WT/TPR/S/81 Trade Policy Review Page 56
IV. TRADE POLICIES BY SECTOR
(1) OVERVIEW
1. Ghana is predominantly an agrarian economy heavily dependent upon primary production, especially if subsistence agriculture is taken into account. Consequently, the Ghanaian economy and the Government's revenue base have been vulnerable to movements in international commodity prices, especially for cocoa and gold, which together account for some two thirds of merchandise exports. Primary production (especially agriculture), and services each account for over 40% of GDP, while manufacturing represents around 10%. Government policy is aimed at diversifying the economy's export base away from the traditional commodities of cocoa, logs, gold, and electricity.
2. Cocoa production, a mainstay of the economy, continues to be liberalized as part of the Government's efforts to invigorate the industry, which had collapsed under previous taxation policies and extensive marketing controls. Although cocoa continues to be marketed by the Cocoa Marketing Company, a subsidiary of COCOBOD, these arrangements are being increasingly deregulated. A medium-term cocoa strategy was adopted in April 1999 aimed at increasing growers' returns by reducing taxation levels and further enhancing COCOBOD's efficiency, as well as limiting its marketing powers, especially the export monopoly. Under these liberalized policies, cocoa production expanded during the 1990s to former levels, of around 400,000 tonnes annually, and is forecast to rise to 700,000 tonnes by 2009.
3. Other primary resources subject to sectoral policies are forestry and fishing. Exports of logs have been suspended, to promote downstream timber processing and environmental conservation of forests. Logging rates are estimated to exceed sustainable levels. Revised legislation is intended to strengthen forestry policies so as to promote sustainable management, including by raising stumpage fees. In the area of fishing, licensed offshore tuna-fishing vessels must be at least 25% Ghanaian owned and 75% Ghanaian crewed. Foreign tuna operators are also required to trans-ship all fish through Ghanaian ports, and must sell 10% of their catch to domestic processors. This has benefited domestic tuna canning.
4. The mining industry, especially gold and oil exploration, relies substantially on foreign joint ventures. There are no foreign ownership limits, but the Government is entitled to a "free" 10% equity interest and may purchase an additional 20% ownership "at fair market prices". The Precious Minerals Marketing Corporation has a marketing monopoly over most small-scale mining of gold and diamonds. The petroleum sector is dominated by state-owned enterprises, including the Tema Oil Refinery and the Ghana National Petroleum Corporation. The sector was partially deregulated in 1996 when the Corporation's oil import monopoly was terminated, and open bidding and import parity pricing introduced.
5. Services continue to be an important component of the Ghanaian economy. Electricity generation has suffered in recent years due to severe water shortages in Lake Volta and inadequate infrastructure. Although a traditional exporter, Ghana has imported electricity since 1996. The aluminium smelter is an intensive user of electricity, consuming about one third of Ghana's total power supply. Policies are being implemented to separate electricity generation, transmission, and distribution, aimed at improving efficiency by opening the market to greater competition. A new regulatory system, run by the Energy Commission, has been established. Also, an independent Public Utilities Regulatory Commission has been created to set utility prices. The monopoly on basic telecommunication services held by Ghana Telecom was terminated in 1997 and replaced with a statutory duopoly until 2002. The National Communication Authority was also established as the Ghana WT/TPR/S/81 Page 57
regulatory body to ensure fair competition, including interconnection access to Ghana Telecom's basic network.
6. Financial sector restructuring is taking place partly through privatization of state-owned banks and through revised legislation to tighten the Central Bank's prudential supervision norms along Bank for International Settlements (BIS) lines. Three banks had their licences withdrawn in 2000 for not meeting the minimum capital adequacy ratios. Foreign bank subsidiaries are allowed, and the freeze on issuing new bank licences was lifted in 1999.
(2) AGRICULTURAL AND OTHER PRIMARY PRODUCTS
(i) Features
7. Primary production accounted for 46% of GDP in 1998, compared with 48% in 1993 (Chart IV.1). Agriculture is the most important subsector (40% of GDP in 1998), followed by mining and quarrying (5.8%). These figures, however, understate the importance of agriculture to the economy. Significant subsistence food production supplements commercial agriculture, with some two thirds of the population living in rural areas. Some 70% of the workforce are engaged in agriculture.
Chart IV.1 Sectoral composition of GDP, 1993 and 1998
1993 1998
Other Other Public Public Agriculture and 3.0 3.7 administration Agriculture and administration livestock 11.9 livestock 11.1 25.2 28.7 Sale, finance Sale, finance and and business business services services Agriculture 11.1 12.1 Services Agriculture 40.3 41.4 Services 41.9 Cocoa 3.1 Cocoa 5.5 Transport and Transport and 43.8 Forestry communications communications Forestry and and logging 4.6 4.8 logging 4.0 3.1 Construction Fishing 6.4 Construction Fishing 5.6 8.3 9.5 Mining and Mining and Electricity, gas Manufacturing Electricity, gas quarrying Manufacturing quarrying and water 2.9 10.5 and water 2.9 6.2 10.1 5.8
Total excluding net indirect taxes: Total excluding net indirect taxes: cedi 3,457 billion cedi 15,482 billion
Source: IMF (1999a), Ghana Statistical Appendix [Online]. available at: http://www.imf.org/external/country/GHA/index.htm.
8. Ghana exports predominantly primary commodities. Gold and cocoa, by far the largest export earners, represent some two-thirds of exports (Chart IV.2).1 Traditional exports accounted for 81% of
1 Gold has generally overtaken cocoa as Ghana's major export. WT/TPR/S/81 Trade Policy Review Page 58
total exports in 1998, down from 97% in 1986. Other traditional commodities exported include lumber (8% of total exports in 1998), unprocessed minerals, and electricity.
Chart IV.2 Composition of exports, 1993 and 1998
Per cent 1993 1998
Other (including Other (including manufacturing) manufacturing) Electricity 6 8 25 Bauxite, Cocoa beans Cocoa beans manganese and 24 26 residual oil 3 Diamonds 2 Bauxite, Cocoa manganese and Products residual oil 3 3 Cocoa Products 4 Diamonds 1 Timber and Timber and timber products timber products Gold 14 8 41 Gold 33
Total exports: US$1,064 million Total exports: US$2,091 million
Source: IMF (1999a), Ghana Statistical Appendix [Online]. Available at: http://www.imf.org/external/country/GHA/index.htm.
9. Growth of non-traditional exports, mainly since 1990, has been in line with government policy to expand and diversify Ghana's export base.2 Processed and semi-processed products, such as canned foods (mainly tuna), wood, and aluminium products, represented over three quarters of non-traditional exports, compared with one quarter in 1986 (Chart IV.3). Over the same period, exports of handicrafts grew from very low levels to represent 2% of non-traditional exports, while the share of agricultural products fell substantially. The main non-traditional agricultural exports in 1998 were yams, fish (salted, dried, smoked, and frozen), crustaceans, bananas, and various vegetables. However, apart from cocoa, Ghana exports few agricultural products in significant quantities.
10. Apart from cocoa (14% of agricultural GDP), the main agricultural crops are cereals, such as maize, rice, millet, and sorghum, as well as starchy staples, such as cassava, yam, cocoyam, and plantain (61%) (Table IV.1)3. Livestock accounts for around 7% of agricultural GDP, fisheries for 5%; and forestry 11%.
11. About 80% of agricultural production is from smallholder family-operated farms, mainly below one hectare. Larger holdings produce mainly crops, such as oil palm, rubber, and pineapples. Only about one third of land suitable for agriculture is currently cultivated.
2 Non-traditional exports are all products other than traditional commodities (Export and Import Act, 1995). 3 This group also includes industrial crops like tobacco, cotton, oil palm, rubber, copra, and sugar cane; and horticulture crops like pineapples, mangoes, chillies, peppers, ginger, bananas, beans, and tomatoes. Ghana WT/TPR/S/81 Page 59
Chart IV.3 Composition of non-traditional exports, 1986 and 1998
1986 1998 Other processed Horticulture and semi- Horticulture 2.1 processed 5.0 Fish 9.7 5.3 Other Canned food Other processed agriculture 8.5 and semi- 9.4 processed 35.5 Agriculture Wood Processed 19.7 6.4 24.9 Processed Agriculture Wood Fish 80.3 Other 75.1 21.4 61.9 agriculture 11.4
Canned food Aluminium 20.3 products 3.1 Total non-tradional exports: Total non-traditional exports: US$23.8 million US$401.7 million Source: IMF (1999a), Ghana Statistical Appendix [Online]. Available at: http://www.imf.org/external/country/GHA/index.htm.
Table IV.1 Production of principal food crops, 1994-98 (Thousand tonnes) Crop 1994 1995 1996 1997 1998
Cassava 6,025 6,611 7,111 7,000 7,171 Plantain 1,475 1,636 1,823 1,818 1,913 Cocoyam 1,148 1,383 1,552 1,147 1,577 Yams 1,700 2,126 2,275 2,748 2,703 Maize 939 1,034 1,008 996 1,015 Guinea corn 394 360 353 333 355 Millet 168 209 193 144 162 Rice 162 221 216 197 281
Source: Ghana Statistical Service, Quarterly Digest of Statistics, various issues.
(ii) Policy developments
12. The agriculture sector has generally performed below potential. Agricultural development, including food self-sufficiency, is an important component of the Government's Vision 2020 (Chapter II(3)). To meet these objectives, the Government adopted an "Accelerated Agricultural Growth and Development Strategy in Support of Vision 2020" for 1997 to 2007.4 The strategy is to achieve annual real growth of 6% in the sector – substantially above the annual average of 4% recorded between 1995 and 1999 – based substantially on exports. This would raise agricultural
4 An Agricultural Services Investment Programme, the main instrument for implementing the strategy, was also launched simultaneously (Ministry of Food and Agriculture, 1999). WT/TPR/S/81 Trade Policy Review Page 60
production from currently the equivalent of US$2.9 billion to US$5.5 billion in 2007. The strategy covers all of agriculture, including crops, livestock, fisheries, forestry, and cocoa. Such growth is to be achieved by adopting open market principles to encourage private sector investment, and greater devolution of responsibilities from central government to district assemblies.
13. The main element of the strategy is to promote export of selected products, through improved access to overseas markets, in accordance with Ghana's comparative advantage. Products expected to perform well include cocoa, maize, yam, cassava, soybean, Asian vegetables, cashews, pineapples, and tilapia. Targeted tax incentives and trade reforms, such as facilitating regional trade arrangements, are expected to help boost the private sector. The aim is to increase Ghana's agricultural exports by an average of 15% annually, compared with annual growth of almost 9% between 1991 and 1996. Other elements of the strategy to be administered by the Ministry of Food and Agriculture are5:
- development and improved access to technology for sustainable natural resource management;
- improved access to agricultural financial services;
- improved rural infrastructure; and
- enhanced human resource and institutional capacity.
14. Much of Ghana's agricultural land is communally owned. This has in a way deterred investment in agricultural land and limited the availability of credit to the sector by creating collateral difficulties for farmers. Land tenure problems have also affected development in urban areas, such as construction of free-zone enclaves. A new land policy is being formulated and the Land Title Registry is continuing to be decentralized to provide greater security of land tenure based on registered titles.
15. The main trade policy instrument at the border for the agricultural sector is the tariff. The average applied MFN tariff rate for agricultural products (HS chapters 01 to 24) is 20.2% (Chart IV.4). The average rate for agriculture, hunting, forestry and fishing (Major Division 1 of ISIC Rev.2 classification) is 17.3% (Table AIV.1). Ghana does not maintain any export subsidy programmes for the agricultural sector.6
(iii) Policy by product category
16. Ghana's agricultural production covers a range of geographical areas and is influenced substantially by factors such as occasional floods and droughts, pests and diseases, and fluctuations in world prices. Agricultural pricing and marketing arrangements, on all products except for cocoa, were removed in 1990.
5 The Ministry is responsible for all agriculture and fisheries development, except for cocoa, which is the responsibility of the Ministry of Finance. 6 Notification by Ghana in WTO document G/AG/N/GHA/1, 25 September 2000. Ghana WT/TPR/S/81 Page 61
Chart IV.4 Tariff averages by HS agricultural product, 2000
Per cent 45
40 Tariff average on agricultural products 20.2% 35
30
25
20
15
10
5
0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
HS Description
01 Live animals 02 Meat and edible meat offals 03 Fish and crustaceans, molluscs and other aquatic invertebrates 04 Dairy produce, birds eggs, natural honey, edible products of animal origin 05 Products of animal origin, n.e.s. 06 Live trees and other plants; bulbs, roots and the like; cut flowers 07 Edible vegetables and certain roots and tubers 08 Edible fruit and nuts; peel of citrus fruits or melons 09 Coffee, tea, mate and spices 10 Cereals 11 Products of the milling industry; malt; starches; wheat gluten 12 Oil seeds and oleaginous fruits; miscellaneous grains, seeds and fruit 13 Lacs; gums, resins and other vegetable saps and extracts 14 Vegetable plaiting materials; vegetable products n.e.s. 15 Animal or vegetable fats and oils and other cleavage products; prepared edible fats; etc. 16 Preparations of meat, or fish or of crustaceans, molluscs or other aquatic invertebrates 17 Sugars and sugar confectionery 18 Cocoa and cocoa preparations 19 Preparations of cereals, flour, starch or milk; pastrycooks' products 20 Preparations of vegetables, fruit, nuts or other parts of plants 21 Miscellaneous edible preparations 22 Beverages, spirits and vinegar 23 Residues and waste from the food industries; prepared animal fodder 24 Tobacco and manufactured tobacco substitutes
Source: WTO Secretariat calculations, based on data provided by the Ghanaian authorities. WT/TPR/S/81 Trade Policy Review Page 62
(a) Cocoa
17. Cocoa remains a mainstay of the Ghanaian economy (Table IV.2). About 80% of production is exported, mainly as cocoa beans, and it is one of the country's leading exports (along with gold). Cocoa production amounts to some 14% of agricultural GDP, and is a major source of government revenue. It is grown in the forested areas of the country.7 Most cocoa is produced on small plots (less than three hectares). However, about one fourth of all farmers receive over half of the total cocoa income. Ghana, once accounting for more than one third of world production, is no longer the largest cocoa producer. Ghana's cocoa production experienced a long decline from the early 1960s, falling by half, to around 200,000 tonnes annually, and has only recently returned to earlier levels. Although cyclical downturns in world cocoa prices, droughts, and disease contributed to this contraction, domestic cocoa marketing and high taxation policies undoubtedly played a major part (Box IV.1). Cocoa has again faced sharp falls in world prices of some 25% in recent years. It has been identified in the Government's agricultural strategy as a product in which Ghana has a comparative advantage.
Table IV.2 Cocoa production and consumption, 1994-99 (Thousand tonnes) 1994-95 1995-96 1996-97 1997-98 1998-99
Production 290 403 320 390 397 Consumption: a - Domestic 30 58 60 60 34 - Export 260 345 260 330 363
a Includes sales to processing industries; most of the processed products are then exported.
Source: COCOBOD.
Box IV.1: Improving price incentives for cocoa
While exogenous factors, such as cyclical swings in international cocoa prices, and droughts adversely affected Ghana's cocoa production during the industry's drastic decline from the 1960s to the 1990s, domestic factors were the main cause. Comparatively high export taxes and a substantially over-valued exchange rate in Ghana created important disincentives to produce cocoa. These discouraged cocoa production and encouraged smuggling of cocoa to neighboring countries. At the same time, marketing inefficiencies and cost padding by the Cocoa Marketing Board, which at one stage absorbed 40% of total export revenues, also reduced growers' returns.
These policies heavily taxed the Ghanaian cocoa industry. During the 1970s and 1980s farmers received only 40-50% of the export price, compared with average producer prices of 60-90% of the international price in other countries, such as Brazil, Malaysia and neighbouring Côte d'Ivoire. The supply of cocoa contracted in Ghana as growers moved into producing other food crops. However, it is estimated that at least half of the "officially" recorded decline in Ghana's cocoa production never happened, but rather was smuggled to avoid the Ghanaian tax and to obtain the higher returns available in other countries. Raising the growers' price and lowering the tax is therefore likely to raise tax revenue by stimulating cocoa production and reducing smuggling to other countries.
Source: Bulir, A. (1998). The Price Incentive to Smuggle and the Cocoa Supply in Ghana, 1950-96, IMF Working Paper 99/98.
7 Mainly in the regions of Ashanti, Brong-Ahafo, Central, Eastern, Western, and the Volta. Ghana WT/TPR/S/81 Page 63
18. By setting growers' prices and requiring all cocoa to be marketed through the statutory Ghana Cocoa Marketing Board (COCOBOD), the Government controls the cocoa industry, and taxes growers' returns. In the 1996-97 crop season, for example, cocoa farmers received only about 52% of the world price.8 The rest accrued to the Government as tax revenue (29%) and to COCOBOD to meet its expenses. Although domestic cocoa sales were partially liberalized in 1993, allowing private licensed buyers to purchase cocoa beans from growers, they have been able to sell their beans only to COCOBOD, not directly to processors.9 Thus, COCOBOD has remained effectively the sole exporter and seller of beans to domestic processors. Only about 40% of the total cocoa market is procured privately from growers. The Government therefore recently took further steps to liberalize and privatize cocoa marketing and to reduce growers taxation levels. A medium-term cocoa strategy was adopted in April 1999. This aims to increase growers' returns; to promote greater competition in domestic marketing; and to limit COCOBOD's export monopoly.10 Growers are to receive a minimum of 60% of the f.o.b. cocoa price from the 1999-2000 season; 62% for 2000-2001; and 64% in 2001-2002.11 Other key elements of the strategy to raise annual cocoa production to 500,000 tonnes by the 2004-05 season and to 700,000 tonnes by 2009 are to:
- further reduce the cocoa tax below the rate of 26% of the f.o.b. price;
- allow qualified licensed buying companies and the Produce Buying Company (PBC), the domestic arm of COCOBOD, to export at least 30% of their domestic purchases as from the 2000-2001 crop season12;
- privatize the PBC, which still purchases cocoa as a buyer of last resort in marginal and distressed cocoa growing regions13; and
- provide licensed buying companies equal access to COCOBOD's warehouses and crop financing.
19. Government guidelines, released in July 2000, allow partial liberalization of exports by introducing quotas to allow licensed buying firms to export a maximum of 30% of their cocoa purchases.14 COCOBOD will determine the size of the quotas based on crop forecasts and the firm's average share of the internal market over the previous two seasons. Under the proposed
8 This was increased to 54% of the f.o.b. price for the 1997-98 crop season. 9COCOBOD agreed under these arrangements to pay licensed buyers a minimum producer price and an additional fee to cover their operating and transportation costs plus profit. It also transferred the transportation of cocoa purchased from growers to the private sector, and abolished the provision of subsidized inputs, such as fertilizers and pesticides. 10 The exporting arm of COCOBOD is the Cocoa Marketing Company. 11 These targets have been exceeded. Fixing the growers' price of cocoa for the 1999-2000 crop at the same level as for the 1998-99 season, when world cocoa prices have fallen sharply, has raised the share received by growers to 74%. 12 There are currently 18 licensed buyers and there is no limit on the number. However, a new licensing requirement recently introduced a minimum purchase amount of 2,000 tonnes. The requirement for a company to operate in three cocoa growing regions was reduced to two. 13 The privatization of the PBC is a key component of the Government's medium-term cocoa strategy, but was first decided in 1996. An arrangement in 1998 to sell the PBC to a major foreign investor was blocked. The current divestiture plan is to maintain Ghanaian ownership by floating 50% of PBC shares on the Accra stock exchange. The rest is to be provided to farmer groups (20%), PBC employees (5%), and the Government (25%). 14 Cocoa export licences would be given to licensed buying companies that had purchased minimum quantities of 10,000 tonnes in each of the previous two years, provided they met certain financial criteria; have sufficient storage facilities; and regularly register their sale contracts with COCOBOD and the Central Bank. WT/TPR/S/81 Trade Policy Review Page 64
arrangements, licensed buyers would also be able to sell cocoa beans directly to local processors. Firms will have to pay the cocoa tax within four weeks of exporting or of selling to domestic processors. The tax rate is projected by the Government to decline from a maximum rate of 17.8% for 2000-01 to 17.1% in 2001-02 (compared with 18.5% for 1999-2000).15 Minimum farm-gate prices will be fixed by the Producer Price Review Committee with the aim of increasing the minimum share of the export price paid to growers to 70% by 2004-0516; 70% of the export quota would be supplied at the outset of the crop season in October, and the remainder in January. Qualified licensed buying companies would be permitted to form joint export companies.
(b) Cereals
20. The main cereal grown in Ghana is maize, which is used primarily for human consumption. Small amounts of rice, millet, and sorghum are also grown. Cereal production, amounting to 1.8 million tonnes in 1998, is consumed domestically. Grains have been identified for promotion under the Government's agricultural strategy. Ghana produces no wheat; it imports its requirements, mainly from the United States, to make flour or for use in livestock and poultry feed. Between 1995 and 1999, Ghana produced an average of 230,000 tonnes of paddy rice annually. About two thirds of imported rice is from the United States.
(c) Coffee, cotton, and nuts
21. Ghana grows Robusta coffee, which continues to be an important export, amounting to US$8.3 million in 1998 (up from US$3.6 million in 1997). Ghana also exports sheanuts; in 1998, these amounted to US$7.9 million, compared with US$6.7 million in 1997.
22. Both cotton and cashew nuts are listed in the Government's agricultural strategy as crops in which Ghana has a comparative advantage. Cotton production declined substantially during the 1980s, and Ghana currently produces about three quarters of its lint cotton requirements. In 1998, cotton exports amounted to US$8.5 million. The Ghana Cotton Development Board was reorganized into the Ghana Cotton Company under the Agricultural Reform Programme, which commenced in 1986. Because of its low grade, Ghanaian cotton is blended with imported higher quality cotton to spin yarns, which are used in the local textiles industry. It is planned to raise Ghana's annual cotton production to 100,000 tonnes.
(d) Sugar cane, tobacco, oil palm, and rubber
23. Sugar cane production has contracted to under 100,000 tonnes annually following the closure of the country's two sugar mills. Ghana also produces mainly flue-cured tobacco leaf for export and domestic processing. Current production is around 3,000 tonnes annually. The Leaf Development Company was privatized in the early 1990s.
24. Oil palm is processed in Ghana both for domestic and export markets. Production is mainly by smallholders. The Government has privatized state-owned plantations and mills, including divestiture of the Ghana Oil Palm Development Corporation in 1994. The rubber industry is being revitalized, mainly for export, based on the development of new plantations.
15 Changes to the export tax rate would be made by an Export Sales Committee, based on the projected export price, on-farm cocoa prices, and the costs of production and marketing. 16 Farm-gate cocoa prices to growers will be based on forecast export returns, using expected average exchange rates for the season; prices in Côte d'Ivoire and Togo; and farmers' production costs. Ghana WT/TPR/S/81 Page 65
(e) Cassava
25. Production of this crop has been identified for promotion in the Government's agricultural strategy. Cassava production, amounting to 7.2 million tonnes in 1998, is the main starchy staple food crop produced in Ghana. Cassava is exported mainly as chips; exports amounted to US$2 million in 1998. Ghana's estimated potential for cassava production is 20 million tonnes annually, and the Government is focusing on exporting more processed cassava products, such as starch for industrial uses.
(f) Fisheries
26. Fish production amounted to approximately 450,000 tonnes in 1998, valued at Cedi 1.3 billion. Fish is an important source of protein in Ghana, which is well endowed with these resources. Most of the catch is from offshore, and includes mainly tuna and shrimp. Inland fishing is mainly in Lake Volta, where over-fishing of some key species, such as Tilapia, is reported to be occurring.
27. The Fisheries Law is the main legal instrument for fisheries policy. All commercial fishing boats must be licensed by the Fisheries Monitoring, Control, Surveillance and Enforcement Unit of the Ministry of Food and Agriculture. Fishing licences are granted only to fully Ghanaian-owned boats, with the exception of tuna vessels for which minimum domestic ownership of 25% is required.17 Licensed foreign tuna vessels must land their catch in Ghana for trans-shipment or export. They must also sell 10% of their catch to domestic processors. Illegal fishing in Ghana's marine waters is thought to be a major problem. A ban on imported fish was implemented in 1997 and removed the same year.
28. A revised Fisheries Law is expected to be enacted soon. This will create an appropriate legislative framework for a more rigorous control of over-exploitation of fishery resources, and reconstitution of the Monitoring, Control and Surveillance Unit (MCS) to include the navy and police. An MCS fund is to be established with contributions from the various levies and licence fees presently collected by the Government from fishing operators.
(g) Forestry
29. About one third of Ghana's land area is covered by forests. However, not all of these are commercially viable. Forestry policy, and monitoring of sector programmes is the responsibility of the Ministry of Lands and Forestry, while the Forestry Commission, as a corporate entity, regulates the utilization of forest and wildlife resources. The Timber Export Development Board promotes improved industrial products, while the Forest Products Inspection Bureau monitors all contracts and maintains grading rules and quality standards for timber, including the vetting of contracts for the exportation of logs and timber products. It also conducts preshipment examination of logs and timber products for export to ensure correct grading and valuation. An export ban on 18 log species was implemented in the late 1980s. In 1995, all log exports were suspended to enable Ghana time to implement sustainable forestry management practices.
30. Export controls were motivated by the Government's objectives of overcoming severe de-forestation of its tropical hardwoods, and encouraging domestic processing of logs. These arrangements benefit the wood processing industry through lower log prices, but also raise their own efficiency and environmental concerns (Box IV.2). The Ministry of Lands and Forestry has
17 Unless a foreign vessel is trans-shipping tuna in coastal waters for a minimum of three months, at least 75% of the crew of licensed boats must be Ghanaian. WT/TPR/S/81 Trade Policy Review Page 66 commissioned a study to determine the impact of the log export bans and the subsequent log export suspension, with the view to examining the possible policy options, including maintaining the status quo and the replacement of the ban with an export tax.
Box IV.2: Promotion of downstream processing
Many developing countries, such as Ghana, tax or ban exports of natural-resource-based commodities, such as logs, to promote greater domestic value added by encouraging downstream processing. The expectation is that these restrictions will boost economic activity by generating employment and raising export receipts, and help conserve forests. However, the efficacy of using export restrictions to achieve these economic as well as other environmental objectives is questionable.
Taxing or restricting exports of the primary resource assists downstream processing by diverting export sales on to the home market. The domestic price is thus reduced by the export restriction, providing an implicit subsidy to processors and penalizing raw material suppliers. Domestic prices would be expected to fall by the full amount of the export tax, or where the taxes are prohibitive or export of the logs banned, by a potentially larger amount. Because export restrictions lower input prices, they can provide substantial effective rates of assistance to value added by downstream processors. This is the case in Ghana where processed wood products also receive relatively high tariff assistance, of up to 40% (including the special import tax). If the implicit input subsidy and tariffs become large enough, the downstream processed activity may actually subtract, rather than add value. In that case, these policies would be inconsistent with the economy maximizing the contribution to national income from its forestry resources.
Such policies may also undermine the environmental sustainability of forests. By reducing the price of logs, it lessens the value of forests, thereby providing a disincentive to conserve and replenish forests. Processing industries also have a reduced incentive to invest in modern equipment and other technology to improve their technical efficiency, since their costs from log wastage are lowered. Alternative measures of taxing economic rents from forests that could be considered as economically more efficient include the government setting logging quotas and auctioning such entitlements, and imposing stumpage fees on all logs felled, whether or not exported.
Source: WTO Secretariat.
31. Ghana's estimated annual sustainable allowable cut in 1995 was one million cubic metres. However, felling rates have risen substantially above this level, especially if allowing for significant illegal cutting. Official annual harvest figures have increased on average from 516,000 cubic metres in 1980-84, to 931,000 cubic metres in 1985-89, and to some 1.2 million cubic metres during 1996-98 (Table IV.3).
32. The Timber Resource Management Act was passed in 1998 to provide better sustainable management of forests. The Act is to eliminate inadequacies of the previous concession-allocation procedure by replacing it with timber utilization contracts. Contractors are required to meet social responsibility requirements, to implement commensurate reforestation plans following logging, and to promote the active involvement of local inhabitants in forest management. The Act also seeks to increase forest revenues to reflect the stumpage value of logs by imposing rates ranging from 5% to 20% of the f.o.b. log price, depending on demand and inventory levels of species. Ghana WT/TPR/S/81 Page 67
Table IV.3 Production and exports of logs and selected timber products, 1994-98 (Thousands cubic metres) Product 1994 1995 1996 1997 1998
Logs 1,681 1,194 1,166 1,170 1,270 - Exports 572 80 2 0 0 - Sawmill intake 1,026 959 947 969 976 - Veneer/plywood intake 78 97 190 193 222 - Unrecorded uses & stock changes 5 58 27 8 9 Sawn timber 530 580 618 740 734 - Exports 259 286 239 279 282 - Local sales 249 270 349 424 423 - Unrecorded use & stock changes 22 24 30 37 29 Veneer 40 51 61 73 81 - Exports 3545546572 - Local sales 34455 - Own use 22333 Plywood 2 6374848 - Exports 1 4202627 - Local sales 1 1141818 - Change in stocks01343
Source: Information supplied by the Ghana Statistical Service, and Ministry of Lands and Forestry.
(3) MINING AND ENERGY
(i) Mining
(a) Gold
33. Mining accounted for 6% of GDP in 1998. Gold is Ghana's main mineral, and contributed around one third of export receipts in 1998. Production amounted to 72,900 tonnes in 1998, making Ghana the second largest gold producer in Africa and the tenth largest in the world (Table IV.4). Other important minerals mined in Ghana are diamonds, bauxite, and manganese. Minerals are predominantly exported.
Table IV.4 Mineral production, 1994-98 Mineral 1994 1995 1996 1997 1998 Gold (tonnes) 43,300 51,300 48,300 53,500 72,900 Diamonds ('000 carats) 426.1 622.7 714.3 585.5 869.4 Manganese (tonnes) 269,700 100,000 266,800 333,400 421,000 Bauxite (tonnes) 426,100 513,000 383,400 500,700 408,600
Source: Ghana Statistical Service; and IMF estimates.
34. Mining development is the responsibility of the Ministry of Mines and Energy and the Minerals Commission, which administers the Mining and Minerals Law of 1986 and the Minerals and Mining Amendment Act of 1994. This legislation provided fiscal incentives for miners; for more effective regulation of the sector, with the establishment of new state institutions18; and the rehabilitation of state-owned mines. All mineral development is open to foreign investors, except for
18 The Mines Department is responsible for health and safety inspections and maintenance of mining records; the Geological Survey Department for geological studies and maintaining geological records; and the Environmental Protection Agency for environmental issues covering mining. WT/TPR/S/81 Trade Policy Review Page 68
small-scale gold and diamond mining (claims of less than ten hectares), which are reserved for Ghanaians. Small-scale production, equivalent to around four tonnes of gold annually, must be marketed and exported by the state-owned Precious Minerals Marketing Corporation and the privately owned Miramex Company Ltd.
35. Exclusive renewable mining rights are available. Reconnaissance licences are granted for up to one year for regional exploration, but no drilling; prospecting licences for searching and valuation of minerals for two years; and mining leases for mineral extraction for 30 years.19 Other matters, such as royalty payments, work programmes, and export earnings retention allowances are negotiable within pre-set limits on a case-by-case basis. Royalty rates vary from 3% to 12% of the gross value of mineral output, depending upon profit margin and the type of mineral20, and export retention allowances from 60% to 80%. Mining companies are subject to the standard company tax rate of 35%, but receive more generous capital and other tax allowances.21 An "additional profits tax" of 25% of annual carry-forward cash balances also applies to earnings above a threshold level, currently set at a rate of 17.5%.22 Annual rental fees of US$1.20 per square kilometre for exploration, and US$2.90 per square kilometre for mining are also levied. There are no foreign equity limits on joint ventures. However, the Ghanaian Government is entitled to a free carried equity interest of 10% in mineral ventures. It also has the option of purchasing an additional 20% equity at a "fair market price", but this has never been exercised. Withholding taxes of 10% on dividends and 50% on foreign loan interest apply on foreign provided services, but these may be exempted by agreement.
36. During the 1990s, a number of foreign joint-venture operators commenced gold mining in Ghana. Ashanti Goldfields Company, which operates several mines (Obuasi, Ayanfuri, Bibiani, and Iduaperim), accounts for just over half of Ghana's gold production; this share has fallen from 80% in the late 1980s. In 1994, the Government sold 35% of its 55% equity in Ashanti Goldfields; it retained a 20% equity plus a (golden) share that provides the Government with the power to influence the company's decisions. In 1999, Ashanti Goldfields bought the Teberebie gold mine, which at the time was the second largest in Ghana.
(b) Other mining products
37. About 80% of Ghana's diamonds are industrial. Production increased from 585,000 carats in 1997 to 870,000 carats in 1998; exports in 1998 were US$11 million. The only large-scale producer is the state-owned Ghana Consolidated Diamonds. This company is listed for privatization and accounted for one third of production in 1998. A substantial share of diamonds (about one third) are produced by small-scale mines and marketed by the Precious Minerals Marketing Corporation and Miramex Company Ltd.
19 Mining leases are limited in size to a maximum of 150 km2 for each company. 20 Rates are set for each mining lease according to the type of mineral mined. For most mines, the royalty rate is set at 3%. The Government may authorize deferment of royalty payments. 21 Although no tax holidays are granted, firms can depreciate mining expenditure (including costs of feasibility studies, pre-production exploration, and mine development, including equipment) at 75% in the first year of production and subsequently by 50% using the declining balance method. An investment allowance of 5% is also available in the initial year. Losses may be carried forward indefinitely. Imported mining equipment is also exempt from the 12.5% VAT and tariff duties. According to one international study of mining tax regimes, Ghana's (undiscounted) effective tax rate on gold was estimated at currently 57%. Of the 23 countries covered by the study, Ghana was ranked in the middle. Ghana's rate was substantially higher than that for South Africa, Chile, Argentina, Western Australia, Zimbabwe, and Nevada (in the United States), but below Tanzania, Indonesia, Mexico, Canada, Côte d'Ivoire, Papua New Guinea, and Burkina Faso (Otto et al., 2000). 22 The Secretary for Finance sets the threshold rate of return for each project. Ghana WT/TPR/S/81 Page 69
38. Ghana is also a leading exporter of manganese, with exports amounting to US$12 million in 1998. Production has rebounded in recent years, rising from a low of 100,000 tonnes in 1995 to 421,000 tonnes in 1998. However, this is still below record production of 638,000 tonnes in 1974-75. The sector's revitalization follows the privatization of the Ghana National Manganese Company in 1995 and other private investment in new mines. Ghana's manganese reserves are estimated at above 60 million tonnes.
39. Bauxite production in Ghana is undertaken by the Ghana Bauxite Company, which is 20% state-owned following the sale of 35% of government equity to the Canadian aluminium company, Alcan, in 1998. Ghana's exports of bauxite amounted to US$7 million in 1998, down from US$11 million in 1997. Total production was 409,000 tonnes in 1998, down from 501,000 tonnes in 1997. The decrease in production was caused by the derailment of trains which haul bauxite. Ghana exports bauxite mainly to Scotland and Canada for processing.
(ii) Energy
(a) Electricity
40. Hydro-electricity accounts for some 90% of Ghana's power supply. Most is produced by the state-owned Volta River Authority (VRA) from plants at the Akosombo and Kpong Dams. Other main sources of electricity are diesel and thermal plants operated by VRA and by mining companies generating their own supply.23 Electricity is regarded as a traditional export. Between 1996 and 1998, Ghana suffered major power shortages due largely to low water levels in the Volta Lake, but managed to continue exporting power to Togo and Benin.24 Power generation fell by over one quarter in 1998. The major industrial user of electricity is the aluminium smelter, which generally consumes over a third of total power generated.
41. Government policy is aimed at separating state-owned entities into companies for the generation, transmission, and distribution of hydro-electric and thermal power. A National Company Grid is envisaged once final separation occurs. This will separate the national grid from VRA. The Electricity Company of Ghana, mainly responsible for the distribution of power, is being restructured and is on the priority list for divestment.25 The Government has also introduced a new regulatory framework aimed at attracting private sector participation. The Public Utilities Regulatory Commission (PURC) was established in 1997 to independently set utility prices.26 Regulations are also to be introduced covering national interconnection arrangements (Energy Commission Act of 1997).
42. The Government's objective is to expand and diversify Ghana's electricity production. It recently released a Transitional Power System Development Plan for 1999 to 2001, to increase thermal power supply until the West Africa Gas Pipeline is online to supply natural gas from Nigeria. This includes the development of gas reserves in the Tano Fields to fuel additional power generation capacity of 260 MW; this would be Ghana's first gas-fired power generation plant.
23 For example, Ashanti Goldfields has constructed a gas-fired power plant to meet some of its electricity requirements. 24 Ghana continues to import power from Côte d'Ivoire in times of shortfall. 25 It was incorporated in 1997 with the Government as the sole shareholder. 26 The PURC raised electricity prices in 1998. Its Guidelines for Fixing Rates for Electricity Services were published in 2000. WT/TPR/S/81 Trade Policy Review Page 70
(b) Petroleum
43. Ghana imports almost all of its crude oil requirements for the Tema Oil Refinery (section (v) below). Petroleum exploration in Ghana has focused on offshore areas; several relatively small oil discoveries were made during the 1990s by foreign firms under production-sharing agreements with the state-owned Ghana National Petroleum Corporation (GNPC).27 Created in 1983, GNPC was responsible for oil exploration and production. Until September 1996, when open bidding for oil procurement contracts was introduced, it had a monopoly on the importation of crude oil, and was the sole supplier of petroleum products from the Tema Oil Refinery to oil marketing companies in Ghana. GNPC accumulated large losses, amounting to Cedi 200 billion, or 4% of GDP, in 1994, and defaulted on oil-import credits guaranteed by the Central Bank. Debt repayments to the Bank were completed in April 1998, following sale of GNPC's non-financial assets. It is no longer on the list of state-owned enterprises to be privatized (other than for non-core assets), and the Corporation continues to face financial problems. It no longer has access to Central Bank credit. GNPC continues to be involved in efforts to generate electricity from natural gas reserves from the offshore Tano fields, and to establish a West African Gas Pipeline transporting natural gas from Nigeria.
(4) MANUFACTURING
44. Ghana has a relatively small and underdeveloped manufacturing sector, contributing around a constant 10% of GDP during the 1990s. Manufacturing output was adversely affected in 1998 and 1999 by electricity shortages. This led to some power-intensive firms operating at less than 50% of their production capacity. Ghana's main manufacturing activities are petroleum products, foodstuffs, textiles, non-ferrous basic metal products, beverages, tobacco products, sawmill and wood products, and chemicals (Chart IV.5). It is estimated that some three quarters of manufacturing output is produced by the private sector.28 The fastest growing sectors (in quantity terms) during the 1990s were chemicals, textiles, and food products. The industries with the slowest growth during this period were sawmill and wood products, petroleum products, and beverages.
45. Apart from processed cocoa, wood products, and residual oil, exports of manufactured goods remain relatively minor (less than 5% of merchandise exports), but are an increasing source of non-traditional exports. These include aluminium products; processed foods, such as canned tuna; steel billets; palm oil; tobacco products; and foam mattresses. Ghana's manufacturing sector is concentrated on supplying the domestic market, and is dominated by small-scale enterprises; notable exceptions are the oil refinery and the aluminium smelter. Joint ventures involving foreign equity are common.
46. The manufacturing sector had to restructure during the 1990s in the face of increased import competition. Ghana has made considerable gains in rationalizing its tariff structure. Nevertheless, effective rates of assistance provided by tariffs remain relatively high on some manufactured products. A 1999 Tariff Study conducted by the Ministry of Trade and Industry found relatively high effective rates of over 66% on several manufactured products.29 Such high and disparate effective rates are symptomatic of inefficient resource use.
27 The Government acquires a free 10% equity in all ventures and the exact terms of the production-sharing arrangements, including the rate and kind of taxation, are negotiated for each project (Petroleum Law of 1984). Otherwise, companies pay the standard company tax rate of 35%. Almost all offshore sites are licensed for exploration. 28 African Development Bank (1996). 29 Rates in the study ranged from 72% for processed food, 69% for plastic packaging products, 66% for fabrics, 55% for garments, 48% for veneer, and 44% for metal products, to 8% for electrical products. Ghana WT/TPR/S/81 Page 71
Chart IV.5 Composition of manufacturing sector
Per cent
Other Non-ferrous 4.9 Food basic metals 15.0 9.6 Iron and steel 3.3
Cement and other non-metallic Beverages minerals 3.0 8.1 Chemicals Tobacco 6.6 7.8
Textiles, wearing apparel Petroleum and leather 19.0 Paper and Sawmill and 13.7 printing wood 1.9 7.2
Note: Based on weights used in the index of manufacturing production.
Source: Ghana Statistical Service (1997), Quarterly Digest of Statistics .
47. The average MFN applied tariff on manufactured products (HS chapters 25 to 97) is 13.8% (Chart IV.6). The average rate for the manufacturing sector (Major Division 3 of ISIC Rev.2 classification) is 14.6% (Table AIV.1).
(i) Food products
48. Food products account for some 15% of manufacturing output. The main food products are cocoa products; dairy products, primarily milk and ice cream; edible oils; wheat flour; and canned tuna. Production is based mainly on importation of the key inputs, such as wheat for milling. Golden Spoon Flour Mill Ltd produces 2,500 bags of flour per day from imported wheat, as well as by- products of wheat bran and maize grits.
(a) Cocoa products
49. Some 10-20% of cocoa beans produced are processed domestically into butter, liquor, cake, and powder for mainly export. Exports of cocoa products increased from almost US$13 million in 1995 to US$73 million in 1998. Much of this growth has followed the divestment of state-owned enterprises to foreign operators. For example, the Government divested 60% equity in the West African Mills Company to German interests in the early 1990s. This company is now a major processor of cocoa butter, producing over 20,000 tonnes in 1998, up from 10,000 tonnes in 1993. Cocoa is also processed into butter, powder, liquor, and confectionery by COCOBOD through its subsidiary, the Cocoa Processing Company. Its processing operations have expanded from 18,000 tonnes of cocoa in 1992 to 25,000 tonnes in 1995, and another processing plant of 25,000 tonnes capacity is planned. WT/TPR/S/81 Trade Policy Review Page 72
Chart IV.6 Tariff averages by HS manufactured product, 2000 Per cent 45
Tariff rate average on 40 manufactured products 13.8% 35
30
25
20
15
10
5
0 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 78 80 82 84 86 88 90 92 94 96
HS Description HS Description HS Description
25 Salt; sulphur; earths and stone, etc. 48 Paper and paper board, etc. 72 Iron and steel 26 Ores, slag and ash 49 Printed books, newspapers, etc. 73 Articles of iron and steel 27 Mineral fuels, mineral oils, etc. 50 Silk 74 Articles of iron and steel 28 Inorganic chemicals; organic or 51 Wool; fine or coarse animal 75 Nickel and articles thereof inorganic compounds of precious hair, etc. 76 Aluminium etc. metals, etc. 52 Cotton 77 unassigned chapter 29 Organic chemcials 53 Other vegetable textile fibres 78 Lead and articles thereof 30 Pharmaceutical products 54 Man-made filaments 79 Zinc and articles thereof 31 Fertilizers 55 Man-made staple fibres 80 Tin and articles thereof 32 Tanning or dyeing extracts etc. 56 Wadding, felt and non-wovens; 81 Other base metals, etc. 33 Essential oils and resinoids; special yarns; twine, cordage, etc. 82 Tools, implements, cutler perfumery, cosmetic or toilet 57 Carpets; other textile floor spoons and forks, etc. preparations coverings 83 Misc. articles of base metals 34 Soap, organic surface-active 58 Special woven fabrics; lace, etc. 84 Nuclear reactors, boilers, agents washing prep., etc. 59 Impregnated, coated, covered or machinery, etc. 35 Albuminoidal substances; laminated textile fabrics, etc. 85 Electrical machinery and modified starches; glues, etc. 60 Knitted or crocheted fabrics equipment, etc. 36 Explosives; pyrotechnic products; 61 Articles of apparel and clothing 86 Railway or tramway matches, etc accessories, knitted or crocheted locomotives, etc. 37 Photographic or cinematographic 62 Articles of apparel and clothing 87 Vehicles other than railway goods accessories, not knitted, etc. or tramway rolling-stock; etc. 38 Miscellaneous chemical products 63 Other made-up textile articles; 88 Aircraft, spacecraft, etc. 39 Plastics and articles thereof sets, worn clothing, etc. 89 Ships, boats, etc. 40 Rubber and articles thereof 64 Footwear, gaiters, etc. 90 Optical, photographic, etc. 41 Raw hides and skins and leather 65 Headgear and parts thereof apparatus 42 Articles of leather, etc. 66 Umbrellas, walking-sticks, etc. 91 Clocks and watches, etc. 43 Furskins and artifical fur; 67 Prepared feathers and down, etc. 92 Musical instruments, etc. manufactures thereof 68 Articles of stone, plaster, etc. 93 Arms and ammunition, etc. 44 Wood and articles of wood, etc. 69 Ceramic products 94 Furniture, bedding, etc. 45 Cork and articles of cork 70 Glass and glassware 95 Toy, games, etc. 46 Manuf. of straw, of esparto, etc. 71 Natural or cultured pearls, 96 Miscellaneous manuf. 47 Pulp of wood or of other precious or semi-precious articles fibrous cellulosic material stones, precious metals, etc. 97 Works of art, antiques, etc.
Note: No entries for HS Chapter 77.
Source: WTO Secretariat calculations, based on data provided by the Ghanaian authorities. Ghana WT/TPR/S/81 Page 73
50. Since the cocoa tax applies to both domestic and export sales of unprocessed cocoa, it has not benefited domestic cocoa processors by lowering the home price of cocoa beans. However, domestic processors have benefited from COCOBOD's price discounts on cocoa beans of 11-20% of the f.o.b. price. Such discounts were provided to compensate local processors for the higher costs of using "high quality" Ghanaian cocoa rather than cheaper imported cocoa.30 The Government has recently announced that these discounts will be abolished, and local processors will be required to pay the f.o.b. price for cocoa beans. However, in order to maintain their competitiveness, processors will have access to duty-free imports of low quality cocoa for blending purposes. Processors should also benefit from further liberalization of the cocoa market by being able to purchase directly from licensed cocoa buyers instead of having to purchase beans from COCOBOD.
(b) Other food products
51. Ghana began exporting canned tuna in 1990-91, processed from locally caught fish. Exports expanded from US$1 million in 1993 to US$77 million in 1998, almost 20% of total non-traditional exports. The new American-owned Pioneer Food Cannery established a fully integrated tuna cannery in 1994 for exporting to the EU and the United States. The Company is a free-zone enterprise. Production has expanded from a daily average of 150 tonnes in 1995 to 167 tonnes in 1998, valued at US$70 million ex-factory. Production is projected to reach 200 tonnes per day, about 25% of installed canning capacity. The Ghana Agro-Food Company Ltd (GAFCO), which was formed in 1994 following the privatization of the Tema Food Complex Corporation, also produces canned tuna.31
52. Ghana's palm oil industry was developed initially as a substitute for imported tallow. Palm oil is now exported by many small producers; exports amounted to US$20 million in 1998. Palm oil is also processed domestically into edible oil. Palm oil plantations have been privatized, along with a number of key processors. The Ghana Oil Palm Development Company Ltd was privatized in 1994, and is now 20% government-owned; it exports about three-quarters of its annual output of 20,000 tonnes.
(ii) Beverages and tobacco
53. Beverages and tobacco products each account for some 8% of manufacturing output. Beverage production includes mainly beer and soft drinks. The beer industry has undergone recent structural change, including mergers and modernization; output grew from 63.1 million litres in 1994 to 76 million litres in 1998. There are currently three major breweries: Ghana Breweries Company32, Accra Brewery Limited, and Guinness Ghana Ltd. Government efforts to encourage breweries to gradually substitute imported barley malt with locally produced sorghum malt have had little success. A trial project to develop sorghum malt for use in food and pharmaceuticals is being conducted by the Food Research Institute. The soft-drink bottling operations of the Ghana National Trading Company were divested to the Coca-Cola Bottling Company of Ghana in 1995, which operates two bottling plants in Accra and Kumasi. Pepsi Cola and D&C Industries are the other major soft drink producers.
54. There are two major manufacturers of tobacco products in Ghana. The larger, Pioneer Tobacco Company, is 55% owned by British American Tobacco and 45% by the general public.33
30 These arrangements benefited domestic cocoa processors but further penalized growers. 31 GAFCO is a joint venture between the Ghanaian Government (25%) and the Swiss firm, IBN-Ag (75%). 32 This is the largest brewery and was formed by a merger between the Kumasi Brewery Limited and the Achimota Brewery Company. 33 The Government divested its 40% shareholding in 1993. WT/TPR/S/81 Trade Policy Review Page 74
The Company sponsors its own tobacco farms and sources some 70% of its leaf requirements domestically. Cigarette production amounted to 1.7 billion sticks in 1998. Exports of tobacco products were US$1 million in 1998.
(iii) Textiles and clothing
55. This industry accounts for some 14% of manufacturing output. Ghana produces some 46 million square metres of cotton cloth annually. Cotton cloth is made from mainly domestically made cotton yarns spun by blending lower-quality Ghanaian cotton with higher-quality imported cotton.
56. While the MFN tariff on clothing is 20% (articles of apparel and clothing carry the highest tariff rates in manufacturing), the domestic industry incurs extensive competition from imported second-hand clothing. Much of this is thought to avoid duty, through either under-valuation or smuggling, for example through transit shipments.
(iv) Wood products
57. Sawmilling and wood products account for an estimated 7% of manufacturing output. Although unprocessed logs are a "traditional" export, the emphasis in recent years has been on promoting domestic processing. Government policy has promoted value-added products by controlling exports of round logs, including their suspension since 1995. Timber exports in 1998 totalled US$171 million, compared with US$165 million in 1995.
58. Exports of non-traditional wood products, especially building materials, furniture, and furniture parts have grown substantially in recent years, from US$30 million in 1994 to US$85 million in 1998, representing over one fifth of non-traditional exports. However, the industry's future growth will depend upon more effective management of Ghanaian forests to ensure sustainability. Moreover, wood processing industries are unlikely to become internationally competitive if they become dependant on assistance from the implicit input subsidy provided by log export controls. While such arrangements benefit wood processors, they risk creating inefficient industries reliant on continued government support. Ghanaian sawmilling mills appear to be technically inefficient by world standards due to poor equipment. Wastage rates are relatively high: some 45% to 60% of the logs processed into sawn timber are wasted as off-cuts.
(v) Petroleum products
59. Petroleum products account for 19% of manufacturing output. The industry is based on the state-owned Tema Oil Refinery, which produces refined products from mainly imported crude oil. The major products are petrol, kerosene, and diesel. The refinery has been rehabilitated on several occasions. It is currently being modernized at a cost of US$185 million to enable the processing of residual oil into petrol and liquefied petroleum gas. Until now, this by-product from the refining process has been exported. These exports amounted to US$19 million in 1998. A pipeline distributes refined products from Tema to Akosombo Port for transportation across Lake Volta to the northern regions. The Government remains committed to privatizing the refinery.
60. Locally refined petroleum products are no longer exclusively supplied to oil marketing companies in Ghana by the Ghana National Petroleum Corporation. This agreement with Tema Oil Refinery ended in 1996. Since then, the state-owned Bulk Oil Storage and Transport Company (BOST) has been established to deal with bulk distribution of petroleum products nationwide. BOST also operates the strategic oil storage depots throughout the country on behalf of the Government. A state-owned Ghana Oil Company is the largest oil marketer in Ghana, supplying oil, fuels, and Ghana WT/TPR/S/81 Page 75
lubricants, as well as LPG and bunker oil for ships. The privatization of Ghana Oil Company was delayed in 1998.
61. Ghana meets about 90% of its demand for petroleum lubricants from the oil blending plant operated by the Tema Lube Oil Company. This is privately owned by Mobil, Shell, and British Petroleum.
62. In 1998, the Government changed the system of setting ex-refinery prices on a "cost plus" basis to one based on "import parity". Petroleum products are subject to ad valorem excise taxes. In addition, two levies are collected at the retail level. A road fund levy applies to petrol and gas oil. A strategic stock levy also applies to all petroleum products. This levy was raised in 1998 to meet the additional costs of increasing the stock period from three to six weeks.
(vi) Chemicals
63. Chemical production accounts for some 7% of manufacturing output. It covers a wide range of products, such as building materials, toiletries, surfactants, and rubber products. Soap production, including mainly laundry soap, increased substantially in 1998 from 85,000 tonnes to 102,000 tonnes. The major producers are Unilever Ghana Ltd (66% owned by Unilever PLC), which recently acquired the Twifo Oil Palm Plantation; and PZ Ghana Ltd, which recently invested in a new soap factory. Both firms also produce a range of other toiletries and health care products. PZ also produces pharmaceutical products.
64. Bonsa Tyre Company Ltd (BTCL) resumed operations in 1998. Annual production is estimated at 63,000 car and truck tyres, well down on its initial installed production capacity of almost 400,000 tyres. Rubber latex is also used by Latex Foam Rubber Products Limited to produce polyurethane flexible foam and spring mattresses, which are also exported to neighbouring countries. A rubber outgrower project, under the Ghana Rubber Estates Ltd (GREL), has been in existence for five years and is being funded by the Government and international institutions.
65. A limited range of glass bottles is manufactured by Tropical Glass factory. These are mainly used in the brewery and soft drink industries. Production has been adversely affected by the recent increases in electricity prices, and the Company is having difficulty competing with imports. It is currently undergoing rehabilitation.
66. Cement is produced by one company, Ghacem Ltd, which is currently 100% privately owned. It produces standard portland cement from imported clinker and gypsum. Integrated cement production using locally mined limestone may not be commercially viable. The industry was adversely affected in 1998 by the electricity shortages, but the industry's capacity utilization has exceeded 85% on average. Annual cement capacity was increased recently from 1.4 to 2.4 million tonnes.
67. Efforts to establish caustic soda production in Ghana have been unsuccessful, partly due to lack of funding and concerns over adequate electricity supplies. The Government is considering pulp and paper production using gmelina arborea plantations, involving the construction of a 60,000 tonnes capacity pulp and paper mill, and the eventual divestment of its shares in Subri Industrial Plantations Limited.
(vii) Non-ferrous basic metal products
68. This activity represents about 10% of manufacturing output, and includes mainly the production of alumina at the smelter run by VALCO. The smelter processes imported alumina into WT/TPR/S/81 Trade Policy Review Page 76
aluminium; it does not have the capacity to process locally mined bauxite. Most output is used domestically. The industry is an intensive user of electricity and relies on hydropower generated from the Akosombo Dam; its operations were badly affected by the recent power shortages. Fabricators of aluminium products, such as Aluworks Limited and Pioneer Aluminium Factory Limited, were also adversely affected by the power crisis.
(5) SERVICES
69. The share of services in GDP remained relatively constant during the 1990s. In 1998, the figure was around 44% (including electricity, water, gas, and construction). Public administration, defence, and other services account for the largest part, at 11% of GDP in 1998, followed by construction (10%), wholesale and retail trade (7%), finance, real estate, and business services (5%) and transport, storage, and communication (5%).
70. Ghana consistently records a substantial deficit on services trade. In 1998, this was US$260 million, equivalent to almost one third of that year's total trade deficit. Most of the services deficit is attributable to freight and insurance.
71. Under the GATS, Ghana scheduled sectoral commitments covering a few subsectors in tourism and related services; maritime transport; construction; education; financial services; and telecommunications (Table AIV.2). Ghana signed the Agreement on Financial Services on 17 April 200034 and accepted the Fifth Protocol on 26 May 2000.35 Its commitments on financial services cover a range of banking services, such as acceptance of deposits, credit facilities, and leasing, and provide for no market access or national treatment limitations on cross-border trade and consumption abroad. The only market access limitation on commercial presence is prudential licensing. National treatment is assured, except that the Government may support local financial institutions in rural areas and apply a higher paid-up capital limit for foreign suppliers. Ghana also ratified the Agreement on Basic Telecommunications, accepting the Fourth Protocol on 15 December 1998.36 It endorsed the reference paper on regulatory principles and committed to reviewing its duopoly policy after five years to determine whether to license additional suppliers of basic telecommunication services.
(i) Tourism
72. Tourism accounted for almost 4% of GDP in 1996, and net foreign exchange earnings were US$200 million. Tourism earnings in 1999 are expected to have exceeded US$304 million. Some 17,000 people are directly employed in the tourism industry. Tourist arrivals rose from 305,000 in 1996 to an estimated 373,000 in 1999. About one third of these arrivals are Ghanaian visitors. The rest come mainly from the United Kingdom, United States, Germany, and France. Most arrivals are business visitors, staying on average for about ten days.
73. Tourism development based on private sector participation is a government priority. According to the Government's "Vision 2020", tourism is to be expanded to make Ghana a major international venue and regional tourist destination. Investment incentives are provided to hotels. The company tax rate for the sector is reduced from 35% to 25%, depending on location of the investment (urban/rural). Additionally, approval can be given by the Minister of Tourism for
34 WTO document S/C/W/144, 15 May 2000. 35 The WTO Council for Trade in Services reopened the period for acceptance by Ghana of the Fifth Protocol until 30 June 2000 (WTO document S/L/87, 8 June 2000). 36 The WTO Council for Trade in Services re-opened the Protocol on 15 December 1998 for acceptance by Ghana until 21 December 1998. Ghana WT/TPR/S/81 Page 77
investors in hotels of at least 50 rooms to defer payment of import duties until completion of the project and commencement of operations. Certain items, such as furniture, fans, air conditioners, and television sets, can also be imported duty free. A National Tourism Development Plan 1992-2010 is being implemented by the Ministry of Tourism aimed at more than doubling the size of the industry by 2010. Medium-term developmental projects are contained in the Tourism Development Action Programme for 1996-2000, as well as the Tourism Public Awareness Programme and Tourist Behaviour Code for 1996-2000. Net foreign exchange earnings in 2010 are projected under the long-term plan to rise to US$1.6 billion.
74. To attract private investment, the Plan calls for improving the public and private sector institutional framework for investment; simplifying investment procedures; adopting tourism investment incentives; establishing a tourism financial credit programme; and creating a Tourism Development Fund to be financed from a 1% tax on hotel and restaurant expenditure.
75. The Ghana Tourist Board is an implementing agency of the Ministry of Tourism. The Board is responsible for marketing and promoting international and domestic tourism, as well as regulating the industry, such as registration and licensing of tour operators. The Government has divested all of its state-owned hotels. The number of hotels in Ghana increased from 350 in 1990 to an estimated 767 in 1999.
76. Ghana is an active member of the World Tourism Organization and its Regional Commission for Africa. It has signed cooperation agreements on tourism with several other African countries.
(ii) Transportation
(a) Land transport
77. Ghana has about 40,000 kilometres of roads, of which about three quarters are unpaved. Significant capital investment is needed to improve the road network. Since 1997, the Government has implemented the Highway Sector Investment Project, aimed at rehabilitating major routes. There is also the National Feeder Road Rehabilitation and Maintenance Project to improve feeder roads. Congestion in urban centres, especially Accra, has increased and the Government has undertaken the Urban Transport Project to address the problem. A Road Fund, financed partly by a retail levy on petrol and gas oil, is used to partly finance road maintenance works. The levy was increased recently.
78. The rail network comprises mainly a triangular 1,000 km system linking Kumasi, Takoradi, and Accra-Tema. Ghana Railways Corporation is fully state owned. Rail traffic has declined since 1988 and almost 98% of freight and most passengers are carried by road.
(b) Air transport
79. The national state-owned carrier, Ghana Airways, operates international flights. All international flights are handled by Accra's Kotoka International Airport where the number of operators increased from 9 in 1985 to over 15 in 1999. The number of weekly international flights also increased, from 63 in 1997 to over 80 in 1999, with direct services to Europe and to the United States provided by Ghana Airways. Passenger movements increased from 400,000 in 1997 to 555,000 in 1999.
80. Under the Gateway Project for making Accra the Gateway to West Africa, the Government is implementing a "liberalized skies" policy aimed at deregulating the air transport industry. There are no restrictions on domestic air operations, except that carriers must be licensed by the Air Traffic Licensing Authority and satisfy the safety regulations set by the Ghana Civil Aviation Authority. WT/TPR/S/81 Trade Policy Review Page 78
Domestic air routes are still under development. Currently there are no scheduled domestic services: three airlines (Golden Airways, FanAir, and MukAir), which had started operations within the last three years, have folded; and the services of Air Link were suspended in June 1999.
81. The Ghana Civil Aviation Authority is being restructured to separate its regulatory functions from its airport management operations. It is expected that this will improve efficiency and enhance its ability to access capital for upgrading airport infrastructure. It will also create the enabling environment needed for private-sector participation in the management and development of airports, while implementation of the "liberalized skies" regime will attract more carriers and flights to Ghana.
82. Ghana Airways has significantly increased its operations in recent years. Revenue increased from US$95 million in 1997 to US$115 million in 1999. However, high operating costs continue to reduce profitability, and it was recently converted from a statutory corporation to a limited liability company to improve its commercial operations. Ghana Airways has made alliances with several other international air carriers, such as Ethiopian Airlines and South African Airways, and developed new routes.
(c) Maritime transport
83. The principal policy objective of the Government is to develop Ghana into a shipping gateway to West Africa. An "open door" policy is being implemented, aimed at removing all restrictions on the establishment and operation of shipping lines in Ghana. Joint ventures with foreign operators are now allowed. There are no cabotage requirements in Ghana restricting coastal shipping to domestic companies; however, the new Ghana Shipping Bill provides for their introduction. Ghana has not signed any bilateral shipping agreements to date, but does provide special berthing rights and warehousing facilities to landlocked countries, particularly Burkina Faso.37 Shipping policy is handled by the Ministry of Transport.
84. A few companies established in Ghana provide small-scale coastal shipping services. There are about 16 Ghanaian registered cargo ships. Deep-sea services are provided by foreign operators, with about 120 vessels operating to and from Ghana. Seaborne freight increased from 3 million tonnes in the early 1990s to 8 million tonnes in 1999. The Ghana Shippers' Council functions both as an association of shippers, negotiating freight rates, and as a government agency for resolving disputes regarding shipping rates and port charges.
85. There are no subsidies to shipping lines. Maritime safety and security is regulated by the Ghana Merchant Shipping Act, which is currently under revision. All ports are currently state owned. However, legislation is being considered that would enable private ownership and operation of port facilities. The Ghana Ports and Harbours Authority manages ports.
(iii) Telecommunications
86. Ghana's telephone penetration rate is low at 1%; there are currently about 180,000 telephone lines. Services are provided by Ghana Telecom Ltd; Westel, a U.S. company; and four mobile cellular phone operators, of which Mobitel is the largest.38 There are also three private internet service providers. Telecommunication policies are formulated by the Ministry of Communications. The policy objectives since the mid 1990s have been privatization, competition, and investment, aimed at increasing penetration rates and improving the quality of communication services. The
37 WTO document S/NGTMS/W/2/Add. 21, 3 April 1995. 38 Mobitel is part of the international Millicom International Cellular Group. It commenced operations in Ghana in 1992 and currently has over 20,000 subscribers. Ghana WT/TPR/S/81 Page 79
Government's medium-term objective is to increase the penetration rate to 2.5%, or by an additional 450,000 lines, in accordance with the Accelerated Development Programme 1994-2000.
87. As part of the privatization programme, implemented in early 1997, 30% of Ghana Telecom was sold to overseas interests39, and its monopoly was terminated. A statutory duopoly was established by granting a "Second National Operator" (SNO) licence to Westel to provide both domestic and international telephone services. This limits competition in voice telephony, other than by cellular phone, until March 2002 when additional suppliers of fixed network services will be considered. The two incumbent exclusive suppliers are required to meet network expansion and service quality targets. Ghana Telecom is required to establish 225,000 telephone lines within five years. However, the performance so far, of both Ghana Telecom and Westel, has shown that such exclusivity arrangements may not guarantee the success of policy objectives; both operators are having difficulty meeting their network expansion and service quality targets.40 All in-bound international calls are routed through Ghana Telecom, and approximately 70% of its revenue is from international calls.
88. The SNO licence provides Westel with the same conditions as Ghana Telecom (the AT licence). Both licences are for 20 years and enable them to provide domestic and international telecommunications services within Ghana, including voice telephony, leased lines, public pay phones, telegraph and telex, data, mobile, and value-added services. More specifically, they may develop, own and operate: a fixed telecommunications service system; a wireless system; transmission, reception, switching, and any other associated equipment for the exchange of wireline and wireless communications; and earth stations to be connected to INTELSAT, RASCOM and IMMARSAT, as well as other public and private satellite communication systems. They may also connect to other licensed public and private systems and to public and private telecommunication systems abroad at interconnection fees set at predetermined commercial rates, unless the parties agree otherwise41; procure, distribute, sell, rent, install, and maintain customer equipment; and offer any other related activities under the scope of the licence.
89. A key feature of the reform programme has been the implementation of a transparent regulatory framework for telecommunications. The National Communications Authority (NCA) was established as the centralized regulatory body under legislation passed in December 1996. The legislation is aimed at promoting a stable operating environment for all participants, including fair competition and enhanced efficiency. The NCA approves new entrants and supervises existing suppliers, and provides guidelines on setting charges for voice telephony, fax, and cellular services. It also designates technical standards in line with ITU recommendations. A licence may be granted only to a Ghanaian citizen, or a properly registered incorporation or partnership.
(iv) Financial services
90. The financial sector in Ghana comprises 16 commercial banks, five merchant banks, and over 100 rural unit banks. While private banks now dominate the banking system, some one third of total deposits remains with the five majority public-owned banks. There are also 17 insurance companies. The Bank of Ghana, through the Banking Supervision Department, is responsible for regulating and
39 Ghana Telecom, a public company not listed on the stock exchange, is 70% owned by the Ghanaian Government and 30% owned by G-Com Ltd, a consortium led by Telekom Malaysia. The Government intends to sell an additional share of Ghana Telecom, but no timetable exists. 40 Adanusa (2000). 41 The National Communications Authority is to become the arbitrator if the parties cannot reach agreement on interconnection fees. Through legislative instrument, the NCA may also draw up regulations on the terms and conditions of interconnection. WT/TPR/S/81 Trade Policy Review Page 80
supervising banks (Banking Law 1989). It also supervises non-bank financial intermediaries, including the foreign exchange bureaux and the Social Security and National Insurance Trust (the Financial Institutions (Non-Banking) Law of 1993).42 The Government's "Vision 2020" aims to establish an efficient privately run financial system and ultimately to make Accra a major regional financial centre.
91. All banks must be licensed by the Bank of Ghana. The freeze on issuing new bank licences was removed in 1999. Banks are required to meet certain prudential requirements in line with the Bank for International Settlements (BIS) core principles of banking supervision, such as minimum capital adequacy ratios.43 The minimum paid-up capital for establishing a banking business in Ghana is Cedi 200 million for a Ghanaian banking business or Cedi 500 million for a foreign banking business, defined in the legislation as a bank incorporated in Ghana with below 60% Ghanaian equity.44 The establishment of foreign bank branches is not permitted in Ghana. There are no restrictions on the services supplied by foreign banks.
92. The Bank of Ghana is taking steps to strengthen its prudential requirements, and new banking legislation is being prepared. A new foreign exposure regulation was applied from mid-July 1999; some banks have experienced difficulties in meeting this requirement. The Bank has also enhanced its enforcement activities: in 2000 it withdrew licences for three banks, which were below the minimum capital adequacy ratio of 6%, and closed down a number of non-viable rural banks. Over the past five years, a number of insolvent state banks have been liquidated, such as the Ghana Co- operative Bank, the Bank for Housing and Construction, and the Bank of Credit and Commerce. Other bank restructuring has occurred, including the merger of the National Savings and Credit Bank with the SSB Bank Ltd, and its privatization and listing on the Stock Exchange in 1995.
93. A key component of the Financial Sector Adjustment Programme was the privatization of the large state-owned banks. In 1995, the Government floated 30% of the shares in the Social Security Bank, of which 21% were subscribed. In 1996, 42% of the shares in the Ghana Commercial Bank were sold on the Ghana Stock Exchange. The Government intends to further privatize state banks, including at least another 40% of the Ghana Commercial Bank and 30% of the National Investment Bank.45 The Bank of Ghana also intends to divest its ownership in commercial banks, except initially for the Agricultural Development Bank.
94. The Ghana Stock Exchange began operating in 1990. Its market capitalization as at 8 November 2000 was around US$700 million. Ashanti Goldfields Company is by far the largest single listed firm, representing some 70% of the exchange's total capitalization. There are currently 22 companies listed on the Stock Exchange. Apart from gold mining, most companies are in manufacturing, including brewing, and banking. Many Ghanaian-owned subsidiaries of multinational companies are listed on the Stock Exchange. Share trading by non-resident foreigners is permitted without prior approval, however, the proportion of shares held by any single external resident in a company is limited to 10%, and the maximum level of foreign ownership for each firm is 74%.
95. The Securities Regulatory Commission is responsible for maintaining overall surveillance of the securities industry (Securities Industry Law, 1993). It regulates stockbrokers and financial advisers as well as setting the listing requirements for public companies. Any person wishing to
42 This is a statutory public trust responsible for administering Ghana's national pension scheme. 43 The Bank of Ghana is a member of the Basle Committee of Bank Supervisors. 44 A minimum of Cedi 300 million must be brought into Ghana as convertible currency. 45 This bank was established by the Ghanaian Government to provide finance to industry. It has been restructured and current efforts to find a strategic investor may result in divestiture of 86% of government equity. Ghana WT/TPR/S/81 Page 81
undertake business in Ghana that in any way involves securities must first obtain the appropriate licence from the Commission.
96. The insurance industry is regulated by the National Insurance Commission, under the Insurance Law of 1989. All insurance companies, including life, non-life, and reinsurance businesses, must be registered with the Commission and be incorporated in Ghana. At least 20% of the equity of a foreign-owned company must be owned by the Government, and 40% by Ghanaians.46 Foreign insurance branches are therefore not permitted. The legislation specifies certain prudential and reporting requirements for insurance companies, such as minimum capital levels, security deposits, solvency margins and reserves. All premium increases must be approved by the Commission, but presently it intervenes only in the case of motor insurance premiums. All insurance intermediaries, such as brokers, must also be registered with the Commission. The Government intends to privatize the Ghana Reinsurance Company and the State Insurance Company by 2003.
46 This means that an overseas insurance company establishing in Ghana cannot have more than 40% foreign equity.
Ghana WT/TPR/S/81 Page 83
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