Country Profile 2004

Ghana

This Country Profile is a reference work, analysing the country’s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit’s Country Reports analyse current trends and provide a two-year forecast.

The full publishing schedule for Country Profiles is now available on our website at http://www.eiu.com/schedule

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 Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where its 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.

London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent St The Economist Building 60/F, Central Plaza London 111 West 57th Street 18 Harbour Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.20) 7830 1007 Tel: (1.212) 554 0600 Tel: (852) 2585 3888 Fax: (44.20) 7830 1023 Fax: (1.212) 586 0248 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected]

Website: www.eiu.com

Electronic delivery This publication can be viewed by subscribing online at www.store.eiu.com Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, on-line databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office

Copyright © 2004 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN 0269-4549

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

Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK. Main railway Main road BURKINA FASO International boundary Bawku Regional boundary Navrongo Tumu International airport Bolgatanga Capital UPPER EAST Regional capital UPPER WEST Other town

O ti

R October 2004 .

a c

k Wa

o l

R . Volta R. te hi W NORTHERN Tamale Yendi

t i R. Bole

. a R lt o

C‘TE V Salaga

l D'IVOIRE Bui dam B

TOGO VOLTA Wenchi GHANA Lake BRONG-AHAFO Volta Berekum Sunyani

Mampong

ASHANTI

Kumasi . R o n Ho a Konongo T Nkawkaw

. R ra P Wiawso Awaso Obuasi EASTERN Akosombo dam . R m i Koforidua Volta R. ir B Dunkwa GREATER WESTERN Oda ACCRA Keta Nsawam Larteh

Tema CENTRAL Swedru ACCRA Prestea

. r a Winneba R Tarkwa R

a . r . b o k Gulf of Guinea n A Cape Coast

Axim Sekondi-Takoradi

ATLANTIC OCEAN 0 km 50 100 150 200

Contents

Ghana

3 Basic data

4 Politics 4 Political background 5 Recent political developments 9 Constitution, institutions and administration 10 Political forces 12 International relations and defence

13 Resources and infrastructure 13 Population 14 Education 16 Health 17 Natural resources and the environment 18 Transport, communications and the Internet 22 Energy provision

24 The economy 24 Economic structure 25 Economic policy 29 Economic performance 32 Regional trends

33 Economic sectors 33 Agriculture 36 Mining and semi-processing 39 Manufacturing 41 Construction 41 Financial services 45 Other services

46 The external sector 46 Tra d e i n go od s 47 Invisibles and the current account 48 Capital flows and foreign debt 50 Foreign reserves and the exchange rate

52 Regional overview 52 Membership of organisations

56 Appendices 56 Sources of information 57 Reference tables 57 Population and labour force 57 Electricity generation and consumption 58 Gross domestic product by sector 58 Gross domestic product by expenditure

58 Gross domestic product 59 Government finances 59 Interest rates 59 Money supply 59 Mineral production 60 Manufacturing production 60 Ghana Stock Exchange 61 Main trading partners 61 Balance of payments 62 Net official development assistance 62 External debt 63 Exchange rates 63 Foreign reserves

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 3

Ghana

Basic data

Land area 238,537 sq km

Population 20.9 m (2003, IMF estimate)

Main towns Population in millions (2000 population and housing census, Ghana Statistical Service) Accra (capital) 1.65 Kumasi 1.17 Ta mal e 0. 2 0

Climate Tropical

Weather in Accra Hottest months, March, April, 23-35°C; coldest month, August, 22-27°C; driest (altitude 27 metres) month, January, 15 mm average rainfall; wettest month, June, 178 mm average rainfall

Languages English (official), Twi, Ewe, Fante, Ga, Hausa

Measures Metric system

Currency Cedi (C)=100 pesewas. Average exchange rate in 2003: C8,677:US$1. Exchange rate on October 20th 2004: C9,017:US$1

Time GMT

Holidays January 1st, March 6th (Independence day), Good Friday, Easter Monday, May 1st (Labour day), July 1st (Republic day), December 6th (Farmers’ day) December 25th-26th

Politics

Ghana is a unitary republic with a multiparty democratic system under which executive power is vested in a president who is elected by universal suffrage every four years. John Agyekum Kufuor and his New Patriotic Party (NPP) won the presidential and parliamentary elections of 2000. This bought to an end the administration of Jerry John Rawlings, who had ruled the country as a military ruler from 1981 to 1992, and for the subsequent eight years as a constitutionally elected president. Mr Kufuor was sworn into office in January 2001. The next presidential and legislative elections are scheduled for December 6th 2004. As a result of a reasonable economic performance in their first term, we expect Mr Kufuor and the NPP to be re-elected.

Political background

British colonialism The British originally came as traders. However, in the late 19th century the scramble for Africa led Britain to invade the Ashanti kingdom in 1874 and declare the Gold Coast a British colony, which, after a struggle, it controlled by 1901. The Gold Coast became one of Africa’s most successful colonial economies, based on peasant cash-crop production, mainly of cocoa, and on gold mining, which was largely controlled by foreign interests. Farmers’ initiatives and local familiarity with international trade also helped to bring relative prosperity.

The road to independence Lawyers and other educated elites who were excluded from politics by the colonial state dominated the early political movements. After World War Two other social groups also became involved; for example, ex-soldiers who had fought for the British in the war demanded a role in the administration and business opportunities in the colonial system. By 1949 nationalists had split into moderates and radicals, the radicals supporting Kwame Nkrumah’s Convention People’s Party (CPP). Backed mainly by young people and poorer sections of the middle class, the CPP won the country’s first election in 1951. In 1957 Ghana became the first Sub-Saharan African country to gain independence. The CPP government was ostensibly socialist, and laid down the basis of Ghana’s current industrial infrastructure, though its policies alienated cocoa farmers and influential private-sector businesses; and in 1964 it introduced a one-party state. Nevertheless, the legacy of Kwame Nkrumah, as “father of the nation”, remains important: even today, several political parties lay claim to the Nkrumahist tradition.

Political instability and the Ghana experienced nine changes of government, including four military coups, descent into corruption between 1957 and 1981, but escaped the violence that afflicted many other African countries. Poor economic management and perceptions of corruption have been the most common sources of dissatisfaction. In contrast to much of Africa, ethnicity has played a relatively minor role in mainstream political conflicts.

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 5

In 1966 an economic crisis and rumours of cuts in the military’s resources prompted Ghana’s first (bloodless) military coup, by conservative generals, who formed the National Liberation Council (NLC). They handed over power to the laisser-faire Progress Party (PP) after elections in 1969. The PP, led by Kofi Busia, continued the NLC’s economic reforms. However, a fresh economic crisis brought another military coup in January 1972. The younger left-wing colonels of the National Redemption Council (NRC), led by the late General Ignatius Acheampong, reversed the PP’s policies in favour of a quasi-socialist programme. In July 1978 other defence chiefs in the NRC who favoured a return to civilian rule removed Mr Acheampong. Before elections could be held, however, younger officers staged a fresh coup on June 4th 1979 and formed the Armed Forces Revolutionary Council (AFRC), led by a 32-year-old junior officer, Flight-Lieutenant Jerry John Rawlings. The left-leaning AFRC set itself the limited mission of flushing out corruption and handing over to a new civilian administration, which it did in September 1979, to the People’s National Party (PNP). However, the PNP, led by Hilla Limann, failed to deliver either a better economy or cleaner government, and the soldiers, again led by Mr Rawlings, staged a second coup on December 31st 1981.

The PNDC: a military The new Provisional National Defence Council (PNDC) government was technocratic regime initially radical and socialist in complexion. Dismissing party-based politics as corrupt and divisive, it founded a military technocratic regime in which Mr Rawlings and other military men focused on domestic security and fighting corruption. Three former military heads of state, including Mr Acheampong, were summarily executed, three high court judges were killed (allegedly by members of the ruling party) and many individuals associated with former regimes were forced into exile. Socialist economic policies were implemented and all large bank accounts were frozen and investigated for tax frauda move that continues to affect popular confidence in the banking system today.

Socialist rhetoric and free- The regime had been in power for less than two years when Ghana suffered a market reform severe drought and 1.2m Ghanaians were expelled from Nigeria and returned home. Desperate for hard currency, some PNDC members sought a deal with the IMF. This set off an internal struggle won by those in favour of reform, and the radicals went into silent opposition. Although it continued to espouse socialist and anti-imperialist rhetoric, the PNDC went on to implement one of Africa’s first and longest-running structural adjustment programmes, beginning in 1983. This stabilised the economy and brought several years of growth, but alienated some of the PNDC’s allies. In the late 1980s Mr Rawlings held “party-less” local elections, which were intended to pave the way for a system of party-less democracy, but the idea was shelved in response to demands for multiparty reform from bilateral donors.

Recent political developments

The 1992 elections In November 1992 the PNDC held Ghana’s first multiparty elections for more than a decade. Mr Rawlings won the presidential race under the banner of a

new political party he had founded, the National Democratic Congress (NDC). He won 58% of the vote, compared with 30% for his nearest rival, Professor Albert Adu Boahen of the New Patriotic Party (NPP). Although international observers endorsed the election, the opposition claimed fraud and boycotted the parliamentary election in December. The result left the NDC with complete control of parliament, which, as a result, rarely challenged the executive. The opposition parties, excluded from the legislature by their own boycott, tried to strengthen their influence through other channels. The NPP used its many supporters in the judiciary to challenge the government on constitutional issues. Most of the smaller opposition parties claiming the Nkrumahist tradition regrouped into the People’s Convention Party (PCP) in a bid to restore the movement’s credibility.

Presidential elections Votes (‘000) % of total 1992 Jerry Rawlings (NDC) 2,327 58.3 Albert Adu Boahen (NPP) 1,213 30.4 Hilla Limann (PNC) 267 6.7 Kwabena Darko (National Independence Party) 114 2.9 Emmanuel Erskine (People’s Heritage Party) 68 1.7 Total 3,989 100.0 1996 Jerry Rawlings (NDC) 4,092 57.5 John Kufuor (NPP) 2,807 39.5 Edward Mahama (PNC) 210 3.0 Total 7,109 100.0 2000a John Kufuor (NPP) 3,132 48.2 John Atta Mills (NDC) 2,896 44.5 Edward Mahama (PNC) 190 2.9 George Hagen (CPP) 116 1.8 Augustus Goosie Tanoh (NRP) 79 1.2 Dan Lartey (GCPP) 68 1.0 Charles Wereko-Brobby (UGM) 22 0.3 Total 6,503 100.0 a As neither John Atta Mills nor John Kufuor polled 50% in the first round of voting, a run-off election was held; John Kufuor won 56.9% of the vote and John Atta Mills won 43.1% of the vote. Source: Ghana Electoral Commission.

The 1996 elections The 1996 elections offered the prospect of a closer contest. The NPP and PCP formed an alliance to field a single presidential candidate, John Agyekum Kufuor, and a single candidate in each constituency, believing that this demonstration of unity would be enough to unseat the government. However, the president and the NDC fought well-organised campaigns, which stressed the government’s record on spending and infrastructure development, and capitalised on their control of the state-owned media and patronage networks. Mr Rawlings won a majority in every region except Ashantithe NPP’s heartland. In a near repeat of 1992, he gained 57.5% of the vote to Mr Kufuor’s 39.5%. The opposition won 67 seats in the legislative election compared with 11 in 1992, but this still left the NDC with a workable majority. The results reinforced the NPP-PCP alliance’s image as a southern-based party dominated

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 7

by Ashanti leaders, and the NDC’s position as the only party with a national support base.

The 2000 elections In 2000 candidates from seven political parties contested the first round of the presidential election. A run-off between the two leading candidates, John Atta Mills of the NDC and Mr Kufuor of the NPP, resulted in a decisive win for Mr Kufuor. Although voter turnout was low and voting was marred by some violent incidents, the election was widely perceived as fair. In the parliamentary election, the NPP won 100 of the 200 seats; the NDC won 92 seats; the CPP one seat; the PNC three seats; and independent candidates won four seats. The 2000 elections were significant for a number of reasons, not least in that this was the first time in Ghana’s 43-year post-independence history that an incumbent government had been changed through the ballot box. The election also ended the 20-year rule of Mr Rawlings. Before the elections, there was widespread speculation that if Mr Rawlings lost he would refuse to give up the presidency. However, there was a smooth transfer of power and Mr Rawlings temporarily adopted a new role as a UN ambassador, while also remaining an important figure within the NDC. The peaceful, democratic transfer of power experienced in the 2000 elections has put Ghana into the international spotlightmany commentators see it as a role model for African countries.

Legislative elections Seats in parliament 1992 National Democratic Congress (NDC) 189 National Convention Party (NCP) 8 Independents 2 Every Ghanaian Living Everywhere (EGLE) 1 Total 200 1996 National Democratic Congress (NDC) 133 New Patriotic Party (NPP) 61 People’s Convention Party (PCP) 5 People’s National Convention (PNC) 1 Total 200 2000 New Patriotic Party (NPP) 100 National Democratic Congress (NDC) 92 Convention People’s Party (CPP) 1 People’s National Convention (PNC) 3 Independents 4 Total 200

Source: Ghana Electoral Commission.

The NPP in power After assuming office, the NPP government secured its position by taking control of the security machinery and purging it of a number of Rawlings supporters. Mr Kufuor has also investigated alleged wrongdoing by the Rawlings regime through the Fast Track High Court and through the initiation of a National Reconciliation Commission (NRC) in September 2002. As a result, some former ministers and senior officials of the previous government have been prosecuted for alleged corruption and malfeasance. This has weakened

the public standing of the NDC, but has divided opinion within the country and led to accusations of a witch hunt. The report of the NRC was passed to the president on October 13th 2004; its contents have yet to be made public. The Commission will endeavour to provide comprehensive coverage of its deliberations, but acknowledged that it will be unable to deal with all of the near 4,000 petitions submitted to it. The report is likely to recommend victim compensation, but it is not yet clear whether the government has the capacity to pay the kind of compensation the victims are expecting, or if there are sufficient avenues for redress if a victim is not satisfied with what the NRC decides. Although the NRC has been accepted in principle by Ghanaians as a genuine vehicle for national reconciliation, some of the Commissionrs practices have undermined its independence and credibility, particularly its perceived pre-occupation with allegations against Mr Rawlings, and Kojo Tsikata, the security adviser to the PNDC. As the NRC is not a legal investigation, and in the absence of some of the trappings of a court, such as a facility for all of the accused to cross-examine their accusers and introduce further witnesses, it will be unable to reach a verdict on any of the main cases presented to it.

NPP has concentrated on The NPP’s performance will be judged by its success in achieving its main economic development manifesto goals of achieving macroeconomic stability, accelerating real GDP growth and improving infrastructure. It has made reasonable progress, as economic growth has strengthened and inflation has been bought near to single digits. Fiscal discipline has improved and the government has implemented various infrastructure projects and the National Health Insurance Scheme (see healthcare). Although the government has benefited from strong gold and cocoa prices, its record has won the approval of votersthe NPP has won all seven of the by-elections that have taken place since it took power, gaining four seats from the NDC in the process. Realising that it will struggle to regain power at the elections, the NDC has staged a number of protest marches and parliamentary boycotts, but these posed no threat to political stability. Important recent events

March 2002 Nearly 40 people are killed in a rare outbreak of ethnic violence in the northern town of Yendi following the murder of the king of the influential Dagomba tribe, the second most important king in the country after the Ashanti king. September 2002 The National Reconciliation Commission (NRC) begins hearing cases of human rights abuses during the periods of military rule. January 2003 The president, John Agyekum Kufuor, is selected to be the New Patriotic Party’s candidate at the 2004 presidential election. John Atta Mills was chosen to be the National Democratic Congress (NDC) candidate the previous month, meaning that the poll will be a rerun of the 2000 election.

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 9

March 2003 A wide-ranging cabinet reshuffle takes place, resulting in some ministries being merged, new ones being created and a reallocation of some ministerial positions. The reshuffle is designed to strengthen ministerial performance: those ministers considered to be performing poorly are either removed or moved to less important positions. April 2003 A former NDC finance minister and agriculture minister are jailed at the Fast Track High Court for wilfully causing financial loss to the state. February 2004 The former president, Jerry Rawlings, testifies before the NRC. His appearance only lasts 25 minutes and entails very limited questioning. July 2004 The NRC concludes its hearings. Its report is passed to the president in October 2004; the contents have yet to be made public. Constitution, institutions and administration

Constitutional changes Ghana’s first constitution at independence in 1957 was based on the UK system of multiparty parliamentary democracy. However, it was changed within three years when Ghana became a republic. In 1964 the CPP government instituted a one-party state and the 1960 constitution was amended. Constitutional arrange- ments were further transformed under seven more changes of government. The present constitution, which established the Fourth Republic, was introduced in 1992, when Ghana held its first multiparty elections since 1979. Much of it is based on the US system, vesting executive power in a president who is elected by universal suffrage every four years. Tenure is limited to two terms. The cabinet is appointed by the president, and is approved by the legislature. From the 2004 election, the number of members of parliament (MP) in the single parliamentary chamber will be raised to 230, from 200, reflecting the growth in population since the present level was set, in 1987. MPs are elected on a first- past-the-post basis. Candidates represent parties or may stand as independents.

Well-respected judiciary The chief justice, who is nominated by the president and approved by parliament, heads the judiciary. The judiciary is seen as largely independent of political influences, but there have been some accusations from the NDC that the judiciary is biased towards the government. This is not surprising considering that when it was in opposition the NPP also considered the judiciary biased towards the then NDC government. The courts are used extensively for civil, business and criminal cases. In 2001, as part of a process to speed up judiciary processes, the chief justice established Fast Track High Courts. The Supreme Court declared these unconstitutional in February 2002 after a leading member of the NDC challenged whether the court had the authority to try him, although it subsequently overturned its decision. Ghana’s judiciary is relatively well respected and independent, but its reputation continues to suffer from the political interference of previous decades.

Political forces

Ghana’s political right returns Historically, there have been two political traditions in Ghana: Nkrumahist and to power Busia-Danquah. The NPP traces its ideological roots to Abrefa Busia and J B Dankwa, two key opponents of Kwame Nkrumah, and is a right-leaning political force committed to a market-based economy. Since independence, the Busia-Danquah group has held elected political office only once before now, in 1969-72, when it was known as the Progress Party (PP) and led by Mr Busia. The PP government was overthrown in 1972 by pro-Nkrumah military forces led by General Acheampong, confirming the historical dominance of left-of-centre politics in Ghana. When Ghana returned to constitutional rule in 1992, the Busia-Danquah tradition re-emerged as the NPP. The NPP boycotted the 1992 parliamentary election after alleging that the bitterly contested presidential election was rigged. The absence of the party from the first parliament is believed to have stalled the party’s efforts to expand its base from the Ashanti region. However, since 1996 the NPP has been a strong force in parliament, although its victory in 2000 has been seen as a protest vote against the NDC rather than a positive vote for the NPP. Nonetheless, its performance during its first term of office has broadened its support base throughout the country and it is expected to increase its parliamentary representation after the 2004 election. The party’s performance in power shows that while it is supportive of further economic reforms to improve the business environment, it is prepared to defer these when politically expedient. Key political figures

John Agyekum Kufuor President; he was voted into power in the 2000 presidential election after losing to Jerry John Rawlings in the 1996 election. He is well respected in the country and has developed a strong international image. Mr Kufuor has become a leading representative of Africa in global forums and is heavily involved in conflict resolution within West Africa. Alhaji Aliu Mahama Vice-president; before being chosen as running mate to Mr Kufuor in the 2000 election, he was little known in Ghanaian politics. He was selected to be Mr Kufuor’s vice- president in the 2004 election, despite being from one of the sub-groups of the Dagomba tribe who clashed violently in March 2002. Should he serve two full terms as vice-president, he would be favourite to take over from Mr Kufuor, who steps down in accordance with the two-term presidential limit prior to the 2008 polls. John Atta Mills Vice-president in 1996-2000 and presidential candidate of the NDC in the 2000 presidential election, which he lost to Mr Kufuor in a run-off. He has been selected as the party’s candidate in the 2004 presidential election, but his very close relations with Mr Rawlings may damage his chances, although he has played these links down in the campaign. Should he lose the presidential election again it will in effect end his political career.

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 11

Jerry John Rawlings Head of state after seizing power in 1981; elected president in 1992 and 1996. He has struggled to find a role since standing down and continues to wield considerable influence over the National Democratic Congress (NDC), of which he is chairman for life. Campaigned with Mr Mill’s ahead of the 2004 election. May be criticised in the NRC’s report, but this is unlikely to cause much damage to his reputation, as most of the electorate already have polarised views about him. Yaw Osafo-Maafo Minister of finance. A former banker, he was the NPP’s spokesman for trade and industry in the last parliament. John Henry Mensah Senior Minister. He was previously the minister for parliamentary affairs and the majority leader in parliament. He is influential within the NPP. Kwesi Botchwey A former finance minister who is popular for having stood up to Mr Rawlings; he resigned as finance minister in 1995 after disagreeing with the president on key policies. Was resoundingly beaten in the contest to become the NDC’s candidate at the presidential election. May be a leading figure in any breakaway if the party splits after the 2004 elections. Mohammed Mumuni Mr Mill’s running mate for the 2004 presidential election. Mr Mumuni is close to Mr Rawlings and was a legal counsel to the former presidenthe is a lawyerand a minister in his last government. Mr Mumuni is from the opposing sub-group of the Dagomba tribe to Mr Mahama The opposition After dominating the political scene since 1992, the NDC became an opposition party after loosing the 2000 elections. The party was born out of the People’s National Defence Council (PNDC), a military regime government that came to power in 1981 after overthrowing a constitutionally elected government. The founding father and leader of the party, Jerry Rawlings, and other prominent members of the party lay claim to the Nkrumahist ideology. The NDC draws its support from the Volta region and northern Ghana. The NDC has struggled to adjust to life as an opposition party after such a long period in power and there have been a number of defections of lower-ranking members to the NPP. Its credibility and public image have been tainted by allegations of fraud and corruption involving ex-ministers and senior government officials. The party has also split between those who want to remain loyal to Mr Rawlings and those who favour steering a more independent course. For the moment the former appear to have control of the party, but there is a real prospect of a formal split if it performs poorly in the 2004 elections. A proposed merger between the other four opposition parties, the Convention People’s Party, the People’s National Convention, the National Reform Party and the Great Consolidated People’s Party, all of which claim an ideological link with Ghana’s first president, Kwame Nkrumah, has run into trouble. It was the dismal showing of these parties in the 2000 elections that precipitated the merger talks. The prospect of a successful merger is not promising, as Ghanaian

parties that have merged have often split again. Even if these parties do succeed in coming together, they will struggle to compete with the NPP and the NDC. But they remain important because if the result of the election is tight, they will determine the balance of power in parliament. They may use this position to force the government to not fully adhere to the donor-driven economic policy agenda. The membership of each of the Nkrumahist parties is ageing and the parties have little appeal to younger voters who do not fully understand what Mr Nkrumah stood for.

The Asantehene The king of the Ashanti, also known as the Asantehene, who has been a ceremonial figure focusing on local and traditional affairs, is acquiring a new role in domestic politics as an envoy who will try and attract foreign investment into Ghana. He has undertaken several foreign trips to talk to businessmen about investment opportunities in the country, particularly in the Ashanti lands. He ascended to the Ashanti throne in April 1999 as King Otumfuo Osei Tutu II after the death of his uncle, King Opoku Ware II.

International relations and defence

Ghana has developed a The NPP has historically been a pro-Western party, following policies leading role under Mr Kufuor supporting liberal democracy and free enterprise and the government has received strong support from key Western donors since the smooth transition of power at the last election. Mr Kufuor has invested considerable time in enhancing Ghana’s international status, facilitating conflict resolution within the region and pursuing pan-African issues at the global level. (The opposition complains that he spends too much time abroad, rather than dealing with domestic issues.) Since becoming president, Mr Kufuor has focused on mediating in the conflicts that blight the sub-region and on building friendly relations with neighbouring countries. He demonstrated this by paying visits to all of Ghana’s neighbours at an early stage in his presidency. Mr Kufuor was appointed to the rotating chairmanship of the Economic Community of West African States (ECOWAS) in January 2003, since when he has been very active in the region. Ghanaian troops are currently in Côte d’Ivoire as part of an ECOWAS peacekeeping force. Concerned about the Ivorian conflict spreading beyond its borders, Mr Kufuor has tried to take a tough line with the Ivorian president, Laurent Gbagbo, to ensure that the various peace deals are implemented. Despite the fact that three international conferences on resolving the Ivorian conflict have been held in Accra, the deal agreed at the last of thesein July 2004seems to be on the point of collapsing. The Ghanaian government has become increasingly frustrated at the lack of progress by both sides and is likely to back the threat of UN sanctions, such as travel bans, against individuals known to be obstructing the peace process. Pushing ahead the stalled reconciliation process will be a priority over 2005. Ghana also hosted the peace talks that contributed to the eventual standing down of the Liberian president and indicted war criminal, Charles Taylor, in 2003.

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 13

Ghana’s role in regional dispute resolution has won it much support in the West and Mr Kufuor is a regular and leading contact for the region with Washington and London. He is a leading proponent of the New Partnership for Africa’s Development (NEPAD) and of adherence to its underlying principles, including good governance and peer review. Ghana was the first country to subject itself to peer reviewthe report of the peer review committee is likely to be released by mid-2005.

The military Although Ghana’s military has been heavily involved in politics throughout the country’s history, it is firmly under civilian control today. Relations between the military and civilian leaders are strong. In the 1990s the military underwent significant professionalisation, and it is now actively involved in international and regional peacekeeping efforts. Under the auspices of the UN, Ghanaian troops are in Liberia and Côte d’Ivoire, while a small number are also in Lebanon along with a number of observers in several other crisis areas.

Military statistics, 2003 Army 5,000 Navy 1,000 Air force 1,000 Total 7,000

Sources: International Institute for Strategic Studies, The Military Balance; Ministry of Finance.

Resources and infrastructure

Population

Population (m) Total 18.9 Male 9.4 Female 9.5 Urban 8.2 Rural 10.6

Source: Ghana Statistical Service, 2000 Population and Housing Census.

Population growth has slowed The final data from the 2000 population and housing census, released in March 2002, revealed a total population of 18.9m and a population growth rate of 2.7% per year since the last census in 1984. Although this rate is lower than that for West Africa as a whole, which was 2.9% over the same period, it is high in comparison with the 2% average for less developed countries. However, population growth is slowing in Ghana because of a decline in the fertility ratewhich is estimated at 4.5 children per woman, the lowest in West Africa and relatively stable mortality rates. According to World Bank data, population growth declined from 2.8% between 1985 and 1994 to 2.2% between 1995 and 2002.

Population by region, 2000 Population Annual growth Total Rural Urban density a rate b Western 1,924,577 1,226,159 698,418 80.5 3.2 Central 1,593,823 995,418 598,405 162.2 2.1 Greater Accra 2,905,726 358,042 2,547,684 895.5 4.4 Volta 1,635,421 1,194,337 441,084 79.5 1.9 Eastern 2,106,696 1,378,782 727,914 109.0 1.4 Ashanti 3,612,950 1,759,885 1,853,065 148.1 3.4 Brong Ahafo 1,815,408 1,136,628 678,780 45.9 2.5 Northern 1,820,806 1,337,016 483,790 25.9 2.8 Upper East 920,089 775,807 144,282 104.1 1.1 Upper West 567,583 475,735 100,848 31.2 1.7 Total 18,903,079c 10,637,809 8,274,270 79.3 2.7 a Persons per sq km. b 1984-2000. c Does not sum in source. Source: Ghana Statistical Service, 2000 Population & Housing Census.

The 2000 census yielded a population density of 79.3 persons per sq km. Ashanti is the most populous region, containing 19.1% of the total population, followed by Greater Accra (15.4%). However, Greater Accra is the most densely populated region with 895.5 people per sq km, followed by Central and Ashanti regions. The proportion of the population under 15 years old has declined to 41.3% from 45% in 1984, while the number of elderly people (those older than 64) has increased from 4% in 1984 to 5.3%. This change is attributed to improvements in health and life expectancy. The predominant ethnic group is the Akans who constitute 49.1% of the population, followed by the Mole- Dagbon (16.5%) and the Ewe (12.7%). The labour force is estimated at 9m, of which 50.4% are male and 49.6% female. The agriculture, animal and forestry sector is the largest employer, at 49.2%, followed by sales and services at 18.2%. Data from the statistical service show that poverty declined during the 1990s. Using an income of C900,000 (US$110) per year as a poverty line, the percentage of the Ghanaian population defined as poor declined from almost 52% in 1991-92 to just below 40% in 1998-99. However, the decline was not evenly distributed geographically; the reduction in poverty was concentrated in Accra and the forest zones. Rural income per head is 90% of the national average. The regions with the lowest income per headthe poorest areas of the countryare Northern, Upper West, and Upper East regions. Within the rural areas, incomes were higher in the forest zones than in the coastal and savannah zones.

Education

Literacy rates improving Until the 1970s Ghana had one of the most highly developed education systems in West Africa. It declined after 1975, along with the rest of the economy. In response, the government has undertaken a restructuring of the organisation and financing of the education system. This has been a major challenge. The 2000 Ghana Living Standards Survey indicates that 41% of females and 21% of males aged 15 and above were illiterate in 2000, compared with 58% of females and 36% of males in 1985, and that about 32% of all adults

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 15

have never been to school. According to the World Bank, the reduction in illiteracy rates has continued, to 18% of males and 34% of females in 2002.

Education indicators (%) Males Females All Primary school enrolment (2000)a 53.3 55.3 54.3 Secondary school enrolment (2000)a 8.8 7.6 8.3 a Number of pupils enrolled as a proportion of the population in the relevant age group. Sources: Ghana Statistical Service. Educational reforms Educational reforms have included changing the structure of the education system to six years of primary, three years of junior secondary, three years of senior secondary and four years of tertiary schooling. The curriculum has been reformed at both primary and secondary levels and made more relevant, and most senior secondary schools now offer vocational options in agriculture and technical subjects in addition to general arts and sciences. However, the change in the curriculum was not supported by a corresponding increase in resources to allow schools to run some of the new courses, particularly those in vocational and technical studies. The gross primary education enrolment rate reached 81.1% in 2003, although this masks significant discrepancies, as it was only 67.7% in Northern region. In an attempt to address this regional disparity, 61% of the 685 classrooms constructed in 2003 were in the north. Northern parts of the country also have the lowest female enrolment, owing to the predominance of Muslims and lower family incomes. In 2004 the government began providing scholarship and other incentive schemes to encourage the retention of females in full-time education. The number of teachers is increasing, but is still insufficient, as many of the better-qualified ones are taking higher paid jobs in Europe. Tertiary education in Ghana

There are five public universities: the University of Ghana, Kwame Nkrumah University of Science & Technology, the University of Cape Coast, University College of Winneba and the University of Development Studies. Demand for tertiary education is high and growing, but supply has lagged behind demand because of a number of issues including frequent strikes by lecturers and teachers, student demonstrations and reforms to the educational sector that have reduced basic and secondary education from 13-17 years to 12 years. The backlog and the inadequacies of some of the programmes offered in the public universities have led to the creation of private universities.

The main private universities are Central University College, Methodist University College, Valley View University, Islamic University and the Ashesi University College. These institutions are creating avenues for higher education and are easing some of the pressure on the public tertiary institutions, but the costprivate schools charge US$500-US$2,500 per semester depending on the facilities offeredserves as a deterrent to most potential students. The curricula of the private universities are geared more towards business and information technology courses, whereas the public institutions offer more courses in the arts.

There has been a general decline in the quality of graduates from most public universities, mainly because of a lack of effective tutoring and large class sizes. In addition, most of the public tertiary institutions may have to take a closer look at their curricula if they are to continue to be relevant to industry and the country as a whole. There are three medical schools in Ghana, one dental school, six polytechnics and thirty-eight teacher training colleges. Health

A mixed record As in other developing countries, the health services in Ghana are severely under-resourced. According to the UN, healthcare expenditure was just US$51 per head (in purchasing power parity terms) in 2000. There are just six physicians per 100,000 people and skilled healthcare personnel attended only 44% of births. The government estimates that only 58% of the population has access to health services, with coverage heavily skewed in favour of urban areas. Nonetheless, some aid officials contend that the quality of health services has improved during the past decade, thanks to the expansion of primary healthcare and the introduction of some cost recovery measures, which have put the system on a firmer economic footing. Some services, particularly immunisation, are certainly improving. The percentage of children immunised against diphtheria, polio and tetanus increased from 43% in 1993 to 69% in 2003.

Access to healthcare, 2003 Region % Western 46.9 Central 67.2 Greater Accra 80.9 Volta 49.5 Eastern 60.1 Ashanti 69.0 Brong Ahafo 53.8 Northern 35.0 Upper East 26.7 Upper West 30.4 Total 57.6

Source: Government of Ghana, Poverty reduction strategy paper annual progress report.

Life expectancy increased from 50 years in 1970 to 60 years in 2003. Infant mortality was 64 per 1,000 live births in 2003, down from 102 per 1,000 live births in 1970. The main causes of death in infants are lack of protection against preventable diseases and contaminated water. In addition, some 25% of children suffer from malnutrition, which is predominantly a rural phenomenon in Ghana, and is particularly acute in the savannah zone. National Health Insurance Scheme

The National Health Insurance Scheme (NHIS) was established in August 2003 by the passage of the National Health Insurance Bill by parliament. This facilitates the establishment of district mutual health insurance schemes in every district in the country and of private health insurance schemes that may be commercial or mutual

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 17

in character. It is now compulsory for all Ghanaians to join one of these schemes. Previously Ghanaians relied on a "cash and carry" system of user fees for the provision of health services. The district mutual and private mutual health insurance schemes are to operate as companies limited by guarantee, while the private commercial health insurance schemes are to function as limited liability companies. Membership of a district mutual health insurance scheme is to be by application. Each of these is to be operated for the exclusive benefit of the enrolled members and will receive subsidies from the National Health Insurance Fund. The Health Insurance Act does not clearly outline the benefits that membership of a district mutual health insurance scheme will confer; these are likely to be decided by each individual scheme, as is the case with private mutual insurance projects. The NHIS is to be mainly funded by a 2.5% increase in value-added tax (the National Health Insurance Levy), introduced on August 1st, 2004, and contributions from the public- sector workers’ pension fund scheme. It is envisaged that by the end of 2005 the premiums paid by the members of the various schemes will make them self- financing. HIV and AIDS UNAIDS, the body co-ordinating the international fight against AIDS, estimates that there were 320,000 people aged between 15 and 49 living with HIV/AIDS in Ghana at the end of 2003. Most sufferers are women, and some 4% of all pregnant women were HIV carriers in 2002. However, the incidence of infection is beginning to change; in the mid-1980s the ratio of female to male cases was 5:1, whereas by 2001 40% of those who were HIV positive were male. With an adult infection rate of only 3.1% in 2003, the epidemiological situation in Ghana has not reached crisis proportions and it appears not to be out of control, as is the case in many Southern African countries. The government is taking the threat posed by the pandemic seriously and has committed 15% of the healthcare budget to HIV/AIDS.

HIV/AIDS in Sub-Saharan Africa, 2003 (‘000 unless otherwise indicated) Ghana Côte d’Ivoire Nigeria South Africa People with HIV/AIDS 350 570 3,600 5,300 Children (aged 0-14) 24 40 290 230 Adults (aged 15-49) 320 530 3,300 5,100 Women 180 300 1,900 2,900 Adult infection rate (%) 3.1 7.0 5.4 21.5 AIDS deaths in 2003 30 47 310 370 Number of living orphans 170 310 1,800 1,100

Source: UNAIDS, 2004.

Natural resources and the environment

Endowed with a number of Ghana is endowed with a number of natural resources, including arable land, natural resources forests and sizeable deposits of gold, diamonds, manganese and bauxite. Several lakes and rivers offer opportunities for hydroelectric power plants to complement Ghana’s vast Lake Volta plant. Offshore hydrocarbon deposits in the Tano Basin have proven crude oil reserves of 14.3m barrels, and natural gas reserves estimated at 193bn cu ft. Ghana’s location on the West Coast of Africa also permits extensive fishing in the Atlantic Ocean.

The climate is tropical with temperatures generally in the range of 21-300C. The northern savannah regions experience wider variations in temperature than the southern coastal areas. There are two rainy seasons, from March to July (main season) and from September to October. Annual rainfall in the south averages 1,900 mm but varies throughout the country, with the heaviest rainfall in the south-west. The hottest months are March and April, when the temperature often reaches 35°C and it is extremely humid. The wettest month is June, when average rainfall is estimated at 178 mm, after which the main food harvest arrives. The high forest in the south-west extends over 82,000 sq km and covers 34% of the country; it is Ghana’s main source of wood and timber exports. According to the World Bank, the total forest area fell by an average of 1.7% per year between 1990 and 2000. Gold is concentrated in Ashanti and Western regions, although there are also sizeable deposits in Central and Brong-Ahafo regions. Lake Volta, which supplies the Akosombo dam, lies to the south-east in Volta region but spreads north and north-west into Northern region. Much of the country’s food is produced in the north. Cocoa, the main cash crop, grows in all the regions south of Northern region. Individual farmers who use traditional land-use methods such as slash-and-burn cultivate both cash and staple crops. Mechanised plantation farming is not common in Ghana. Accra and some parts of Central region are prone to floodingin Accra this is caused by the improper disposal of waste, which chokes the main drains in the city. Accra is also built on a faultline and thus experiences occasional earth tremors.

Transport, communications and the Internet

Infrastructure needs At independence in 1957 Ghana had one of the most developed road networks investment in the developing world, but during the 1970s the transport system and ports deteriorated severely and the telephone network barely functioned. Since the early 1980s major repairs to roads, ports and highways have been carried out, and the national electricity grid has been extended to most parts of the country, particularly northern Ghana. However, much more investment is needed and more projects are expected in the coming years. During the past decade, the government has directed a significant part of its aid and capital budget to much-needed improvements in the country’s infrastructure, but it is now increasingly looking to the private sector to fund new projects.

Roads are being improved Road transport is the principal domestic carrier, accounting for around 98% of freight moved. However, Ghana lacks a well co-ordinated public road transport system. The Ghana Private Road Transport Union, which is responsible for a major part of the road transport system, has not provided sufficient public transport to meet the needs of commuters and this has resulted in a proliferation of private cars on the road. This has worsened traffic congestion and is one of the reasons for non-punctuality at the workplace. The government is in the process of instituting a public transport system, one of the benefits of which, it is hoped, will be the easing of traffic congestion. Buses running under the government’s Metro Mass Transit fleet increased from 17 in October 2002 to 296 in December 2003. Private-sector operators are also

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 19

increasing provision, boosted by the removal of the import duty on buses that seat more than 30 passengers in the 2003 budget. The outbreak of conflict in neighbouring Côte d’Ivoire increased the traffic through Ghana’s ports, which caused a large number of extra lorry journeys in 2003, damaging the road network. The road infrastructure also suffered from an influx of refugees crossing the border, heading north to Burkina Faso, Niger and Mali. The total network of highways is 39,409 km long, out of which 11,653 km are paved and 27,756 km unpaved. Spending on roads has picked up under the New Patriotic Party, with emphasis placed on improving the existing network.

The railways The railway system, which consists of a triangular network connecting Accra, Kumasi and Sekondi-Takoradi and covers 953 km, has recently been rehabilitated after a failed attempt at privatisation. However, this has not improved passenger and freight throughput, because of delays and long journey times. For example, travelling by rail from Takoradi to Accra (296 km) may take one or more days, whereas by road it takes a maximum of four hours. The other reason for the low patronage of the railway may be the unattractiveness of the coaches used. The railways have traditionally transported manganese, bauxite, and some cocoa and timber, and the coaches have not been adapted to carry passengers in comfort. Passenger numbers have, however, risen significantly since 2001, owing to the government’s procurement of new carriages. In 2003 the government announced very ambitious plans to extend the rail network to link up with Burkina Faso, Côte d’Ivoire and Togo, as well as a connection to Tema port. Attracting finance for the project is likely to prevent this from being completed in the near term.

Railway traffic (freight; '000 tonnes) 1999 2000 2001 2002 2003 Cocoa 2,673 1,908 1,440 1,161 1,128 Timber 6,035 5,504 4,086 4,030 4,632 Bauxite 36,595 39,817 58,514 65,529 54,642 Manganese 44,440 65,236 86,478 91,701 118,466 Others 7,559 3,281 5,206 5,748 7,836 Total 97,302 115,746 155,424 168,169 186,704 Passengers ('000) 1,469 844 599 1,543 2,340 Passengers (km, '000,000) 129 83 62 61 85

Source: Ministry of Ports, Harbours and Railways.

The ports are handling more Throughput has been rising fairly steadily at Ghana’s two ports, Tema to the traffic east and Sekondi-Takoradi to the west, following rehabilitation work since the late 1980s. This has helped to reduce the turnaround time for ships, which is now estimated to be among the quickest in West Africa. Tema handles the bulk of imports; Takoradi handles most exports. Tema and Takoradi have benefited from a significant increase in traffic since the outbreak of civil conflict in Côte d’Ivoire, which forced that country’s landlocked northern neighboursBurkina Faso, Mali and Nigerto seek alternative routes. The government plans to exploit the situation in order to establish the ports as regional trade hubs. One of the quays at Tema is currently being dredged to allow it to be developed into a container terminal. This is projected to take two years to complete. Plans are

also under way to develop warehousing facilities, export promotion zones, packaging facilities and haulage zones at Tema and Takoradi. Inland water transport on Lake Volta is less efficient, mainly because of inadequate port and navigation facilities. There are also 1,293 km of waterways on the Volta, Ankobra and Tano rivers.

International airport has been Ghana is well served by international airlines, including the national carrier, recently redeveloped Ghana Airways. Ghana Airways is heavily in debt owing to poor management, excessive political interference and under-capitalisation resulting from the failure of the government, the sole shareholder, to infuse equity capital into the company. Ghana Airways has become renowned for poor reliability. The government suspended the companyrs operations and dismissed its board in August, shortly after the US government banned the airline from flying to the country in July owing to safety concerns. Prior to this, Ghana Airways was one of only a few West African airlines to fly direct to the US. After struggling for several years to find a strategic partner, a deal was agreed with a US-based consortium, Ghana International Airline (GIA), in September 2004. GIA, a consortium led by a US-based financing company, Sentry Financial Corporation, will have a 30% shareholding in the airline, and is expected to inject US$55m of new capital. The government will retain the remaining 70%. As part of the deal, the government will take on the airliners debt of US$160m and attempt to negotiate repayment terms with its creditors. GIA hopes to restart Ghana Airwaysr commercial operations, including daily flights to Europe and the US, in the first quarter of 2005. Staff cutbacks are planned and, although details have yet to be announced, they are likely to be reasonably savagethe airline currently has 1,200 staff and 58 pilots to operate just four planes. From Accra’s Kotoka international airport there are direct flights to Europe, the US, Southern Africa and most countries in the West African sub-region. The indebtedness of the airline has seriously hampered connections to other West African states. The expansion of Kotoka International Airport in Accra was completed in early 2003. The airport is now capable of handling over 120,000 passengers per year (its previous capacity was 68,000 passengers, 50% less than Abidjan in Côte d’Ivoire). The government hopes that the airport expansion will allow Kotoka to become an international hub, particularly as Abidjan is expected to lose trade as a result of the deepening civil conflict in Côte d’Ivoire. The expansion programme, which cost more than US$100m, included the extension of the runway, modernisation of the terminal building, the upgrading of communications facilities and the installation of closed-circuit television, a baggage identification display system and a front information display.

More mobile than fixed-line The telecommunications system in Ghana is unreliable and gives poor service, subscribers reflecting a lack of investment. This impacts negatively on business and Internet connectivity. The number of people with access to telephones is low. In 2003 there were 292,098 main lines in use, all of which were connected to digital exchanges. Telenor of Norway was appointed to replace Telekom Malaysia as the manager of Ghana Telecom in late 2002. Telekom Malaysia’s management contract was not renewed earlier that year after the company

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 21

failed to meet all its agreed terms. Telenor is aiming to expand the number of fixed lines from 240,000 to 400,000 within two to three years, and to cover towns that are not connected to the telecoms network at present. Regional distribution of fixed line services is heavily skewed, with two-thirds of subscribers in Greater Accra. Mobile phone users now far outnumber fixed line services and the subscriber base is growing rapidly, from 12,766 in 1996 to 130,045 in 2000 and 822,873 in 2003. There are four licensed service providers: Scancom, Ghana Telecom, Millicom and Kasapa. The Spacefon service, run by a Danish company, Scancom, is the largest network, with 535,000 subscribers in 2003. A contract worth US$150m was signed between Ghana Telecom and Alcatel Shanghai Bell of China for the upgrade and expansion of telecommunications infrastructure over the next three years, following the visit of a high-level Ghanaian delegation to China in October 2003. Few details were released of the deal, but apparently contained in it are the goals of increasing its 100,000 Global System for Mobile Communications (GSM) customers to around 750,000 and adding an additional 650,000 fixed lines over the next three years.

Telephone subscribers, 2003 Service (providing company) Fixed line Payphone Mobile Total Mobitel (Ghana Telecom) 288,520 4,829 100,000 393,349 Spacefon (Scancom) 0 0 535,000 535,000 Onetouch (Millicom) 0 0 150,000 150,000 Kasapa (Kasapa) 0 0 37,873 37,873 Westel 2,578 166 0 2,744 Capital 100 0 0 100 Total 292,098 4,995 822,873 1,119,966

Source: National Communication Authority

In mid-2002 Ghana Telecom spent US$24m to gain access to the Submarine Fibre-Optic Cable Project. This will give Ghanaians direct communication services to most African states and offer direct, reliable, secure and high-quality broadband communication services and products to support the government’s information technology policy. The fibre-optic cable extends around Africa to Europe and Asia.

The Internet There are currently over 30 Internet service providers and in 2002 there were an estimated 170,000 Internet users in Ghana, mainly in urban areas. Adoption of the Internet in Ghana has been relatively slow owing to the expense of computers, telephony and dial-up costs and because there is limited content in relevant languages. The government aims to provide access to telephones in all secondary schools to allow them connection to the Internet. The proliferation of Internet cafes has improved access to Internet services and reduced the cost of usage. Several government ministries and agencies have websites that are kept reasonably up to date (for a selection see Selected bibliography and websites).

Telecommunications indicators 1998 1999 2000 2001 2002 Main lines in operation 144,218 158,555 237,178 242,122 274,341 Public payphones 1,815 3,044 3,180 4,295 n/a Cellular phone subscribers 41,753 70,026 130,045 193,773 449,435 TV receivers (‘000) 940 990 1,100 1,100 1,100 No. of PCs 40,000 50,000 60,000 70,000 82,000 Internet users 6,000 20,000 30,000 40,000 170,000

Source: International Telecommunications Union, African Telecommunications Indicators. The media Since restrictions on the media were lifted in the early 1990s, there has been a proliferation of newspapers in Ghana. The state-owned Graphic Corporation publishes several newspapers, including its flagship, Daily Graphic. Most non- government newspapers are openly affiliated with opposition parties or wealthy individuals, and many are tabloids of dubious quality. Public Agenda is a weekly paper run by left-wing former members of the ruling party, and has played an important role in exposing government corruption. There are a few business-related weekly publications, notably High Street Journal. Ghana has several independent radio stations, some of which are available worldwide over the Internet. There are three terrestrial television stations; GTV is state-owned, Metro-TV is jointly owned by a private individual and the Ghana Broadcasting Corporation, and TV3 is privately owned. A satellite service is also available through South Africa’s M-Net.

Energy provision

The weather dictates Hydroelectricity is the main source of domestically generated power. Lake Volta hydroelectricity output and its dam supply the main 912-mw hydroelectric power station at Akosombo and another smaller lake feeds the Kpong plant 40 km downstream. Reliance on water levels at these stations makes power supplies vulnerable to rainfall. In late 1997 the water level of Lake Volta fell drastically, plunging the country into a full-scale electricity crisis in 1998. This forced many industries to reduce their output and temporarily halted Ghana’s export of electricity.

Other power sources are being The electricity crisis in 1998 and growing demand from Ghana’s expanding added mining industry have hastened government and private-sector initiatives to develop alternative power sources. Capacity has been increased at Ghana’s oil- and gas-fired power plant; a new substation at Aboadze increased output to 440 mw. This expansion, plus the installation of two more turbines, lifted total power generation at the plant to 660 mw by the end of 2001. A US contractor, CMS Energy, carried out the work in co-operation with the plant’s operator, the state-owned Volta River Authority (VRA). In addition, another US company, KMR Power, is building a 220-mw, gas-fired combined-cycle plant at Tema, primarily to serve the country’s main gold mines. The electricity crisis has also encouraged the Ghana National Petroleum Corporation (GNPC) to construct barge-mounted power plants that will use gas from the Tano basin, but these have not yet been installed. Electricity supply has therefore remained unstable.

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 23

Petroleum prices doubled Imported oil is processed at the country’s sole oil refinery, the Tema Oil in 2003 Refinery (TOR). Fuel prices were fixed at below cost levels by the government, causing the TOR to build up a debt estimated at C4.2trn (US$500m) by the end of 2002. This debt exceeded the primary capital of the entire banking system. In addition, low prices had encouraged a large amount of smuggling. In accordance with the IMFrs wishes, the government increased fuel prices by an average of 90.4% from January 2003. The IMF had requested further price rises in order to lift the fuel price to a cost-recovery level, but the government did not implement what would have been another very unpopular price hike with the elections approaching. In a revised agreement with the Fund, the government has committed to lifting the fuel price to cost recovery level in February 2005. Given the substantial increase in international oil prices since early 2003, this will cause another jump in inflation. From this point, the fixing of fuel prices will be the responsibility of a new independent body. The pricing mechanism is likely to link the fuel price to international oil prices and the performance of the currency, as in a number of other African countries.

West African Gas Pipeline Ghana is involved in plans to build offshore gas pipelines to Côte d’Ivoire and Nigeria. The governments of Ghana and Côte d’Ivoire signed an agreement in 1999 to go ahead with a feasibility study for a pipeline between the two countries, backed by several small, US-based energy companies with stakes in offshore Ivorian gas. The Ivorian government apparently foresees that this pipeline will be an extension of the much larger regional West African Gas Pipeline (WAGP). The WAGP is a US$500m project involving the governments of Benin, Ghana, Nigeria and Togo, plus the oil giants Chevron and Shell. A final investment decision on the WAGP is due to be taken before the end of 2004, and, if approved, the first gas is scheduled to flow in late 2006. WAGP aims to move Nigerian gas to Ghana via a 680-km sub-sea pipeline, with spurs running off to Togo and Benin. The project could transform the energy business in the region, by offering cheaper and cleaner (gas-fired) electricity. Although the WAGP is expected to get the go-ahead, there are still hurdles to be overcome, including the signing of a binding purchase contract with the VRA and the formal ratification of the WAGP treaty by the four countries involved. Although the latter should be fairly straightforward, the head of Ghana’s energy commission, Kofi Asante, has publicly criticised the WAGP, saying that as Ghana (the main customer) will stump up most of the money, it should have a majority shareholding. Mr Asante also made a number of other detailed criticisms of the WAGP, although the Ghanaian government appears determined to push the project through. It is expected that Ghana will consume 84% of the WAGP’s throughput, estimated at 4m cu metres per day. The VRA is expecting to save up to US$20m per year over the 20-year lifetime of the agreement.

The economy

Economic structure

Main economic indicators, 2003 Real GDP growth (%) 5.2 Consumer price inflation (av; %) 26.7 Current-account balance (US$ m) 255 Total external debt (US$ m)a 7,338 Exchange rate (av; C:US$) 8,677 Population 20.9 a Economist Intelligence Unit estimate. Source: Economist Intelligence Unit.

Agriculture is the mainstay of Agriculture continues to be the mainstay of the economy, employing about 60% the economy of the labour force and contributing around 30-40% of GDP. Cocoa is the major export crop, followed by timber and non-traditional products such as horticulture, fish/sea foods and pineapple. Cocoa, timber and other tree crops are grown in the southern forest belt of the Ashanti, Brong-Ahafo, Eastern and Western regions. Most of the cocoa crop is exported as beans, although there are some cocoa processing plants and more are under construction. The agricultural sector is vulnerable to shocks caused by fluctuations in world commodity prices and disease. Attempts to diversify the sector have yielded minimal results, although the potential to do so existsthe government is currently targeting the production of cassava for domestic processing into starch. The performance of the food and agricultural sector also determines the rate of inflation and influences the rate of depreciation of the cedi.

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 25

Services comprise the second largest sector in the economy, accounting for about 30% of GDP. Government services is the biggest sub-sector, followed by wholesale/retail trade, restaurants and hotels. Industry contributes about 25% to GDP on average. The manufacturing sub-sector is the largest contributor to industrial output, followed by construction and mining and quarrying. The mining sub-sector, of which gold mining is the most important component in terms of quantity and foreign earnings, contributes 5-6% of GDP. Gold deposits are found in Ashanti and Western regions, and in some parts of Central and Northern regions. However, mining activities are mainly located in Ashanti and Western Regions, where the ore is concentrated. Other minerals mined in Ghana are diamonds, bauxite and manganese. Gold and cocoa exports account for around 55-70% of total exports, depending on international price trends.

Comparative economic indicators, 2003 Ghana Côte d’Ivoire Nigeria South Africa Senegal GDP (US$ bn) 7.5 14.2 51.6 160.1 6.2 GDP real growth (%) 5.2 -3.0 10.2 1.9 5.3 GDP per head (US$) 359 853 387 3,503 605 Consumer price inflation (av; %) 26.7 3.3 14.0 5.9 0.0 Current-account balance (US$ bn) -0.3 0.4 -1.5 -1.5 -0.5 Merchandise exports fob (US$ bn) 2.6 5.8 27.4 38.7 1.3 Merchandise imports fob (US$ bn) 3.3 3.3 16.9 35.0 2.0 Population (m) 20.9 16.6 133.2 45.7 10.3

Source: Economist Intelligence Unit.

Economic policy

Broad commitment to IMF- In 1983 the government launched a comprehensive economic recovery backed reforms programme assisted by the IMF and the World Bank, with the objective of reducing macroeconomic imbalances and carrying out structural reform of the Ghanaian economy. The policies and programmes introduced established fiscal and monetary discipline, and exchange-rate liberalisation. The financial sector was also liberalised, ending the government’s shareholding in banks and the clearing of bad loans from banks’ balance sheets. The result was increased competition in banking, which resulted in innovation in the sector. Since Ghana’s return to multiparty democracy in 1992 the government has generally continued with its economic reforms, albeit more slowly than donors and local business would have liked. Much progress has been undone in election years when the pressure to spend freely has proved too tempting. These fiscal lapses during election years have caused the government problems that have proved difficult to resolve in subsequent years. Nonetheless, IMF programmes have remained in place for most of the past decade. The latest agreement with the IMF, a poverty reduction and growth facility (PRGF), was approved in May 2003. Under this a maximum of SDR184.5m (US$258m) will be lent over the next three years. SDR26.35m of this was made available immediately. To gain access to the funding the government is required to tighten its control of public expenditure and keep energy prices at full cost- recovery levels. The Fund also wants to see reforms in the financial sector to enable it to play a greater part in private-sector development.

Recent lending agreements with the IMF Approved Drawn Approval Expiry (SDR m) (SDR m) ESAF Nov 1988 Mar 1992 388.55 388.55 ESAF Jun 1995 May 1999 164.40 137.00 ESAF/PRGF May 1999 Nov 2002 228.80 176.22 PRGF May 2003 May 2006 184.50 26.35a a As at August 31st 2003. Source: IMF.

In it most recent assessment of the current PRGF, issued in July 2004, the IMF was relatively positive about the government’s performance. In particular, it highlighted the improvement in fiscal performance in 2003, when the government achieved its target of zero net domestic financing of the budget deficit. Real GDP, officially estimated at 5.1% in 2003, exceeded the Fundrs expectations, owing mainly to a strong cocoa crop, while tight monetary policy reduced inflation to five-year lows. Policy discussions focused on the need for the government not to go off-track in the run-up to the December 2004 presidential and legislative elections, especially with regard to maintaining expenditure within agreed targets.

Fiscal imbalances remain This emphasis on fiscal policy is not surprising. Since Ghana’s return to multiparty democracy in 1992, its overall fiscal performance has deteriorated compared with the late 1980s. After running large fiscal deficits averaging 4.2% of GDP in 1981-83, the government ran average annual surpluses of 0.8% of GDP between 1986 and 1991. From 1992 to 1995 the budget balance deteriorated to an average deficit of 0.6% of GDP. This increased to an average of 6.4% of GDP in 1996-2000. In 2000 the budget deficit was equivalent to 8.5% of GDP, the largest deficit since 1979. The rising deficits were caused mainly by rapid increases in government spending (particularly ahead of the election in 2000), on wages and interest on the national debt, against a backdrop of stagnating revenue. The New Patriotic Party (NPP) published its first budget in March 2001. The budget emphasised the promotion of macroeconomic stability and creation of an environment conducive to sustainable economic growth. The government identified the huge fiscal deficit, public-sector debt, falling economic growth rates, rising inflation and high unemployment as the main problems facing the economy. The budget statement outlined a range of policies aimed at remedying these. However, it suffered from inconsistencies in data, leading the government to state that there was a critical lack of adequate and reliable data on the state of the national economy. In response, the government launched a strategic audit into the state of Ghana’s finances, the results of which were used to prepare a revised budget that was issued in November 2001. It had some success in controlling the deficit, which declined to 7.4% of GDP. Further reforms were undertaken in 2002, when revenue collection and administration were strengthened through the creation of a National Tax Audit Team and the appointment of a head of the Revenue Agencies Governing Board, which will enhance co-ordination among the separate agencies. This helped reduce the fiscal deficit to 5.3% of GDP in 2002, better than the original budget projection

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 27

of 6.9% of GDP. However, there was a substantial overrun in public-sector pay resulting from an unbudgeted pay rise to healthcare staff, to prevent an exodus to better-paid positions abroad, and because wage bills at some ministries and government agencies exceeded budget.

Fiscal performance improved In 2003, the government achieved its fiscal goal of reducing domestic debt; net in 2003 domestic financing of the deficit was C229bn. Despite this, the fiscal deficit, at 3.4% of GDP, exceeded the governmentrs projection of 3.1% of GDP, as foreign grants and loans to finance the deficit were higher than originally budgeted. Total statutory payments came in under budget, owing to a decline in domestic interest payments resulting from the fall in Treasury-bill yields. Discretionary payments exceeded their projected target by 7.6%, but this was because of a jump in capital expenditure caused by higher than budgeted project loans, which exceeded their target by 31%. A strong performance by the revenue- collection agencies and the boost of an inflation rate much higher than the 9% budgeted figure caused revenue from direct, indirect and international trade taxes to all exceed their targets. The 2004 budget

The main goal of the 2004 budget is the repayment of net domestic debt equivalent to 2.2% of GDP. Measures have been introduced to strengthen public-expenditure management, and the government aims to increase revenue to boost poverty-related and development spending. The fiscal deficit is projected to fall to 1.7% of GDP. Wages and salaries remain the largest item of expenditure, followed by debt-service payments. Domestically financed capital spending is budgeted to more than double, to C1.15trn (US$125m), as the government strives to show that it is making progress in achieving the ambitious commitments on infrastructure development that it made ahead of the last election. Indirect taxes remain the main source of tax revenue, particularly value-added tax, receipts from which are projected to rise by 26% owing to the introduction of the National Health Insurance Levy.

Data for the first half of the year put the fiscal deficit at around 2% of GDP. We expect the 2004 deficit target to be missed, as it will be difficult for the government to introduce greater fiscal discipline in the second half of the year for several reasons.

• Election-related spending, including the cost of physically holding the polls and the costs of pre-election sweeteners in order to get voters to back the NPP. • Pressure from public-sector workers for higher pay. The government acceded to IMF pressure to revise down an earlier public-sector pay award, prompting some public-sector workers to go on strike. • The failure to raise fuel prices to cost recovery levels in 2004 is costing the Tema Oil Refinery (TOR), the countryrs sole oil refinery, US$12m per month. • Government subsidies to Valco, the countryrs sole aluminium smelter, amounted to US$40m in the first half of 2004. As the government only took over the full running of the loss-making firm part of the way through the year, subsidies will be higher in the second half.

Revenue and expenditure projections in the 2004 budget (C bn unless otherwise indicated) 2003 2004 Budget Outturn Budget Revenue & grants 16,411.8 16,862 20,426 Revenue 13,533.7 13,742.8 17,372 Financing Divestiture receipts 429.6 421.4 426.8 Project loans 1,556.8 2,043.4 1,621.5 Programme loans 669.4 1,097.3 980.0 Total receipts incl others 21,347.6 21,997.6 24,853.0 Statutory payments 9,303.0 9,035.8 9,870.5 External debt 3,426.8 3,405.9 3,658.8 Domestic interest 3,108.1 3,786.9 2,456.5 Discretionary payments 12,044.6 12,961.8 14,982.5 Personnel emoluments 5,450.0 5,661.0 6,631.9 Administration & service 1,871.2 1,762.9 2,734.3 Total investments 3,210.9 3,600.7 3,725.7 Memorandum items Overall cash balance -1,900.6 -2,155.3 -1,313.8 % of GDP -3.1 -3.4 -1.7 Nominal GDP 60,705.0 65,262.0 77,620.0

Source: Ministry of Finance, Budget Statement and Economic Policy for the 2004 Financial Year.

Greater monetary policy During the latter part of the 1990s, the monetary policy followed by the Bank independence of Ghana (the central bank) was aimed at sustaining the declining trend in inflation, which began in 1996. The bank therefore permitted only moderate growth in the money supply, which brought year-end inflation down from 15.7% in 1998 to 13.8% in 1999. The central bank was also able to slow down monetary growth through the intensification of open-market operations, and complemented this with deposit auctions and the introduction of new instruments, such as repurchase agreements and swaps. However, financing the rapidly growing fiscal deficit eroded all the gains achieved from earlier policies during the fourth quarter of 2000, when a sharp increase in money supply pushed the year-end growth rate of broad money to 38.4%. Monetary policy focused on reducing inflation and slowing down the depreciation of the cedi in 2001 and 2002, and open-market operations were intensified. In response to the inflationary impact of the near doubling of petrol prices in January 2003 the Bank increased the prime rate by 300 basis points over the following two months, to 27.5%. However, the Bank cut the prime rate by 150 basis points to 26% in July on the basis of improved fiscal performance, a slowdown in money supply growth and an easing of underlying inflationary pressure. The Bank continued to reduce the prime rate during 2003 and in February 2004 it was cut to its current level of 20%the lowest since 1986in response to the continued decline in inflationary pressures stemming from an easing in food price inflation and the improved fiscal position. Rates have remained unchanged since February owing to concerns over the inflationary impact of pre-election expenditure. The central bank is also aware that high interest rates are hurting the private sector and therefore has a bias towards easing monetary policy in the hope that

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 29

commercial banks will lower their lending rates, which will encourage private- sector borrowing and therefore investment. While lending rates have come down, so have deposit rates, and there has been little impact on the spread between the two, which in October 2004 was around 21.75 percentage points, compared with 23.5 percentage points at the start of 2003. This level is still far too high for effective financial intermediation. Further cuts in the prime rate and continued fiscal discipline will allow a narrowing of this differential, but an improved repayment culture would have a greater impact.

Reforms have increased Bank Since late 2001 several steps have been put in place to increase the of Ghana’s independence independence of the central bank. Principal among these was the introduction of a Bank of Ghana Act, the main features of which are: • a clause limiting government borrowing from the central bank to 10% of total government revenue in any fiscal year; • the abolition of the central bank’s ability to provide external loan guarantees to private organisations; and • a reduction of the number of areas on which the central bank has to consult with the government before it can make a decision. A Monetary Policy Committee, mandated under the Bank of Ghana Act to advise the government on monetary policy, was inaugurated in September 2002. It meets every two months and its minutes are published on the Bank’s website. The next stage of reform is likely to be a move towards some form of inflation targeting.

Privatisation has slowed in Ghana has undertaken a reasonably extensive privatisation programme. recent years Nonetheless, progress has slowed in recent years and a number of key assets remain to be sold. The main sales donors are looking to be completed are: • Volta River Authority, the main electricity producer and transmitter; • Ghana Water Company, which serves the Greater Accra region; • Tema Oil Refinery, which produces all refined petroleum products consumed domestically; • Electricity Company of Ghana, the principal distributor of electricity; and • Ghana Commercial Bank (GCB), the largest commercial bank in terms of assets and deposits. Attempts to sell GCB have proved highly controversial and the government postponed its planned divestiture in mid-2003 in response to intense public pressure. The IMF has now agreed that no further steps towards its sale will be taken until after the 2004 elections.

Economic performance

Solid real GDP growth Since 1983 the Ghanaian economy has undergone several changes in economic management in response to the introduction of various policies and programmes designed to reverse the economic decline that has affected the

country since the 1970s. The result is that GDP has grown reasonably strongly since 1983between 1995 and 1999, real GDP growth averaging 4.4% per year. However, the rate of real GDP growth slowed to 3.7% in 2000, because of the macroeconomic instability created by the collapse in the cedi. Real GDP growth rose to 4.2% in 2001 owing to strong services growth. High growth was registered in the transport and communications, wholesale and retail trade, and restaurants and hotels sub-sectors, which offset a contraction in the gold mining sector, as production fell because of industrial action at the mines. Real GDP growth rose to 4.5% in 2002, in line with the government’s target. Agriculture grew by 4.1%, owing to an increase in crop and livestock output. Growth in the industrial sector rose to 4.7% in 2002. The main contributor to this expansion was mining and quarrying, which recovered from a contraction of 1.6% in 2001 to grow by 4.5% in 2002. The increase in mining output was the result of a rise in gold prices and production. Services sector growth slowed to 4.7%, owing to a slowdown in the growth of government services, which eased from 5% in 2001 to 3.6% in 2002, as the government cut back on spending in response to reduced donor support.

Real growth exceeds target For only the second time in the past nine years, real GDP growth exceeded the in 2003 governmentrs target in 2003. A strong performance in the agricultural sector is estimated to have lifted real GDP growth to 5.2%, the highest rate since 1991, compared with a target of 4.7%. Impressive growth in the agricultural sector was mainly owing to a 16.4% expansion in the cocoa sector, which was a result of an increase in producer prices, good rains, greater provision of extension services to farmers, including more comprehensive spraying of crops against disease, and the smuggling in of a large amount of cocoa from Côte drIvoire. The secondary sector grew by 5.1%, which was in line with target. Growth in this sector continues to be driven by mining and quarrying and construction, which expanded by 4.7% and 6.1% respectively. Strong donor support for infrastructure projects, particularly road rehabilitation, was the main reason for the robust performance of construction. At 4.7%, service-sector expansion was also in line with its target. Transport was the most rapidly growing subsector, up by 5.8%, as the economy continues to benefit from the diversion of goods that were previously transported through Côte drIvoire owing to the civil conflict in that country. Growth in government services exceeded its target because of higher than budgeted investment spending, as did expansion in hotels and restaurants, a proxy for the tourism sector.

Gross domestic product (% real change) Annual average 2002 2003 1999-2003 Agriculture 4.4 6.1 4.1 Industry 4.7 5.1 4.3 Services 4.7 4.7 5.0 GDP 4.5 5.2 4.4

Source: Ghana Statistical Service; Budget Statement, 2004.

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 31

Single digit inflation proves The early part of the 1990s was characterised by rising inflation; the year-end illusive inflation rate peaked at 59.5% in 1995. The government’s aim of halting the rising trend in inflation, both to restore macroeconomic stability and stay within the limits agreed with the IMF, compelled the central bank to tighten monetary policy. This caused inflation to fall to an annual average of 14.6% in 1998 and 12.4% in 1999. However, inflation rose to 40.5% by end-2000, wiping out the improvements made in 1999. Rising non-food inflation, which rose from 20.8% in December 1999 to 54.2% by the end of 2000, owing to the collapse of the cedi, was the main reason for the high inflation recorded in 2000. A 25% increase in the rate of value-added tax, to 12.5%, in June further contributed to the higher prices. The government also imposed a 20% special tax on "non- essential" imported goods, creating further upward pressure on prices. The increase in global fuel prices and the depreciation of the cedi continued to drive rising inflation in early 2001. Year-on-year inflation peaked at 41.9% in March 2001, but declined in the subsequent 18 months to stand at 12.9% in September 2002. This fall was caused by much tighter fiscal and monetary policies, coupled with a good food-crop harvest and a decline in international oil prices. Inflation started to rise in November 2002. Seasonal factors account for much of the movement, as inflation usually picks up towards the end of the year owing to the injection of money into the economy at the start of the cocoa-buying season and higher food prices as demand increases ahead of the Christmas and Eid celebrations. Inflation posted its highest month-on-month increase for 15 years in February 2003, when the year-on-year rate surged to 29.4% from 16.3% in January, owing to the near doubling in petroleum prices that occurred in late January. After peaking at 30% in April, a tightening of monetary policy and a squeeze on government spending allowed year-on-year inflation to fall in each month for the remainder of the year. Inflation fell to 11.3% in February 2004 when the fuel price hike dropped out of the annual comparison and reached a five-year low of 10.5% the following month. Rising food prices and increased government spending ahead of the elections have caused inflation to rise over subsequent months to stand at 12.6% in September. Utility price hikes and the raising of fuel prices to a cost-recovery level in February 2005 will cause another jump in inflation. The impact that this will have is difficult to quantify, as it depends on international fuel prices at that time, but we expect average inflation to rise from 13% in 2004 to 17.4% in 2005.

Inflation (% change) Annual average 2002 2003 1999-2003 Consumer prices 14.8 26.7 22.4

Source: Bank of Ghana.

Recent inflation data likely to be under recorded

The IMF has expressed concerns over the accuracy of the consumer price index (CPI). According to the Fund, a procedural change in the calculation of the CPI in 1999 has resulted in a significant under-recording of the inflation rate, as observations for which there were no data were entered as no change, implying that there was no inflation in the price of these goods. Preliminary recalculations suggest that end-2000 inflation was about 65% rather than the reported 40.6%. Any revision that is made to the CPI will feed into higher nominal GDP data, which will in turn affect a number of ratios that are used as benchmarks for the current poverty reduction and growth facility (as well as altering performance in the recent past). Regional trends

A decentralised administration Ghana is divided into ten regions, each with a regional capital and administered by the regional minister and his team. Ghana operates a decentralised form of administration and within each region district assemblies which are funded by central government are responsible for day-to-day administration. In all, there are 110 districts in Ghana, each with a district chief executive. The district assemblies are supervised by the regional administration, which reports to the central government. The Ministry of Local Government and Rural Development is responsible for the decentralised system. More generally, the country is informally divided into north and south. The north has three regionsNorthern, Upper East and Upper West and the south has seven regionsAshanti, Brong-Ahafo, Central, Eastern, Greater Accra, Volta and Western. Since the pre-colonial period there has been an unequal distribution of development programmes and projects in favour of the south. The development gap can be explained by the concentration of natural resources in the south, particularly minerals and forest resources. In addition, agricultural activities, particularly tree crops, are concentrated in the south because of high rainfall relative to the north. The north is also reliant on agriculture, but most of the crops are grains because of scant and irregular rainfall. This division is slowly narrowing, as recent governments have expanded capital investment projects in the north. The investment undertaken so far includes extending the national electricity grid, rehabilitating north-south roads and greater expenditure on education. The NPP government is expected to continue courting the northern vote with development projects, but the disparity between north and south is wide and bridging the gap will be difficult. The divide has always encouraged migration from the north to the south, causing higher population densities in the southern part of the country relative to the north. The northern part of the country has been prone to ethnic tensions among some tribes, the most recent of which is the Dagbon chieftaincy conflict. However, regional tensions have been minimal.

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 33

Economic sectors

Agriculture

Recent improvements in Agriculture accounts for over 30% of GDP and employs around 60% of the agriculture workforce. Growth has historically lagged behind other sectors of the economy and been highly unpredictable owing to its dependence on weather conditions (only 0.02% of total cultivated land is irrigated). In recent years, however, agricultural growth has improved, averaging 4% per year, owing to strong expansion in the cocoa and forestry sub-sectors. In 2003 agricultural growth was 6.1%, the highest rate since 1985, owing to very strong growth in the cocoa sector. Although most of the year-to-year trends are attributable to weather, the longer-term improvement in performance can be attributed to changes in public policy. As part of its broader economic reforms, the government has removed food price controls, raised cocoa prices paid to producers and boosted extension services. According to estimates in the World Bank’s African Development Indicators, the area under permanent crops has increased steadily from an estimated 2.8m ha in 1995 to 3.6m ha in 2000, annual growth averaging 5.6%. However, yields of food crops have been disappointing; only cassava and rice yields have improved much in the past decade. This seems to be a result of low investment, poor technology and the poorer quality of some of the land that has recently been planted. The removal of subsidies on fertilisers and other agricultural inputs has also had an effect on several crops. The government relies on donor funding to support the majority of its initiatives for modernising agriculture so as to improve food security and reduce imports.

Production of main food crops (‘000 tonnes) 1999 2000 2001 2002 2003 Cereals 1,684 1,677 1,605 2,155 2,042 Maize 1,014 1,013 938 1,400 1,289 Rice 210 215 253 280 239 Millet 158 169 134 218 176 Sorghum 302 280 280 257 338 Starchy staples 14,847 15,037 16,275 17,770 18,186 Cassava 7,845 8,107 8,966 9,731 10,239 Cocoyam 1,707 1,635 1,688 1,860 1,805 Yam 3,249 3,363 3,547 3,900 3,813 Plantain 2,046 1,932 2,074 2,279 2,329

Source: Ministry of Agriculture.

Cocoa production hits all-time Cocoa is on target to exceed gold as Ghana’s most important source of export high in 2003/04 revenue in 2004 for the first time since 1991. Around 1.6m peasant farmers produce most of the country’s cocoa on plots of less than 3 ha in the forest areas of Ashanti, Brong-Ahafo, Central, Eastern, Western and Volta regions. In the early 1960s Ghana was the world’s largest producer of cocoa, with an average annual output of 450,000 tonnes, but output fell to an all-time low of 159,000 tonnes in the 1983/84 crop year (October-September). Production has

since recovered significantly, although it remains vulnerable to weather conditions and disease. Although Ghanaian cocoa is of high quality, it has also proved to be particularly susceptible to black pod disease, and weaknesses in distribution networks have sometimes led to crop damage. The main reason for this recovery is the increase in producer prices, which have risen by an average of over 50% each year since 1990, and improved extension services. Cocoa production has risen even more quickly in the last two years, from 340,600 tonnes in 2001/02 to 496,800 tonnes in 2002/03 and 735,000 tonnes in 2003/04, an all time high that exceeds the previous record (in 1964/65) by 154,000 tonnes. This has enabled Ghana to reclaim the position of the world’s second largest cocoa producer from Indonesia (neighbouring Côte d’Ivoire is the largest producer). This impressive recent performance is due to good weather combined with a cocoa reform strategy implemented by the NPP government when it took power. This entailed: • an increase in the price paid to producers to 70% of the free on board price by 2004/05, up from 67% when it took office; • the introduction of an annual programme of mass spraying with pesticides; • the rehabilitation of older cocoa farms and the encouragement of the use of high-yielding varieties; • the government has helped to organise a revolving credit fund for farmers; and • feeder roads to marginal areas have been upgraded.

Exogenous factors have also Two other exogenous factors have supported the strong growth in cocoa boosted cocoa production production. First, international prices nearly doubled in 2002, owing to concerns over the impact on production of the civil conflict in Côte d’Ivoire, and have remained strong since then. As farmers are getting a greater proportion of this higher price it has had a positive effect on fertiliser use and general farm maintenance. Second, the conflict in Côte d’Ivoire has changed the relationship between the two producers. An estimated 60,000 tonnes of cocoa per year were smuggled to Côte d’Ivoire after the liberalisation of that country’s cocoa sector in 1999, as farmers there sell direct to exporters, whereas in Ghana the majority of the crop is sold to the Ghana Cocoa Board (Cocobod), a parastatal. Rising global cocoa prices meant that exporters were paying a higher price in Côte d’Ivoire than the producer price set by Cocobod. The outbreak of civil conflict in Côte d’Ivoire caused several Ivorian farmers to smuggle their crops over the border to avoid problems in transporting them to the ports. A stronger stimulus is the higher prices available in Ghana, where the hikes in producer prices have lifted them above those available to farmers in Côte d’Ivoire. In 2003/04, up to 100,000 tonnes of Ivorian cocoa were smuggled into Ghana.

Long-term changes in the Private cocoa buyers have been allowed to operate in the domestic market cocoa sector since 1992, but Cocobod has a monopoly on external marketing and still

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 35

dominates domestic purchasing through its Produce Buying Company (PBC). However, there have been some complaints that private buying has led to quality control problems in post-harvest production. The government and Cocobod officials have argued that the reform process should be slowed down until such problems have been solved. In this context, the reform of the cocoa sector in neighbouring Côte d’Ivoire in 1999 is being watched closely, although that country’s civil conflict and the recent high world cocoa prices limit the scope for drawing real conclusions. Nevertheless, in late 1999 the PBC was partly privatised through the offer of shares to the public. However, the uptake was poor, primarily because of weak investor interest at a time of low international prices for cocoa. The government sold 25% of its interest in the Cocoa Processing Company (CPC) though the Ghana Stock Exchange in October 2002. CPC, a subsidiary of Cocobod, processes cocoa beans into finished and semi-finished products in its three factories, currently the only ones in Ghana. Six more cocoa-processing factories are in the process of being set up by other companies. When fully operational in the 2006/07 season, they are projected to lift total processing capacity to around 250,000 tonnes, from the 70,000 capacity of the three factories currently in operation.

Cocoa bean production (‘000 tonnes) 1998/99 1999/2000 2000/01 2001/02 2002/03 Main crop 340 400 350 321 n/a Mid crop 57 30 45 18 n/a Total 397 430 395 339 497

Source: Cocobod.

Forestry More than one-third of the total land area of Ghana is covered by forest, not all of which is suitable for commercial exploitation. Commercial forestry, concentrated in the Western region, has been the third largest foreign-exchange earner in recent years, generating US$175m in 2003. Donor support has encouraged the government’s forestry strategy to focus on forestry management, research and investment equipment for logging, saw-milling and manufacture. The Timber Export Development Board is responsible for marketing and pricing, while the Forest Products’ Inspection Bureau monitors contracts and maintains quality standards.

Forestry production ('000 cu metres) 1997 1998 1999 2000 2001 Logs 1,170 1,270 1,307 1,309 1,212 Sawn timber 740 734 620 616 480 Veneer 73 81 108 120 259 Plywood 48 32 47 68 114

Source: Ghana Statistical Service.

Depletion of forest reserves has become a problem. Total forest coverage declined by 1.7% per year between 1990 and 2000 according to World Bank data. The government has had to make difficult choices between preservation

and the need for hard currency and has banned exports of a number of species of timber, although plans to phase out log and lumber exports altogether have been shelved. The current strategy is a package of incentives and penalties to encourage exporters to increase value added. Although there are signs that this has happened recently, a lack of funds, managerial skills, technical expertise and marketing facilities are still significant constraints.

Fishing There are two main sources of fish in Ghana: marine and inland fishing, marine fishing being the most important. Ghana possesses a total coastline of 539 km with a continental shelf of 200 nautical miles, an exclusive economic zone of 200 nautical miles and a territorial sea of 12 nautical miles. While the fish catch has been risingfrom an average of 373 tonnes between 1990 and 1994, to an average of 419 tonnes between 2000 and 2003it is insufficient to satisfy national demand. Nonetheless, some species, particulate, tuna and shrimp, are exported. Total exports of fish and seafood were US$27m in 2003.

Fish production (tonnes) 1999 2000 2001 2002 2003 Marine 269 355 371 290 300 Inland 76 88 88 90 94 Total 345 443 459 380 394

Source: Fisheries Department, Ministry of Agriculture.

Mining and semi-processing

Gold dominates the mining sector and is usually Ghana’s most important source of foreign exchange. Gold and other minerals were the largest sources of export earnings in 2003, making up 32% of the total, with gold accounting for around 95% of this. Ghana’s gold reserves lie in Ashanti region, which has large resources, and in Western and Central regions, where much alluvial mining takes place. The country’s largest producer is AngloGold Ashanti, formed in 2004 after the merger between South Africa’s AngloGold and Ashanti Goldfields. Prior to the merger, Ashanti had long been the country’s largest producer; a series of expansion programmes more than quadrupled output at its Ghanaian operations from 300,000 oz in 1985 to nearly 1.3m oz in 1999. Ashanti used to account for 90% of Ghanaian production, but this has been reduced to about 50% owing to a decline in its production and growth in output from mines owned by other producers in recent years. The Ashanti Goldfields-AngloGold merger

After a bidding war during the second half of 2003, AngloGold of South Africa beat Randgold of the UK to take over the operations of Ashanti Goldfields. AngloGold’s final offer valued the company at US$1.5bn. Although this was US$0.2bn below Randgold’s offer, the sale price was not the clinching factor in the deal. A South African mining company, Lonmin, which held a 27.6% stake in Ashanti, favoured AngloGold’s bid and insisted on cash for its proportion of the company, a condition that Randgold could not meet. Furthermore, the rationale for Ashanti to merge with another company was that it would allow access to the necessary funding and

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 37

expertise to develop the Obuasi deep mine. A very rich seam of gold is known to exist in the mine, but this will require mining at up to 1.8 km below the surface and investment of up to US$1bn. Owing to its experience in deep-level mining, coupled with a strong balance sheet, which means that it could more easily raise funds for the required investment, AngloGold was considered to be in a better position to do this by the Ghanaian government.

The key terms of the merger, which will create a new company, called Ashanti AngloGold in Ghana and AngloGold Ashanti elsewhere, include the following.

• The government extends AngloGold Ashanti’s lease of the Obuasi mine until 2054 (it was due to run out in 2004). • Royalty payments to the government are fixed at 3% of revenue for the next 15 years for all of AngloGold Ashanti’s operations in Ghana. (Current royalty rates vary from 3-12%; under proposed mining legislation this will change to 4-6%.) • Corporation tax will be paid at a rate of 30% for the next 15 years (private companies normally face a corporate tax rate of 32.5%). • The government undertakes not to perform any actions that would impose additional obligations on AngloGold Ashanti for 15 years. This includes doing nothing to change AngloGoldrs legal position with respect to exchange controls, dividend remittance, transfer of capital and adjustment of customs, duties, taxes and fees. • The government has indicated that it is prepared to give clarification that the government’s golden share only applies to the assets and operations of AngloGold Ashanti in Ghana. Full production at Obuasi will AngloGold Ashanti has started examining the Obuasi project and is looking to take at least five years invest around US$44m over the next five years in deciding how to tackle the development of the mine. The first option is to invest around US$570m in a two-shaft mining system that would yield cash costs of less that US$150/troy oz (which is very cheap for a deep mine) and allow production to begin in 2014. Under option two (which was not costed), upper sections of the ore body would be mined from ramp systems, and this could begin in 2009. This would be followed by the construction of a shaft system to reach the remaining ore body. Annual production of 700,000 troy oz is targeted by either 2009 or 2014, depending on the development plan adopted. The life of the mine is estimated to be around 30 years, but this is based on known reserves and the estimate could be extended after further exploration.

Newmont mines will lift gold Prior to Obuasi coming on stream, the sector will receive a significant boost production in 2006/07 from the start of mining by a US firm, Newmont Mining. In 2004 Newmont won government approval to proceed with the development of the Ahafo and Akyem gold deposits at a combined cost of US$585m. Production at Ahafo, which at US$350m is the larger development, is scheduled to begin in the second half of 2006, and output is expected to average around 500,000 oz/year with operating costs estimated at US$175-185/oz. At US$160-175/oz, operating costs are lower at Akyem, where production will start in 2007, at a projected rate of 300,000 oz/year. Akyem is partly located in a "productive forest area" and its development was only made feasible by the opening up of these areas

to mining in early 2003. These are the first new mines to be commissioned since 1996.

Gold production (oz) 2001 2002 Ashanti Group 1,002,636 964,752 Gold Fields (Ghana) 527,011 523,489 Abosso Goldfields 302,563 306,597 Billiton Bogosu 87,122 124,393 Resolute (Ghana) 108,827 102,455 Bonte Gold Mines 65,293 46,054 Satellite Goldfields 69,809 4,181 Prestea Sankofa Gold 8,257 2,263

Source: Minerals Commission.

Diamonds—a history of Ghana’s diamond reserves lie mainly in the Birim basin. The sector has had an corruption and smuggling unfortunate history, characterised not only by corruption and smuggling but also by poor management at the former state-owned Ghana Consolidated Diamonds (GCD). GCD figures suggest that output in 1978 was 1.4m carats, declining steadily to 259,358 carats in 1988. However, since 1995, there has been a significant turnaround in diamond production, which hit a recent high of 1.09m carats in 2001. Production fell slightly to 993,463 carats in 2002 generating U$20.5m in export revenue. This overall improvement was helped by the reorganisation of GCD, which was privatised in the early 1990s. Small- scale mines are thought to produce a sizeable amount each year, possibly more than the large-scale mines. Extensive illegal mining and a thriving parallel market at Akwatia’s Diamond Junction make it difficult to measure small-scale output with accuracy. The government has been trying to privatise GCD for many years. An American company, Sapper & Associates, won a tender to acquire GCD in early 2004, but has already missed two deadlines to make a 10% down payment of US$3.4m to the government, so the deal is now in doubt. If progress has not been made by the end of the year, GCD will be put out to tender again. GCD is currently only producing at around one-quarter of capacity and needs investment of around US$10m to resume production at full capacity.

Ghana is a major producer of Ghana is one of the world’s largest exporters of manganese. Production has manganese increased since the state-owned Ghana National Manganese Corporation was privatised in 1995. The new owners, the Ghana Manganese Company, under- took a substantial restructuring and investment programme, which caused output to increase from 193,096 tonnes in 1995 to 1.14m tonnes in 2002.

Bauxite has potential Only a small proportion of Ghana’s substantial bauxite reservesestimated by the Minerals Commission at 120m tonnesare currently mined, at Bui. The sole producer of bauxite in the country, Ghana Bauxite, recovered strongly from a slump in 1999 to register significant growth in production in subsequent years; production totalled 684,000 tonnes in 2002 compared with 353,100 tonnes in 1999. The Volta Aluminium Company (Valco) does not process Ghanaian bauxite into alumina, but uses imported raw materials from Jamaica. The

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 39

financial problems that have beset Valco (see Manufacturing) have, however, opened up an opportunity for greater exploitation of Ghanars bauxite reserves, as a US firm, Alcoa, the worldrs largest aluminium producer, is considering plans to increase its stake in Valcoit currently holds 10%for this purpose. In 2003, an Australian company, BHP Billiton, expressed an interest in developing an integrated aluminium facility using Ghanaian bauxite. Russian mining company Rusal has also expressed an interest in Valco.

Oil exploration intensifies Following an increasing number of oil finds off the coast of West Africa, the area has begun to attract the attention of a number of foreign oil companies. After considerable activity in Côte d’Ivoire, investment in Ghana, which shares many of its neighbour’s geological structures, has picked up in the last few years. Four small oil companiesUK-based Alderney Resources, Tano Energy Ghana (whose parent company is First Oil of the UK), Vanco Energy of the US and a consortium of Devon Energy of the US and Canada’s EnCanaare currently carrying out exploration activities. India’s state-run Oil and Natural Gas Corporation also signed an exploration deal with the Ghana National Petroleum Corporation in October 2004.

Manufacturing

Ghana has a broad and diverse For a Sub-Saharan African country of its size, Ghana has a relatively broad and industrial base diverse industrial base, covering aluminium smelting, timber and agricultural processing, brewing, cement manufacture, oil refining, textiles, electronics, pharmaceuticals, mining and many others. The impetus for this came from the Convention People’s Party government which, in the years following independence, sought to create a self-sufficient, diversified industrial base. However, owing to poor planning and inappropriate policies, many viable industries were starved of foreign exchange for spare parts, while unviable plants were kept afloat by subsidies and protective policies. By 1982 only 21% of industrial capacity in Ghana’s medium and large factories was in use.

Manufacturing growth The economic recovery programme introduced in 1983 had a mixed effect on picks up the manufacturing sector. Falling subsidies and exposure to competition forced businesses to rationalise and improve performance, but many closed down. Sectors showing the most improvement were textiles, garments, metals, plastics and non-ferrous metal manufactures. The manufacturing base has not changed significantly since then and is geared towards light manufacturingtextiles, food and beverages, cement and wood chemicals. Lack of access to credit facilities, high borrowing rates, obsolete machinery and fierce competition from imported substitutes hampers the sector. Manufacturing production contracted in 1998 after being hit by energy shortages (see Energy provision) that forced most factories to run below capacity. Steel and aluminium producers, who rely heavily on power supplies, were hit particularly hard. There was a significant rebound in 1999 and 2000, when manufacturing production grew by 21.1% and 18.8% respectively. The severe depreciation of the cedi in 2000 raised the cost of imported raw materials, causing growth in manufacturing production to slow to 4.9% in 2001.

Manufacturing growth has remained at around this level in subsequent years at 4.8% in 2002 and 4.6% in 2003. Food and beverage manufacturing, together with the fabrication of iron and steel, have been the fastest growing sectors in recent years.

Composition of the manufacturing sector (%) 2003 Food products 16.0 Beverages 7.5 Tobacco & tobacco products 8.5 Textiles, clothes & leather goods 15.0 Sawmill & wood products 6.0 Petroleum products 19.0 Chemical products (other than petroleum) 6.0 Non-ferrous metals 9.0 Others 13.0

Source: Ghana Statistical Service.

NPP attempts to stimulate The New Patriotic Party government set up three Presidential Special Initiatives manufacturing (PSIs) in 2002 and 2003, for garments, cassava and palm oil. The PSI for garments is intended to improve the capacity of Ghanaian textile and garment manufacturers, through training and technical assistance, to enable them to produce and export garment and textile products. The garment initiative is a bid to take advantage of the increased access to the US market under the African Growth and Opportunity Act and caused a pick-up in growth in output from the textile sector in 2003. The initiative for cassava is being used as a vehicle for promoting village enterprises (COVE). Under COVE, small-scale farmers are encouraged to own shares in community enterprises that manufacture industrial starch for export. The raw materialcassavawill be produced by local farmers and sold to the processing plant. The target is to establish ten COVEs in ten districts and produce 200,000 tonnes of starch by 2005. Despite these attempts several obstacles to the development of the manufacturing sector remain. According to a survey of these undertaken in 2003 by the Public Enterprise Foundation, a think tank, the limited size of the market (a function of low disposable incomes) was the main impediment. The high cost of utilities and unfavourable government policies were the other main deterrents cited. Future of largest private-sector company is in doubt

There are doubts over the future of the Volta Aluminium Company (Valco), the country’s sole aluminium smelter and biggest private-sector entity, following the decision of a US firm, Kaiser International, to sell its 90% stake in the company. The government had attempted to buy Kaiser’s stake in Valco in early 2004, but following pressure from the IMF, it agreed to only hold the company temporarily. Even with very heavily subsidised electricity (the price Valco paid for this was fixed over 20 years ago) the company was making a loss. In this situation it is not clear how the government could turn the company around. The government argued that it would maintain a stake in the company in order to put pressure on any new shareholder to develop Ghanars bauxite deposits and adhere to environmental

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Ghana 41

standards. Again, the Fund strongly opposed this, countering that it could expose the government to large potential liabilities and give the impression that the government would bail the company out again. Eventually the government agreed that it would consult with the Fund before taking a final decision. Should the government be unable to find a buyer for Valco, the IMF is unlikely to accept a public-sector takeover, although it is expected to wait until after the December 2004 presidential and legislative elections before advising the government to close Valco. Construction

Road construction is a priority Construction is the second largest sub-sector in the industrial sector and contributes about 30% of industrial output and 8% of GDP. It comprises roads, highways and bridges, coastal works and housing. Road construction is very important; many of Ghana’s roads are being rehabilitated and a number of new feeder roads are being built. Both foreign and local companies are engaged in construction; foreign firms who have the requisite machinery and expertise undertake most of the large construction works, such as highways and coastal works. Local construction companies play an important role in the construction of access and feeder roads. Growth in the construction sector is partially dependent on the availability of donor project funding and the government’s speed in awarding contracts.

Financial services

Banks are risk-averse Financial services have seen a tremendous improvement since reforms in 1989 led to the establishment of a stock market and several other financial services that were hitherto not available. The 1989 Banking Law prescribed minimum capital requirements and capital adequacy ratios and improved the regulatory and supervisory framework. A new banking law is under discussion that will align capital adequacy requirements with the international standards prescribed under the Basel II framework. The Bank of Ghana (the central bank) regulates the banking and non-banking financial sub-sectors. The Securities and Exchange Commission (SEC) and the Ghana Stock Exchange (GSE) regulate the securities market. There are 18 banksten commercial banks, five merchant banks and three development banks. There are five foreign banks, the latest arrival being Société Générale, which bought a 50.72% stake in SSB Bank in early 2003. Barclays Bank Ghana, International Commercial Bank (of Taiwan), Stanbic Bank and Standard Chartered Bank Ghana are the others. Since 1992, privatisation and the formation of a number of new commercial banks have brought increased dynamism to the sector. Barclays is the most technologically advanced bank in Ghana, Standard Chartered Bank is the leader in commercial banking services and Ghana Commercial Bank has the largest branch network (131, in May 2004). These three banks held just over 55% of the total assets of the banking sector at end-2003. The foreign banks play a leading role in the sector and are slowly stimulating competition, mainly by offering more and better services commercial banks have introduced many new products, including ATMs and credit cards, and have improved the turnaround time for cheque clearing and

cashing. Universal banking licences for banks with paid-up capital of C70bn (US$7.6m) were introduced in February 2003, and this has also increased competition. The main commercial banks have, however, recently attracted much criticism for their perceived concentration on higher-income customers and large businesses. Specifically they have been criticised for requiring excessive minimum balances that many public-sector workers cannot meet; charging high transaction costs; the non-payment of interest on deposits below C10m (US$1,150); and the closure of branches outside Accra, particularly in other regional capitals. There were 1115 rural and community banks, providing a very limited range of services, at end-September 2003. These criticisms are a reflection of the risk-averse nature of the banks operating in Ghana. Banks have a limited appetite for lending to small and medium-sized local businesses, which has caused some local resentment. The spread between borrowing and lending rates remains high, at over 20 percentage points. High lending rates are the result of large bad debts and a high secondary reserve requirementon top of a 9% primary reserve requirement, commercial banks have to hold a minimum of 20% of their deposits in T-bills and 15% in index- linked government bonds. The low deposit rates appear to be the result of the volatile nature of savings deposits, which tend to impose high operating costs on the banks. This interest rate structure means that those who can afford to, hold T-bills rather than use the commercial banks, reducing financial intermediation and the amount of funds available for private-sector capital formation. Commercial banks also prefer to hold government paper, which is in effect risk free, and are cautious towards lending, further hampering the development of the private sector. In contrast, tough competition has driven merchant banks’ margins down to around 4%. The leading merchant banks are CAL Merchant Bank, Ecobank Ghana, First Atlantic Bank and Merchant Bank Ghana. The merchant banks provide trade finance as well as commercial and other banking services. The two development banks are National Investment Bank, which is responsible for investment banking, and the Agricultural Development Bank for agricultural finance. Both of these are now being run along the lines of commercial banks and the government plans to privatise them. Medium-term financial sector The governmentrs medium-term plans to make the financial sector more reform plans efficient at mobilising and allocating funds and to fully integrate it into the international financial system were announced in the 2004 budget. The government is aware that saving and investment need to be increased to achieve the higher rates of real GDP growth and employment that will make a real impact on poverty. These goals are encompassed in the governmentrs new financial sector strategic plan, the main priorities of which are as follows. • A revamping of the government’s borrowing programme to extend and secure a better balance of debt maturities; clearly distinguish borrowing from open market operations; introduce openness into the process; build confidence among investors; and reduce crowding out of the private sector.

• The removal of obstacles to the development of an efficient secondary market in government securities and equities, and the improvement of the quality and timeliness of the information flow available to market participants. • The reinforcement of the legal framework for business transactions and investment so that it surpasses that of other countries in the region. • A strengthening of regulatory agencies and financial institutions to meet global standards of financial capacity, expertise, transparency and consumer protection.

Non-banking financial sector is The non-banking financial sector is growing and diversifying, although it relatively undeveloped remains relatively small. In the area of securities and capital markets, Ghana has three discount houses: CDH Discount, which was established in 1987, the Securities Discount Company, which was established in 1991, and Fidelity Discount House, which was established in 1998. Since the opening of the Ghana Stock Exchange, several stockbrokers have become established, and legislation introduced in 1999 has opened the way for unit trusts and more varied financial instruments. Databank Ghana operates as an investment bank, providing financial advisory and stockbroking services. There are now 19 insurance companies, compared with fewer than ten in 1993, although the industry is still dominated by two state-owned firms. The government is preparing one of them, State Insurance Company, for privatisation. Ghana also has mortgage companies, including the Home Finance Company, building societies, at least one venture-capital company and three leasing companies.

A fledgling stockmarket The Ghana Stock Exchange (GSE) was established in 1989 and began trading in corporate equities, bonds and government securities in 1990. The Securities Industries Law, which governs the GSE, called for a Securities Regulatory Commission to oversee and regulate the bourse, which was finally established in 1998 and named the Securities and Exchange Commission (SEC). The GSE had 27 listed companies and a market capitalisation of US$10.8bn in mid- October 2004. However, the capitalisation figure is misleading because of the dominance of AngloGold Ashanti, which accounts for over 80% of market capitalisation, although its shares are mostly traded on other exchanges. (The AngloGold Ashanti merger caused a substantial increase in market capitalisation.) Liquidity has remained extremely low, the volumes traded averaging only around 2% of total market capitalisation. Most retail investors are passive and public awareness of the GSE is relatively low.

Ghana Stock Exchange, end-2003 Listed companies 25 Market capitalisation C bn 12,617 US$ m 1,426 All-share index (% change, year on year) Cedi terms 154.7 US$ terms n/a

Source: Ghana Stock Exchange.

Volatile returns The GSE was very small until 1994, when the government divested around 30% of its equity in Ashanti and sizeable stakes in six other companies. The well- publicised divestment of Ashanti stimulated foreign and local interest in other Ghanaian equities. Despite more (albeit smaller) privatisations in 1995 and 1996, poor economic fundamentals undermined the attractions of the GSE. Dynamism returned in 1997, when falling inflation and the government’s post- election efforts to restore fiscal stability tempted some investors back to the GSE. Enthusiasm was maintained during 1998 and the domestic share index rose by 70%, or 63% in US dollar terms, making it the best performing market in Africa that year. In 1999 the macroeconomic environment deteriorated and the market soured, falling by 15% in local currency terms or 42% in US dollar termsthe GSE’s worst year ever. Although the market recovered in 2000, its return of 16.6% in local currency terms was well below the inflation rate of 40.5% and the Treasury-bill rate of 38%. The GSE recovered somewhat in 2001, owing to the relative stability of the cedi and improved macroeconomic stability.

Doubts over sustainability of Since the end of 2001 the GSE all-share index has boomed; it is up by over boom since 2002 400% in cedi terms (around 380% in US dollar terms). This remarkable performance has been driven by the improved macroeconomic situation increased foreign-exchange reserves, a stable currency and lower inflation pressurescombined with falling yields on government debt. The reduced yield available on T-bills has encouraged some investors to switch their holdings to equities. The improved economic environment has allowed most listed companies to post impressive results, further buoying the all-share index. To absorb some of the surge of funds directed towards the exchange, the GSE is encouraging new firms to list. The response has been good and more new listings are planned for 2005. Although new listings will take some of the pressure off existing valuations, there is concern over the rapid pace of the rise in the all-share index. According to a local stockbroker, Databank, the market is trading on a price/earnings ratio of around 22, compared to a long-term average of around seven. Although the improved economic situation has enhanced the prospects for company earnings, it does not make such a valuation justifiable. The main risk to the all-share index at the moment is that the government will step up expenditure ahead of the elections, forcing T-bill rates upward and reducing the attraction of equities relative to debt.

GSE adopting a regional role Trust Bank of The Gambia became the first ever crossborder listing on the GSE in November 2002. According to the bank, its rationale for listing on the GSE was to provide liquidity for shareholders and an avenue for raising additional capital in the absence of a stock exchange in The Gambia. However, the listing also ties in with the objectives of the West African Monetary Zone. One reason why Trust Bank may have chosen to list on the GSEdespite the fact that the Nigerian stockmarket is the largest exchange in the regionis that one of its leading shareholders is Databank, which also sponsored the listing. Ghana is in talks with Nigeria on the possible integration of the Ghanaian and Nigerian stock exchanges, with a view to creating a wider market.

Other services

Tourism draws investment Like many developing countries, Ghana produces few exportable services, although recent efforts to revive tourism have paid off to a certain extent. Ghana’s hotel sector declined dramatically during the 1970s and 1980s, but has been rejuvenated by large-scale private investment. Tourist attractions such as old slave forts and small wildlife parks have also received substantial investment. In particular, Ghana has targeted the African-American tourist market, promoting special heritage tours and other historical events aimed at the African diaspora. Official figures point to rapid growth in international tourist arrivals, increasing from 257,000 in 1993 to 550,000 in 2003 (according to estimates from the Ghana Tourist Board). Tourism is the third largest foreign-exchange earner in Ghana after gold and cocoa and it is government policy to develop Ghana into an internationally competitive tourist destination through a 15-year Master Plan. The Master Plan seeks to alert the private sector and the government agencies involved in the development of infrastructure for tourism to the importance of the sector, improve skills in the hospitality industry, and identify opportunities and programme developments necessary for the sector. The Ghana Tourist Board is at the forefront of work in this area and carries out promotional activities such as monitoring and evaluating selected tourism plans, and organising festivals and celebrations. The Ministry of Tourism also facilitates the development of the sector. The main sources of tourism are the UK, the US, Germany and France. Ghanaians based overseas, mainly in the UK and US, accounted for 28% of total arrivals in 2002. Hotel beds in Ghana more than doubled between 1992 and 2003 (from 10,902 to 22,909), reflecting an increase in one-, two- and three-star accommodation. There are still only a few hotels with a four star rating or above. Occupancy rates are greater for the better quality hotels, at around 70%, compared with below 60% for three-star hotels and below.

Tourism arrivals and receipts 1998 1999 2000 2001 2002 Arrivals 347,952 372,653 399,000 438,833 482,643 Receipts (US$ m) 284.0 304.1 386.0 477.8 519.6

Source: Ghana Tourist Board.

Retail Although retail facilities in Ghana remain limited, a range of outlets serve urban areas. There are a growing number of large foreign outlets in Accra and more new investments are expected in coming years. Rural areas typically rely mainly on informal markets or modest general stores.

The external sector

Trade in goods

A large trade deficit Ghana’s trade profile is that of a typical African country. It usually has a large trade deficit and is dependent on a few primary productsgold, cocoa and timber. This dependence is reflected in swings in export earnings according to the output of the key commodities and international price fluctuations.

Foreign trade, 2003 (US$ m; fob) Exports 2,562 Gold 830 Cocoa beans 676 Timber 175 Non-traditional exports & others 882 Imports -3,233 Trade balance -670

Source: Economist Intelligence Unit.

Strong export growth in recent The annual rate of growth in dollar export earnings has averaged 10.1% over the years ten years to 2003. This masks some sharp annual fluctuations, ranging from a rise of 40.3% in 1998, due to a jump in cocoa and gold production, to a fall of 5.1% in 1997, when cocoa production was hit by poor weather. Owing to strong growth in international prices of cocoa and gold and higher domestic production (particularly of the former), export growth is expected to average nearly 20% between 2002 and 2004. Data for the first six months of 2004 show that cocoa overtook gold, to become the largest source of export revenue, a position that it last held in 1991. Last seasonrs record crop has lifted cocoa exports by 34%, compared with the same period last year, despite lower prices. In contrast, although higher prices offset the impact of lower production by AngloGold Ashanti, gold exports were up by only 9% in US dollar terms. While good weather has been one of the leading factors in the doubling of cocoa exports since 2001, higher exports of gold and non-traditional exports have made Ghana less vulnerable to the market and weather conditions that affect cocoa. Non-traditional exports have increased from US$1.9m in 1984 to US$701m in 2003, when they accounted for around 27% of total export earnings. The main growth sectors include agriculture and agro-processing industries, particularly fish products and pineapple. Exports of processed timber and aluminium products have also expanded. Non-traditional exports are reaping the benefits of the collapse in the cedi in 1999 and 2000.

Exchange rate and reserves Although domestic demand primarily determines import levels, and influence imports international price trends for manufactured items play a key role in determining import values, exchange-rate policy and foreign-exchange reserves also have a big influence on imports. For example, expectations that the government would defend the cedi for much of early 1993 led to a rapid build- up in stocks and imports, and the relative stability of the currency in 1997 and 1998 allowed a more gradual increase in demand. Imports contracted sharply in

2000, owing to the collapse of the cedi. Although import demand has picked up strongly since 2002, thanks to an increase in export revenue that has boosted foreign-exchange reserves, imports are not expected to exceed their 1999 total until 2004. Oil normally accounts for around 10% of total imports; thus changes in international oil prices tend to have a limited impact on the import bill, although oil can constitute up to 20% of the import bill when prices are high. The trade balance has consistently been in deficit since 1995, reaching a high of US$1.27bn in 1999, before narrowing to US$692m in 2002 as imports declined and exports were boosted by higher gold and cocoa prices. Despite the rapid growth in exports since 2002, the import demand that greater availability of foreign exchange will stimulate is expected to cause a widening of the trade deficit. The bulk of Ghana’s trade is with OECD countries. Ghana’s main, non-OECD trading partner is Nigeria, from which Ghana imports most of its oil, and neighbouring Côte d’Ivoire. Ghana’s main export market is the Netherlands, where much of Ghana’s cocoa is processed, followed by the UK and the US.

Main trading partners, 2003a Exports to: % of total Imports from: % of total Netherlands 11.2 Nigeria 21.2 UK 10.8 UK 6.7 US 4.3 US 5.6 Germany 6.2 Côte d’Ivoire 5.8 France 7.7 France 4.2 a Derived from partners’ trade data and subject to a margin of error. Source: IMF, Direction of Trade Statistics Yearbook.

Invisibles and the current account

Transfers surplus outweighs Ghana’s services and income accounts are persistently in deficit. The income services and income deficits deficit is the result of substantial debt-service payments and is likely to widen in the coming years owing to profit repatriation by the foreign mining companies that are increasing their presence in Ghana. The deficit on the services account has narrowed in recent years owing to a pick-up in tourism and the increased use of Ghana’s ports (as unrest in neighbouring Côte d’Ivoire has caused traffic to be diverted), to stand at US$65m in 2002. Payments for insurance and freight services are the main services outflows, so the jump in imports in 2003 caused the services deficit to widen to US$274m. A substantial inflow of transferscomprising expatriate remittances and donor aidusually more than compensates for the services and income deficits. The current-account balance has improved markedly in recent years, from a deficit of US$964m (12.5% of GDP) in 1999 to a surplus of US$255m (3.4% of GDP) in 2003the first surplus since 1980. Some of this is attributable to the improvement in the trade balance, caused by import restraint since the collapse of the cedi and rising gold and cocoa exports. More important is the jump in current transfers credits. Inflows of current transfers have surged from US$638m in 1999 to US$1.41bn in 2003. This may actually be slightly misleading as this rise was caused in part by an improvement in the measurement of expatriate

remittances. All the major banks have linked up with the Western Union money transfer agency, so most remittances go into the formal banking sector and are therefore more accurately captured by the official data. Nonetheless, an increase in remittances is likely to have occurred, as the strength of the global economy means that expatriates are likely to have more money to send home. The improved economic performance under the New Patriotic Party (NPP) will also have stimulated the flow of remittances, which are often used to finance small businesses. In addition, the government’s reasonable adherence to donor- driven policies and the strategic role that the president, John Agyekum Kufuor, has carved out for Ghana in regional dispute resolution have caused donor transfers to pick up.

Current account, 2003 (US$ m) Merchandise exports fob 2,562 Merchandise imports fob 3,276 Trade balance -714 Net services -274 Net incomes -157 Net transfers 1,399 Current-account balance 255

Source: IMF, International Financial Statistics.

Capital flows and foreign debt

Aid flows are usually high During the early 1980s Ghana was one of the first Sub-Saharan African countries to carry through a structural adjustment programme. Donors saw Ghana as a test case and wanted to prove that their policy prescriptions worked. Anxious for a success story to set an example for the rest of Africa, donors granted Ghana large amounts of aid. Since Ghana’s political transition to democracy in 1992, relations with donors have been mixed. Large amounts of aid have been forthcoming when the economic reform programme is perceived as being on track, but donors have shown a readiness to suspend disbursements when the government has relaxed fiscal policy or fallen behind schedule on prescribed reforms. Encouraged by the performance of the NPP government, donors have allowed Ghana to pioneer the Multi-Donor Budget Support Programme (MDBSP) approach to donor financing. The MDBSP is a pool of funds into which donors donate money. Under the programme, the policies and procedures of donors are harmonised and common benchmarks against which to measure progress are agreed upon. This means that the government can concentrate on project implementation knowing that adequate budgetary support is available, rather than relying on donors to deliver specific funds for specific projects. The MDBSP approach also gives the government greater freedom as to how it spends the donor money, provided the projects coincide with the goals of the agreed framework. There is some donor oversight of how the government spends the funds in the MDBSP, but this is not as vigorous as that accompanying normal bilateral lending programmes. In return for this, it is assumed that the government, not wanting to lose the benefits of the pooled

fund system, will try to persuade more donors to contributefo r example, the US Agency for International Development (USAID) maintains a bilateral approach. Official development assistance has picked up from its recent low of US$607.5m in 1999 (a fall from US$700.9m the previous year), when some funding was suspended because of donor concern over policy slippage. Official development assistance increased to US$651m in 2001 from US$609.4m in 2000, as donors increased support for the country after the smooth transfer of power to the new NPP government. Donor assistance to Ghana was unchanged between 2001 and 2002 (the latest data available), at US653m. Most donors increased support in 2002, but the data is distorted by a fall in assistance from the Netherlands, after a one-off boost in 2001. The proportion of donor support that is in the form of grants, rather than loans, has increased substantially; virtually all bilateral assistance is now in grant form.

Ghana reaches HIPC Ghana’s external debt more than quadrupled, from US$1.4bn in 1980 to completion point US$7.0bn in 2000, according to the World Bank’s Global Development Finance, owing mainly to a rapid accumulation of loans from multilateral lenders (mainly at concessional rates), in particular the World Bank. Faced with this large debt, in 2001 the NPP government decided to avail itself of debt-relief facilities under the IMF-World Bank’s heavily indebted poor countries (HIPC) initiative, hoping to reduce debt to sustainable levels. Ghana reached HIPC decision point in February 2002, entitling it to savings in debt service, and hit completion point in July 2004. Achieving completion point entitles Ghana to debt relief of US$3.5bn over 20 years (US$2.2bn in net present value terms, after discounting according to the degree of concessionality of the debt stock). The relief is to be phased over a period of around 20 years. The International Development Association, the World Bankrs soft lending arm, will forgive US$1.4bn in debt-service payments, which is equivalent to a two-thirds reduction in debt-service payments between 2002 and 2022. The IMF will forgive US$112m in net present value terms between 2002 and 2009, while the remainder of the relief will come from bilateral and other multilateral creditors. Savings on debt servicing will be spent in accordance with the pro-poor objectives of Ghanars poverty reduction strategy. As much of this relief will be phased, any immediate reduction in Ghanars debt stock will be limited to those bilateral donors that rapidly approve the debt write-off. Even though the Paris Club of sovereign creditors approved the cancellation of US$821.5m of Ghanaian debt shortly after the completion point announcement was made, this process can take some time and is subject to delay in national parliaments. A further factor that will limit the usefulness of the HIPC debt reduction is that Ghana is expected to continue to borrow externally (at concessional rates) to fund spending on poverty reduction, health, education and infrastructure development.

Debt stock has risen in recent Latest data from Global Development Finance show that Ghanars total external years debt stock rose by around US$600m in 2002 to US$7.3bn (equivalent to 119% of GDP). This was mainly because of an increase in borrowing from bilateral and multilateral creditors (including large disbursements from the EUJanuary 2003,

Foreign trade and payments), almost all of which was at concessional rates. Over 70% of Ghanars external debt stock is now on a concessional basis. The jump in disbursements appears to reflect approval of the governmentrs efforts to stabilise the economy in 2002. Debt-service payments fell sharply in 2002 to US$211m, from US$314m in 2001, reflecting the relief awarded when Ghana reached HIPC decision point in February 2002. This reduced the debt-service ratio to only 8%, compared to 32.5% in 1997. Despite this, the government did build up some arrearsUS$4m in interest and US$15m in principalmainly to multilateral creditors. According to data from the Bank of Ghana (the central bank), however, the total external debt stock was US$7.034bn at the end of 2003. The difference seems to be the result of different interpretations of short- term debt; World Bank figures have been up to two-and-a-half times greater than those from the central bank.

External debt estimates (US$ m) 2002 2003 Short-term debt 360 475 Medium-term debt 528 621 Non oil-related 152 157 Oil-related 11 11 IMF 365 453 Long-term debt 5,697 5,939 Bilateral 1,620 1,676 Multilateral 4,077 4,263 Total debt 6,585 7,034

Source: Bank of Ghana.

Direct and portfolio After more than a decade of low and static flows, inward foreign direct investment investment (FDI) began to pick up in 1993. That year’s inflow, of US$125m, was more than five times the annual level of previous years. The following year FDI almost doubled to US$233m, but after peaking at US$244m in 1999 it fell to just US$59m in 2002. The fluctuations reflect erratic levels of investment, particularly in mining projects, and inflows linked to privatisation. The data on portfolio flows are conflicting. The IMF’s International Financial Statistics does not show any portfolio investment since the stock exchange opened. The World Bank’s Global Development Finance shows no portfolio investment before 1993, but then records a massive US$557m in 1994 when the government sold shares in Ashanti Goldfields, followed by a steady decline to just US$17m in 2000 (these data were dropped from the 2003 edition of Global Development Finance).

Foreign reserves and the exchange rate

The cedi has depreciated Having been kept artificially high for many years, the cedi was devalued and since 1992 floated in stages after 1984. In 1987 the government introduced an auction system, and then in 1990 allowed foreign-exchange bureaux to be established. Since then foreign currency has been easy to acquire for relatively small transactions, but the imbalance between supply and demand has caused the cedi to depreciate significantly since 1992. In 1995 the government began to use

the exchange rate as a nominal anchor against inflation. This strategy involved considerable intervention in the foreign-exchange market and slowed the nominal depreciation. In 1998 the cedi was stable in nominal terms, falling by just 4% against the dollar. However, combined with average annual inflation of 20%, this translated into a sharp appreciation of the real exchange rate. In mid- 1999 the cedi began a steep slide, falling from C2,453:US$1 in May 1999 to C6,293:US$1 in August 2000. Although the cedi’s fall against the US dollar slowed in the final quarter of the year (when it depreciated by only 3.7%), during the year as a whole the cedi depreciated by 52% against the dollar, falling from an annual average of C2,647:US$1 in 1999 to C5,322:US$1 in 2000. The cedi depreciated by less than 5% in 2001, owing to tighter monetary and fiscal policies, lower inflationary expectations and a reduction in external debt- service payments. Higher imports by construction and utility companies after the government settled its arrears with them, and a lack of intervention by the central bank caused the cedi to depreciate by 15% against the US dollar during 2002.

Recent cedi stability The cedi has been relatively stable against the US dollar since the end of 2002. It stood at C9,017:US$1 on October 20th 2004, down only 6.8% on its end-2002 level. Strong receipts from both cocoa and gold exports, increasing expatriate remittances and a weak US dollar have supported the currency. Additionally, there was some official support from the central bank to defend the exchange rate as a nominal anchor, both in terms of monetary policy and foreign- exchange inflows. Although the cedi has depreciated faster against the currencies of other major trading partners, owing to the weakness of the US dollar, the large inflation differential between Ghana and the US and EU means that in real terms Ghanaian exporters are losing competitiveness. Some economists have raised concerns that such relative exchange-rate stability may lead to another sharp depreciation, but, according to the IMF, the real effective exchange rate is little changed since end-2000 and is one-third below the level reached ahead of the currency collapse in 1999. Despite this relative stability, the cedi remains vulnerable to any sudden deterioration in the terms of trade (such as a sharp fall in gold or cocoa prices).

Exchange rate and foreign reserves, 2003 C:US$ (end-period) 8,852 C:US$ (av) 8,677 Foreign-exchange reserves (US$ m) 1,306

Source: IMF, International Financial Statistics.

Import cover is low despite Strong inflows of gold and cocoa revenue and expatriate remittances have foreign–exchange inflows caused foreign-exchange reserves to surge from US$287m in June 2002 to US$1.4bn in July 2004 (the latest available data), an all-time high. Even at this level, import cover is under four months, reflecting the strong demand for imports, which exceeds the supply of foreign exchange. Foreign-exchange reserves usually jump in the final quarter of the year, which coincides with the start of the cocoa export season, before gradually easing through the first three-quarters of the following year.

Regional overview

Membership of organisations

African Union (AU) The African Union (AU) is the successor to the Organisation of African Unity (OAU) and is based in the Ethiopian capital, Addis Ababa. The AU was formally launched in July 2002 at a meeting of African heads of state in the South African city of Durban. This came two years after the AU’s formation was first agreed in Togo in July 2000 and followed a one-year transitional period that began after the ratification of the constitutive act of the AU by two-thirds of the member states in May 2001. The AU is modelled on the EU and has ambitious plans for a parliament, a central bank, a single currency, a court of justice and an investment bank. The most advanced of these is for a Pan-African Parliament, which held its first session in South Africa in October, although it will not play a legislative role for five years. The president is currently Gertrude Mongella from Tanzania. The AU also aims to have common defence, foreign and communications policies, based loosely on those of the EU. Even if these goals are not fulfilled, the organisation fills the need for a forum for discussing the continent’s problems and the idea of pan-African unity exerts a strong hold over member countries. In practical terms, the most high-profile AU event is the annual conference of heads of state, which is hosted by the member state that is due to hold the chairmanship of the organisation for the following year. The day-to-day affairs of the AU are managed by the AU commission, which is modelled on the EU commission and was endorsed by the AU heads of state summit in July 2003. The commission is headed by the former Malian president, Alpha Konaré, aided by a deputy, Patrick Mazimhaka of Rwanda, both of whom were elected at the summit. There are also seven appointed AU commissioners. One of the main problems facing the AU is that many of the proposed new institutions and policy co-ordination mechanisms are costly and cannot be funded within the AU’s current resource allocations. To help to counter this, at the July 2004 Annual Summit Mr Konaré presented a 2004-07 Strategic Framework aimed at launching Africa into the 21st century. Under this, member states are supposed to pledge 0.5% of GDP to fund the AU, which will allow it to double the staff at its headquarters and to push ahead with the implementation of the New Partnership for Africa’s Development (Nepad). This is a potential bone of contention with the South African government, which is keen for Nepad to remain in its South African headquarters. However, to date, many members still fail to pay their membership dues so further commitments, other than from external donors, are unlikely. In December 2003 donors and external lenders expressed their full support for the AU’s initiatives and the creation of new institutions. The main criticism levelled at the OAU in the last decade was that little real action resulted from its policy announcements. There are concerns that the AU, like its predecessor, will be undermined by a lack of real commitment to its initiatives amongst the 53 member states, many of which suffer from very weak governance. This problem is further compounded by the fact that many

member states are unlikely to give up the sovereignty required to make several of the proposed initiativessuch as a single currency or a court of justice operate effectively. The AU will also battle to overcome opposition to the principle of non- interference, which has been a major hindrance to the resolution of conflicts on the continent and is a contentious issue among member governments. Although non-interference was enshrined in the old OAU, this is not the case with the AU, which has set up a Peace and Security Council (PSC; to replace the OAU’s Mechanism for Conflict Prevention, Management and Resolution) modelled on the UN Security Council. It is envisaged that the PSC will sanction military intervention in member states in cases of genocide, unconstitutional changes of government and gross human rights abuse. The proposed military intervention by the AU is to be through a standing armed force, which is projected to comprise five battalions by 2010 and has already received some funding from both the EU and the US. Even without the establishment of the PSC, since May 2003 the AU has had an observer mission in Burundi, led by South Africa and including troops from Mozambique and Ethiopia, to help enforce a peace agreement in Burundirs civil war. An AU observer mission was also sent to the Darfur region of Sudan in July 2004, and a protection force is being deployed. If this is increased, to become a real peacekeeping force, it could prove to be the first real test of the AU’s commitment to intervening in member countries’ domestic affairs.

Economic Community of West The Economic Community of West African States (ECOWAS) was established African States (ECOWAS) in 1975 by 15 West African countries: Benin, Burkina Faso, Côte d’Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo. Cape Verde joined ECOWAS in 1977, and Mauritania withdrew in early 2000. The community’s principal objective is to establish a customs union and a common market to promote the free movement of goods and people within West Africa. ECOWAS has an executive secretariat headed by a Ghanaian former minister, Mohamed Ibn Chambas, a 120-member parliament and a court of justice, all based in the Nigerian capital, Abuja. Decision-making powers are vested in a council of ministers and a chairman (who is elected annually and is currently John Agyekum Kufuor of Ghana); supreme authority rests with the annual conference of heads of state and government. In 1994 eight members of ECOWASmainly francophone countriesset up the Union économique et monétaire ouest-africaine (UEMOA) to work towards a customs union and other aspects of economic convergence. The UEMOA membersBenin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togoalready share the same currency, the CFA franc, and similar legal codes. Six other ECOWAS membersThe Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leonesigned an agreement in December 2000 to create a second monetary union in the region and defined a set of convergence criteria: a budget deficit of less than 4% of GDP; central bank financing of budget deficits limited to 10% of the previous year’s tax revenue; an inflation rate of no more

than 5%; and foreign reserves equivalent to at least six months of imports. A first step towards monetary integration was the creation of the West African Monetary Institute, an interim organisation that was to pave the way for the creation of a West African central bank and the introduction of a common monetary unit in January 2003. The West African Monetary Zone (WAMZ) Stabilisation and Co-operation Fund was created in 2001 with planned capital of US$100m to assist member countries with temporary balance-of-payments problems. The two monetary zones were expected to merge in 2004. However, progress has been slow and the WAMZ countries agreed in November 2002 to postpone the creation of their new currency until July 2005, since none of the countries had met most of the convergence criteria. (This date is also unlikely to be met.) Moreover, the IMF has expressed its opposition to such a monetary union, since it would be dominated by Nigeria, whose economic imbalances could lead to monetary instability in the whole region. Progress towards economic integration in ECOWAS has been limited by several factors, including antagonism towards the core member, Nigeria; mistrust between anglophone and francophone members; lack of financial resources; and regional political instability. Inadequate infrastructure and the lack of diversification of the ECOWAS economies have also undermined economic co- operation. Although ECOWAS was created for economic reasons, it has been most active on regional security issues. The ECOWAS Ceasefire Monitoring Group (Ecomog) was established to enforce an agreement for ending the civil war in Liberia in 1990. Dominated largely by Nigeria, Ecomog intervened to restore peace in Sierra Leone in 1997 and in Guinea-Bissau in 1998. Its forces were deployed in Côte d’Ivoire at end-2002 under the leadership of Senegal to help to secure a ceasefire. In August 2003 Liberia’s interim government and rebel groups signed a peace deal in Accra, Ghana, permitting the establishment of an ECOWAS “interposition” force, the ECOWAS Mission in Liberia (ECOMIL), which maintained the ceasefire until October 2003, when the UN Mission in Liberia took over, mandated by the UN Security Council. ECOWAS plans to turn its peacekeeping force into a permanent stand-by force for deployment in the subregion. Four observation centresin Benin, Burkina Faso, The Gambia and Liberiato prevent and control civil tension and upheaval in the region are planned.

Cotonou Convention A new, 20-year, convention was signed in June 2000 in Cotonou, Benin, offering a group of 77 African, Caribbean and Pacific (ACP) countries preferential trade and aid links with the EU. The Cotonou Convention replaced Lomé IV, a convention that was signed in 1989 and replaced previous agreements signed in 1975, 1979 and 1984. Although similar to the Lomé conventions, the new convention has a stronger political dimension. Respect for human rights, democratic principles and the rule of law were essential components of Lomé IV. Under the Cotonou agreement, the ACP countries have also agreed to promote good governance, combat corruption and try to prevent illegal immigration into the EU. A revision of the Cotonou Convention is made possible every five years by a special clause. Negotiations between the

ACP countries and the EU for the review and adaptation of the accord should start in autumn 2004 and be completed in February 2005. Under previous conventions, ACP products, whether agricultural or industrial, entered the EU duty-free, although four agricultural productsbeef, sugar, bananas and rumwere subject to a more restrictive system of tariff quotas. Because the type of trade agreement established by the Cotonou Convention does not comply with the rules of the World Trade Organisation (WTO), the new agreement offers a negotiating framework for tailor-made regional free- trade agreements known as Economic Partnership Agreements (EPAs), under which ACP countries, preferably within existing economic groupings, will gradually open their domestic markets to European products. Given the adjustment costs involved, a preparatory period of eight years (2000-2008) has been agreed, during which the old system of preferences will continue to apply. However, under existing global trading rules, the 33 African countries classified as least developed countries will still have the option of entering the EUrs generalised system of preferences (GSP). Unlike the Lomé Convention, the GSP, which benefits all developing countries, complies with the rules of the WTO because it is based on the twin principles of non-reciprocity and non- discrimination. In September 2003 the ACP countries and the WTO signed an agreement at the Cancun trade round, whereby the WTO will provide training and technical assistance to ACP countries as a form of mutual co-operation. The European Development Fund (EDF) will remain the main source of multilateral European aid to the ACP countries. Under the new convention, EDF instruments have been regrouped and rationalised into two programmes: one to provide grants for long-term development schemes being carried out either at the national or the regional level, with additional support available in the event of a fall in export earnings, and the other to finance risk capital and loans to the private sector. The ninth EDF will total æ13.5bn (US$12.9bn). In addition, about æ10bn left undisbursed from previous programmes will remain available until 2007, and the European Investment Bank will provide æ1.7bn. The financial protocols are concluded for a period of five years, with the ninth EDF running from 2000 to 2005. The Cotonou Convention finally entered into force on April 2003 with all 15 EU members and 76 ACP nations (not Somalia) ratifying the treaty. A month later the ACP representatives signed the Brussels Declaration, which calls for the timely and effective implementation of EDF funds. This represents a commitment towards the efficient disbursement of EDF resources for the benefit of ACP countries. In June 2004, at the 4th Summit of ACP Heads of State, the ACP Council of Ministers was mandated to ensure the effective co-ordination and coherence of EPA negotiations within the ACP and between various ACP regions, as well as with the WTO negotiations, so as to ensure unity.

Appendices

Sources of information

National statistical sources The availability of Ghanaian data has improved significantly in recent years. In particular, the Bank of Ghana produces a monthly Statistical Bulletin, quarterly Economic Bulletin and an Annual Report which are available on its website (though often with some delay). Detailed data and forecasts that are presented at each bimonthly meeting of the Bank’s Monetary Policy Committee are also on the Bank’s website. The Central Statistical Office also provides reasonably up-to-date information about inflation However, the output of the Ghana Statistical Service, the main source for all important national data, is of uneven quality. The Ghana Stock Exchange reviews its operations in its annual Fact Book, and daily prices and statistics are available from the exchange and on the Internet. An independent, Accra-based think-tank, the Centre for Economic Policy Analysis (CEPA), provides a comprehensive analysis of recent macroeconomic trends in its annual Macroeconomic Review and Outlook; data are drawn from local sources and from CEPA’s own estimates. The Institute of Statistical, Social and Economic Research also produces an annual publication entitled The State of the Ghanaian Economy, which contains detailed data on all the leading economic sectors. Further data are contained in the budget speeches published by the Ministry of Finance and in documents prepared for the IMF by the Ministry relating to negotiations over assistance packages.

International statistical sources Apart from these sources, statistics are also derived from the World Bank and the IMF, which, in turn, rely on the government to furnish the data. This applies to both International Financial Statistics and the World Bank’s Global Development Finance. There are generally few inconsistencies between data in these sources and in national sources. Regular detailed reviews of the government’s performance under its poverty reduction and growth facility and its poverty reduction strategy paper are published on the IMF’s website. For information on international aid, see the OECD’s Geographical Direction of Financial Flows to Aid Recipients. Information on the military comes from the International Institute for Strategic Studiesr publication, The Military Balance.

Select bibliography and Ernest Aryeetey, Jane Harrigan & Machiko Nissanke, Economic Reform in Ghana: websites The Miracle and the Mirage, Oxford, 1999. Kwabena Dinkor, Structural Adjustment and Mass Poverty in Ghana, Aldershot, Ashgate, 1997 Jeffrey Herbst, The Politics of Reform in Ghana, 1982-91, California University Press, 1993 Eboe Hutchful, Ghana’s Adjustment Experience: The Paradox of Reform, Oxford, 2002.

Richard Jeffries, Class, Power and Ideology in Ghana, Cambridge University Press, 1978 Paul Nugent, Big Men, Small Boys and Politics in Ghana, Pinter Press, 1994 Douglas Rimmer, Staying Poor: Ghana’s Political Economy, 1950-90, Oxford, 1993 Kevin Shillington, Ghana and the Rawlings factor, Macmillan Press, 1992 www.finance.gov.ghMinistry of Finance, contains downloadable versions of all the country’s main economic policy documents (not kept up to date as of October 2004). www.gse.com.ghGhana Stock Exchange website, contains information on the performance of the exchange and trading information www.bog.gov.ghBank of Ghana website, features copies of the bank’s statistical publications (usually with some delay after their production in hard copy) www.ashantigold.comAngloGold Ashanti homepage, features up-to-date and detailed information on Ghana’s largest gold producer (also viewable through www.anglogold.com) www.databankgroup.comDatabank investment banking group, provides regular reports on the stock market and economy

Reference tables

Population and labour force 1998 1999 2000 2001 2002 Population (m; mid-year) 18.8 19.3 19.6 19.9 20.3 Population growth (%) 1.6 2.7 1.6 1.5 2.0 Labour force (m) 8.9 9.1 9.3 9.5 9.7

Source: World Bank.

Electricity generation and consumption (bn kwh) 1999 2000 2001 2002 2003 Electricity generation 5,925 7,223 7,832 7,295 5,900 Akosombo 4,289 5,557 5,520 4,177 3,210 Kpong 880 1,052 1,085 858 674 Thermal plant 717 372 108 n/a n/a Electricity consumption 6,804 7,858 8,030 n/a n/a Electricity Corporation of Ghana (ECG) 3,493 3,919 4,175 n/a n/a Volta Aluminium Company (Valco) 1,928 2,505 2,565 n/a n/a Mines 696 630 569 n/a n/a Exports 326 392 302 n/a n/a Note. Gap between generation and consumption is met by imports from Côte d’Ivoire. Source: Volta River Authority.

Gross domestic product by sector (C bn; at constant 1993 prices) 1999 2000 2001 2002 2003 Agriculture 1,811 1,849 1,923 2,007 2,129 Food crops & livestock 1,238 1,251 1,314 1,383 1,456 Cocoa production & marketing 168 178 176 175 204 Forestry & logging 164 182 191 200 213 Fishing 241 237 242 249 256 Industry 1,248 1,295 1,333 1,396 1,467 Mining & quarrying 282 286 281 294 308 Manufacturing 454 472 489 513 536 Electricity & water 127 132 138 144 150 Construction 386 405 425 446 473 Services 1,448 1,525 1,603 1,678 1,757 Transport, storage & communications 231 245 258 273 289 Wholesale and retail trades, restaurants & hotels 338 352 369 390 410 Finance, insurance, real estate & business services 209 220 230 243 255 Government services 534 565 593 614 639 Community, social & personal services 91 97 104 108 113 Producers of private, non-profit services 45 47 48 50 51 Net indirect taxes 450 473 498 519 542 GDP at factor cost 4,957 5,142 5,357 5,601 5,895

Source: Bank of Ghana, Statistical Bulletin.

Gross domestic product by expenditure (C bn at constant 1993 prices; % change year on year in brackets) 1997 1998 1999 2000 2001 Private consumption 4,164 4,138 4,506 4,262 4,436 (19.4) (-0.6) (8.9) (-5.4) (4.1) Central government consumption 606 722 700 804 822 (1.7) (19.1) (-3.0) (14.9) (2.2) Total investment 1,021 1,068 1,044 867 1,062 (18.2) (4.6) (-2.2) (-17.0) (22.5) Exports of goods & services 1,159 1,270 1,430 1,442 1,442 (0.3) (9.6) (12.6) (0.8) (0.0) Imports of goods & services -2,416 -2,451 -2,724 -2,234 -2,406 (37.8) (1.4) (11.1) (-18.0) (7.7) GDP at market prices 4,534 4,747 4,957 5,142 5,357 (4.2) (4.7) (4.4) (3.7) (4.2)

Source: IMF, Statistical Appendix.

Gross domestic product (% change year on year in brackets) 1999 2000 2001 2002 2003 Current prices (C bn) 17,157 20,580 27,152 47,764 65,262 (21.5) (19.9) (31.9) (75.9) (36.6) Constant 1993 prices (C bn) 4,957 5,142 5,357 5,601 5,895 (4.6) (3.7) (4.2) (4.5) (5.2)

Source: Bank of Ghana.

Government finances (C m) 1999 2000 2001a 2002a 2003a Revenue 3,702 5,385 9,532 10,324 16,862 Tax 3,089 4,415 6,557 8,548 12,762 Non-tax 310 396 348 252 363 Grants 302 574 2,627 1,524 3,119 Total expenditure 4,965 7,564 9,827 12,776 18,981 Current 3,226 5,034 6,971 9,787 12,643 Capital 1,739 2,530 2,856 2,814 2,472 Overall balance -1,263 -2,179 -1,364 -2,451 -2,120 Financing 1,340 2,342 1,661 2,986 2,329 External 973 1,811 2,189 1,345 3,141 a Some totals do not sum in source. Sources: Ghana Statistical Service, Quarterly Digest of Statistics; Ghana Budget 2004.

Interest rates (%; year-end) 1999 2000 2001 2002 2003 Central bank rate 27.0 27.0 27.0 24.5 21.5 Treasury bills 26.4 36.3 41.0 25.1 27.2 Commercial bank deposits 23.6 28.6 30.9 16.2 14.3

Source: IMF, International Financial Statistics.

Money supply (C bn unless otherwise indicated; year-end) 1999 2000 2001 2002 2003 Money (M1) 2,490 3,442 5,035 8,049 10,723 % change, year on year 15.8 38.2 46.3 59.9 33.2 Quasi-money 2,468 4,206 5,036 6,943 9,340 % change, year on year 37.0 70.4 19.7 37.9 34.5 Money (M2) 4,958 7,648 10,071 14,992 20,063 % change, year on year 25.4 54.3 31.7 48.9 33.8

Source: IMF, International Financial Statistics.

Mineral production (‘000 tonnes unless otherwise indicated) 1998 1999 2000 2001 2002 Gold (m ounces) 2.34 2.55 2.50 2.27 2.14 Bauxite 408.6 353.1 503.8 678.4 684.0 Manganese 421.0 541.4 895.7 813.3 1,140.0 Diamonds (‘000 carats) 869.4 648.0 686.6 1,169.6 993.5

Sources: Ghana Statistical Service, Quarterly Digest of Statistics; IMF, Staff Country Report.

Manufacturing production (volume indices unless otherwise indicated; 1977=100) % weighting 1997 1998 1999 2000 2001 Food manufacturing 15.0 125.5 130.3 196.6 235.4 269.9 Beverages 8.1 123.9 124.0 164.3 190.8 199.8 Tobacco & tobacco products 7.8 53.1 53.6 37.1 37.1 46.6 Textiles & clothing 13.7 55.5 55.9 50.0 54.7 57.8 Timber 7.2 125.0 125.0 123.3 134.7 140.1 Paper & printing 1.9 54.1 54.3 54.5 55.0 56.3 Petroleum refining 19.0 7.3 56.6 58.6 68.0 72.1 Chemicals 6.6 159.8 159.8 159.1 159.2 170.0 Cement 3.0 241.8 293.1 324.2 293.1 261.0 Iron & steel 3.3 590.5 413.4 561.4 863.3 819.5 Non-ferrous metal 9.6 105.2 37.3 77.6 104.0 108.7 Cutlery & metal products 0.5 116.4 116.8 143.1 154.3 142.0 Electrical goods & appliances 1.3 30.8 29.9 25.2 25.7 25.3 Overall index incl others 100.0 100.0 99.5 120.5 143.2 150.2

Source: IMF, Statistical Appendix.

Ghana Stock Exchange (end-period unless otherwise indicated) 1999 2000 2001 2002 2003 No. of listed companies 22 22 22 24 25 Market capitalisation C bn 3,205 3,655 3,904 6,184 12,617 US$ m 916 502 540 740 1,426 Value of trading (period total) C bn 70.2 50.6 98.6 89.6 387.1 US$ m 24.7 10.1 13.3 11.3 45.5 Local indexa 736.2 858 955.9 1,395.3 3,553.4 % change -15.2 16.6 11.4 46.0 154.7 a Ghana Stock Exchange all-share index. Sources: Standard & Poor’s, Emerging Stock Markets Fact Book 2002; Ghana Stock Exchange.

Main trading partners (US$ m) 1999 2000 2001 2002 2033 Exports fob 1,756 1,754 1,563 1,556 1,976 Netherlands 198 250 214 247 222 UK 226 138 175 164 213 US 183 205 187 117 85 Germany 99 112 112 109 123 France 81 66 70 96 153 Nigeria 62 78 78 80 89 Africa 141 159 172 182 220 Imports fob 3,251 3,148 3,040 3,282 4,105 Nigeria 484 600 647 688 871 UK 311 336 229 232 274 US 263 204 220 212 230 Italy 128 360 106 198 143 Côte d’Ivoire 150 148 181 197 238 Germany 180 139 130 150 173 Netherlands 162 136 111 128 144 France 250 117 142 117 171 South Korea 62 59 99 46.5 56.3 Africa 780 923 1,038 1,090 1,387

Source: IMF, Direction of Trade Statistics Yearbook.

Balance of payments (US$ m) 1999 2000 2001 2002 2003 Goods: exports fob 2,005.5 1,936.3 1,867.1 2,015.2 2,562.4 Goods: imports fob -3,279.9 -2,766.6 -2,968.5 -2,707.0 -3,276.1 Trade balance -1,274.4 -830.3 -1,101.4 -691.8 -713.7 Services: credit 467.8 504.2 531.7 554.9 630.0 Services: debit -646.0 -583.7 -606.1 -620.9 -903.7 Income: credit 15.0 15.6 16.3 14.7 21.4 Income: debit -146.8 -123.2 -124.1 -188.9 -178.3 Transfers: credit 637.8 649.3 978.4 912.4 1,408.4 Transfers: debit -17.8 -18.4 -19.4 -12.2 -9.2 Current-account balance -964.3 -386.5 -324.6 -31.8 254.9 (% of GDP) -12.5 -7.8 -6.1 -0.5 3.4 Financial balance 746.0 369.3 392.2 -38.7 347.3 Net direct investment 243.7 165.9 89.3 58.9 136.7 Net errors & omissions 81.9 -168.6 -189.1 195.1 -46.9 Overall balance -136.4 -185.8 -121.5 124.6 555.3

Source: IMF, International Financial Statistics.

Net official development assistancea (US$ m) 1998 1999 2000 2001 2002 Bilateral 355.6 355.6 376.0 396.0 406.2 Netherlands 21.8 11.8 27.6 114.2 59.6 US 34.3 40.9 63.3 53.5 68.9 UK 64.6 91.8 79.9 97.8 123.7 Denmark 35.3 38.0 37.2 39.7 51.5 Multilateral 325.1 189.4 222.1 253.9 241.3 IDA 245.1 198.6 178.9 158.9 76.8 ADF 14.6 15.6 1.6 51.6 39.1 EC 32.5 25.6 16.4 18.1 45.5 Total (incl others) 702.1 548.9 600.4 652.9 652.8 Grants 344.8 369.0 352.7 421.2 522.9 a Disbursements minus repayments. Official development assistance is defined as grants and loans with a grant element of at least 25%, provided by OECD and OPEC countries with the aim of promoting development and welfare in the recipient country. Source: OECD Development Assistance Committee, Geographical Distribution of Financial Flows.

External debt (US$ m unless otherwise indicated) 1998 1999 2000 2001 2002 Total external debt 6,933 6,979 6,625 6,734 7,338 Long-term debta 5,878 5,951 5,744 5,896 6,382 Short-term debt 722 718 588 555 593 Interest arrears on long-term debt 16 20 26 18 21 Use of IMF credit 334 310 293 284 363 Public & publicly guaranteed long-term debt 5,615 5,691 5,487 5,641 6,129 Official creditors 4,959 5,111 4,989 5,085 5,596 Multilateral 3,563 3,682 3,663 3,723 4,084 Bilateral 1,396 1,429 1,326 1,361 1,512 Private creditors 656 580 498 556 533 Bonds 0 0 0 0 0 Banks 171 132 114 182 195 Total debt service 579 519 465 314 211 Ratios (%) Total external debt/GNI 94.7 92.5 137.1 129.5 121.7 Debt service/exports of goods & services 22.4 20.6 18.7 12.8 8.0 Short-term debt/total external debt 10.4 10.3 8.9 8.2 8.1 Concessional long-term debt/total external debt 66.1 68.5 71.2 68.8 70.5 a Long-term debt is defined as having original maturity of more than one year. Source: World Bank, Global Development Finance, 2004.

Exchange rates (C per unit of currency unless otherwise indicated; annual averages) 1999 2000 2001 2002 2003 US$ 2,669.3 5,455.0 7,170.8 7,932.7 8,677.4 £ 4,283.3 7,941.0 10,217.6 11,909.4 14,143.5 € 2,917.1 5,240.2 6,648.2 7,465.7 9,749.4 CFAfr 4.3 7.5 9.7 11.4 14.9 Naira 28.7 52.3 63.8 65.8 67.2 SDR 4,852.0 9,182.4 9,201.7 11,472.7 13,154.3

Source: IMF, International Financial Statistics.

Foreign reserves (US$ m; end-period) 1999 2000 2001 2002 2003 Foreign exchange 379.1 231.5 294.2 536.1 1,306.0 SDRs 18.2 0.5 4.0 3.7 46.8 Reserve position in the IMF 56.5 0.0 0.0 0.0 0.0 Total reserves excl gold 453.8 232.1 298.2 539.7 1,352.8

Source: IMF, International Financial Statistics.

Editors: Paul Gamble (editor); David Cowan (consulting editor) Editorial closing date: October 25th 2004 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]