Country Report 4Th Quarter 1998 © the Economist Intelligence Unit Limited 1998

COUNTRY REPORT

Ghana

4th quarter 1998

The Economist Intelligence Unit 15 Regent Street, 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 subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group.

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Contents

3 Summary

4 Political structure

5 Economic structure

6 Outlook for 1999-2000

11 Review 11 The political scene 15 The economy and economic policy 17 Mining and industry 19 Energy 21 Agriculture 22 Business and finance 23 Foreign trade, aid and payments

25 Quarterly indicators and trade data

List of tables 10 Forecast summary 13 Corruption perceptions index: selected countries, 1998 15 Inflation, 1998 18 Gold production, Jan-Jun 23 Ghana’s mobile phone services, 1998 24 Timber exports 25 Quarterly indicators of economic activity 26 Foreign trade 26 Direction of trade

List of figures 11 Gross domestic product 11 Real exchange rates 24 Trade with the UK

EIU Country Report 4th quarter 1998 © The Economist Intelligence Unit Limited 1998

Ghana 3

November 5th 1998 Summary

4th quarter 1998

Outlook for 1999-2000: The NDC will have problems maintaining party unity following the recent emergence of a new faction, the Reform Group. Vice-president Atta Mills must rally political allies if he is to secure the party leadership in 2000. President Rawlings will focus his attention on regional issues, while donor relations will continue to improve, despite increased domestic pressure to slow economic reforms. GDP growth is set to rebound to 4.8% in 1999, once the energy crisis is resolved, with a further acceleration in 2000. Inflationary pressures will remain strong in 1999, before weakening slightly in 2000. The cedi will lose value against the dollar, halting its real appreciation of the past two years. Cocoa and gold output will rise, but only modest improvements in prices are forecast.

The political scene: The battle for the presidential succession is far from over as the Reform Group threatens to split the ruling NDC. The opposition NPP has elected John Kuffour as its candidate. Government relations with students and the press remain tense. Relations with Nigeria are improving.

The economy and economic policy: Inflation has fallen, prompting a cut in interest rates. Economic policy management has come under renewed criticism. The cedi has continued its real appreciation, which is undermining export competitiveness. The tax burden on rural banks has been eased. Ghana shows improvement on the UN’s development index, but a cholera outbreak is reported in the north.

Mining and industry: The mining sector has continued to face low gold prices and higher electricity costs, but gold production has risen. Steel and aluminium firms have been hit hard by the energy crisis.

Energy: Although the energy crisis has eased considerably, industrial consumers are still suffering shortages. Electricity prices have been doubled. A proposed regional gas pipeline project seems to be making progress, but offshore oil results are disappointing. Ghana’s cities may face water shortages.

Agriculture: The main cocoa marketing season has begun and a task force is to examine productivity-enhancing measures. The World Bank is assessing Ghana’s fishing development programme.

Business and finance: A $320m loan has been arranged for Cocobod. The Securities Regulation Commission has finally been inaugurated. The stock- market had a bearish third quarter.

Foreign trade, aid and payments: Togo was Ghana’s main export destination in 1997. Timber export earnings are slightly up this year. New loans have been secured from Japan and China.

Editor: Piers Haben All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

EIU Country Report 4th quarter 1998 © The Economist Intelligence Unit Limited 1998 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 7th 1996 (presidential and legislative); next elections due in 2000

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

National government Cabinet, partially appointed by the president in February-May 1997

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 National Convention Party (NCP); the People’s Convention Party (PCP); United Ghana Movement (UGM)

President Jerry John Rawlings Vice-president John Atta Mills

Key ministers Attorney general & justice Obed Asamoah Communications Ekwow Spio-Garbrah Defence Mahama Iddrisu Education Christine Amoako-Nuamah Employment & social welfare Mohammed Mumuni Environment, science and technology J E Afful Finance Richard Kwame Peprah Food & agriculture Kwabena Adjei Foreign affairs Victor Gbeho Health Samuel Nuamah-Donkor Interior Nii Okaidja Adamafio Lands & forestry Cletus Avoka Local government Kwamena Ahwoi Mines & energy Fred Ohene Kena Parliamentary affairs Joseph Owusu-Acheampong Roads & transport Edward Salia Tourism Mike Gizo Trade & industries John Frank Abu Works & housing Issac Adjei-Mensah Youth & sports Enoch Teye Mensah

Ministers of state without portfolio Daniel Ohene Agyekum Margaret Clarke-Kwesie Ebenezer Kobina Fosu Alhaji Abdullai Salifu Kwabena Fosu Mumuni Abundu Seidu Kofi Awoonor

Central bank governor Kwabena Duffour

EIU Country Report 4th quarter 1998 © The Economist Intelligence Unit Limited 1998 Ghana 5

Economic structure

Latest available figures

Economic indicators 1993 1994 1995 1996 1997a GDP at market prices (C bn) 3,674 4,950 7,417 10,384 13,876 Real GDP growth (%) 4.8 3.6 4.5 5.2 4.1 Consumer price inflation (av; %) 25.0 24.9 74.3 34.0 27.9b Population (m) 16.38 16.86 17.34 17.83 18.30 Exports fobc ($ m) 1,064 1,236 1,431 1,571 1,521 Imports fobc ($ m) 1,728 1,580 1,678 1,937 1,952 Current account ($ m) –558 –264 –144 –324 –383 Reserves excl gold ($ m) 409.7 583.9 697.5 828.7 500.0 Total external debt ($ m) 4,880 5,464 5,872 6,148 6,047 External debt-service ratio, paid (%) 20.7 22.9 21.4 24.5 27.4 Cocoa productiond (’000 tonnes) 255 290 404 340a 400 Gold production (m fine oz) 1.4 1.5 1.6 1.6 1.6 Exchange rate (av; C:$) 649.1 956.7 1,200 1,754 2,250b

October 30th 1998 C2,340:$1

Origins of gross domestic product 1996 % of total Components of gross domestic product 1996 % of total Agriculture, forestry & fishing 40.6 Private consumption 74.0 Industry 14.2 Government consumption 11.0 Manufacturing 8.1 Gross domestic investment 17.0 Services 48.4 Exports of goods & services 26.0 GDP at factor cost 100.0e Imports of goods & services –28.0 GDP at market prices 100.0

Principal exports 1996 $ m Principal imports 1990 $ m Gold 612 Capital goods 544 Cocoa beans & products 552 Intermediate goods 356 Timber 147 Fuel & energy 210 Consumer goods 124

Main destinations of exports 1997f % of total Main origins of imports 1997f % of total Togo 13 UK 15 UK 12 Nigeria 14 Germany 10 US 10 US 9 Germany 6 France 7 Spain 5 a EIU estimates. b Actual. c Balance-of-payments basis. d Crop years beginning in October of calendar year. e Does not equal 100 at source due to omission of import duties and bank service charges. f Based on partners’ trade returns; subject to a wide margin of error.

EIU Country Report 4th quarter 1998 © The Economist Intelligence Unit Limited 1998 6 Ghana

Outlook for 1999-2000

The unity of the NDC will The issue of life after the departure of President Jerry John Rawlings will hang come under pressure— over the National Democratic Congress (NDC), the majority ruling party, until the next elections in 2000. As is so often the case, the imminent departure of a charismatic leader has revealed deep divisions. After 17 years in power, Mr Rawlings is set to retire in 2000, an event which he continues to insist will take place on schedule. In an attempt to quash potential fissures within the party, the president announced in May that he supported the vice-president, John Atta Mills, as the party’s next leader, and thus probably Ghana’s next president. The move was also intended to end speculation that either he would engineer a constitutional change to allow him to stay on, or that his wife, Nana, who clearly has her own political ambitions, would stand in his place. However, the unilateral manner in which Mr Rawlings declared his support for Mr Atta Mills has caused dissent among some elements within the NDC who wish to see greater democracy within the party. They have issued a challenge to the leadership to democratise the party structure—a move which is threaten- ing the unity of the NDC.

—as the succession battle A few months ago it appeared almost certain that the top leadership post would may not yet be over— be smoothly passed over to Mr Atta Mills. However, the emergence of a “Reform Group”, calling for changes to the internal party procedures, has brought the succession issue into question once more. Demanding more active consultation of local party members in decisions, including that of the succession to Mr Rawlings, the Reform Group has scheduled its own congress, prior to the NDC’s official party congress due in mid-December, to decide whether to break away and form a new party. In an attempt to head off a formal split, talks to seek a compromise have reportedly begun. Unless a deal can be struck quickly, which appears far from certain, a final leadership decision is likely to be delayed until the NDC’s party congress in 1999. The NDC’s constitution calls for the selection of the leadership in the same year as the election, which offers the party some rhetorical cover and allows at least another year for a new arrangement to be found. Whether that will temporarily satisfy the Reform Group, and whether its adherents will be patient enough to wait another year, remains to be seen. Even if they do not break away before 2000, the division within the NDC will continue to loom large after the elections. If the Reform Group does form a breakaway party, this would embarrass the NDC, but any new party would run into severe resource constraints and, in the face of a political offensive by the ruling party, would probably not be able to mount a serious challenge to the NDC’s voter mobilisation machine.

—and a passive Mr Atta While Mr Rawlings has put on a conciliatory public face, despite rumours of his Mills has work ahead of private fury at the party rift, little has been heard from the vice-president. him Mr Atta Mills, who was formerly a law professor and head of the tax collection agency, is known to be a quiet but effective technocrat, and has emerged not as a political heavyweight, but as a compromise candidate. Relatively new to the vicious arena of Ghanaian politics, his greatest political assets appear to be the support of Mr Rawlings and his close advisers, and his almost total lack of political enemies. However, expectations that he would move quickly to

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broaden his support base within the party have failed to materialise. The internal challenge of the Reform Group may instead start second thoughts on the part of some in the party hierarchy who only reluctantly accepted his ascension. Indeed, given some of the strongarm tactics used by several prominent NDC leaders in the 1980s, they are concerned that Mr Atta Mills may be too weak, or perhaps too legalistic, to protect them from a barrage of lawsuits and possible security threats after Mr Rawlings has retired. The most important factor will be the influence of Mr Rawlings and his coterie of advisers, notably Kofi Totobi Quakyi and Kojo Tsikata, the latter of whom remains a formidable force despite his recent low profile. If uncertainty does begin to surround Mr Atta Mills’s leadership, other challengers within the party, such as the defence minister, Mahama Iddrisu, may rise to challenge him. Indeed, if political in-fighting heats up it is even possible that Mr Atta Mills will elect to leave politics altogether.

Mr Kuffour will lead the Discord within the NDC may benefit the opposition parties, especially the New NPP in 2000 Patriotic Party (NPP), which is in the strongest position to challenge it in the next elections. The NPP is trying to ensure it mounts a strong campaign in 2000 by choosing its presidential candidate well in advance. At the party conference in October it selected John Agyekum Kuffour, a lawyer and economist, to lead its election bid. Mr Kuffour headed the NPP’s unsuccessful election campaign in 1996, in which he failed to impress ordinary voters. Although he will not be up against the charismatic Mr Rawlings in 2000, the NPP will still find it hard to convince voters, especially in rural areas, that they are more in touch with their concerns now than they have been in the past.

Mr Rawlings will focus on Despite the troubles at home, the president will continue to focus on promoting rebuilding regional himself as a regional and international statesman in 1999 and 2000. He has relationships pursued this role since overseeing regional peacekeeping efforts in Liberia in the early 1990s as chairman of the Economic Community of West African States (Ecowas) but is perhaps more vigorous in his pursuit now as retirement looms and he sets his sights on a prominent international position. With Nigeria, now under the leadership of General Abdulsalami Abubakar, again courting international favour, Ecowas is poised to reassert itself under Nigerian leadership. It is perhaps in this context that Mr Rawlings will remain keen on strengthening relations with Ghana’s powerful neighbour and projecting himself and Ghana through Ecowas as important players in regional relations.

There are bright prospects Although the IMF resumed Ghana’s enhanced structural adjustment facility for improved donor (ESAF) in March and the government formulated a revised economic strategy, relations— the Policy Framework Paper, in close consultation with donors, it is likely to miss most of its performance targets for this year. In the face of the energy crisis, official projections for almost all macroeconomic indicators are increasingly unrealistic. Nevertheless, the donors appear to recognise the political necessity of some fiscal loosening during political campaign seasons, and are showing signs of flexibility in the light of circumstances which the government argues are outside its control, such as the energy crisis. While some of Ghana’s current problems clearly stem from external pressures, such as low international gold prices, it is less clear that the energy crisis is a result of poor weather and not

EIU Country Report 4th quarter 1998 © The Economist Intelligence Unit Limited 1998 8 Ghana

just bad government planning and neglect. Nevertheless, donors, and especially the IMF, which is facing growing international criticism over its inflexi- bility in Asia, will not be looking to impose sanctions against one of its model reformers in Africa, regardless of whether specific targets are missed, and hence relations look set to remain firm. The government, for its part, does appear to be slowly getting back on track with economic reforms. Value-added tax (VAT) will be introduced in December, electricity tariffs have finally been raised, further reforms in the cocoa sector are being seriously explored, and the government has launched a new initiative to root out public-sector corruption.

—but political pressure As the elections draw closer, pressures will build to spend freely and reverse or will build as the slow reforms. The government made concessions to political expediency before elections near both the 1992 and 1996 elections, when fiscal discipline was abandoned. The doubling of electricity tariffs in September has already become a campaign issue, with the NPP calling for its immediate reversal. Students have also been protesting against budget cuts to universities, crowded conditions on campuses and the introduction of boarding fees—creating a high potential for con- frontations with the police and unrest. Public-sector unions are also agitating for a large pay rise, and while some cost-of-living adjustment will be necessary, the IMF will be pushing hard to limit any increase in the wage bill. Higher development spending will certainly occur, especially as the NDC will be seeking to rally its supporters, the bulk of whom live in rural areas. Yet President Rawlings, facing retirement, is also aware of his legacy and will want to maintain his reputation as a reformer, with his eye on a high-profile international position after 2000. Given these various pressures, the government will be looking to push the IMF as far as possible and may get some leeway, but a drastic reversal of either economic reforms or fiscal tightening seems out of the question as Mr Rawlings will not want to risk another freeze on the country’s ESAF.

Growth is set to rebound Owing to a slowdown in output in the industrial and services sectors, as a result in 1999— of power shortages, the EIU’s estimate of real GDP growth in 1998 is just 1.2%, well below the government’s target of 5.6%. However, as capacity constraints are lifted, with more power coming on stream, growth should rebound strongly in 1999, to 4.8%. Higher government expenditure in the run-up to the 2000 elections and the construction of a number of new power stations should also have a positive impact. Assuming that agricultural output remains firm and that industry adapts quickly to higher power costs, real GDP growth should remain strong in 2000 at 5.3%.

—but inflationary According to the latest figures available, inflation had been brought down to a pressures will remain— year-on-year rate of just 18.6% in August, after having risen to over 23% in April. However, the EIU expects inflationary pressure to gather momentum in late 1998, owing to higher food prices and the 100% increase in electricity tariffs. The introduction of VAT at a rate of 10% theoretically should simply replace higher but less efficient sales taxes, but consumer confusion could allow traders to use VAT as an excuse to push up prices, as happened during the aborted introduction of VAT in 1995. As a result, we estimate that inflation will acceler- ate to about 27% by year-end, giving an average rate in 1998 of 22%. Infla- tionary pressure will continue throughout 1999 as government spending

EIU Country Report 4th quarter 1998 © The Economist Intelligence Unit Limited 1998 Ghana 9

increases in the run-up to the elections and hikes in civil service salaries raise consumer demand. While the Bank of Ghana (BoG, the central bank) will continue to maintain a tight monetary policy, the EIU expects the cedi to weaken markedly, which will have an inflationary impact on the local prices of imported goods. As a result, we forecast that inflation will remain relatively high in 1999, averaging around 24% throughout the year. As the pressure on fiscal expenditure eases after the elections and the BoG tightens the reins, inflation should ease in late 2000 to give an average rate for the year of about 15%.

—as the cedi cannot The cedi has remained stable against the US dollar throughout 1998, but such maintain its current rate stability does not appear to be supported by either economic fundamentals or confidence in the economy. High inflation differentials with the US demon- strate that a real appreciation of the cedi has occurred, whereas a real depreciation would be expected in a year of slowing economic activity and a growing current-account deficit. The real appreciation is damaging the competitiveness of Ghana’s non-traditional export sector. It appears that the exchange rate has been kept artificially stable by “moral suasion” on commercial banks and exchange bureaux. With international reserve levels unimpressive and capital inflows likely to remain modest, we expect the cedi to depreciate over the next six to 18 months. The longer the pressure on the currency builds, however, the greater the chance that the depreciation will be disruptive to economic activity. Consequently, we expect the cedi to average C2,370:$1 in 1998, with a modest drop before the end of the year, but C3,444:$1 in 1999. Assuming that the BoG stabilises the exchange rate in the latter half of 1999 and into 2000, we forecast the cedi to decline in line with inflation differentials to average C4,035:$1 in 2000.

Cocoa output is set to Cocoa production—which is estimated to remain roughly at 1997 levels this remain strong year with a crop of about 400,000 tonnes—is set to rise in 1999 and 2000. The EIU’s latest World Commodity Forecasts has forecast a crop of 415,000 tonnes in 1999, with production stimulated by the 25% rise in farmgate prices announced by the government in June. Nevertheless, production volumes will remain dependent on weather conditions and disease, with the beans susceptible to mould if harvest rains are heavy and marketing procedures are slow. Moreover, uncertainties surrounding the liberalisation of the cocoa sector, in particular in marketing, may further affect volumes. The EIU’s latest forecast, set in early September, expects cocoa price increases of 9% in 1999 and 7% in 2000, though these rates may be revised downwards in the light of slowing global consumer demand generally, particularly in cocoa’s growth markets of Asia and Russia. On these assumptions, we are now forecasting a modest rise in cocoa export earnings from an estimated $562m in 1998 to $590m in 1999 and—assuming no crop disasters—$625m in 2000.

Gold production will Ghana’s mining firms have shown a remarkable resilience to the power short- increase— ages suffered this year, recording a 35% year-on-year rise in output in the first half of 1998. Higher electricity costs in the future, from both higher tariffs and the increased costs associated with private power deals, will eat into the earnings of some of the smaller mining firms. Several will be forced to close, but heavily capitalised firms, such as Ashanti Goldfields Company (AGC), will be

EIU Country Report 4th quarter 1998 © The Economist Intelligence Unit Limited 1998 10 Ghana

able to adapt. Indeed, Ashanti appears to be stepping up its aggressive takeover and expansion plans, which should boost Ghana’s overall gold output over the forecast period. Total gold production could top 1.9m ounces in 1998, up from 1.6m oz in 1997, with 2m oz now a realistic goal for 1999 and 2000.

—but export earnings will Unfortunately for Ghana, lower gold prices have largely negated the effect of be flat higher production. International gold prices, which dropped by about 15% in 1997, have fallen further this year. The EIU forecasts a modest recovery of 3.4% in average prices in 1999, to about $306/oz, and a rise of almost 8% in 2000 to $330/oz. However, prices received by AGC, which produces about two-thirds of Ghana’s gold, will probably fall as its aggressive hedging policy—which up to now has resulted in prices far above market rates—is based on a schedule of gradually falling prices. Therefore, we expect Ghana’s total gold earnings, which are estimated to have fallen from $563m in 1997 to $533m in 1998, to remain relatively flat at $540m in 1999 and $550m in 2000.

The current-account We expect the trade deficit to widen in 1998 to $711m as a result of the energy deficit is forecast to crisis, which has raised demand for oil while reducing the capacity of the manu- narrow facturing export sector. In 1999 the trade deficit is set to narrow to $622m as a result of higher traditional exports, and some modest gains in non-traditional exports owing to the cedi’s depreciation. The services balance is expected to remain relatively stable, so we expect an improvement in the current account, with the deficit narrowing to $551m in 1999, from $591m in 1998. Import spending, which will drop slightly in 1999 in line with low oil prices, is forecast to rise again in 2000 as the construction and utilities subsectors import more parts and materials. Nevertheless, the current-account deficit is set to narrow slightly in 2000, helped by a small improvement in the invisibles balance.

Forecast summary

1997a 1998a 1999b 2000b Real GDP growth (%) 4.1 1.2 4.8 5.3 Consumer price inflation (av; %) 27.9c 22.2 23.5 15.3 Merchandise exports fob ($ m) 1,521 1,415 1,467 1,559 of which: cocoa 464 562 590 625 gold 563 533 540 550 Merchandise imports fob ($ m) 1,952 2,126 2,089 2,227 Current-account balance ($ m) –383 –591 –551 –514 Average exchange rate (C:$) 2,250c 2,370 3,444 4,035

a EIU estimates. b EIU forecasts. c Actual.

EIU Country Report 4th quarter 1998 © The Economist Intelligence Unit Limited 1998 Ghana 11

Gross domestic product Real exchange rates (c) % real change, year on year 1990=100

130 6 Ghana Naira:$

Africa 120 5

110 4 CFAfr:$ (d) 100 3

90 2

80 1

n/a 70 0 1996 97(a) 98(a) 99(b) 2000(b) Cedi:$ 60 (a) EIU estimates. (b) EIU forecasts. (c) Nominal exchange rates adjusted for changes in relative consumer prices. (d) Côte d'Ivoire. Sources: EIU; IMF, International Financial Statistics; World Economic 1990 91 92 93 94 95 9697(a) 97 98(a) 98 99(b) 99 20002000(b) Outlook.

Review

The political scene

The succession battle is President Jerry John Rawlings had hoped that his endorsement in June of the far from over— vice-president, John Atta Mills, as his successor would end party in-fighting and allow the ruling National Democratic Congress (NDC) to focus its attention on defeating the opposition parties in the next election, due in 2000. Instead, Mr Rawlings’s announcement has exacerbated intra-party tensions as criticisms that the party is anti-democratic and corrupt appear to have gained momentum. An initially anonymous group of “cadres”, claiming to represent the party’s grassroots supporters, published an open letter in two newspapers in July denouncing the party’s leadership and castigating the president for naming his successor without consulting party members (3rd quarter 1998, page 11). Under mounting pressure to appear less autocratic, Mr Rawlings explained in late August that it was only his “opinion” that Mr Atta Mills should be the NDC presidential candidate in 2000, and not a “declaration” that he would be. Although in public the president maintained this was a simple clarification and claimed that he welcomed genuine criticism of party prac- tices, it did seem to represent a concession to the internal critics and, privately, Mr Rawlings was reported to be furious.

—as the Reform Group The anonymity of the cadres was ended in late September, when Goosie shows its face Tanoh, one of the few radical ideologues who have remained in the NDC since its revolutionary days, appeared on a radio programme. He claimed to be one of the leaders of the “Reform Group”, a new faction of the NDC seeking to reform the party and return it to its democratic roots. Mr Tanoh openly blasted NDC leaders in an unprecedented airing of internal party divisions. Describing the party leadership as “corrupt” and “intolerant”, he threatened that the Reform Group could break away from the party and put forward its own candidate, presumably himself. Although a compromise is being sought through a series of meetings between NDC party leaders and the Reform Group to prevent

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a split, the latter has scheduled its own “congress” in November, several weeks before the NDC’s official party congress, to decide on its future course. This will give a good indication of the level of support for the group. While the NDC is clearly embarrassed by this public row, it appears that the party may be moving into a new phase of being better able to accept and cope with criticism as it opens up and prepares for the departure of the dominant Mr Rawlings.

The NPP elects Mr Kuffour On October 24th John Agyekum Kuffour was elected by the opposition New as its presidential Patriotic Party (NPP) as its presidential candidate. Mr Kuffour, who was the candidate again NPP’s unsuccessful challenger to Mr Rawlings in 1996, beat six other NPP hope- fuls by polling 1,286 votes out of a total of some 2,000. The other candidates included the NPP’s spokesman for legal and constitutional affairs, Nana Akufo- Addo, and the spokesman on economic affairs, Kofi Apraku. In his acceptance speech, Mr Kuffour pledged to work with the defeated candidates to “penetrate the hamlets and villages in all the ten regions for a resounding victory in election 2000". These words underline how crucial it is for the NPP to make inroads into rural areas, where, as a somewhat middle-class party, it is felt to be out of touch. However, Mr Kuffour’s nomination is unlikely to help the NPP to impress ordinary voters as he is seen neither as charismatic nor in touch.

In early September the NPP was stung by a defection of 47 local party members in the Abesim district to the NDC. According to reports on an independent radio station, a spokesman for the defectors claimed that their change of loyalty resulted from the visit of US President Bill Clinton in March, which convinced them that, contrary to NPP claims, Mr Rawlings had not turned Ghana into a pariah state.

A new party is launched, On August 29th the United Ghana Movement (UGM), Ghana’s newest polit- targeting youth— ical party, held its first official party congress in Tamale. The congress adopted a constitution and endorsed candidates for top posts, including the party leader, Charles Wereko-Brobby—a former NPP official and one-time student union leader in the UK. The party claims to be targeting the youth vote, but remains largely a vehicle for the personal ambitions of Mr Wereko-Brobby. Although he has not yet officially declared his candidacy, he will probably run for president in 2000, but is not expected to have much impact on the result.

—as students protest The introduction of boarding fees for university students led to high tensions against new fees on several campuses as the new academic year began. There had been extensive protests in June on the main University of Ghana campus at Legon, in subur- ban Accra, but no violence was reported, most likely owing to the heavy police presence. In Kumasi, however, the University of Science and Technology was briefly closed in early October after about 150 students attacked staff residences and anti-riot police were forced to intervene to restore order.

The government’s Despite government efforts to improve relations with the privately owned relations with the press media (2nd quarter 1998, page 9), they have remained strained over the last remain cool few months. Following multiple libel suits filed against publishers and printers this year (3rd quarter 1998, page 13), it has been reported that independent newspapers may be facing a total of at least 120 libel suits. Some analysts, including several officials of the Bar Association, have suggested that the government may be seeking indirectly to control the press through such

EIU Country Report 4th quarter 1998 © The Economist Intelligence Unit Limited 1998 Ghana 13

lawsuits. The government has also used the implicit threat of a withdrawal of government advertising to deter printers from working with opposition- affiliated newspapers. Two newspaper editors, Harruna Attah of The Statesman and Kweku Baako of The Guide, completed their 30-day prison sentences for publishing a libellous cartoon. Their case had attracted attention in the media and become a focal point for complaints about the potential impact of libel suits on press freedom.

A corruption index ranks In its latest annual survey of perceptions of corruption, Transparency Inter- Ghana midway in Africa— national, a Berlin-based non-governmental organisation, ranks Ghana 55th out of 85 countries, with a score of 3.3 out of 10 (10 being corruption-free). While this ranking puts Ghana firmly in the middle of the 15 Sub-Saharan African countries included in the survey, it contrasts sharply with a report released earlier this year by the London-based Control Risks Group, which ranked Ghana the sixth most corrupt country in the world. Given the subjec- tivity of such surveys, any such ranking should be treated with caution. How- ever, because the Transparency International index draws upon multiple existing polls, rather than conducting its own, it does give the broadest meas- ure available of the perceptions of the business sector. Ghana’s ranking is above countries such as Thailand, Bulgaria and Venezuela, but well behind several other African countries, including Botswana and Zimbabwe.

Corruption perceptions index: selected countries, 1998

Rank Country Scorea 1 Denmark 10.0 23 Botswana 6.1 32 South Africa 5.2 43 Zimbabwe 4.2 45 Malawi 4.1 52 Zambia 3.5 55 Ghana 3.3 59 Côte d’Ivoire 3.1 74 Kenya 2.5 81 Nigeria 1.9 85 Cameroon 0.5

a 10 = corruption free.

Source: Transparency International.

—but a new study points In October a study by a newly founded institute in Ghana, the Centre for to corruption in health Democracy and Development (CDD), reported that the public perceived cor- and education ruption to be endemic in the provision of healthcare and education. A national survey conducted in September found that 56% of those seeking admission to the public school system used “contacts” to gain a place, with nearly half of these paying some sort of bribe. Healthcare provision appeared on the whole less corrupt, with only about one-third of applicants using “contacts” to help secure services. Although the study did found that many people found such arrangements a normal part of life in Ghana, it concluded that a shortage of resources, especially low public-sector salaries, had helped to create a climate in which corruption could flourish. This study may show an alarming rate of graft

EIU Country Report 4th quarter 1998 © The Economist Intelligence Unit Limited 1998 14 Ghana

within the public sector, but the publication of the report, which was part of the National Integrity Workshop hosted by the Ghana Commission on Human Rights and Administrative Justice, also illustrates an increasing openness in Ghana to discuss and tackle the problems of corruption.

Mr Rawlings concentrates Relations with Ghana’s most important neighbour, Nigeria, had been strained on relations with Nigeria— earlier in the year following allegations that Ghana had been used as a base from which an alleged coup plot was hatched. However, the death of General Sani Abacha in June, and the emergence of General Abdulsalami Abubakar, has created the possibility of greater co-operation. Recently, in an apparent bid to improve relations, Mr Rawlings has been publicly defending Nigeria, calling on the international community to understand the complexities of Nigeria’s problems and give it time to resolve them. Mr Rawlings visited the new leader in Abuja in late June and General Abubakar paid a two-day state visit to Ghana in October. The two leaders reportedly discussed regional conflicts—especially those in Sierra Leone, Guinea-Bissau and Liberia—and pledged to push ahead with the West African Gas pipeline (see Energy). Although Nigeria, which dominates the political and economic climate in the region by its sheer size, has been focusing on its own internal reforms, it does appear that relations with Ghana are now set to improve.

—and maintains his high Pursuing his active regional foreign policy, President Rawlings hosted the pres- international profile idents of Burkina Faso in August and Equatorial Guinea in September, when regional issues of water management and energy supplies were high on the agenda (see Energy). However, Mr Rawlings also travelled to Cuba and the US in September, in a trip that captured the two public faces of the president. He met the business communities in New York, Pittsburgh and Detroit to promote investment opportunities in Ghana, but also went to Cuba and met its leader, Fidel Castro, after which he addressed the UN General Assembly, where he castigated Western powers over social and economic inequities in the world. This ability to combine pragmatism with a fiercely ideological streak, making friends in Washington and Havana, helps explain the NDC’s reliance on, and fear of losing, Mr Rawlings.

Liberian refugees are According to the Ghana Refugee Board (GRB), all Liberian refugees in the given a deadline to country must return home by the end of this year. While acknowledging that return home some political refugees with “genuine fears” will be allowed to stay, GRB officials claim that security in Liberia has improved and that it is now time for them to return. With the outbreak of civil war in Liberia in 1989, an estimated 1m Liberians fled to other West African countries. The UN estimates that 15,000 Liberians remained in Ghana in 1997. Given that economic opportunities are much greater in Ghana and the situation in Liberia remains fragile, most refugees will probably try to stay despite the voluntary repatriation programme which began last year, under which free passage, food and other supplies are provided. Although forcing refugees to leave may be popular with nationalist elements within Ghana, expulsion will remain a sensitive political issue as many people still remember the expulsions of Ghanaian workers from Nigeria in the 1980s and early 1990s and are proud of Ghana’s prominent peacekeeping role in Liberia.

EIU Country Report 4th quarter 1998 © The Economist Intelligence Unit Limited 1998 Ghana 15

The economy and economic policy

Inflation slows for the The Bank of Ghana (BoG, the central bank) has reported that inflation slowed fourth successive month— in August for the fourth consecutive month to a year-on-year rate of 18.6%, down from 18.7% in July and 21.8% in June. This slowdown in price increases follows an acceleration in inflation in early 1998, to a peak of 23.1% in April. It reflects currency stability and lower prices of housing, utilities and staple crops. However, the government’s year-end target of an inflation rate of 9.5% is unlikely to be met, as food prices traditionally rise in the third quarter, and electricity tariffs were doubled in September.

Inflation, 1998 (% change, year on year) Jan Feb Mar Apr May Jun Jul Aug Consumer prices 19.8 19.6 20.3 23.1 22.9 21.8 18.7 18.6 Source: Bank of Ghana.

—prompting a loosening The BoG reduced its discount rate, which had remained at 45% for the past three of monetary policy— years, to 42% on September 25th. The central bank governor, Kwabena Duffour, explained that the cut was made possible by the slowdown in inflation, from over 70% in 1995 to under 19% in July, and the stability of the cedi. It is also likely that reductions in government domestic borrowing have eased liquidity pressures. It is in this context that Treasury-bill rates have similarly dropped, with the 91-day rate falling from about 43% in January to around 31% in September. The BoG expects banks and other financial institutions to bring down their lending rates as well, although this may be postponed if, as the EIU forecasts, inflationary pressures gather momentum in 1999. Mr Duffour added that these recent developments reflect a “fundamental improvement” in the macroeconomic environment.

—but economic Despite these positive monetary trends, the government has come under re- management is criticised newed criticism for its economic management. Joe Abbey, a former deputy finance minister and currently executive director of the independent Centre for Policy Analysis (CEPA), attributed Ghana’s loss of macroeconomic stability over the past few years to failures in both policymaking and policy implementation. In a public assessment of Ghana’s economic performance in the first half of 1998, Dr Abbey concluded that it would not meet any of the major targets agreed with the IMF as set out in the government’s recent Policy Framework Paper (3rd quarter 1998, pages 13-14). In another critical report, released in late September, the Institute of Statistical, Social and Economic Research (ISSER), an economic research institute at the University of Ghana, claimed that “the inability to meet targets in the budget has become an entrenched outcome of economic management in Ghana”. The ISSER report did recognise that inflation had been slowly brought down, but maintained that it was still too high to permit accelerated growth. Similarly, it argued that interest rates were much too high to allow expansion in local industries.

The cedi’s continued The cedi has continued to show remarkable stability over the past quarter; appreciation is worrying— there has been virtually no movement in the exchange rate this year. On October 30th the cedi was trading at C2,340:$1, compared with C2,271:$1 in

EIU Country Report 4th quarter 1998 © The Economist Intelligence Unit Limited 1998 16 Ghana

January. Ghana’s high rates of inflation relative to those in the US mean that the nominal stability of the exchange rate has caused the cedi to appreciate against the dollar by some 20% in real terms. However, the strength of the cedi seems entirely unfounded. Overall confidence in the economy has declined during 1998 as the electricity crisis has reduced growth and widened the current-account deficit, while there has been a deterioration in international sentiment about emerging-market currencies. Modest increases in private investment inflows and the agreement with the IMF in March will have helped to stabilise the exchange rate, but they do not warrant a real appreciation. Similarly, while the central bank has intervened directly in the past to support the cedi, it does not appear to have been active in the foreign-exchange markets over the past few months. International reserves were reported to be just $494m in May, representing a mere 2.7 months of import cover and giving the BoG little room for manoeuvre. Instead, it appears that the government has been using administrative efforts to control foreign exchange bureaux and the banks—a strategy that is unsustainable in the medium term.

—and hurts export This year’s appreciation of the cedi comes on top of the 10% rise registered in competitiveness 1997. Although the authorities may have specifically targeted a stable nominal exchange rate in order to ensure some level of macroeconomic stability, the real economy is suffering as a result. The strong cedi has undoubtedly damaged the competitiveness of Ghana’s manufacturing export sector, undermining the government’s policy of export diversification.

Mr Rawlings asks for Remittances from Ghanaians abroad are thought to average over $300m per remittances through the year, making up the bulk of Ghana’s large current transfer credits, estimated by formal sector the EIU at $586m in 1998. Accurate data collection has, however, been compli- cated by the prevalent use of informal and non-bank institutions. The BoG has launched a campaign against unofficial financial houses involved in money transfers, and several have reportedly been closed down. Meanwhile, President Rawlings, during his trip to the US in September, thanked Ghanaians abroad for their important contribution to the economy, but appealed to them to transfer funds using the formal banking system. Although Ghana’s banking sector has undergone a successful restructuring and confidence has steadily grown, many Ghanaians, especially those who have left to live overseas, still remember the seizures of assets by the government in 1979 and 1982, including the freeze on all bank accounts containing over C50,000 ($18,200) in 1982, during widespread investigations of tax evasion.

Rural banks are boosted The government appears to be taking an active interest in promoting rural by a tax cut banking, despite the central bank governor’s recent condemnation of rural banks for inadequate reporting (3rd quarter 1998, page 17). The government has reduced the corporate tax rate for rural banks from 35% to just 8%, apparently in recognition of the role they play in the rural economy. The move was welcomed by the Association of Rural Banks (ARB), which, with funding from the Danish International Development Agency (Danida), is setting up a communications network to link rural banks. This should improve efficiency by allowing more timely reporting. In addition, a feasibility study for the creation of an “apex body” to act as a banker to rural banks has been submitted to the

EIU Country Report 4th quarter 1998 © The Economist Intelligence Unit Limited 1998 Ghana 17

ARB, the World Bank and the Bank of Ghana. No date was given for a decision on the proposed body, which reportedly would facilitate cheque clearing, provide deposit insurance, train personnel and source onshore and offshore funds to improve capitalisation.

Ghana shows a marked According to the UN’s 1998 Human Development Report, Ghana has shown signif- improvement in icant progress in health and education standards in recent decades. Average life development indicators— expectancy, which stood at only 45 years in 1960, had risen to 55 years in 1991, and to 57 years by 1995. Similarly, adult literacy rose from just 31% in 1970 to 65% in 1995, with a 12% rise in just the past decade. Most striking, however, is the advance in real GDP per head on a purchasing power parity (PPP) basis; which increased from $970 in the mid-1980s to $2,039 by 1995, a 210% rise. Although PPP remains a controversial method of adjusting measures of wealth (the EIU estimates real per head GDP at about $350 in 1995 at current prices), it does show a trend towards greater purchasing power among Ghanaians, further indicated by the increasing emergence of a middle class and by the growing array of consumer goods widely available.

—but cholera is reported In September 120 cases of cholera were reported, including at least eight in the north deaths, in the Upper East region which borders Togo and Burkina Faso. Local health officials blamed the outbreak on unhygienic conditions; thousands of people live in crowded accommodation without proper sewage facilities and are involved in illegal gold mining. Although this appears to be an isolated incident, it highlights the lack of sanitation and healthcare in rural areas. On average Ghana has only four doctors per 100,000 people, which remains one of the lowest rates in the world. In October several doctors at a teaching hospital in Accra went on strike against poor working conditions and low pay, claiming to earn only about $160 per month, while working long hours.

Mining and industry

The mining sector faces The mining sector in Ghana has been severely hit by low gold prices and low gold prices and increased production costs, stemming mainly from electricity price rises. The higher electricity costs— gold price, which had staged a modest comeback to about $312 per ounce in May, has remained under $300/oz since then. On October 30th gold in London was selling for $292.5/oz. Power supplies and costs also remain a problem, with electricity rationing for industry continuing during the third quarter and electricity tariffs being doubled in September (see Energy). As a result, several small mines have shut down and workers have been laid off. According to the Mine Workers’ Union (MWU), at least 8,000 mineworkers have lost their jobs. In Prestea, in the Western region, however, over 1,000 workers who had been fired when the South African mining company Barnex closed a mine earlier this year have reportedly been using their severance pay to keep the mine in working order. With the help of the MWU they have now registered a new company to take over its operations.

—but gold production Results for the first half of 1998 show a significant rise in gold output, up 35% continues to rise strongly— from the same period last year. This rise, in the face of the problems outlined above, was largely a result of an increase in the number of companies operating,

EIU Country Report 4th quarter 1998 © The Economist Intelligence Unit Limited 1998 18 Ghana

from 13 to 16, and the ongoing efficiency drive by the major producers, especially the Ashanti Goldfields Company (AGC).

Gold production, Jan-Jun

1997 1998 % change Total production (oz) 718,640 971,985 35.3 Value ($ m) 260 325 25.0 Source: Department of Mines.

—and Ashanti forges ahead Despite complaints from Ashanti’s chief executive, Sam Jonah, that electricity price increases are hurting the mining sector, AGC has continued its aggressive expansion. In September a new deep shaft at the company’s main Obuasi mine was opened, at a cost of about $23m. The new shaft, which is the world’s largest of its kind, has a projected capacity to carry 1.35m tonnes of ore per year, bringing Obuasi’s total capacity up to 3.5m tonnes. This development is the latest phase of Obuasi’s rehabilitation, which began in 1986 and has re- turned it to its former status in the 1960s as one of the world’s most productive mines. Ashanti also continued to take over other mines across Africa with the purchase of Samax Gold, a Toronto-listed company, for about $135m. Samax has small holdings in Ghana, Senegal and Congo (Brazzaville), but its main assets are in Tanzania. The mine in Ghana is in the Geita district and adjoins an existing Ashanti-owned mine, allowing the development of a huge complex with annual production of about 400,000 oz. AGC has also acquired Samax’s 50% share of the Golden Pride mine in Tanzania. Golden Pride, of which the other half is owned by Resolute of Australia, is expected to begin operations in November and eventually produce 150,000 oz per year. AGC also bought back more than 5m shares in August, reflecting its renewed confidence and its intentions to maintain share prices.

The Glencar project According to the African Mining Bulletin, construction at Glencar Mining’s progresses Wassa gold mine is on schedule and the company expects to begin operations in January 1999. Operating costs at the mine are estimated at just $180/oz for the life of the mine, which would make it one of the lowest-cost mines in the world. The Dublin-based firm expects annual production to top 100,000 oz, with proven total reserves at about 1m oz, but with a total potential yield of more than double this amount. The development of the mine, which is 10% owned by the government, has been financed with a $47.5m loan arranged by Standard Bank in London, with $15m from the Commonwealth Development Corporation (CDC).

Steel and aluminium While AGC has weathered the electricity shortages, Ghana’s other main con- suffer sumers of power have been hit extremely hard. The top electricity consumer, the Volta Aluminium Company (Valco), was running at only 20% capacity in October, with just one of its five pot lines operating. Valco has had to shed workers, and its long-term future in Ghana remains uncertain. In September, three steel companies—Wahome Steel, Ferro Fabrik and Tema Steel— announced in a joint statement that they were making half their 1,500 workers redundant. They cited the higher electricity tariffs and cheaper steel imports from Russia and Ukraine as the main reasons behind the cutback. The three

companies, which were already running at only about 50% of their total capacity of 140,000 tonnes/year, may now try to push the government to restrict imports of steel, a move that is likely to be given short shrift by the government, given its developing relations with the Bretton Woods institutions.

Energy

The energy crisis is It appears that Ghana is starting to come out of the electricity crisis that has easing— starved the entire country of power throughout this year. Electricity supply has been steadily rising as several short-term emergency power suppliers have come on stream and imports from Côte d’Ivoire have grown. Although the main Akosombo dam is still running at only about 30% of its 1,072-mw capacity, due to low water levels, four new independent power producers have reportedly been registered. According to local radio reports, Aggreko has been producing about 30 mw in Tema, one of the country’s industrial centres. A new 50-mw turbine is expected to be added to the Aboadse thermal plant near Takoradi by the end of this year, and there are hopes of increases in production at plants run by Faro Atlantic (70 mw), Cummins (30 mw) and Global Aero Design (192 mw). As of October, most residential customers were receiving normal power, with only occasional cuts. Most industrial customers are reportedly getting about 12 hours per day, but scheduling remains unreliable. How- ever, major industrial consumers, including the steel and aluminium producers, are still being hit hard by shortages (see Mining and industry). Several of the mines have also been hit, but the country’s largest mining firm, Ashanti Goldfields Company (AGC), has signed a contract for a private provider, the US-based KMR, to build a 220-mw plant, with half of its output guaranteed for AGC (3rd quarter 1998, page 21).

—as tariffs are increased After several years of rapid expansion of the power grid and below-market by 100%— tariffs, the pressure from this year’s power shortage has finally forced the government to reform electricity pricing. In the past the government has re- sisted raising prices through fear of a political backlash, but in the face of mounting public-sector debts, and the realisation that new investment in the energy sector is vital to the economy, a price increase was inevitable. While the Volta River Authority (VRA), which manages the power generation at Akosombo, had proposed a 54% rise, the Electricity Company of Ghana (ECG), the national distributor, had lobbied for a 136% hike. On September 1st tariffs were raised about 100% by the newly created Public Utilities Regulatory Commission (PURC). The basic monthly rate for most residential consumers was doubled to C4,000 ($1.72) and industrial customers are facing rises of a similar scale.

—prompting cheers and The rise in electricity prices brought mixed reactions. Given that most of the complaints country had experienced severe power cuts throughout the year, the public had generally come to expect price rises as inevitable. Several analysts pointed to the lack of any major new investment in electricity production since the 1960s as the root of the problem, and argued that making prices match market conditions more closely was a positive and necessary step forward. Predictably, major energy consumers were unhappy. AGC chief executive Sam Jonah

warned that price rises could lead to the closure of some mines, especially at a time of low international gold prices. Mr Jonah estimated that the increases could add $20 to the cost of producing an ounce of gold. Instead, he proposed linking tariff increases for mining firms to the price of gold, a suggestion that was dismissed by the government. Business groups criticised the government for failing to consult the private sector over tariff increases, and three of the country’s major steel producers blamed the rises for worker retrenchments and reductions in earnings. Seizing upon the opportunity, the opposition New Patriotic Party (NPP) called on the PURC to withdraw the new rates for two years so that negotiations could be held with all stakeholders.

A regional gas pipeline is According to local press reports, the proposed 600-km West African Gas (WAG) reportedly moving ahead pipeline, to supply Nigerian natural gas to Ghana, Togo and Benin, is making progress, with construction planned to start in 1999. Pipeline Engineering, a German consultancy, has been given the $2.5m contract for a feasibility study, which is apparently partly completed. Six companies have helped to fund the study—Shell, Chevron and a gas company from each of the participating countries. During a trip to Ghana in October, the Nigerian head of state, General Abdulsalami Abubakar, claimed that Nigeria had given authorisation to release funds for the project. However, the project, which has been discussed since at least 1995, has yet to secure enough customers to make it economically viable. Competing gas producers in Côte d’Ivoire are hurrying to secure customers before WAG starts to be built, while uncertainties over the cost of Nigerian flared gas and the progress of several other power deals in Ghana have delayed decision-making (3rd quarter 1998, page 21). Despite optimistic statements by officials from all countries involved, differences among the participants persist, and the eventual implementation of the project remains far from assured.

Ghana and Burkina Faso Tensions between Ghana and Burkina Faso appear to have waned following strike a deal over water meetings between their presidents in August. Burkina Faso had been planning and energy to build a dam on upstream tributaries of the Volta River, which Ghana claimed would impede the downstream flow of water, affecting the Akosombo hydroelectric station, the country’s main power source. However, the two leaders agreed to co-operate on water management in the Volta River basin and to allow landlocked Burkina Faso to use Ghanaian ports. Although the meetings appeared to have been successful, no final word on the proposed dam was reported. There remains personal friction between the two, as the Burkinabè president, Blaise Compaoré, came to power in a 1987 coup, during which the then president, Thomas Sankara, a close friend of Mr Rawlings, was killed.

Offshore drilling proves Ghana has been hoping to cash in on the flurry of oil drilling off western and disappointing south-western Africa. Huge new offshore finds in Angola and Equatorial Guinea, plus the proven reserves in Nigeria and Gabon, had generated opti- mism that offshore oil could be found in Ghanaian territory. Although the natural gasfields at Tano are being developed for two barge-mounted power plants, oil exploration in Ghana has seen “very patchy results” according to Africa Energy & Mining. However, the Houston-based Nuevo Energy has been actively drilling in its 6,880-sq km East Cape Three Points concession, which it acquired in March 1997 (with a 25% share owned by Yukong of South Korea).

Its first well, drilled in April, failed to yield a commercially viable flow and has been abandoned. Undaunted, Nuevo Energy plans to continue seismic surveys in the block, and also in another concession, the 10,900-sq-km Accra-Keta, which it acquired in October 1997. Hunt Petroleum has also reportedly abandoned its first well in its West Cape Three Points concession.

Water supply shortages It is increasingly likely that Ghana will face water supply shortages in the next may be on the horizon few years, especially in the Accra-Tema metropolitan area. At least one suburb of Accra, Adenta, has already been facing water deficits, but officials at the Ghana Water and Sewerage Corporation have claimed that the problem may spread, as Ghana’s urban population grows faster than the infrastructure to serve it. It also appears that poor co-ordination between estate developers and utility providers has allowed some sprawling estates to be built without ade- quate facilities in place. In addition, the sector has suffered from funding shortfalls, which have allowed a deterioration in maintenance of the water and sewage systems. This year’s low rainfall will have worsened the situation. How- ever, during a visit to Ghana in September, the British secretary of state for international development, Clare Short, announced a £30m ($51m) grant towards the rehabilitation of urban water delivery systems.

Agriculture

The cocoa marketing October marked the beginning of the main cocoa crop’s marketing season, season has begun— which runs until May. Farmers are urging the state-owned Ghana Cocoa Board (Cocobod) to begin harvesting their crops as soon as possible as storage facilities are limited and delays, combined with heavy rains, can lead to deterioration in bean quality. Cocoa beans are extremely vulnerable to disease, and once picked, to moisture and heat, making efficient marketing and distribution essential. Cocobod has estimated that the 1998/99 main crop will yield 350,000-360,000 tonnes, about the same as the previous year.

In mid-October officials from 12 major cocoa producers, including Ghana, met in Yaoundé, Cameroon, to formulate a united approach to boost cocoa prices, but no firm action to limit production or to manage stock levels is expected.

—and Cocobod is under In late September the finance minister, Richard Kwame Peprah, inaugurated a review task force to plan for further reform of the cocoa sector. While some progress has been made—including the liberalisation of internal marketing in 1992 and a reduction in Cocobod staff from over 100,000 to about 10,500—the government is keen to improve productivity. The task force will therefore examine issues of quality regulation, extension services, financing and pricing policy. It remains to be seen if the task force will address the question of the liberalisation of external marketing—long a sticking-point with donors. In Ghana’s most recent Policy Framework Paper, written in consultation with IMF and World Bank staff, the government has claimed that liberalisation would be assessed once internal market reforms are completed. Recently, farmers have been airing complaints about private cocoa buyers—who purchase about 30% of the crop, while Cocobod buys the remaining 70%—and the issue will remain highly politicised. Ghana will be closely watching deregulation efforts in

neighbouring Côte d’Ivoire, where external marketing is expected to be liberal- ised for coffee in December 1998 and for cocoa in October 1999.

A fisheries initiative is A team of World Bank officials visited Ghana in mid-October to assess progress under assessment in the fishing industry. The Bank’s soft-loan window, the International Development Association (IDA), has provided $9m for technical and capacity- building programmes over the past few years aimed at reversing the decline of the fishing industry and maintaining fish stocks. The funding is part of a larger government-led sectoral capacity-building initiative begun in 1996. Ghana’s fishing industry remains very small-scale, although there are some modest fish exports and processing, mainly from tuna-processing at the Pioneer Food Cannery in Tema, owned by the US-based Heinz Corporation.

Business and finance

A Cocobod loan worth The annual pre-trade loan to Cocobod has been co-arranged by Standard $320m is arranged Chartered and Ghana International Bank, with the requested $320m over- subscribed. While international banks have recently shied away from emerging markets because of turmoil in the global financial system, the ease with which Cocobod was able to secure the loan—the largest ever trade finance deal for a soft commodity in Africa—is a testament to its good standing with creditors. In fact, the spread on the loan, which many had predicted would be 50-75 basis points over Libor, was just 37.5 basis points—remarkably tight, given the current global conditions. Analysts have pointed out that Cocobod has an excellent payment track record and the structured financing of the loan, which links payments to commodity exports, is a generally more secure type of loan. Cocobod has arranged this facility each year since 1993, including last year when $275m was borrowed, also at 37.5 basis points over Libor. This year’s loan, which is used by Cocobod to finance crop purchases for export, has involved at least nine prominent European banks, including Barclays, ING Barings and Crédit Lyonnais.

The Securities Regulation On September 11th the vice-president, John Atta Mills, swore in the eight Commission begins members of the long-awaited Securities Regulation Commission (SRC). The at last— organisation will oversee the stock exchange and the activities of brokers and advisers, as well as ensuring that securities laws are consistently applied. The legislation was passed in 1989 but no staff were employed until now, despite the existence of an SNC office with a prominent sign and the fact that the stock exchange has been trading since 1990. In the interim period, all regulatory activities were the responsibility of the central bank governor. Although the stock exchange has not recorded a major case of fraud in its eight years of operation, the presence of the SRC, chaired by Kofi Dei-Anang and including prominent members from the financial and legal sectors, may boost investor confidence and will help to ensure that Ghana’s financial markets develop in accordance with international standards.

—but the stock exchange The Ghana Stock Exchange (GSE), which had been having one of its best ever has a disappointing third years, has seen a steady decline in share prices since early June. The GSE’s quarter all-share index shot up from about 500 points in the beginning of 1998 to an

all-time high of 1,201 points on May 6th. Since June, however, the index has dropped by over 30% to close at 784 points on October 30th. This still represents a 56% rise this year, while most other emerging markets have lost ground. The third-quarter slump largely stemmed from low international prices for tobacco and oil and poor banking-sector results. Mobil Ghana, Pioneer Tobacco, Social Security Bank and Ghana Commercial Bank have all suffered falls in their share prices. AGC, which dominates the market and currently accounts for about 60% of market capitalisation, has also seen declining share prices, but these have shown some buoyancy after gold prices staged a modest recovery in September and October. Most striking, however, is the increasing spread between buy and sell orders, which is the result of the GSE’s extremely low liquidity levels. As of mid-October, the number of shares with sell orders outnumbered demand by a ratio of 22:1. While sellers are maintaining their price demands at present, the excess of sell orders suggests that prices are likely to fall further towards the end of the year.

Competition intensifies in The agreement in August between Hong Kong-based Hutchison and Celltel, cellular phones one of Ghana’s three mobile phone services, should help to boost the latter’s prospects. Hutchison has reportedly taken an 80% share of Celltel, with 20% still in the hands of a Ghanaian business group led by Prince Kofi Kludjeson, ending the company’s lengthy search for a foreign strategic partner. According to Pyramid Research’s Telecoms & Wireless Africa/Middle East (TWAME), the agreement will ease the company’s capital constraints and allow Celltel to expand rapidly. New cellular operator licences have also been awarded to Telkom Malaysia, which bought a major stake in the state-owned Ghana Telecom in 1997, and the US-based consortium ACG-Telesystems. While these new developments should help to boost competition in Ghana’s cellular phone market, TWAME has expressed doubts about whether Ghana’s market size can support five carriers, suggesting that expansion may be followed by a period of consolidation.

Ghana’s mobile phone services, 1998

Company Subscribers Millicom Ghana 20,000 Scancom 6,000 Celltel 5,000 Telkom Malaysia 0a ACG-Telesystems 0a

a Service expected to begin in 1999.

Source: Pyramid Research, Telecoms & Wireless Africa/Middle East.

Foreign trade, aid and payments

Togo overtakes UK as Togo has overtaken the UK as Ghana’s biggest export destination, but the UK prime export destination remains Ghana’s main source of imports. According to the latest data available from the IMF’s Direction of Trade Statistics, total exports to Togo in 1997 reached $204m, just above the $202m to the UK. This was largely because of a 25% fall in exports to the UK relative to 1996, while exports to Togo were up by more

than 10% over the same period. In 1997 Ghana’s three main sources of imports remained the UK ($498m), Nigeria ($473m) and the US ($346m).

Timber export earnings Ghana’s Forest Products Inspection Bureau (FPIB) has reported that export are rising— earnings from wood and wood products totalled $110.2m in January-August. This represented a 3.8% rise from $106.2m in the same period of 1997. Several other African timber exporters have been hit this year by lower demand in Asia, but Ghana appears to have been largely unscathed because nearly all its timber exports go to the US or Europe.

—as Ghana aims to boost While total earnings rose, timber export volumes were slightly down this year. value added This is likely to owe something to the government’s policy of encouraging higher value-added exports. The Ministry of Lands and Forestry, which has

Trade with the UK been significantly reformed over the past few years, and has worked to improve $ m the relationship between timber companies and local communities, has set a 600 target of 40% of lumber output to be processed locally. Although the ministry’s Exports Imports overall policy may be working, the 40% target is probably unrealistic in the 500 short term as some of Ghana’s potential customers, such as Saudi Arabia, have

400 indicated that, in order to encourage their own furniture industries, they are interested only in raw timber. The government, which is also concerned about 300 over-logging, particularly while the country’s timber-processing capacity is still limited, has set a maximum cut of 1m cubic metres per year. Ghana exported 200 about 780,000 cu metres in the peak year of 1994 and has yet to come close to 100 the government’s limit, imposed in 1996.

0 Timber exports 1993 94 95 96 97 1993 1994 1995 1996 1997a Source: IMF, Direction of Trade Statistics. Value ($ m) 147.4 165.4 190.6 146.8 172.0 Volume (’000 cu metres) 727.8 780.0 590.0 364.7 442.0 Unit price (av; $/cu metres) 202.5 212.0 323.0 402.6 389.1

a Provisional.

Source: Bank of Ghana.

New loans from Japan and In October it was announced that Japan is to provide Ghana with $90m in China loans. The bulk of the funds, $80m, will be used to finance the rehabilitation of the Achimota-Anyinam section of the Accra-Kumasi highway. About $7m will go to a medical research institute, with the balance used for an irrigation project. The 30-year credits are on highly concessional terms, with a 1.8% interest rate and a ten-year grace period. In the same month, China announced three loans, including $18m to finance an undisclosed joint-venture project to be administered by China’s Eximbank, $9m for a cocoa-processing plant and $6m for gold mining. According to the OECD’s Geographical Distribution of Financial Flows to Aid Recipients, Japan was Ghana’s largest bilateral donor in 1996, providing $110m, nearly 17% of its official development assistance.

Quarterly indicators and trade data

Quarterly indicators of economic activity

1996 1997 1998 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Agriculture Qtrly totals Cocoa: exports ’000 tonnes 92.1 82.8 124.3 50.1 82.1 60.3 74.1 42.1 n/a n/a Prices Monthly av Consumer prices, Accra: 1990=100 426.8 468.9 488.8 510.5 556.5 605.9 627.4 633.4 n/a n/a change year on year % 67.3 54.1 39.4 33.4 30.4 29.2 28.4 24.1 n/a n/a Cocoa, New York & London US cents/lb 61.4 68.3 67.6 66.8 65.4 73.1 77.0 78.3 76.1 79.0a Money End-Qtr M1, seasonally adj: C bn 858.40 1,026.25 1,318.64 1,102.19 1,097.69 1,372.72 1,696.32 1,605.14 1,519.06 1,713.90b change year on year % 34.0 34.9 49.8 31.5 27.9 33.8 28.6 45.6 38.4 n/a Foreign trade Qtrly totals Exports fobc $ m 498.4 387.4 421.3 383.9 426.9 388.3 433.2 379.5 n/a n/a cocoa beans “ 124.3 120.5 181.4 58.9 128.9 90.0 58.6 75.4 45.0d n/a Imports cifc ” 810.1 747.2 760.4 900.2 839.2 855.0 822.1 839.4 n/a n/a Exchange holdings End-Qtr Monetary authorities: golde $ m8080797872716765fn/a n/a foreign exchange “ 683 648 605 802 583 509 438 454f 470 469b Exchange rate Market rate C:$ 1,587.3 1,666.7 1,724.1 1,754.4 1,892.7 2,023.1 2,216.3 2,272.7 2,325.6 2,325.6

Note. Annual figures of most of the series shown above will be found in the Country Profile. a Average for July-August, 77.0. b End-May. c DOTS estimates; figures are subject to revision. d January only. e End-quarter holdings at quarter’s average of London daily price less 25%. f End-November.

Sources: ICCO, Quarterly Bulletin of Cocoa Statistics; IMF, International Financial Statistics; Direction of Trade Statistics, quarterly.

Foreign tradea ($ ’000; monthly averages) UK USb Germany Jan-Jul Jan-Jul Jan-Dec Jan-Dec Jan-Dec Jan-Dec 1997 1998 1995 1996 1995 1996 Exports to Ghana fob Food, drink & tobacco 1,299 1,218 3,109 5,256 422 275 of which: cereals & preparations 284 331 2,877 4,942 107 115 Textile fibres 312 440 448 629 205 255 Petroleum & products 140 128 638 1,067 274 312 Chemicals 4,719 4,014 1,799 2,770 1,785 1,475 Paper & manufactures 635 404 123 161 378 306 Textile yarn, fabrics & mnfrs 377 410 166 277 61 131 Non-metallic mineral mnfrs 438 304 140 221 97 100 Iron & steel 970 806 87 131 411 375 Metal manufactures 2,568 1,585 175 219 598 402 Machinery incl electric 14,593 11,353 4,008 10,062 4,407 4,526 Transport equipment 3,960 2,694 726 1,002 3,283 3,124 Total incl others 38,383 30,145 13,891 24,528 13,900 12,926 Imports from Ghana cif Cocoa beans 7,886 16,996 4,592 2,613 3,602 5,831 Cocoa butter 1,128 892 0 0 3,433 1,922 Wood 1,564 1,322 324 593 4,518 2,243 Industrial diamonds 0 0 365 414 25 20 Metalliferous ores & scrap 743 861 37 81 342 227 Petroleum & products 0 0 0 248 371 0 Non-metallic mineral mnfrs 6 6 9,987 8,882 4 8 Aluminium & alloys 1,447 1,280 30 0 2,911 2,302 Total incl others 18,662 27,852 16,897 14,888 17,285 14,154 a Figures from partners’ trade accounts. b US exports to Ghana averaged $32.9m and $19.2m per month in the period January-August 1997 and 1998. US imports from Ghana averaged $13.9m and $11.1m per month in the period January-August 1997 and 1998.

Sources: UK HM Customs & Excise, Business Monitor, MM20; UN, External Trade Statistics, series D; US Department of Commerce News, FT900.

Direction of tradea ($ ’000; monthly averages) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Exports fob 1994 1995 1996 1997 Imports cif 1994 1995 1996 1997 Togo 10,583 13,083 15,417 16,958 UK 26,833 34,667 43,150 41,467 UK 16,083 19,583 22,375 16,800 Nigeria 28,833 32,333 35,533 39,442 Germany 18,250 16,000 12,867 13,283 US 11,417 14,417 27,067 28,808 US 15,583 15,333 13,550 12,075 Germany 9,500 16,083 14,225 16,450 France 7,167 10,417 10,550 9,650 Spain 1,417 4,833 5,758 14,767 Thailand 6,250 4,917 6,733 7,275 Côte d’Ivoire 5,417 8,417 11,308 12,442 Total incl others 122,833 133,500 140,767 135,650 Total incl others 171,500 213,667 268,142 279,633 a DOTS estimates.

Sources : IMF, Direction of Trade Statistics, yearly, quarterly.