Country Report October 2000

COUNTRY REPORT

Ghana

October 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

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 2001-02 7 Political outlook 8 Economic policy outlook 9 Economic forecast

12 The political scene

15 Economic policy

16 The domestic economy 16 Economic trends 18 Agriculture 19 Industry and mining 21 Infrastructure and other services 22 Financial and other services

22 Foreign trade and payments

List of tables

9 International assumptions summary 10 Forecast summary 13 Candidates for president in the December 2000 election 16 Real GDP growth by sector, official figures 18 Agricultural growth, official figures 19 Industrial growth 19 Mineral production

List of figures

11 Gross domestic product 11 Real exchange rates 17 Exchange rate

Ghana 3

Summary

October 2000

Outlook for 2001-02 The presidential election to be held on December 7th 2000 will be dominated by the vice-president, John Atta Mills (National Democratic Congress) and John Kuffuor (New Patriotic Party). Mr Atta Mills is marginally favoured to win. The contest for parliamentary seats is expected to be much closer, possibly resulting in no party having an overall majority. The economy is forecast to begin recovering in 2001. Growth is forecast at 3.5% in 2001 and 3.7% in 2002. With good rains and the government maintaining cedi prices for domestic producers, cocoa production will rise, helping crop production to increase and driving growth in the important agricultural sector. The resumption of donor inflows will allow the government to continue infrastructural development and provide the foreign exchange required by the import-reliant services and industrial sectors. Higher inflows will also reduce the government’s reliance on domestic debt, leading to reductions in interest rates and the crowding out of the private sector. The depreciation of the cedi will continue to slow over the outlook period. Nominal average depreciation will decline to 31% in 2001 and 14% in 2002.

The political scene Seven candidates will stand in the presidential election; four of them have nominated vice-presidential candidates from the north hoping to woo the critical Muslim vote. Both the NDC and the NPP have launched their manifestos for 2000 and beyond. These focus on the policy measures the parties will take to improve socioeconomic conditions in Ghana.

Economic policy Pressure to finance the domestic budget deficit has forced the government substantially to increase its domestic borrowing. In consequence, the interest rate has increased and the private sector has been crowded out. The government has come under increasing pressure to reduce expenditure and improve the collection of fiscal revenue.

The domestic economy GDP growth rates fell during 2000, mainly owing to a deterioration in the terms of trade caused by continued low international prices for gold and cocoa. Foreign-exchange constraints slowed growth in the manufacturing and services sectors. The weakness of the currency and increased prices for oil have pushed inflation upwards. Inflation will be 30% by the end of the year.

Foreign trade and The economy is expecting about US$600m in foreign-exchange inflows by payments December 2000. The inflows will enable the government to cut down its borrowing from the domestic financial market and help reduce interest rates.

Editors: John Arthur (editor); David Cowan (consulting editor) Editorial closing date: October 13th 2000 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

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 December 7th 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: New Patriotic Party (NPP); People’s National Convention (PNC); Convention Party (CP); Convention People’s Party (CPP); 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 E K T 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 Adje Planning, regional economic co-operation and integration Kwabena Ahwoi Roads & transport Edward Salia Tourism Mike Gizo Trade & industries Dan Abodakpi Works & housing Isaac Adjei-Mensah Youth & sports Enoch Teye Mensah

Central bank governor Kwabena Duffuor

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Economic structure

Annual indicators

1996 1997 1998 1999 2000a GDP at market prices (C bn) 11.3 14.1 17.2 20.3 25.5 GDP (US$ bn) 6.9 6.9 7.5 7.7 4.5 Real GDP growth (%) 4.6 4.2 4.5 4.2 1.0 Consumer price inflation (av; %) 46.6 27.9 14.6 12.4 23.0 Population (m) 17.5 18.0 18.5 18.9 19.4 Exports of goods fob (US$ m) 1,570.1 1,489.9 2,090.8 2,116.6 1,686.6 Imports of goods fob (US$ m) 1,937.0 2,128.2 2,896.5 3,228.1 2,090.5 Current-account balance (US$ m) –324.7 –549.7 –380.0 –766.0 –373.1 Foreign-exchange reserves excl gold (US$ m) 828.7 480.1 377.0 453.8 200.0 Total external debt (US$ bn) 6.4 6.4 6.9 7.2 7.1 Debt-service ratio, paid (%) 23.9 28.1 20.0 14.9 17.8 Cocoa productionb (‘000 tonnes) 404 323 409 390 420 Gold production (m fine oz) 1.6 1.6 2.2 2.4 2.4 Exchange rate (av) C:US$ 1,637 2,050 2,314 2,647 5,631

October 16th 2000 C6,850:US$1

Origins of gross domestic product 1998 % of total Components of gross domestic product 1998 % of total Agriculture, forestry & fishing 41.4 Private consumption 69.9 Industry 14.7 Government consumption 18.2 of which: manufacturing 8.4 Gross domestic investment 8.1 Services 43.9 Exports of goods & services 17.2 GDP at factor cost 100.0 Imports of goods & services –13.4 GDP at market prices 100.0

Principal exports 1998 US$ m 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 1998c % of total Main origins of imports 1998c % of total Togo 12 Nigeria 14 UK 12 UK 12 Italy 11 Italy 9 Netherlands 8 US 7 US 7 Spain 6 a EIU estimates. b Crop years beginning October 1st. c Based on partners’ trade returns; subject to a wide margin of error.

Quarterly indicators

1998 1999 2000 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Central government finance (C bn) Revenue and grants n/a 892.0 858.5 794.7 1,025.0 1,084.8 n/a n/a Expenditure and net lending n/a 1,168.4 1,164.6 1,131.3 1,345.1 1,405.0 n/a n/a Balance n/a –276.4 –306.1 –336.6 –320.1 –320.2 n/a n/a Prices Consumer prices Accra (1995=100) 221.2 217.6 228.2 243.6 248.1 246.1 262.3 289.2 % change, year on year 14.0 16.3 14.7 9.9 12.2 13.1 14.9 18.7 Gold price, London (US$/fine oz) 288.61 293.94 286.82 273.51 259.18 295.62 290.19 280.15 Financial indicators Exchange rate C:US$ (av) 2,325.0 2,333.4 2,370.0 2,462.7 2,591.6 3,165.0 3,716.5 4,613.5 C:US$ (end-period) 2,325.6 2,325.6 2,439.0 2,500.0 2,702.7 3,448.3 4,166.7 5,555.6 Interest rates (%) Deposit (av) 32.5 30.0 28.9 24.8 20.4 20.2 23.5 n/a Discount (end-period) 42.0 37.0 32.0 27.0 27.0 27.0 27.0 n/a Treasury (av) 32.8 26.8 26.1 25.1 24.5 29.8 31.5 33.4 M1 (end-period; C bn) 1,720.6 2,073.1 1,961.8 1,971.5 1,948.2 2,129.4 2,269.4 2,183.1 % change, year on year 25.8 17.3 15.7 10.5 13.2 2.7 15.7 10.7 M2 (end-period; C bn) 2,845.5 3,307.2 3,331.4 3,455.7 3,586.1 3,843.8 3,984.4 4,183.4 % change, year on year 33.8 26.0 26.8 23.3 26.0 16.2 19.6 21.1 GSE all-share index (end-period;1990-1993=100) 904 868 829 806 765 736 763 818 Sectoral trends Cocoa beans Exports (‘000 tonnes) 115.1 10.9 117.2 77.8 105.0 24.3 n/a n/a Price, New York & London (US cents/lb) 76.8 72.1 63.2 51.4 48.0 43.3 40.9 41.9 Foreign trade (US$ m) Exports foba 570.7 482.1 454.9 439.0 455.1 595.1 461.5 n/a cocoa beans 195.4 14.9 205.4 131.2 130.8 18.3 n/a n/a gold 186.3 169.4 182.8 149.2 160.9 180.9 n/a n/a Imports cifa –830.9 –993.1 –772.6 –849.6 –780.6 –853.9 783.4 n/a Trade balance –260.2 –511.0 –317.7 –410.6 –325.5 –258.8 –321.9 n/a Foreign reserves (US$ m) Reserves excl gold (end-period) 330.7 377.0 382.5 378.7 349.5 453.8 410.8 396.3 a DOTS estimates. Sources: IMF, International Financial Statistics; Direction of Trade Statistics, quarterly; Bank of Ghana, Quarterly Economic Bulletin.

EIU Country Report October 2000 © The Economist Intelligence Unit Limited 2000 Ghana 7

Outlook for 2001-02

Political outlook

Domestic politics The country has entered the home stretch of the 2000 presidential and parliamentary elections. The front-runners in the presidential race remain the incumbent vice-president, John Atta Mills of the National Democratic Congress (NDC) and the leader of the New Patriotic Party (NPP), John Kuffuor. In all, seven parties are putting up candidates to contest the elections on December 7th. The ruling NDC is still favoured to win both elections, by a narrow margin.

The already slim lead enjoyed by the NDC may be further reduced by the nomination of Goosie Tanoh, a lawyer and businessman, as the presidential candidate of the National Reform Party (NRP; formed by dissatisfied former functionaries of the NDC); many believe that the NRP will split the NDC vote. Mr Tanoh has declared that his party will not form an alliance with any party. This is a further indication that the presidential election will be closely fought, with the possibility of a second round of voting.

In the event that the NDC does not win the parliamentary election, the party most likely to gain power is the New Patriotic Party (NPP). As the NPP is to the right of the NDC, an NPP victory would see no significant alteration of economic policy, except perhaps, greater aggression in pursuing liberalisation and privatisation. However, an NPP majority in parliament is unlikely. A more realistic scenario is the absence of a clear majority in parliament for any party, an outcome which is very possible now with the entry of the reorganised left- of-centre Nkrumahist Convention People’s Party (CPP). If the CPP has enough seats in parliament, it will use its position in the balance of power to slow down the IMF adjustment programme. The CPP has already declared that it will not acquiesce in the policy of divesting all state enterprises and will in fact use state power to invest in certain sectors of the economy, particularly manufacturing and agriculture. There is also likely to be an increase in social spending if the CPP becomes influential in parliament.

International relations Ghana’s major foreign policy concern is to reinforce regional security throughout West Africa in the face of growing instability. Working with neighbours, especially Nigeria, and international bodies such as the United Nations, Ghana will seek to play a role in fostering conflict resolution in troubled parts of the region. Ghana is also keen to encourage closer regional co-operation. However, progress on regional integration is unlikely in the short term, owing to economic and political constraints in the region.

Relations with the US, the EU and international donors should remain cordial, 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 The trend in economic policy over the forecast period will depend in great part on the outcome of the December elections. A win for the incumbent NDC, or its close rival the NPP, will see a continuation of the IMF poverty reduction and growth facility (PRGF), which runs up to May 2002. At this stage, it appears likely that the NDC will achieve a small majority in parliament, allowing it to continue with the PRGF.

The main targets of the PRGF over the outlook period are: achieving a real GDP growth rate of 5.5%, reducing inflation to 5%, reducing the domestic debt/GDP ratio to 17%, achieving current-account deficits substantially below 10% of GDP and increasing gross international reserves to a reserves/imports ratio of three months. The key policy initiatives for achieving these aims include: measures for private-sector and entrepreneurial development, the further privatisation of parastatals, improved fiscal discipline and measures to accelerate agricultural growth.

However, if the situation arises in which no party has an overall majority, and the balance of power is held by the socialist CPP, a slow-down in liberalisation and increased social expenditure can be expected. Furthermore, in a move that will be unpopular with Japan, Ghana’s biggest bilateral donor, the CPP would also be likely to apply for debt relief under the terms of the IMF-World Bank’s, heavily indebted poor countries debt initiative, which will possibly jeopardise future bilateral support from Japan.

Fiscal policy Ghana is projected to run a budget deficit of C1.75trn (US$311m) in 2000. Owing to the suspension of aid, inflows by donors concerned about fiscal indiscipline during an election year, the government has been forced to borrow C1trn from the banking sector to balance the domestic budget. This has crowded out the private sector and forced banks to increase lending rates. There have, therefore, been calls for the government to tighten its fiscal policy.

However, despite verbal commitments to this, real measures to tighten fiscal policy are unlikely to be effected until after the elections. Evidence of this is the increase in civil servants’ pay by 20%, granted by the government in May, and the government’s acceptance of the 20% salary increase demanded by polytechnic teachers in September. The salary increases, and other pressures brought to bear on the government because of the elections, are estimated to push the fiscal deficit in 2000 to 6.9% of GDP, instead of the targeted 4.2%.

In 2001, with an NDC or NPP government after the elections and with a more favourable international economic environment, fiscal policy should be tightened. The government announced in the 2000 budget that it would introduce measures to control expenditure and increase the efficiency of the revenue collection agencies. Increased donor inflows, revenue from growing exports and further progress in the divestiture of state owned enterprises will help increase fiscal revenue over the forecast period. The fiscal deficit is forecast to be 5.4% of GDP in 2001, falling to 4% in 2002.

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Monetary policy The government’s monetary policy objective is price stability. However, with the fast depreciation of the cedi and the rising rate of inflation, the government has tightened monetary policy to control the situation. The measures taken include raising Treasury-bill rates to 40.6% by the end of July 2000 (the rate at the end of 1999 was 34.2%), increasing the reserve money required by commercial banks from 8% to 9% and limiting large over-the- counter withdrawals. Price stability will continue to be the focus of monetary policy through the outlook period, and the government can be expected to maintain its tight policy stance.

Economic forecast

International assumptions summary (% unless otherwise indicated) 1999 2000 2001 2002 Real GDP growth World 3.5 4.9 4.2 4.1 OECD 2.9 4.1 3.1 2.7 EU 2.3 3.4 3.0 2.6 Exchange rates (av) ¥:US$ 113.9 106.7 104.0 102.0 US$:¤ 1.07 0.93 0.95 1.05 US$:SDR 1.37 1.30 1.29 1.35 Financial indicators ¥ 2-month private bill rate 0.27 0.26 0.43 0.98 US$ 3-month commercial paper rate 5.18 6.40 6.55 5.25 Commodity prices Cocoa (US cents/lb) 51.7 40.8 42.5 54.3 Oil (Brent; US$/b) 17.9 28.9 25.4 19.4 Gold (US$/troy oz) 278.8 283.2 275.0 270.0 Food, feedstuffs & beverages (% change in US$ terms) –18.6 –6.1 4.2 10.4 Industrial raw materials (% change in US$ terms) –4.3 14.9 8.7 2.3

Note. Regional aggregate GDP growth rates weighted using purchasing power parity (PPP) rates.

International assumptions We expect world growth to slow to 4.2% in 2001. This still represents an extremely good global performance, on a par with that seen in the years immediately preceding the emerging markets crisis. Much of the slowdown will be caused by a policy-induced weakening in the US (and to a lesser extent in the euro area). Assuming that the US slowdown is gentle rather than dramatic, the rest of the world should continue to enjoy fairly strong growth. We expect world growth in 2002 to be similar to that achieved in 2001, as a continuing moderation in the US is offset by a further slight improvement in Japan and the developing world.

After significant falls in 1999 and 2000, global cocoa prices will show a modest recovery in 2001, with dollar prices rising by 4.3%, and more robust gains in 2002, when the dollar price will increase by around 30%. Heavy oversupply of cocoa will persist through the 2000/01 cocoa marketing year (stocks at the end of 1999/2000 are projected at 45.6% of annual consumption), and prices may

reach a new low early in 2001 before the recovery is stimulated by a return to deficit in 2001/02. As with cocoa, gold prices fell in 1999, followed by a modest recovery in 2000. The recovery in gold prices will not be sustained beyond 2000, with a declining trend becoming established through the outlook period, as demand remains muted while supply rises.

Economic growth Having fallen to only 1% in 2000, real GDP is forecast to begin picking up in 2001, although the recovery will be constrained by the tightening of the government’s fiscal stance. Growth is forecast at 3.5% in 2001 and 3.7% in 2002. Given good rains and the government maintaining cedi prices for domestic producers, cocoa production will rise to 430,000 tonnes in 2001 and 450,000 tonnes in 2002. This should help increase crop production and drive growth in the important agricultural sector. The resumption of donor inflows will allow the government to continue infrastructural development and provide the foreign exchange required by the import-reliant services and industrial sectors. Higher inflows will also reduce government reliance on domestic debt, leading to a reduction in interest rates and in the crowding out of the private sector. Industrial growth will show a modest recovery to 1% in 2001 and 3% in 2002.

Forecast summary (% unless otherwise indicated) 1999a 2000b 2001c 2002c Real GDP growth 4.2 1.0 3.5 3.7 Gross agricultural growth 4.0 6.0 4.5 4.5 Consumer price inflation Average 12.4 23.0 18.0 13.0 Year-end 13.4 29.9 15.3 6.1 Short-term interbank rate 23.6 36.0 30.0 13.0 Government balance (% of GDP) –7.7 –6.9 –5.4 –4.0 Exports of goods fob (US$ bn) 2.1 1.7 1.7 1.9 Imports of goods fob (US$ bn) 3.2 2.1 2.3 2.4 Current-account balance (US$ bn) –0.8 –0.4 –0.2 –0.1 % of GDP –10.0 –8.3 –4.1 –3.6 External debt (year-end; US$ bn) 7.2 7.1 7.4 7.6 Exchange rates C:US$ (av) 2,647 5,632 8,151 9,441 C:¥100 (av) 2,324 5,280 7,837 9,255 C:¤ (year-end) 3,464 6,660 8,634 10,936 C:SDR (year-end) 4,733 9,369 11,382 13,823

a Actual. b EIU estimates. c EIU forecasts.

Inflation After declining for a number of years, the rate of inflation started to rise in the latter half of 1999 owing to a deterioration in the external terms of trade. However, tight monetary policy has helped to limit price rises. In 2001 the EIU expects the government to embark on a tight fiscal policy to complement monetary policy. With good agricultural harvests helping to keep food prices under control, the price of oil expected to steady and a deceleration in the fall of the cedi against the US dollar, inflation will begin to decline. We forecast an average annual inflation rate of 18% in 2001 and 13% in 2002.

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Exchange rates The value of the cedi fell by 32% against the US dollar in 1999, to a year end rate of 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 a deterioration in the external terms of trade and the real appreciation that occurred in 1998. During 2000 the cedi’s rapid slide continued, and it had fallen by 46% against the US dollar by end-August. However, the cedi’s slide against the US dollar has begun to decelerate. With the pick-up in donor inflows and strong growth in export volumes, pressure on the cedi will ease in 2001, although continued low prices for Ghana’s export commodities and the substantial current-account deficit will maintain downward pressure on the currency. The forecast average exchange rate is C8,151:US$1 in 2001 and C9,441:US$1 in 2002, a nominal average depreciation of 31% in 2001 and 14% in 2002.

External sector Export earnings are forecast to rebound over the outlook period, to US$1.75bn in 2001 and US$1.95bn in 2002. Gold production will increase from 2.6m oz in 2001 to 2.8m oz in 2002. However, the international price of gold will fall from US$275/oz in 2001, to US$270/oz in 2002, and earnings from gold will only rise from US$715m in 2001 to US$756 in 2002. If the weather is good and the government maintains producer prices, cocoa production will reach 430,000 tonnes in 2001 and 450,000 tonnes in 2002. A modest recovery in cocoa prices, driven by increased demand, will begin in 2001, with export earnings of US$394m in 2001 and US$514m in 2002. With the elections safely out of the way, current transfers are due to pick up in 2001 as donor disbursements recommence. Both this and GDP growth will boost imports, from US$2.26bn in 2001, increasing to US$2.4bn in 2002. Despite relatively strong growth in tourism earnings, the services and income account will remain in deficit during the forecast period, although the deficit will be mitigated by the increased current transfers. The current-account deficit is forecast at US$156m in 2001, or 4.1% of GDP, narrowing to US$139m, or 3.6% of GDP, in 2002.

The political scene

The campaign enters its With all the nominations in and the publication of the party manifestos, the final stages presidential election campaign has entered its final stages. It will be a closely contested race between the current vice-president, John Atta Mills of the National Democratic Congress (NDC), and John Kuffuor of the New Patriotic Party (NPP). Mr Atta Mills has a slight edge due to the benefits of incumbency, reflecting the disparity between the resources of the ruling NDC and its opponents. Additionally, the NDC is working hard to maintain its popularity in the rural areas. Mr Atta Mills has focused his campaign largely on retaining the rural vote, avoiding the volatile metropolitan areas such as Accra, Cape Coast, Kumasi and Takoradi.

The running-mates are After considerable delay, the names of the candidates’ running-mates have announced been released. Four days after Mr Atta Mills introduced Martin Amidu as his running-mate, the NPP followed suit, with the nomination of Alhaji Aliu Mahama, a northerner from Kumasi, as Mr Kuffuor’s running-mate. The choice of northerners as vice-presidential candidates by both the NDC and NPP underlines the importance of ethnicity—the north is mainly Muslim—in the forthcoming election.

The NDC and NPP The NDC has published its manifesto for the year 2000 and beyond, spelling announce their manifestos out how the party will govern the country through appropriate policies, programmes and projects. In a bid to halt the economic decline due to external trade shocks and the high cost of crude oil, the party intends to pursue other economic options such as the monetary integration of the Economic Community of West African States (ECOWAS) by 2003. The party promises to revise its strategies to ensure growth in employment opportunities and output of domestic products. The NDC also hopes to improve the delivery of social services and continue constructive dialogue and consultation with the private sector to agree on strategies to improve production and marketing capacities.

The NPP launched its manifesto, entitled Agenda for Positive Change, at its national delegate congress at Ho in Volta region, with a call on Ghanaians to vote the party into power to enable it to implement its programmes to improve socioeconomic conditions in the country. The party pledges among other things to reduce the number of ministers from the present 89 to 19, in a bid to reduce wastage in the system and turn the economy around; for example, the Ministry of Agriculture will be incorporated into the Ministry of Finance. According to the manifesto, an NPP government will make agriculture a priority and provide more resources and softer loans to farmers. It will also provide more resources for education and health, among other things.

Seven parties file All the seven political parties vying for the December 7th elections have filed nominations their nominations at the headquarters of the Electoral Commission in Accra. At the close of nominations on September 13th, the list of presidential nominees stood as follows.

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Candidates for president in the Dec 2000 election

John Atta Mills National Democratic Congress (NDC) John Kuffuor New Patriotic Party (NPP) George Hagan Convention People’s Party (CPP) Dan Lartey Great Consolidated Popular Party (GCPP) Goosie Tanoh National Reform Party (NRP) Edward Mahama People’s National Convention (PNC) Charles Wereko-Brobby United Ghana Movement (UGM)

The candidates put their The presidential race has been enlivened by the first ever presidential candidate case forum in Ghana which was jointly organised by the Freedom Forum, a US NGO, the Ghana Journalists’ Association and the Ghana Broadcasting Corporation. The forum was moderated by Charlayne Hunter-Gault, chief of CNN’s Johannesburg bureau. Six of the presidential candidates participated in the forum, during which they presented their visions for the country and answered questions from Ghanaian journalists and the public. Notably absent from the forum, which was broadcast live on nationwide television and radio, was Mr Atta Mills, whose party boycotted the programme, claiming among other reasons that the proposed questioners held anti-government views.

Press reviews following the forum did not indicate any major shift in the standing of the presidential candidates among voters. Goosie Tanoh, the presidential candidate of the National Reform Party (NRP), a breakaway faction of the NDC, emerged as the most charismatic and articulate of the presidential candidates, with the other candidates essentially holding their own.

The opposition is likely to make a campaign issue out of the boycott of the forum by the NDC. Whether it will hurt the electoral prospects of Mr Atta Mills is not clear at this stage. What is clear is that the boycott was a disappointment to supporters of Mr Atta Mills, who expected him to encourage the institutionalisation of presidential debates in Ghana by taking part in the historic forum.

The parliamentary election At the close of nominations, 1,081 candidates had filed papers to contest the is too close to call parliamentary election on December 7th—a 39% increase on the 1996 figure of 780. Sixty-four candidates are standing as independents while seven political parties are fielding the rest. The NDC is contesting all 200 seats and has retained about 75% of its sitting MPs. The NPP is contesting 199 seats, the CPP 191, NRP 173, the People’s National Convention (PNC) 145 and the United Ghana Movement (UGM) 106.

The parliamentary elections are expected to be much closer than in previous years. The ruling party is vulnerable on several fronts. Thought dull and uninspiring by many in the electorate, Mr Atta Mills shows a sharp contrast to the personal appeal and charisma of President Jerry Rawlings, which was a major factor in previous NDC victories. Mr Atta Mills is running behind his party in popularity terms, and NDC parliamentary candidates can no longer rely on an automatic lift from the Rawlings charisma. The governing party is also vulnerable on the economic front because of the current economic crisis, reflected in the fast depreciating cedi, rising inflation, the foreign-exchange

shortage and intermittent fuel shortages. Finally, the process of choosing a candidate has created a few rifts within the party. Notable among these is the decision of the current minister for foreign affairs, Victor Gbeho, to stand as an independent after failing to obtain his party’s endorsement as its official candidate.

President Rawlings is President Rawlings has suffered negative press coverage both locally and criticised in the press internationally as he ends his 19-year leadership of Ghana. Locally, the press has aggressively picked up on a relationship between his daughter, Zanetor Rawlings, and her friend Selassie O’Sullivan-Djentuh, who has claimed political asylum in the UK on the grounds that his family had been harassed and assaulted by the presidential security apparatus after breaking up with the president’s daughter. Amnesty International declared Djentu’s parents prisoners of conscience when they were found guilty by a government tribunal on August 15th for disturbing the peace. Internationally, President Rawlings visited Scotland to receive an honorary doctorate from the University of Glasgow in September. His address to the Scottish parliament was attended by only 15 members of parliament, following stories in the Scottish press that called him coup maker and accused him of human rights violations.

The local press seized the opportunity to embarrass the ruling NDC government ahead of the elections. President Rawlings himself appeared unperturbed and continued on to Switzerland for medical treatment, returning to Ghana after nearly a month’s absence.

Although embarrassing, the impact of the criticisms aimed at President Rawlings are unlikely to have much impact on the NDC’s electoral performance. It is believed that the readers of the anti-government press are confined to urban areas, where voters have already committed themselves to supporting the opposition parties. Rural-based floating voters will either have not read the stories, or be more influenced by the government’s record on pro- rural measures, such as maintaining the prices paid to cocoa farmers. The impact of these reports on President Rawlings’s future is less certain. He is thought to be keen to adopt the role of statesman after leaving office. While the local press stories will not affect his credibility in this role, the censure from Amnesty International and the negative reporting in the Scottish press, with its consequent humiliating turnout for his address to the Scottish parliament, will all affect his stature internationally. However, President Rawlings’ earlier achievements in the international sphere will tend to outweigh the impact of recent negative reports.

The EU helps to finance The European Union is to provide C19.9bn (US$3.2m) to support preparations the elections by the Electoral Commission (EC) towards the elections in December. The money will be disbursed in three phases. First, the EU is providing C5.9bn (US$950,000) to assist the EC to provide registered voters with photo-identity cards. The other two tranches will be used to support the training of election officials and voter awareness campaigns.

EIU Country Report October 2000 © The Economist Intelligence Unit Limited 2000 Ghana 15

Economic policy

Fiscal spending will rise Since the beginning of 1995, fiscal revenue has been below target, but since 1997 actual expenditure has also come in below budget projections. This year expenditure is unlikely to be below budget estimates for the following reasons.

• The 20% wage increase granted in May will increase the wage bill. • Certain public projects, which were held back last year, are likely to be advanced because of the elections.

• Expenditure on election-related logistics, security, transport and communications, etc. will be on the rise during the second half of the year.

• High interest rates will increase the government’s interest payments.

Revenue targets will not be During the first half of the year, the Internal Revenue Service (IRS) raised over met C600bn (US$64m), half of the projected target of C1.2trn for 2000. The IRS is unlikely to meet its targets for the second half of the year for the following reasons.

• Tax revenue from gold and cocoa will fall because of low prices for these commodities on international markets.

• The 20% special tax imposed on selected import categories will not increase revenue, because the rapid fall in value of the cedi has reduced the consumption of imported goods.

The government borrows Ghana’s budget deficit position has been especially difficult during 2000. C1trn locally Owing to increased pre-election spending, reduced revenue, and the suspension of donor inflows (in anticipation of election-related fiscal indiscipline), government borrowing has increased significantly over the past year as pressure to finance its budget deficit rose in the face of increased expenditure and dwindling revenue. Kwame Peprah, the minister of finance, has warned that the next government will find it difficult to repair the damage done to the economy this year because of increased pre-election spending. He stated that he government should resist the temptation of playing football with the economy by overspending. The deputy minister of finance, Victor Selormey, disclosed that the government had borrowed C1trn from the banking sector to balance the domestic budget last year. Consequently, rates on Treasury instruments have been rising continuously. By the end of July, interest rates were up to 45.7%. Total Treasury instruments offered (T-bills and notes) in May 2000 amounted to C1.88trn, as against sales of C1.69trn. This produced a C192bn sales deficit for the month—a 10.4% shortfall in public demand for Treasury instruments compared with official requirements. This may have spurred the government to increase the rates on Treasury instruments in order to attract investment with which to finance the rising budget deficit. However, the rate, generally perceived as outrageous by entrepreneurs and economic analysts, has been cutting deep into the margins of industry, and most companies, especially small and medium-scale manufacturing firms, have been severely hit.

The government is therefore under pressure to cut down its expenditure and reduce interest rates. In a recent interview, the minister of finance said that, with the recovery of C150bn from contract payments and divestiture receipts and inflows from cocoa receipts amounting to US$270m, the government will cut down on its borrowing from the domestic financial market and help reduce interest rates. Interest rates are, therefore, gradually coming down—at the end of September the 91-day T-bill rate was 41.7%.

Increase in minimum wage Despite the new inflows from divestitures and cocoa, the pressure on will worsen problems. government expenditure looks set to continue. The Trades Union Congress is demanding a minimum wage of C5,500, representing a 90% increase on current levels, but the minister of finance has indicated that this would add a further C1.3trn to the public-sector wage bill. He explained that if government conceded to the wage increase it would necessitate either a drastic increase in taxes, a severe reduction in expenditure or printing more money, a sure recipe for run-away inflation. He further stated that the international donor community would rightly interpret such an excessive wage increase as an irresponsible tactic to buy votes, at the expense of prudent economic management.

The domestic economy

Economic trends

Growth slows in 1999 Spurred on by the agricultural sector, the economy, on the whole, performed satisfactorily in 1999, despite falling prices for gold and cocoa, Ghana’s main export commodities. The GDP growth rate of 4.2% was marginally lower than the previous year’s rate of 4.5%. The budget deficit increased slightly from 7% of GDP in 1998 to 7.7% of GDP in 1999. During 2000, the GDP growth rate was drastically lower than in the previous year mainly because of continued low international prices for gold and cocoa, which triggered the foreign- exchange crisis. In addition, the manufacturing sector did not show any significant growth because of foreign-exchange constraints and the frequent power cuts, which have forced most industries to run discontinuous production cycles.

Real GDP growth by sector, official figures (%) 1998a 1999b Agriculture 5.1 3.9 Industry 3.2 4.9 Services 6.0 5.0 GDP 4.7 4.4

a Actual. b Provisional estimates. Source: Ministry of Finance.

Inflation rises Evidence thus far suggests that the government’s hope of attaining a year-end inflation rate of 12.5% for 2000 will not be attained. Inflation bottomed out at 9.2% in May 1999 but has since risen owing mainly to the high cost of oil and the weakness of the currency. The year-on-year inflation rate stood at 22.1% at the end of July 2000, and it rose further in subsequent months. Given the present economic situation (the fall in the international price of cocoa and gold leading to a shortfall in foreign exchange, triggering the rapid depreciation of the cedi) inflation figures should have been higher. However the government was able to control inflation to a certain extent by embarking on monetary stringency via high interest rates.

The cedi falls by a further After falling by 12% in the first quarter and 21% during the second quarter, the 46% cedi lost a total of 46% against the U.S. dollar in the first eight months of the year, bringing the exchange rate at the end of August to C6,389:US$1. The rapid fall in the cedi was due to the shortfall in foreign-exchange inflows as a result of low gold and cocoa prices and delayed disbursements of donor assistance. Although the fundamental structural problems that led to the rapid depreciation still exist, it is expected that the cedi’s fall will be more gradual in the coming months thanks to inflows from donors, cocoa receipts and divestiture proceeds. In all, about US$600m in foreign-exchange inflows is expected between September and December 2000, which will stabilise the exchange rate of the cedi.

The population is now Provisional results released by the National Census Secretariat has put the over 18m population of Ghana at 18,414,247, an increase of 49.7 % on the 1984 figure of 12,296,081. This is composed of 9,025,069 males and 9,387,278 females, compared with 6,063,848 males and 6,232,233 females in 1984. The female population has, therefore, risen from 50.7% in 1984, to 51% in 2000. The results also show that the most densely populated region is Ashanti, with 3,187,601 inhabitants, whereas Northern region remains the least populated.

Agriculture

The prospects for cocoa The revised forecast for cocoa production indicates that Ghana will improve its production are improving output for the 1999/2000 crop year (October-September) to 445,000 tonnes from 398,000 tonnes in 1998/99, an increase of 11.8%. With favourable weather, Ghana is expected again to improve its cocoa output in 2000/01.

Some agricultural exports Despite the relatively slower growth rate of the agricultural sector in 1999 (4%, do well compared with 5.3% in 1998), which was largely due to a fall in cocoa output in the 1998/99 season (see below), there were some agricultural exports that showed tremendous growth in 1999. For example, the quantity of cottonseed, lint and waste exported in 1999 was nearly 303% greater than the quantity exported in 1998. Cashew nut exports increased by 206% and frozen tuna by 133%. Other commodities whose export quantities increased substantially were pawpaw (90%), kola nuts (62%), lobsters, shrimps and crabs (62%), and pineapple (52%). This comes as good news, as the fall in the world prices of cocoa and gold has underlined the need to diversify and reduce the agricultural sector’s dependence on cocoa and timber, its main foreign-exchange earners.

Agricultural growth, official figures (%) 1998 1999 Cocoa production & marketing 12.0 –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 Source: Ministry of Finance.

Some of the cocoa crop may Ghana has reaffirmed its commitment to join three other West African be destroyed countries (Côte d’Ivoire, Nigeria and Cameroon) in destroying 250,000 tonnes of cocoa with an estimated value of about US$200m during the next crop season in 2000/01. The strategy is designed to limit the supply of cocoa on international markets and thus cause a rise in the world prices of cocoa, which have hit a record 27-year low. From late 1998 to the present time, cocoa prices have fallen from an average of US$1,794/tonne to about US$800/t. The decision was taken by the four countries, which produce about 70% of the world’s cocoa, earlier in the year. A technical committee will allocate specific tonnages to be destroyed by each of the four countries, which supply about 2m tonnes of cocoa annually to the world market. International cocoa traders and associations admit that the destruction of what amounts to 8% of the forecast 2000/01 output has the potential to increase prices by about 30%. However, cocoa traders in Europe and Asia were not taking the announcement seriously because African producers have failed too often in the past to carry out similar pledges.

Plans to boost the growth The Ministry of Food and Agriculture has drawn up a plan to increase annual rate of agriculture agricultural growth from the current rate of 3-4% to 5.6%. The national plan for poverty reduction is intended to introduce appropriate and improved

technologies through the development of agro-forestry and integrated pest management. The national plan for poverty reduction aims to encourage the use of manure and other fertilisers, improved seed varieties, animal traction and power tillers. The plan will also promote the inter-cropping of cash and food crops to reduce farmers’ dependence on a single cash crop.

Ghana and the AFD sign a A credit facility agreement of C34bn (US$5.67m) to finance the second phase C34bn agreement of a rubber project has been signed between the government of Ghana and Agence française de développement. The project is to develop 4,000 ha of rubber plantations with 900 farmers to produce an estimated 5,200 tonnes per year of rubber for export.

Industry and mining

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

The industrial sector’s share of total real GDP in 1999 was 27.6% (based on 1993 constant prices), which was 0.1% above the 1998 share. Apart from the mining subsector, which experienced a slowing of growth, all the other subsectors witnessed a significant improvement in growth rates (see below). However, the manufacturing sub-sector, which, contributes about 60% of the total value of industrial production continued its low rate of growth. The rapid depreciation of the cedi and high costs of credit increased the cost of production for many import-dependent industries. The liberalisation of external trade left many domestic enterprises vulnerable to competition from imported manufactures and made the subsector relatively unattractive to potential investors.

Mineral production

1998 1999 Gold (‘000 kg) 66.1 72.1 Diamonds (‘000 carats) 823.1 648.0 Bauxite (‘000 tonnes) 442.5 353.1 Manganese (‘000 tonnes) 536.9 541.4 Source: Ministry of Finance.

Gold production rose to 72,100 kg in 1999 (a 9% increase on 1998). The modest rise in gold production is due partly to the decline in the production level of Ashanti Goldfields (Ghana’s largest gold mining firm) in 1998.

Ashanti increases Ashanti Goldfields (AGC) continued to show positive signs of recovery during production the second quarter of 2000, despite the continued depression in gold prices on the international market. Ashanti produced 433,000 oz of gold during the quarter, the second highest quarterly production figure in the company’s history. This represents an increase of 15,000 oz on the first-quarter’s gold production and more than 90,000 oz more than in the corresponding strike- affected quarter in 1999. This brings production in the first half of 2000 to 850,900 oz, 14% more than in the first half of 1999, when production was 744,772 oz. Ashanti reduced its average cash operating cost to US$196/oz from US$211/oz recorded in the corresponding quarter of 1999, a 7% improvement. This follows measures by AGC to reduce costs to make it more efficient and competitive on the market.

As a first step, 80 employees both junior and senior have been laid off. The exercise is expected to save the company US$12.3m (annualised) by the end of December 2000. The overall programme, which ends in December 2001, will eventually save the company US$25.2m. The annualised amount for next year is around US$12.9m. Among the range of initiatives to cut down costs, apart from reducing staffing levels, are the downsizing of staff, fusion of departments and the outsourcing of services.

Ashanti secures extension AGC announced that it has secured the consent of its bankers for an extension for Geita sale until October 31st 2000 of both the US$100m bridge facility and the date for completion of the sale of a 50% interest in its Geita gold mine in Tanzania to AngloGold. The extension allows AGC and its bankers further time to finalise the financial details of the Geita transaction, which have taken longer to negotiate than was initially anticipated owing to inter-creditor issues.

Red Back Mining is to Australia’s Red Back Mining Company plans to announce to the Australian reveal estimates stock exchange new estimates for the next few years of its Chirano gold project in Ghana The new assessment forms part of a pre-feasibility study which ended in August 2000. Different options to develop Chirano are to be examined and one of the main questions will be whether ore will be processed on site or at nearby units at Bibiani and Obotan, owned by Ashanti and Resolute.

Moydow Mines Canada’s Moydow Mines International is assessing the feasibility of a proposed International coming in open-pit goldmine at Ghana’s Ntotoroso concession, held jointly with Normandy mining. A recent survey has indicated resources of 1.11m oz of gold. Possible production scenarios include a stand-alone facility and a joint processing plant that would treat ores from several zones on the Ntotoroso licence and surrounding concessions at Kenyase and Yamfo. An exploratory drilling programme started in September.

Infrastructure and other services

Volta River Authority to The Volta River Authority (VRA), Ghana’s sole generator of electricity, is on the lose the power monopoly verge of losing its monopoly. A subsidiary bill seeking to strip it of some of its functions was placed before parliament just before it went into recess. The ending of the VRA’s monopoly is a prelude to its privatisation, which has been sanctioned by the World Bank and IMF. The Bill seeks to restrict the VRA to the generation of hydropower alone, while thermal generation will be undertaken by other private concerns. In addition, the government intends to take control of transmission lines away from the VRA, which will have to compete with other operators for access to lines to transmit its power.

Donors fund improvements The government of Ghana has obtained funding from German and Swedish in Accra’s power supply sources to upgrade facilities for the supply of power to Accra and its suburbs. A German loan of DM10m (US$4.3m) will be used to refurbish circuit breakers at eight primary substations. Another Skr60m (US$6m) loan from the Swedish International Development Agency (SIDA) for the Electricity Company of Ghana (ECG) and the VRA is to improve the reliability and security of supply to Accra.

Ghana Railways gears up The state-owned Ghana Railways Corporation (GRC) has negotiated a US16m for increased capacity loan from South Africa’s ABSA Bank to help cope with an expected increase in freight haulage demand. Haulage of bauxite and manganese, which make up the bulk of GRC’s freight business, was set to increase to 1m tonnes and 600,000 tonnes a year respectively by 2002. The loan would also go towards stepping up the transport of petroleum products from the port of Tema near Accra to the second city of Kumasi, 270 km to the north.

Telekom Malaysia to buy Telekom Malaysia has signed an agreement to acquire a 15% stake in Ghana 15% of Ghana Telecom Telecommunications Company, which controls over 73% of telephone lines in Ghana, for US$100m cash. Telekom Malaysia’s wholly owned unit Telekom Malaysia International already owns 85% of G-Com, which currently has a 30% stake in Ghana Telecommunications. Following the acquisition, Telecom Malaysia will own 15% of Ghana Telecom, G-Com will own 30%, while the remaining stake will be held by the government.

Ghana Airways to improve Ghana Airways has embarked on fleet expansion and the restructuring of its performance routes by acquiring two DC10 and two DC9 aircraft to operate additional routes and serve as a backup for scheduled services. The airline company recently started up a service to Washington DC, Baltimore, and Maryland as an additional gateway to the US. It has also signed a memorandum of understanding with Liberia and The Gambia for direct flights to and from New York and Washington through Monrovia and Banjul. Ghana Airways is also forging alliances within and outside the continent in its efforts to become the dominant link between Africa and the rest of the world. The management has announced that it has concluded code sharing agreements with South African Airways and Ethiopia Airlines, and it is close to concluding arrangements with Air Namibia for Windhoek and Luanda operations. Other routes under consideration are Beirut, Dubai and Toronto.

Financial and other services

Banking sector is sound The IMF recently undertook a study to assess the stress in Ghana’s financial sector. A team of about 16 experts carried out the study of banks and non- banking institutions to measure their vulnerability. The report, which is now being studied by the appropriate authorities, concluded that Ghana’s banking industry is essentially sound, but cautioned that the regulatory body responsible for the sector should be aware of a slight upward trend in non- performing loans. Non-performing loans were about 8% of the total loan portfolio in 1998,but by March 2000 they had reached 13, an increase of 5%. Although not immediately alarming, it is expected that the present difficult economic situation facing many bank’s clients, may force some of them to default, thereby increasing the level of non-performing loans.

The stockmarket slumps The slump in activity on the Ghana Stock Exchange (GSE) continues, with few while interest rates ease shares being demanded, and even fewer actually being traded. Consequently, trading volumes on the GSE in the first half of 2000 were low—at 19m shares a mere 4% improvement over the 18m shares traded during the corresponding period of 1999, when the GSE all-share index declined by 7.17%. The equity stakes of non-resident foreign investors, which averaged 47% at the beginning of the year, had dropped marginally to 46% by June owing to the lack of buyers. High yields on government debt, especially Treasury bills, have also attracted local funds away from the market.

One effect of the impact of the expected donor inflow on government borrowing was that the securities offered by the Bank of Ghana (the central bank) declined. The total amount offered was reduced by C275bn, from C601bn on 18th August to C440bn on 25th August. Securities available for subscription at the auction held on September 1st totalled C218bn, a drop of 51%. Interest rates on the 91-day T-bill fell from 45.68% to 43.21%. With the reduction of pressure on the government budget it is expected that interest rates will continue to trend downwards.

Foreign trade and payments

Adverse terms of trade hit The Ghanaian economy has been hit by deteriorating terms of trade. The the economy export prices of its main tradeable commodities, cocoa and gold, have slumped, while the price of crude oil has tripled. These developments have exerted a severe strain on reserves, triggering a foreign-exchange crisis and recession—the cedi has depreciated by about 100% since October 1999. The economy is slowly emerging from the crisis, and both exports and imports are forecast to grow during the outlook period. The current-account deficit is projected to be 4.1% of GDP in 2001, narrowing, thanks to export growth, to 3.6% of GDP in 2002.

US$600m is expected by The minister of finance, Kwame Peprah has stated that the economy is December 2000 expecting about US$600m in foreign-exchange inflows between now and

December 2000, which will go towards stabilising and improving the exchange rate of the cedi. Speaking at a news conference in Accra on September 7th, Mr Peprah said the decision by the International Monetary Fund to release US$30m had unlocked and necessitated the release of several programme and project inflows totalling US$320m from the World Bank, the European Union, the African Development Bank, the United Kingdom, Japan and the Netherlands. Mr Peprah said that Ghana was expecting US$270m from cocoa receipts up to the end of the year. In addition to this, the government had recovered over C150bn, mainly from setting off contracts payments and from divestiture receipts. Mr Peprah said the inflows would enable the government to cut down its borrowing from the domestic financial market and help reduce interest rates. The inflows would also enable the government to provide resources for the socially sensitive sectors of health and education, which would unlock further counterpart funds from donors.