Country Report

Ghana

August 2008

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Ghana 1

Ghana

Executive summary 2 Highlights

Outlook for 2008-09 3 Political outlook 4 Economic policy outlook 5 Economic forecast

Monthly review: August 2008 9 The political scene 10 Economic policy 11 Economic performance

Data and charts 15 Annual data and forecast 16 Quarterly data 17 Monthly data 18 Annual trends charts 19 Monthly trends charts

Country snapshot 20 Political structure

Editors: Christopher Eads (editor); Philip Walker (consulting editor) Editorial closing date: August 6th 2008 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: To request the latest schedule, e-mail [email protected]

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Executive summary Highlights

August 2008

Outlook for 2008-09 • Ghana!s political scene will be dominated by the forthcoming presidential and legislative elections in December 2008. • The main opposition party, the National Democratic Congress (NDC), appears unified and focused on regaining the presidency at the 2008 election. • Real GDP growth is forecast to remain robust, at 6.3% in 2008 and 6% in 2009, as the mining sector continues to grow strongly. • Election-related spending and continuing high oil prices are expected to push average inflation to 16% in 2008, before lower domestic food prices and government spending help it to fall to 11.7% in 2009. • Robust growth of imports will continue to widen the trade gap, pushing the current-account deficit to 12.7% of GDP in 2008. Forecast slower growth of imports and strong current transfers in 2009 are expected to help the current- account deficit to narrow slightly to 12.3% of GDP.

Monthly review • The Electoral Commission (EC) has reopened the voters! register for people who have turned eighteen and others who have yet to register. • Tsatsu Tsikata, a high-profile member of the NDC, has been found guilty of corruption in a controversial trial that has called the independence of the judiciary into question. • The IMF and other donors voiced concern over the widening fiscal deficit and rising inflation at a consultative group meeting in June. • In an attempt to reduce government consumption the government has announced a 50% cut in some of the programmed expenditure of Ministries, Departments and Agencies (MDAs) for the rest of 2008. • Higher expenditure and poorer revenue performance combined to widen the budget deficit to 3.8% of GDP for the first half of 2008, compared with 2% of GDP for the same period in 2007. • Year on year inflation reached 18.4% in June and shows little signs of slowing. Discouragingly, historical data show a similar inflationary trend taking place around the December 2000 elections when inflation exceeded 40%. • The Ghana Cocoa Board (Cocobod) has projected a total harvest of 700,000 tonnes for the full 2007/08 crop year (October-September). • In July the government announced a deal to sell 70% of Ghana Telecom to British company, Vodafone, for US$900m. Considerable opposition to the deal has been voiced by opposition and civil society groups.

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Outlook for 2008-09 Political outlook

Domestic politics Ghana!s political scene will continue to be dominated by the forthcoming presidential and legislative elections in December 2008. The New Patriotic Party (NPP) government led by the president, John Agyekum Kufuor, will face increasing internal tensions for the remainder of this year, as evidenced by the establishment of a new party, the Reformed Patriotic Democrats (RPD), formed by breakaway members of the NPP. The NPP!s presidential candidate, Nana Akufo-Addo, will face the increasingly difficult task of ensuring that the NPP remains united, as the RPD threatens to weaken the NPP in its heartland region of Ashanti. Mr Akufo-Addo is a member of the Akyem tribe, and many in the NPP felt that the presidential candidacy should have gone to Alan Kyerematen, an Ashanti, who was the runner-up in the contest to nominate the NPP!s presidential candidate. Tensions were highlighted by the brief resignation of Mr Kyerematen in early May, before the NPP was able to woo him back. As a result, the unity of the NPP will remain in some doubt throughout the election process, although the Economist Intelligence Unit does not expect a major implosion of the party. The main opposition party, the National Democratic Congress (NDC), remains united behind its presidential candidate, John Atta Mills. The apparent unity within the NDC is a relatively new development and indicates an awareness of the importance of public perceptions of the party that may presage a more media-savvy campaign than in previous elections. However, it is unclear whether the 62-year-old Mr Mills can beat the NPP!s candidate in 2008. Although undoubtedly capable, Mr Mills does not represent the break with the past and the fresh start that many argue is needed to extend the NDC!s appeal beyond its traditional core voters. As a former vice-president of an NDC government, he is linked to an administration that has been accused of human- rights abuses and economic mismanagement. Mr Mills!s record is further blemished by two previous presidential election defeats in 2000 and 2004. Ghana!s political atmosphere is set to become more bellicose as the elections approach. The NDC has been combative towards the government in recent months and is likely to become more so as the elections draw nearer. The NDC!s popularity is expected to remain strong, particularly in the north and east. We expect that the 2008 vote will be close, testing Ghana!s young democratic institutions. Although Ghana has a relatively good recent record of political stability, several factors may raise the possibility of civil disobedience in 2009, following the polls. These include the NDC!s determination to gain power after eight years in opposition and its deep-seated distrust of the NPP; overlapping tribal, regional and party divisions; and the likely closeness of the election results.

International relations Ghana will remain a strong proponent of the New Partnership for Africa!s Development (Nepad) and is supportive of its underlying principles, such as

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good governance and the process of peer review. Mr Kufuor will maintain good relations with Ghana!s major trading partners and donors, especially the US and the UK, which have traditionally been the closest because of their large Ghanaian diasporas. No significant changes to foreign policy are expected, regardless of who wins the 2008 elections. However, the recent development of links with China, backed by concessional Chinese funding for infrastructure projects, has led to some shift of emphasis in Ghana!s international relations.

Economic policy outlook

Policy trends When presenting the 2008 budget in November 2007, the government reconfirmed that it would sign up to the IMF!s policy support instrument (PSI), in which no financial support is given but policy implementation is closely monitored. We do not expect economic policy to change significantly over the forecast period. The government will continue to seek to improve the management of public expenditure, increase revenue to boost government capacity, improve the business environment by lowering taxes, and extend credit and support for the private sector. However, although the poverty reduction and growth facility (PRGF) expired in October 2006, there has been no progress on agreeing a PSI. Although the government will seek to maintain macroeconomic stability, it will increase its emphasis on boosting investment in infrastructure and poverty- reduction schemes, in line with its aim of stimulating the economy!s longer- term growth potential. This strategy was set out in the Ghana Poverty Reduction Strategy II and in the Scale-up Investment Plan produced by the government in 2006. In the medium term, economic growth is officially forecast to rise from 6.3% in 2008 to 8% by end-2009 and to be maintained at around that level until 2012. If the increased spending can be effectively targeted at key infrastructural shortcomings, this growth target could be achievable. However, recent concerns over rising inflation have taken priority over other areas of policy, and these concerns will also be relevant to political considerations ahead of the December 2008 elections. In the short term the government has eliminated import duties on a number of basic food and fuel types, but these exemptions are unlikely to be removed until after the elections. At the same time, public-sector wage rises will pose a further challenge to the government!s fiscal plans, as the Fair Wages and Salaries Commission is due to release a report on the issue in the second half of 2008 which is likely to call for wage increases.

Fiscal policy In November the government presented its budget for 2008 (calendar year). The budget continues to target improvements in revenue collection, with planned rises in direct taxes, notably in personal and company taxes. Grants are also projected to rise, but given shortfalls in the grants received in 2007, the government figures are likely to prove overly optimistic. Delays in planned divestitures of government assets will also make revenue targets difficult to meet. On the expenditure side, the government wage bill is expected to increase, as new pay rises are implemented in the run-up to the 2008 elections, while domestic and foreign-financed investments are targeted to nearly double.

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Additionally, owing to the government!s reluctance to raise utility and fuel prices to cost-recovery levels during an election year, large subsidies are being paid to state utility companies. The Africa Cup of Nations football tournament, which Ghana hosted in January 2008, is likely to have driven up spending, and the forthcoming elections will add to these spending pressures. Although the official target is for a budget deficit of 4% of GDP, as a result of the suspension of some import duties, expected wage increases and pre-election spending, we expect it to be much higher, at 10.5% of GDP, in 2008. In 2009 a newly mandated government will attempt to tackle rapidly ballooning expenditure and bring down the fiscal deficit; we forecast that it will fall to 10.2% of GDP. The deficit will be financed through domestic and external borrowing. The government!s external borrowing will be of both a concessional and a non-concessional nature, as seen at end-September 2007, when the government raised US$750m through a global bond issue.

Monetary policy The Bank of Ghana (BoG, the central bank) has competing and partly contra- dictory monetary policy aims: trying to contain inflation while fostering economic growth. It seeks to restrain liquidity growth, with the aim of reducing average annual inflation to single digits. This has been carried out through increased sales of foreign exchange"although this has led to a real appreciation of the cedi"and also by financing the fiscal deficit almost entirely through the issuing of Treasury bills and notes. Despite pressure from the government to boost economic growth, the BoG raised its prime rate from 16% to 17% in July, as it continued to try and combat rising inflation. Although the trend in recent years has been to cut rates in order to boost private-sector borrowing, it seems likely that, given the risk of inflationary spikes due to high international oil and food prices, the central bank will maintain higher interest rates throughout most of 2008. This trend may continue into 2009, as higher election-related government spending and continuing high oil prices will also exert upward pressure on prices.

Economic forecast

International assumptions International assumptions summary (% unless otherwise indicated) 2006 2007 2008 2009 Real GDP growth World 5.0 4.9 3.9 3.6 OECD 3.2 2.7 1.7 1.5 EU27 3.1 2.9 1.7 1.3 Exchange rates ¥:US$ 116.2 117.8 105.2 101.8 US$:€ 1.256 1.369 1.560 1.535 SDR:US$ 0.680 0.651 0.611 0.615 Financial indicators ¥ 3-month repo rate 0.28 0.61 0.73 0.88 US$ 3-month commercial paper rate 5.03 5.06 2.75 2.75

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International assumptions summary (% unless otherwise indicated) 2006 2007 2008 2009 Commodity prices Oil (Brent; US$/b) 65.4 72.7 120.2 110.0 Cocoa (US cents/lb) 72.1 88.6 109.6 102.0 Gold (US$/troy oz) 604.5 696.7 895.7 848.8 Food, feedstuffs & beverages (% change in US$ terms) 16.1 30.9 40.3 -4.0 Industrial raw materials (% change in US$ terms) 49.6 11.2 -0.3 -6.0 Note. Regional GDP growth rates weighted using purchasing power parity exchange rates. Growth of the global economy will be hampered by poor performance in the US, and we project that world GDP growth (on a purchasing power parity basis) will slow to an average of 3.75% in 2008-09. Continued uncertainty on global markets and the weakness of the US dollar will keep the price of gold high, at a forecast average of US$896/troy oz in 2008 and US$849/troy oz in 2009. Cocoa prices are forecast to increase to 109.6 US cents/lb in 2008, as global supplies tighten, before falling marginally to 102 US cents/lb in 2009 as global supplies improve. The price of Brent crude is expected to average US$120/barrel in 2008, before falling slightly to US$110/b in 2009 as global supply improves.

Economic growth In contrast to the government!s estimate of 6.3% real GDP growth in 2007, we estimate growth at 5.5%, as the government!s estimate of growth in agriculture appears over-optimistic and underestimates the effects of drought and flooding on agricultural output. However, the slowdown in growth is likely to have been limited by robust activity in construction and services. The services sector will remain strong in 2008, with tourism set to benefit from Ghana!s hosting of the Africa Cup of Nations football tournament. Cocoa output can be expected to increase again as the government!s reform of the sector continues to bear fruit, but lower international prices will be a tempering factor. In 2008 the mining sector will benefit from more mines coming into production, but a dip in gold prices in 2009 will limit the contribution of the sector in that year. Overall, we forecast an increase in real GDP growth to 6.3% in 2008, before lower prices for Ghana!s main exports and weaker domestic demand owing to high inflation slow real GDP growth to 6% in 2009.

Inflation The inflation outlook for 2008-09 is not promising, as loose fiscal policy, high energy prices and increased food prices are combining to push inflation higher. Year-on-year inflation reached 18.4% in June and as state-owned utilities are expected to raise electricity and water tariffs in the coming months, this figure is expected to rise further. Food prices are likely to remain high until the main harvest is completed in the third quarter; and continuing high oil prices and planned pay rises in the public sector are also giving cause for concern. Overall, we expect average inflation to increase to 16% in 2008, before falling to 11.7% in 2009 as domestic food prices begin to moderate and election-related spending subsides.

Exchange rates The large current-account deficit set to result from the rising cost of fuel imports and strong demand for capital imports is expected to lead to a steep

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depreciation in the value of the cedi to an average of GH¢1.09:US$1 in 2008, with the currency forecast to end the year at around GH¢1.27:US$1. Given Ghana!s limited foreign-exchange reserves, the central bank will be unable to intervene in the foreign-exchange market to any great extent. However, we expect that following its fall in 2008 the cedi will be nearer its appropriate rate, thus slowing the rate of depreciation in 2009 when the cedi is forecast to average GH¢1.30:US$1 for the year. However, owing to Ghana!s high dependence on commodity exports, and its structurally higher demand for foreign exchange than supply (due to the economy!s import dependence and small manufacturing base), the cedi will remain vulnerable to further external shocks over the forecast period.

External sector Export growth will remain strong in 2008, before slowing in 2009. In 2008 the value of gold exports will be the major factor behind rising export value, as an increase in output from the Ahafo and Akyem mines will boost overall production and the global price of gold is also forecast to rise. The increase in cocoa production in crop year 2007/08 (October-September) will combine with higher international cocoa prices, adding further to the value of exports. However, by 2009 the falling prices of cocoa and gold will partially offset increases in production, causing export growth to slow. Upward pressures on imports in 2007, as a result of drought, are now expected to continue into 2008, as the floods in August and September have destroyed food crops. In addition, continuing high oil prices will boost the fuel portion of the import bill throughout the year. Imports will continue to increase in 2009, but at a slower rate. The income account will remain in deficit throughout the forecast period as profit remittances by mining companies remain high and the government makes its first payments on its new foreign-currency bond, which was issued in September 2007. The deficit on the services account will remain significant in 2008-09. Current transfers will continue to grow, but the latest official figures suggest that the recent rapid rise in remittances, which has significantly boosted the overall figure each year since 2002, may have slowed. Overall, the widening trade deficit and the weaker cedi will reduce GDP in US-dollar terms, causing the current-account deficit as a percentage of GDP to widen to 12.7% of GDP in 2008. Forecast slower growth of imports and healthy current transfers in 2009 are expected to narrow the current-account deficit slightly, to 12.3% of GDP.

Forecast summary (% unless otherwise indicated) 2006 a 2007 b 2008c 2009c Real GDP growth 6.0 b 5.5 6.3 6.0 Gross agricultural production growth 5.7 b 3.5 6.0 5.8 Consumer price inflation (av) 10.9 10.7 a 16.0 11.7 Consumer price inflation (year-end) 11.7 12.7 a 17.0 11.8 Short-term interbank rate 10.0 11.0 16.5 11.9 Government balance (% of GDP) -7.8 b -9.0 -10.5 -10.2

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Forecast summary (% unless otherwise indicated) 2006 a 2007 b 2008c 2009c Exports of goods fob (US$ bn) 3.7 4.2 5.4 5.7 Imports of goods fob (US$ bn) 6.8 8.1 9.8 10.2 Current-account balance (US$ bn) -1.0 -1.5 -1.8 -1.7 Current-account balance (% of GDP) -8.7 b -11.5 -12.7 -12.3 External debt (year-end; US$ bn) 3.2 d 4.9 5.4 5.7 Exchange rate GH¢:US$ (av)e 0.92 0.94 a 1.09 1.30 Exchange rate GH¢:¥100 (av) 0.79 0.79 a 1.04 1.28 Exchange rate GH¢:€ (year-end) 1.22 1.42 a 1.99 1.98 Exchange rate GH¢ :SDR (year-end) 1.39 1.55 a 2.08 2.14 a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d In 2006, as part of the multilateral debt relief initiative (MDRI) and the heavily indebted poor countries (HIPC) initiative, Ghana's stock of external debt was subject to a substantial write-off. e In July 2007 the Ghanaian cedi was redenominated. 10,000 old cedi became one new cedi. All local currency data are for new cedi.

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Monthly review: August 2008 The political scene

Electoral Commission reopens The Electoral Commission (EC) has reopened the voters! register for the

the voters' register December presidential and legislative elections to enable people who have turned eighteen and others who have never registered to be provided with voters! ID cards. The registration exercise will take place from July 31st to August 10th 2008 in one-quarter of the polling stations across the country, which total in excess of 22,000. The exercise will also provide the electorate with the opportunity to confirm their names on the EC!s register and also to replace any voter ID cards that are either missing or damaged. Although the political parties welcomed the reopening of the voters! register, some have criticised the EC for delaying the exercise and also limiting it to just one-quarter of the polling stations across the country. The first three days of the exercise were not without incident as both the ruling New Patriotic Party (NPP) and opposition National Democratic Congress (NDC) traded accusations of impropriety, while some limited outbreaks of violence were reported between supporters of the two parties. Political observers have highlighted this as a warning of the potential for violence around the December 2008 elections.

Corruption trial ends with Tsatsu Tsikata, a high-profile member of the NDC and former chief executive of

questionable conviction the Ghana National Petroleum Corporation (GNPC) has been found guilty of wilfully causing financial loss to the state and misapplying public property. The ruling was handed down by the Accra Fast Track High Court, presided over by Justice Henrietta Abban. Mr Tsikata was found guilty on three counts of causing financial loss to the State and one count of misapplying public property and was jailed for five years on each count"the sentences will run concurrently. The Law of Causing Financial Loss to the State was passed in 1993 as an amendment to the Criminal Code. It was sparingly applied under the previous NDC administration, but under the NPP regime the law has been used in the trial and conviction of some ex-ministers and functionaries of the NDC era. The trials of these NDC former ministers were generally regarded as politically motivated to weaken the NDC. Indeed, the establishment of what has become known as the Fast Track High Court was considered by critics as the vehicle by which high-profile NDC members were to be fa st-tra cked to prison terms. Early in its establishment, Mr Tsikata challenged the constitutionality of the Fast Track High Court and the Supreme Court ruled in Mr Tsikata!s favour. However, following this ruling, the president, John Agyekum Kufuor, used his executive authority to appoint an additional judge, the late Dixon Kwame Afreh, who was already presiding as a trial judge at a Fast Track High Court, to the Supreme Court. The government then appealed against the Supreme Court ruling and, following the addition to its ranks of Justice Afreh, the reconstituted Supreme Court sat and overturned the earlier decision by a margin of one, declaring the Fast Track High Court legal and part of the Ghanaian court system.

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Mr Kufuor!s appointment of the additional justice was generally regarded as political interference in the functions of the judiciary in order to achieve the objectives of the executive. In the end, Mr Tsikata was convicted under what some consider controversial circumstances, as his legal counsel was not in court on the day of the sentencing and the judge was alleged not to have indicated that she was going to give judgement on the day she did. As a result, Mr Tsikata!s conviction has actually hurt the NPP!s image and also raised concerns about the independence of the Ghanaian judiciary.

Economic policy

The government holds a On June 30th the government concluded its annual Article IV Consultation consultative group meeting with the IMF and held a Consultative Group Meeting (CGM) with the IMF, World Bank and foreign development partners to evaluate the health of the Ghanaian economy. The IMF review showed that the economy grew at about 6.5% in 2007 and during the first months of 2008. It was noted that the growth was broad-based and that the agricultural sector performed well in spite of the flooding in the north of the country in September 2007, which led to localised food shortages and dramatic price increases. (However, it was noted that the fiscal deficit had increased from 7.5% of GDP in 2006 to 9.1% of GDP in 2007, partly as a result of investments designed to address the energy-supply crisis of that year but also because of slippages on wage agreements and utility price increases.) The finance minister, Kwadwo Baah-Wiredu, argued that the fiscal deficits emanated from currently high oil prices and the costs incurred in procuring oil; subsidies paid to the electricity parastatal, the Volta River Authority (VRA); the cost of imported food items; and the costs of hosting the Africa Cup of Nations football tournament in January 2008. The CGM review also noted the resurgence of inflationary pressures in the economy. Having declined from highs of 15% in 2005 to 10.2% in October 2007, year-on-year headline inflation increased to 18.4% in June 2008 and could well exceed 20% by year-end. The acceleration in inflation was ascribed to supply- side bottlenecks resulting from fiscal expansion and strong private-sector demand growth and international commodity price movements. The government noted that although energy and food prices are important drivers of the inflationary trend, core inflation, which excludes volatile energy and utility items, has also been on the increase. Because of the prevalence of supply-side bottlenecks and the influence of exogenous shocks on macroeconomic stability, the efficacy of monetary policy is greatly reduced, leaving fiscal restraint as the primary tool available to the government to combat inflation.

Fiscal tightening is announced As a result of the inflationary impact of high government consumption, the

to try and contain the deficit government has announced a 50% reduction in some of the programmed expenditure of Ministries, Departments and Agencies (MDAs) for the rest of 2008. Notable items affected by the expenditure cuts are cars, computers, carpets and what are described as "luxuries". In addition, some development expenditure components of the MDAs! budgets have also been targeted for reductions. Announcing the policy change, the deputy finance minister, George

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Gyan-Baffour, noted that although MDAs had received budgetary approvals for these elements of development expenditure, the Ministry of Finance and Economic Planning would not now sanction disbursements in order to help to reduce investment expenditure. Mr Gyan-Baffour was, however, quick to add that investment in infrastructure, such as road construction, would not be affected by the expenditure cuts. The reduction of the MDAs! budgets is an attempt to contain the budget deficit in the face of the high government subsidies being paid to energy and utility services owing to the surge in food and oil prices. Many of these costs are associated with the financial package that was unveiled by Mr Kufuor to ease the impact of these external shocks on consumers (July 2008, Economic policy). Without a cut in expenditure, the government would almost certainly exceed its budget deficit targets. In explanation of the current budget problems, Mr Kufuor pointed out that Ghana!s oil import bill had leapt from US$500m in 2005 to US$2.1bn at end-2007. The 2008 budget was based on a price of US$85/barrel, but given high international oil prices, the oil bill for 2008 is forecast to reach around US$2.5bn. Some critics claimed that the expenditure cuts would derail the growth projections for 2008, while others claimed that it is unlikely that the government will enforce compliance, as many MDAs have already begun the procurement process. It is likely that both claims will be true to some extent, as spending cuts in some areas could have a small impact on economic growth, but at the same time not enough cuts will be made to contain the budget deficit successfully this year.

Economic performance

Fiscal performance is suffering Provisional data from the Bank of Ghana (BoG, the central bank) for the first

in 2008 half of 2008 show that total government revenue and grants amounted to GH¢2.2bn (US$1.9bn), which represents 13.5% of GDP. In relative terms, the performance of revenue in the first half of 2008 was not as good as that in the same period of 2007, when it totalled GH¢2bn, representing 14.9% of GDP. Additionally, annual growth in revenue was 38.2% for the first half of 2007, while it reached only 5.6% for the same period this year. At a time when government expenditure is under pressure from elections, high food and fuel prices, and wage demands, the lacklustre performance of revenue in the first half of 2008 further increases the risk of a larger than programmed budget deficit this year. Total public expenditure (excluding capital expenditure externally financed by development partners) amounted to GH¢2.8bn (17.2% of GDP) in the first half of 2008, compared with GH¢2.3bn (16.7% of GDP) for the same period in 2007. Combined with the poorer revenue performance, the narrow budget deficit was GH¢623m (3.8% of GDP) for the first half of 2008 against GH¢285m (2% of GDP) for the same period in 2007. The deficit was largely financed by domestic borrowing of GH¢393m and withdrawals from the sovereign bond account of GH¢305m. Some analysts are concerned that funds from the bond issue are being used to finance recurrent expenditure and subsidies to energy and utility services, as this will not generate the necessary returns to pay back the loan.

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Political factors may be Data released by the Ghana Statistical Service (GSS) show that the annual rate

contributing to inflation of inflation for June 2008 was 18.41%, having increased from 16.88% in May 2008. Of the two major components of the consumer price index (CPI), the non-food group remains the largest contributor to inflation in 2008. However, historical data indicate that political factors could also be playing a role in exacerbating existing inflationary pressures in the economy. To date, inflation in 2007 and 2008 is following a similar pattern to year-on-year inflation in 1999- 2000, during the run-up to the December 2000 elections. In 1999 efforts to reduce inflation were on track towards delivering a single-digit end of year inflation rate when, in May 1999, inflation fell to an all-time record low of 9.4%. However, the trend was not sustained and inflation had increased to 13.8% by end-December 1999. The acceleration trend begun in June 1999 was sustained throughout 2000 and inflation reached 40.5% in December 2000. Interestingly, a major source of the inflationary pressures in 2000 was the impact of external shocks reflected in rising oil prices and falling gold and cocoa prices. This was exacerbated by uncertainties engendered by the December 2000 polls. Inflation appears to be following the same trend this year, as year-on-year inflation fell to 10.1% in July 2007 but had reached 12.75% by the end of December and has continued to accelerate throughout 2008. Additionally, fiscal deficits in 1999- 2000 were also exceeding 9% of GDP as they are now, creating yet another parallel. Although high prices for cocoa and gold will help to offset the rising import bill (as was not the case in 1999-2000), it looks increasingly likely that inflation in Ghana could in fact rise much higher by the end of the year.

Year-on-year inflation for selected years 1999 2000 2007 2008 Jan 15.3 14.3 10.9 12.8 Feb 15.0 14.9 10.4 13.2 Mar 13.7 15.6 10.2 13.8 Apr 10.2 17.5 10.5 15.3 May 9.4 18.7 11.0 16.9 Jun 10.3 19.8 10.7 18.4 Jul 12.7 22.1 10.1 Aug 12.0 26.6 10.4 Sep 11.8 32.3 10.2 Oct 12.6 37.4 10.1 Nov 13.2 39.5 11.4 Dec 13.8 40.5 12.8

Source: Bank of Ghana.

Depreciation of the cedi has The foreign-exchange market has started to witness some increased volatility in

been gaining momentum the first half of 2008, partly as a result of the increased currency substitution engendered by negative real rates of return on cedi-denominated assets. Accordingly, the cedi depreciated against all the three major currencies"the US dollar, the pound sterling, and the euro"during January to June 2008, by 6.4%, 5.7%, and 12.4%, respectively. This compares with the relatively lower depreciations of 0.6%, 2.7%, and 2.8%, respectively, recorded for the same period in 2007. Indications are that with the large current-account and fiscal deficits, the exchange rate will be under increasing downward pressure throughout 2008"the cedi had fallen further to GH¢1.15:US$1 by early August.

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Cocoa sector looks set for a big Industry watchers now predict a final season output of more than 700,000

harvest tonnes of cocoa. The main crop harvest, which closed on June 5th, yielded 663,558 tonnes, while a light crop of 50,000 tonnes (which began on June 27th) is also expected. However, purchases for the light crop, at 4,646 tonnes in the first round, were 10% lower compared to the same period last year. The Ghana Cocoa Board (Cocobod) has expressed concerns that cocoa smuggling to regional neighbours is reducing Ghana!s official figures, but sceptics have noted that the reverse is more probable: it is likely that less cocoa is being smuggled into Ghana because of increased stability in Côte d!Ivoire.

Divestiture of Ghana Telecom In early July the government announced its intention to divest 70% of its shares

sparks public dissent in Ghana Telecom (GT) to British company, Vodafone. The price of the deal is reported to be US$900m on a debt-free basis. Current estimates of GT!s outstanding debts are around US$400m, leaving an estimated US$500m to go into government coffers. However, there is considerable opposition to the sale from many corners of society. Groups opposed to the sale include the Committee for Joint Action; the Trades Union Congress of Ghana; the Christian Council of Ghana; the Integrated Social Development Centre; and all opposition political parties. These groups are concerned over the non-transparent and hasty manner in which the deal was reached, stating that it is inappropriate for the government to attempt such a sale so close to the December elections. Also of concern was the inclusion of non-GT assets such as the fibre-optic network of the Volta River Authority and the National Fibre-Optic Backbone, which is not yet completed and is being financed with a Chinese loan. These assets were not part of earlier privatisation plans for GT. There is also suspicion about the deal considering that the government rejected a US$520m offer from France Telecom earlier this year (March 2008, Economic performance) for a 66% stake which did not include the fibre-optics infrastructure. Also, if the France Telecom offer included taking on GT!s debts, then the Vodafone deal would actually be much worse when the higher stake and extra assets included in the current arrangement are taken into consideration. In the end it is unlikely that the sale will go through before the December elections in the face of such strong opposition. In the event that the sale does go through but the NPP loses the December elections, the deal would almost certainly be cancelled by the incoming government.

Strong import growth is Central bank data shows that total merchandise exports for the first half of driving current-account deficit 2008 amounted to US$2.9bn, compared with US$2.1bn for the same period in 2007. Exports of cocoa beans and cocoa products amounted to US$934m, compared to US$742m in the first half of 2007. Exports of gold and non- traditional exports for the first half of 2008 amounted to US$1.2bn and US$631m, respectively, compared to US$821m and US$458m for the same period last year. Total merchandise imports for the period January to June 2008 amounted to US$4.9bn, compared with US$3.5bn for the same period in 2007. Oil imports for the period in 2008 accounted for 25.4% total imports compared to 24.4% of the total for the same period in 2007. Non-oil imports amounted to US$3.7bn for

Monthly Report August 2008 www.eiu.com © The Economist Intelligence Unit Limited 2008 14 Ghana

the first half of 2008, compared with US$2.6bn for the same period in 2007, indicating that it is the high demand for non-oil imports that is the bigger problem for the trade balance rather than the rising price of oil imports. For the first half of 2008, the merchandise trade deficit is estimated at US$2bn, compared with a deficit of US$1.3bn for the same period in 2007. Provisional estimates show a current-account a deficit of US$1.17bn, mainly as a result of the widening trade deficit"the current-account deficit was US$640m for the same period in 2007.

Monthly Report August 2008 www.eiu.com © The Economist Intelligence Unit Limited 2008 Ghana 15

Data and charts Annual data and forecast

Production to remove 2003a 2004a 2005a 2006a 2007 b 2008c 2009c GDP Nominal GDP (US$ m) 7,631 8,874 10,616b 11,931b 13,502 14,214 14,161 Nominal GDP (GH¢ m) 6,616 7,986 9,628b 10,941b 12,624 15,555 18,419 Real GDP growth (%) 5.2 5.8 5.8b 6.0b 5.5 6.3 6.0 Expenditure on GDP (% real change) Private consumption 4.3 2.7 4.8b 5.3b 4.5 5.4 5.0 Government consumption 7.2 15.9 6.4b 8.1b 7.6 6.4 6.2 Gross fixed investment 6.7 16.4 9.8b 8.2b 6.7 6.9 7.0 Exports of goods & services 2.7 3.5 5.8b 10.7b 6.4 7.0 6.8 Imports of goods & services 7.7 4.5 8.6b 16.0b 8.0 6.0 5.8 Origin of GDP (% real change) Agriculture 5.2 7.5 4.1b 5.7b 3.5 6.0 5.8 Industry 0.7 5.1 7.7b 7.3b 7.8 6.5 5.8 Services 6.4 4.5 6.9b 6.4b 6.5 6.5 6.3 Population and income Population (m) 21.6 22.1 22.5 23.0b 23.5 23.9 24.4 GDP per head (US$ at PPP) 1,025 1,086b 1,148b 1,229b 1,305 1,390 1,477 Fiscal indicators (% of GDP) Central government budget revenue 25.5 30.1 29.3b 29.2b 31.6 26.4 23.5 Central government budget expenditure 29.8 33.7 31.4b 37.0b 40.6 36.9 33.7 Central government budget balance -4.4 -3.6 -2.1b -7.8b -9.0 -10.5 -10.2 Public debt 112.5 93.2 76.6b 43.8b 58.5 64.2 64.2 Prices and financial indicators Exchange rate GH¢ :US$ (av) 0.87 0.90 0.91 0.92 0.94 a 1.09 1.30 Exchange rate GH¢ :€ (av) 1.08 1.12 1.14 1.26 1.46 a 1.68 1.89 Consumer prices (end-period; % change) 23.6 11.8 14.8 11.7 12.7 a 17.0 11.8 Stock of money M1 (% change) 33.2 28.2 7.0 36.3 25.2 27.0 24.8 Stock of money M2 (% change) 34.2 27.4 9.4 42.8 30.3 32.0 27.4 Lending interest rate (av; %) 29.8 19.6 18.4 16.0 15.8 20.3 14.9 Current account (US$ m) Trade balance -670 -1,593 -2,545 -3,027 -3,891 -4,377 -4,485 Goods: exports fob 2,562 2,705 2,802 3,727 4,162 5,439 5,744 Goods: imports fob -3,233 -4,297 -5,347 -6,754 -8,053 -9,816 -10,230 Services balance -270 -356 -167 -134 -131 -160 -154 Income balance -181 -198 -187 -127 -158 -164 -165 Current transfers balance 1,245 1,580 1,794 2,248 2,631 2,894 3,067 Current-account balance 124 -567 -1,105 -1,040 -1,549 -1,807 -1,738 External debt (US$ m) Debt stock 7,573 7,067 6,743 3,192d 4,891 5,411 5,667 Debt service paid 454 243 284 261 220 249 286 Principal repayments 366 157 210 175 134 150 173 Interest 89 86 96 86 86 99 113 International reserves (US$ m) Total international reserves 1,469 1,749 1,897 2,268 2,204 2,292 2,400 a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d In 2006, as part of the multilateral debt relief initiative (MDRI) and the heavily indebted poor countries (HIPC) initiative, Ghana's stock of external debt was subject to a substantial write-off. Source: IMF, International Financial Statistics.

Monthly Report August 2008 www.eiu.com © The Economist Intelligence Unit Limited 2008 16 Ghana

Quarterly data

Production to remove 2006 2007 2008 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Prices Consumer prices (2000=100) 276.6 284.3 285.3 293.7 306.3 313.4 317.9 332.6 Consumer prices (% change, year on year) 9.0 10.8 11.4 10.5 10.7 10.2 11.4 13.3 Financial indicatorsa Exchange rate GH¢ :US$ (av) 0.915 0.919 0.922 0.924 0.927 0.934 0.957 n/a Exchange rate GH¢ :US$ (end-period) 0.919 0.921 0.924 0.927 0.929 0.943 0.970 n/a Deposit rate (av; %) 9.3 9.5 7.6 8.6 9.0 n/a n/a n/a Discount rate (end-period; %) 14.5 14.5 12.5 12.5 12.5 n/a n/a n/a Treasury bill rate (av; %) 9.5 10.0 10.0 9.5 9.4 n/a n/a n/a M1 (end-period; GH¢ bn) 1,424.3 1,682.1 2,004.5 n/a n/a n/a n/a n/a M1 (% change, year on year) 12.7 29.8 36.3 n/a n/a n/a n/a n/a M2 (end-period; GH¢ bn) 2,699.9 3,429.2 4,004.9 n/a n/a n/a n/a n/a M2 (% change, year on year) 6.3 35.7 42.8 n/a n/a n/a n/a n/a GSE all-share index (end-period;1990-1993=100) 4,833 4,948 5,006 5,092 5,295 5,677 6,600 7,616 Sectoral trends Gold price, London (US$/troy oz) 627.4 621.5 614.5 650.3 667.5 681.2 788.0 926.8 Cocoa beans price, New York & London (US$/tonne ) 1,584.1 1,617.5 1,605.0 1,812.4 2,019.5 1,999.3 2,001.3 2,462.3 Foreign trade (US$ m)b Exports fob 951.9 922.3 932.1 1,041.5 1,101.3 981.1 1,070.8 n/a Cocoa beans 281.2 317.5 240.2 382.3 360.0 168.5 192.5 n/a Gold 320.5 329.4 333.4 395.0 426.0 426.4 486.4 n/a Imports fob -1,591.2 -1,814.7 -1,774.3 -1,671.6 -1,920.4 -2,263.4 -2,218.2 n/a Trade balance -639.4 -892.4 -842.2 -630.1 -819.1 -1,282.4 -1,147.4 n/a Foreign reserves (US$ m) Reserves excl gold (end-period) 1,824 1,635 2,090 1,735 n/a n/a n/a n/a a In July 2007 the Ghanaian cedi was redenominated. 10,000 old cedi became one new cedi. All local currency data are for new cedi. b Balance- of-payments basis. Sources: IMF, International Financial Statistics; Bank of Ghana, Quarterly Economic Bulletin; Statistical Bulletin; Ghana Stock Exchange.

Monthly Report August 2008 www.eiu.com © The Economist Intelligence Unit Limited 2008 Ghana 17

Monthly data

Production to remove Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Exchange rate GH¢ :US$ (av) 2006 0.912 0.911 0.913 0.913 0.914 0.917 0.919 0.919 0.920 0.921 0.922 0.922 2007 0.923 0.924 0.925 0.926 0.927 0.927 0.930 0.933 0.939 0.946 0.958 0.968 2008 0.972 0.975 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Exchange rate GH¢ :US$ (end-period) 2006 0.913 0.912 0.914 0.914 0.915 0.919 0.920 0.920 0.921 0.922 0.923 0.924 2007 0.924 0.926 0.927 0.927 0.927 0.929 0.930 0.936 0.943 0.946 0.965 0.970 2008 0.976 0.975 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Real effective exchange rate (2000=100; CPI-based) 2006 78.95 80.25 80.04 78.70 77.09 78.56 79.49 79.15 80.60 81.93 80.98 79.93 2007 81.09 80.55 80.01 78.79 79.48 80.09 79.30 80.31 79.41 77.89 76.45 77.58 2008 77.58 77.11 75.41 n/a n/a n/a n/a n/a n/a n/a n/a n/a M1 (% change, year on year) 2006 19.0 18.0 14.2 17.5 22.1 12.7 17.8 31.3 29.8 27.4 31.6 36.3 2007 32.2 24.9 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 2008 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a M2 (% change, year on year) 2006 18.2 20.6 19.4 19.5 23.3 6.3 8.5 28.6 35.7 31.4 38.6 42.8 2007 39.9 37.7 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 2008 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Deposit rate (av; %) 2006 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.9 7.5 n/a n/a 2007 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 2008 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Treasury bill 91 day discount rate (av; %) 2006 11.1 10.0 9.6 9.4 9.5 9.8 9.9 10.0 10.1 10.1 10.1 9.9 2007 9.7 9.5 9.4 9.4 9.4 9.4 n/a n/a n/a n/a n/a n/a 2008 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Gold price, London (US$/troy oz) 2006 549.9 555.0 557.1 610.7 675.4 596.1 633.7 632.6 598.2 585.8 627.8 629.8 2007 631.2 664.7 654.9 679.4 667.3 655.7 665.4 665.4 712.7 754.6 806.2 803.2 2008 889.6 922.3 968.4 909.7 888.7 889.5 n/a n/a n/a n/a n/a n/a Cocoa beans price, New York & London (US$/tonne ) 2006 1,576.2 1,546.4 1,545.1 1,552.3 1,594.3 1,605.8 1,673.2 1,612.9 1,566.3 1,530.2 1,582.5 1,702.2 2007 1,701.9 1,811.2 1,924.2 2,034.3 2,011.1 2,013.0 2,151.7 1,902.1 1,944.0 1,916.7 1,967.3 2,119.9 2008 2,216.4 2,522.8 2,647.6 2,631.2 2,693.4 n/a n/a n/a n/a n/a n/a n/a Foreign-exchange reserves excl gold (US$ m) 2006 1,789 1,776 1,698 1,759 1,696 1,824 1,880 1,693 1,635 1,964 1,884 2,090 2007 1,925 1,864 1,735 1,892 n/a n/a n/a n/a n/a n/a n/a n/a 2008 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

Sources: IMF, International Financial Statistics; Haver Analytics.

Annual trends charts

Production to remove Annual trends charts

Real GDP growth Consumer price inflation (% change) (av; %)

Ghana Sub-Saharan Africa World Ghana Sub-Saharan Africa World 7.0 30.0

6.0 25.0 20.0 5.0 15.0 4.0 10.0

3.0 5.0

2.0 0.0 2003 04 05 06 07 08 09 2003 04 05 06 07 08 09

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

Current-account balance Total external debt (% of GDP) (% of GDP)

Ghana Sub-Saharan Africa Ghana Sub-Saharan Africa 6.0 100 4.0 2.0 80 0.0 -2.0 60 -4.0 -6.0 40 -8.0 -10.0 20 -12.0 -14.0 0 2003 04 05 06 07 08 09 2003 04 05 06 07 08 09

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

Main destinations of exports, 2007 Main destinations of imports, 2007 (share of total) (share of total)

Other Netherlands Other China 37.7% 11.2% 47.8% 15.1%

Asia Nigeria 11.1% 14.7% Africa 10.3% UK 5.5% UK 8.0% SouthAfrica US 3.8% 5.2% Belgium France 4.5% 6.4%

Germany US France Netherlands 4.7% 6.1% 3.9% 4.0%

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

Monthly trends charts

Production to remove Monthly trends charts

Cocoa: ICCO price Gold: London price (US cents/kg; av) (US$/troy oz; av)

280 1,000

260 900 240 800 220 700 200 600 180

160 500

140 400 Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr 2004 05 06 07 08 2004 05 06 07 08 Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

Country snapshot 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; 230 members elected by universal suffrage every four years

National elections December 2004 (presidential and parliamentary); next elections due in December 2008

Head of state President, elected by universal suffrage for a maximum of two four-year terms; John Agyekum Kufuor was sworn in on January 7th 2001 for the first time; he secured re-election in December 2004 for a second and final term

National government Cabinet, appointed by the president in January 2005; last major reshuffle took place on April 27th 2006

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

President John Agyekum Kufuor Vice-president Alhaji Aliu` Mahama

Key ministers Communications & technology Benjamin Aggrey-Ntim Defence Albert Kan Dapaah Education, science & sports Dominic Fobih Energy Felix Owusu-Adjepong Finance & economic planning Kwadwo Baah-Wiredu Fisheries Gladys Asmah Food & agriculture Ernest Debrah Foreign affairs, regional integration & Nepad Akwasi Osei-Agyei Health Courage Quashigah Information & national orientation Stephen Asamoah Boateng Interior Kwame Addo-Kufuor Justice & attorney-general Joe Ghartey Land, forestry & mines Esther Obeng Dapaah Local government, rural development & environment Kwadwo Adjei-Darko Manpower, youth & employment Nana Akomea National security Sam Amo Ghartey (acting) Ports, harbours & railways Christopher Ameyaw Akumfi Public-sector reform Samuel Owusu-Adjei Tourism & diaspora relations Oboshie Sai Cofie Trade, industry, private-sector development & presidential special initiatives Papa Owusu-Ankomah Transport Richard Winfred Anane Works & housing Alhaji Abubakar Saddique Boniface

Central bank governor Paul Amoako Acquah