Ghana at a Glance: 2002-03

COUNTRY REPORT

Ghana

Ghana at a glance: 2002-03

OVERVIEW The New Patriotic Party government will continue its economic reform programme, concentrating on improving fiscal and monetary discipline. It will also continue its campaign against corruption and investigate the excesses of previous administrations. The National Democratic Congress (NDC) opposition will be involved in a key internal struggle to determine the future shape of the party. Pro-democratisation and traditionalist factions will argue over the need to reform the party. The economy is forecast to grow at a rate of 4.3% in 2002 and 4.8% in 2003. Inflation will fall back steadily to average only 11% in 2003. The current-account deficit is forecast at 5.3% of GDP in 2002 and 4.9% of GDP in 2003. Key changes from last month Political outlook • Turmoil continues within the NDC, as modernising and traditionalist factions dispute the future direction of the party. The former minister of justice and attorney-general, Obed Asamoah, intends to stand as party chairman, which supporters of the former president, Jerry Rawlings, see as an attempt to usurp the traditional leader. In an effort to forestall the internal elections, the traditionalists have postponed the party congress, due to have been held in December 2001, until April 2002. Economic policy outlook • A new monetary policy framework is starting to emerge, with the appointment of a new governor of the Bank of Ghana and the passing of the Bank of Ghana Bill which gives him greater freedom to pursue an independent monetary policy. This should reinforce the downward trend in inflation which started in 2001. Economic forecast • Ghana’s population was 18.8m in 2000, according to census data published by the Ghana Statistical Service—a 53% increase on 1984.

January 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 EIU delivers its information in four ways: through our digital portfolio, where our 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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ISSN 1350-7052

Symbols in tables “n/a” means not available; “–” means not applicable

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Contents

3 Summary

4 Political structure

5 Economic structure 5 Annual indicators 6 Quarterly indicators

7 Outlook for 2002-03 7 Political outlook 8 Economic policy outlook 10 Economic forecast

12 The political scene

15 Economic policy

20 The domestic economy 20 Economic trends 21 Agriculture 22 Industry and mining 25 Infrastructure 26 Financial and other services

28 Foreign trade and payments

List of tables

10 International assumptions summary 11 Forecast summary 15 Revenue collection, Jan-Jun 2001 16 Overall fiscal outturn, Jan-Jun 2001 16 Medium-term expenditure framework, 2001 25 Electricity supply and consumption 28 Balance of payments, Jan-Jun 2001 29 Reserves

List of figures

12 Gross domestic product 12 Real exchange rates 20 Population 29 External debt, 2000

EIU Country Report January 2002 © The Economist Intelligence Unit Limited 2002

Ghana 3

Summary

January 2002

Outlook for 2002-03 The New Patriotic Party government will continue its economic reform programme, concentrating on improving fiscal and monetary discipline. It will also continue to negotiate with the opposition on the scope of the National Reconciliation Bill which is to investigate the excesses of previous administrations, enabling victims to receive a fair hearing and compensation. The National Democratic Congress (NDC) opposition will be involved in an internal struggle which will determine the future shape of the party. Pro- democratisation and traditionalist factions will argue over the need to reform the party. The economy is forecast to grow by 4.3% in 2002 and 4.8% in 2003. Inflation will fall back steadily to average only 11% in 2003. The current- account deficit is forecast at 5.3% of GDP in 2002 and 4.9% of GDP in 2003.

The political scene The former deputy finance minister, Victor Selormey, has been sentenced to eight years in prison for his part in a corruption scandal. Corruption will remain high on the political agenda. The government has passed a National Reconciliation Bill, seeking to establish a South African-style truth and reconciliation commission. The NDC’s national congress has been postponed because of a dispute between modernisers and traditionalists within the party; it will now be held in April 2002. The Nkrumahist Convention People’s Party, the People’s National Convention, and the National Reform Party have agreed to merge, creating a single powerful Nkrumahist party.

Economic policy The government has published its mid-year review of the budget. The review shows that the government had some success in controlling expenditure, raising revenue and reducing domestic borrowing. Paul Acquah, a former deputy director of the IMF’s Africa Department, has been appointed governor of the Bank of Ghana, and the bank has been given greater independence over the conduct of monetary policy.

The domestic economy Ghana’s population was 18.8m in 2000, according to census data released by the Ghana Statistical Service. There may be delays in cocoa shipments owing to the low global price. The government’s golden share in Ashanti Goldfields is again being questioned. The stockmarket held up reasonably well in 2001. The ghana index-linked bond has been well received by the financial markets.

Foreign trade and payments The balance-of-payments deficit in the first half of 2001 was worse than expected. The Paris Club has signed an agreement with Ghana to reschedule public external debt.

Editors: John Arthur (editor); David Cowan (consulting editor) Editorial closing date: January 18th 2002 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

EIU Country Report January 2002 © The Economist Intelligence Unit Limited 2002 4 Ghana

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 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 his first term

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 the People’s National Convention (PNC), the 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 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 Richard W Anane Information and presidential affairs Jake Obetsebi-Lamptey Interior Malik Yakubu Alhassan Lands & forestry Kasim Kasanga Local government Kwadwo Baah-Wiredu Manpower development & employment Cecilia Bannerman Mines Kwado Adjei Darko Parliamentary affairs Pap Owusu-Ankomah Private sector development Kwamena Bartels Roads & transport K Adjei-Darko Tourism Hawa Yakubu Trade & industries Kofi Konadu Apraku Works & housing Yaw Barimah Youth & sports Edward Osei Kwaku

Central bank governor Paul Amoako Acquah

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Economic structure

Annual indicators

1996 1997 1998 1999 2000a GDP at market prices (C bn) 11.4 14.2 17.3 20.6 27.1 GDP (US$ bn) 7.0 6.9 7.5 7.7 5.0 Real GDP growth (%) 4.6 4.2 4.7 4.4 3.7b Consumer price inflation (av; %) 46.6 27.9 14.6 12.4 25.2c Population (m) 17.5 17.9 18.4 18.8 19.2 Exports of goods fob (US$ m) 1,570.1 1,489.9 2,090.8 2,005.5 1,898.4c Imports of goods fob (US$ m) 1,937.0 2,128.2 2,896.5 3,228.1 2,741.3c Current-account balance (US$ m) –324.7 –549.7 –443.1 –932.5 –412.6 c Foreign-exchange reserves (US$ m) 828.7 480.1 377.0 453.8 232.1 c Total external debt (US$ bn) 6.4 6.3 6.9 6.9 6.9 Debt-service ratio, paid (%) 23.8 28.5 20.0 17.7 20.7 Exchange rate C:US$ (av) 1,637.2 2,050.2 2,314.2 2,669.3 5,455.1c

10th January 2002 C7,125:US$1

Origins of gross domestic product 1999 % of total Components of gross domestic product 1999 % of total Agriculture, forestry & fishing 35.8 Private consumption 82.7 Industry 25.4 Government consumption 13.6 Manufacturing 9.0 Gross domestic investment 21.0 Services 38.8 Exports of goods & services 31.9 GDP at factor cost 100.0 Imports of goods & services –49.2 GDP at market prices 100.0

Principal exports 2000 US$ m Principal imports 2000 US$ m Gold 705 Manufactures 1,650 Cocoa beans & products 437 Fuels 250 Timber & products 175 Non-fuel primary products 140

Main destinations of exports 2000d % of total Main origins of imports 2000d % of total Togo 14.9 Nigeria 20.2 Netherlands 13.2 Italy 12.2 US 10.8 UK 9.4 UK 7.3 US 6.9 Germany 5.9 Côte d’Ivoire 5.0 a EIU estimates.b Official estimate. c Actual. d Based on partners’ trade returns; subject to a wide margin of error.

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Quarterly indicators

1999 2000 2001 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr Central government finance (C bn) Revenue and grants 1,084.7 1,018.0 1,250.7 1,900.4 1,538.5 2,085.2 1,775.5 n/a Expenditure and net lending 1,404.9 1,504.1 1,630.4 2,336.3 2,577.8 2,207.9 1,991.3 n/a Balance –320.2 –486.1 –379.7 –435.9 –1,039.2 –122.7 –215.8 n/a Prices Consumer prices Accra (1995=100) 246.1 262.3 289.2 315.0 342.9 369.9 399.3 414.7 % change, year on year 13.1 14.9 18.7 27.0 39.3 41.0 38.1 31.7 Gold price, London (US$/fine oz) 295.62 290.19 280.15 276.51 269.16 263.54 267.68 274.70 Financial indicators Exchange rate C:US$ (av) 3,252.4 3,819.3 4,871.6 6,275.6 6,853.8 7,061.7 7,227.6 7,167.4 C:US$ (end-period) 3,535.1 4,344.2 5,664.4 6,515.4 7,047.7 7,100.5 7,230.3 7,164.3 Interest rates (%) Deposit (av) 20.2 23.5 24.7 32.8 33.5 33.5 33.2 32.2 Discount (end-period) 27.0 27.0 27.0 27.0 27.0 27.0 27.0 27.0 Treasury (av) 29.8 31.5 33.4 39.6 40.6 42.9 46.4 47.4 M1 (end-period; C bn) 2,129.4 2,269.4 2,183.1 1,986.2 2,607.5 2,778.0 2,697.1 n/a % change, year on year 2.7 15.7 10.7 1.9 22.5 22.4 23.5 n/a M2 (end-period; C bn) 3,843.8 3,984.4 4,183.4 4,058.5 5,321.6 5,759.7 5,993.8 n/a % change, year on year 16.2 19.6 21.1 13.2 38.4 44.6 43.3 n/a GSE all-share index (end-period;1990-1993=100) 736 763 818 856 858 900 933 956 Sectoral trends Cocoa beans Exports (‘000 tonnes) 24.3 87.4 101.0 115.3 6.2 113.7 106.4 n/a Price, New York & London (US cents/lb) 43.3 40.9 41.9 41.2 40.0 49.6 47.4 45.7 Foreign trade (US$ m) Exports foba 457.0 458.4 463.4 466.4 432.2 483.6 508.2 n/a cocoa beans 18.3 105.6 113.3 118.7 7.5 112.2 98.5 n/a gold 180.9 175.8 148.6 141.3 143.6 141.8 147.9 n/a Imports cifa –833.72 –862.4 –700.4 –650.6 –908.1 –726.1 –725.7 n/a Trade balance –276.7 –404.0 –237.0 –184.2 –475.9 –242.5 –217.5 n/a Foreign reserves (US$ m) Reserves excl gold (end-period) 453.8 410.8 396.3 237.2 232.1 163.8 123.1 230.8 a DOTS estimates. Sources: IMF, International Financial Statistics; Direction of Trade Statistics; Bank of Ghana, Quarterly Economic Bulletin.

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Outlook for 2002-03

Political outlook

Domestic politics The president, John Agyekum Kufuor, and his New Patriotic Party (NPP) government will continue to focus on implementing a reform programme aimed at improving macroeconomic stability in Ghana. The government will also persist with its investigations into cases of maladministration and corruption on the part of the previous government. This could heighten political tension within the country, but the government is confident of its control over the security apparatus and the military is unlikely to involve itself in politics.

The overall thrust of economic policy, and the need for reform, has been broadly accepted in Ghana, where the disastrous impact of the fall of the cedi in 2000 is fresh in the memory. However, the government is still under pressure to make use of its honeymoon period to introduce the most difficult reforms; increasing utility prices is likely to prove the hardest. As it has already found out, reform can not be carried out quickly. Often the civil service lacks the capacity to carry out changes and it can take a long time before policy initiatives announced by the government are implemented. Moreover, the government does not have a majority in parliament, and some legislation will be rejected. It is also apparent that some members of the NPP itself do not fully support the reform process. Though it is perhaps too soon to tell whether the government will be able to push ahead quickly with a comprehensive reform programme, the Economist Intelligence Unit is cautiously optimistic. But the government must act quickly during 2002 to firmly entrench any changes.

Apart from economic policy the other high-profile initiative will be the investigation into allegations of financial malfeasance against officials of the National Democratic Congress (NDC) as the NPP government seeks to enforce its “zero tolerance for corruption” policy. In addition to the recent case against Victor Selormey, a former deputy minister of finance, who has now been sentenced to eight years in jail, there is also the Quality Grains scandal which involves a former finance minister and might even implicate the former president, Jerry Rawlings. The government has completed forensic audits of 12 public institutions, including Tema Oil Refinery, the Social Security and National Insurance Trust, the Divestiture Implementation Committee and Ghana National Petroleum Company. The audits are expected to provide evidence for more prosecutions during the outlook period. A majority of Ghanaians support the attempt by the government to rid society of corruption, and further convictions of former ministers are likely to weaken support for the NDC. But the investigations and any resulting convictions will polarise the already difficult relationship between the two parties, and the NPP must beware that it does not get caught up in similar controversies and corrupt practices. As a party with many influential businessmen as members, there is the possibility that the government could agree to support their vested interests, as happened under the NDC. This can quickly degenerate into corrupt practice. It is not clear at present whether the recently appointed

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minister for private-sector development will act to promote the overall development of the private sector, or will simply become a channel for businessmen to plead for their own projects to the government.

The opposition reorganises The main opposition parties will continue to reorganise themselves into more effective political forces in preparation for the 2004 elections. The NDC is now scheduled to hold its national delegate congress in April 2002 (originally scheduled for December 2001) to elect its national executive. The party’s national reorganisation committee, which was established to restructure the party, has also been developing proposals for the congress which, if accepted, will ensure that in future all positions in the party will be filled democratically. Initial indications are that the congress will face strong pressure from delegates for a separation of powers between party founder and party leader, thus stripping ex-president Rawlings of his dominant role in the party.

The year-long merger talks between the Nkrumahist parties—Convention People’s Party (CPP), People’s National Convention (PNC) and National Reform Party (NRP)—have agreed to form a single new party. The proposed merged Nkrumahist party will pursue the ideals of Ghana’s first president, Kwame Nkrumah, who was a champion of strong state participation in the economy and redistribution of wealth to the poor. These policies will put the party sharply to the left of the pro-business NPP and undermine the NDC’s claim to the political left. Support for a strengthened Nkrumahist party is therefore likely to be at the expense of the NDC but that depends on the success of the NDC in reinventing itself as a party in the post-Rawlings era.

International relations Ghana is keen to encourage closer regional economic co-operation, and plans to establish a West African Monetary Zone are currently under review following the meeting of heads of state from the Economic Community of West African States (ECOWAS) held in Dakar in December 2001. The importance the government attaches to regional economic affairs was clearly illustrated by its lobbying for the nomination of Mohammed Ibn Chambas as executive secretary of ECOWAS which proved successful (as Dr Chambas is a sitting member of parliament for the opposition NDC, his appointment also backs up President Kufuor’s election promise to run an inclusive government). The government will also seek to maintain good relations with its main bilateral donors. Its decision to apply for debt relief from the World Bank and IMF under the heavily indebted poor countries initiative has led to the loss of new lending from Japan, but grant aid will still be available.

Economic policy outlook

Policy trends In the outlook period the government’s macroeconomic strategy will be aimed at promoting stability and reducing the government’s domestic debt. This should lay the groundwork for a return to rapid economic growth and poverty reduction as will be laid out in the forthcoming poverty reduction strategy paper (PSRP). These policy initiatives have already begun to show results, reflected in reduced spending, falling inflation and interest rates, and a reasonably steady exchange rate. To sustain this effort, the government will

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need to continue to hold its tough stance on government spending and set realistic prices for the utilities and petroleum products. Unless these policies are firmly entrenched by the end of 2002, political pressures in the run-up to the 2004 elections could undermine the government’s stabilisation efforts. Progress will also depend on the reform of the public sector, which has been under way (with only limited progress) since 1997 under the National Institutional Renewal Programme. Both the president and his ministers have publicly criticised the capacity of the public sector and its failure to attract the quality of staff needed to implement policy because of poor levels of remuneration.

The government will embark on a reinvigorated divestiture programme. The 2001 budget made provision for raising at least US$50m by selling shares in private and public companies, including Ghana Telecom, Westel, Guinness Ghana, Coca Cola, Aluworks and Tema Steel Company. However, these divestitures will now only be completed in 2002-03. By agreement with the IMF, divestiture proceeds in excess of US$50m will be used to reduce the domestic government debt.

Fiscal policy The government will continue to follow tight fiscal policy as it tries to meet the commitment in its election manifesto to bring the deficit down to 2% of GDP by the end of 2003. Much will depend on the success of new mechanisms for controlling expenditure and boosting revenue. An important measure has been the introduction of a rigorous system of quarterly expenditure ceilings for controlling new commitments. Measures to increase tax collection by overhauling the revenue agencies have been announced. These include the formation of an integrated National Tax Audit Team to conduct random audits of companies and individuals. Initial data for 2001 indicate that the overall deficit (including privatisation receipts) in the first six months of the year was 0.9% of GDP, which suggests that the government’s target for the end of 2003 may be achievable. However, despite the good performance in the first half of 2001, the government’s revised mid-term budget still forecasts a large deficit of 9% of GDP. We consider this excessive and forecast a deficit of 4.4% of GDP in 2001 and 4.2% of GDP in 2003.

Monetary policy The Bank of Ghana (the central bank) has undergone considerable reform in recent months with both the appointment of a new governor and the passage of a new Bank of Ghana Bill, which seeks to insulate the governor from political interference and restricts government borrowing from the bank in any year to 10% of revenue. These changes will help it its current policy effort to fight inflation, especially as they will be coupled with tighter government fiscal policy. Together this should create the appropriate conditions to bring down inflation to single digit levels over the outlook period. The central bank is also working to restructure domestic debt away from its current concentration in Treasury bills. The bank is proposing to issue additional debt instruments following the success of the government of Ghana index-linked bond which was launched in September 2001. With inflation easing, interest rates will continue to fall.

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Economic forecast

International assumptions The global economy is extremely weak. We estimate that global output, since its deceleration from mid-2000, actually fell in the final months of 2001. The immediate short-term outlook is poor—we believe global activity will fall further in early 2002. But we also consider that this is close to the trough of the global recession—global activity will probably be at its weakest at some point during the first or second quarter of 2002—and that growth will resume in the second half. We expect the rate of world growth to average just 2.5% in 2002 (measured using purchasing power parity weighting) before it picks up to 4.2% in 2003. The price outlook for Ghana’s main commodity exports is mixed. Gold prices will decline gradually, from an estimated US$269/troy oz in 2001 to US$255/troy oz in 2002 and US$250/troy oz in 2003. However, cocoa prices, will show a marginal recovery to 49 US cents/lb in 2001, rising to 60 US cents/lb in 2002 and 61 US cents/lb in 2003.

International assumptions summary (% unless otherwise indicated) 2000 2001 2002 2003 Real GDP growth World 4.7 2.2 2.5 4.2 OECD 3.8 0.9 0.9 3.0 EU 3.3 1.5 1.3 2.6 Exchange rates (av) ¥:US$ 107.8 121.5 124.0 121.5 US$:¤ 0.924 0.896 0.960 1.015 SDR:US$ 0.758 0.785 0.767 0.749 Financial indicators ¥ 2-month private bill rate 0.24 0.18 0.10 0.10 US$ 3-month commercial paper rate 6.32 3.59 1.55 4.88 Commodity prices Oil (Brent; US$/b) 28.5 24.3 18.3 20.2 Gold (US$/troy oz) 279.3 268.8 255.0 250.0 Cocoa (US$/lb) 0.40 0.49 0.60 0.61 Food, feedstuffs & beverages (% change in US$ terms) –6.1 –1.0 11.9 13.4 Industrial raw materials (% change in US$ terms) 13.4 –9.7 1.3 14.8

Note. Regional GDP growth rates weighted using purchasing power parity exchange rates. Economic growth Ghana’s outlook is relatively bright: macroeconomic stability will be enhanced by the marked improvement in fiscal and monetary discipline and the recent falls in the cedi should provide a major boost to export competitiveness (perhaps even enough to drive substantial growth in non-traditional exports towards the end of the outlook period). We currently project a gradual acceleration in Ghana’s GDP growth over the forecast period, from an estimated 3.9% in 2001 to 4.8% in 2003. Growth will be driven by increased agricultural production, led by cocoa and food crops, which we expect to experience a dramatic recovery from the extremely low growth rate of 2.1% recorded in 2000. However, growth in agriculture can be erratic, and the forecast for this sector is vulnerable to the weather. Growth in agricultural GDP

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will be supported by strong expansion in most other sectors of the economy, notably mining and quarrying.

Forecast summary (% unless otherwise indicated) 2000a 2001b 2002c 2003c Real GDP growth 3.7d 3.9 4.3 4.8 Gross agricultural production growth 2.1d 4.0 4.5 5.0 Consumer price inflation Average 25.2 33.1a 19.8 11.1 Year-end 40.6 23.5 14.0 7.0 Short-term interbank rate 36.3 43.6 27.3 19.6 Government balance (% of GDP) –7.9 –4.4 –4.4 –4.2 Exports of goods fob (US$ bn) 1.9 2.0 2.2 2.4 Imports of goods fob (US$ bn) 2.7 2.9 3.0 3.1 Current-account balance (US$ bn) –0.4 –0.4 –0.3 –0.3 % of GDP –8.3 –6.9 –4.9 –4.8 External debt (year-end; US$ bn) 6.9b 7.2 7.5 7.7 Exchange rates C:US$ (av) 5,455.1 7,148.1a 7,328.2 8,097.0 C:¥100 (av) 5,062.2 5,882.1a 5,691.8 6,556.2 C:¤ (year-end) 6,557.8 6,385.9a 7,531.6 9,626.9 C:SDR (year-end) 9,182.4 9,013.2a 9,892.6 12,687.9

a Actual. b EIU estimates. c EIU forecasts. d official estimate.

Inflation Since March 2001, when the rate of annual inflation reached 41.9%, inflation has fallen steadily: at the end of November it was 23.7%. This is largely the result of the relative stability of the cedi and the government’s tight fiscal and monetary policies. The government’s targeted end-2001 inflation figure of 25% will be easily achieved: we forecast a year-end figure of 23%. Although utility prices are likely to go up owing to the government’s objective of reaching cost- recovery prices in early 2002, we expect inflation to continue its downward trend in 2002; it should fall into single digits in the second half of 2003.

Exchange rates The cedi remains reasonably stable against the US dollar and other major currencies. The cedi, which ended 2000 at C:7,048:US$1, stood at C7,172:US$1 at the end of 2001, a fall of 1.7% against the US dollar. The relative stability of the cedi during the year can be attributed to the sharp reduction in imports during 2001, improved donor inflows and the fiscal discipline currently being pursued by the NPP government, as well as a reduction in import costs resulting from the fall in the world oil prices. These trends are expected to continue in 2002, helped by savings on debt servicing which will further reduce foreign-currency outflows. The average exchange rate is forecast at C7,328:US$1 in 2002 and C8,097:US$1 in 2003.

External sector Improved competitiveness, as a result of a substantial real exchange-rate depreciation during 2000 and the stability of international prices for cocoa and gold, should result in modest gains in exports during the outlook period. Cocoa exports should also be boosted by ongoing problems with the crop in Côte d’Ivoire, recent bonus payments to farmers, the mass spraying of cocoa

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farms and the increase in the producer price of cocoa. Thus we forecast that export earnings will rise from US$2bn in 2001 to US$2.4bn in 2003. In addition, current transfers will pick up, as donor disbursements rise in support of a government that seems committed to accelerating the reform process— there will be a sharp surge in transfers in 2001 and 2002, as some of those delayed because of the 2000 elections are released and as private transfers from the Ghanaian diaspora increase. Remittances from the diaspora are the third largest source of foreign-exchange inflows into the country. The increase in foreign-exchange inflows, coupled with the forecast upturn in GDP growth, will raise demand for imports. However, this will be offset by the fall in the value of the cedi, and the overall value of imports will rise only modestly, from US$2.9bn in 2001 to US$3.1bn in 2003. Tourism earnings, which have grown fairly strongly in recent years, will experience a temporary decline as a result of the slump in tourism following the attacks on the US, and the services and income accounts will therefore stay in deficit. We estimate a current-account deficit of 6.9% of GDP in 2001, and forecast deficits of 4.9% of GDP in 2002 and 4.8% of GDP in 2003.

The political scene

A former minister is jailed for The government’s campaign of “zero tolerance against corruption” had a corruption significant victory in December, when a former deputy minister of finance in the last government, Victor Selormey, was sentenced to eight years imprisonment with hard labour after being found guilty of conspiracy to commit crime, defrauding by false pretences and wilfully causing financial loss to the state amounting to US$1.3m. A fine of C20m (US$2,800) was also imposed on him or in default an additional two years in jail for other charges. Mr Selormey was arraigned in June as part of government’s investigations into corruption involving members of the previous government. With the sentencing of the former minister, Ghanaians are increasingly confident that corrupt politicians will not be able to escape justice.

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The Quality Grain scandal Another high-profile case involving corruption, currently before a fast-track will be a major test court, will again test the resolve of the government to deal with corruption at the highest level. The case concerns a government loan of around US$21m made in 1994 to the Quality Grain Company, a US-based company, to establish a rice farm in Volta region. A former finance minister, Kwame Peprah, a former agriculture minister, Ibrahim Adams, and Samuel Dapaah, chief director at the ministry of agriculture, are all on trial. It is possible that the attorney-general will draw in even higher-ranking politicians—both the former president, Jerry Rawlings, and his vice-president, John Atta-Mills, could also be held responsible for the Quality Grain scandal. However, it is more likely that the attorney-general will not take the case beyond its current scope, preferring to obtain a conviction of the current accused.

The NDC congress may be While the New Patriotic Party (NPP) government consolidates its position in stormy power, the opposition parties are preparing themselves to fight the next elections in 2004. For some it is not a smooth process. The largest opposition party, the National Democratic Congress (NDC), which planned to hold a congress to elect its national executive on December 28th 2001, postponed the congress at the last minute, ostensibly to allow more time for preparation, and it has now been scheduled for April 2002.

When it does go ahead, it is likely to be a lively affair. One of the key issues is whether positions in the party are to be filled democratically. This ties in closely with a debate over the role that ex-president Rawlings should have in the party—whether there should be a separation of powers between party founder and leader, which would end Mr Rawlings’s dominance of the party. Obed Asamoah, a former attorney-general and minister of justice in the Rawlings administration, who is currently chairman of the party’s reorganisation committee, has declared his intention to stand for the position of national chairman. This is reported to have upset Mr Rawlings, who claims that Mr Asamoah is using his position in the reorganisation committee and the moves towards democratisation to strip him of his title as “founder and leader” of the party. Other factions within the NDC have accused Mr Asamoah of using the party’s resources to further his personal ambitions. Now that Mr Atta- Mills, who was seen as a unifying force within the party, has left the domestic political scene (October 2001, page 16), it is likely that the debate over Mr Rawlings’s position in the party could get increasingly bitter. Although it is too early to reach a firm conclusion, it is possible that party disunity, together with the ongoing investigations into corruption, will undermine the NDC’s election prospects.

Three Nkrumahist parties Although the year-long discussion by the Nkrumahist forum, comprising the merge Convention People’s Party, the People’s National Convention and the National Reform Party, appeared to become bogged down in recent months, it does seem to have been successful. The three parties have now agreed to merge into one party in the Nkrumahist tradition. A manifesto for the new party has been drawn up, and finishing touches are being put to its constitution. In a thorough investigation into their parties’ performance at the last general election, the leadership of the three parties attributed their poor showing partly

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to the splintering of the Nkrumahist parties, and agreed on the need for them to merge into a single party before the 2004 elections. The Great Consolidated Popular Party (GCPP) had been involved in the discussions, but decided to pull out of the merger talks, arguing that there was a lack of serious commitment on the part of the other parties (October 2001, page 16). The three parties have stated that the doors of the forum are still open for the GCPP to join at any time it wishes. If the new party remains unified in the coming months, and the rifts within the NDC continue to grow, it could overtake the NDC as the most important party of the left in the 2004 elections. However, it could be a party only unified in name and, if the NDC overcomes its current divisions, fail to present a serious electoral challenge.

The NDC walks out of The official opposition party in parliament, the NDC, maintained its high parliament domestic political profile when it staged a walkout during the winding-up of the debate for a second reading of the National Reconciliation Bill. The bill is for establishing a body similar to South Africa’s Truth and Reconciliation Commission to investigate past injustices in Ghana. The main disagreement between the government and the NDC is over the period covered by the commission. The NPP wanted the period to start from the late 1960s, when the military first intervened in politics, and wanted the commission to investigate only abuses committed under military regimes, though offering a “window of opportunity” to those who suffered abuse under civilian regimes. In contrast, the NDC wanted the period to start in 1957, when the country gained its independence. The 1957 starting point will cover the period from which the United Party (UP), the party from which the NPP was formed, was active. The NDC has also argued that, for genuine reconciliation to take place, all human rights abuses since 1957 should be investigated.

Despite the protest in parliament, the president, John Kufuor, disregarded the NDC’s petition to take a second look at the bill and gave it his assent. Although the NDC expressed disappointment at this, there is little that the party can do except to refuse to co-operate with the commission. However, it will continue to assert that by driving through the bill without regard for its concerns the president has eroded the credibility and independence of the commission. The NDC is convinced that the commission will be neither national nor reconciliatory, considering the circumstances in which the bill was passed.

Tribal violence breaks out Although Ghana does not usually experience the ethnic violence that has in Bawku characterised its larger neighbour Nigeria since the return of civilian rule in May 1999, there were renewed clashes in early December in the long-standing conflict between the Kusasi and the Mamprusi tribes in Bawku, a town with a population of 100,000, 880 km north of Accra. The violence escalated following the burning down of a lottery kiosk belonging to a Kusasi. The warring factions mounted roadblocks, fired gunshots, extorted money, vandalised property and assaulted people. The death toll from the violence was 28; many others were seriously injured.

The government has said that it will set up a commission to investigate the ethnic conflict in the region with a view to finding a lasting solution. Until a political solution is found to the problem a huge military presence has been

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deployed in the Bawku township and its environs, to restore law and order. Ghanaians often liken Bawku to Jerusalem, a town to which two different groups of people lay claim. There is certainly a history of armed violence between the two ethnic groups. At least 30 people were killed in clashes in 2000 and there was violence during the last elections. Until the early 1980s the Mamprusi were the rulers of Bawku, but following persistent clashes it was resolved that the Kusasi, who were the owners of the land, should be recognised and the Kusasi chief Abugrago Azoka II became the Bawku naba (chief of Bawku). There is also a political aspect to the conflict—the Mamprusi support the NPP, whereas the Kusasi support the NDC.

Economic policy

The mid-year budget Although the government is still struggling to put together a budget for 2002 review is published as it attempts to reconcile its current financial position, on November 8th 2001 it published a mid-year review of the budget statement and economic policy. This set out to assess the extent to which the government had succeeded in meeting the four short-term fiscal targets it had set itself at the beginning of the year.

• To control expenditure: The key development has been the establishment of the Economic Policy Co-ordinating Committee. On its recommendation, quarterly expenditure ceilings have been introduced to control new commitments. As a result, expenditure has been contained within the half-year target. Statutory payments in January-June 2001 of C3.26trn were budgeted, but they actually totalled C2.52 trn; discretionary payments of C3.12trn were budgeted, whereas C2.05trn was spent.

• To boost revenue to meet ambitious new targets: Both value-added tax (VAT) and the Customs, Excise and Preventative Service exceeded their revenue targets for the first half of the year, collecting C972bn and C684bn against targets of C908bn and C664bn, respectively. However, the poor performance of companies in 2001 led to a shortfall in targeted revenue from the Internal Revenue Service, which collected C847bn, compared with a target of C1trn.

Revenue collection, Jan-Jun 2001 (C bn) Target Actual Internal Revenue Service 1,001.5 847.3 Value-added tax 907.6 971.8 Customs, Excise and Preventative Service 663.8 684.2 Source: Ministry of Finance.

• Reduce the overall budget deficit: The overall fiscal outturn was considerably better in the first half of 2001 than in the same period of 2000; the deficit was only 0.9% of GDP, compared with a target of 2.5%. Similarly,

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the domestic primary balance showed an additional surplus of 0.3% of GDP, amounting to 2.6% of GDP, against a target of 2.3% of GDP.

Overall fiscal outturn, Jan-Jun 2001 (% of GDP) Actual Target Domestic primary balance 2.6 2.3 Overall fiscal balance –0.9 –2.5 Source: Ministry of Finance.

• Reduce domestic borrowing: With a deficit much lower than expected, it is not surprising that the government only borrowed C602bn, having projected borrowing of C1.34trn. The government also benefited from the reduction in inflation which led to a significant decline in the interest rates on Treasury bills, the main financial instrument used for domestic borrowing. Although unlikely to have had much impact in 2001, the government will also benefit from the shift to longer-term debt instruments in 2002, which should lower its immediate interest payments.

Medium-term expenditure framework, 2001 (C bn) Year Jan-Jun Budget Revised Budget Actuala Revenue & grants 8,154.9 8,524.7 4,196.3 3,829.7 of which: total revenue 6,282.9 6,605.2 3,118.5 2,954.0 Divestiture receipts 391.2 391.2 28.9 33.0 Project loans 842.5 2,247.0 783.5 511.9 Programme loans 1,070.1 1,224.9 32.3 44.2 Total receipts incl others 13,826.7 13,073.8 6,382.1 5,021.0 Statutory payments 7,770.0 5,574.8 3,259.8 2,517.2 of which: external debt 4,434.0 1,684.8 1,625.7 1,088.8 domestic interest 2,082.2 2,651.2 1,172.9 978.2 Discretionary payments 6,056.6 7,498.7 3,122.4 2,503.7 of which: personnel emoluments 2,615.1 2,620.0 1,252.4 1,301.1 administration and service 799.9 898.1 370.9 182.9 total investments 2,641.6 3,893.4 1,431.6 1,034.1 Total payments 13,826.6 13,073.5 6,382.2 5,021.0 Memorandum items Overall cash balance –1,880.7 –3,405.6 –338.6 –962.5 % of GDP –4.9 –9.0 –0.9 –2.5 Nominal GDP 38,014 38,014 38,014 38,014

a Provisional. Source: Ministry of Finance, Mid-Year Review of the Budget Statement and Economic Policy.

The deficit grows in the Although the mid-term review showed that the government had succeeded in second half of 2001 reducing the deficit, it is too early to assess the sustainability of this success. Moreover, comparisons with the original and revised budgets are not easy as

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the original budget included a large financing gap of C2.61trn. This has now been met with larger commitments of project and programme loans, which have helped push up the government’s estimates of the deficit for the year— the overall deficit was originally estimated at 4.9% but in the revised budget data this was increased to 9%. Another problem is that although payments were substantially below target in the first half of the year, this was largely due to administrative delays as the government sought to verify the nature of many payments. While some will no doubt be cancelled as a result of this auditing process, many will have had to have been made in the second half of 2001 which will cause a surge in both statutory and discretionary payments.

Given the trends in the first half of the year in terms of both revenue and expenditure, and even allowing for a surge in expenditure, the government’s revised projection of the overall budget deficit, of 9% of GDP, appears high. For example, discretionary payments in the second half would have to be twice those in the first half if they were to reach the annual target. There may also be a psychological element in the budget, to make the picture look a bit worse than it is so that the government can improve on its stated targets, which will given momentum to its overall programme of fiscal reform. The Economist Intelligence Unit therefore forecasts a deficit of 4.4% of GDP in 2001.

The Bank of Ghana gets a There have been a number of important changes at the Bank of Ghana (the new governor central bank) in the last quarter. Paul Acquah, a former deputy director at the International Monetary Fund, took office as the new governor of the bank on October 1st 2001, replacing Kwabena Duffour. In his first policy statement delivered to the Chartered Institute of Bankers, Mr Acquah outlined his vision for monetary policy management. He hopes to achieve policy credibility, something which has been lacking in recent years, by adopting a more consistent monetary and fiscal policy. With fiscal policy helping, rather than hindering the fight against inflation, the aim is that monetary policy can focus on strengthening the disinflationary process to help achieve a durable drop in inflation and sustainable reductions in interest rates. These objectives will be achieved by:

• establishing a clear distinction between interventions by the central bank in the money market for the purpose of funding government fiscal operations and open market operations by the central bank;

• establishing a Lombard facility whose applicable interest rate will serve as the signalling rate for monetary operations;

• fostering the development of a secondary market for government securities; and

• establishing a well-integrated interbank market for foreign exchange.

A Lombard facility is to be Of these proposals, establishing a Lombard facility is probably the most introduced interesting. Traditionally, a Lombard facility is a central bank financing facility for commercial banks which can be activated at their discretion. The interest rate of a Lombard facility is intended to provide the upper end of money market interest rates. A change in the interest rate of this facility is then used to

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signal a change in the stance of monetary policy. Credit granted to banks under the Lombard facility is made available on an overnight basis and government securities (Treasury bills) are used as a collateral. There is no limit to the amount of funds to be advanced under this facility as long as there are sufficient underlying eligible assets. This facility has some similarities with repurchasing agreements (where the interest rate is known as the repo rate), which are currently being promoted by the IMF as a tool of monetary policy in Africa. This is especially the case in Africa, because whereas repos are normally offered at going market rates rather than penal rates because of the lack of a well-developed secondary market in Africa, central banks always stand ready to offer repos, so that the repo rate, like the Lombard rate, becomes the rate that the central bank uses to signal its monetary policy intentions.

A new governor at the Bank of Ghana

Paul Amoako Acquah assumed office as governor of Bank of Ghana on October 1st 2001. Dr Acquah holds an honours degree in economics from the University of Ghana, a masters degree from Yale University and a PhD in economics from the University of Pennsylvania. Until his appointment, Dr Acquah was deputy director at the African Department of the International Monetary Fund, where he worked for over 20 years. As deputy director, he had responsibility for the general oversight of departmental operational work on African countries, including policy advice, programme design and relations with international institutions, donors and creditors. He is known to his colleagues as a highly regarded and well-motivated technocrat with a no- nonsense approach to economic policy management.

The Bank of Ghana Bill is The new governor’s attempts to boost the credibility of monetary policy will be passed supported by the passing of a new bill to make the Bank of Ghana more independent and give it more freedom to manage monetary policy. The main features of the bill include:

• a clause limiting government borrowing from the central bank to 10% of total government revenue in a fiscal year;

• the abolition of the central bank’s ability to provide external loan guarantees to private organisations; and

• reducing the number of areas in which the central bank has to consult the government before it can make a decision.

These measures should help the new governor to achieve his goal of a more independent and effective central bank, which is less subject to political pressure. The next stage of reform is likely to be a move towards more clearly modelling the causes of inflation in Ghana and introducing some form of inflation targeting.

Investment law is to be Ghana’s laws governing foreign investment are in the process of being amended changed. The laws are being reviewed under the supervision of the Ghana Investment Promotion Centre. The changes are aimed at converting the centre into a one-stop shop for foreign investors seeking to set up operations in Ghana; currently it acts simply as a source of information, while a plethora of

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government agencies deal with the applicant. Another change will significantly increase the minimum level of foreign direct investment required for setting up both joint ventures with Ghanaians and purely foreign-owned enterprises. The new dispensation is expected to be in operation by the middle of 2002 after parliament has approved the legislation. The new investment laws aim to give more attention to Ghanaian investors to help them to act as effective local partners for incoming foreign investors.

Bank and IMF are to set up The World Bank and the IMF have selected Ghana, Senegal and Tanzania as an investment council three countries in Sub-Saharan Africa in which to set up investment advisory councils to help governments attract more foreign investment. The councils will also advise on other matters, such as job creation. Members of the council will include leading Ghanaian businessmen and entrepreneurs, multinational companies and institutions that have investments in Ghana, and representatives of other international companies and institutions which, although they have no investments in Ghana, can offer advice and suggest how they might be persuaded to invest in Ghana.

Plans for a West African Monetary Zone are thrown into confusion

Plans to establish a second monetary union in West Africa, the West African Monetary Zone (WAMZ), to comprise The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone, were thrown into confusion at a summit meeting of the Economic Community of West African States (ECOWAS) held in Dakar in December 2001. Until the Dakar summit, the plan was for the new monetary zone to come into effect on January 1st 2003, to be followed by unification with the CFA franc, the common currency of the eight francophone members of ECOWAS, on 1st January 2004. However, the summit agreed to work directly towards introducing a common currency for all 15 members of ECOWAS by 2004. In addition, the adoption of the recommended name for the new currency was deferred so that a common currency name could be approved for the entire 15-country group, whose francophone block now has to find a new name for the CFA franc, following the demise of the French franc to which it was linked. Officials of the West African Monetary Institute (WAMI) in Accra, which is implementing the programme for launching the second currency are at this stage not certain on how the summit decision will affect the launch timetable.

The summit also dealt with issues relating to macroeconomic development; proposals for the harmonisation of national legislation concerning central banks with the statutes of the WAMZ and the West African Central Bank (WACB); and the sensitisation programme for the monetary zone. The council received reports on WAMI’s activities, most of which are related to operational issues, and the design of, and technical preparation for, the new regional currency. Proposals for improving co-operation between the central banks of member-states that signed the agreement to set up WAMI were also discussed. One of the challenges facing WAMI is to establish a durable legal framework for harmonising the laws relating to financial institutions in member states as required by the treaties establishing the zone The agreement requires members to fulfil the four primary convergence criteria to allow the adoption of a single

currency by 2003 and common monetary and exchange-rate policies. The criteria are price stability, sustainable budget deficits, non-inflationary methods of financing budget deficits and adequate levels of foreign-exchange reserves. ECOWAS said that specific targets in fulfilling these conditions were:

• a budget deficit (excluding grants)/GDP ratio not exceeding 5% by 2000 and 4%, by 2002; • an annual inflation rate in single digits by 2000 and of 5% by 2003; • central bank financing of budget deficits limited to 10% of previous year’s tax revenue by 2000; and • foreign-exchange reserves to cover at least three months of imports by 2000 and six months of imports by 2003.

The domestic economy

Economic trends

New population statistics Ghana’s population was 18.8m in 2000, according to figures recently released are published by the Ghana Statistical Service (GSS). The figure, which emerged out of the 2000 population and housing census, represents a 53% increase over the 1984 count of 12.3m. It also represents an average annual growth rate of 2.6%. This figure is higher the World Bank’s average for less developed countries of 2%, but is the same as that for Sub-Saharan Africa and lower than the 2.9% average growth rate in West Africa. The growth rate in the 1984-90 period of about 2.9% is thought to be due to the mass return of Ghanaians and inflow of refugees in response to improvements in the economy. The fertility rate was 4.5 children per woman, compared with the average of 5.8 children in Sub- Sahara African. If the growth rate continues to decline, Ghana’s population is likely to be less than 24m at the next census in 2010.

Some Muslims have disputed the figures, arguing that they deliberately undercount the Muslim population in an effort to marginalise it. Of the 18,845,265 total population recorded in the census, Muslims number 2,939,861, only 15.6% of the total, whereas Christians are 69% and followers of traditional African religions 8.5% of the total. Sheikh Seebaway, of the Coalition of Muslim Organisations in Ghana, claimed that statistics for 2001 on the website of the Central Intelligence Agency put Muslims in Ghana at 30% of the population, Christians at 24% and followers of traditional religion at 38%, and that the same figures were provided in the 1995 edition of the American reference book Universal Almanac. He said that Ghana’s population was around 21.4m, and not 18.8m as the statistical service claimed. He said that Muslims believed that these were not innocent errors, attributable to the administrative inadequacies usually associated with underdeveloped countries, but a deliberate attempt by the Ghana Statistical Service and its collaborators to understate the population of Muslims in Ghana in order to provide an official basis for their marginalisation. Such claims are common following most African censuses, where groups often claim to have been marginalised and

hold up the publication of census data. Moreover, Sheikh Seebaway’s argument fails to appreciate that the CIA’s data are projections based on official sources.

Bank lending is still weak Although the economy has started to recover slowly, interest rates have only started to fall appreciably in the second half of 2001, and credit growth to the private sector still remains weak. Whereas credit extended to public institutions rose by 78.8% in January-August 2001, credit to the private sector only increased by 10.9%, well below the rate of inflation. There were also considerable differences between different sectors in the growth of credit.

• The sectors that saw the greatest growth in credit included agriculture, forestry and fisheries, commerce and finance, manufacturing, transport, storage and communications, and construction.

• The sectors that experienced falls in credit included mining and quarrying, exports and imports, and cocoa marketing. However, credit for cocoa marketing is likely to improve significantly as various constraints in the sector are overcome (see Agriculture), as should credit to the all-important trade sector as the value of the cedi continues to stabilise and exports are boosted by the greater competitiveness of the cedi.

Agriculture

New cocoa shipments will There are indications that cocoa deliveries in the 2001/02 agricultural year be delayed (October-September) may be delayed. Three months into the year, shipments to buyers in Europe and North America have barely begun. Because of years of low prices, many buyers in Ghana, are unable to participate in the current buying campaign. Under Ghana’s transitional privatisation programme, the few licensed buyers have purchased cocoa from farmers at prices fixed by the state, which limits their ability to profit when world prices are low. As part of its plans to gradually phase in a free-market regime, Ghana has issued a few export licences to a number of buyers who are allowed to compete with the state-owned cocoa board (Cocobod). These exporters buy beans from farmers, with money borrowed from banks, but when world prices fall below the prices they have paid, they face financial problems. Because of this, many buyers have opted not to participate in foreign sales of cocoa.

The problems faced by buyers are illustrated by the current financial woes of Cashpro (Cashpro Company, once known as Cashew and Spices Products, is wholly owned by Ghanaian entrepreneurs and engages in the purchase and marketing of agricultural produce). Cashpro, which bought 10% of the 2000/01 crop, now has debts of about US$4m. Banks are said to be reluctant to lend to the trader until it repays its debts from last year. Thus, the company is unable to participate in cocoa buying this year. In 2000/01 Cashpro borrowed some US$18.9m from financial institutions, but has been unable to pay back about one-third of it. A major problem for Cashpro is that it has been unable to recover money it lent to farmers for them to buy fertiliser, because they considered it a gift rather than a loan. In Western region, where Cashpro has a strong presence, farmers are refusing to sell to other buyers and are waiting for Cashpro’s return. In addition to cash-flow problems, the industry is also faces a

severe shortage of sacks. Under the old regime, Cocobod purchased all of the cocoa crop, providing farmers with sacks in which to transport the beans. However, with the advent of privatisation, gaps in the supply chain are beginning to appear.

Livestock development gets The African Development Fund (ADF) has approved a loan of 19.58m units of a boost account (UA; US$25.23m) to finance the Livestock Development Project in Ghana. The aims of the project are to reduce poverty, improve food security and reduce imports in an environmentally sustainable manner. The project seeks to increase the income of smallholder livestock and dairy farmers, processors and traders in 25 districts countrywide. It aims to reduce the mortality rate of various types of livestock by at least 30%, by supporting livestock breeding stations and promoting sustainable, improved livestock- breeding and disease surveillance. It also aims to improve livestock productivity through improved nutrition (by increasing the production of forage crops) and improved animal husbandry (by training smallholders). The project is expected to provide short- and medium-term credits for financing, production, processing and marketing. The loan is to be used to finance the entire foreign-exchange cost and part of the local currency expenditure of the project whose total cost is estimated at UA22.07m (US$28.44m).

Trawling for fish is Trawling for fish in Ghana’s territorial waters is now reserved solely for reserved for Ghanaians Ghanaians, under a new fisheries law passed by parliament. The law, currently awaiting presidential assent, also stipulates that 50% of investment in tuna fishing is reserved for Ghanaians, compared with 25% previously. The intention is to raise annual fish production from 400,000 tonnes to 500,000 tonnes; and in the area of tuna production the government is inviting foreign participation to increase annual production from 70,000 tonnes to 100,000 tonnes. The total catch landed at Tema fishing harbour has declined in recent years, from 64,000 tonnes in 1999 to 59,000 tonnes in 2000 (though it rose slightly to 62,000 tonnes in 2001).

Industry and mining

Pioneer Aluminium Factory Strategic Africa Securities (SAS), a licensed dealing member of the Ghana Stock is taken over by broker Exchange, has announced its intention to take over Pioneer Aluminium Factory (PAF), a manufacturing company listed on the stock exchange. SAS has offered to buy 4,485,000 PAF shares at C616 per share from shareholders. SAS would thereby increase its shareholding in the company from 47.82% to 75%. Recent acquisitions of large blocks of shares by brokers in listed companies such as Camelot and Enterprise Insurance Limited have raised concerns about conflict of interest, as the same brokers have to advise clients about these companies. Private companies contemplating listing on the Ghana Stock Exchange have expressed fears of losing control of their companies to large brokerage firms. So far, the Securities and Exchange Commission appears not to have exercised its authority in the matter.

The textile industry faces Members of the textile, garments and leather industry have warned that any hard times further increase in electricity charges could lead to the collapse of the textiles industry. The industry, which recorded a total production volume of 129m metres per year in the 1970s, now produces 46m metres. Employment in the sector has dropped from over 25,000 in the 1970s to a little over 7,000, leading to huge losses in revenue to government from sales, personal and company taxes. High duty charges on imported raw materials and spare parts are gradually crippling the industry. This situation is likely to force the few investors in the sector to relocate to neighbouring countries where the investment climate may be more favourable. The high costs of inputs, utilities, and high interest rates on loans are a major disincentive to textile companies. Currently, smuggled goods account for about 45% of the domestic textile market.

The government is asked to Pressure is building on government to give up its “golden share” in Ashanti give up its golden share Goldfields. At the time of the company’s privatisation in 1994, the government took a golden share, which gives it a veto over major decisions, such as the disposal of material assets including mining leases. Ashanti Goldfields Company (AGC) argues that the golden share might have made sense when Ashanti’s operations revolved around the Obuasi mine in Ghana, whereas AGC is now a multinational company with mining interests in several countries including Guinea, Tanzania and Zimbabwe. According to the top management of AGC, the golden share is having a negative impact on the share value of the company—the share price is now US$3.50, compared with an initial price of US$20 in 1994—which is especially unacceptable given that the government is a minority shareholder in AGC with a 20% stake. In particular, the company believes that the golden share creates a negative perception among its mostly institutional investors which see it as a barrier to any possible takeover. Critics of AGC contend that the company’s recent problems, including poor corporate governance in the past, an overhang of debt, high operating costs and the hedging crisis of 1999, have been responsible for the weak performance of the company’s shares and that no evidence exists that the golden share is responsible for the poor stock price (October 2001, page 24).

The Ghanaian government has stated that it has no immediate plans to abandon the golden share, but officials have suggested that the government would be willing to do so if Ashanti persuaded Ghanaians it was necessary. Ghanaians have tended to think of Ashanti as a national heirloom, and the golden share as the last defence against a feared, foreign take-over. It is believed that the instinct of the president, John Kufuor, is to relinquish the golden share, but he is concerned that opponents might try to turn public feeling against the government over the issue. Ashanti company officials would not comment on the effect further delay in resolving the issue might have on the company’s efforts to refinance US$219m of convertible bonds. Ashanti’s cash position is not strong enough to withstand the level of cash redemptions that would be likely if its share price fails to recover by 2003, when the bonds mature. In an attempt to repair its balance sheet, the company has reached a conditional agreement with creditors to extend the maturity of the bonds by five years. But one of the conditions of the agreement is that the government lets go of the golden share.

Golden Star is to buy the A Denver-based company, Golden Star Resources, has emerged as the buyer for Wassa gold mine the Wassa gold mine in Ghana, which was offered for sale by it owners earlier in 2001 after operating problems curtailed production which in turn made debt repayment difficult. Golden Star has reached agreement with Satellite Goldfields and the latter’s creditors to acquire the mine for US$9m plus royalties. Wassa lies 35 km east of Golden Star’s existing operations at Bogoso and Prestea and is expected to give the company critical mass in Ghana by raising its consolidated gold output to over 230,000 oz per year by 2003.

A cyanide spill puts gold The environmental impact of gold mining in Ghana again came to the fore in mines under pressure October, when cyanide from a leaking pipeline belonging to Goldfields Ghana spilled into a river at Tarkwa, a town in Western region. The river is a source of drinking water for thousands of people. Although there has been no loss of human life, the Environmental Protection Agency has come under severe public criticism for its alleged poor monitoring of the activities of mining companies in Ghana. The affair is likely to lead to renewed calls for a review of the country’s mining laws, which critics claim are ineffective in both stopping, and punishing problems of this nature. Critics also point out that surface mining in Ghana has left much of the landscape in some mining areas, including farmland, scarred by deep pits and tunnels. In some mining communities skin and respiratory diseases are common. As a result, mining companies are likely to come under renewed pressure to conform to international environmental management practices.

Government to intensify oil The government has indicated its support for intensified oil and gas and gas exploration exploration, particularly in deep offshore areas where there is growing evidence of a large accumulation of oil and gas. The government is also about to embark on a major revision of the existing legal and regulatory framework for oil and gas exploration and development to make it more attractive for investors. Ghana is in a region that has seen large deepwater oil and gas discoveries in recent times, notably off Nigeria and Equatorial Guinea. Ghana has an offshore sedimentary basin, which covers about 50,000 sq km and is grossly underexplored compared with similar basins elsewhere in the world.

It is hoped that a new deepwater licensing round will help the government clarify the situation regarding the search for oil and gas in Ghana’s deepwater basins. In order to increase interest in the round the government is having a look at the legal and fiscal regimes, revising the model agreement and seeking to persuade the public opinion that the best way to exploit the country’s hydrocarbon resources is through the private sector. However, the round’s success is far from certain, since Nigeria is due to hold another licensing round in the next few years and investors have ongoing interests in Angola and Equatorial Guinea, Cameroon and Gabon, with Ghana trailing behind. Proposed new incentives include extending the exploration period from the current seven years to nearer ten (to allow for the difficulties of exploring in deepwater) and reducing royalties. The current royalty payment on oil production of 10% will be reduced to 8%, and gas royalties will be lowered to 3% from 5%. Marketing material is being drawn up for a licensing round covering the remaining 36,000 sq km of deepwater acreage.

Infrastructure

An energy crisis is not The Volta River Authority (VRA) has denied reports in the press of an expected in 2002 imminent national power crisis, saying it does not expect any crisis in 2002. Although the last rains were lighter than expected, resulting in a lower than expected water level at the Akosombo Reservoir, this would not affect the power supply because thermal-powered generation is ready to supplement the hydroelectric supply. The VRA pointed out that even if the Volta Lake is at its maximum level of 278 ft, the Akosombo and Kpong dams together cannot meet the total national energy requirement. Projected total demand in 2002 is 8,575 gwh, of which hydroelectric generation will provide about 4,950 gwh (58%) and thermal generation and imports will provide the remaining 3,625 gwh (42%), a significant increase in thermal power on 2001, when 79% of demand was met by hydroelectric generation and 21% by thermal generation. In contrast to the situation in 1997, there is sufficient thermal generation capacity at Takoradi (550 mw) to meet the projected thermal energy demand for 2002. However, oil for this will cost about US$180m. This will naturally translate into higher generating costs, which consumers will have to bear.

Electricity supply and consumption (m kwh) 1995 1996 1997 1998 1999 2000 Generation 6,133 6,627 6,885 5,013 5,925 6,954 Akosombo 5,094 5,520 5,711 3,166 4,289 5,557 Kpong 1,021 1,105 1,140 664 880 1,052 Tema diesel 19 2 12 37 0 0 Takoradi thermal plant – – 22 1,146 755 345 Imports from Côte d’Ivoire 320 228 660 573 1032 864 Total supply 6,453 6,855 7,545 5,586 6,956 7,818 of which: hydro power (% of total) (95) (97) (91) (69) (74) (85) Consumption 6,077 6,658 7,341 5,437 6,804 7,858 Volta Aluminium Company 2,198 2,212 2,467 927 1,928 2,505 Electricity Company of Ghana 2,693 3,089 3,387 3,024 3,493 3,919 Mines 654 718 748 713 696 630 Others 247 291 317 313 362 412 Exports 285 348 422 460 326 392 Source: Bank of Ghana, Annual Report 2000.

Non-payment is a problem The VRA has also stressed that domestic consumers must pay economic for the VRA charges if it is to provide cheap and reliable power and pay off its debts. One of the problems facing the VRA is that low tariffs have undermined its financial strength and thwarted its efforts to meet customer demand. By June 2001 the VRA owed the Côte d’Ivoire electricity company US$50m for electricity imported to supplement the domestic supply. It also owes its joint-venture partner, CMS Generation, arrears amounting to US$19.4m. Between January and July 2001 the VRA sold C468.9bn (US$66m) of power to its key customers, but only C276.7bn (US$39m) has been received in payment. There is also an outstanding balance of C458.3bn (US$66m) carried over from 2000, of which the Electricity Company of Ghana (ECG) alone owed C361bn (US$51m). Other

institutions, including mining companies, owe about C200bn (US$28m). These huge debts, combined with low tariff rates, have forced the VRA to reschedule some development projects, which are critical to the reliability of the power supply system. The VRA and the ECG have reached an agreement to establish a bank account into which an amount of C16bn (US$23m) will be paid upfront each week to cover the cost of power supplied. Wasted energy is another problem for the VRA: about 30% of electricity is lost. The VRA has started using prepaid billing meters as a way of checking energy consumption and ensuring payment for electricity used.

Non-payment is a major problem for the VRA, as it needs about US$200m to expand its generation capacity by 300 mw by 2003. The additional capacity is needed to cover the growth in domestic demand, which in the past three years has been 4-5%. In addition, the VRA is working with the government to secure financing of about US$180m to construct a 110-mw capacity heat recovery steam generator and steam turbine for the 550-mw thermal power plant at Takoradi. The VRA is also actively involved in the West Africa Gas Pipeline project to help fuel cheap, reliable and clean energy to boost socioeconomic development in Ghana. The Takoradi thermal plant will require over 6m barrels of crude oil at a total cost of about US$185m, which is a significant challenge to the nation and the VRA.

The Bui Dam project The project to build a dam at the end of Bui Lake in eastern Ghana has been is dropped dropped. The power from Bui would have been too dear, and the government now prefers to wait for the construction of the West African pipeline which give Ghana access to natural gas from Nigeria, to produce less costly electricity. The dam was to have been built by a consortium consisting of Brown & Roots of the UK, an affiliate of the US group Halliburton, ABB Alstom Power, Dragados and Hyundai.

Ghana Telecom is to lose its The government has assured investors, that the telecommunications industry monopoly will be opened to competition when the current monopoly enjoyed by Ghana Telecom expires in February 2002. The National Communications Authority (NCA) will then grant licences to other operators capable of supplying the country’s growing telecommunication needs. The government’s decision to end the monopoly of Ghana Telecom is justified by the poor quality of the company’s service and the long waiting period suffered by new applicants for telephone services, which lessen the attractiveness of Ghana to new potential investors.

Financial and other services

The stockmarket recovers The relative stability of the cedi and improved macroeconomic stability were in dollar terms reflected in the reasonably healthy performance of the Ghanaian Stock Market in 2001. The Databank Stock Index (DSI) rose by 11% in 2001, compared with 15% in 2000. But the cedi return on the market is unlikely to impress local investors, who must weigh the 11% cedi gain against an inflation rate of 23% and Treasury-bill returns averaging 35% during the year. However, in dollar terms the index recovered from the losses recorded in 2000. The relative

stability of the cedi against the US dollar in 2001, translated into a gain of 6% in the dollar DSI showing a remarkable improvement over a loss of 41% in 2000. Finance stocks, which have traditionally been the main drivers of the index, were not the top performers in 2001. The rally in the index was driven mainly by the manufacturing and consumer goods sectors. Pioneer Aluminium Factory was the best performer. Its share price showed a 200% gain over the year—from C267 to C800. Aluworks followed closely, with a gain of 197%— from C1,450 a share to C4,300 a share. Paterson Zochonis also performed strongly with a price gain of 153% from C400 to an all-time high of C1,010 per share. Badly performing shares included Mobil Ghana, Standard Chartered Bank, Produce Buying Company (PBC) and Ghana Breweries (GBL). GBL led the falling shares: its share price was down 26% over the year, from C1,350 to C1,000. PBC also fell substantially, by 11% from C503 to C450.

Ghana’s index-linked bond The three-year government of Ghana index-linked bond (GGILB) is finding a is oversubscribed healthy market. Over the three months September 7th-November 30th 2001, bids totalled C802.6bn (US$113m) against offers of C660bn (US$93m), an oversubscription of about 22%, which the Bank of Ghana (the central bank) later made an effort to accommodate. As a result of the oversubscription, the real interest rate at which bids are allocated declined, from 6% at the start of the issue to 5% by the end of November. Secondary trading in the GGILB was officially authorised by the Ghana Stock Exchange on December 28th. Unlike other products that are traded on the floor of the Ghana Stock Exchange, the GGILB will be traded in a dealer market consisting of 18 banks and brokerage forms known as the Government Securities Dealers. The GSE will provide a common market platform, which will enable participants to have up-to-date information on market quotation, prices and trading volumes. It was hoped that about C1trn (US$141m) of the GGILB would have been issued by the time trading started. However, over 95% of the issued bonds are held by banks to satisfy their secondary reserve requirement, which is 35% of deposit liabilities. Active secondary trading is unlikely in the near future because of the limited public float.

Banks introduce A debit card has been introduced by Transaction Management Services (TMS), a a debit card consortium of three banks and Dart Communications. The banks are CAL Merchant Bank, Trust Bank and Ecobank Ghana. The TMS e-card will for the first time enable Ghanaians to use debit cards to perform a wide range of financial transactions. It will enable banks to provide the much needed banking services to their customers as it aims to reduce cash in circulation, cash losses due to counting errors and congestion in banks, and promote the transaction of business without using cash.

Foreign trade and payments

The balance of payments The government’s mid-year review of the budget statement, published in is in deficit in the first half November, shows that the overall balance-of-payments deficit in the first six of 2001 months of 2001 was US$38.4m; the government’s initial projection was a

surplus of US$165.7m for the year. Although the data do not include an income balance, which is usually in deficit, the other categories do seem broadly in line with the Economist Intelligence Unit’s estimates of the current account in 2001. Probably the biggest discrepancy is in imports, which are lower than we had estimated for 2001. However, as government budget expenditure picked up in the second half of the year, and the exchange rate remained relatively stable, import growth should have also picked up strongly.

Balance of payments, Jan-Jun 2001 (US$ m) Exports 965.20 Gold 317.70 Cocoa 238.60 Timber 87.80 Others 321.10 Imports 1,242.50 Oil 255.50 Non-oil 987.00 Trade balance –277.30 Services (net) –94.40 Transfers (net) 334.4 Official transfers 140.5 Private transfers 193.9 Capital inflows (net) 33.20 Capital outflows (net) 32.00 Capital balance 1.20 Source: Ministry of Finance, Mid-Year Review of the Budget Statement and Economic Policy.

Reserves are hit by balance The balance-of-payments deficit was financed mainly from external reserves, of payments problems which fell as low as US$120.5m in May. However, according to IMF data they had been rebuilt by August, when they reached US$234.4m. This still left gross external reserves at the equivalent of about one month of imports; the policy objective for the external sector in 2001 was to rebuild external reserves to the equivalent of around 1.5 months of imports, a goal that is unlikely to be achieved.

Reserves (US$ m) 2000 2001 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Reserves minus gold 232.1 205.4 143.3 163 161.3 120.5 123.1 174.5 234.4 230.8 of which: foreign exchange 231.5 204.2 142.9 161.8 160.2 120.0 118.8 173.8 234.4 230.8 Gold (national valuation) 79.3 80.0 80.0 80.9 80.5 80.3 79.5 80.2 79.6 79.6 Source: IMF, International Financial Statistics.

A Paris Club rescheduling The Paris Club, the informal group of Western donor countries, and Ghana deal is agreed have reached a debt rescheduling agreement which should substantially reduce the country’s debt-service burden in the next few years. An agreement signed between the Paris Club and the government in early December 2001

was on so-called Naples terms, which means that pre-cut off date ODA credits are to be repaid over 40 years, with 16 years of grace, at interest rates at least as favourable as the original concessional rates applying to those loans (this is roughly the US$79m of arrears that existed on May 31st 2001 and US$120m of maturities in principal and interest falling due from June 1st 2001 to January 31st 2002). In effect, the deal means that Ghana will benefit from an immediate cancellation by Paris Club creditors of about US$27m of Ghana’s external debt. This, in turn, should reduce debt-service payments due to Paris Club members from US$122m to US$38m (to be paid between June 1st 2001 and January 31st 2002). Ghana is expected to reach decision point under the World Bank-IMF’s heavily indebted poor countries debt initiative in early 2002, which could result in substantial debt reduction in late 2003-early 2004.

The EU lends ¤9m to The European Investment Bank, the EU’s long-term financing institution, is to finance leasing companies grant Ghanaian leasing companies a ¤9m (US$8.6m) global loan from its risk capital resources. The loan will be channelled towards the industrial, mining, transport, agro-industrial, tourism, and other related services. It is also to provide medium-term financing for capital equipment for domestic and export-oriented industries as well as investment in small and medium-sized enterprises. The beneficiary companies are Leasafric Ghana, General Leasing and Finance Company, and Ghana Leasing Company, which handle most of the leasing in Ghana. This long-term loan, is intended to ensure that funds are available at sustainable cost, to encourage new investment as well as stimulate employment and economic activity across a wide range of sectors. The facility will also help to establish a more efficient financial market, because it will stimulate competition among Ghanaian leasing companies and thereby extend the range of financial products available to investors.