Country Report 1St Quarter 1999 © the Economist Intelligence Unit Limited 1999

COUNTRY REPORT

Ghana

1st quarter 1999

The Economist Intelligence Unit 15 Regent Street, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group.

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Contents

3 Summary

4 Political structure

5 Economic structure

6 Outlook for 1999-2000

10 Review 10 The political scene 13 Economic policy 16 The economy 18 Agriculture 19 Mining and industry 20 Energy 21 Business and finance 24 Foreign aid and payments

26 Quarterly indicators and trade data

List of tables 10 Forecast summary 13 The 1999 budget: selected macroeconomic targets, 1998-2001 14 Government finances, 1998 14 Government finances, 1999-2001 15 Government expenditure by largest functional classification, 1999 17 GDP estimates 22 Ghana stockmarket: top returning shares, 1998 23 Sub-Saharan Africa’s top ten largest companies, 1998 26 Quarterly indicators of economic activity 27 Foreign trade 27 Direction of trade

List of figures 10 Gross domestic product 10 Real exchange rates 17 Consumer prices, 1998 17 Interest rates 22 Equity prices

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999

Ghana 3

February 24th 1999 Summary

1st quarter 1999

Outlook for 1999-2000: The vice-president, John Atta Mills, has begun his campaign to become leader of the ruling National Democratic Congress (NDC). He will probably get the backing of the party which will almost certainly win the presidential and legislative elections in 2000. The Reform Movement (RM), a splinter group of the NDC, will not divide the ruling party. The main opposition New Patriotic Party has little hope of garnering support at a national level. The government is set to remain on good terms with international donors in 1999 and 2000. Economic reforms will proceed, but privatisations will be slowed down by political pressures. Real GDP growth is forecast to rise to 4.8% in 1999 and 5.3% in 2000. A sharp depreciation of the currency and rising inflation are expected in 1999. Greater currency stability, and a fall in inflation are forecast for 2000. Exports will grow steadily in 1999 leading to an improvement in the current-account balance in 1999, but a rise in imports in 2000 will see it deteriorate again.

The political scene: Vice-president Atta Mills has lashed out at critics who doubted his abilities to take over the helm of the NDC, exposing personal rifts in the party. Meanwhile, the dissident Reform Movement has declared itself a party. Ghana has sent more troops to Sierra Leone.

Economic policy: The 1999 budget has been presented, with no surprises, and the government continues to target sound macroeconomic policies. The fiscal deficit in 1998 was lower than expected, at 6.3% of GDP, and the government aims to reduce it further to 5.2% in 1999. VAT has been re-introduced, seemingly without problems. An Article IV consultation has been concluded with the IMF. Nevertheless, privatisation remains a contentious issue.

The economy: The government’s estimate of 4.6% real GDP growth in 1998 seems unrealistic but seems to have been accepted by the IMF. Year-end inflation has fallen to 15.7% allowing a reduction in interest rates. The cedi has appreciated in real terms against the US dollar.

Agriculture: Cocoa-sector reforms will progress and the state buying company has been earmarked for privatisation. International cocoa prices have fallen. Ghana’s cocoa tree stock needs to be replaced.

Mining, energy and industry: Mining exports dropped by 10% in 1997 because of falling world gold prices. However, Ashanti Goldfields Corporation boosted production and cut costs in 1998. The regional gas pipeline from Nigeria looks set to go ahead. Aluminium production is increasing.

Business and foreign payments: The Ghana Stock Exchange was Sub- Saharan Africa’s best performer in 1998. Several new listings are expected in 1999. Two telecoms companies are battling for market share. International reserves have fallen but an IMF disbursement has been approved.

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

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 4 Ghana

Political structure

Official name Republic of Ghana

Form of state Unitary republic

Legal system A new constitution, based on the US model, was approved by referendum in April 1992

National legislature Parliament; 200 members elected by universal suffrage every four years

National elections December 7th 1996 (presidential and legislative); next elections due in 2000

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

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

Main political parties Progressive Alliance (PA), the ruling coalition, consisting of the National Democratic Congress (NDC, the majority party) and the Every Ghanaian Living Everywhere (EGLE) party. Opposition parties include: the New Patriotic Party (NPP); the People’s National Convention (PNC); the National Convention Party (NCP); the People’s Convention Party (PCP); United Ghana Movement (UGM); Reform Movement (RM)

President Jerry John Rawlings Vice-president John Atta Mills

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

Central bank governor Kwabena Duffour

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 Ghana 5

Economic structure

Latest available figures

Economic indicators 1994 1995 1996 1997 1998a GDP at market prices (C bn) 4,950 7,418 10,385 14,113 17,200 Real GDP growth (%) 3.6 4.5 5.2 5.1 1.9 Consumer price inflation (av; %) 24.9 74.3 34.0 27.9 19.4b Population (m) 16.86 17.34 17.83 18.34 18.75 Exports fobc ($ m) 1,238 1,431 1,571 1,490 1,462 Imports fobc ($ m) 1,580 1,678 1,937 2,128 2,098 Current account ($ m) –255 –145 –324 –541 –516 Reserves excl gold ($ m) 583.9 697.5 828.7 500.0a 320 Total external debt ($ m) 5,464 5,872 6,202 6,047a 6,290 External debt-service ratio, paid (%) 22.9 21.4 23.5 27.4a 26.6 Cocoa productiond (’000 tonnes) 290 404 340a 400a 390 Gold production (m fine oz) 1.5 1.6 1.6 1.6a 1.7 Exchange rate (av; C:$) 956.7 1,200.4 1,637 2,050 2,300

February 19th 1999 C2,365:$1

Origins of gross domestic product 1996 % of total Components of gross domestic product 1997 % of total Agriculture, forestry & fishing 40.6 Private consumption 80.0 Industry 14.2 Government consumption 12.4 Manufacturing 8.1 Gross domestic investment 23.6 Services 48.4 Exports of goods & services 19.8 GDP at factor cost 100.0e Imports of goods & services –36.5 GDP at market prices 100.0f

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

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 6 Ghana

Outlook for 1999-2000

The vice-president begins After months of seemingly passive silence, the vice-president, John Atta Mills, to assert himself— finally lashed out at his critics at the national congress of the ruling National Democratic Congress (NDC) in December. Mr Atta Mills, who is widely thought to be able and competent but politically inexperienced, has come under increasing scrutiny since President Jerry John Rawlings effectively named him as his preferred successor on his retirement in 2000 (3rd quarter 1998, page 10). As the ruling NDC will not even officially select a presidential candidate until December this year, Mr Atta Mills had taken a quiet behind- the-scenes role. While this befitted his reputation as a reserved technocrat new to Ghana’s virulent political arena, it left him open to attack from potential rivals. Mr Atta Mills’s address to the NDC’s national congress in December, when he warned critics not to mistake his silence for weakness, marks the beginning of his counter-offensive campaign to ensure that he wins the NDC’s presidential nomination.

—as the NDC gears up for In the run-up to the 2000 presidential and legislative elections the NDC will elections have to deal with the internal power struggle for the party leadership while simultaneously gearing up for the campaign to rally supporters. Mr Atta Mills remains the front-runner for the post of party leader but a few cabinet ministers will still seek support for themselves as alternative candidates. Most frequently cited as a potential rival to the vice-president is Alhaji Mahama Iddrisu, but he was moved from his long-standing post as defence minister in February to become a presidential adviser on governmental affairs. This new position is largely ceremonial and the move seems to have been designed by the NDC leadership to undermine Mr Iddrisu’s power base among the military. This is perhaps the first step in a campaign by Mr Rawlings and his close circle of advisers to ensure that key party members support Mr Atta Mills. At the same time, recent ministerial reshuffles, especially in regional portfolios, suggest that Mr Rawlings is ensuring that central control of the party is maintained while carefully weeding out potential sympathisers to the Reform Movement (RM), a breakaway faction of the NDC that is now establishing itself as a party in its own right (see The political scene). Combined with the vast resources of the NDC, these moves should ensure that the ruling party remains largely intact and the favourite to win the legislative and presidential elections in 2000.

The Reform Movement The RM, which held its first party congress in February, will find that its will founder— transition from a critical faction of the NDC to a fully-fledged party will be difficult. The RM gathered its support from a segment of NDC members who had grown increasingly disenchanted with the party’s centralisation of control and what they believed was growing corruption. The leading figures in the RM are from a more radical left-wing branch of the party—many of whose members long ago deserted the NDC as it became more market-oriented—suggesting that this schism has existed for some time. While the RM will certainly gain some support from NDC members who believe that the party has abandoned its revolutionary roots, it will have trouble mobilising enough resources and voters to challenge the ruling party effectively.

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—while the other Other opposition parties will also be organising for the upcoming elections, but opposition parties will will remain largely divided and weakened. The main opposition party in parlia- remain weak ment, the New Patriotic Party (NPP), has selected the sombre John Kuffour to lead the party again. Mr Kuffour failed to ignite much enthusiasm as the party’s candidate in 1996, especially in the rural areas, and the NPP remains largely an urban entity. This is likely to be its Achilles’ heel, preventing it from making much headway in 2000. The rest of the opposition, such as the newly formed United Ghana Movement and some of the smaller parties that continue to cling to nostalgic visions of Ghana’s first president, Kwame Nkrumah, will remain marginalised and will probably not gain many votes in the elections.

President Rawlings will With his eye on retirement, Mr Rawlings appears to be carving out a niche for maintain a high himself after 2000. He has publicly stated that he wants to remain in Ghana international profile and to continue to work for the party in some, as yet unnamed, capacity. However, following an episode where he was reportedly repeating the same phrases over and over again during a speech, serious concerns have been raised over his health. Spokesmen for the president claimed he was suffering from acute malaria but this explanation has met with scepticism on the streets of Accra where Mr Rawlings’s drinking habits are widely discussed. In this context it remains likely that Mr Rawlings will seek an international role after his retirement and so will maintain a high international profile in 1999, staying heavily involved in finding a solution to the civil war in Sierra Leone (see The political scene).

Donor relations will Relations with multilateral lending agencies should remain on a good footing continue to warm— throughout the outlook period. After the conclusion in December of the Article IV consultation with the IMF, an annual agreement with IMF staff which is an official stamp of approval for Ghana’s economic reform programme, IMF and World Bank support is expected to continue in 1999 and 2000. Although bilateral donors, such as the US and UK, will closely watch political developments, insisting that the upcoming election campaign is free and fair, good relations and funding are also expected to continue throughout the forecast period. This was highlighted on February 24th, when Mr Rawlings made another state visit to the US, where he has developed a warm relationship with President Bill Clinton, despite maintaining close ties with Cuba’s Fidel Castro and Libya’s Muammar Qadhafi.

—but government budget The budget for 1999, announced by the finance minister, Richard Kwame deficit targets will not Peprah, on February 5th, shows that Ghana’s economic strategy remains be met broadly on course. Government budget deficits should remain manageable although we do not expect the government to meet its targets in this respect. The 1999 budget makes provision for a large increase in expenditure in nominal terms, as it improves implementation of capital projects. It also assumes that increased donor funding and improvements in tax collection will boost total official receipts by more than 50%. Such an increase is not impossible (in 1994 revenue reached similar levels, as a percentage of GDP), but it is unlikely, and we think that the government will miss its target of a budget deficit of 5.2% of GDP by some two percentage points (although estimates are compli- cated by differing nominal GDP estimates, see above).

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 8 Ghana

In the same vein the government’s target of a budget deficit of 2.5% of GDP in 2000 is unlikely to be met and the budget deficit as a percentage of GDP should remain at similar levels to 1999. Although spending will almost certainly rise in 2000 it is not expected to be as profligate as in the 1996 campaign. The difference this time is that Mr Rawlings will want to leave a respectable legacy while Mr Atta Mills, as a former head of the revenue service, will be cautious in pursuing strategies that the government can ill afford.

Privatisations will be While fiscal policy will be closely watched by the IMF and other donors, privat- slowed down by political isation is likely to be the hottest political issue. The Fund and officials at the pressure— Ministry of Finance are keen to accelerate the divestiture of the Ghana Oil Company (Goil), the Tema Oil Refinery (TOR) and the Produce Buying Company (PBC), the domestic marketing arm of the Ghana Cocoa Board (Cocobod). Already these sales have come under heavy criticism from all parties in parliament and some sales may even be held up in court (see economic policy below). The government, anxious for privatisation revenue but fearing potential job losses, will try to negotiate a middle road, but some delay, especially in selling off the particularly sensitive PBC, is likely until after the elections. The government will offer the excuse that it is seeing how liberalisation in neighbouring Côte d’Ivoire progresses.

—and labour relations Labour relations will be tumultuous in 1999. Junior doctors went on strike for will be tumultuous nearly a month last December demanding to be paid for overtime. A deal was eventually struck, but only after a long struggle. Their actions have encouraged several other trade unions, including those representing workers at soon-to-be privatised companies, to threaten industrial action. Labour strikes will probably not force the government to alter the course of its privatisation programme, but may hold up some sales and increase pressure to increase spending on severance packages.

Growth will not meet the Although the Ministry of Finance has projected that real GDP growth will rise government’s ambitious to 5.5% in 1999, the EIU maintains its forecast of 4.8%. Most of the impetus for targets growth will come from a recovery in industry and services after the easing of energy shortages, which last year forced many firms to run well below capacity. New projects in the energy subsector will further boost the industrial sector, while agriculture is expected to remain strong as the rains have been plentiful, although flooding in some regions has been reported. We expect real GDP growth to improve to 5.3% in 2000, assuming normal rains and that most of the major power-producing projects continue apace. Higher government spending should also help to fuel real GDP growth, but not enough to reach the government’s target of 6%.

Inflation will depend Inflation rates have continued to fall over the latter half of 1998 to a year-on- upon exchange-rate year rate of 15.7% in December, its lowest level since 1992. While the govern- stability— ment expects this downward trend to continue for the next two years, with a year-end rate of 9.5% in 1999 and 6% in 2000, such a scenario depends upon exchange-rate stability, which would guard against increases in the price of imported goods. The cedi saw a nominal depreciation of just 4.1% in 1998, which means that it has appreciated strongly against the US dollar in real terms

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 Ghana 9

as the inflation differential between the two countries was much higher. The slow pace of economic growth in 1998, coupled with a continuing current- account deficit and only modest capital inflows, mean that economic funda- mentals fail to fully account for the current stability of the cedi. This raises speculation that some sort of intervention by the Bank of Ghana (BoG, the central bank) is responsible for the stability of the currency, suggesting that the currency is overvalued and vulnerable. The EIU thus expects a rapid real depreciation of the cedi in 1999 to an annual average rate of C2,990:$1. This will be followed by a more gradual depreciation in 2000, in line with inflation differen- tials, to an average of C3,450:$1. Our assumptions on the exchange rate make the government’s inflation targets impossible to reach. In any case, higher government expenditure in the run-up to the elections should also fuel inflationary pressures. These factors have led us to forecast an annual average inflation rate of 23.1% in 1999 before falling to 13.9% in 2000.

—as monetary policy may The BoG has slashed its discount rate from 45% to 32% in the five months have to be re-tightened prior to February 1999. This has only been possible because inflation has been gradually reduced. However, under our exchange-rate assumption, an increase in interest rates would be necessary in 1999 in order to maintain real interest rates at current levels. This leads us to anticipate an increase in nominal interest rates in 1999 before a gradual reduction in 2000.

The current-account Export earnings are forecast to improve in 1999 and 2000 to $1.5bn and $1.6bn deficit will narrow in respectively, as gold production increases and international gold prices recover. 1999 but grow in 2000 Driven by productivity gains at Ashanti Goldfields Corporation (AGC), Ghana’s gold production is forecast to reach 1.9m oz in 1999 and 2m oz in 2000 while the EIU’s World Commodity Forecast expects international gold prices to rise by 4% to $306/oz in 1999 and $328/oz in 2000. As a result we forecast Ghana’s gold exports to hit $590m in 1999 and to rise again to $610m in 2000. Although international cocoa prices are at a two-year low (see Agriculture), cocoa production should remain strong, with the current crop expected to be only slightly lower than last year’s 400,000 tonnes. The bumper crop of 1998 will be exported in 1999 and despite falling prices we anticipate an increase in cocoa receipts to $580m in 1999. The slightly smaller 1999 crop means that less will be available for export in 2000 which, combined with falling world cocoa prices, points to falling export receipts which we forecast at $540m. Import demand is forecast to fall to $2.1bn in 1999, as a result of falling oil prices and abnormally high import expenditure in 1998 as the electricity crisis necessitated extra imports of gener- ators and oil. In 2000 import expenditure is forecast to rise again to $2.2bn as oil prices rise and the growing manufacturing sector demands more industrial in- puts. Overall, the current account will remain in deficit, but will narrow to $360m in 1999 before widening slightly to $420m in 2000.

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 10 Ghana

Forecast summary 1997a 1998a 1999b 2000b Real GDP growth (%) 5.1 1.9 4.8 5.3 Consumer price inflation (av; %) 27.9c 19.4 23.1 13.9 Merchandise exports fob ($ m) 1,490 1,462 1,542 1,569 of which: cocoa 464 580 580 540 gold 563 533 590 610 Merchandise imports fob ($ m) 2,128 2,098 2,089 2,227 Current-account balance ($ m) –541 –516 –360 –420 Average exchange rate (C:$) 2,050c 2,300 2,990 3,450

a EIU estimates. b EIU forecasts. c Actual.

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

130 Ghana Naira:$ Sub-Saharan Africa 120 6 110 5 CFAfr:$ (d) 100 4

3 90 Cedi:$ 2 80

1 70 0 1996 97(a) 98(a) 99(b) 2000(b) 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. 1990 91 92 93 94 95 9697 97 98(a) 98 99(b) 99 2000(b) 2000

Review

The political scene

The vice-president finally Breaking a long-held silence on his prospects for leading the ruling National speaks out— Democratic Congress (NDC) into the next presidential and parliamentary elections in 2000, the vice-president, John Atta Mills, has finally lashed out at his critics, saying they had mistaken his silence for weakness. Closing the NDC’s national congress in Sekondi, Ghana’s third largest city, in mid-December, Mr Atta Mills ended simmering speculation that he was unenthusiastic about succeeding President Jerry John Rawlings by publicly declaring his intention to secure the premiership of the party. Mr Rawlings is constitutionally bound to retire at the end of his second elected presidential term in 2000. Several leading party members had been privately worried that Mr Atta Mills, formerly a law professor and head of Ghana’s revenue service, lacked the political skills and aggressive nature necessary to lead the party and the country. Mr Atta Mills’s declaration was clearly designed to lay such fears to rest and marks the start of his campaign to secure support from the party’s most important members. In June last year, Mr Rawlings appeared to endorse Mr Atta Mills, in the hopes of

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quelling internal fighting over the leadership and to squash speculation that his wife, Nana Konadu Agyeman Rawlings, would run in his stead. Instead of set- tling the issue, however, Mr Rawlings’s declaration exposed a number of personal and ideological schisms within the NDC. Mr Rawlings was forced to later clarify that his statement reflected a personal and not an official opinion. Most dramatically, the furore led to the emergence of the Reform Movement (RM) as a vocal faction of the party demanding more democratic practices and an end to corruption (3rd quarter 1998, pages 11-12).

—leading the Reform In early February, the RM held its first congress at the University of Ghana at Movement to declare itself Legon on the outskirts of the capital, Accra. The conference confirmed its a party— transformation from a dissident faction of the NDC into a fully-fledged breakaway political party. According to the RM’s most prominent member, Goosie Tanoh, the new party has decided to challenge the NDC in the next elections rather than battle to reform it from inside. On the surface this development would seem to represent a failure of the NDC leadership’s initial conciliatory strategy towards the RM. However, it actually represents a victory for those in the NDC who remain loyal to Mr Rawlings and Mr Atta Mills as a clean break with the RM was the surest way of securing Mr Atta Mills’s position. Leaders of the RM, such as Mr Tanoh and Sam Garba, largely come from the ideological and “revolutionary” faction of the party and were co-ordinators of grassroots groups. As the mainstream of the NDC strayed from its left-wing origins, such individuals were increasingly isolated and a split seems to have been inevitable.

Key changes in ministerial portfolios

Present Previous Agriculture Joseph Owusu-Acheampong Kwabena Adjei Communications John Mahama Ekwow Spio-Garbah Defence E K T Donkoh Mahama Iddrisu Education Ekwow Spio-Garbrah Christine Amoako-Nuamah Environment, science & technology Cletus Avoka J E Afful Lands & forestry Christine Amoako-Nuamah Cletus Avoka Parliamentary affairs Kwabena Adjei Joseph Owusu-Acheampong

—which has exposed Perhaps more importantly, however, some prominent members within the personal rifts within NDC, regardless of whether they support the RM or not, have encouraged the the NDC rebels, in the hopes of unseating Mr Atta Mills as the front-runner. Several cabinet ministers, including a former defence minister, Mahama Iddrisu, are widely known to have presidential ambitions, and accusations of sympathy for the RM have created an atmosphere of suspicion at recent party meetings. Indeed a recent spate of cabinet reshuffles largely reflects attempts by the leadership to marginalise individuals suspected of having sympathy for the RM or of having presidential aspirations themselves (see box). Although resignations of local party officials, most notably in Tema East in January, have been seized upon by opposition newspapers as a signal of widespread party disaffection, the main body of the party seems to have remained intact. This is largely because several Rawlings loyalists, such as the security chief, Kofi Totobi-Quakyi, and the

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cabinet ministers E T Mensah, minister of youth and sports, and Kwamena Ahwoi, minister of local government, have closed ranks around Mr Atta Mills, apparently outflanking those who had aspirations of toppling the vice- president.

President Rawlings again Meanwhile, Mr Rawlings continues to try and muster popular support for the blasts corruption in the NDC. When opening parliament on January 14th, the president praised public service— Ghanaians for their perseverance through the economic difficulties of 1998 (see Economic Policy and the Economy). Returning to a favourite populist theme, he decried the “disturbing level of misappropriation and corruption” within the public service. In the early days of his regime, Mr Rawlings made the battle against kalabule, or corruption, a central goal. In more recent years, however, there has been a palpable increase in corruption, with Ghana scoring poorly on several international surveys and corruption becoming a growing political issue (4th quarter 1998, pages 13-14).

—as he is exonerated in a Despite several scandals surrounding close aides of the president—including Nigerian bribe scandal— allegations in the Accra-based weekly, The Chronicle, in December that unau- thorised dealing in oil derivatives by Tsatsu Tsikata, head of the Ghana National Petroleum Corporation (GNPC) and a close friend of the president, had cost taxpayers C100bn ($40m)—Mr Rawlings himself has managed to build and maintain a relatively clean image. Nevertheless, Ghana’s independent press routinely accuse him and his wife of using their position for personal gain. Most recently, an adviser to Nigeria’s former military ruler, General Sani Abacha, alleged that the general had paid Mr Rawlings $5m to lobby in Western capitals for an easing of sanctions against Nigeria. However, in January Nigeria’s new leader, General Abdulsalami Abubakar, claimed that a panel of enquiry had found no truth to the allegations, and cleared Mr Rawlings, who had denied the story all along, of the affair.

—but faced with Mr Rawlings also faces allegations of human rights abuses. The case of the allegations of human former Chilean head of state, Augusto Pinochet, who may be extradited from rights abuses the UK after a Spanish judge issued an arrest warrant for him, has reportedly unleashed a wave of similar complaints against a number of Africa’s leaders including Mr Rawlings. As the early years of Mr Rawlings’s rule were marked by acts of revenge against former leaders, the families of those killed and exiled may try to take the current government to court. In particular, the execution of three judges in 1982 is believed by many to have been officially sanctioned. The son of one of those judges recently held a press conference demanding justice, implying that Mr Rawlings was personally responsible for deaths caused under his rule.

Ghana boosts its presence Continuing Ghana’s involvement in regional affairs, more than 1,000 Ghana- in Sierra Leone ian troops were sent to Sierra Leone in early February to bolster its contribution to the Nigerian-led regional peacekeeping force in that country by the Moni- toring Group (Ecomog) of the Economic Community of West African States (Ecowas). Foreign troops have been policing Liberia and Sierra Leone for much of the 1990s. Early in 1998 Ecomog troops re-installed Sierra Leone’s president, Ahmad Tejan Kabbah, who was ousted in May 1997, and successfully drove the

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Revolutionary United Front (RUF), which opposes President Kabbah, into the countryside. However, fighting has resumed in recent months. In mid-January, following meetings with General Abubakar and other regional leaders, Mr Rawlings bluntly accused the Liberian government of aiding the RUF, and pledged to help maintain Sierra Leone’s democratically elected government, prompting Ghana’s further deployment of troops.

Economic policy

The 1999 budget is On February 5th, with just one day’s notice to parliament, the minister of presented finance, Richard Kwame Peprah, presented Ghana’s 1999 budget. Maintaining the government’s ongoing economic strategy, Mr Peprah reiterated that the aims of the government were to maintain sound monetary and fiscal policies. The government’s main economic targets for 1999 are to achieve real GDP growth of 5.5%, to bring year-end inflation down to 9.5% and to achieve a budget deficit of just 5.2% of GDP. For the first time, the budget projects macroeconomic targets three years ahead. Real GDP growth is set to increase to 6% in 2001 with inflation falling to 5% in that year.

The 1999 budget: selected macroeconomic targets, 1998-2001

1998a 1999b 2000b 2001b Real GDP growth (%) 4.6 5.5 6.0 6.0 Agriculture 5.3 5.6 5.2 5.2 Industry 2.5 6.3 6.2 6.7 Services 6.0 5.3 7.0 6.3 Inflation (%, year-end) 15.7 9.5 6.0 5.0 Primary balancec (% of GDP) 3.8 3.8 2.6 3.8 Fiscal balance (% of GDP) –6.3 –5.2 –2.5 –0.1

a Provisional. b Official forecasts. c Excluding interest payments.

Source: Ministry of Finance, 1999 budget.

The 1998 fiscal deficit is According to the provisional budget outturn for 1998, released with the new lower than expected— budget, the fiscal deficit was lower than expected at 6.3% of GDP, rather than the 6.7% forecast in the original budget, and down considerably from 8.6% in 1997. While total revenue in 1998 was below projections, mainly because corporate tax contributions fell as a result of the energy crisis, government expenditure was down by even more, leaving a deficit of C1,045bn ($445m), or C139bn smaller than anticipated. Nearly all of the shortfall in expenditure was a result of low implementation of capital projects. The one area where expenditure was higher was domestic interest payments, as interest rates on Treasury bills had not fallen as quickly as hoped. The deficit was financed largely by domestic borrowing (via Treasury bills) but some 35% was financed by foreign borrowing.

—and is forecast to drop The government is targeting a reduction in the fiscal deficit to 5.2% of GDP in to 5.2% of GDP in 1999 1999, even though overall government spending is forecast to jump more than 50% from the provisional outturn reported for 1998, rising from C4.4tr ($1.9bn) to C6.7tr in 1999. An improvement in the implementation of capital projects is responsible for the expenditure increase. However, increased revenue from international donors and rising tax revenue on the back of rising economic

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 14 Ghana

activity are expected to bring the overall fiscal deficit down. The government expects the primary surplus—defined as revenue minus current expenditure excluding interest payments—to remain steady at 3.8%. The government projects a nearly balanced budget by 2001, a goal confirmed in President Rawlings’s address to parliament on January 14th but which seems unattainable, especially as expenditure will rise in 2000, an election year.

Government finances, 1998 (C bn) Original budget Provisional outturn Variance (%) Total revenue 3,821 3,339 –12.6 of which: tax 2,834 2,729 –3.7 non-tax 438 448 2.3 grants 549 162 –70.1 Total expenditure 5,005 4,383 –12.4 of which: recurrent non-interest 1,832 1,785 –2.6 interest payments 1,002 1,076 7.4 domestic financed capital expenditure 739 760 2.8 foreign financed capital expenditure 1,432 762 –47.0 Balance (commitment basis) –1,184 –1,045 –11.7 Net change in domestic arrears –48 –104 –116.7 Divestiture receipts 200 100 –100 Overall balance –1,032 –1,048 –1.5 Financing 1,032 1,049 1.6 Foreign (net) 576 376 –34.7 Domestic (net) 456 672 47 Source: Ministry of Finance, 1999 budget.

In line with the government’s new three-year medium-term expenditure framework (MTEF), budgetary expenditure has been re-organised along five functional categories—general administration, economic services, infrastructure, social services and public safety. Social services account for about 30% of expenditure over the three-year outlook period, a fact the government argues underscores its commitment to health, education and poverty reduction. How- ever, the second largest category is general administration, which still accounts for 27% of expenditure in 1999 but the programme of civil service reform is projected to cut this to 20% by 2001.

Government finances, 1999-2001 (C bn) 1999 2000 2001 Total expenditure 6,744 6,972 6,954 of which: external debt 1,150 1,144 983 domestic debt 1,405 1,075 1,011 General administration 1,038 949 900 Economic services 399 420 450 Infrastructure 819 1,080 1,120 Social services 1,174 1,318 1,413 Public safety 390 470 500 continued

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 Ghana 15

1999 2000 2001 Total receipts 5,395 6,343 6,940 of which: revenue & grants 4,112 5,008 5,744 divestiture receipts 80 75 50 project loans 972 937 940 programme loans 231 323 206 Overall cash balance –1,005 –550 –32 % of GDP –5.2 –2.5 –0.1 Primary balance 741 584 945 % of GDP 3.8 2.6 3.8 Source: Ministry of Finance, 1999 budget.

Government expenditure by largest functional classification, 1999 (C bn) Government funds Donor funds Total Ministry of Education 679 90 769 Ministry of Roads & Transport 302 301 603 General Government Services 371 210 581 Ministry of Health 218 107 325 Ministry of Works & Housing 65 150 215 Ministry of Interior 193 0 193 Ministry of Defence 158 0 158 Ministry of Food & Agriculture 44 90 134 Ministry of Mines & Energy 26 107 133 Office of Government Machinery 124 0 124 Ministry of Finance 113 8 121 Source: Ministry of Finance, 1999 budget.

VAT is re-introduced A cornerstone of the government’s efforts at improving revenue collection in 1999 is the introduction of value-added tax (VAT). A previous attempt to introduce VAT was aborted in 1995 after violent protests against price increases imposed by unscrupulous traders. This time around, the government has taken few chances and, with help from the IMF and the UK government, launched a year-long public education campaign explaining the new tax system, how to calculate the rate, and how to complain against unfair price increases. On December 30th, after Christmas shopping had been completed, VAT finally took effect at a rate of 10%—less than the 15% originally proposed by the government and the 17.5% introduced in 1995. As VAT replaces a 15% sales tax, retail prices of some goods were expected to drop and public officials were charged with making spot checks to see how traders were handling the new system. Initial reports were mixed, with some areas reporting difficulties, but at least widespread price increases along the lines of 1995 are not expected. The impact on government revenue could be significant as the sales tax alone accounted for about 20% of all tax revenue in 1998. If VAT is successful, revenue could be enhanced as VAT is more comprehensive than the sales tax, but if it fails, government finances will suffer a severe setback.

An Article IV consultation On December 2nd the IMF’s executive board concluded its annual Article IV is concluded with consultation with Ghana, which reviews the country’s economic policies and the IMF— performance. Effectively, the announcement is an endorsement of Ghana’s

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 16 Ghana

current economic reform programme, and signals that the IMF is broadly satis- fied with progress to date. As such, the release of $55m in financing from Ghana’s enhanced structural adjustment facility (ESAF) with the IMF has been approved (see Foreign aid and payments). The current ESAF, Ghana’s third, was resumed in March 1998 after a freeze in 1996 following excessive fiscal laxity in the election campaign of that year (2nd quarter 1998, page 14). In its latest statement, the IMF board praised the government for meeting most of its macroeconomic targets, especially during the energy crisis that affected Ghana in 1998. It did, however, also urge a reduction in the fiscal deficit and an acceleration of the pace of reform. It made particular reference to the need to push forward the privatisation programme, especially the sale of the Ghana Oil Company (Goil), the Tema Oil Refinery (TOR) and the Produce Buying Company (PBC), a subsidiary of the Ghana Cocoa Board (Cocobod).

—but privatisation comes In early November the World Bank’s resident representative in Ghana, Peter under fire Harrold, complained to the local press about the slow pace of privatisation. However, the sales of “strategic assets”, such as Goil, TOR, and PBC, have come under heavy criticism from all parties in parliament. In late November, during a debate about an $18m African Development Bank (ADB) loan purportedly linked to the privatisation process, several members of parliament (MPs) from all parties voiced their opposition to “sacrificing quality on the altar of privatisation”. The quality of Ghana’s current cocoa is a source of national pride which many fear would be eroded in a more market-oriented system while the sale of the oil companies raises fears that the country could be held to hostage in the event of sudden oil shortages. One parliamentarian from the opposition New Patriotic Party (NPP) threatened to take the government to court if it proceeded with the sale of Goil, TOR and PBC. The privatisation of Ashanti Goldfields Corporation (AGC) was held up in court by several lawsuits, before being successfully implemented.

In an effort to quell the parliamentary rebellion, and to keep Ghana’s reform programme on track, the deputy finance minister, Moses Asaga, told parliament that the ADB loan was not conditioned on the sale of the three companies and promised that none of them would be sold outright. Mr Asaga claimed that when the PBC is privatised the government would keep a 25% stake (see Agricul- ture), with the rest being distributed to farmers, workers or floated on the Ghana Stock Exchange (GSE). For Goil, a strategic investor is expected to take over management and the largest stake, 25%, will be floated on the GSE, while the government will hold the balance, which will be at least 24%. Despite such attempts to placate parliamentarians the privatisation programme will continue to generate opposition both in parliament and nationally.

The economy

Real GDP growth is In his budget presentation, the minister of finance reported that real GDP reported at 4.6% in 1998 growth had risen to 4.6% in 1998, from 4.2% in 1997. Although this is lower than the government’s original forecast of 5.6%, it is much higher than expected either by the EIU, which had estimated just 1.2%, or the Accra-based Centre for Policy Analysis (CEPA), which had estimated zero growth.

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 Ghana 17

Mr Peprah claimed that the impact of energy shortages was much less severe than feared because of strong growth in the agricultural sector while government measures to mitigate the crisis had helped the industrial and services sectors.

GDP estimates (%) By sector 1997 1998 GDP 4.2 4.6 Agriculture 4.3 5.3 Pakistan: gross domestic product, by Industry 6.4 2.5 sector % change, year on year of which: manufacturing n/a 3.0 Industry Services Services 6.5 6.0 Agriculture GDP Source: Ministry of Finance, 1999 budget. 7

6 However, the government’s sectoral estimates on which the 1998 GDP growth 5

4 estimate is based seem overoptimistic. If the agricultural sector grew by 5.3%

3 this would be the highest growth rate since 1991, which, although the harvest 2 was good in 1998, seems unlikely. In addition, it seems impossible that the 1 industrial sector could have grown by 2.5%, or the manufacturing subsector by 0 1997 98(a) 99(b) 2000(b) 3% at a time when most factories were running at well below capacity. The minority spokesman on finance in parliament, Kofi Konadu Apraku, expressed (a) EIU estimates. (b) EIU forecasts. Source: EIU; State Bank of Pakistan. scepticism over the figures, claiming that they created a brighter picture of the economy than that felt by most Ghanaians. The EIU continues to treat the figures with caution but the IMF, in its Article IV consultation document, appeared to have accepted the national estimate of 4.6% real GDP growth. This means that this figure may well become an official actual and we shall be obliged to accept it for consistency purposes.

Inflation ends 1998 at Year-on-year inflation rates continued to fall in the final quarter of 1998, 15.7% allowing a loosening ending the year at 15.7%, leaving an annual average rate in 1998 of 19.4%. This of monetary policy rate confirmed a gradual downward trend since April, when inflation peaked at 23.1%, and is the lowest rate since 1992. The recent improvement is a result of lower food prices and stability in the exchange rate, which has kept import Interest rates prices down. Bank of Ghana discount rate; %

46 As inflation continued to fall, the Bank of Ghana (BoG, the central bank) has 44 twice been able to lower interest rates in recent months. On November 12th it 42 lowered its discount rate from 42% to 37%, and then to 32% on January 28th. 40 This followed a 3 percentage point fall to 42% in September 1998, after the rate 38 had been steady at 45% for almost three years. These moves appeared to con-

36 firm earlier predictions of the central bank governor, Kwabena Duffour, who

34 had claimed that rates would be heading lower (4th quarter 1998, page 15).

32 Certainly, with industrial growth under pressure in 1998 from the energy crisis, calls for lower rates had been building. Although Treasury-bill rates and prime Jan..Apr..Jul..Oct..Jan interest rates had been falling anyway, it was felt a reduction in the central 1998 99 bank’s discount rate would be an encouraging signal to the economy. Source: Ministry of Finance.

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 18 Ghana

The BoG denies Over the course of 1998, the cedi fell from C2,250:$1 to C2,346:$1, a nominal intervening in the cedi’s depreciation of just 4.1%, which is well below average inflation. In practice, this real appreciation has meant a significant real appreciation of the currency against the US dollar, endangering Ghana’s export competitiveness. Mr Duffour and Mr Peprah have repeatedly argued that the cedi’s stability is a result of general improvements in the economy and not of central bank intervention. However, the degree of the appreciation is surprising given the economic slowdown, a continuing current- account deficit and only modest inflows of capital over the past year. We remain unconvinced that the cedi’s stability is a result of market forces and are forced to speculate that it is administrative measures, such as tight restrictions on foreign- exchange bureaux, that are supporting the currency. In the current context of falling interest rates and dwindling international reserves, the cedi appears even more vulnerable (see Outlook for 1999-2000). Our view of the currency seems to be backed up by a recent report by the London-based Robert Fleming Securities. The cedi was named as one of the highest-risk emerging market currencies for 1999, on the grounds that it was at least 13% overvalued, and that Ghana faced at least a 25% chance of a currency crisis this year.

Agriculture

Cocoa-sector reform is to In January a workshop of representatives from all groups involved in the cocoa move ahead— industry was held in Accra to make recommendations to the government on how best to proceed with the restructuring of the sector. It is expected to make its recommendations in the next few months. Meanwhile, the finance minister, in his budget speech, assured farmers that the government is committed to carry on raising producer prices as an incentive to increase production, with a goal of soon paying 60% of the freight on board (fob) export price. Prices were last raised from 54% to 56% of the fob export price in June 1998 (3rd quarter 1998, pages 17-18).

Although the IMF had recently sent signals that it was willing to show flexibility on the timetable of Ghana’s cocoa-sector reform, in December the Fund’s executive directors urged the government to push ahead with cocoa marketing liberalisation, noting that reform has been “behind the pace set by Ghana’s competitors”—ie Côte d’Ivoire. Ghanaian officials will be closely watching events in Côte d’Ivoire, where cocoa liberalisation is due to be completed by October 1999. Ghana may in the meantime hold up implementation of some reforms, pending lessons learned from its neighbour. Officials from Ghana’s state-owned Ghana Cocoa Board (Cocobod), who are keen to protect their jobs and bureaucratic turf, will certainly be quick to point out any shortcomings of liberalisation in Côte d’Ivoire, hoping to strengthen their case for maintaining a strong public-sector role.

—as the PBC is to be Despite strong domestic resistance, the Ministry of Finance confirmed in privatised January that the Produce Buying Company (PBC), which controls about 70% of the domestic marketing of cocoa, will be privatised in 1999. Several nationalist parliamentarians have complained that the privatisation of the PBC would threaten Ghana’s cocoa industry and other MPs have warned that Cashpro, one of the smaller private cocoa marketing firms which reportedly has close links to

several top government officials, would be favoured in the sale. In a bid to stymie the latter criticism, the finance ministry has issued statements pointing out that the government is to retain 25% of the PBC’s shares, 20% are to be distributed to cocoa farmers and 5% to workers, with the remaining 50% floated on the GSE —effectively making all private buyers equal. No details on expected management changes have yet been announced.

Cocoa prices hit a On the international front coca prices have suffered a setback. Despite earlier two-year low— expectations of a global cocoa shortage in 1998/99 (October-September), global crop prospects have improved, and consumption in Asia and Russia has remained depressed, making a small surplus possible. As such, international prices dropped in the final quarter of 1998, and cocoa spot prices and futures hit a two-year low of 64.1 cents/lb for spot cocoa prices on February 24th, while prices for May delivery were 59.2 cents/lb in New York.

—as a Cocobod study On the domestic front, heavy rainfall in Ghana in October and November points to long-term created fears of an outbreak of black pod disease, which can infect up to 30% of troubles for the sector national output. However, traders have reported only normal incidence of the disease so far this season. Notwithstanding this good news, a study released by Cocobod has pointed to worrying longer-term trends in Ghana’s cocoa industry. Most importantly, the country’s tree stock is ageing, with only 13% of all cocoa trees within their peak producing range of 16-23 years, and more than a quarter over 30 years old. Studies such as this one are likely to be an important influence in the current political battles over cocoa-sector liberalisation and the as-yet-undefined role of Cocobod in the future. Critics of liberalisation will point out that only state intervention can muster the finance and planning necessary to rejuvenate the tree stock, because under a liberalised system, indi- vidual farmers would be unable to wait the ten or more years necessary before new trees start to bear fruit.

Mining and industry

Final mining results for Ghana’s Minerals Commission announced final export results for the mining 1997 show $580m in sector in 1997, showing that the country earned $580m, a 10% drop from earnings 1996, primarily because of falling international gold prices. Gold accounts for around 40% of the country’s total export earnings. Nonetheless, gold output continued to show growth, totalling 1.7m oz, up from 1.6m oz in 1996, con- firming a recovery in the sector, in which output had fallen to just 300,000 oz in 1982. In results for the first half of 1998, gold production was again up by more than one-third over the first half of 1997 (4th quarter 1998, pages 17-18).

Ashanti Goldfields reports Despite power rationing, and rising production costs because of increased en- record production in 1998 ergy tariffs in its Ghana operations, AGC reported total production, including Ashanti’s Siguiri mine in Guinea and Freda-Rebecca mine in Zimbabwe, of 1.54m oz in 1998. This figure is 32% higher than the 1.17m-oz output reported for 1997. AGC’s flagship mine at Obuasi in Ghana accounted for more than half the company’s production. While the international gold price has remained persistently low—averaging just $294/oz in 1998, 11% lower than the average for 1997, and standing firm at only $290/oz in mid-February this

year—AGC has continued to cut production costs. AGC reported that average costs fell to $218/oz in 1998, from $254/oz in 1997. Following the company’s rapid expansion campaign after privatisation in 1994, it is reportedly under- taking further exploration projects in other parts of Africa, such as Senegal, Zambia, Mozambique and Botswana.

Other mining news Australia’s Anvil Mining has reportedly indicated that it is hoping to shift its attentions to Ghana after encountering difficulties in its Dikulushi operations in the Democratic Republic of Congo (DRC) where the ongoing civil war is disrupting operations.

Dublin-based Glencar Mining’s Wassa gold concession began operations on schedule in late November. Estimates for production and costs have recently improved, with a new target output of 140,000 oz per year at an average cost of just $145/oz, up from its original estimate of 130,000 oz at a cost of $180/oz (4th quarter 1998, page 18).

According to the Paris based bi-weekly Africa Energy & Mining, Australian-based Dominion Mining is increasing its investment in Ghana after positive results from explorations on its Homasi property, 20 km north of AGC’s Obuasi.

Energy

The regional pipeline is In early February Pipeline Engineering, a German consultancy, submitted a now likely to move feasibility study on the construction of the proposed 620-mile offshore West ahead— African Gas (WAG) pipeline to carry natural gas from Nigeria to Benin, Togo and Ghana. Indications are that the project will go ahead, regardless of the study’s findings, as it has already secured strong political support from the governments of each country involved. In addition, Chevron, a US-based oil company, which will supply the gas in Nigeria, is keen to proceed. The project is forecast to cost about $400m and will be developed by a private-sector consortium including Chevron as the lead company, Shell, and the parastatals Nigeria National Petroleum Corporation (NNPC), Ghana National Petroleum Corporation (GNPC), Société béninoise du gaz (Sobegaz) and Société togolaise du gaz (Sotegaz). According to Chevron, the project should bring a total of $1.8bn in foreign direct investment to the region—counting the pipeline, new power plants and associated new industries—and generate upwards of 20,000 jobs.

—but talks continue with Prior to the finalisation of the WAG pipeline GNPC had initially claimed it Ivorian gas suppliers— would focus on using gas from Ghana’s own Tano offshore fields as a tempo- rary stopgap. However, it is reportedly still in talks with suppliers in Côte d’Ivoire to supply natural gas to its 330-mw Aboadse generating plant at Takoradi. Aboadse is currently running on light oil, but could save up to 30% in fuel costs by burning cheaper and cleaner natural gas. According to press reports, negotiations are under way between GNPC and both of Côte d’Ivoire’s US-owned gas producers, United Meridian Corporation and Apache Petroleum. Ghana’s High Street Journal reported in late January that a deal with Apache for building a pipeline from its Foxtrot field to Takoradi appeared to be close to completion. This pipeline could then connect to the WAG pipeline, if Côte d’Ivoire eventually joins the scheme.

—and Chevron is critical Chevron has made clear its frustration with GNPC’s plans of looking to Côte d’Ivoire for its short-term gas needs, before switching to Nigerian gas once the WAG pipeline is completed in 2001. In December the company’s project man- ager for West Africa, Chris Miller, urged World Bank officials not to support a pipeline between Ghana and Côte d’Ivoire. Clearly hoping to halt any deals in the works, Mr Miller claimed that the viability of the WAG pipeline depended upon securing several large contracts, and that any deals with Côte d’Ivoire would undermine their project and create unnecessary short-term costs.

Chevron’s reaction is probably best explained in the context of its recently signed 20-year agreement with an independent US power producer, KMR Power. KMR is building a 220-mw combined cycle power station at Tema, due to come on-line in 2000. The Tema plant has already agreed to supply AGC with 100 mw of power each year and will sell the rest to the Electricity Corpor- ation of Ghana (ECG). It has been agreed that the station will run on light oil until WAG is operational, but Chevron obviously fears that new gas supplies from Côte d’Ivoire could pre-empt its own supplies from Nigeria and leave it without one of its most significant customers.

Valco is back up to 60% The Volta Aluminium Company (Valco), which is owned by US-based Kaiser capacity Aluminium, has reportedly reached agreement with the Volta River Authority (VRA) for an allocation of more electricity, enabling the company to re-open two more potlines. Valco was forced to shut down four of its five potlines last year because of the electricity crisis. Now running at 60% capacity, the company hopes that as new power sources come on-line the VRA will be able to divert more electricity, allowing a return to full capacity. Valco remains the country’s single largest electricity consumer and, as it had been involved in the original financing of construction of Ghana’s Akosombo dam in the 1960s, received low-cost electricity in the past. This brought the company under heavy criticism during the recent crisis.

Business and finance

The GSE tops Africa rising The Ghana Stock Exchange (GSE) finished 1998 rising 69% in local currency 63%— terms, or 63% in US dollar terms, making it the best-performing stockmarket in Sub-Saharan Africa. Beginning the year at 512 points, the GSE all-share index skyrocketed to over 1,200 points in May, but fell back sharply on profit taking to finish the year at 868 points. Total capitalisation of the market rose to C3,246bn ($1.4bn) from C2,553bn at end-1997. The volume of shares traded was down by 27% from the previous year, but value traded was up by 44% to C134bn, reflecting the higher share prices. Nevertheless, at just 4% turnover, Ghana remains one of the world’s least liquid exchanges. Since the beginning of 1999 the GSE has seen mainly thin trading. The GSE all-share index floated around the 850-900 mark in January and early February, and reached 883 on February 15th, just slightly up from December’s close.

—as one in three Of the GSE’s 21 listed companies, seven registered gains of more than 100%, companies returned more and 13 exceeded the 91-day Treasury-bill rate, which stood at 27.5% at the end than 100% of the year. The Home Finance Corporation (HFC)—which also recently

Equity prices launched its third dollar-denominated bond issue, the HFC Series C 5-year Ghana Gold Coast Securities Liquidity bond at 8.25%—was the best performing share, rising by 219% over the course Index of 1998. The GSE’s only loser in cedi terms was Ghana Brewery Limited, which 750 declined by 32%. 700 Ghana stockmarket: top returning shares, 1998 650 1999 600 1998 price (C) price (C) Symbol Jan 2nd Dec 30th Return (%) Feb 24th 550 Home Finance Corporation HFC 235 750 219 750 500 Standard Chartered Bank SCB 8,100 23,100 196 24,000 450 Paterson Zochonis PZ 330 900 173 850

Jan..Apr..Jul..Oct..Jan. Enterprise Insurance Company EIC 955 2,400 151 2,010 1998 99 Fan Milk FML 486 1,100 126 1,450 Source: Bloomberg. Pioneer Aluminium Factory PAF 179 400 124 400 Mobil Oil Ghana MOGL 8,230 16,800 107 17,500 Ghana Commercial Bank GCB 800 1,300 63 1,050 Source: GSE.

New listings are expected Although there were no new listings on the GSE in 1998, there are several in 1999— prospective companies, however, which are expected to list in 1999 or 2000 including the State Insurance Company and the National Investment Bank. There are also controversial plans for partial listings of the PBC and Goil (see Economic policy and the economy). South Africa’s Engen Petroleum, which is in the process of investing in Ghana’s petroleum marketing with a local part- ner, is also reportedly interested in floating shares on the GSE, but no date has been set.

—and new measures are Following the much-delayed inauguration of the Securities Regulatory Com- adopted to boost the GSE mission (SRC) in September (4th quarter 1998, page 22), which oversees Ghana’s financial markets, the government has pledged further steps to boost investment on the stockmarket. In his budget presentation, the finance minister announced that the government will extend its exemption on capital gains tax on securities traded on the GSE for a further five years after the current exemption expires in 2000. In addition, legislation will be introduced before parliament in the first quarter of this year to allow for, and encourage, the establishment of collective investment schemes, such as mutual funds and unit trusts. The first such funds are expected to be operational by June 1999.

A new regional fund is A new regional private equity fund, sponsored by Accra-based Databank launched by Databank Securities and managed by Songhai Management in London, has been launched. The West African Enterprise Fund has claimed a positive response from private and institutional investors and has already reportedly secured $8m, with a target of $30m by April. The fund is planning to invest in various listed and soon-to-be listed companies, with a focus on the GSE and the regional Bourse régionale des valeurs mobilères (BRVM) based in Abidjan, Côte d’Ivoire. The Nigerian Stock Exchange is also being considered.

Ashanti Goldfields is the In the Financial Times annual FT500 survey of global companies, Ghana’s largest company between Ashanti Goldfields Company (AGC) replaced Zimbabwe’s Delta Corporation as Sahara and South Africa Sub-Saharan Africa’s largest company in terms of capitalisation (excluding South Africa). AGC registered a market capitalisation of $733m in 1998, far ahead of the second largest, Mauritius Commercial Bank, at $268m. AGC was ranked second in 1997 but Delta Corporation fell to seventh place in 1998, reflecting the fall in Zimbabwe’s currency rather than a fundamental change in the company’s performance. The only other Ghanaian company to make the top 30 was Standard Chartered Bank Ghana, which ranked 18th with a capitalisation of $143m. The financial sector in general was most prominent in the survey, with 13 banks making the top 30. If South African companies had been included, however, AGC would have been the only non-South African company on a top 50 list, barely squeaking in at 46th.

Sub-Saharan Africa’s top ten largest companiesa, 1998

Capitalisation ($ m) Ashanti Goldfields 733 Mauritius Commercial Bank 268 State Bank Mauritius 261 Barclays Bank Kenya 252 Tanzania Breweries 221 New Mauritius Hotels 213 Delta Corporation (Zimbabwe) 211 West African Cement (Nigeria) 199 Sun Resorts (Mauritius) 186 First National Bank (Namibia) 183

a Not including South Africa.

Source: Financial Times.

A telecoms battle is In January a new telephone service, Western Telesystems Ghana Limited under way (Westel), began, but immediately faced difficulties with Ghana Telecom (GT). Westel’s shareholders include the GNPC and a US-based company, Western Wireless, while GT is managed by Malaysia Telecom, which has held a 30% stake since partial divestiture in 1996. GT reluctantly agreed to allow Westel access to its lines after lengthy revenue-sharing negotiations but then unilater- ally blocked access codes for Westel’s prepaid cards. Westel reportedly intends to lay more than 50,000 of its own lines and install its own payphones in Accra and Tema, but the prepaid cards were to be the centrepiece of its initial strategy. While the two companies wage a public relations war in the newspapers— GT’s managing director, Adnan Rofiee, attacked Westel as a “parasite”—the matter has been referred to the National Communications Authority, Ghana’s regulatory watchdog. GT plans to introduce the country’s fourth mobile phone service some time in 1999, but appears to be behind schedule (4th quarter 1998, page 23).

Richard Branson’s trip A trip to Ghana by Richard Branson, chief executive of the UK-based Virgin stirs speculation Group, was heavily reported in the local press, raising speculation that Virgin might make a foray into West Africa. Although no specific projects were announced, Mr Branson’s meetings with aviation and Ghana Investment Promotion Centre (GIPC) officials and his own comments afterwards suggest that he may be interested in the transport and leisure sectors. President Rawlings and Mr Branson, both pilots, reportedly later flew a military plane together on a tour of several sites around Ghana.

Foreign aid and payments

Foreign reserves fall Although the fourth quarter tends to normally be a time when the BoG builds up foreign-currency reserves, Ghana’s international reserve levels slipped in the latter part of 1998. According to the IMF’s latest International Financial Statistics, total international reserves (minus gold) fell from more than $800m at end-1996 to under $500m by April 1998, and have continued to slide to just $328m (1.8 months of import cover) in November. Since export receipts have been solid throughout most of the year, this suggests that the central bank may have used international reserves to intervene in the foreign-exchange markets to support the cedi, although it continues to deny this.

An IMF disbursement is A day after the conclusion of the Article IV consultation with the IMF on approved December 2nd, the IMF approved the release of a $55m tranche to Ghana. This latest payment, Ghana’s third tranche of its current enhanced structural adjustment facility (ESAF) which expires in June this year, leaves SDR27.4m ($38.4m) in undrawn credit. Given the improving macroeconomic environment in Ghana, and the generally favourable reviews of its progress on reform in recent months from IMF officials (see Economic policy and the economy), negotiations for another ESAF are expected to proceed relatively smoothly.

The private sector benefits In November Proparco, the private-sector financing arm of the Agence from new credits française de développement (AFD), France’s official aid body, extended a $5m credit line to Ghana’s CAL Merchant Bank to enable it to finance the creation, or restructuring, of private companies. AFD has disbursed some $23m to Ghana since it began operations in 1985.

After talks between the vice-president, Mr Atta Mills, and the Chinese vice- president, Hu Jintao, during a visit by the latter to Ghana in January, China has agreed to provide a $6m facility for use by the private sector. It is as yet unclear how the finance will be disbursed and which bodies will benefit.

Aid news The UN’s International Fund for Agricultural Development (IFAD) announced in November that it would finance two projects in Ghana over the next two years worth $10m. In 1999 IFAD will fund a $5m project to support small- holder agriculture by improving irrigation and providing rural finance. In 2000 IFAD will spend another $5m on a project to help create a regulatory framework for rural microfinance institutions. IFAD will reportedly support a total of 17 projects in Africa worth about $200m in 1999.

The German government has agreed to a DM50m ($29m) financing package to fund the rehabilitation of the Tema to Aflao road and five smaller projects. The 166-km road forms part of the Trans West African Highway, connecting Tema to the border with Togo. The first DM25 instalment is a 40-year loan at 0.75%, while the second half is a grant.

The Sudan-based Arab Bank for Economic Development in Africa agreed in November to loan $7.7m to Ghana for a water drainage system on favourable but undisclosed terms.

In January the EU announced a Euro4.8m ($5.4m) grant to assist Ghana’s Audit Service in enhancing its technical capacity.

Quarterly indicators and trade data

Quarterly indicators of economic activity

1996 1997 1998 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 124.3 50.1 82.1 60.3 74.1 42.1 103.9 n/a n/a n/a Prices Monthly av Consumer prices, Accra: 1990=100 488.8 510.5 556.5 605.9 627.4 633.4 n/a n/a n/a n/a change year on year % 39.4 33.4 30.4 29.2 28.4 24.1 n/a n/a n/a n/a Cocoa, New York & London US cents/lb 67.6 66.8 65.4 73.1 77.0 78.3 76.1 79.0 76.8 72.1 Money End-Qtr M1, seasonally adj: C bn 1,386.34 1,058.99 1,092.77 1,387.08 1,830.30 1,532.75 1,510.93 1,871.41 2,356.92 n/a change year on year % 53.0 29.8 27.7 34.0 32.0 44.7 38.3 34.9 28.8 n/a Foreign trade Qtrly totals Exports foba $ m 421.3 383.9 427.4 404.5 438.6 449.4 485.1 453.1 n/a n/a cocoa beans “ 181.4 58.9 128.9 90.0 58.6 75.4 45.0b n/a n/a n/a Imports cifa ” 760.4 900.2 792.7 860.5 794.0 845.2 782.7 804.1 n/a n/a Exchange holdings End-Qtr Monetary authorities: goldc $ m797872716765d 61 62 60 61d foreign exchange “ 605 802 583 509 438 454d 470 327 295 291d Exchange rate Market rate C:$ 1,724.1 1,754.4 1,892.7 2,023.1 2,216.3 2,272.7 2,325.6 2,325.6 2,325.6 2,340.0e

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

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

Foreign tradea ($ ’000; monthly averages) UK USb Germany Jan-Nov Jan-Nov Jan-Dec Jan-Dec Jan-Dec Jan-Dec Exports to Ghana fob 1997 1998 1996 1997 1996 1997 Food, drink & tobacco 1,256 1,400 5,256 4,323 275 333 of which: cereals & preparations 282 319 4,942 3,936 115 95 Textile fibres, yarn, fabrics & mnfrs 750 943 906 1,055 386 393 Petroleum & products 277 138 1,067 855c 312 84c Chemicals 4,932 4,244 2,770 3,747d 1,475 1,336d Paper & manufactures 628 400 161 80 306 464 Non-metallic mineral mnfrs 428 345 221 152e 100 94e Iron & steel 1,062 842 131 822f 375 358f Metal manufactures 2,530 1,912 219 69g 402 191g Machinery incl electric 14,078 11,143 10,062 7,426 4,526 4,272 Transport equipment 3,455 2,370 1,002 4,693 3,124 3,157 Total incl others 37,269 30,153 24,528 26,067 12,926 13,806

UK Germany USb Jan-Nov Jan-Nov Jan-Dec Jan-Dec Jan-Dec Jan-Dec Imports from Ghana cif 1997 1998 1996 1997 1996 1997 Cocoa beans 8,282 12,131 5,831 5,834 2,613 588 Cocoa butter 1,187 645 1,922 1,395 0 119 Wood & mnfrs 1,962 1,585 2,801 2,755 1,074 1,540 Industrial diamonds 3 0 20 n/a 414 n/a Metalliferous ores & scrap 882 695 227 0h 81 0h Petroleum & products 0 3 0 0 248 0 Non-metallic mineral mnfrs 6 7 8 47e 8,882 8,986e Aluminium & alloys 1,296 818 2,302 3,137f 0 739f Total incl others 19,146 22,063 14,154 14,663 14,888 13,293 a Figures from partners’ trade accounts. b US exports to Ghana averaged $25.8m and $18.5m per month in the period January-November 1997 and 1998. US imports from Ghana averaged $13.2m and $13.0m per month in the period January-November 1997 and 1998. c Mineral fuels. d Including crude fertilisers and manufactures of plastics. e Including precious metals & jewellery. f Including manufactures & scrap. g Tools etc and miscellaneous metal manufactures. h Ores, slag and ash.

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 43,167 41,467 UK 16,083 19,583 22,333 16,800 Nigeria 28,833 32,333 35,500 39,442 Germany 18,250 16,000 12,833 13,283 US 11,417 14,417 27,083 28,808 US 15,583 15,333 13,583 12,075 Germany 9,500 16,083 14,250 16,450 Netherlands 5,833 4,500 3,583 10,558 France 6,083 7,417 10,583 13,358 France 7,167 10,417 10,583 9,650 Côte d’Ivoire 5,417 8,417 11,333 12,442 Total incl others 123,500 134,083 141,000 143,333 Total incl others 170,083 211,417 265,417 274,375 a DOTS estimates.

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