Country Report May 2000 © the Economist Intelligence Unit Limited 2000 2 Ghana

COUNTRY REPORT

Ghana

May 2000

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 conferences and roundtables. The firm is a member of The Economist Group.

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ISSN 1350-7052

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Contents

3 Summary

4 Political structure

5 Economic structure 5 Annual indicators 6 Quarterly indicators

7 Outlook for 2000-01 7 Political forecast 8 Economic policy outlook 10 Economic forecast

13 The political scene

16 Economic policy

20 The domestic economy 20 Economic trends 21 Agriculture 22 Industry and mining 24 Financial services 25 Infrastructure and other services

26 Foreign trade and payments

List of tables

10 International assumptions summary 12 Forecast summary 17 The 2000 budget: selected macroeconomic and fiscal targets 18 Government finances, 1999 19 Government finances, 2000-02 19 Discretionary expenditure, 2000 20 Real GDP growth by sector, official estimates 22 Agricultural growth 22 Industrial growth 24 Ashanti Goldfields 26 Traditional exports 27 External debt stock, end-1998

EIU Country Report May 2000 © The Economist Intelligence Unit Limited 2000 2 Ghana

List of figures

13 Gross domestic product 13 Real exchange rates 20 Inflation 20 Fuel prices 21 Exchange rate 26 Cocoa prices

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May 2nd 2000 Summary

May 2000

Outlook for 2000-01 The vice-president, John Evans Atta Mills, remains the clear favourite to become the presidential candidate of the ruling National Democratic Congress (NDC) in the election scheduled for December 8th 2000. With exceptionally weak international cocoa prices, cocoa exports are forecast to fall by 33% from US$542m in 1999 to US$360m in 2000, recovering slightly to US$417m in 2001. Similarly in the case of gold, solid output growth will continue despite only modest increases in the gold price. This should raise total gold exports from an estimated US$694m in 1999, to US$711m in 2000 and US$780m in 2001. Fiscal pressures will be high in 2000, with the combined effects of exceptionally low cocoa prices, only marginally better gold prices and the continued fall of the cedi.

The political scene John Evans Atta Mills has now formally declared his intention to stand as the presidential candidate of the NDC. One of the National Patriotic Party’s founding members and most prominent officials, Kwame Pianim, has resigned from the party in order to spend more time working for national reconciliation. Hopes for a broad opposition alliance to challenge the NDC have been fading.

Economic policy Ghana will continue with its current adjustment programme which runs up to May 2002. The government released its budget in early February, predicting real GDP growth of 5% in 2000. The World Bank has withdrawn a loan of US$100m for a major water project, claiming it was awarded under opaque circumstances, which has cooled relations between the government and donors just three months after a successful donor consultative meeting in late November 1999.

The domestic economy Inflation is reported to have increased to 14.9% in February 2000, with the cedi at C3,832:US$1. The cedi continued to fall, reaching C4,500:US$1 in April. In March of the 1999/2000 cocoa buying season, reported cumulative purchases of cocoa were 396,106 tonnes more than in the entire previous season. Ashanti Goldfields (AGC) has sold a 50% stake in the Geita mine in Tanzania. AGC claims that Geita will be producing 150,000 oz of gold in the second half of 2000, which will and rise to around 500,000 oz annually once the mine is running at full capacity.

Foreign trade and According to recently released data in the World Bank’s Global Development payments Finance (formerly World Debt Tables), Ghana’s total external debt stock had risen to US$6.88bn by end-1998, from US$6.35bn a year earlier.

Editor: Christopher Eads Editorial closing date: May 2nd 2000 All queries: Tel: (44.20) 7830 1007 Fax: (44.20) 7830 1023 Next report: Full schedule on www.eiu.com/schedule

EIU Country Report May 2000 © The Economist Intelligence Unit Limited 2000 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 1996 (presidential and parliamentary); next elections due 8th December 2000

Head of state President, elected by universal suffrage for a maximum of two four-year terms; currently Jerry John Rawlings, now in his second term

National government Cabinet, partly appointed by the president in February-May 1997; major reshuffle in January 2000

Main political parties Progressive Alliance (PA), the ruling coalition, consisting of the National Democratic Congress (NDC, the majority party) and the Every Ghanaian Living Everywhere (EGLE) party. Opposition parties include: the New Patriotic Party (NPP); the People’s National Convention (PNC); the Convention Party (CP); the People’s Convention Party (PCP); United Ghana Movement (UGM). The National Reform Party was formed in July 1999 by a breakaway faction of the NDC

President Jerry John Rawlings Vice-president John Atta Mills

Key ministers Attorney-general & justice Obed Asamoah Communications John Mahama Defence EKT Donkoh Education Ekwow Spio-Garbrah Employment & social welfare Mohammed Mumuni Environment, science & technology Cletus Avoka Finance Richard Kwame Peprah Food & agriculture Joseph Owusu-Acheampong Foreign affairs Victor Gbeho Health Kwame Danso Boafa Interior Nii Okaidja Adamafio Lands & forestry Christine Amoako-Nuamah Local government Cecilia Johnson Mines & energy John Frank Abu Parliamentary affairs Kwabena Adjei Roads & transport Edward Salia Tourism Mike Gizo Trade & industries Dan Abodakpi Works & housing Issac Adjei-Mensah Youth & sports Enoch Teye Mensah

Central bank governor Kwabena Duffour

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Economic structure

Annual indicators

1995 1996 1997 1998 1999 GDP at market prices (C bn) 7,418 10,385 14,113 17,364 20,874a Real GDP growth (%) 4.5 5.2 4.2 4.7 4.2b Consumer price inflation (av; %) 74.3 34.0 27.9 19.4 12.5b Population (m) 17.34 17.83 18.34 18.86 19.40a Exports fobc (US$ m) 1,431 1,571 1,490 1,813 1,835 Imports fobc (US$ m) 1,678 1,937 2,128 2,563 2,508 Current-account balance (US$ m) –145 –324 –541 –350 –567 Reserves excl gold (US$ m) 697.5 828.7 508.0d 377.0 450.0 Total external debt (US$ m) 5,872 6,202 5,982 6,884 7,152 External debt-service ratio, paid (%) 21.4 23.5 27.4 24.6 20.6 Cocoa productiond (‘000 tonnes) 404 323 409 390 410a Gold production (m fine oz) 1.6 1.6 1.7 2.3 2.4a Exchange rate (av; C:US$) 1,200 1,637 2,050 2,314 2,647e

April 10th 2000 C4,500:US$1

Origins of gross domestic product 1997 % of total Components of gross domestic product 1997 % of total Agriculture, forestry & fishing 36.6 Private consumption 80.0 Industry 25.4 Government consumption 12.4 Manufacturing 9.2 Gross domestic investment 23.6 Services 28.7 Exports of goods & services 19.8 GDP at factor cost 100.0 Imports of goods & services –36.5 GDP at market prices 100.0

Principal exports 1998 US$ m Principal imports 1990 US$ m Gold 682 Capital goods 544 Cocoa beans & products 621 Intermediate goods 356 Timber & products 172 Fuel & energy 210 Consumer goods 124

Main destinations of exports 1998f % of total Main origins of imports 1998f % of total Togo 12 Nigeria 14 UK 12 UK 12 Italy 11 Italy 9 Netherlands 8 US 7 US 7 Spain 6 a Official estimate. b EIU estimate. c Balance-of-payments basis. d Crop years beginning October 1st. e Actual. f Based on partners’ trade returns; subject to a wide margin of error.

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Quarterly indicators

1998 1999 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Prices Consumer prices Accra (1995=100) 199.0 221.6 221.2 217.6 n/a n/a n/a n/a % change, year on year 15.6 18.2 14.0 16.3 n/a n/a n/a n/a Gold price, London (US$/fine oz) 294.30 299.94 288.61 293.94 286.82 273.51 259.18 295.62 Financial indicators Exchange rate C:US$ (av) 2,289.1 2,309.2 2,325.0 2,333.4 2,370.0 2,462.7 2,591.6 3,165.0 C:US$ (end-period) 2,325.6 2,325.6 2,325.6 2,325.6 2,439.0 2,500.0 2,702.7 3,448.3 Interest rates (%) Deposit (av) 33.4 32.3 32.5 30.0 28.9 24.8 20.4 20.6 Discount (end-period) 45.0 45.0 42.0 37.0 32.0 27.0 27.0 27.0 Treasury (av) 39.6 38.1 32.8 26.8 26.1 25.1 24.5 29.8 M1 (end-period; C bn) 1,695.3 1,783.5 1,720.6 2,073.1 1,961.8 1,971.5 1,948.2 n/a % change, year on year 39.1 34.5 25.8 17.3 15.7 10.5 13.2 n/a M2 (end-period; C bn) 2,626.1 2,802.1 2,845.5 3,307.2 3,331.4 3,455.7 3,586.1 n/a % change, year on year 39.6 38.9 33.8 26.0 26.8 23.3 26.0 n/a Stockmarket index (end-period;1990-93=100) 981 975 904 868 829 806 765 736 Sectoral trends Cocoa exports (‘000 tonnes) 103.9 114.4 58.4 53.8 105.4 84.6 n/a n/a Cocoa price, New York & London (US cents/lb) 76.1 79.0 76.8 72.1 63.2 51.4 48.0 43.3 Foreign trade (US$ m) Exports foba 503.0 459.7 555.5 480.1 491.2 440.9 n/a n/a cocoa beans 188.6 214.2 113.0 102.7 189.2 145.1 129.2 92.8 gold 160.4 157.9 186.3 169.4 182.8 141.3 n/a n/a Imports cifa –804.2 –815.3 –846.8 –995.8 –807.7 –766.1 n/a n/a Trade balance –301.2 –355.6 –291.3 –515.7 –316.5 –325.2 n/a n/a Foreign reserves Reserves excl gold (end-period; US$ m) 494.2 351.7 330.7 377.0 382.5 378.7 349.5 n/a a DOTS estimates; figures are subject to revision. Sources: ICCO, Quarterly Bulletin of Cocoa Statistics; IMF, International Financial Statistics; Direction of Trade Statistics, quarterly; Bank of Ghana, Quarterly Economic Bulletin.

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Outlook for 2000-01

Political forecast

Domestic politics @VS = The vice-president, John Evans Atta Mills, remains the clear favourite to become the presidential candidate of the ruling National Democratic Congress (NDC) in the next presidential election, which is scheduled for December 8th 2000. Attempting to portray himself as a potential president, Mr Atta Mills has continued to raise his profile at home and abroad in recent months. The formal nomination will take place at the NDC party congress in late April, but his candidacy now appears virtually assured. Initial fears that the strong backing of Mr Atta Mills by the president, Jerry John Rawlings, might divide the party now seem to have been unfounded. Instead, the real battle will be among those competing to stand as his running-mate. The current favourite remains the highly experienced attorney-general and minister of justice, Obed Asamoah. Other potential candidates are the former minister of defence, Mahama Iddrissu, the minister for communications, John Mahama, and the minister of transport, Edward Salia. However, with concerns over the age of Mr Iddrissu and the health of Mr Salia, the deputy minister of education, Mohammed Ibn Chambas, has also recently gained support. Factions from the northern part of the country have been lobbying hard for one of their own, which include both Mr Chambas and Mr Iddrissu. Persistent rumours that the president’s wife, Nana Konadu Rawlings, was making a push for the vice- presidency appear to be unfounded, although her large support base will continue to keep her profile high (see The political scene).

Ghana’s main opposition party, the New Patriotic Party (NPP), is also looking for a running mate for its leader, John Kufour. The party has a reputation for elitism and for being heavily influenced by the Ashanti, Ghana’s largest ethnic group. As a result, it is seeking a vice-presidential candidate to balance out Mr Kufour, a lawyer from the Ashanti region. There had been speculation that the NPP would attempt to forge an electoral alliance with some of the other parties, but Mr Kufour and other party leaders have, in effect, ruled that out (see The political scene). There is a chance some of the remaining smaller parties might co-operate, but none will be able to challenge the NDC or NPP on a national basis.@VE =

Even though Ghana’s politics tend to be bitterly fought and highly personal, there are indications that the 2000 election may not be as contentious as previous polls. Both the NDC and the NPP have shown signs of political reconciliation. NDC leaders have apparently tried to tone down some of their usually heated rhetoric. Similarly, Mr Kufour took the unprecedented step of praising Mr Rawlings’s recent sessional address to parliament, in which the president called for greater tolerance in the campaign. (Mr Rawlings did not, however, spare criticism of the local media for irresponsible reporting.) Indeed, one of the greatest barriers between the NDC and the NPP dates back to the unsavoury events in the early 1980s, when under the Provisional National Defence Council (PNDC, 1981-92, the predecessor of the NDC) many people connected to the NPP lost family members and businesses. The arrival of

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Mr Atta Mills on the scene has also made reconciliation more possible, as he was not connected to the PNDC. At the same time, it appears that a prominent NPP official, Kwame Pianim, has left the party to work explicitly towards resolving this difficult period of Ghana’s history (see The political scene).

Election watch Even if the opposition parties unite in an effort to both challenge the NDC and ensure that elections are carried out fairly, they will still have a difficult time competing with the ruling party’s access to resources and other benefits of incumbency. The NPP does have significant resources but, as in past elections, it may have trouble breaking out of its regional support base in the Ashanti area. The main unknown factor is whether the breakaway National Reform Party (NRP) will reduce NDC support sufficiently to allow the NPP a chance. Some NRP officials have claimed that a huge block of NDC parliamentarians are poised to join them. Yet, with little financial support or organisational capacity, it is likely to win over only the most disgruntled party members. Although the EIU expects these elections to be closer than the past two— Mr Rawlings won about 58% of the vote in both the 1992 and the 1996 elections, while the NDC won solid majorities in parliament—the overall result is forecast to be much the same.

International relations As always, Mr Rawlings is keen to project himself as a peacemaker on the regional scene. The president has made efforts to reintegrate Nigeria into the international community, and he is expected to do the same with the military government in Côte d’Ivoire. With retirement not far away, Mr Rawlings will be seeking to make his mark, perhaps with an eye on a prominent international position in conflict resolution. Relations with Nigeria are expected to remain warm. However, overambitious integration plans are not expected to make much progress in the short term, owing to increasing instability within Nigeria. Relations with the US and EU should also remain warm, but will largely depend on how fair the elections are perceived to be and whether Ghana’s economic reform programme remains on track.

Economic policy outlook

Policy trends Since 1983 Ghana has become a clear favourite among bilateral and multilateral donors keen to show that IMF-backed structural adjustment programmes can effect a sustainable improvement in the economic performance of a Sub-Saharan African country. This is extremely unlikely to change in the next few years. Supported by relatively high donor assistance, Ghana will continue with its current adjustment programme, which runs up to May 2002

Consultation with the IMF over Article IV has concluded and in November 1999 there was a largely successful donor consultative meeting, at which US$1.7bn was pledged over the next two years. Ghana, therefore, appears set for several more years of heavy inflows of aid. Indeed, in late March the World Bank approved a US$490m loan for the government’s reform programme. Assuming that Mr Rawlings retires on time, close relations with donors are likely to continue in 2000-01. This extra donor support will help to bridge any

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financing gap. With Ghana’s enhanced structural adjustment facility (ESAF) in place until May 2002, the country should receive a regular inflow of grants and concessional financing from a range of multilateral and bilateral donors.

A scandal over a water contract tender with a US company, Azurix, has led to the withdrawal of US$100m in project funds. It is not expected to derail relations with the World Bank, but may cool relations if the government does not move quickly to reassure donors. The government will want to be sure that the Azurix scandal does not affect donors’ faith in the country. Although Ghana is a favourite of the donors, it is not likely to benefit from the IMF and World Bank’s enhanced heavily indebted poor countries (HIPC) scheme in the short term, since it will delay applying for debt relief in order to protect its bilateral aid programmes.

The government’s ability to manage the economy will be tested by a rapidly deteriorating external environment: namely, a depreciation of the cedi and low international prices for Ghana’s main export commodities, gold and cocoa. Despite government claims to the contrary, electoral pressures are likely to boost expenditure, with civil service salary increases and new development projects. Only in 2001, with the elections successfully behind it and a more favourable international economic environment, is the government expected to tighten fiscal policy. Consequently, with an accelerating rate of inflation and looming elections, monetary policy will be the main weapon used to fight rising consumer prices. High interest rates will help slow the fall of the cedi in 2000 and 2001, and will increase the profitability of the financial sector. However, they will also increase the financing costs of the government budget deficit and reduce private-sector investment.

Fiscal policy The government continues to claim that it will not loosen fiscal policy in the run-up to the elections—as it did in 1992 and 1996. The Ministry of Finance has tried to explain to the public that declining prices for Ghana’s exports and rising international oil prices are seriously affecting public finances. In the 2000 budget, it is projecting a cash-balance deficit of 6.1% of GDP. This is down slightly from a provisional 1999 cash-balance deficit of 6.5% of GDP (well above the 5.2% target). However, the EIU puts the cash-balance deficit for 1999 at 7.5% of GDP, calculating only revenue and divestiture receipts against total investments and discretionary expenditure, to conform with IMF data. We expect that the deficit in 2000 will be closer to 6.5-7% of GDP; because of electoral pressures the government will keep its promises on civil service wage increases, high prices paid to cocoa farmers and new investments in roads and other infrastructure. We also feel that the government has unrealistic expectations of receipts from privatisation in an election year, as well as overoptimistic estimates of grant receipts. The revenue side will be helped by raising the rate of value-added tax from 10% to 12.5%. However, the sluggishness of the economy will offset some of the gains from the increased rate. In 2001, after the elections and with a more favourable international economic environment, fiscal policy is expected to be tightened further. However, the government’s fiscal deficit target of 4.2% of GDP may be overoptimistic.

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Monetary policy With the cedi slipping and the Bank of Ghana (the central bank) tightening monetary policy to curb inflationary pressures, the yield on benchmark 91-day Treasury bills rose sharply in the final months of 1999. As recently as late September T-bill rates had fallen to 24.5%, but by the end of December they had risen to 34.2% and have remained at that level into the early months of 2000. As inflation is expected to continue rising throughout 2000, interest rates are forecast to rise. The central bank should, however, be able to ease them in 2001. Banks—which have been notoriously hesitant to lower rates owing to inflationary expectations—may not lower their lending rates as quickly.

Economic forecast

International assumptions The world economy is in good shape and now seems to be entering a period of sustained economic growth. Growth in the US economy should slow in 2000 and 2001, leading to a slight dip in world GDP growth in 2001. However, strong growth in two of Ghana’s main trading regions, Asia (including Japan) and the EU, will keep overall growth robust. World growth (at PPP exchange rates) will increase from an estimated 3.4% in 1999 to 4.1% in 2000, before dropping marginally to 3.7% in 2001. Although the dip in 2001 will be more apparent within the OECD, where the weight of the US economy is larger, the trend remains the same.

International assumptions summary (% unless otherwise indicated) 1998a 1999b 2000c 2001c GDP growth US 4.3 4.1 3.9 2.4 OECD 2.4 2.9 3.2 2.5 EU 2.6 2.3 3.0 2.6 Exchange rates US$ effective (1990=100) 119.3 116.3 115.3 110.4 ¥:US$ 130.9 113.9 110.0 106.0 US$:¤ 1.12 1.07 1.03 1.12 Financial indicators US$ 3-month commercial paper rate 5.34 5.18 6.26 5.31 ¥ 2-month private bill rate 0.72 0.27 0.05 0.64 Commodity prices Oil (Brent; US$/b) 12.8 17.9 22.0 18.8 Gold (US$/troy oz) 294.1 278.8 290.0 300.0 Cocoa (US$/tonne) 1,676 1,140 877 992 Food, feedstuffs & beverages (% change in US$ terms) –13.9 –18.6 –2.1 4.9 Industrial raw materials (% change in US$ terms) –19.6 –4.3 17.5 9.4

a Actual. b EIU estimates. c EIU forecasts.

The pick-up in world growth is driving an increase in trade and some commodity prices. The price of Brent crude is also forecast to remain firm in 2000. We expect that the strength of oil prices in the first quarter of 2000, and the scale of the drawdown of global stocks, will enable OPEC to boost

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production by 1.45m b/d as agreed in March, while keeping average oil prices at an acceptable level. In fact, we have revised upwards our projected average price for dated Brent in 2000 to US$22/b. In 2001 increasing oil supply will dampen prices to US$18.8/b. A similar trend is also apparent in non-oil commodities: the EIU’s non-oil commodity index will rise by 5.6% in 2000 and 5.8% in 2001, having fallen by 13.3% in 1999. Unfortunately this general increase in commodity prices masks wide variations for individual commodities, and beverage prices in particular are forecast to remain extremely depressed. The price of cocoa averaged only 52 US cents/lb in 1999, the same as in the early 1990s. It is also forecast to fall by a further 23% in 2000 to 40 US cents/lb, owing to surpluses from a bumper Ghanaian harvest, plus the biggest Ivorian and Indonesian crops ever. Prices are set to recover marginally to 45 US cents/lb in 2001. Ghana’s other major export, gold, faces only a slightly better outlook in 2000. Prices are likely to remain soft for much of 2000 averaging about US$290/troy ounce, only 4% higher than in 1999.

Economic growth @VS = Real GDP growth remained relatively robust in 1999. However, the government was forced to lower its growth estimates during the course of the year, from an original target of 5.5% to its current estimate of 4.4%. This was due both to lower grant dispersals and the effect of low international prices for gold and cocoa. Real GDP growth is forecast to pick up in 2000 and 2001—we currently forecast growth of 4.8% in 2000, rising to 5% in 2001. Despite low global beverage prices, high maintained prices for domestic producers will encourage cocoa production in the next two years. This should help drive growth in the important agricultural sector—where growth of 4.5% is forecast in both 2000 and 2001. Increases in cocoa production, coupled with a rise in gold output, should also allow for moderate export growth despite generally low international prices. The outlook for the industrial sector is also looking up, as the power shortages that have slowed its growth are overcome and the fall in the value of the cedi boosts the competitiveness of manufactured exports The government will continue with infrastructural development, much of it donor-funded, which should sustain high levels of growth in gross fixed investment. On the supply side, higher election-related spending will help to increase government consumption in 2000. There will also be a boost to private consumption provided by government wage increases and the maintenance of high producer prices for cocoa farmers.@VE =

Inflation At the start of 1999 the government set an inflation target of 9%, and half way through the year seemed well on target to meet it. Inflation was on a steady downward trend to a year-on-year rate of 9.4% in May. However, in the second half of 1999 inflation was again on an upward trend, reaching a year-on-year rate of 13.8% in December, just above the revised official target of 13%. This left an annual average of 12.5%, down from 19.4% in 1998. Pressure on consumer prices in the latter half of 1999 was due to higher import costs, following the rapid depreciation of the cedi in the final quarter of 1999, and rising oil prices. The upward trend in the inflation rate will continue into 2000, aided by healthy pre-election government spending and continuing currency depreciation. However, tight monetary policy will ensure that it is kept under control, and we forecast an average inflation rate of 15% in 2000. In 2001, we

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expect the government to embark on a tight fiscal policy to complement monetary policy. While the fall of the cedi against the US dollar will decelerate, inflation is forecast to fall to an average of 12.5%.

Exchange rates @VS = The value of the cedi fell by 32% against the US dollar in 1999, to a year end C3,448:US$1, having dropped by 24% in the final quarter of 1999 alone. This sharp slide was due to smaller inflows of foreign exchange, following low gold and cocoa prices, and disappointing disbursements of donor assistance. The fall also reflects a deliberate strategy by the Bank of Ghana to ease some of the imbalances within the economy. These were caused by both external shocks and the real appreciation that occurred in 1998. The central bank’s approach to them is an important signal to donors that it is prepared to allow the exchange rate to find its own rate in the market. In the first quarter of 2000 the cedi’s slide has continued, falling by 16%. However, with donor inflows set to pick up and cocoa export volumes up strongly on 1999, pressure on the cedi should ease in the second half of 2000. In addition, the central bank is expected to adopt a tighter monetary policy, which will also ease pressure on the battered currency. Consequently we expect the depreciation of the cedi to slow in the latter stages of 2000, falling by a further 9% by end-2000 to C4,688:US$1 (the average for 2000 is forecast at C4,301:US$1, down 38% on the 1999 average). In 2001 the cedi’s slide will slow again, but continued low prices for Ghana’s export commodities and the substantial current-account deficit will maintain further downward pressure on the currency, with a forecast average exchange rate of C5,060:US$1.@VE =

Forecast summary (US$ m unless otherwise indicated) 1998a 1999b 2000c 2001c Real GDP growth (%) 4.7 4.2 4.8 5.0 Consumer price inflation (av; %) 19.4 12.5 15.0 12.5 Overall budget deficit (% of GDP) –7.1 –7.5 –6.4 –4.6 Merchandise exports fob 1,813 1,835 1,690 1,837 of which: cocoa 621 542 360 417 gold 647 694 711 780 Merchandise imports cif 2,563 2,508 2,455 2,499 Current-account balance –350 –567 –562 –539 Exchange rate (year-end; C:US$) 2,314.15 2,647.32 4,301.46 5,060.41

a Actual. b EIU estimates. c EIU forecasts.

External sector With good weather conditions and the government committed to maintaining producer prices in nominal cedi terms for cocoa farmers, the prospects for Ghana’s crop in 2000-01 are good. Our provisional forecast is for a crop of 420,000 tonnes in the 1999/2000 crop year (October-September). Assuming that producer prices are maintained by the government, production should remain high at about 420,000 tonnes in 2000/01. With exceptionally weak international cocoa prices, export earnings are forecast to fall by 33% from US$542m in 1999 to US$360m in 2000, recovering slightly to US$417m 2001. Similarly in the case of gold, solid output growth will continue despite only

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modest increases in the gold price. This should raise total gold exports from an estimated US$694 m in 1999, to US$711m in 2000 and US$780m in 2001. In spite of relatively strong economic growth, the depreciation of the cedi will constrain consumer demand for imported goods. Coupled with improved export earnings, this should lead to a sharp reduction in the trade deficit in 2000 and 2001. Despite relatively strong growth in tourism earnings, the services and income accounts will remain firmly in deficit during the forecast period. Large inflows of aid will keep net current transfers firmly in credit. Nevertheless, combined with the forecast worsening in the trade balance, this will lead to an increase in the current-account deficit to 10% of GDP in 2000 and 9% of GDP in 2001.

The political scene

The elections are set for The head of Ghana’s electoral commission, Kwado Afari-Gyan, has announced December 8th that the country’s next national elections will be held on December 8th 2000. Mr Afari-Gyan also confirmed that the voters’ lists will be revised and that photo-identity cards would be issued in place of the previously used thumb- print cards. Since both of the previous two elections have been dogged by allegations of electoral fraud, the commission is anxious to be seen accommo- dating the concerns of the opposition. Indeed, Mr Afari-Gyan, showing uncharacteristic candour for an official in such a sensitive post, admitted: “There is a lot of electoral corruption … all the parties bribe, they buy votes, they do all kinds of things.” He also expressed concern over the use of state resources for party activities, hinting that his commission might do more to regulate party funding in the future. The main opposition party, the New Patriotic Party (NPP), is also clearly worried about electoral fraud, claiming that it is already training 100,000 party members to police the country’s 20,000 polling stations on election day. Nevertheless, Ghana’s elections are certainly among the most open in Africa and the degree of overt manipulation that occurs is unlikely to affect the outcome. The NPP learned this lesson the hard way when its showing in the 1996 elections, whose results it largely accepted,

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were virtually identical to its 1992 result, when it cried foul over the presidential election and decided to boycott the parliamentary round.

The vice-president As had been widely expected, the vice-president, John Evans Atta Mills, announces his candidacy formally declared his intention to stand as the presidential candidate for the ruling National Democratic Congress (NDC). The announcement was made in Tamale at a party meeting on February 19th, some two months before the party congress was due to be held. Mr Atta Mills’s nomination is virtually assured as he has the strong backing of the president, Jerry Rawlings, and most of the political heavyweights in the NDC. Mr Rawlings had declared his support for Mr Atta Mills as far back as June 1998. In spite of this, party leaders had backed away after worries that the party’s internal decision-making process was being over-run by the president. Mr Atta Mills is well liked, even by the opposition. Rather than attack the man or his credentials, as is the norm in Ghana’s vicious political arena, they have instead tried to paint him as a puppet of Mr Rawlings. The opposition press have regularly described him as “affable but malleable”.

The first lady refuses to With the contest for the NDC presidential nomination largely over, attention go away has turned to his running mate. The current front-runner continues to be the attorney-general and minister of justice, Obed Asamoah, but several northern factions are strongly lobbying for one of their own to give regional balance. The leading northern candidates are the former defence minister, Mahama Iddrissu, and the deputy minister for education, Mohammed Ibn Chambas. However, the campaign for the president’s wife, Nana Konadu Rawlings, which appears to have finally conceded the presidential nomination, is now turning its attention to the vice-presidential job. The weekly Ghanaian Chronicle has frequently reported that Mrs Rawlings’s support is surging again. Although Mrs Rawlings wields considerable power, especially through her December 31st Women’s Movement, she is a particularly controversial and divisive figure. NDC officials have moved quickly to quash the latest attempt to put her forward. Indeed, in a move designed to limit any damage from a bitter fight within the party for the vice-presidency, the party congress may be cut to only one day, from the usual three days.

A broad opposition alliance Meanwhile, hopes for a broad opposition alliance to challenge the NDC appear is ruled out to be fading. Five opposition parties co-operated under the banner of the Joint Action Committee (JAC), primarily in organising a demonstration against government mismanagement in November 1999 (1st quarter 2000, pages 13- 14). However, the NPP has ruled out an electoral alliance with anyone. Since the NPP is by far the largest opposition party, and the only one with the potential to challenge the NDC on a national level, this would leave only the minor parties. The People’s National Convention (PNC) has also indicated that it would not join an alliance, but the National Reform Party (NRP, a breakaway faction of the NDC) and the United Ghana Movement (UGM, a breakaway faction of the NPP) are reported to be in talks about some kind of partnership. However, both the NRP and UGM have had troubles attracting members away from the larger parties and in raising funds.

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A prominent NPP member In a surprise move, one of the NPP’s founding members and most prominent quits officials, Kwame Pianim, resigned from the party on January 28th. In an open letter to the party’s general secretary, Dan Botwe, Mr Pianim said that his decision was to allow him to spend more time working for national reconciliation. Ghana’s notorious rumour mills immediately began to interpret the move, alleging a range of motives for Mr Pianim’s resignation. According to one press report, he would soon join the NDC and replace the minister of finance, Kwame Peprah. Although Mr Pianim is a well-respected economist and businessman, such a move is extremely unlikely. Instead, it appears that he may soon set up a new organisation to try to heal the wounds of the early days of the Provisional National Defence Council (PNDC, 1981-92, the predecessor of the NDC). In this period several politicians were killed by the new government and hundreds more fled into exile. Indeed, as he spent several years in prison for treason, Mr Pianim may be in a unique position to help resolve this difficult period of Ghana’s history, which continues to haunt it today (1st quarter 2000, page 15).

Some relatives of those killed have called for new inquiries (3rd quarter 1999, page 11). The government, though, has rejected calls for a commission along the lines of South Africa’s Truth and Reconciliation Commission unless it covers the entire post-independence period. Since many of those hoping to look into the events of the early 1980s are linked with previous governments, the time period covered by any investigation will be of critical importance. Although it is too early to tell, Mr Pianim’s initiative may help to overcome such political stumbling blocks..

Arms are found in the In late January caches of arms were found in the residences of several chiefs in north the Northern Region, which raised the spectre of a return to ethnic conflict in the area. In 1994, widespread clashes occurred in the north, leaving more than 500 people dead, but it has been largely peaceful ever since. Officials were quick to play down the significance of the discovery. The northern regional minister, Gilbert Seidu Idi, told local radio that the arms were simply left over from the previous conflict and not part of a rearming effort. Given the sensitivity of the issue, and the government’s wish not to increase tensions, the chiefs are not likely to be prosecuted and a quiet clampdown by the police will attempt to keep the peace.

President Rawlings Less than a month after seizing power from President Henri Konan Bédié in a welcomes General Guéï Christmas eve coup d’état, the new military ruler of Côte d’Ivoire, General Robert Guéï, was received by President Rawlings in the capital, Accra. The visit was part of General Guéï’s regional tour to rally support for his regime and to urge donors to be patient with his (as yet unannounced) timetable for the restoration of democratic rule. Mr Rawlings did not disappoint his visitor, urging the international community to understand the complexities of his neighbour’s problems and to assist the new government. Some Ghanaians have expressed alarm that condoning a coup in Côte d’Ivoire might be a sign that Mr Rawlings is reconsidering his retirement plans. However, it is more likely that he is merely concerned with justifying his own involvement in two coups in 1979 and 1981.

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Ghana gets involved in the A group of Congolese exiles, led by the former president, Pascal Lissouba, tried politics of Congo to hold a meeting in Accra, on February 19th. However, the Ministry of Foreign Affairs claimed that, although Mr Lissouba and some colleagues were admitted to the country on February 17th, on the following day the group was denied the right to hold the meeting and taken to the airport. Mr Lissouba was overthrown in 1997 by Denis Sassou-Nguesso. Mr Rawlings has repeatedly attempted to play peacemaker in the region, but has not taken an active role in the civil war in Congo (Brazzaville). It was clearly an embarrassment to him when Mr Lissouba issued a communiqué from Accra, and subsequently received an envoy from President Sassou-Nguesso.

Plans for integration with Ghana and Nigeria have continued to claim that they are pushing ahead with Nigeria are overambitious plans for an Anglophone monetary union by 2004. This might involve merging with the West African Franc Zone at some later date. Several rounds of talks have been held over the last few months, and agreements have been signed for a reducing trade barriers, although no details have yet been released. Realistically, however, prospects for regional economic integration are poor. The 16-member Economic Community of West African States (ECOWAS) has patently failed to make much progress on economic matters since its founding in 1975. Even where it has had some success in peacekeeping and security matters, ECOWAS has been heavily dominated by Nigeria. The same problem besets economic issues, where the massive oil wealth of Nigeria dwarfs the other regional economies. The relationship would be even more uneven in a Ghana-Nigeria bilateral monetary arrangement, especially since Nigeria’s fortunes depend on international oil prices. Ghana, as an oil importer, faces different monetary pressures. As well as economic factors, political differences have prevented further progress on economic integration, and these are unlikely to fade, especially given Nigeria’s continued domestic instability.

Economic policy

A scandal cools relations @VS = The award of a major government contract under circumstances that are with the World Bank far from transparent has led to the withdrawal of US$130m in loans and has cooled relations between the government and donors. This has occurred just three months after a successful consultative meeting with donors promised assistance of US$1.7bn over two years (1st quarter 2000, page 18). In early March it emerged that the World Bank was withdrawing a loan of US$100m for a project to provide water for the Accra-Tema Metropolitan Area and that Britain’s Department for International Development was withdrawing US$30m from a similar project. The row is over the decision by the minister for works and housing, Isaac Adjei-Mensah, to award the water contract to the Houston- based Azurix Corporation, which is owned by the US gas-giant, Enron. Mr Adjei-Mensah claimed that the four companies that had originally prequalified for the bid were unable to raise enough capital to proceed, so Azurix was given the contract. However, the decision apparently violated normal procurement procedures and, with the World Bank increasingly

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cracking down on corruption and demanding greater transparency, it withdrew its support for the project.

The local press broke the story, along with allegations that Azurix had paid a series of bribes for the contract. The company denies the allegations, but has also refused to release the terms of the deal. Opposition members of parliament immediately called for an investigation. Yet in the face of an obvious embarrassment, Mr Adjei-Mensah was uncharacteristically defiant. Instead of assuaging the Bank’s concerns by opening up the books to them, he denied that the Bank’s money had in fact been withdrawn. Later emphasising that it was a question of national sovereignty, he insisted that the Bank should not think it could bully the government. This is an astonishing development for a government so reliant on donor largesse, but to date the minister has refused to resign and there is, as yet, no sign that Mr Rawlings will force him out.

The case does not yet appear to have soured relations. In late March the Bank‘s executive board approved a US$490m loan for the country’s reform programme, but actual disbursement of funds for projects is likely to await a resolution of the Azurix contract.@VE =

The 2000 budget is On February 9th the minister of finance, Kwame Peprah, presented Ghana’s presented 2000 budget and a review of the economy in 1999. In line with the government’s medium-term expenditure framework (MTEF) plan, the budget again presented three-year fiscal and macroeconomic targets. In 2000 the government is targeting 5% real GDP growth, a reduction in inflation to an annual average of just 11.2%, and a surprisingly wide budget deficit of 6.1% of GDP.

The 2000 budget: selected macroeconomic and fiscal targets

1999a 2000b 2001b 2002b Real GDP growth (%) 4.4 5.0 5.3 6.0 Agriculture 3.9 4.2 4.5 5.3 Industry 4.9 5.1 5.5 6.2 Services 5.0 5.9 6.0 6.7 Inflation (year-end; %) 13.8c 12.5 11.0 8.0 Inflation (av; %) 12.4c 11.2 9.9 7.2 Overall cash balance (% of GDP) –6.5 –6.1 –4.2 –1.6

a Provisional data. b Official forecasts. c Actual. Source: Ministry of Finance, 2000 budget.

The 1999 fiscal deficit is The original budget projected that the fiscal deficit in 1999 would fall to 5.2% higher than projected of GDP from 6.3% of GDP in 1998 (1st quarter 1999, pages 13-15) but, according to provisional outturn data, the 1999 deficit is now set to come in at 6.5% of GDP. The EIU expects a deficit of 7.5% of GDP using the approach adopted by the IMF.

VAT is to be raised to 12.5% On the revenue side, the main bright spot was higher than expected revenue from value-added tax (VAT) in 1999, which was introduced only at the very end of 1998. VAT revenue was some 13% higher than projected, and collection rates have been generally better than anticipated—no doubt helped by regular media reports of prosecutions of people evading the tax. The original rate was

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to be 17.5%, which was reduced to 10% in order to be more feasible politically and to make calculation of the tax easier on its introduction. As a result of its much lower initial rate, and its successful collection, VAT is now set to be raised to 12.5%. The budget claims that the additional C200bn raised by VAT will finance an Education Trust Fund, which is to be set up soon.

Government finances, 1999a (C bn) Budget Outturnb % change Total revenue 4,112 3,702 –10.0 Tax 3,294 3,089 –6.2 of which: VAT 700 792 13.1 Non-tax 475 310 –34.7 Grants 343 302 –12.0 Total expenditure 6,063 5,846 –3.6 Statutory 2,217 2,238 0.9 Discretionary 3,846 3,607 –6.2 Overall cash balance –1,005 –1,340 25.0 % of GDP –5.2 –6.5 20.0 Memorandum item Divestiture receipts 80 53 –33.8

a Data as given in the 2000 budget report. b Provisional. Source: Ministry of Finance, 2000 budget.

Predictably, the trade unions and the opposition parties criticised the new budget and rejected the new rate of VAT. The Trades Union Congress said that workers already bore a large enough tax burden. The New Patriotic Party’s spokesman for finance, Kofi Apraku, claimed that raising VAT was of minor importance compared with broader reform of the revenue service. He also pointed out that, although the budget claimed that new VAT revenue would go directly to education, this allocation was not specified in the tax bill introduced to parliament. Nevertheless, many of these same groups criticised the government for cutting spending on education and introducing fees at the tertiary level, which led to student strikes at the country’s main universities (4th quarter 1999, pages 15-16; 1st quarter 2000, page 16).

Spending priorities for the In line with the MTEF, budgetary expenditure for 2000-02 is placed in five next three years are laid out functional categories: general administration, economic services, infrastructure, social services, and public safety. The social services account for about 30% of total expenditure over the three-year outlook period, a fact the government argues underscores its commitment to health, education, and poverty alleviation. However, the programme has spending on social services showing virtually no growth, even in nominal terms. At the same time, general administration costs are forecast to come down by 42% by 2002, while the only substantial increase is a near-doubling of infrastructure investment. Overall, given the resistance likely from civil servants, these targets appear overoptimistic. Despite that, the 2000 budget projects a deficit of 4.2% of GDP in 2001, which is a more feasible goal than that of the 1999 budget, which forecast a balanced budget by 2001.

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Government finances, 2000-02 (C bn) 2000 2001 2002 Total expenditure 8,633 8,390 7,844 of which: external debt 1,527 1,168 1,000 domestic debt 911 914 850 general administration 2,029 1,690 1,169 economic services 632 608 478 infrastructure 649 1,029 1,189 social services 1,476 1,474 1,501 public safety 513 505 532 Total receipts 8,633 8,390 7,844 of which: revenue & grants 5,611 6,297 6,486 divestiture receipts 457 150 120 project loans 1,322 1,098 639 programme loans 695 490 347 Overall cash balance –1,516 –1,189 –538 % of GDP –6.1 –4.2 –1.6 Primary balance 588 963 1,112 % of GDP 2.4 3.4 3.4 Source: Ministry of Finance, 2000 budget.

Privatisation is expected to Divestiture receipts in the budget are set to grow from just C53bn (US$20m) in accelerate 1999 to C457bn in 2000. However, there will be a rapid decline afterwards— indicating that the current budget expects the privatisation programme to be largely completed in 2000. This appears a difficult task, and divestiture receipts are more likely to be spread over the next few years. Yet the World Bank has been urging the government to speed up privatisation as a way to offset some of the current financing crunch, with estimates that some US$2bn in asset stocks remain to be sold. No new schedule of sales of state-owned assets was released, but among the likely candidates are Ghana Railways, Ghana Airways, Electricity Company of Ghana, and Ghana Water and Sewerage Company.

Discretionary expenditure, 2000 (C bn) Government funds Donor funds Total General government services 476 838 1,314 Ministry of Education 971 62 1,033 Ministry of Roads & Transport 101 320 421 Ministry of Health 297 43 340 Ministry of Mines & Energy 60 178 238 Ministry of Works & Housing 83 145 228 Ministry of Defence 219 0 219 Electoral commission 37 0 37 Source: Ministry of Finance, 2000 budget.

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The domestic economy

Economic trends

The government estimates In his budget speech, the finance minister Kwame Peprah released provisional real GDP growth at 4.4% estimates for economic performance in 1999, with a real GDP growth rate of 4.4%. This falls just above the EIU’s estimate of 4.2%, but below the official target of 5.5%. (The government has also revised its 1998 estimate slightly upwards to 4.7% from 4.6%.) In 1999 services was the strongest sector, growing at a real rate of 5%, with transport, commerce and hotels all showing improved performance. Donor-supported public-sector investment projects in road construction led the way, while local commerce continued to find ways to diversify and survive. Industry grew by 4.9%, up from 3.2% a year earlier, led by a recovery in utilities. Agriculture fell from 5.1% growth in 1998 to just 3.2% in 1999, mainly as a result of a contraction in cocoa output.

Real GDP growth by sector, official figures

1998a 1999b GDP 4.7 4.4 Agriculture 5.1 3.9 Industry 3.2 4.9 Services 6.0 5.0

a Actual. b Provisional estimates. Source: Ministry of Finance, 2000 budget.

Inflation rises to 14.9% Rising international oil prices and the effects of the cedi’s sharp depreciation in in February the fourth quarter of 1999, when the currency lost 23% of its value against the US dollar, caused the government to miss its year-end inflation target of 9.5%. When December’s inflation came in at 13.8% the government also missed its recently revised target of 13%. This left an annual average inflation rate of 12.5%, down from an average of 19.4% in 1998. Upward pressure on prices continued into 2000: inflation reached 14.9% in February, the highest rate for a year. More worrying for the authorities, however, is that the cedi has continued to fall (see below), and that the full effects of the depreciation on import prices have yet to be felt. The government’s end-2000 target of 12.5%, although more realistic than past projections, also appears unlikely to be met (see Outlook for 2000-01).

On March 18th the National Petroleum Tender Board raised fuel prices, the fifth rise since mid-1999. This is not only the result of rapid currency depreciation and higher international oil prices, but also a deliberate policy on the part of the government to liberalise petrol marketing.

The cedi falls by a further The cedi has continued its precipitous slide, falling by a further 16% in the first 16% in the first quarter quarter of 2000 to C4,100:US$1 by end-March. The cedi began rapidly to lose value against the US dollar in mid-1999, and has lost nearly 40% of its value in the past eight months. This has been the result of a severe terms of trade shock—namely high international oil prices and low prices for gold and

cocoa—combined with disappointing donor inflows and the effects of an overaggressive exchange-rate management policy in 1998. The Bank of Ghana (the central bank) has kept monetary policy tight in the hopes of stemming the slide. Indeed, 3-month Treasury bills were trading at the end of March at more than 34%, a nearly 20% premium over inflation, even after the recent upturn in the consumer price index.

The fall in the cedi, despite its destabilising effect in the short term and the questions it raises about economic management, should have some benefits. Politically, it will allow the government to keep to its promise to pay cocoa farmers C2,250/kg despite falling cocoa prices. It should also help diversify the economy over the longer term as manufacturing exports should become more competitive. Those, however, who are heavily dependent on imported inputs may suffer. Finally, it should please donors who are worried about the distorting effect on the economy of government actions to support the cedi artificially.

Agriculture

Agriculture growth falls to According to new data released with the 2000 budget, agriculture, which 3.9% in 1999 accounts for 37% of output, grew by only 3.9% in 1999, after a 5.1% increase in 1998. This weaker performance is largely due to a fall in cocoa output in the 1998/99 season (October-September)—Cocobod estimates that Ghana’s production fell by some 5% to 390,000 tonnes from 409,000 tonnes in 1997/98. A strong recovery already appears to be under way (see below).

The 1999/2000 cocoa season In late March, at the end of the 22nd week of the 1999/2000 cocoa buying shows strong results season, cumulative cocoa purchases hit 396,106 tonnes, more than the entire previous season. The main buying season (October-April) soon comes to an end, but there is still a smaller second crop (May-September) to be sold later this year. In total this would put production for the current season on track for a forecast 420,000 tonnes—an increase on our previous forecast and the best Ghanaian harvest for 17 years. This appears mainly the result of good weather conditions and the government’s maintenance of its fixed producer price of

C2.25m/tonne (US$549/t), plus perhaps some continued smuggling from neighbouring Côte d’Ivoire.

Agricultural growth (%) 1998 1999 Cocoa production & marketing 12.0a –0.5 Crops & livestock 4.4 4.7 Forestry & logging 10.0 6.8 Fisheries 1.8 1.0 Agriculture incl others 5.1 3.9

a No official data available; figure from report by Centre for Policy Analysis. Sources: Ministry of Finance, 2000 budget; Centre for Policy Analysis.

Industry and mining

Industrial growth improves According to provisional data released in the government’s budget for 2000, to 4.9% in 1999 the industrial sector rebounded in 1999 to 4.9% real growth. This was led by a recovery in utilities, which saw a strong contraction in 1998 owing to severe electricity shortages. Manufacturing and construction also showed improved performance, but mining was down on 1998. The government blamed low gold prices for the disappointing mining output, however, other factors were the labour and financial troubles at the country’s main gold producer, Ashanti Goldfields (see below).

Industrial growth (%) 1998 1999 Industry 3.2 4.9 Manufacturing 4.0 4.8 Electricity & water –10.0 7.8 Construction 5.0 5.5 Mining 6.1 3.0 Source: Ministry of Finance, 2000 budget.

Ashanti cuts a deal with The Ashanti Goldfields Company (AGC) saga has continued, but an end may shareholders and creditors be within sight (4th quarter 1999, pages 21-23; 1st quarter 2000 pages 9-10 and 24-25). The government, which retains a 20% stake in the company, published a series of press releases in mid-February attacking AGC management. It hinted that the chief executive, Sam Jonah, and the 32% shareholder, Lonmin, may have deliberately allowed the share price to fall from its initial offering price of US$20 in 1994 to under US$3 to allow Lonmin to buy out the rest of the company at a bargain price. The company denied the allegations that Mr Jonah had a conflict of interest as “preposterous”, marking a new low in AGC-government relations. Increasing the pressure on AGC to find a way out of its financing problems, caused by massive hedging losses, a minority shareholder, Adryx Mining & Metals, filed a law suit demanding that the board resign for failing to protect share value. The court in Accra seemed to agree and

ordered AGC to call an extraordinary shareholder meeting in early March to discuss the issue. This set off a flurry of negotiations between the company, its creditors, the government and shareholders.

On February 13th the chairman of AGC’s board, Kwame Peprah, who is also the minister of finance, resigned from the board, citing his ministerial duties. Clearly, this was part of the deal reached with shareholders, though Mr Peprah had been in an increasingly difficult position, caught between conflicting demands of his two jobs. There had been speculation had been rife that he was to be dropped from the cabinet, but nothing came of this. On February 16th the rest of the deal to save AGC from liquidation was announced. The main points include the following.

• Five members of the board resigned, including the former minister for mines and energy, Fred Ohene-Kena, who has been the government’s main scapegoat for the crisis. New board members include the former US assistant secretary of state for African affairs, Chester Crocker, and Michael Martineau of Adryx. The former British minister, Lynda Chalker, along with executives from several major investment firms, were also later added.

• Mark Keatley, AGC’s chief financial officer and the primary architect of the company’s hedging strategy, was fired.

• Sam Jonah remains the chief executive. This appears to be a major concession by the government in view of the antagonism between Mr Jonah and President Rawlings.

• It was agreed that a 50% stake of the Geita mine in Tanzania was to be sold. This is a major concession by AGC, as Geita is perhaps its most promising mine and the company had been pinning most of its future growth on it. A bridging loan of US$100m was secured later in February through Barclays Capital for the development of Geita, but whether AGC will retain the management remains to be seen. On April 5th South Africa’s AngloGold purchased the 50% stake in Geita. AGC claims that Geita will be producing 150,000 oz in the second half of 2000 and up to 500,000 oz annually once running at full capacity.

• In April AGC reported pre-tax losses of US$183.6m. This is after exceptional charges of US$250m—a result of the hedge book crisis earlier in the year—leaving them with an operating profit of around US$66m.

Ashanti posts marginal Despite its financial, management and labour troubles, Ashanti Goldfields did output growth in 1999 manage to increase gold output in 1999 by 1% to 1.56m oz. Higher production at the Siguri mine in Guinea was, however, largely offset by the closure of one of the treatment plants at the flagship Obuasi mine, as part of a rationalisation exercise, and labour strife at Obuasi in May 1999, which resulted in closure for 11 days and the loss of nearly 30,000 oz (2nd quarter 1999 page 19). More positively, AGC continued to cut costs, bringing average cash operating costs down to US$206/oz, but this remains well above the average cost in 1994 of just US$167/oz.

Ashanti Goldfields 1997 1998 1999 Total gold production (‘000 oz) 1,169 1,548 1,562 % change, year on year 13.6 32.4 0.9 Cash operating costs (US$/oz) 254 218 206 % change, year on year 1.0 –14.2 –5.5 Source: AGC.

Dunkwa Goldfields is The low international price for gold has continued to take its toll on marginal finally shut mines across Africa. Ghana’s Dunkwa Goldfields is the latest victim: its 300 workers were laid off and the mine abandoned in February. The mine had once produced 100,000 oz/year, but has been unable to cut costs sufficiently to make a profit in the current environment.

Oil is found in South Tano @VS = A British oil company, Dana Petroleum, has reported that is has found significant quantities of oil and gas in Ghana’s Western Tano contract area. This region is some 20 miles offshore and very near the maritime border with Côte d’Ivoire. Dana holds a 90% stake in the concession, while Ghana National Petroleum Corporation holds the remaining 10%. Unconfirmed reports in the Ghanaian press estimate oil reserves at 200m barrels, and gas reserves at 300m barrels of oil equivalent. Dana Petroleum has not released any official figures on the size of the find to date but itclaims that production might begin as early as 2003. Although it is too early to say whether this will ultimately prove to be a major find, it may nevertheless lead to other companies taking a second look at Ghana’s offshore acreage. Major finds elsewhere in the Gulf of Guinea, especially offshore Nigeria, Cameroon and Equatorial Guinea have revived interest in West Africa. Resurgent international oil prices may also encourage more exploratory drilling in marginal areas such as Ghana. According to the industry press, Dana may even bring in one of the larger companies to help with deepwater exploration, although it claims it will handle the current find, which is in only 115 metres of water, by itself. So far, the West African Gas pipeline project does not appear to be threatened by the Dana announcement, but these developments may make Chevron, which is taking the lead in the project, nervous about its long-term profitability (1st quarter 1999, pages 20-21; 4th quarter 1999, pages 24-25).@VE =

Financial services

Two banks are liquidated Following deteriorating portfolio quality and mounting losses, the Bank for Housing and Construction (BHC) and the Ghana Co-operative Bank, both failed to meet capital adequacy requirements and were liquidated by the Bank of Ghana (BoG, the central bank) in January. The government agreed to provide some C20bn (US$5m) to underwrite the losses of the two banks to protect depositors and workers. There was an immediate political outcry over the move, with opposition MPs claiming that the liquidation was either to cover up mistakes by the BoG or the direct result of IMF pressure. It is true that the government had agreed to tighten banking oversight as part of its IMF programme (3rd quarter 1999, page 14). It is also almost certain that the BoG

was under pressure to strengthen the financial sector and crack down on non- performing institutions. Indeed, according to reports carried in the government-owned, Daily Graphic, the auditors, Pricewaterhouse Coopers, found that BHC’s reported profit of C26bn was actually a loss of C24bn in the year ending October 1999. Similarly, Co-operative Bank’s actual loss was some C10bn larger than originally reported.

The stockmarket stagnates After a dismal year for the Ghana Stock Exchange (GSE)—1999 was its worst year ever—it failed to rebound in the first quarter of 2000 (1st quarter 2000, page 26). The all-share index rose a meagre 3.4% in the first three months of the year, while the cedi slid a further 16% against the US dollar. The only shares showing any life are Ghana Commercial Bank, which has risen by about 16%, and Accra Brewery, up about 10% on the year, both following favourable results. One positive sign is that for the first time this year, on March 22nd, the number of bids outnumbered offers. Sentiment on the GSE had turned so bearish last year that the ratio of offers to bids often topped 20:1. This may, however, be the first sign of a revival in a market that still contains significant value and nearly every counter trades at a price/earnings in single digits.

In other news, the GSE has signed a memorandum of co-operation with Kenya’s Nairobi Stock Exchange, which will encourage the sharing of information and lead to the harmonisation of listing requirements and other regulations. The GSE has similar agreements with South Africa’s Johannesburg Stock Exchange and the Lagos-based Nigeria Stock Exchange. These agreements are only very modest steps, but may lead to further integration of capital markets in the future.

Infrastructure and other services

Takoradi expansion moves The capacity expansion of the Aboadse thermal station near Takoradi has ahead continued with a US-based company, CMS Energy, bringing the first of three new 110-mw turbines into service in early March. The second turbine is due to come into service in September, with full capacity reached in 2001, bringing the total to 660 mw (4th quarter 1999, page 25). Aboadse currently runs on oil, but CMS hopes to switch to cheaper and cleaner gas once supplies are available from either Nigeria, Côte d’Ivoire or even Ghana’s own resources.

Meanwhile, confusion continues to reign in Ghana’s increasingly crowded energy sector:

• A Japanese funded 125-mw barge-mounted power plant under construction in Italy has reportedly been completed, but no fuel supplier has been agreed. Instead, according to a Reuters report on March 23rd, the US$80m station is laying idle in Genoa. It was supposed to be in place in December 1999, and was originally commissioned during the energy crisis, during which the government appeared to be enthusiastically signing any independent power project (IPP) that was proposed (2nd quarter 1999, pages 21-22).

• A deal for a 400-mw hydroelectric project at Bui on the Black Volta River in Brong Ahafo, which appeared ready to go ahead, has run into difficulty (1st

quarter 2000, page 26). Although a memorandum of understanding was signed in October with an international consortium to build the project, Ghana’s Environmental Protection Agency (which took part in the initial negotiations) has since changed its mind. The project is apparently inside a national park and the agency now wants a further environmental impact study.

• Yet another IPP is on the drawing board. According to a Paris-based newsletter Africa Energy & Mining, the US government is helping to finance a feasibility study for a 150-mw gas turbine power station at Esiama to be built by a US-based company, ARS International. There is no indication whether this means that one of the other projects being considered has been dropped.

Ghana Airways agrees new In February Ghana Airways concluded an agreement with Ethiopian Airlines to international routes code-share and begin three direct flights per week between Accra and Addis Ababa. Then in March Ghana concluded talks with the US for an open-skies pact, which allows unrestricted service between each other’s territory and the scrapping of other regulations. Ghana Airways currently flies the New York- Accra route direct four times per week, while a US carrier, Northwest Airlines, provides service through Amsterdam with its Dutch partner, KLM. The US already has similar agreements with Namibia, Tanzania and Burkina Faso.

Foreign trade and payments

Traditional exports are hit According to provisional outturn data released with the budget, lower by lower commodity prices. commodity prices for Ghana’s three traditional exports have had an adverse impact on export receipts. Gold and timber exports posted marginal improvements in 1999 on higher volumes, but higher cocoa export volumes could not overcome the precipitous fall in prices. Volumes of gold exports rose by some 9%, but marginally lower prices (complicated by opaque hedging arrangements by Ghana’s major producers) kept the rise in export receipts to only 3%. Similarly, a 4% volume increase in timber exports was virtually wiped out by a modest fall in prices for wood. Cocoa export volumes also rose by some 3%, but sharply lower international prices forced a severe drop in receipts to just US$541m, 13% less than 1998.

Traditional exports (US$ m) 1998a 1999 % change Gold 674 694 3.0 Cocoa 621 541 –12.8 Timber 171 174 1.8

a Figures do not match IMF data. Sources: Ministry of Finance, 2000 budget; EIU.

External debt rises steeply According to recently released data from the World Bank’s Global Development Finance (formerly World Debt Tables), Ghana’s total external debt stock rose to US$6.88bn by end-1998, from US$6.35bn in 1997. The rise was almost entirely

in new concessional long-term debt from official creditors. Total debt-service paid rose from US$552m in 1997 to US$580m in 1998, leaving a debt-service ratio of 24.6%.

External debt stock, end-1998 US$ m % of total Long term 5,833 84.7 Publicly guaranteed 5,570 80.9 Official creditors 4,995 72.6 Multilateral 3,563 51.8 Bilateral 1,432 20.8 Private creditors 575 8.4 Private non-guaranteed 263 3.8 Short term 717 10.4 Use of IMF credit 334 4.9 Total 6,884 100.0 Source: World Bank, Global Development Finance.