Ghana Ghana: at a Glance: 2001-02

COUNTRY REPORT

Ghana Ghana: at a glance: 2001-02

OVERVIEW The new administration has established itself in power and will continue to push ahead with its efforts to return Ghana to macroeconomic stability and fiscal discipline. It will also intensify its investigation into alleged corruption and mismanagement during the Rawlings era. The National Democratic Congress (NDC) will spend the forecast period implementing the reforms recommended by its reorganisation committee. The economy is forecast to begin to recover in 2001: real GDP is forecast to grow by 3.5%, rising to 3.7% in 2002, and inflation will fall marginally. The current-account deficit is forecast at 4.6% of GDP in 2001 and 7.7% of GDP in 2002. Key changes from last month Political outlook • Tensions between the ruling New Patriotic Party and the opposition NDC have reached new heights, following the arrest of several members of the previous administration on charges arising out of the government’s anti- corruption investigations. The NDC has accused the government of carrying out a witch hunt. The decision by President Kufuor to abolish the June 4th national holiday, commemorating the coup that brought Jerry Rawlings to power, caused the ex-president to issue an angry statement, widely perceived as a threat of a new coup. The government reacted by ordering a search of ex-President Rawlings’s home, which raised tensions even higher. Economic policy outlook • The government held a National Economic Dialogue to discuss new policies and targets for Ghana’s economic development. • The government has pledged to carry out the recommendations coming from the forum. Economic forecast • Inflation is unlikely to fall as fast as originally forecast, owing to significant increases in fuel prices and utility charges. We expect annual average inflation rates of 35% in 2001 and 22% in 2002.

July 2001

The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through our digital portfolio, where our latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group.

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ISSN 1350-7052

Symbols in tables “n/a” means not available; “–” means not applicable

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Contents

3 Summary

4 Political structure

5 Economic structure 5 Annual indicators 6 Quarterly indicators

7 Outlook for 2001-02 7 Political outlook 8 Economic policy outlook 10 Economic forecast

12 The political scene

17 Economic policy

20 The domestic economy 20 Economic trends 22 Agriculture 23 Industry and mining 25 Infrastructure and other services 26 Financial and other services

28 Foreign trade and payments

List of tables

10 International assumptions summary 11 Forecast summary 20 Composition of domestic debt 23 Receipts from cocoa beans and products 26 Ghana Stock Exchange, all share index 27 Ghana Stock Exchange, greatest increases in share prices, 2001 28 Inward direct investment

List of figures

12 Gross domestic product 12 Real exchange rates 21 Exchange rate 23 Cocoa producer prices

Ghana 3

Summary

July 2001

Outlook for 2001-02 The New Patriotic Party (NPP) has established itself in power, having achieved its early goals of securing the loyalty of the military and embarking on its economic reform programme. Restoring macroeconomic stability and fiscal discipline are the focus of the programme. The government has published a bill establishing a National Reconciliation Commission to investigate the misdeeds of the Rawlings military regimes. Having published an interim budget in March, the government is currently working on a secondary budget statement, based on improved statistical data, which is expected in August 2001. GDP is forecast to grow by 3.5% in 2001 and 3.7% in 2002, led by the agricultural sector and continuing donor inflows. The depreciation of the currency has slowed, but it will continue to fall throughout the outlook period because of the depressed prices of Ghana’s main export commodities.

The political scene Friction between the NPP government and the opposition National Democratic Congress (NDC) has continued to grow, following the arrest of numerous members of the Rawlings government on charges arising out of the government’s anti-corruption investigations into the previous administration. In addition, the decision by the president, John Kufuor, to abolish the June 4th national holiday, commemorating the coup which brought Jerry Rawlings to power, caused the ex-president to issue an angry statement, widely perceived as a threat of a new coup. The government’s reaction was to search ex-President Rawlings’s home, raising tensions even higher. The NDC maintains that the campaign is nothing but a witch hunt designed to deflect attention from the government’s own shortcomings. However, the government appears determined to continue the investigations.

Economic policy The administration held a National Economic Dialogue in May to discuss targets and policies for Ghana’s economic development. The government has pledged to implement its policy recommendations.

The domestic economy Despite falling slightly in the first part of the year, inflation has remained high owing to the large increases in fuel prices and utility charges. Electricity rates rose by 103% and water rates by 96% in May. It is expected that inflation will begin to fall at a faster rate during the outlook period as a result of forecast good harvests and the greater stability of the exchange rate .

Foreign trade and payments In an effort to improve Ghana’s foreign-exchange reserves, private exporters of cocoa will have to change 98% of their foreign-exchange earnings into local currency during the 2001/02 season.

Editors: John Arthur (editor); David Cowan (consulting editor) Editorial closing date: July 18th 2001 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule 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 2000 (presidential and parliamentary); next elections due December 2004

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 his first term.

National government Cabinet, appointed by the president in January 2001.

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

President John Agyekum Kufuor Vice-president Alhaji Aliu Mahama

Key ministers Attorney-general & justice Nana Akufo Addo Communications K. Owusu-Agyapong Defence Kwame Addo Kufuor Economic planning & regional integration Kwesi Nduom Education Christopher Ameyaw Akumfi Energy Albert Kan-Dapaah Environment, science & technology Dominic Fobih Finance Yaw Osafo-Maafo Food & agriculture Courage Quarshigah Foreign affairs Hackman Owusu Agyeman Health Richard W. Anane Interior Alhaji Malik Yakubu Alhassan Lands, forestry & mines Kweku Afriyie Local government Kwadwo Baah-Wiredu Manpower development & employment Cecilia Bannerman Parliamentary affairs J H Mensah Roads & transport K. Adjei-Darko Tourism Hawa Yakubu Trade & industries Kofi Konadu Apraku Works & housing Kwamena Bartels Youth & sports Alhaji Aliu Mahama (acting)

Central bank governor Kwabena Duffour.

EIU Country Report July 2001 © The Economist Intelligence Unit Limited 2001 Ghana 5

Economic structure

Annual indicators

1996 1997 1998 1999 2000a GDP at market prices (C bn) 11.4 14.2 17.3 20.6 26.4 GDP (US$ bn) 7.0 6.9 7.5 7.8 5.0 Real GDP growth (%) 4.6 4.2 4.7 4.4 1.1 Consumer price inflation (av; %) 46.6 27.9 14.6 12.4 25.2b Population (m) 17.5 17.9 18.4 18.8 19.3 Exports of goods fob (US$ m) 1,570.1 1,489.9 2,090.8 2,116.6 1,940.6 Imports of goods fob (US$ m) 1,937.0 2,128.2 2,896.5 3,228.1 2,832.5 Current-account balance (US$ m) –324.7 –549.7 –380.0 –766.0 –448.9 Foreign-exchange reserves excl gold (US$ m) 828.7 480.1 377.0 453.8 232.1 Total external debt (US$ bn) 6.4 6.3 6.9 6.9 7.0 Debt-service ratio, paid (%) 23.8 28.5 20.0 17.1 17.1 Exchange rate C:US$ (av) 1,637.2 2,050.2 2,314.2 2,647.3 5,321.7b

July 16th 2001 C7,275:US$1

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

Principal exports 1999 US$ m Imports 1990 US$ m Gold 711 Capital goods 544 Cocoa beans & products 537 Intermediate goods 356 Timber & products 174 Fuel & energy 210 Consumer goods 124

Main destinations of exports 1999c % of total Main origins of imports 1999c % of total Togo 11.6 Nigeria 13.7 UK 10.6 UK 8.8 US 8.6 Côte d’Ivoire 8.3 Italy 8.2 US 7.4 Netherlands 6.8 France 7.1 a EIU estimates. b Actual. c Based on partners’ trade returns; subject to a wide margin of error.

Quarterly indicators

1999 2000 2001 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Central government finance (C bn) Revenue and grants 830.7 1,025.1 1,084.7 1,026.9 1,251.3 1,950.5 n/a n/a Expenditure and net lending 1,131.4 1,345.2 1,404.9 1,561.0 1,631.1 2,386.4 n/a n/a Balance –300.7 –320.1 –320.2 –534.1 –379.8 –435.9 n/a n/a Prices Consumer prices Accra (1995=100) 243.6 248.1 246.1 262.3 289.2 315.0 342.9 369.9 % change, year on year 9.9 12.2 13.1 14.9 18.7 27.0 39.3 41.0 Gold price, London (US$/fine oz) 273.51 259.18 295.62 290.19 280.15 276.51 269.16 263.54 Financial indicators Exchange rate C:US$ (av) 2,462.7 2,591.6 3,165.0 3,716.5 4,613.5 6,200.3 6,756.5 7,000.0 C:US$ (end-period) 2,500.0 2,702.7 3,448.3 4,166.7 5,555.6 6,666.7 7,142.9 7,142.9 Interest rates (%) Deposit (av) 24.8 20.4 20.2 23.5 24.7 32.8 33.5 33.5 Discount (end-period) 27.0 27.0 27.0 27.0 27.0 27.0 27.0 27.0 Treasury (av) 25.1 24.5 29.8 31.5 33.4 39.6 40.6 42.5 M1 (end-period; C bn) 1,971.5 1,948.2 2,129.4 2,269.4 2,183.1 1,986.2 2,607.5 2,778.0 % change, year on year 10.5 13.2 2.7 15.7 10.7 1.9 22.5 22.4 M2 (end-period; C bn) 3,455.7 3,586.1 3,843.8 3,984.4 4,183.4 4,058.5 5,321.6 5,759.7 % change, year on year 23.3 26.0 16.2 19.6 21.1 13.2 38.4 44.6 GSE all-share index (end-period;1990-1993=100) 806 765 736 763 818 856 858 893 Sectoral trends Cocoa beans Exports (‘000 tonnes) 77.8 105.0 24.3 87.4 101.0 115.3 n/a n/a Price, New York & London (US cents/lb) 51.4 48.0 43.3 40.9 41.9 41.2 40.0 49.6 Foreign trade (US$ m) Exports foba 449.3 483.7 549.9 481.5 509.8 527.5 458.1 n/a cocoa beans 131.2 130.8 18.3 105.6 113.3 118.7 n/a n/a gold 149.2 160.9 180.9 175.8 148.6 141.3 n/a n/a Imports cifa –866.2 –809.2 –855.2 –928.4 –777.7 –761.4 –1,033.2 n/a Trade balance –416.9 –325.5 –259.3 –446.9 –267.9 –233.9 –575.1 n/a Foreign reserves (US$ m) Reserves excl gold (end-period) 378.7 349.5 453.8 410.8 396.3 237.2 232.1 163.8 a DOTS estimates. Sources: IMF, International Financial Statistics; Direction of Trade Statistics; Bank of Ghana, Quarterly Economic Bulletin.

EIU Country Report July 2001 © The Economist Intelligence Unit Limited 2001 Ghana 7

Outlook for 2001-02

Political outlook

Domestic politics During the outlook period the New Patriotic Party (NPP) government will remain committed to its on-going programme of economic reform and investigation into the mismanagement of the previous administration. The already high level of tension between the NPP and the National Democratic Congress (NDC) has increased further, following the decision to drop the June 4th public holiday which celebrated the anniversary of the coup that brought Jerry Rawlings to power in 1979. But although the political climate will remain unsettled, and may occasionally be beset by crisis, we still do not expect a coup attempt in the outlook period.

What is clear is that the heightened tension between the NPP and NDC has created a climate, in which the government’s “zero tolerance” policy towards corruption is seen by many Ghanaians as little more than a witch hunt against former members of various Rawling’s governments, designed to deflect attention from its own shortcomings. As a result, it will remain a constant source of tension. But, even though the criticism is probably largely based on political allegiance, the new administration must be careful not to be seen as abusing the legal system for its political ends. If this were to happen, then the possibility of a further military coup cannot be entirely ruled out. This possibility was certainly alluded to in a speech by ex-President Rawlings following the decision to abolish the June 4th holiday, in which he warned the government that it did not have the confidence of the military. However, though Mr Rawlings is obviously upset by current political developments, the army is likely to remain loyal, and the military leadership has continued to express its loyalty to the elected NPP government.

Despite the increased political tension, the government continues to enjoy the goodwill of its honeymoon period, despite having introduced a number of unpopular measures, particularly, the huge increases in utility tariffs and fuel prices. This is partly because the president, John Kufuor, is trying to run a more constitutional and consensual government, and this is likely to continue throughout the outlook period. However, the downside to this approach is that he has delayed making some tough economic decisions, such as further fuel price increases, or detailing his policy on the privatisation of state-owned enterprises and reducing the civil service. These reforms are essential to improving the country’s economic performance; moreover Mr Kufuor based much of his election campaign on the recent poor economic record of the Rawlings regime. At present it remains unclear whether the delay is an attempt to put off difficult economic decisions, or to gain breathing space to develop a more carefully thought out economic strategy. If the latter is the case, then the honeymoon period is likely to wear off quite quickly even though in the short term the economy will benefit from increased aid flows while the government has introduced an emergency social relief programme aimed at minimising the negative impact of policies intended to stabilise the economy.

The NDC will spend the outlook period preparing for the elections in 2004. The party is currently suffering from internal rifts, which will have to be repaired before the party can fight an election. Like the NPP in the 2000 elections, the NDC hopes that the difficult economic climate will benefit its electoral fortunes. It will highlight issues such as the last sharp increase in the price of petrol (further rises are possible) and increases in the cost of electricity and water, workers’ dissatisfaction with the daily minimum wage of C5,500 (74 US cents) and the government’s application for debt relief under the World Bank-IMF’s heavily indebted poor countries initiative (which is seen by Ghanaians as an admission of poverty). These are all unpopular economic policy measures, which could reduce support for the NPP to the advantage of the NDC. However, by the time of the election in 2004, the NDC may find that these policy measures have had the desired effect of rehabilitating the Ghanaian economy, depriving it of a major electoral weapon.

International relations Ghana is keen to encourage closer regional economic co-operation, and is focusing in particular on preparations for the creation of the West African Monetary Zone (WAMZ, which will comprise The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone). President Kufuor is expected to pursue monetary integration as a means of fulfilling his campaign promise to link Ghana’s beleaguered currency to a stronger, convertible currency, though none of the prospective members of the WAMZ is close to meeting the macroeconomic convergence criteria set for it. The government will also seek to maintain good relations with its main bilateral donors. Its decision to apply for debt relief under the HIPC initiative has led to the loss of new lending from Japan, but grant aid will still be available. Relations between Japan and Ghana may be slightly strained at present, but they are likely to remain close development partners.

Economic policy outlook

Policy trends The main thrust of economic policy under the NPP government is to achieve macroeconomic stability through fiscal discipline. But it is clear that there is disagreement among ministers on how fast they should implement the difficult economic reforms that this would require. The Economist Intelligence Unit is of the view that the current government lacks a strong group of ministers who could push through such difficult policy measures. As a result it has adopted a more consensual approach to reform, for example by holding a National Economic Dialogue to discuss and make recommendations on Ghana’s future economic direction (which the government has undertaken to adopt). It has also sought to mitigate their likely impact by introducing a relief package for vulnerable groups and deprived communities.

Whether such an approach merely delays the reform process, or will win wider acceptance of the need to implement difficult changes is not clear. As a pro- business party, which appears to understand many of the economic issues facing the country and is fully committed to economic reform, there is the prospect that it will be more successful that the previous government. However, its progress may be impeded by the lack of a parliamentary majority,

EIU Country Report July 2001 © The Economist Intelligence Unit Limited 2001 Ghana 9

little real commitment to reform outside the government elite and the shortcomings of Ghana’s civil service. Therefore the reform process, although likely to move ahead, will be slow. Meanwhile, we expect the government to continue to receive strong backing from the international community for its reform programme.

In March 2001, in a controversial move, and contrary to previously stated policy, the government applied for debt relief under the World Bank-IMF’s heavily indebted poor countries (HIPC) initiative. As Ghana already has a poverty reduction and growth facility with the IMF, the process should move ahead relatively quickly: a meeting between the government, its bilateral donors, the IMF and the World Bank in Accra in July will not only hear Ghana’s request for further development assistance but is expected to lead to an early write-off of some external debt. The application for HIPC debt relief has imperilled future lending by Japan, Ghana’s largest donor, but strong support from other countries should allow the programme of infrastructural development in several sectors of the economy to continue.

Fiscal policy Perhaps Ghana’s most serious economic problem in recent years has been its persistent, large budget deficits. The government provisionally estimates the deficit in 2000 at C2.1trn (US$296m, or 8.3% of GDP). The large deficit obliged the previous government to borrow C1trn from the banking sector to balance the domestic budget, which crowded out the private sector and forced banks to increase lending rates. In its first budget, the NPP government committed itself to tackling this problem through measures which included cutting expenditure; overhauling the revenue collection agencies to increase revenue yields; implementing anti-corruption procedures; restoring expenditure monitoring and commitment controls; and pushing ahead with the privatisation of state-owned enterprises. It also aims to improve the management of domestic debt, with a switch towards long-term financing from development partners and the domestic banking sector. The government is likely to make some progress, but the measures outlined will take a considerable time to implement and take effect, so that any fall in the deficit in the next few years is more likely to be as a result of increased aid inflows. In its election manifesto, the NPP promised a deficit of 2% of GDP by the end of 2003, and more recently President Kufuor committed his government to balancing the budget by the end of his first term in office. At present we forecast a budget deficit of 5% of GDP in 2001 and 3.7% of GDP in 2002, suggesting that the government’s 2003 target may be achievable. Although a wide range of data was presented in the recent 2001 budget, much was contradictory and confused. The Ministry of Finance has undertaken to carry out a strategic review of its data, which will be used as the basis of a secondary budget that is to be presented in the second half of the year, when it hopes to have resolved many of the statistical problems it faced in putting together its first budget.

Monetary policy Monetary policy was the main instrument used to combat the economic crisis in 2000, and as a result the Bank of Ghana (the central bank) was forced to push up interest rates substantially during the year. However, as the new government is committed to a tighter fiscal stance and the impact of the large devaluation has now worked its way through the economy, the central bank may have some scope to loosen monetary policy during 2001-02. However, given the recent domestic fuel price increases, it will still take some time to lower the rate of inflation, and the growth rate of the money supply and the rate of inflation will fall only slowly. Monetary policy is therefore likely to remain tight in 2001 and into 2002, and will have a dampening effect on economic activity.

Economic forecast

International assumptions The global economy is undergoing its most severe deceleration since the 1974 oil price shock. In 2000 world growth averaged 4.9% (weighted using GDP at purchasing power parity exchange rates), the fastest pace of world growth since 1984. However, the EIU estimates that global economic growth in 2001 will slow to an average of only 2.8%, the slowest rate recorded since 1998 at the height of the Asian crisis. The price forecasts for Ghana’s main commodity exports will be mixed during the outlook period. Gold prices will decline gradually from US$263/troy oz in 2001 to US$255/troy oz in 2002. Cocoa prices will be low, at US$0.50/lb in 2001 rising to US$0.52/lb in 2002.

International assumptions summary (% unless otherwise indicated) 1999 2000 2001 2002 Real GDP growth World 3.6 4.9 2.8 3.7 OECD 3.1 4.0 1.5 2.5 EU 2.5 3.4 2.3 2.6 Exchange rates (av) ¥:US$ 113.9 107.8 120.5 122.0 US$:¤ 1.07 0.92 0.88 0.96 US$:SDR 1.37 1.32 1.26 1.30 Financial indicators ¥ 2-month private bill rate 0.27 0.24 0.18 0.10 US$ 3-month commercial paper rate 5.18 6.32 4.06 4.75 Commodity prices Oil (Brent; US$/b) 17.9 28.5 26.9 25.5 Gold (US$/troy oz) 278.8 279.3 263.0 255.0 Cocoa (US$/lb) 0.52 0.40 0.50 0.52 Food, feedstuffs & beverages (% change in US$ terms) –18.6 –6.1 1.2 15.0 Industrial raw materials (% change in US$ terms) –4.6 13.4 –3.1 3.7 Note. Regional GDP growth rates weighted using purchasing power parity (PPP) exchange rates. Economic growth Although a provisional figure for real GDP growth in 2000 was published in the budget, because of the uncertainty surrounding the data in the budget we

EIU Country Report July 2001 © The Economist Intelligence Unit Limited 2001 Ghana 11

are currently sticking by our real GDP growth estimate of only 1%. However, the economy is forecast to begin to pick up in 2001, though the recovery will be constrained by the government’s tighter fiscal and monetary stance. Growth is forecast at 3.5% in 2001 and 3.7% in 2002. The government has increased cedi prices for domestic producers, and this, together with good rains, will help cocoa production to rise to 430,000 tonnes in 2001 and 450,000 tonnes in 2002, which should encourage growth in the important agricultural sector. However, the major task for the new government will be to move the sector away from its dependence on cocoa, especially as an export commodity. Non- traditional exports are a promising route to diversification, and the government is particularly keen to promote horticultural products. Cotton, cashew nuts and frozen tuna are expected to grow rapidly in the outlook period, though from a low base. Growth in the agricultural sector will be complemented by growth in the mining and quarrying sector. Gold production is forecast to rise from 2.6m troy oz in 2000 to 2.8m troy oz in 2002. The pick-up in donor inflows will allow the government to continue infrastructural development and will provide the foreign exchange required by the import-reliant services and industrial sectors.

Forecast summary (% unless otherwise indicated) 1999a 2000b 2001c 2002c Real GDP growth 4.4 1.1 3.5 3.7 Gross agricultural production growth 4.0 3.0 4.5 4.5 Consumer price inflation Average 12.4 25.2a 35.2 21.7 Year-end 13.4 40.6 28.0 14.0 Short-term interbank rate 26.4 36.3 45.2 29.2 Government balance (% of GDP) –10.4 –17.1 –5.0 –3.7 Exports of goods fob (US$ bn) 2.1 1.9 2.3 2.7 Imports of goods fob (US$ bn) 3.2 2.8 3.1 3.6 Current-account balance (US$ bn) –0.8 –0.4 –0.2 –0.5 % of GDP –9.9 –9.0 –4.6 –7.7 External debt (year-end; US$ bn) 6.9 7.0 7.4 7.9 Exchange rates C:US$ (av) 2,647.3 5,321.7 a 7,186.4 7,759.1 C:¥100 (av) 2,324.1 4,938.5 6,157.2 7,067.9 C:¤ (year-end) 3,464.1 6,706.4 7,066.1 9,255.6 C:SDR (year-end) 4,732.8 9,306.4 9,915.7 12,173.6

a Actual. b EIU estimates. c EIU forecasts.

Inflation In 2000 there was a large increase in the rate of inflation: the year-end inflation rate was 40.6%. The increase was caused by the precipitous fall of the cedi and extremely loose fiscal policy. Inflation has remained high in the first half of 2001, owing to substantial increases in the price of fuel and the tariffs of a number of utilities, but, given a good harvest, the slower devaluation of the cedi and a government committed to tight fiscal and monetary policies, we expect the inflation rate to fall in the second half of the year. This trend should

continue into 2002, and we forecast average annual inflation rates of 35% in 2001 and 22% in 2002.

Exchange rates A large external terms-of-trade shock in 1999-2000 caused the cedi to begin a swift and sustained fall. However, its slide against the US dollar began to decelerate in the last two months of 2000. In 2001, with donor inflows accelerating and export volumes growing, pressure on the cedi will ease; though, because of the current-account deficit and continuing low prices for Ghana’s export commodities, the currency will continue to depreciate. The average annual exchange rate is forecast at C7,186:US$1 in 2001 and C7,759:US$1 in 2002, representing a nominal average depreciation of 26% and 7% respectively.

External sector Export earnings are forecast to rebound in the outlook period, to US$2.3bn in 2001 and US$2.7bn in 2002. This will be due to an increased volume of exports, relatively stable gold prices and a modest rise in local cocoa prices. In addition, now that the election is over, current transfers should pick up as donor disbursements rise in support of a government that seems committed to accelerating the reform process (there will be a sharp surge in transfers in 2001 as some of those delayed in 2000 are released, but more normal levels will resume in 2002). These factors, and the pick-up in GDP growth, will boost imports to US$2.7bn in 2001 and US$3bn in 2002. Despite relatively strong growth in tourism earnings, the services and income accounts will remain in deficit during the forecast period. As a result of these trends, we forecast a current-account deficit of 4.6% of GDP in 2001 and 7.7% of GDP in 2002.

The political scene

June 4th is abolished as a The last quarter has seen political tension increase as the new government has national holiday pushed ahead with its attempts to come to grips with the country’s recent political history. After a heated debate in parliament, during which the

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National Democratic Congress (NDP) threatened to boycott parliamentary proceedings, the New Patriotic Party (NPP) government managed to pass a bill abolishing June 4th as a national holiday. The controversial public holiday was introduced to celebrate the military coup which first brought Jerry Rawlings to power in 1979, and while it was in opposition the NPP refused to join in the annual celebration, claiming that the June 4th coup unleashed a regime of unprecedented violence and therefore needed to be forgotten if the nation was to go forward in the spirit of unity. The NPP’s view is understandable, though some commentators have argued that the government could have been more tactful towards the NDC in its handling of the issue. For example, it could have maintained June 4th as a public holiday, but given it a new emphasis, perhaps as a day for promoting democracy and reconciliation.

Jerry Rawlings reacts Ex-President Rawlings reacted angrily to the cancellation of June 4th as a angrily national holiday. He emerged from his quiet retirement to lash out at the Kufuor government, accusing it of intimidating its political opponents. In a public speech, which many considered a threat to the political stability of the country, Mr Rawlings suggested that the Kufuor government should not assume that it had the loyalty of the armed forces. The NPP expressed its grave concern about the former president’s speech, describing it as calculated to encourage the masses to destabilise the government and make the country ungovernable. In a related development, on June 4th some groups of Ghanaians went on a peaceful protest march against alleged subversive utterances by Mr Rawlings.

Before his outburst over the June 4th public holiday, the ex-president had complained about the replacement of his military security detachment by police guards, accusing the government of mistreating him. And the downgrading of his security arrangements further came under the spotlight on June 8th, following his outbursts over the June 4th holiday, when several dozen soldiers and police officers searched the Rawlings housing compound for weapons. No weapons were found, prompting the NDC to write an open letter to President Kufuor alleging that Ghana’s former leader was under physical attack and siege by elements of the current administration

Ex-ministers go on trial President Kufuor’s policy of “zero tolerance” for corruption has been given practical meaning in a series of high-profile prosecutions. In particular, three major trials have captured the headlines.

• Alhaji Malam Issa, who was dismissed by the president as minister of youth and sports, has been charged with stealing US$46,000 in cash destined to be paid to members of the national soccer team as a winner’s bonus; the money mysteriously vanished from his suitcase during a trip from Accra to Sudan.

• In a second case, Richard Kwame Peprah, a former minister of finance, is on trial with five senior officials of the Rawlings government: Ibraham Adam, former minister of food and agriculture, Nana Ato Dadzie, former chief-of-staff of the president, Samuel Dapaah, former chief director in the Ministry of Agriculture, Kwesi Ahwoi, former chief executive of the Ghana Investment

Promotion Centre, and George Sipa Yankey, former director at the Ministry of Finance. The six face charges of conspiracy and causing financial loss to the state in a case involving illegal loan guarantees amounting to US$20m made to an African-American investor in rice farming in Ghana.

• In a third major trial, the former deputy finance minister, Victor Selormey, is accused of transferring US$1.2m to a US consulting firm controlled by his Ghanaian friend, as payment for an assignment that was not officially awarded.

The government’s probity However, the Kufuor government is involved in a mini corruption scandal of its is questioned own, which has put it on the defensive. Allegations of corruption relate to the signing an oil supply arrangement with Nigeria immediately after the new government assumed office, which awarded a contract to Sahara Energy Resources, a Nigerian company allegedly connected with the family of the Nigerian president, Olusegun Obasanjo, and represented in Ghana by Kwame Nyantekyi, a leading member of the NPP. The minister of energy, Albert Kan- Dapaah has been forced on a number of occasions to defend the award of the lucrative contract to Sahara. But in an attempt to put an end to the affair, the minister also submitted himself to the press for a two-hour questioning about the agreement. In a strong defence of the award of the contract, Mr Kan-Dapaah argued that the need to start lifting oil within two weeks in order to maintain supplies necessitated contracting with Sahara, which was already familiar with the operations of the Ghana oil refinery and had committed itself to lifting the oil for lower fees than the company that previously held the contract.

A commission will look The government has published a bill to establish a National Reconciliation into abuses of power Commission (NRC).The NRC will be empowered to conduct investigations and hold hearings into abuses of human rights committed under the two military regimes of ex-president Rawlings. The Commission, when established, will have 12 months to complete its work, and is in fulfilment of an NPP election campaign pledge to seek justice for victims of past military regimes. Supporters of the former president have questioned restricting the inquiry to the Rawlings-led military regimes and are calling for the investigations to cover all military regimes since the country’s independence in 1957. The matter will have to be addressed to dispel suspicions that the commission’s work is part of a political witch hunt.

The commission has important lessons to learn from the experiences of South Africa and Nigeria, both of which have established similar commissions. The South African Truth and Reconciliation Commission has been widely seen as an effective body which, with its power of subpoena, was able to compel a number of powerful figures from the apartheid era to appear before it. However, the Nigerian human rights commission had no such powers, and as a result, very few important revelations came out of the hearings. Important witnesses either did not appear, or lied in their testimony. Clearly, Ghana’s NRC stands a better chance of achieving its aims if it is given the powers necessary to carry out an unhindered investigation.

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The Council of State is Until recently the Council of State, a constitutionally mandated advisory body finally inaugurated to the president, had been unable to convene because of a writ filed at the Supreme Court by the NDC, which sought to restrain the Electoral Commission from holding elections for regional representatives to sit on the council. The NDC argued that the notice to conduct elections for regional representatives to the Council of State was in contravention of the constitution. However, the dismissal of the writ by the Supreme Court cleared the way for the election of regional representatives, which has now been inaugurated (April 2001, pages 12-14).

Functions and composition of the Council of State

The Council of State is a small body of prominent citizens of proven character, which advises the president on national issues. It is analogous to the Council of Elders in a traditional African political system. It exists to counsel the President in the performance of his functions. It is composed of:

• one person who has previously held the office of chief justice;

• one person who has previously held the office of chief of Defence Staff of the Armed Forces of Ghana;

• one person who has previously held the office of inspector-general of police;

• the president of the National House of Chiefs;

• one representative from each region of Ghana, chosen, in accordance with regulations made by the Electoral Commission under article 51 of the constitution, by an electoral college comprising two representatives from each of the districts in the region nominated by the district assemblies in the region; and

• 11 other members appointed by the president.

The Council of State meets at least four times in a year, at a time and place determined by the chairman. It also meets if requested by the president, by parliament, or by five members of the council.

At the inauguration, President Kufuor assured members of the Council of State that he would respect their constitutional position and counted on their unbiased advice. “I will not seek to demean your dignity by using you as my mouthpieces and errand persons,” he stated, alluding to the widely held view that the council had, in the past, been a tool in the hands of the executive. President Kufuor acknowledged that such a non-partisan advisory body was crucial for the presidency and expressed the hope that the council would live up to expectations. He noted that the body was widely representative and said that, though its members might have their individual political beliefs, their deliberations and advice should be as objective and non-partisan as possible. He was confident that the council would demonstrate the neutrality, independence and, above all, wisdom that was expected of it. Professor Alex Kwapong, former vice-chancellor of the University of Ghana and former rector

of the UN University, Tokyo has been elected chairman. One of the Council’s first acts was to confirm the appointment of 13 ambassadors, the chief of Defence Staff, and army, air force, and navy commanders.

The NDC goes for reform Shortly after its poor showing at the 2000 elections, the NDC appointed a distinguished lawyer, Obed Asamoah, to head a committee overseeing the reorganisation of the party. After a tour of Ghana’s ten regions, the committee has recommended that all the party’s election candidates, including the presidential candidate, should be chosen by election. The recommendation is a response to the complaint of the party’s rank and file that a major factor in the loss of the 2000 elections was that the party’s presidential candidate, John Atta Mills, and parliamentary candidates were imposed by the party hierarchy without grassroots consultation. The committee also recommended to the National Executive Committee that there should be three principal leadership positions in the party—founder, chairman and flagbearer. The committee said that although the position of founder belonged in perpetuity to ex-president Rawlings, the positions of chairman and flagbearer should be subject to a vote among qualified party members at special party congresses.

The committee’s recommendations appear to acknowledge the criticism that the NDC had become increasingly autocratic under Mr Rawlings, and copy the more inclusive, representative and consensus-led approach of the ruling NPP. It is also hoped that greater democracy within the party will reduce the petty bickering, backbiting, complacency and arrogance which undermined the party’s support base, and ultimately cost it the 2000 election. Though it is true that there was a great deal of resentment at the imposition of candidates from the top, and that allowing the party rank and file to make more of their own decisions may help to improve party unity, these considerations may not matter to the electorate. Some members of the NDC have argued that the election was lost because of the imposition of John Atta Mills, who is seen as uncharismatic in comparison to ex-President Rawlings; however, the eventual winner, John Kufuor, is hardly any more populist or charismatic. This would indicate that the personality of the individual candidates was not the factor that decided the outcome of the 2000 elections; instead it was the state of the economy and a feeling that Mr Rawlings’s retirement was the occasion to make real political change. Whether the NDC can really address these two issues, even with greater internal democracy, remains unclear.

Nkrumahist parties merge Four political parties, all tracing their ideological roots to Ghana’s first president, Kwame Nkrumah, have decided to merge into a single political party, though they have not yet decided on a name for it. The parties are the Convention People’s Party, the People’s National Convention, the National Reform Party (NRP) and the Great Consolidated Popular Party. The merger talks followed the dismal showing in the 2000 elections by all parties of the Nkrumahist persuasion. If the merger is successful, it will open a tough contest for ownership of Ghana’s political left which is currently occupied by the NDC. Given the current problems facing the NDC, an invigorated Nkrumahist party, which will include the breakaway NDC faction, NRP, could cut deeply into

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NDC support in future elections. However, opposition coalitions of this type are notoriously unstable, and often split again after their initial merger.

Economic policy

The IMF approves an The Executive Board of the IMF has completed the third review of Ghana’s increase in funding arrangement under its poverty reduction and growth facility (PRGF). The board also approved an increase of SDR36.9m (US$46m) in the amount available to Ghana under the arrangement. As a result, Ghana will be able to draw up to SDR52.58m (US$66m) from the arrangement immediately. However, unusually, the board also decided to ask Ghana to repay an earlier PRGF disbursement. Following the disbursement in August 2000 it became apparent that the information made available to the Fund by the NDC government, at the time of approval of the disbursement was incorrect. The information related to the clearance of external payments arrears and to a performance criterion on non-concessional external borrowing. As a result of these inaccuracies in the information, the disbursement was deemed to be “non- complying”. The board concluded that waivers of non-observance could not be granted, and Ghana was asked to repay the non-complying disbursement, together with any interest accrued. It was agreed that Ghana could repay the Fund in two tranches of SDR13.75m by July 15th 2001, and SDR 13m by end- December 2001.

Despite the negative impact of the non-complying repayment, it seems clear that Ghana remains a favourite of the international donor community. The IMF’s Executive Board stated: “Ghana’s economic program for 2001 represents a strong and appropriate response to the problems that have resulted from a severe terms of trade shock and a shortfall in donors’ assistance, compounded by inappropriate macroeconomic policies and poor management of public enterprises in the latter part of 2000. In light of the corrective policies being implemented by the authorities, the Fund has waived the non-observance of a number of performance criteria under Ghana’s PRGF arrangement”. Given continued adherence to economic policies designed to rehabilitate Ghana’s macroeconomic position on the part of the New Patriotic Party government, the Economist Intelligence Unit expects donor inflows to remain strong over the outlook period.

The World Bank is to raise The need to support Ghana was further shown by the World Bank’s US$315m for Ghana commitment to help raise US$315m from the international donor community to support Ghana’s budgetary and balance-of-payment programmes for 2001. This was the outcome of an enhanced mini consultative group meeting held in Accra between officials of the Ghana government, the World Bank, the IMF and the country’s development partners. The meeting gave the government the opportunity to present its development programme to the Bank and other development partners. At the meeting, the government presented its proposals for dealing with the domestic debt problem through a combination of reduced fiscal deficits, restructuring of the present debt stocks and dedication of future privatisation receipts to domestic debt stock reduction.

National economic dialogue The National Economic Dialogue, a two-day forum convened by the sets development targets government in May, has established short-, medium-, and long-term targets for economic development. Participants were drawn from the private sector, the trade unions, the international and donor communities, and civil society. The Dialogue focused on six broad areas: economic policy, the financial sector, resources for growth, the labour market and human resource development, poverty reduction, and the golden age of business. Although such forums can become captured by interest groups seeking to pursue their own agendas, the recommendations have been fairly standard, including the need to reach a balanced budget and reduce debt. Responding to the charge that previous initiatives have amounted to little more than “talking shops”, the government has established a national oversight committee to monitor the implementation of the recommendations. The committee will include all stakeholders in the national economy, and its task will be to clarify the recommendations and produce a report encompassing all six areas debated. The committee’s report will be studied by the government and its decisions implemented.

The National Economic Dialogue

The Ghanaian National Economic Dialogue was a forum for taking stock of the last 20 years of economic development and learning the lessons from it. It also sought to develop a new paradigm for economic development. The new NPP government has repeated its commitment to implementing the recommendations that would emerge from an ongoing National Economic Dialogue, unlike the previous government, which wanted an economic turnaround but failed to implement the recommendations of the National Economic Forum in 1997. However, whether it will be more or less successful is far from clear at present.

The main observations and recommendations of the National Economic Dialogue included the following.

• Fiscal imbalances are the core of the country’s problems. The economic policy syndicate, around which the forum was organised, called for a critical examination of revenue mobilisation to address institutional leakages. There was a general consensus that it was imperative to have the macroeconomic indicators right, to forestall a situation where projections are based on faulty assumptions and statistics, as occurred with the NPP’s first budget statement.

• Improvements in revenue generation and reductions in government expenditure are the key to managing the nations finances. To ensure fiscal discipline a ceiling should be placed on government borrowing by parliament, and privatisation proceeds used to reduce the debt owed by the nation. A balanced budget law should be enacted to achieve this. In addition, domestic debt should be reduced and the financial sector should be reformed.

• The government was urged to determine the size of the national debt. The Bank of Ghana was tasked to differentiate between monetary and fiscal instruments.

• The tax laws should be changed to create a level playing field between the Social Security and National Insurance Trust (SSNIT) and other pension

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plans and saving schemes. Up-front tax exemptions should be available for long-term savings.

• With the aim of making Ghana a leading financial hub for West Africa, it was proposed that the government should create an offshore financial centre, and that the Bank of Ghana should spearhead the operation.

• the country should work towards satisfying the criteria for joining the ECOWAS monetary zone.

Commitment is made to In a strong statement delivered at the National Economic Dialogue, President paying off domestic debt Kufuor indicated his commitment to one of its recommendations—paying off the domestic debt. He intends to achieve this by the end of his first term in office, though he did not state the source of the funds to be used to pay off the domestic debt. However, following discussions with the World Bank and IMF, the government has hinted that for the first time in the history of the heavily indebted poor countries initiative, the donors will permit savings from debt reduction to be used to reduce the domestic debt.

Government is to borrow The government projected that it would need to borrow C760bn during the C760bn domestically first and second quarter of this year, to cover its current level of expenditure. This is the because the loss of nearly C760bn in petroleum taxes, a result of the elimination of excise taxes, has added to government cash-flow problems. The amount will have to be recovered in the final two quarters of the year. Consequently, interest payments on the domestic debt are forecast to increase from 5% of GDP in 2001 to 5.5% in 2002. As a share of total domestic expenditure, domestic interest payments will represent 25% of GDP in 2001, up from 21.4% in 2000.

Short-term domestic debt However, in an effort to reduce its interest payments and to reduce its is to be converted immediate outlays for debt service, the government has proposed the conversion of about one-third of Ghana’s C9trn domestic debt into three-year tradable bonds by August. The banking sector, which holds 70% of the short- term debt instruments in circulation, has agreed to support the conversion. The current stock of debt consists primarily of 91-day Treasury bills, currently issued at interest rates of 47%. Instruments under consideration include zero- coupons and inflation-indexed bonds. The move would also afford the government some breathing space in its attempts to improve fiscal discipline.

The 2001 budget statement claimed that total domestic debt, at C9.4trn in December 2000, is projected to fall to C6.6trn by the end of the year 2001. In an effort to reduce its reliance on domestic borrowing, the government plans to restore fiscal discipline and to improve revenue collection. A number of other options could be used to ease the debt burden, including negotiations for debt relief, debt-conversion programmes, debt swaps, more concessional borrowing, the use of privatisation proceeds to retire some outstanding debts and the restructuring of options with banks and other institutions.

Composition of domestic debt (C m) 1999 2000 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr Government stocks 432,247.3 218,697.4 145,805.7 113,501.2 107,997.2 105,257.2 98,632.0 Treasury bills 2,748,855.8 3,075,744.6 3,403,812.7 3,790,404.4 4,331,580.9 4,575,170.9 4,401,023.2 Short-term advance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Treasury bonds 115.0 115.0 115.0 115.0 115.0 115.0 115.0 Bearer bonds 150.0 150.0 150.0 150.0 150.0 150.0 150.0 Compensatory stocks 4.3 4.3 4.3 4.3 4.3 4.3 4.3 Development bonds 6.0 6.0 6.0 6.0 6.0 6.0 6.0 Loans from Ghana Cocoa Board 8.5 8.5 8.5 8.5 8.5 8.5 8.5 Loans from railways & ports 20.6 20.6 20.6 20.6 20.6 20.6 20.6 Long-term government stocks 590,740.8 590,740.8 590,740.8 590,740.8 590,740.8 590,740.8 590,740.8 Revaluation stocks 1,302,365.3 1,302,365.3 1,302,365.3 1,302,365.3 1,302,365.3 1,302,365.3 1,302,365.3 Total 5,074,513.6 5,187,852.5 5,443,028.9 5,797,316.1 6,332,988.6 6,573,838.6 6,393,065.7 Source: Bank of Ghana, Quarterly Economic Review.

Revenue targets threatened The problems of restoring fiscal discipline have been exacerbated by falling by falling export receipts gold and cocoa prices in the past quarter, which has threatened the government’s revenue target of US$4bn. Projected cocoa revenue of nearly US$600m may not materialise, as prices fell from a stable US$1,080/tonne for March contracts to below US$1,000/tonne for May contracts. The Ghana Cocoa Board (Cocobod) projects production of 380,000-410,000 tonnes for the 2000/01 crop year (October-September), of which about one-third remains to be sold. Gold receipts have also followed a declining trend since 1999. They are currently projected to decline by US$57.9m in 2001, owing to falls in the world market price and a decline in volume exported. If these downward price trends continue the government may need to revise its revenue forecasts.

The domestic economy

Economic trends

Inflation is falling, though Although inflation has fallen marginally in the first five months of 2001, it has it remains high remained high, with the May year-on-year inflation rate averaging 37.5%, a fall of only 3% since December 2000. In many ways this is hardly surprising, given the large increases that have occurred in fuel and utility prices so far in 2001— Ghana’s Public Utilities Regulatory Commission (PURC) approved a 103% rise in electricity rates and a 96% increase in water rates, effective from May. There was also an upward adjustment in the minimum wage at the start of the year, which has boosted domestic demand and ensured that general inflationary pressures have remained high. However, despite the fact that inflation has fallen only moderately so far, we expect it to fall further in the coming months and to follow a noticeably faster downward trend than it has done to date. The more rapid downward trend is likely to be the result of a number of factors.

• Increases in food prices, which account for 1.3% of the May 2001 consumer price index (CPI), are expected to moderate sharply in July and August because good harvests are forecast—prices may even fall.

• Money supply growth has slowed sharply in recent months in response to the tight monetary policies of the Bank of Ghana (the central bank). Broad money supply, including foreign exchange (M2+), grew by barely 4% in the first quarter of 2001. This is less than half the increase recorded during the corresponding period of 2000. If the central bank can continue its performance throughout the year, broad money supply growth will be about 16%. This level was last achieved in 1999, when money supply grew by 16.1%.

• The improved exchange-rate stability that was apparent in the first half of the year is likely to continue, and will ensure that imported inflation remains under control. The cedi has only fallen from C7143:US$1 at the end of 2000 to just C7,264:US$1 at the end of June 2001. However, in the absence of indications of improved export performance, the stability in the value of the cedi is the result of improved disbursements of donor pledges, which can be volatile, and this may lead to periodic sharp falls in the value of the currency.

Interest rates are still high Although inflation has fallen back gradually during the first five months of the year, interest rates have remained high. As at mid-June 2001, the 91- and 182- day Treasury-bill rates were 46.59% and 48.45%, respectively. Indications are that the present interest-rate structure is likely to be maintained until the inflation rate is reduced significantly and there is confidence that the inflation rate will remain low. Meanwhile, an unusual market development has occurred, with interest rates on the 182-day Treasury bill rising above the 91- day rate in early June. This is probably because the central bank has reduced the supply of 91-day paper in an effort to lengthen the maturity of the domestic debt and to normalise the hitherto inverted yield curve.

The minimum wage The National Tripartite Committee, comprising the Government, the Ghana is now C5,500 Employers Association and the Trades Union Congress, has set the new minimum wage at C5,500 (previously it was C4,200). An agreement has been negotiated whereby, starting next year, minimum wages will be determined before the budget is presented to Parliament, enabling the government to project wage costs more accurately in its annual budget presentation.

Agriculture

The AfDB loans US$19m The African Development Bank has approved a loan of US$19m to finance the for rice project inland valleys rice development project in Ghana. The objective of the project is to enhance food security and to reduce rice imports. It seeks specifically to increase the incomes of smallholder rice-producers in the Ashanti, Brong Ahafo, Central, Eastern and Western regions of the country by increasing the production of good quality local rice. The project will involve the development of 4,500 ha for rice cultivation, the improvement of 280 km of access roads and field tracks, and the provision of US$6.17m for farm inputs and equipment. The project will also support the training of its beneficiaries and technical staff.

The rice development project ties in closely with the Ministry of Food and Agriculture target of a 50% reduction in rice imports by the end of 2001. This target was announced in a speech read by Dr Samuel Dapaah, the chief director of the ministry, at the opening of a three-day workshop on rice production, held in Accra during February. Rice is not the leading staple foodstuff in Ghana but it is one of the country’s core foods, and an average of US$100m is spent annually on importing rice to supplement local production. As well as promoting smallholder production, the ministry is keen to promote watershed management methods of rice production, which it claims would be highly cost effective because rice cultivation requires plenty of water. The ministry claims that inland valley watersheds to cover about 700,000 ha of the total land area in Ghana, providing considerable opportunity to increase rice production in the country—presently only 20% of the valleys are being used.

Cocoa producer prices rise The government has increased the producer price of cocoa for the 2001 mid-crop season (May-September) from C217,187.5/60-kg bag to C244,000/60-kg bag (C3.475m/tonne to C3.872m/tonne). The new price represents an increase of 11% on the previous main crop price, fixed in October 2000, and is line with government commitment to continuing to support cocoa farmers to increase productivity and boost production. The increase follows a commitment in the budget to provide farmers with better compensation, through a combination of cash and the mass spraying of farms with insecticides and pesticides. However, despite these improvements smuggling remains a problem. Current prices for cocoa in Côte d’Ivoire are much higher, providing an strong incentive for farmers—during the main crop season smugglers were receiving as much as C400,000/60-kg bag in Côte d’Ivoire, according to officials at Ghana’s largest cocoa buyer, the Produce Buying Company.

Cocoa crop is reduced Ghana is likely to produce between 30,000 and 35,000 tonnes of cocoa in this by pests year’s mid-crop harvest, below the officially announced forecast of 40,000 tons, according to the Ghana Cocoa Board. Although the 2000-01 mid-crop season opened in May, a few weeks earlier than usual, sporadic outbreaks of black pod disease have forced officials to revise their original harvest projections. The current rainy season is providing good conditions for the disease, a fungus which attack cocoa plants. The mid-crop season is expected to end by September, but the government’s mass re-spraying and replanting programme has yet to begin.

Receipts from cocoa beans and products

Beans Products Total (tonnes) (US$ ’000) (US$ ‘000) (US$ ‘000) 1999 1 Qtr 117,191 205,370 9,010 214,380 2 Qtr 77,763 131,229 9,514 140,743 3 Qtr 104,990 130,834 10,034 140,868 4 Qtr 24,300 18,272 8,006 26,278 2000 1 Qtr 87,385 105,591 4,119 109,710 2 Qtr 100,951 113,304 6,587 119,891 3 Qtr 115,250 118,744 4,449 123,193 Source: Bank of Ghana, Quarterly Economic Review.

Industry and mining

The World Bank will help Mining rivals cocoa as Ghana’s top source of foreign-exchange earnings, and revive the mining code accounts for an average 6% of GDP. However, the sector has run into problems in recent years, particularly because of its dependence on gold and on the Ashanti Goldfields Company (AGC). Moreover, the number of companies carrying out exploratory work in Ghana has now dropped to six—all of them local—from a peak of 60 companies in 1997. Many other African countries have recently revised their mining codes recently, in order to attract investment into the mining sector, and the government is considering introducing similar reforms. As a result, a World Bank team is expected to visit the Ghanaian government in August 2001, to finalise work on the amendments, and the new laws may come into effect by December.

The Mining Commission The government-appointed Mining Commission has recommended the makes recommendations relaxing of government controls on the mining industry, including scrapping mandatory state participation in mining firms (under Ghana’s mining code the state holds a minimum of 10% in every local mining company). The Commission has also recommended the abolition of a clause preventing successful prospectors from obtaining mining leases automatically. Legal provisions allowing the government to suspend or cancel companies’ mining rights, and to transfer a company’s property to the state should it go into liquidation, may also be reviewed.

“Golden share” in Ashanti The government is facing pressure to drop its “golden share” in AGC. The may be dropped golden share is a special veto, of no monetary value, which was written into the constitution of the company prior its flotation on the London Stock Exchange (in addition—and unrelated—to the golden share, the government holds 20% of AGC’s shares). The golden share allows the government to override management decisions and to block mergers. AGC has long wanted the government to give up the golden share; when the company encountered difficulties because of hedge-book losses in 1999, a takeover bid from a platinum mining company, Lonmin, failed partly because of opposition from the National Democratic Congress government. The golden share has also been blamed for depressing the firm’s share prices by obstructing mergers— Lonmin offered US$7 per share in 1999, while the price of New York-listed shares closed at US$3.41 on Thursday July 12th 2001. AGC has said that the removal of the golden share would allow it to join in with the current global trend of industry consolidation, which is being hastened by weak gold prices. However, while the government will be unwilling to surrender its control over what is seen widely as a national asset, the general view is that, given the more pro-business outlook of the present New Patriotic Party administration, it is likely to give in to demands and drop the golden share. The minister of finance, Yaw Osafo-Maafo, has expressed the possibility that the government may sell part of its separate 20% stake in AGC to pay down the domestic debt when market conditions improve. AGC’s shares have tumbled from an initial public offering price of US$20 in 1994 to US$2.82 as at June 22, 2001.

AGC faces another hurdle AGC’s generally poor performance and decreasing share prices in recent years have presented Lonmin—which still holds 32% of the company following its unsuccessful takeover bid—with a difficult decision. Lonmin has stated that it wants to sell its shares “at the right time”. Its chief executive, Edward Halsam, has stated that AGC is not particularly important as far as Lonmin and its shareholders are concerned, because Lonmin wishes to focus on platinum.

Red Back Mining rejects Red Back Mining, an Australian company, rejected AGC’s initial proposal for AGC offer the acquisition of the Chirano gold mine, controlled by Red Back’s Ghana affiliate, on the grounds that the offer does not reflect the true value of the Chirano mine. However, Red Back is still in talks with AGC, in a bid to get a better offer or to secure a joint venture. Known reserves at Chirano were assessed at 1.52m oz of gold, but several prospects and structures remain untested. Red Back is considering a proposal from the Macquarie Bank of Australia to lend the company A$5m to continue its exploration programme at Chirano. Red Back would aim to increase gold reserves to 2m oz by end-2001.

New gold production zones Despite the problems at AGC, gold production in the central region of Ghana has increased, following the discovery of new mining areas along the Pra river and of alluvial gold on the beaches of Saltpond and neighbouring towns. The Precious Minerals Marketing Company (PMMC) has revealed that it has hired more buying agents to buy gold from miners in the central region. The director of operations at the PMMC, George Asante, notes the importance of the new discoveries and the small-scale mining industry with regard to employment generation in the region, and has urged the Minerals Commission and related

agencies to streamline procedures for granting concessions to enable as many local youths as possible to take up the trade. However, Mr Asante cautioned miners against acts of environmental degradation, requesting that they help reduce to the barest minimum the destruction of water bodies and forests and the degradation of land by evolving safe mining practices. Mr Asante also called for miners to adhere to modern methods of recovering gold, to reduce the health risks associated with gold extraction. He cautioned Licensed Buying Agents against activities that might affect the nation’s economy, such as selling gold through unauthorised routes or doing business with illegal dealers.

Infrastructure and other services

Power rates jump by 103% The PURC has approved a 103% rise in electricity rates and a 96% increase in water rates. Though very steep, however, these increases fall short of applications filed by the Electricity Company of Ghana (ECG) and the Ghana Water Company for rate increases in the order of 300%. Protests from consumer groups persuaded the PURC to roll back the utilities’ requests, and to admonish them about customer service, which had deteriorated to unacceptable levels. Ghana plans to make further increases in water and electricity prices, and may also raise fuel prices, to cut the country’s budget deficit. On September 1st 2001 Ghana will re-impose a 15% duty on fuel imports, removed temporarily earlier this year to limit a fuel price hike of 65%.

The Ministry of Finance has said that further electricity and water price increases are likely next year because the state-controlled utilities are recovering only about 67% of their production costs. The government aims to restore full recovery by end 2003. Mr Osafo-Maafo has said that the government must also deal with the heavy debts of the ECG and the Volta River Authority (VRA), Ghana’s two main utilities. The government will treat these debts as government debt, to be addressed through the budget. The utility companies had called for a 300% increase in electricity and water prices—rather than the 100% rise imposed by the government—because they assumed that they would have to deal with their debts themselves. The ECG and VRA are among several heavily-indebted state companies, including the Ghana National Petroleum Corporation and the Tema Oil Refinery.

EU provides grant for Ghana, the European Commission and a French company, Norelec, have electrification of rural areas signed a C60.73bn grant from the European Development Fund for the extension of electricity to 110 communities in the Western Region. The project, to be executed under the Self Help Electrification Programme, will last for four years and is intended to boost growth in commercial small-scale businesses and to enhance the welfare and wellbeing of communities in 11 beneficiary districts. It involves the construction of 295 km of 11- and 33-kv lines, the construction of 280km of low-voltage lines and the installation of 127 distribution substations and 9,000 customer services. The communities are to provide C2.6bn as counterpart funding, either in cash or by supplying wooden low-tension poles. Mr Osafo-Maafo stated that the EU support for the project is in line with the government’s national electrification scheme, which aims to extend electricity to all parts of the country.

The government will not The government has decided not to renew its agreements with Ghana renew telecoms agreements Telecommunications (Telecom) and Western Telesystems when they expire in February next year, because it considers the companies’ inefficient service delivery and high tariff charges to be unacceptable. The government intends to break the two companies’ duopoly on telecommunications in order to attract other investors to the sector. The soon-to-expire agreements gave the two operators sole right to operate as Ghana’s national telecommunication companies, and were part of an attempt to modernise the country’s telecommunications infrastructure and to widen the coverage of service.

Celltel undertakes Celltel Ghana, one of the pioneers in the cellular phone business, is under- expansion programme taking a major expansion programme to widen its coverage area. This is being carried out in partnership with Hutchison Telecommunications, a division of a Hong Kong-based firm, Hutchison Whampoa. Hutchison, which operates in 28 countries and has an annual turnover of about US$100bn, owns 80% shares in Celltel and has invested about US$30m in the expansion programme. By the end of 2001, 50 base stations (of 120) should be operational, with a new switch with a 75,000-subscriber base capacity, to be expanded eventually to 150,000.

Financial and other services

2000 was a difficult year In spite of the challenging economic conditions in 2000, the Ghana Stock for the GSE Exchange (GSE) has proved to be relatively resilient, rising by 15% in cedi terms, though the depreciation of the cedi meant that the US dollar return was negative, at -41%. This confidence seems to have continued into 2001; the economy has shown some signs of improvement, and numerous listed companies have reported better-than-expected full-year results for 2000 during the first quarter of 2001. This has strengthened investor confidence, both local and foreign, and, coupled with improved prospects for the political stability of the country, has led the GSE to show better returns.

Ghana Stock Exchange, all share index

High Low Year-end % change 1990 77.65 70.08 70.08 n/a 1991 69.77 55.49 64.51 –7.95 1992 72.9 60.15 62.17 –3.63 1993 132.88 63.29 132.88 113.74 1994 334.02 132.91 298.1 124.34 1995 322.11 296.32 316.97 6.33 1996 385.8 307.42 360.76 13.82 1997 524.21 346.66 511.74 41.85 1998 1,201.08 511.66 868.35 69.69 1999 903.17 735.39 736.16 –15.22 2000 837.35 737.16 857.98 16.55 July 2001 934.57 856.00 n/a 8.93

Note. Index of 100; base year is average market capitalisation of all listed equities between 1990 and 1993. Source: Ghana Stock Exchange.

2001 may be a better year During the first quarter of 2001 the Databank Stock Index (DSI) gained 4.8% in cedi terms and 1.6% in dollar terms; in the same period in 2000, returns were 4% in cedi terms and -11% in dollar terms. The share prices of thirteen listed companies improved during this period, compared with nine in the same period in 2000. The market capitalisation of the GSE also increased, from C3.6 trillion at the beginning of the year to ¢3.8 trillion at the end of trading on Friday July 13th 2001. In addition, although there has been no new listing on the GSE during the review period, the government’s announcement of tax relief for listed companies should provide some incentive for other corporations to list on the GSE. The GSE will receive a further boost if, as pledged, the new government manages to reduce domestic borrowing and to lower interest rates significantly. Therefore, investors seem to be repositioning themselves, in anticipation of a drop in money market yields, to re-enter the capital markets.

Ghana Stock Exchange, greatest increases in share prices, 2001 (C ‘000 unless otherwise indicated) Amount Current invested market value Gain Gain (%) Aluworks 2,000 3,220 1,220 37.9 Paterson Zochonis 2,000 3,105 1,105 35.6 British American Tobacco 2,000 2,600 600 23.1 CFAO Ghana 2,000 2,353 353 15.0 Super Paper Products 2,000.0 2,276.8 276.8 12.2.0 Total 10,000.0 13,554.8 3,554.8 26.2 91-day Treasury bill 10,000.0 11,049.8 1,049.8 9.5

Note. The investment period covers the first 100 days of John Kufuor’s presidency; he was inaugurated on January 7th 2001. Source: Databank Research.

Bank capitalisation With effect from December 2000, the Bank of Ghana has pegged the minimum requirement increases capitalisation requirement for Ghanaian banks at C25bn (US$3.6m), up from C5bn (US$0.7m); for foreign banking business, the minimum capitalisation has risen from C8bn (US$1.1m) to C50bn (US$7.1m). The bank justifies the change in capitalisation requirement as having been necessitated by the poor macroeconomic conditions which have beset the country since 1999.

State banks are for sale The Ghana Commercial Bank (GCB) and National Investment Bank (NIB) have been put up for sale, after the government made several abortive attempts to sell its stakes in both banks. The search for a strategic investor to pick up the government’s 51% stake in GCB had dragged on throughout the administration of the previous president, Jerry Rawlings, but the new government, led by John Kufuor, has now put the bank up for sale, with the proviso that interested buyers should present a credible assurance to the government that all GCB branches will be kept open. There is fear that the sale of the bank may lead to the dismantling of the largest network of bank branches in Ghana, thereby weakening the payments system. Strategic investors in NIB can expect to obtain between 30% and 60% of the bank’s equity.

Foreign trade and payments

Foreign-exchange Regulations have long governed the repatriation of foreign-exchange earnings conditions are planned in Ghana, especially in the important cocoa sector. However, the proportion of foreign exchange that companies are allowed to retain differs between industries and their foreign-exchange requirements, and the enforcement of these rules has tended to be lax.

To remedy this issue, the Ministry of Finance has announced that, from the start of the 2001-02 season, private Ghanaian companies wishing to export cocoa will have to exchange 98% of their foreign-exchange earnings into local cedis with Ghana’s central bank. However, Ghana’s finance minister, Yaw Osafo-Maafo, has said that Ghana is still committed to partially opening up its export market, as agreed with the World Bank. Ghana had agreed to allow private cocoa buyers in Ghana to export up to 30% of their purchases themselves, from October 2000, but foot-dragging by the country’s previous administration prevented this. Mr Osafo-Maafo said that the World Bank, with which Ghana is negotiating a new loan programme, has agreed to the planned measure, which comes on top of a number of conditions for potential cocoa exporters announced in 2000. The finance minister said that the state- controlled Cocoa Marketing Company, which currently has a monopoly on Ghanaian cocoa exports, has to obey the restrictions on foreign-exchange earnings and that there was no reason why private firms should be treated differently.

FDI falls in the first The Ghana Investment Promotion Centre (GIPC) registered 32 projects in the quarter of 2001 first quarter of 2001. The projects have a combined estimated value of US$15.9m, comprising US$13.54m of foreign direct investment (FDI) and US$2.36m of investment to be made in local currency. Of the 32 projects, 19 are joint foreign-Ghanaian-registered enterprises, forecast to invest a total of US$10.56m, and 13 are wholly foreign-owned projects, estimated to invest a total of US$5.33m. Initial capital transfers made amounted to US$2.75m. The companies are expected to employ 873 Ghanaians and 68 non-Ghanaians. The services sector registered 11 projects involving US$9.51m. This was followed by the manufacturing sector, which registered 10 projects at a value of US$3m in both foreign and local funding. In the first quarter of 2000 49 projects were registered, with a projected capital investment of US$42.94m. The slowdown in foreign direct investment is hardly surprising given the economic problems of 2000 and the uncertainty over the political transition. FDI is unlikely to pick up until investors gain more confidence in the new government and its sustained commitment to economic reform.

Inward direct investment

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000a 2001a 2002a US$ m 20 23 125 233 107 120 83 56 17 30 40 50 a EIU Forecasts. Sources: World Bank; EIU.

Britain and France are to Britain and France have agreed to cancel Ghana’s debt if it is able to meet the cancel debt conditions of decision point under the IMF-World Bank heavily indebted poor countries (HIPC) Initiative. Britain has also agreed to try to convince other G8 countries to cancel debts owed them by Ghana. HIPC decision point is the stage at which creditor countries agree to release funds after being convinced that economic reform targets in the beneficiary country can be achieved. In Ghana’s case the conditions for the release of such funds include stabilising the cedi against the major foreign currencies, keeping inflation in check, reducing waste and improving the revenue-generation base. Some countries take up to three years to reach HIPC decision point, but Ghana’s past record on economic reform has led the government to believe that the country may reach decision point as early as December 2001, paving the way for further support from the donor community.

Ghana prepares for AGOA The Ghana Trade and Investment Council has held its first meeting to advance preparatory work for Ghana to take advantage of the Africa Growth and Opportunity Act (AGOA). Since 1999 the US has become Ghana’s fourth most important export destination and its second most important import source. The AGOA was signed into law by the US government in May 2000 as part of the US Trade and Development Act. Under the Act Ghana stands to benefit from increased trade and investment through duty-free and quota access to the US market, for essentially all export products, including textiles and garments. Ghana has an international competitive advantage—overseas demand for its fabric is high, and the AGOA has provided added impetus for exports. The government has announced it will prioritise the export of garments, textiles and apparel to US markets, in view of the 20% duty exemption on such goods granted under the AGOA. An inter-institutional steering committee, composed of representatives from the Ministry of Trade and Industry, Ghana Export Promotion Centre, Customs, Excise and Preventive Service, and USAID, among others, will advise the government on how Ghanaian companies can best take advantage of the provisions under the Act.