there were rumours that he was to be placed under house arrest. This was a bold move given Mr Rawlings’s personal popularity. However, the term is significant to many Ghanaians as it resembles the call for “positive action” by the country’s first president, Kwame Nkrumah, in the campaign that eventually led to independence from the UK in 1957. The government also decided to remove some of the former president’s privileges, which has aggravated the tension between the NDC and the ruling New Patriotic Party (NPP). The president of Nigeria, Olusegun Obasanjo, invited Mr Rawlings to Nigeria in an attempt to resolve the impasse between him and the administration. Mr Rawlings has since affirmed his commitment to democratic rule. However, this is unlikely to dispel suspicions about the former president’s intentions—as a military head of state, he voluntarily handed power to a civilian government in 1979, only to unseat it after two years in a coup amid similar accusations. Although more such outbursts can be expected from the former president, the events of 1981 will not be repeated as the majority of the country seems determined to hold on to constitutional democracy. Furthermore, with the support Mr Kufuor has in the international community, other countries would be unlikely to accept a government resulting from a coup.

The NPP and NDC gear up for The NPP and the NDC will hold special national congresses in December. At congress both the deliberations will focus on preparations for the presidential and parliamentary elections in 2004 and, in particular, the selection of a candidate

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for the presidential election. For the NPP this should be easy. The president, John Agyekum Kufuor, is the only candidate who has filed his nomination papers to be the party’s candidate and it is unlikely that any challengers will emerge at the party congress. The contest to be the NDC’s candidate will be more interesting. So far, Kwesi Botchwey, a former finance minister and John Atta Mills, the former vice- president and defeated candidate in the 2000 election, have declared their intention to seek the presidential nomination. Other names that have been mooted include Iddrissu Mahama, a former minister of state and ally of Mr Rawlings who contested the party’s chairmanship with the eventual victor, Obed Asamoah. It is not known whether Mr Asamoah intends to stand. If he does, he will be required to resign as party chairman. Many NDC functionaries are putting pressure on him not to run for the presidency, in line with a pledge he made during the contest to become the new party chairman. The entry of Mr Botchwey has tightened up the race, which was originally seen as a certain victory for Mr Atta Mills. Mr Botchwey took much credit for the IMF-sponsored structural reforms that helped turn the economy around during his tenure as finance minister and is popular for having stood up to Mr Rawlings. He resigned as finance minister in 1995 after disagreeing with the president on key policies including the handling of the finances of the Ghana National Petroleum Corporation by its former chief executive, Tsatsu Tsikata, who is currently being tried at the Fast-track High Court on a charge of wilfully causing financial loss to the state. Mr Atta Mills still has to shake off the perception that he is Mr Rawlings’s puppet, which dogged him during the last presidential election campaign. Alongside him at the press conference to launch his presidential bid were some people who supported Mr Asamoah—the “anti-Rawlings” candidate—in the contest to become party chairman, which perhaps indicates that Mr Atta Mills will try to take a more independent line.

The NDC gets a new Council Mr Rawlings inaugurated a new NDC Council of Elders in Accra on September of Elders 7th. The 16-member committee consists mainly of former ministers and has a mandate to advise the party’s National Executive and to work for party unity and cohesion. The latter may prove problematic as the party is divided into those loyal to Mr Rawlings and those that want a new leadership to take over the party. This was illustrated by the absence of the new party chairman, Obed Asamoah, from the inaugural meeting, fuelling more speculation about his rift with Mr Rawlings. However, since the Council of Elders assumed office, it has moved to ease the strained relationship between Mr Asamoah and Mr Rawlings by brokering a meeting at which they promised to put aside their differences for the sake of the party. It is not clear how long the rapprochement will last, but a divided party will find it difficult to unseat the NPP at the 2004 elections.

Low turnout may at district Voter turnout at the district assembly elections held in August was poor, at only elections may cause reform 30% compared with over 40% at the last polls in 1998. Various reasons have been advanced for the voter apathy. To some, it is a general reflection of disenchantment with the political process, fuelled by the tardiness of the NPP government in implementing many of the campaign promises that helped it win the elections. Another contributory factor is that the current local

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government system, which is a tiered system of area and unit committees and district assemblies, is too complicated to be meaningful to the average voter. Moreover, there has not been enough devolution of power from the centre to enable the district assemblies to make an impact on their constituents. District assemblies endorse the president’s nomination of district chief executive, and can disrupt this process if the candidate is unpopular, and plan and implement local projects funded by the small amount of revenue generated at the regional level; they are also entitled to constitutionally mandated transfers of at least 5% of all tax revenue. Finally, it is believed that the constitutional requirement for district assembly elections to be held on a non-party basis lessens the interest of voters. This has given impetus to the government’s call for parties to be allowed to contest local elections. However, this will require a constitutional amendment, which is a cumbersome process as a comprehensive review of local government will first be necessary. The government is not expecting the amendment to be approved until 2006.

The National Reconciliation The National Reconciliation Commission (NRC) has begun hearing cases of Commission begins hearings human rights abuses during the periods of unconstitutional government in the history of the country (July 2002, page 12). About 100 complaints were filed when the NRC opened its offices on September 3rd, and there has been a steady inflow since then. The majority of the cases relate to the rule of the Armed Forces Revolutionary Council in 1979 and the Provisional National Defence Committee (PNDC) in 1981-92 and involve torture, abduction, disappearances and the confiscation of property. Initially the NDC, which in effect used to be the PNDC, viewed the work of the commission as a deliberate attempt by the NPP to harass and discredit it. However, as it has become clear that the NRC will investigate military regimes not linked to the NDC, these concerns have died down. It is still too early to forecast the political impact of the commission’s work but tensions are bound to rise when the murder of three judges and a military officer in 1982, which has been linked to Mr Rawlings, is considered. For now, the former president has said that he will co-operate with the commission. The auditor-general has concluded investigations into the conduct of former district chief executives (DCEs) in the NDC administration—part of the government’s drive to investigate maladministration and corruption by the previous government. The investigation revealed that out of 110 DCEs, 78 were involved in various forms of misconduct and are to be indicted. The government’s investigation of maladministration and corruption by the previous government may result in further political polarisation and undermine the credibility of the NDC in the run-up to the 2004 elections.

The Andani boycott the final The three-member Wuaku Commission, which was set up to investigate the sittings ofWuaku Commission feuding between the Andani and the Abudu, the two sub-groups of the Dagomba tribe, which resulted in the death of the king of Yendi, Yaa-Naa Yakubu Andani II, in March (July 2002, page 14), finished sitting on September 5th. The credibility of the commission’s report will be damaged by the fact that the Andani family boycotted the later sittings. This was because President Kufuor turned down the family’s request for a meeting to discuss issues that it believed to be the obstacles to a lasting solution to the Yendi crisis. This created

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tension between the Andani family and the government, which the Andani accuse of having had a hand in the murder of the king. To back up the Wuaku Commission’s report, the government invited a three- man UN mission to investigate the conflict. The mission visited the Dagbon area to interview the warring factions in the conflict and also went to Wenchi, in Brong-Ahafo region, where there is another chieftaincy dispute that could degenerate into violence. The recommendations of the UN mission, which will be viewed as more independent than those of the Wuaku commission, will form the basis of a renewed attempt at reconciling the two factions in Yendi and forestalling conflicts in other areas. At present though, the Dagbon area remains tense and parliament has extended the state of emergency there for a further month, starting September 16th, though the hours of the curfew were eased slightly. The security forces are still discovering attempts to smuggle weapons into the area.

Economic policy

Electricity and water tariffs The Public Utilities Regulatory Commission (PURC) is raising electricity prices by are raised 72% and water prices by 52%. An initial increase of 60% and 40%, respectively, took effect in August, and the remainder will take effect in March 2003. Increases were inevitable given the government’s aim that all utilities should operate on a full cost-recovery basis, in theory by end-2003 though probably not until after the presidential and legislative elections in December 2004. The government claimed to be surprised at the swiftness of the decision from the PURC and announced that it had set aside funds to subsidise a 35% reduction in charges for low-income consumers. Pressure to increase utility tariffs to cost-recovery levels has come from the IMF, which considers it an important way of reducing the government’s fiscal burden. The parastatals incurred huge losses in 1999 and 2000 as the financial consequences of the collapse of the cedi and the rise in oil prices were not fully passed on to consumers. The IMF estimates that in 2000 petroleum subsidies cost the government 5.6% of GDP, electricity subsidies 2.4% of GDP and water subsidies 0.9% of GDP. Electricity prices were increased by 103% and water tariffs by 96% in mid-2001 (July 2001, page 25). Although only minor adjustments will now be made to utility prices in line with an automatic tariff adjustment formula over the next few years, utility prices are still far below cost-recovery level. Oil prices were increased by 64.3% in early 2001 (April 2001, page 15), but also remain below cost-recovery level. However, the government’s response to the PURC’s ruling indicates that it is unlikely to agree to increases in prices for petroleum products, which are needed to reduce the losses of the Tema Oil Refinery, the monopoly producer of refined petroleum products.

Government will sell 25% stake The government is to sell 25% of its interest in the Cocoa Processing Company in Cocoa Processing Company (CPC) though the Ghana Stock Exchange (GSE) as part of its policy to promote private investment and to support the growth of the GSE. Around US$26.8m is expected to be raised from the sale of 215m shares at a price of C1,000, which will run from September 13th to October 22nd. Once listed, CPC will have the

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second largest capitalisation on the GSE after Ashanti Goldfields. CPC, a subsidiary of the Ghana Cocoa Board, was established in 1965 as a joint venture between the government and the Drevici Group and processes cocoa beans into finished and semi-finished products at its two factories. The company is currently engaged in a €22m (US$22m) programme to expand one of the factories and build a new one to increase its production capacity from 25,000 tonnes in 2000 to 64,000 tonnes by 2004 to meet increasing export demand. CDC, which supplies products to Nestlé and Cadbury, made a gross profit of US$5.6m in 1999/2000. The company’s privatisation is a significant milestone in the government’s policy of restructuring the cocoa industry with the aim of increasing domestic processing from 19% of domestic production in 2000 to 40% by 2003.

Cocoa exports (US$ m) 1996 1997 1998 1999 2000 Cocoa beans 442.1 384.8 541.6 497.3 379.9 Cocoa products 66.5 85.2 78.8 55.0 56.9

Source: Bank of Ghana.

A new Monetary Policy The president, John Kufuor, inaugurated a new Monetary Policy Committee Committee is inaugurated (MPC) at the Bank of Ghana (the central bank) in September. The MPC is mandated by the new Bank of Ghana Act (January 2001, page 18) to advise the government on monetary policy. The seven-member committee, which is chaired by the Bank’s governor, consists of five representatives of the bank and two members nominated by the Ministry of Finance. The inauguration, which was attended by a number of central bank governors from around the world, has raised expectations that monetary policy will be more transparent and credible. The MPC is still working on its methods of operation, but it is hoped that, as with similar committees elsewhere in Africa, the minutes of its meetings will be made public.

S&P are to give Ghana a The government has secured funding from the US Agency for International sovereign credit rating Development to pay a credit ratings agency, Standard & Poor’s, to give Ghana a sovereign credit rating. Currently, Ghana is not rated, making it difficult to price both sovereign and private-sector external borrowing. A sovereign credit rating is essential if the government wants to issue bonds on the international capital markets—the rating provides a guide to pricing—though the government is unlikely to do this as it is unwilling to take on non-concessional foreign loans. However, the rating will raise the country’s profile and allow potential investors to judge Ghana’s sovereign creditworthiness. Standard & Poor’s and another ratings agency, Fitch IBCA, are to rate a number of Sub-Saharan countries over the next year or so. At present Botswana, Mauritius, Senegal and South Africa, are the only countries in the region that are rated.

Ghana’s score in Corruption Ghana’s score in the annual Corruption Perceptions Index (CPI) published by Perceptions Index improves Transparency International—which is based on survey data (including a contribution from the Economist Intelligence Unit)—has improved from 3.4 in 2001 to 3.9 in 2002 (where 10 is highly clean and 0 is highly corrupt). This raises Ghana from 59th place, out of 102 countries, to 50th, ranking it between Poland

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and Croatia; the improvement in ranking would have been greater but for the introduction of 11 new countries to this year’s survey. The jump in the CPI score is encouraging for the ruling New Patriotic Party, which has pledged to improve standards of governance and put a lot of effort into investigating allegations of corruption against the previous government. Ghana’s improved score places it well above other countries, outside Southern African, with which it is competing for investment.

Transparency International’s Corruption Perceptions Index, 2002 (10 = highly clean, 0 = highly corrupt) Botswana 6.4 Namibia 5.7 South Africa 4.8 Mauritius 4.5 Ghana 3.9 Ethiopia 3.5 Senegal 3.1 Malawi 2.9 Côte d'Ivoire 2.7 Tanzania 2.7 Zambia 2.6 Cameroon 2.2 Uganda 2.1 Kenya 1.9 Angola 1.7 Madagascar 1.7 Nigeria 1.6

Source: Transparency International.

The domestic economy

Inflation continues to fall Year-on-year inflation has continued its downward trend, slowing to 13.1% in August, compared with 13.5% in July and the recent high of 41.9% in March 2001. The decline was driven by non-food price inflation, which stood at 9.8% in August having declined continuously from a peak of 54.2% in December 2000. This has reflected the slowdown in government expenditure since the New Patriotic Party government came to power in January 2001. Food price inflation stood at 18.1% in August and has been rising steadily since February when it was 16.4%. The rise in food prices is due to the country’s dependence on imported food, especially rice, at a time when the cedi is depreciating. The decline in inflation could slow, or even be reversed, in September, when the effect of the rise in water and electricity prices is captured: as utility prices account for 9.5% of the consumer price index, the rise, despite the subsidy for low-income consumers, could add up to three percentage points. It will take a few months for the increase to work its way through the economy, though many businesses have already raised their prices in anticipation of the utility rate increases.

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The depreciation of the cedi The rate of depreciation of the cedi, which fell by 10.9% against the US dollar in slows the first half of 2002, slowed to just 2.3% in the third quarter. The faster rate of depreciation in the first half was due to higher imports by construction and utility companies after the government settled its arrears with them. The fall prompted investors to hedge against a further drop in the currency, and foreign- currency deposits at deposit money banks grew by 23% in between December 2001 and May 2002. In the event, the moderate depreciation that occurred during the first half was no bad thing, as the currency’s relative stability in 2001 had caused a sharp rise in the nominal effective exchange rate—though to nowhere near the level reached in 1999—to the detriment of exporters. The tightening of monetary policy in the third quarter has slowed down the rate of cedi depreciation, which is unlikely to accelerate in the near term because of projected increases in donor flows and the injection of foreign exchange from the cocoa sales, which start in October.

Agriculture

Cocoa production will be The Ghana Cocoa Board (Cocobod) has projected a harvest of about 390,000 higher in 2002/03 tonnes in the 2002/03 production year (October-September), a marked improve-

ment on the current year, which is estimated to have yielded about 336,000 tonnes. The main reasons for the poor 2001/02 harvest—the worst since 1996/97, when production was 322,488 tonnes—were smuggling and losses from black pod disease estimated at 30,000 tonnes, which particularly affected Ashanti, Brong Ahafo and Western regions. Cocobod has introduced measures do deal with these factors Though there is still room for improvement, the mass spraying campaign against black pod and capsid—the two most common diseases affecting cocoa—is considered to have been much more effective than last season, when it started late and did not cover all the cocoa-producing areas. Smuggling is to be tackled by tighter border security and higher producer prices. The government estimates that last season 50,000-60,000 tonnes of cocoa were smuggled to Côte d’Ivoire, where prices were much higher than in Ghana. In early September, for example, the price in Ghana was C6.2m (US$749) per tonne compared with US$850-1,05o/tonne in Côte d’Ivoire. Yaw Osafo-Maafo, the finance minister, has said that farmgate prices will be brought in line with those in Côte d’Ivoire for the start of the season and that the price will be periodically reviewed in order to reduce smuggling. Also boding well for an improved crop are generally favourable weather conditions and an improvement in farm husbandry. Cocobod is targeting cocoa production of 500,000 tonnes in 2004/05 by increasing the number of plants, using special nutrients and fertilisers developed at the country’s Cocoa Research Institute, and improving the transport infrastructure in the main producing areas.

Cocoa production ('000 tonnes; production years Oct-Sep) 2000/01 2001/02 Côte d'Ivoire 1,185 1,225 Ghana 395 340 Indonesia 388 460 Nigeria 177 165 Brazil 163 125 Cameroon 138 125 Ecuador 81 75 Rest of world 294 272 Total 2,821 2,787

Source: E D & F Man. An attempt to corner the market has helped the cocoa price to rally

A London trading company, Armajaro, headed by Anthony Ward, has made huge speculative purchases of cocoa in what appears to be an attempt to drive prices sharply higher. The significance of this should not be ignored, as in 1996 Mr Ward headed Phibro, a trading company that seemingly mistimed a similar effort. His latest attempt appears better timed, as cocoa prices have more than doubled since he is thought to have started stockbuilding, around two years ago. Although the initial momentum for the rise in price came from forecasts of a heavy supply deficit in 2001/02 (October-September), which would be the second successive annual shortfall, the heavy purchasing activity of traders drove the upswing in prices in mid- July. The fundamentals have been forgotten as huge speculative purchases have been made in an attempt to put a squeeze on those needing cocoa for nearby delivery, so making them pay over the odds. An attempted coup in Côte d’Ivoire, the world’s

largest cocoa producer, gave additional upward momentum to prices and the International Cocoa Organisation (ICCO) price hit 102 US cents/lb on September 30th, a 16-year high. Prices may be driven up further in the short term, as both traders and consumers seek to cover themselves against the further rises. Indeed, people will assume that there is a reason for the large purchases, which should lead to further speculative purchases. The market will overreact to uncertainty, and probably already has, causing a bubble that must eventually burst. Thus, the Economist Intelligence Unit expects the ICCO price to fall back to less than 70 US cents/lb by late-2002, as the two exogenous factors that have inflated this year’s advance (speculative buying and the squeeze on cocoa for immediate delivery) will become less influential. Prices will, thereafter, remain fairly stable to the end of 2004. The cassava starch project The president’s special initiative, launched in August 2001, to encourage local takes off firms to take advantage of the Africa Growth and Opportunity Act to export cassava starch duty-free to the US, has taken off with the installation of state-of- the-art processing equipment at the Ayensu Starch Company factory. Ayensu Starch, situated at Awutu Bawjiase in Central region, about 40 km west of Accra, is operating as a pilot scheme for the president’s Integrated Action Programme for Cassava Starch Production and Export. Installation of the equipment is expected to be complete in November and the factory should be ready to begin production by March. The company, which aims to cultivate cassava on a large- scale and process it into industrial starch for export, is owned by around 2,500 cassava-growing farmers and run by professional managers. The performance of Ayensu Starch, which cost an estimated US$7m to establish, will be used to measure the potential success of the project. The relative ease with which the crop can be cultivated is the reason that the government chose it as a vehicle for job creation. The long-term aim is to give 25,000 farmers technical and financial support to grow cassava for processing into high-grade industrial starch for use in paper, textile, food, pharmaceutical, oil drilling and petrochemical industries. In 2003 6,075 ha of cassava are to be cultivated by 5,000 farmers and processed into 8,000 tonnes of industrial starch. The government estimates that the country will earn about US$4.4m from 22,000 tonnes of cassava by 2005, (October 2001, page 28) Up to 100,000 jobs will be created by the project, particularly on the farms and in the processing plants.

Measures to increase rice The Ministry of Agriculture, which aims to reduce the annual rice import bill of production US$100m by 30% (July 2002, page 22), is collaborating with the Council for Industrial and Scientific Research and the country’s universities to distribute high-yielding varieties of rice to farmers. The farmers are being trained in rice quality, milling, packaging and storage technology to help bring their products to international standards. In addition, the ministry is promoting local rice production, which was 249,000 tonnes in 2000. Under its poverty reduction programme, the government is also supporting rice production by women farmers. Through these efforts by the Ministry of Agriculture, locally produced rice is gaining wider acceptance on the Ghanaian market, and in the next five years the country should be able to satisfy all of its rice demand locally. Currently India, Japan, Korea, Pakistan, Thailand and the US are the main source of rice imports.

Rice production 1996 1997 1998 1999 2000 '000 tonnes 215.7 197.1 281.1 209.8 248.7

Source: Bank of Ghana. Industry and mining

Ashanti Goldfields earnings Ashanti Goldfields’ profits in the second quarter of 2002 were US$18.8m, 33.3% rise in second quarter more than in the second quarter of 2001, though after accounting for exceptional refinancing and restructuring costs of US$22.5m this equated to a loss of US$3.7m. Profits in the first six months of the year were down from US$23.1m in 2001 to US$12.8m. The increase in earnings was the result of favourable world gold prices and lower debt service. Total gold production in the second quarter was 408,734 oz, 8% lower than the 437,043 oz produced in the second quarter of 2001. The fall in production was due to a fire at the Iduapriem mine and lower than expected gold grades at Obuasi. Production costs also increased, to US$191/oz, compared with US$188/oz in the second quarter of 2000, which was attributed to the lower production, wage increases and higher power costs. Ashanti is currently undertaking construction at the processing plants at Iduapriem and Geita (in Tanzania) to expand its gold output. Shareholders approved Ashanti’s restructuring plan (July 2001, page 23), which was completed ahead of market expectations.

Ashanti Goldfields: Ghanaian operations, Apr-Jun 2002 Production % change on Operating cost % change on Mine (oz) Jan-Mar (US$/oz) Jan-Mar Obuasi 120,051 -14.3 205 8.5 Iduapriem-Teberebie 39,769 -16.9 226 17.9 Bibiani 61,219 2.4 183 17.3

Source: Ashanti Goldfields.

Red Back turns down Ashanti’s An Australian mining company, Red Back Mining, has turned down Ashanti’s offer offer for it to merge its Chirano gold mine with Ashanti’s Bibiani operations (July 2002, page 24). Ashanti has been keen on linking up with Red Back for some time—two previous offers had been rejected—as Chirano is located close to the Bibiani mine and treatment plant and Ashanti wants to secure a replacement ore feed for the latter as the mine is due to close soon. Ashanti offered US$18.8m for Red Back, which valued the company’s shares at 30-31.5 US cents. After consultation with its shareholders, Red Back said that it was premature to accept an offer that was below the market capitalisation of the company, before the completion of a feasibility study into the Chirano project, which is scheduled to be completed in October. Ashanti has withdrawn the offer and suspended negotiations with Red Back, which has indicated its willingness to resume negotiations at a later date.

Libya is to supply oil for The government has concluded a deal with Libya for the supply of 10,000 refining at Tema barrels of oil per day for the Tema Oil Refinery. Together with an arrangement for Nigeria to supply 30,000 b/d earlier this year, this brings the total daily inflow of oil to 40,000 b/d, close to the refinery’s total processing capacity of 45,000 b/d. The Libyan oil deal follows the upgrading of the catalytic unit at the

refinery, making it able to process a wider variety of crudes than before. The agreement marks an improvement in relations, which had been strained by the expulsion of Ghanaian workers from Libya in September 2000. It was also in line with the government’s policy of strengthening regional ties and the Libyan government’s wish to broaden its influence in Sub-Saharan Africa.

Oil exploration intensifies Following an increasing number of oil finds off the coast of West Africa, the area has begun to attract the attention of a number of foreign oil companies. After considerable activity in Côte d’Ivoire, investment in Ghana, which shares many of its neighbour’s geological structures, has picked up with the signing of three agreements during the third quarter. The first agreement was signed between the government and Devon Energy of US and Canada’s EnCana for oil and gas exploration in the deepwater offshore Keta basin off the south-east coast. The companies plan to invest US$56m in offshore exploration—Devon has already spent US$23m on acquiring exploration data from another US company, Santa Fe—and have a seven-year joint operating agreement with the Ghana National Petroleum Corporation (GNPC) and the Ministry of Energy. The first exploration well is planned for early 2003. An agreement was signed with Tano Energy Ghana—whose parent company is First Oil of the UK—for the development of the Tano basin. Tano Energy is initially to invest US$50m in the project, which aims to provide gas for the power station at Effasu-Mangyea in Western region. Under the agreement, Tano Energy will supply Effasu with enough gas for the generation of 125 mw of electricity from early 2003. Gas output will increase, to enable the production of a further 125 mw of electricity, by the end of 2003. The Tano basin is estimated to hold gas reserves of 197bn cu ft. The third agreement, for a period of seven years, was signed between the GNPC and a US company, Vanco Energy, for oil exploration in a 2.5m-acre block of both shallow and deep water off Cape Three Points. The agreement also involves the acquisition, processing and interpretation of 3D seismic data in the designated area, surveying for this began in September, and the drilling of exploratory wells. Vanco is to invest US$30m-50m to explore for oil and will also undertake the training of GNPC staff. Most oil targets are believed to be in depths of 1,000- 3,000 metres and the agreement therefore represents Ghana’s first formal foray into its ultra-deep waters, though a US oil explorer, Nuevo Energy, previously owned some portions of the concession.

Salt mining and refinery A local company, U2, has begun a US$3.5m salt mining and refinery project at project takes off at Nsuekyir Nsuekyir in Efutu-Awutu-Senya district in Central region. The project aims to produce 60,000 tonnes of refined salt per year and is being implemented in three phases. The company hopes that by the end of the year, it will be able to produce about 40,000 tonnes of salt for export to Nigeria, which has an annual demand of 1.5m tonnes. Currently over 1m tonnes of edible salt is imported into West Africa, mainly from Brazil, Australia and Europe.

Infrastructure

A policy on nuclear power is For the first time, Ghana is including included the development and use of being developed nuclear energy in its 20-year strategic national energy plan, in the hope of acquiring a sustainable supply of energy for domestic and industrial use. The government considers that nuclear energy is more viable and economical than the thermal, gas, coal and hydro options, though evidence from elsewhere in the world does not appear to support this. A policy document on the development and use of nuclear energy is to come before the cabinet for consideration. The government has accepted the principle of developing nuclear power as a strategic energy source and is prepared to push a bill through parliament to empower the Ghana Atomic Energy Commission (GAEC) to co-ordinate its development. In pursuit of this objective, the GAEC is to research the prospects for nuclear power and determine the number of nuclear plants necessary, their location and maintenance and operational requirements.

The VRA syndicates funds for The Volta River Authority has entered into a US$30m financing arrangement its US$30m debt with a number of local banks to pay off its debts to Compagnie ivoirienne d’électricité (CIE) of Côte d’Ivoire. US$25m of this is for electricity imported since July 2001 and the remainder from the 1998 power crisis. The VRA’s debt to CIE has prevented it from making full use of the power exchange agreements that have existed between the two countries since 1983. This financing arrangement delayed temporarily the construction of the Prestea-Obuasi transmission lines, which it is now undertaking with its own resources. The transmission lines will enable the Takoradi thermal power plant to operate at full capacity and therefore reduce and possibly eliminate imports of electricity.

11 investors show interest in A call for proposals for the development and execution of the Bui Bui hydroelectricity project hydroelectricity project has drawn responses from 11 multinational investors. The Bui project site is located on the Black Volta, approximately 150 km upstream of Lake Volta and will be run as a build-operate-transfer scheme using private capital financing. Since assuming office in 2001, the government has affirmed its commitment to the Bui project to augment the national electricity supply, which falls short of demand. The project is designed to produce about 400 mw of electric power, which will go a long way to meet the increasing demand for electric power in the country.

Financial and other services

A plan for developing the The Ministry of Finance has adopted the Financial Sector Strategic Plan, which financial sector is adopted was developed in 2000 to co-ordinate the growth of the sector. The ministry has set up a secretariat, the Financial Sector Strategy Implementation Programme, to manage and co-ordinate the implementation of the plan, which will be complete by 2006. The plan was devised to overcome a number of weaknesses in the financial sector that would hinder the Ghana Poverty Reduction Programme, the basis of the government’s medium-term development strategy. The main weaknesses are:

• excessive financing by government resulting in a large financial sector debt to government; • a large and growing burden of non-performing assets; • lack of long term capital; • inadequate legal framework and market infrastructure; and • the low capitalisation and poor liquidity of the Ghana Stock Exchange

Financial Sector Strategic Plan: aims for Ghana’s financial sector

• Leadership of the Economic Community of West African States region achieved through financial innovation, support for the regional expansion of Ghana’s financial institutions and integration of financial sector development in the Gateway Project, which aims to make Ghana a hub for manufacturing, commerce and financial services • Integration with the global financial system by raising the standards of financial practice and regulation to accord with international best practice • Pursuit of a sovereign credit rating to enable Ghana’s private sector to enter the global financial markets • The promotion of financial innovation through a facilitating environment and public-private partnerships • The diversification of the financial sector to allow banking, securities markets and non-bank financial institutions to complement each other, thus increasing competition and reducing dependence on the banking system, which has traditionally been the core of the financial system.

Ghana and Nigeria move to Ghana and Nigeria are working towards an integrated stockmarket with a view integrate their stockmarkets to expanding the market for new equity or long-term debt finance. To this end, Ghana’s Securities and Exchange Commission (SEC) and its Nigerian equivalent are to preparing the ground for a memorandum of understanding for harmonising their regulatory environment, thus making cross-listing possible. The memorandum being worked out between the SECs in the two countries seeks harmonisation in the following areas: • listing rules and regulations, • accounting standards, • reporting requirements, and • enforcement and compliance regimes. The Ghanaian and Nigerian stock exchanges already have a memorandum of understanding. The integration of the markets would mean greater competition between them, since companies would issue at the market where it was cheapest. Whether this would stimulate any more listing remains to be seen, as Nigeria’s sec0nd stock exchange, in Abuja, has failed to develop.

Apex Bank begins operations Apex Bank, founded by the Association of Rural Banks, has begun operations. The bank was set up to give rural banks economies of scale in cheque clearing, liquidity, management, the development of financial products, computerisation

and training personnel. The bank was set up as part of the government’s Rural Financial Services Project, which aims to promote growth and reduce poverty by improving financial intermediation in rural areas by strengthening the links between informal and semiformal microfinance institutions and the network of rural and community banks. Apex Bank aims to ensure effective monitoring and supervision of rural banks to provide quality services to a large number of rural clients.

Foreign trade and payments

Parliament approves a Parliament has approved a highly controversial US$1bn loan from the controversial US$1bn loan International Financial Consortium (IFC, not to be confused with the International Finance Corporation, the private-sector-lending arm of the World Bank). Little is known about the IFC, though the similarity between its name and that of the International Finance Corporation has raised some concerns that either the government is trying to mislead the public or the lender has misled the government. Suspicions were increased by the fact that the first instalment of the loan (US$350m) was approved by parliament the day before it went into recess (two more instalments are to be disbursed in 2003 and 2004). Donors were not consulted about the loan and are very unhappy about it. The loan has a 2.5% interest rate and an arrangement fee of 3.5%; the amortisation period is 25 years, with a 3-year grace period. Because of the low interest rate and grace period, the loan is not contrary to Ghana’s obligation under the World Bank and IMF’s heavily indebted poor countries (HIPC) debt relief initiative not to take on any non-concessional debt. However, the substantial fee the government has agreed to pay clearly contradicts the spirit of the HIPC initiative. The loan is primarily for infrastructural projects. According to the government, US$100m will be spent on roads, US$75m on energy, and US$90m on rural and urban water supply. Procurement for these contracts is to be managed openly and a seven-member trust will be set up—consisting of four government officials (one of whom will be the chairman) and three appointed by the IFC—to ensure effective use of the loan. The government is aware that it has not fulfilled its pre- election promises on infrastructure development and will have to account for them at the 2004 elections. The loan will enable it to make visible progress on improving infrastructure by the time of the elections. However, it has raised donors’ apprehension that the NPP may follow previous governments and sharply increase spending for electoral gain, knocking donor-sponsored reforms off track.

Main trading partners remain The latest data from the IMF, published in its Direction of Trade Statistics relatively stable yearbook, show that Ghana’s trade partners remained relatively unchanged in 2001. Togo remains the main export market, followed by the OECD countries that process and consume Ghana’s cocoa and gold, the largest sources of export revenue. Nigeria remains the largest source of imports, principally oil, and at 20.8% its share is the highest since 1990.

Main trading partners (%)

Exports Togo 11.1 12.2 14.9 16.9 Netherlands 7.6 9.9 13.2 11.6 US 6.7 9.1 10.8 10.1 UK 11.2 11.3 7.3 9.5 Germany 6.4 4.9 5.9 6.1 Nigeria 3.1 3.1 4.1 4.2 Imports Nigeria 19.0 13.8 20.2 20.8 UK 15.8 8.9 9.4 7.3 US 9.6 7.5 6.9 7.1 Côte d'Ivoire 10.8 4.3 5.0 5.2 France 3.6 7.1 3.9 4.6 China 4.8 3.4 3.9 4.5

Source: IMF, Direction of Trade Statistics

In fact, the statistics do not give a true representation of Ghana’s trade, as they do not cover the substantial amount of unofficial crossborder trade. A report in the August edition of the Economist Intelligence Unit’s Sub-Saharan Africa: Regional Overview shows that, according to the figures in the IMF’s Direction of Trade Statistics, on average only 6% of the region’s trade by value is between African countries. This is because small-scale traders generally conduct the trade in agricultural products. Tariffs on these goods are often extremely high. In addition, there are frequently non-tariff barriers, which make recorded, legal trade between African countries more difficult and more expensive and reduce trade volumes. Although these tariff and non-tariff barriers do not stop trade between African countries, they do move trade from being recorded and taxed to being unrecorded and untaxed, witness the large amount of Ghanaian cocoa smuggled into Côte d’Ivoire. Another reason is that the administration of border posts is often weak, and the pay of customs officials poor, so it is not difficult to evade trade taxes.

Pineapple exporters aim to Two groups, the Seafreight Pineapple Exporters’ Association of Ghana and the meet EU standards Horticultural Association of Ghana have applied for certification under the Euro Retailer Produce Working Group Good Agricultural Practice (Eurep GAP), which sets the standards for food production in, and exported to, the EU. The Eurep GAP protocol came into being after the “mad cow disease” scare in Europe and the introduction of genetically modified foods. Consequently, Eurep GAP requires products and their inputs to be traceable all the way up the supply chain. This means that there has to be a comprehensive record of production processes. These requirements would be difficult for Ghanaian pineapple exporters and could halt pineapple exports, which have thrived over the years in the European market. The decision is therefore welcome news for the industry and should safeguard pineapple exports.