Country Report 3Rd Quarter 1998 © the Economist Intelligence Unit Limited 1998

COUNTRY REPORT

Ghana

3rd 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 1998-99

10 Review 10 The political scene 13 The economy and economic policy 16 Business and finance 17 Agriculture 20 Energy 22 Mining and industry 24 Aid, foreign trade and payments

25 Quarterly indicators and trade data

List of tables 10 Forecast summary 14 Policy Framework Paper targets, 1997-2000 16 Brewery share prices (cedis) 18 Global cocoa production, 1998/99 forecasts 22 Mining, Jan-May 1998 23 Ashanti Goldfields output 24 International reserves 25 Quarterly indicators of economic activity 26 Foreign trade 26 Direction of trade

List of figures 10 Gross domestic product 10 Real exchange rates 15 Inflation 23 Ashanti Goldfields Company: share price, 1998

EIU Country Report 3rd quarter 1998 © The Economist Intelligence Unit Limited 1998

Ghana 3

August 27th 1998 Summary

3rd quarter 1998

Outlook for 1998-99: The NDC will face a critical test as it tries to cope with leadership struggles and calls for democratic reform from the party’s rank and file. The NPP will meet in October to choose a new party leader, but divisions within the party will weaken its position. The energy crisis will continue to take a severe toll, reducing overall GDP growth to 1.5% in 1998. Inflation will continue to rise to an average annual rate of 27% for 1998 and 26% for 1999. The cedi, following months of real appreciation, is expected to depreciate sharply over the next 18 months. Exports will be only slightly down this year, as gold and cocoa output will remain strong, but imports are also forecast to jump, widening the current-account deficit to $627m in 1998.

The political scene: President Rawlings has endorsed the vice-president as his successor, but grassroots NDC members have criticised the party leadership for not consulting them. The NPP has remained preoccupied with an internal corruption investigation. Mr Rawlings has raised his international profile in hopes of a prestigious position after retirement.

The economy and economic policy: A government policy paper outlines its new plan with the IMF and World Bank, which calls for fiscal discipline and deepening of reforms, but it appears overoptimistic. The Centre for Policy Analysis has released its annual macroeconomic review, questioning the government’s economic forecasts. Inflation has taken an upward turn, rising to a year-on-year rate of 23.1% in April, but money supply growth has slowed.

Business and finance: COCOBOD and Ashanti Goldfields have invited bids for major corporate loans. Heineken has taken over Kumasi Brewery. The Gate- way project’s Tema Free Zone has moved ahead. The Bank of Ghana has criticised rural banks, and the SDCI financial fraud trial has started.

Agriculture: The government has raised farmgate cocoa prices and promised farmers 60% of the world price by 2000 as domestic market liberalisation continues. External cocoa market liberalisation, however, remains on hold as concern over quality grows. The energy crisis has hit local cocoa processing, but the cotton and timber sectors have made modest progress.

Energy: The energy shortages have continued as the government has struggled to provide emergency supplies. Several long-term energy contracts have been signed, but their co-ordination has been complicated by competing suppliers and slow government response.

Mining and industry: Mining companies have reported strong production. Ashanti Goldfields has announced record output and higher earnings.

Aid, trade and payments: Currency appreciation is threatening export competitiveness. Ghana’s reserves have remained firm, but low.

Editor: Todd Moss All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

EIU Country Report 3rd 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 terms; currently Jerry 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)

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 Finance Richard Kwame Peprah Food & agriculture Kwabena Adjei Foreign affairs Victor Gbeho Health Eunice Brookman-Amissah Interior Nii Okaidja Adamafio Lands & forestry Isaac Adjei-Mensah Mines & energy Fred Ohene Kena Parliamentary affairs Joseph Owusu-Acheampong Roads & transport Edward Salia Tourism Vida Amaadi Yeboah Trade & industries John Frank Abu Works & housing Cletus Avoka Youth & Sports Enoch Teye Mensah

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

Central bank chairman Kwabena Duffour

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Economic structure

Latest available figures

Economic indicators 1993 1994 1995 1996 1997a GDP at market prices (C bn) 3,674 4,950 7,417 10,422 14,006 Real GDP growth (%) 4.8 3.6 4.5 5.2 4.9 Consumer price inflation (av; %) 25.0 24.9 74.3 34.0 27.9 Population (m) 16.45 17.11 17.69 18.30 18.50 Exports fobb ($ m) 1,064 1,236 1,431 1,571 1,476 Imports fobb ($ m) 1,728 1,580 1,678 2,097 2,132 Current account ($ m) –558 –264 –144 –323 –436 Reserves excl gold ($ m) 409.7 583.9 697.5 828.7 598.8 Total external debt ($ m) 4,880 5,464 5,872 6,148 6,308c External debt-service ratio, paid (%) 20.7 22.9 21.4 24.5 28.3 Cocoa productiond (’000 tonnes) 255 290 404 340a 395 Gold production (m fine oz) 1.4 1.5 1.6 1.6 1.6 Exchange rate (av; C:$) 649.1 956.7 1,200.4 1,754 2,250.0c

August 21st 1998 C2,325:$1

Origins of gross domestic product 1996 % of total Components of gross domestic product 1993 % of total Agriculture, forestry & fishing 40.6 Private consumption 89.7 Industry 14.2 Government consumption 11.7 Manufacturing 8.1 Gross domestic investment 14.8 Services 48.4 Change in stocks 0.1 GDP at factor cost 100.0e Exports of goods & services 19.6 Imports of goods & services –35.8 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 1996f % of total Main origins of imports 1996f % of total UK 16 UK 16 Togo 11 Nigeria 13 US 10 US 10 Germany 9 Germany 5 a EIU estimates. b Balance-of-payments basis. c Actual. 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 3rd quarter 1998 © The Economist Intelligence Unit Limited 1998 6 Ghana

Outlook for 1998-99

The NDC will grapple As the ruling National Democratic Congress (NDC) struggles to choose a suc- with the problem of cessor to the president, Jerry John Rawlings, to lead the party in the next post-Rawlings unity— elections in 2000, it faces its toughest test to date on party unity. In May the president moved to defuse the potentially dangerous succession issue by en- dorsing the vice-president, John Atta Mills. While the announcement squashed the divisive campaign of the first lady, Nana Konadu Rawlings, it has also provoked an unprecedented outburst from local party activists. Threatening to leave the party unless the NDC democratises its internal procedures, the so- called “cadres” will, however, be unable to threaten the party successfully, at least during this campaign. Reopening the leadership issue at this time would lead to more factional manoeuvring and damaging internal fissures. It is most likely that the party elite will forge a compromise, securing an informal agreement to accept Mr Mills, while offering more posts and patronage to the disaffected party members. Given that Mr Mills remains broadly, if blandly, popular, such an agreement should not be difficult to reach. However, after the departure of President Rawlings, who has been the focal point for the NDC and remains extremely popular with local activists, keeping the party unified will become more difficult. Mrs Rawlings will also probably remain active and another bid for power in 2004 cannot be ruled out.

—as Mr Mills moves to Mr Mills, who inspires no strong feelings, either favourable or unfavourable, consolidate his position— and is widely viewed as the compromise candidate, will now be seeking to build networks for his future campaign. A politician for less than two years, he currently lacks both political experience and a personal power base in the NDC. However, he is known to be intelligent and shrewd, and is certainly capable of building his own base in time. Most importantly, he is generally popular in both the rural and urban areas—and electable.

—and the government Generally regarded as a safe pair of hands and a conciliator, Mr Mills is also one may heal its relationship of the few NDC officials to enjoy a positive relationship with the independent with the press press. The party may be finally coming to realise that developing positive relations with the media is important not only for the upcoming campaign, but also to govern effectively. While Ghana has a notoriously virulent press, with tabloid headlines that are often of dubious quality at times bordering on the absurd, the NDC has failed to establish a working relationship with even the serious independent press corps. Some local newspapers have already spec- ulated that the current communications minister, Ekwow Spio-Garbrah, who has had an extremely stormy relationship with reporters, will soon be replaced by Kojo Yankah, a former journalist and currently a regional minister.

The NPP will choose a The New Patriotic Party (NPP) has re-scheduled its party congress for October leader 23rd, when they expect to name a candidate for the 2000 presidential election. There are currently seven possibilities: John Kufuor, who lost to Mr Rawlings in the 1996 elections, remains the most widely known, but has been mired in a financial scandal since May (see The political scene); the other strongest con- tenders are Joseph Mensah and Kofi Apraku. Mr Mensah has made his name as the minority leader in parliament, but at 71 years old, he may be unable to

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excite the younger party members. Alternatively, Mr Apraku, who has been the party’s spokesman on economic affairs, may be regarded as too youthful by many of the party elders. The other candidates are Nana Akufo-Addo, best known for leading protests against value-added tax (VAT) in 1995, Hackman Owusu-Agyemang, a quiet backbencher, and two outsiders, Agyare Koi-Larbi and Malek Alhassan. While any of these candidates could emerge as the new leader, and other new entrants cannot be ruled out, the NPP has far to go before any of these candidates can challenge Mr Mills effectively.

Relations with donors will Prospects for improving relations with the international donors are more fa- continue to thaw— vourable than at any time since 1996, when excessive pre-election spending forced the IMF to suspend its enhanced structural adjustment facility (ESAF). While the ESAF was resumed in March and a new World Bank loan of $49.5m was agreed in June, a recent government policy paper has reaffirmed Ghana’s commitment to tightening fiscal policy, streamlining the public sector, and privatisation (see The economy and economic policy). Although the government will miss most of its own fiscal and monetary targets, the IMF and other donors will probably continue to offer support after the inevitable renegotia- tions.

—as political demands The finance minister, Richard Kwame Peprah, has continued to fail to fill the complicate policy reforms shoes of his predecessor, Kwesi Botchwey, but the political will for pushing through reforms, which appeared to wane after Mr Botchwey’s departure in 1995, may be returning. President Rawlings is keen to maintain his international image as a reformer and will not want to sour relations with donors so close to his expected retirement. The ascendance of Mr Mills, however, has created a paradox. Although he is a technocrat known to be strongly in favour of deepening reforms, he currently lacks the political base to force through bold changes. Thus, he will need to improve his political position significantly between now and 2000 and will, consequently, be under increased pressure to expand public expenditure as the next elections approach. Government over- spending on development projects is, therefore, highly likely and civil service pay rises in the run-up to the elections are a near certainty. The only real question will be how far will the government try to push the donors. Fiscal targets were severely breached before both the 1992 and 1996 elections—and macroeconomic stability has yet to recover fully from those shocks—but donors now appear to be more flexible about political considerations and less rigid about specific targets, especially at a time when reform programmes in several other African countries are faltering. Pressure on Ghana to liberalise external cocoa marketing, which has been a main point of contention, seems to have eased, at least temporarily (see Agriculture). Donors also now appear willing to wait until after the energy crisis before re-imposing strict conditions for continued support.

GDP growth will slow In the short term, internal reform of the NDC and political manoeuvring are in 1998— likely to distract the government from the economy at a critical time. With the energy crisis set to persist at least until the final quarter of 1998, the outlook for both growth and inflation has worsened considerably. Estimates of the likely damage vary significantly, from the Accra-based Centre for Policy Analysis

EIU Country Report 3rd quarter 1998 © The Economist Intelligence Unit Limited 1998 8 Ghana

(CEPA) projection of zero growth, to the IMF’s forecast of 4%, to the government’s official target of 5.6% GDP growth for 1998. The EIU, which expects mining and agriculture to remain strong, has forecast GDP growth of 1.5% for 1998. We expect a recovery to 4.6% in 1999 as capacity constraints imposed by the energy shortage are eased and higher government spending boosts domestic demand towards the end of the year in anticipation of the elections in 2000.

—as the power crisis slows CEPA estimates that the energy crisis will cost Ghana’s economy $280m from services and industry— higher power costs, unemployment and lost output in 1998. Power cuts are clearly biting deep into the services sector, which accounts for nearly half of the economy, and any growth in that sector appears unlikely. The mining sector, which the government has tried to protect from the crisis, has been modestly increasing output, but this will be offset by a contraction in the manufacturing sector, leading to stagnant industrial growth as well. As the energy shortages ease in 1999, we expect a recovery in the services and industrial sectors as unused capacity comes back on-line, with particularly strong growth in the manufacturing, utilities and construction sub-sectors.

—but agricultural output The main bright spot is agriculture. Albeit late, the rains appear set to deliver a will be strong satisfactory harvest in the south, while a healthy cocoa harvest is expected. Ghana’s cyclical trends, in which weak harvests generally follow good ones, would normally suggest that the sector is due for a smaller crop than the 390,000-tonne bumper yield of 1997/98. Yet a recent improvement in the weather over the central cocoa growing regions has both the EIU’s World commodity forecasts (WCF) and the International Cocoa Organization (ICCO) predicting 400,000 tonnes this season. Medium-term prospects for cocoa growth may, however, be affected by a shopkeepers’ strike in Kumasi and significant rises in fertiliser and pesticide prices. The long-term future of Ghana’s cocoa sector will depend upon how the government copes with the country’s ageing tree stock and its handling of external market liberalisation (see Agriculture).

Inflation will continue While a slowdown in money supply growth and reportedly tighter monetary to rise— policy should have eased inflationary pressures, scarcities caused by the energy crisis and a seasonal pre-harvest contraction in food supplies have combined to push prices up. Bucking the downward trend in inflation since early 1996, the consumer price index (CPI) rose rapidly in the first four months of 1998, pushing the year-on-year rate to 23.1% by April. The Bank of Ghana (BoG, the central bank) reported a marginal easing of inflation to a year-on-year rate of 22.9% in May and 21.8% in June, but we expect persistent shortages in output to maintain inflationary pressure throughout the year. The food harvest begins in August, which could slightly ease food prices, but the respite could prove short lived after imposition of the long-expected VAT at 10% in the final quarter and growing prospects of currency depreciation. For these reasons, we are revising our inflation projection upwards to a year-end rate of about 30% and an average rate of 26.8%. Inflation is then forecast to hold firm in 1999, marginally lower at an average of 26.5% owing to continued currency weak- ness and increased levels of public spending in the run-up to the elections.

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—putting further pressure Given the government’s shortage of foreign-exchange reserves, it will lack the on the cedi means to continue propping up the cedi, and the currency is forecast to depreciate substantially, at least to the point of halting its real appreciation. The cedi has already seen a real appreciation of nearly 20% in the first four months of the 1998. Growing evidence of the return of a parallel exchange market is also a cause for concern. Both the IMF, which has installed staff at the central bank, and the World Bank are likely to be on the alert for further administrative efforts to control the exchange rate. We therefore expect the cedi to depreciate sharply over the next 18 months, averaging C2,450:$1 in 1998 and C3,580:$1 in 1999.

Cocoa overtakes gold as Prospects for external trade are mixed. A healthy cocoa crop and higher output the prime export of gold are expected to sustain total export earnings of $1.44bn in 1998. The cocoa harvest and the WCF’s bullish price forecast of $0.83/lb point to a wind- fall forecast of $540m in cocoa earnings this year, up by 16% from last year’s estimated $464m in cocoa revenue. Despite falling international gold prices, which averaged under $300/oz in the second quarter, gold exports should also yield reasonable earnings, given higher output and extensive hedging by the country’s major producers. Ashanti Goldfields Company (AGC), which accounts for nearly two-thirds of national output, is reporting higher production and is expected to fetch around $379/oz this year (see Mining and industry). Assuming similar growth from other miners, we maintain our forecast for gold earnings of $533m for 1998.

For 1999, we forecast similar export earnings of $1.48bn as non-traditional exports rise, gold earnings drop slightly to $515m, and cocoa to $550m. Gold output is expected to remain strong, but uncertainty over producers’ hedging policies and expectations of only a slight recovery in international prices make a significant change in gold earnings unlikely. Cocoa output for the 1999/2000 season remains largely dependent upon unpredictable variables such as weather and crop disease, but stocks from the healthy 1998/99 season will boost export volumes for 1999, and the WCF is predicting a nearly 10% rise in international cocoa prices.

Imports will be higher A higher import bill will, however, offset any growth in export earnings in owing to the energy 1998. The energy crisis has forced a surge in orders of generators, spares, substi- crisis— tutes for power-driven equipment and consumer goods in short local supply. Preliminary government reports of sizeable tax revenue for imported generators confirm our view that the bill is likely to grow by 15% to around $2.35bn, widening the 1998 trade deficit to about $900m. The growing trade deficit, plus an increase in debt service—which we estimate will widen the services deficit to around $301m—has led us to forecast a significantly higher current-account deficit of $627m this year.

In 1999 imports are forecast to drop slightly to $2.27bn, as some locally manu- factured goods become available again, offsetting the effects of higher prices of imported goods. Although the invisibles deficit will continue to rise, a lower trade deficit of $797m will help to reduce the overall current-account deficit to $576m in 1999.

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Forecast summary

1996a 1997b 1998c 1999c Real GDP growth (%) 5.2 4.9 1.5 4.6 Consumer price inflation (av; %) 34.0 27.9 26.8 26.5 Merchandise exports fob ($ m) 1,571 1,476 1,444 1,477 of which: cocoa 551 464 540 550 gold 612 563 533 515 Merchandise imports fob ($ m) 2,097 2,132 2,351 2,274 Current-account balance ($ m) –324 –436 –627 –576 Average exchange rate (C:$) 1,754 2,250a 2,450 3,580

a Actual. b EIU estimates. c EIU forecasts.

Gross domestic product Real exchange rates (c) % real change, year on year 1990=100 130 6 Ghana Naira:$ Africa 120 5 110 4 100 3 90 2 80 1 70 n/a 0 1995 96 97(a) 98(b) 99(b) Cedi:$ CFAfr:$ (d) 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 Outlook. 1990 91 92 93 94 95 9697(a) 97 98(b) 98 9999(b)

Review

The political scene

The president endorses the President Jerry John Rawlings has publicly endorsed his vice-president, John vice-president as his Atta Mills, as his favoured candidate to stand for the presidential election in successor— 2000. At a rally of the ruling National Democratic Congress (NDC) in Swedru, central region, on June 6th he praised the intelligence and integrity of the vice-president and called on party members to give him their full support. The constitution prohibits the president from running for a third term, but party political fixers had tested public opinion on several controversial options— including a referendum to change the constitution to allow Mr Rawlings to run again and the nomination of the first lady, Nana Konadu Rawlings, for the candidacy (1st quarter 1998, page 10).

—in a bid to end party The announcement was designed to end months of speculation and divisive in-fighting manoeuvring within the party over the nomination of a successor to President Rawlings, who has led the party (and its previous incarnations) since 1981. Mr Rawlings has calculated that Mr Mills, a former law professor and head of

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the tax collection agency, is best placed to ensure a smooth transition in party leadership and continuity in public policy. While he lacks a significant political base, he has few enemies and inspires no strong feelings, negative or positive, within the party—a sentiment also widely shared by the population. At the same time, however, his lack of experience and political networks will force him to rely on senior NDC politicians—such as Ato Dadzie, the chief of staff, Kofi Totobi Quakyi, a security aide, and even Mr Rawlings himself—for advice and support, thus enabling existing leaders to maintain behind-the- scenes control.

Grassroots party While the announcement of support for Mr Mills has satisfied most of the elite supporters protest— party factions, the move has also provoked a public protest from the “cadres”— active grassroots party members—raising the spectre of an exodus of disaffected members for the first time in the NDC’s history. On July 6th a paid advertise- ment appeared in two newspapers castigating NDC leadership efforts to settle the succession question without consulting the party’s rank and file. The mes- sage, in the form of an open letter to the NDC’s National Executive Committee (NEC), publicly challenged President Rawlings’s stewardship of the party for the first time, exposing divisions that had long been suspected, but rarely aired in public.

—with allegations of Particularly damaging for the NDC are allegations in the letter of corruption corruption and and charges that patronage is now the driving force rather than grassroots anti-democratic practices political mobilisation. It accuses the party leadership of operating as an olig- archy and of denying constituencies a meaningful role in party congresses. The letter demands a review of internal party practices and a delay in leadership campaigns, warning that the NEC’s response will determine “whether the NDC goes forward united, or whether the intolerance of the few who wield power compels the exit of the many”.

Party leaders downplay its A week later the NDC secretary-general, Hudu Yahaya, dismissed these charges, significance— declaring that the president had simply endorsed, not appointed, Mr Mills. It remains unclear what steps the NEC will take to ensure grassroots support, but it is nevertheless unlikely that many will actually leave the party. The so-called cadres have formidable organisational skills, but they seem to lack powerful patrons within the NDC. Local party-affiliated structures—such as the since- dissolved committees for the defence of the revolution—formed the bedrock of Mr Rawlings’s support in the 1980s and played a key role in getting him elected in the 1990s. However, they were not always popular as their zealousness and their challenge to local power structures in villages and work places fomented resentment. Until now, a semblance of cohesion has enabled the NDC to set itself apart from the opposition parties, whose factional in-fighting and preoc- cupations with leadership have graced the front pages of Ghana’s newspapers since 1992. The NDC has in the past proved adept at exploiting such divisions, while at the same time containing its own factions.

—but the letter exposes While it appears that the cadres have no direct gripe with Mr Mills, the same the divisiveness of the cannot be said of the first lady, Nana Konadu Rawlings. Mrs Rawlings is a first lady formidable political force in her own right, having built a sizeable power base

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in recent years and a small following within the NDC hierarchy. Since the 1980s she has courted women with the December 31st Women’s Movement, which has mobilised thousands of women for small-scale village-level economic activity, financed from external donations and reinvested profits. More recently, she has tried to diversify her appeal, setting up the verandah clubs, which seek to attract the support of unemployed youth and urban street ven- dors. Her ambitions also include the presidency, but party resentment of the first lady almost exploded last year, when her backers in the NDC allegedly plotted to call an extraordinary congress, to purge some NEC members and replace them with her allies.

The NPP has its own Far from capitalising on the NDC’s problems, the New Patriotic Party (NPP) has problems remained preoccupied with its own. In late May the NPP set up a committee of enquiry to investigate allegations of financial impropriety by John Kufuor, the party’s presidential candidate in the 1996 elections. Colin Essamuah, a senior NPP official, has alleged that Mr Kufuor has failed to account for some $100,000 collected from US-based sympathisers in 1996. In the dispute, aired in the opposition press, the party has appeared divided over the investigation and distracted from its party congress, now re-scheduled for October 23rd. There now appear to be seven candidates vying for the presidential nomination, including Mr Kufuor, the ageing Joseph Mensah, and the youthful Kofi Apraku. Whoever is chosen, their first task will be to rebuild cohesion and turn the party’s attention from internal squabbles to the election.

Mr Rawlings lays the Mr Rawlings, who will be only 53 years old in 2000, appears already to be groundwork for turning his attention to post-presidency plans. Insiders claim that the pres- retirement— ident is aiming for a prominent international position, perhaps establishing a think-tank. There is speculation that US-based foundations have made quiet offers to Mr Rawlings for funding his own institute in an effort to ensure a smooth political transition. Indeed, the president is carefully cultivating his international reputation as a political and economic reformer. Mr Rawlings has always taken an active role in regional conflict resolution and has been a vocal spokesman for African interests and issues around the world. Since the mid- 1990s the president has increasingly focused on international issues, which has included frequent trips abroad. For instance, in the past few months the president has travelled to Italy, Switzerland, South Africa and Zimbabwe, and hosted several African leaders. High on his agenda have been discussions of the conflicts in Ethiopia-Eritrea, Guinea Bissau, Sierra Leone, Sudan and, most recently, the Democratic Republic of Congo. He has further raised his international profile, by hosting the first “Emancipation Day” in Africa in July, a celebration of links between Africa and its diaspora, which brought hundreds of African-Americans and Afro-Caribbeans to Accra.

—and meets Nigeria’s new President Rawlings moved quickly to forge relations with Nigeria’s new mili- leader tary ruler, General Abdusalam Abubakar, while hoping that his close relationship with the former military ruler, Sani Abacha, would not count against him in dealings with the new regime. Relations between the two countries had soured in the first half of this year over allegations of Ghanaian complicity in a plot to destabilise Nigeria (2nd quarter 1998, page 13). The death of

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Mr Abacha on June 8th thus presented Mr Rawlings with a chance to rebuild relations with the regional power, which hosts several hundred thousand Ghanaian expatriates. Three days later he travelled to Nigeria for Mr Abacha’s funeral and to meet General Abubakar. However, it remains likely that, at least in the short term, the new Nigerian leadership will concentrate on domestic issues and, if anything, will seek to distance itself from former close allies of Mr Abacha.

Libel lawyers target the Trans-Legal Consultants, a law firm used by ministers and officials to file more opposition press than 30 libel cases, raised eyebrows in June when it cited a local printer, LJS Colour Publications, in a libel suit against the publishers of the opposition newspaper, The Independent. The suit, filed on behalf of the Ashanti regional minister, Daniel Ohene Agyekum, claims damages for a May 19th article which claimed he attacked a party activist. The newspaper says the move reflects a new strategy by Trans-Legal—and, by implication, the government—to deter Ghana’s old printing houses from publishing opposition newspapers. Most printers with modern equipment have turned away such business, fearing the loss of valuable government advertising.

In late July Harruna Attah, editor of The Statesman, and Kweku Baako, editor of The Guide, were each sentenced to 30 days’ imprisonment and their publications were fined C10m ($4,250). The ruling, a reversal of an earlier court decision, was in favour of Mrs Rawlings, after the editors ignored an injunction against printing an allegedly libellous cartoon.

The economy and economic policy

Ghana outlines its plan An economic and financial Policy Framework Paper (PFP), drawn up by govern- with the IMF and ment officials in collaboration with IMF and World Bank staff, outlines World Bank— Ghana’s macroeconomic policies and targets for 1998-2000, the remaining period of the current enhanced structural adjustment facility (ESAF). The PFP’s broad thrust maintains the priorities that the government has espoused in the past, but failed to implement fully: to create a stable macroeconomic environ- ment for private investors by reducing the fiscal deficit, removing inflationary pressures and boosting investor confidence, which has been flagging since the early 1990s. It also aims to strengthen Ghana’s external position which weak- ened significantly in 1996-97 (see Aid, foreign trade and payments).

—which calls for restoring The PFP concludes that in order for Ghana to reach its GDP growth targets of fiscal discipline 5.8% per year in 1999 and 2000, it will need to boost gross capital formation from about 16% of GDP in 1997 to over 19% by 2000, primarily through a doubling of the private sector’s contribution and an increase in the savings rate from 12.7% in 1997 to 15.8% by 2000. To raise savings rates, the PFP calls for a reduction in the overall budget deficit (on a commitment basis) from 8.6% of GDP in 1997 to less than 4% by 2000. To do so, the government plans to implement revenue generating measures, including higher taxation of consumption, primarily through the introduction of a 10% value-added tax (VAT) and improved collection through reform of the tax authority. The government

EIU Country Report 3rd quarter 1998 © The Economist Intelligence Unit Limited 1998 14 Ghana

also hopes to cut public expenditure to under 25% of GDP over the period, largely owing to a fall in domestic debt service.

Policy Framework Paper targets, 1997-2000

1997a 1998b 1999b 2000b Real GDP growth (%) 3.0 5.6 5.8 5.8 Consumer price index (%, average) 27.9 15.5 8.0 5.3 Consumer price index (%, end period) 20.8 11.0 5.5 5.0 Investment & saving (% of GDP) Gross investment 16.0 17.9 18.1 19.5 of which: private 5.4 5.5 7.5 8.0 Gross national saving 12.7 13.7 14.3 15.8 Budget (% of GDP) Domestic revenue 17.6 18.3 18.7 18.8 Total grants 0.9 2.9 1.7 1.6 Total expenditurec 27.2 27.5 24.4 23.8 Overall balanced –8.6 –6.3 –4.0 –3.4 Domestic primary balance 3.3 3.8 3.8 3.9 a Preliminary figures. b Projections. c Includes capital outlays financed through foreign aid. d Commitment basis.

Source: Government of Ghana, Policy Framework Paper.

The PFP also confirms reform plans to:

• improve public-sector efficiency by cutting thousands of jobs and rationalis- ing pay structures;

• establish new regulators to govern private participation in railways, ports and water, and to set up a regulatory structure for the energy sector;

• privatise the Mim Timber Company, State Housing Corporation, State Insurance Corporation, the National Investment Bank, Ghana Reinsurance Corporation and 20 smaller enterprises; and

• mobilise private investment in infrastructure.

Its ambitious reform Much of the PFP’s agenda is, however, not new and many similar promises of programme may signal a reform have been made to donors before, only to see partial implementation. return to donors’ favour The new projections also appear overly optimistic, and the EIU does not expect the economy to meet many, if any, of the broad targets (see Outlook for 1998-99). However, the PFP is perhaps most significant in that the World Bank and IMF now appear to be both more willing to accept Ghana’s shortcomings and more bullish on its future. Following the release of SDR82.2m ($110m) in ESAF funding in March, after a suspension in 1996 due to pre-election fiscal laxity (2nd quarter 1998, page 14), the World Bank agreed in June to a loan of SDR37.1m in support of economic reform. In addition, the IMF appears—at least in the PFP—to have softened its earlier position that external cocoa marketing should be privatised in the near term, having settled for a “reassess- ment” once privatisation of domestic marketing is completed (see Agriculture).

EIU Country Report 3rd quarter 1998 © The Economist Intelligence Unit Limited 1998 Ghana 15

CEPA challenges official The Accra-based independent think-tank, the Centre for Policy Analysis (CEPA), figures has launched its annual macroeconomic review for 1998 with a gloomier prognosis. CEPA—whose fiscal forecasts are usually more accurate than the government’s—has taken issue with much in the 1998 budget. It suggests that the finance ministry has overstated spending cuts by C210bn ($90m) and domestic revenue by C258bn through accounting errors and account manipulation. CEPA has also challenged external accounts data and inflation figures (see below and Aid, foreign trade and payments)

According to CEPA, official growth projections are unrealistic. In 1998 the energy crisis is expected to cost Ghana some $280m in lost output, equivalent to around 4% of GDP. The worst affected sectors will include services and industry, which CEPA believes will each contract by 2%. Although the government has largely protected the mining subsector from the worst of the crisis, a decline in manufacturing output may drag the sector down as a whole. Overall, CEPA expects no growth for 1998. The EIU, less pessimisticly, has forecast GDP growth at 1.5% (see Outlook for 1998-99). However, even the IMF seems to have modified its optimism with its representative in Accra, Kim Harnack, claiming in mid-June that real GDP growth may be only 4-5% for 1998.

Inflation is on the rise The consumer price index registered a 3.4% increase in March and 5.8% in April, ending the long-running downward trend in the year-on-year rate, which had been falling since January 1996. These jumps raised the year-on- year rate to 23.1%, well above the government target of 11%. The increases, which seem to have been prompted by higher food prices after poor rainfall between November and March, have long been expected. Medical care and health expenses also contributed with a 12.8% rise in April alone. One trend that might help stem inflation is lower money supply growth, which fell sharply during the first five months of 1998, to only 1.8%, compared with growth of 13.2% in the same period last year, according to Emmanual Kumah, senior advisor at the Bank of Ghana (BoG, the central bank). In late August the BoG reported a marginal easing of inflation to a year-on-year rate of 22.9% in May and 21.8% in June, but the EIU expects inflationary pressure to accelerate throughout the year (see Outlook for 1998-99).

Inflation % change, year on year 70

Jan..Apr..Jul..Oct..Jan..Apr..Jul..Oct..Jan..Apr.. 1996 97 98

Sources: IMF; Government of Ghana; EIU.

EIU Country Report 3rd quarter 1998 © The Economist Intelligence Unit Limited 1998 16 Ghana

Business and finance

A major corporate facility The Ghana Cocoa Board (COCOBOD) has invited banks to bid for a $325m is launched for pre-export financing package, which would be the largest loan ever for a Sub- COCOBOD— Saharan African country. The annual offering, to cover the harvesting of the country’s cocoa crop, has become increasing competitive, with the 1997 man- date for $275m arranged by Citibank at a margin of only 37.5 base-points (bp) over Libor rates. According to Euroweek, however, expectations are for a rate closer to 50 bp over Libor this year, at least partially because COCOBOD has asked for bids by consortium to include no more than two banks, effectively raising the risk premium for an individual bank. In early July a partial financing deal was struck with Citibank for $40m, with a three-month maturity at 40 bp over Libor, perhaps indicating that Citibank may be the front-runner for the larger annual loan.

—and another for Ashanti In late-July Chase Manhattan Bank launched a $250m corporate facility bid for Goldfields Ashanti Goldfields Company (AGC), Ghana’s largest gold mining firm. The loan, $175m of which is for five years and $75m for one year, is expected to receive bids around 80 bp over Libor, and will be largely used for refinancing a $185m 1995 loan from Barclays and Chase Manhattan carrying a margin of 105 bp.

Breweries merge In late June Ghana Breweries (GBL), owned by its parent, Heineken, announced that it had reached an agreement to take over Kumasi Brewery (KBL). Under the deal, GBL—which had already owned 50% of KBL—offered three of its own shares for two KBL shares, raising its stake to 73%. In late July GBL shares were listed on the Ghana Stock Exchange (GSE). Heineken has been building market share in Ghana since last year, when it bought 90% of the loss-making Achimota Brewery from the government for $7m, renaming it GBL. The newly merged companies will have some 45% of the market. Analysts estimate that Heineken, Guinness and South African Breweries (which is a majority shareholder in Accra Brewery) together invested at least $30m in the breweries sector last year. Ghana’s per capita consumption, at less than 5 litres annually, is small compared with average consumption of 8-9 litres in neighbouring Côte d’Ivoire, but investors obviously feel it is a sector with growth potential—a sentiment reflected in rising share prices.

Brewery share prices (cedis)

End-Jan End-Jul 1997 1998 1998 Accra Brewery Company Ltd (ABL) 594 780 1,100 Ghana Breweries Ltd (GBL) – – 3,014 Guinness Ghana Ltd (GGL) 315 780 1,230 Kumasi Brewery Ltd (KBL) 686 966 – Source: Ghana Stock Exchange (GSE).

The Gateway project is Led by a Malaysian investment group, Business Focus (BF), plans for the construc- moving ahead tion of the Tema Free Zone appear set to get under way. The Tema enclave represents the first phase of Ghana’s Trade and Investment Gateway Project, which is intended to increase the competitiveness of Ghanaian industry, promote

EIU Country Report 3rd quarter 1998 © The Economist Intelligence Unit Limited 1998 Ghana 17

the export sector and attract new investment. In early June BF presented its plans to officials of the Ghana Investment Promotion Centre and the Ghana Free Zones Board, claiming that $300m in funding had been secured from private investors. The BF project, which covers about half of the enclave’s 1,200 acres (485 ha), is planned to include nearly 1,000 factory buildings, a modern office complex, and new road, telecommunications, water, electricity and sew- age systems. In July the World Bank also approved a $50m credit in support of the Gateway project. With the exception of the World Bank loan, which will largely fund legislative reforms, training for customs officials and infrastructure investment, the Tema Free Zone is wholly financed by private funds.

The BoG is to tighten According to Kwabena Duffour, the governor of the BoG, rural banks are not regulation of the rural performing adequately, and the BoG has decided to take measures to improve banking sector— rural banking management. At the bank’s shareholders meeting in July, Mr Duffour claimed that out of 132 rural banks, only 45% were operating according to satisfactory banking practices and more than 30% had failed to submit returns to the BoG as required by law. Most of these rural banks, upon which many small-scale borrowers rely, often operate with little oversight and poor accounting. Yet they are also extremely small and their weaknesses pose no threat to the banking sector as a whole. According to the latest BoG annual report, the total assets of all rural banks were just C72.5bn ($41m) at the end of 1996. The renewed interest of the BoG, however, is a sign that it may be tightening financial regulation—although Mr Duffour will also not want to undermine an important credit facility for many Ghanaians. The large-scale banking sector, which is dominated by the Ghana Commercial Bank, Standard Chartered and Barclays, has become more efficient and competitive in recent years through ongoing privatisation and improved banking regulations, but is not equipped to meet the needs of most rural or small-scale customers.

—as a financial fraud trial In early June the trial began of former top officials of the now defunct Securities gets under way Discount Investments (SDCI), which collapsed after a scandal in 1996. The finance house’s former managing director, its former chairman and a third defendant faced 14 charges, including operating without a licence and unlaw- fully accepting deposits from the public. The former chairman, Afare Donkor, has also been separately charged for embezzling from the institution in 1993 the sum of C495m (then worth $763,000). The scandal, which caused a major furore when it broke, also raised questions as to how SDCI’s shareholders—which included public institutions such as Ghana Commercial Bank, National Invest- ment Bank, Agricultural Development Bank and the National Investment Trust—allowed such transgressions to occur. Current financial regulators will be hoping that a successful prosecution in this case will help to restore investor confidence in Ghana’s financial sector, which has been under restructuring since 1989.

Agriculture

Farmgate cocoa prices are The government kicked off the mid-season (June-September) cocoa crop with raised by 25%— its annual rise in farmgate prices. Victor Selormey, the deputy finance minister, announced that from June 19th the state-run Produce Buying Company (PBC,

EIU Country Report 3rd quarter 1998 © The Economist Intelligence Unit Limited 1998 18 Ghana

the domestic arm of COCOBOD) and private licensed operators for the 1998/99 season would pay C140,625 ($60) per 62-kg bag (the common unit for most farmers), a 25% nominal jump from last year. This new price translates into about C2.25m per tonne, or 56% of the world market price, up from 54% last season.

—as liberalisation of Although the 25% rise is slightly higher than official estimates of inflation internal cocoa markets (21.8% as of June), the increase is part of a phased plan to raise farmgate prices continues— to 60% of the world market price by 2000. (By comparison, Indonesian cocoa farmers already receive nearly 80% of the global price.) The IMF and other donors have long complained that high taxation of cocoa and state control over marketing are important structural constraints on the sector’s growth. In 1996/97 (the latest season with available breakdown of costs), farmers received 52% of the world market price, while 29% went to the government in taxes and 14% was absorbed by COCOBOD. To facilitate redistribution to farmers, donors are pressing the government to privatise PBC before 2000 in order to fund the increase in the farmer’s share. This step would complete the liberalisation of domestic marketing begun in 1993 when the government opened the sector to private buyers, which now account for around 30% of crop purchases.

—but external market Judging by the government’s Policy Framework Paper (PFP), written with the IMF liberalisation is on hold— and the World Bank, donors appear to have eased pressure on the government to privatise external marketing—at least for now. Cocoa liberalisation has proved a persistent source of tension with donors. The PFP acknowledges a controversial study by LMC International in 1996, which recommended continuing COCOBOD’s monopoly in order to preserve the quality and reliability of Ghana’s cocoa, often cited as the world’s best. While donors largely dismissed the study, the government disseminated it widely as part of a campaign to retain the monopoly. While neighbouring Côte d’Ivoire, by far the world’s largest cocoa producer, has plans for liberalising external marketing by 2000, Ghana remains reluctant, at least partly because such experiments in Nigeria and Cameroon have largely failed. COCOBOD, which has overseen the industry for decades, has also built significant bureaucratic power to resist reform. However, the PFP added that the government will “reassess options for elimin- ating the cocoa board’s export monopoly once the privatisation of domestic marketing is completed”, suggesting that COCOBOD may have won only a temporary reprieve.

Global cocoa production, 1998/99a forecasts (’000 tonnes) Côte d’Ivoire 1,150 Ghana 400 Indonesia 340 Brazil 165 Nigeria 160 Total incl others 2,785

a Years ending September 30th.

Source: EIU, World commodity forecasts: food, feedstuffs and beverages.

—as quality remains a For all the ideology and vested interests driving both sides of the debate, the central issue quality issue remains central. In July the International Cocoa Organisation (ICCO) warned COCOBOD that it must maintain quality checks near farms in order to preserve the premium Ghanaian cocoa fetches on international markets. While the specific incident that provoked the ICCO’s warning was not disclosed, several problems have arisen in recent months. In late July the COCOBOD Quality Control Division (QCD) rejected 5,000 bags from the Ashanti region on the grounds that they were improperly sorted. Regulators require buyers to sort the beans by size before presenting them to the cocoa board for evaluation, grading and sealing. The QCD has claimed that several companies have been warned about sorting beans, but that only the state- owned PBC has complied—raising questions about whether the quality issue is also being manipulated for political reasons. Some private buyers have complained that bean checking for private firms has been slow, raising costs for security and storage and increasing the risk of moisture damaging stocks.

Farmers face a Ghanaian cocoa farmers face a number of problems for the coming year that tough year— may threaten production levels. The costs of fertiliser and pesticide have risen dramatically in recent months, with pesticide selling for $30 per litre in July, more than one-third higher than prices in April. Compounding high prices, a shopkeepers’ strike in Kumasi, the main city in the heart of the Ashanti cocoa- growing region, could mean limited availability of equipment, fertilisers and pesticides. In late July city authorities raised licence fees fourfold to C10,000 ($4) per month, setting off the protest. Moreover, cuts in the budget of Ghana’s Cocoa Services Division (CSD), which has the task of providing extension services, selling seedlings and advising on tree planting, have reduced farmer assistance. Despite budgetary constraints, CSD officials claim they have sold 2.5m seedlings from 23 stations this season alone. However, farmers in the region complain that the CSD, which reportedly still commands a large part of the agriculture budget, has made little contribution to cocoa production.

—and the energy crisis The energy crisis has forced the German-owned cocoa processing company, delays cocoa processing West Africa Mills Company (Wamco), to cut its planned grind by 17% to expansion 50,0000 tonnes for 1998. The state-owned Cocoa Processing Company (CPC), Ghana’s only other cocoa processing firm, will process just 19,500 tonnes against its target of 25,000 tonnes, also owing to power shortages. However, recent data provided by CEPA indicate that the cocoa processing market has seen rapid growth in the past three years, with the volume of exports more than tripling since 1995, while earnings have almost quadrupled to $102m over the same period. This growth bodes well for further expansion once the current electricity crisis ends. Indeed, the CPC plans to install new processing machinery at its Portem plant in 1999, doubling its processing capacity to 50,000 tonnes, and to diversify into instant drinking chocolate powder by 2000.

The embryonic cotton The Ghana Cotton Company (GCC), one of just three cotton ginners in industry gets a boost— Ghana, is set to open a new 25,000-tonne gin in November, before the start of the next season. The new plant, in Bolgatanga in the northern cotton growing region, will double the company’s processing capacity. According to official estimates, Ghana produced 35,000 tonnes of cotton in 1997/98, just 0.16% of

global output, but the government expects output to grow to 60,000 tonnes by 2002. Ghanaian cotton currently suffers from both low yields—just 775 kg/ha, compared to a regional average of 1,200 kg/ha—and poor quality. Earlier this year, however, the French development agency, Agence française de dévelop- pement (formerly the Caisse française de développement), donated FF7m ($1.2m) for cotton sector development.

—as does the timber sector President Rawlings, launching a national forestry week in mid-July, announced that the government had introduced a bill to parliament to manage Ghana’s timber resources better. The regulations aim to encourage private investors in plantation development, consolidate existing fees and require tree planting, in order to sustain the long-term viability of the sector. In addition, the government announced it would establish a $23m programme to assist the sector. According to officials at the lands and forestry ministry, the EU is sponsoring a three-year programme to promote the woodworking industry, hoping to raise the value of exported timber products through technical and management training. Ghana has about 80 small-scale wood processing firms.

Energy

The energy crisis Ghana’s power crisis persisted into July and August. Load-shedding in most continues— areas has allowed electricity for just 12 hours per day, while some major industries have been supplied with power for four days per week. As of mid-July, the water level at the Akosombo Dam on the Volta River stood at 237 feet—below the minimum operating level of 248 feet, but just enough to keep two of the power station’s six turbines running. Akosombo, which has a power capacity of 1,072 mw, is the country’s main power supplier.

—as the minister In mid-July the minister of energy and mines, Fred Ohene Kena, claimed that announces the government had taken new measures to install emergency power plants, emergency plans which would add 400 mw of capacity by December, and interim measures would ease the pressure on industry until then. While full details of the interim measures are not available, they reportedly include a scheme to install 30 mw of emergency generating equipment in Tema, Ghana’s main industrial centre. However, Reuters reported that technicians working on the Tema project had privately admitted that because of technical problems, they had installed only about 8 mw by the end of July, and that it was impossible to forecast when the remaining capacity would be put in place.

The French government has approved an emergency FF12m ($2m) loan to finance two 50-mw plants, also for Tema this year, but purchase and delivery could take several weeks. Platt’s Commodity News also reported that two UK- based companies, Aggreko and Faroe Atlantic, have signed deals with the government to supply 100 mw by mobile barges beginning in August.

Long-term expansion Mr Ohene Kena has also reiterated that the government intends to install an plans appear additional 860 mw of thermal power generating capacity over the next three unco-ordinated— years. However, since the government announced that it would commercialise its subsidised electricity tariffs, independent power producers and potential gas

suppliers have raced into Accra seeking deals. The government appears to have been overwhelmed, and its ambitious plans may be getting bogged down owing to poor co-ordination and industry rivalries.

In late-July, however, at the request of Vice-president Mills, a bilateral task force, made up of officials from various agencies in the Ghanaian and US governments, was established to provide a blueprint for the future of Ghana’s energy sector. The task force met on July 20th in Accra, but no details have yet emerged, and it remains too early to determine whether it will be effective in co-ordinating Ghana’s response to the crisis.

—as interdependent deals While the government has been anxious to compensate for its late reaction to complicate matters— the energy problem, competition among power companies and gas providers has been complicated by a web of interdependent deals. The power companies need offtake contracts with customers to make their projects bankable, and gas producers need to secure supply contracts with power companies in order to make their projects viable. Chevron and Shell, sponsors of the West African Gas (WAG) pipeline, hope to have constructed it by 2001-02, when they would start piping Nigerian gas to Ghana, Benin and Burkina Faso. However, they cannot make the pipeline financially viable until they secure at least two electricity contracts with large customers. Gas producers in Côte d’Ivoire are keen to secure supply contracts to power companies before WAG gets off the ground, because the flared Nigerian gas is cheaper to produce than dedicated Ivorian gas.

—forcing several Given the intense competition and the government’s rush to secure contracts, accelerated deals several preliminary agreements have emerged, some of which have been signed before key matters, such as pricing and offtake contracts, have been settled. Indeed, several projects could yet be sidelined when these issues are later revisited.

• US-based KMR has signed a preliminary contract to build a $200m 220-mw gas-fired power station, guaranteeing Ashanti Goldfields Corporation (AGC) of 100 mw per year, with the balance sold to the Electricity Corporation of Ghana (ECG—2nd quarter 1998, page 19). KMR has reportedly agreed to provide the power at less than $0.05 per kilowatt hour—undercutting Ghana National Petroleum Corporation (GNPC) which could supply electricity generated via its planned barge plants from the offshore Tano gasfields (2nd quarter 1998, page 20). It remains unclear how KMR, which plans to use both Ivoirian and Nige- rian gas, can guarantee delivery at these prices, especially since the price of the Nigerian gas has yet to be determined.

• Worried about the competition, GNPC has taken the unusual step of com- missioning Italy’s Ansaldo Energia to construct one of its 125-mw barge plants before agreeing to a formal offtake contract with the ECG. The project, which aims to generate 250 mw from two barge plants processing 40m cubic feet per day from the Tano gasfields, will remain vulnerable to the machinations of competitors until it secures an equity partner. Negotiations appear to be well advanced with US-based El Paso and sources indicate a deal could be struck by September.

• The Volta River Authority (VRA) signed a memorandum of understanding in July to construct a $200m 300-mw power plant with Marathon Power Antares

(MPA) of the US. The plant, to be built at Tema, would come on stream in 2000 with an initial output of 150 mw. Under the terms, MPA would provide 70% of the funding and VRA the balance. It is not yet clear where this leaves VRA’s earlier preliminary joint-venture agreement with US-based CMS Energy to add a further 330 mw to the Aboadse power plant near Takoradi (2nd quarter 1998, page 20).

Mining and industry

The mining sector shows Despite the heavy reliance of the mining sector on power, it appears to be strong output weathering the current crisis. Indeed, the UK-based Metal Bulletin Monthly reported in July that “investor confidence [in Ghana] seems to be growing”, even with mounting problems with mining contracts in other parts of Africa, such as the Democratic Republic of Congo. Supporting this optimism, the Ghana Minerals Commission (GMC) estimates that the country’s gold miners produced about 795,000 oz between January and May, suggesting that this year’s output could exceed 1997 levels. While the GMC was unable to provide com- parable data for the previous year and excludes output from small-scale miners, the implied average of about 159,000 oz per month would represent a 16% jump over last year’s average monthly output of about 137,000 oz. However, the recently released data are preliminary and should be treated with caution.

Mining, Jan-May 1998

Gold (ounces) 795,066 Ashanti Goldfields 455,975 Abosso Goldfields 100,910 Teberebie 92,859 Resolute 52,290 Billiton Bogosu 37,819 Goldfields Ghana 25,882 Bonte Gold Mines 13,309 Barnex (Prestea) 11,087 Prestea Sankofa Gold 4,160 Dunkwa Continental Goldfields 772 Other Ghana Consolidated Diamonds (carats) 55,160 Ghana Bauxite Company (tonnes)a 109,757 Ghana Manganese Company (tonnes)a 143,310

a Amount shipped.

Source: Ghana Minerals Commission.

Ashanti Goldfields beats Ashanti Goldfields Company (AGC), Ghana’s largest mining firm, has once the energy crisis again— again demonstrated its resilience to the power crisis. According to company results for this year, AGC produced 374,461 oz in the second quarter, up by 13% from the previous quarter, and 33% higher than in the same quarter last year. The main source of the increase was the continued development of new mines at Bibiani, where output quadrupled from the previous quarter to 32,784 oz, and Siguiri (in Guinea), where output more than doubled to nearly 60,000 oz. Al- though AGC benefited from priority power supplies and continued to shore up independent suppliers, it did suffer some disruptions. AGC claims to be on track

to achieve its production target for its global operations, which also include Zimbabwe’s Freda Rebecca and Guinea’s Siguiri mines, of 1.4m oz in 1998.

—and earnings remain AGC’s continuing efficiency drive and hedging policy has helped to offset the firm higher costs associated with the power crisis. Company profits edged up to $15.5m for the second quarter, a slight increase on the previous quarter and double the earnings of the same quarter last year. Average cash operating costs fell to $222/oz, some 6% lower than the previous quarter and 17% below the level a year ago. The company’s aggressive hedging programme, which locked in an average selling price of $379/oz for 1998, also protected it from the worst of the international market where spot prices continue to hover around $300/oz.

This performance prompted two equity analysts, concerned at how AGC’s stock has languished in recent months, to strengthen their “buy” recommend- ations. In late July Goldman Sachs upgraded AGC to “market outperformer”, citing current output strength, continued growth potential and hedging policies, which include contracts expected to deliver an average $376/oz in 1999 and $383/oz in 2000. This, and another bullish recommendation from Société Générale, may have helped the slight recovery in the price to the £4.50 range in London (about $7.50 in New York) in mid-August. However, the share price remains well off its 52-week high of £7.34 ($12.12).

Ashanti Goldfields output (oz) Jan-Jun 1997 1998 Total 571,795 705,875 Ghana Obuasi 417,048 432,626 Ayanfuri 29,062 24,598 Iduapriem 74,646 68,713 Bibiani n/a 41,578 Midras-Asikam n/a 4,086 Other Freda Rebecca (Zimbabwe) 51,039 50,002 Siguiri (Guinea) n/a 84,272 Source: AGC.

Samax signs a joint In early July Canada’s Samax Gold signed an agreement in principle to form a venture joint venture with Semafo to develop the latter’s EBI-Teleku Bokazo concession in south-west Ghana. The Teleku Bokazo concession’s reserves have recently been re-evaluated and estimated at 251,000 oz. Under the deal, Samax will take a 75% stake in the prospecting licence and manage the concession’s development, while Semafo will get a 10% equity stake in Shiega Resources Corporation, Samax’s partner on the adjacent Nkroful project.

Aid, foreign trade and payments

Real appreciation While nominal depreciation of the cedi was 23% against the dollar over the threatens export course of 1997, CEPA estimates that the cedi appreciated by 9.1% measured by competitiveness the exporters’ cost-based index and 2% using a CPI-based index. Nominal depreciation of the currency has been just 3% from January to August this year, revealing a significant real appreciation. Based on the latest official inflation statistics, the cedi has seen a real appreciation of nearly 20% in the first half of the year. This suggests that the central bank, which has in the past intervened using reserves rather than raising interest rates, is trying to maintain the exchange rate at a cost to Ghana’s export competitiveness, especially for growth in non-traditional exports. In 1997 the government dipped into reserves to support the cedi from January to September and, when funds ran low, resorted to moral suasion and administrative management to influence the rate, accus- ing some foreign-exchange bureaux operators of price fixing. More recently, anecdotal evidence suggests that a parallel foreign-exchange market has reap- peared, suggesting that pressure for a depreciation may be building.

International reserves ($ m) 1992 1993 1994 1995 1996 1997a 1998ab Total reservesc 320 410 584 698 829 599 554

a According to the Bank of Ghana. b As of May. c Excluding gold.

Source: IMF, International Financial Statistics.

Reserves are low, but According to CEPA, intervention by the central bank in the currency market steady over the years has been reflected in the changes in reserves, which the BoG has claimed stood at $554m in May 1998. Gross international reserves reportedly averaged 3.5 months’ import cover in 1992 and climbed to 5.5 months’ cover in 1995, only to fall to 2.7 months’ cover in 1997. The EIU has forecast Ghana’s reserves will remain at about 2.7 months’ import cover, barring any major intervention by the BoG in support of the currency. Given these low reserve levels and the intimate role of the IMF in Ghana, such an intervention remains unlikely, unless financed by the Fund itself.

Aid news The British High Commission in Accra and Ghana’s education ministry announced in July that the UK would provide £52m ($85m) in support of educ- ational restructuring in Ghana. The grant, which will be disbursed over five years, is intended to provide budgetary support, technical assistance and books and supplies.

Quarterly indicators and trade data

Quarterly indicators of economic activity

1995 1996 1997 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Agriculture Qtrly totals Cocoa: exports ’000 tonnes 65.9 31.4 92.1 82.8 124.3 50.1 82.1 60.3 74.1 42.1 Prices Monthly av Consumer prices, Accra: 1990=100 350.6 382.8 426.8 468.9 488.8 510.5 556.5 605.9 627.4 633.4 change year on year % 69.0 70.1 67.3 54.1 39.4 33.4 30.4 29.2 28.4 24.1 Cocoa, New York & London US cents/lb 63.0 63.7 61.4 68.3 67.6 66.8 65.4 73.1 77.0 78.3a Money End-Qtr M1, seasonally adj: C bn 880.24 838.12 858.40 1,026.25 1,318.64 1,102.19 1,097.69 1,372.72 1,696.32 1,565.90 change year on year % n/a 34.0 34.0 34.9 49.8 31.5 27.9 33.8 28.6 42.1 Foreign trade Qtrly totals Exports fobb $ m 425.8 371.6 498.4 387.4 421.3 383.9 426.9 388.3 433.2 379.5 cocoa beans “ 107.2 50.3 124.3 120.5 181.4 58.9 128.9 90.0 58.6 n/a Imports cifb ” 593.1 713.8 810.1 747.2 760.4 900.2 839.2 855.0 822.1 839.4 Exchange holdings End-Qtr Monetary authorities: goldc $ m79798080797872716765d foreign exchange “ 590 669 683 648 605 802 583 509 438 454d Exchange rate Market rate C:$ 1,298.7 1,449.3 1,587.3 1,666.7 1,724.1 1,754.4 1,892.7 2,023.1 2,216.3 2,272.7

Note. Annual figures of most of the series shown above will be found in the Country Profile. a Average for 1 Qtr 1998, 76.1; figure for 2 Qtr 1998, 79.0. b DOTS estimate; figures are subject to revision. c End-quarter holdings at quarter’s average of London daily price less 25%. d 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-Apr Jan-Apr Jan-Dec Jan-Dec Jan-Dec Jan-Dec 1997 1998 1995 1996 1995 1996 Exports to Ghana fob Food, drink & tobacco 1,315 1,143 3,109 5,256 422 275 of which: cereals & preparations 219 298 2,877 4,942 107 115 Textile fibres 322 397 448 629 205 255 Petroleum & products 154 165 638 1,067 274 312 Chemicals 5,033 3,927 1,799 2,770 1,785 1,475 Paper & manufactures 659 380 123 161 378 306 Textile yarn, fabrics & mnfrs 341 423 166 277 61 131 Non-metallic mineral mnfrs 479 268 140 221 97 100 Iron & steel 1,301 985 87 131 411 375 Metal manufactures 2,772 1,566 175 219 598 402 Machinery incl electric 14,941 11,519 4,008 10,062 4,407 4,526 Transport equipment 4,348 3,107 726 1,002 3,283 3,124 Total incl others 40,388 30,069 13,891 24,528 13,900 12,926 Imports from Ghana cif Cocoa beans 8,926 17,154 4,592 2,613 3,602 5,831 Cocoa butter 1,144 1,331 0 0 3,433 1,922 Wood 1,830 1,381 324 593 4,518 2,243 Industrial diamonds 0 0 365 414 25 20 Metalliferous ores & scrap 1,278 843 37 81 342 227 Petroleum & products 0 0 0 248 371 0 Non-metallic mineral mnfrs 10 5 9,987 8,882 4 8 Aluminium & alloys 2,249 1,670 30 0 2,911 2,302 Total incl others 20,949 28,430 16,897 14,888 17,285 14,154 a Figures from partners’ trade accounts. b US exports to Ghana averaged $29.2m and $20.3m per month in the period January-May 1997 and 1998. US imports from Ghana averaged $14.2m and $12.3m per month in the period January-May 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 estimate.

Source: IMF, Direction of Trade Statistics, yearly.