Country Report 1St Quarter 2000 © the Economist Intelligence Unit Limited 2000

COUNTRY REPORT

Ghana

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1st quarter 2000

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

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ISSN 1350-7052

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Contents

3 Summary

4 Political structure

5 Economic structure 5 Annual indicators 6 Quarterly indicators

7 Outlook for 2000-01

13 The political scene

16 Economic policy

20 The domestic economy 20 Economic trends 22 Agriculture 24 Mining 25 Financial services 26 Infrastructure and other services

27 Foreign trade and payments

28 Trade data

List of tables

7 Forecast summary 17 Revised government macroeconomic estimates, 1999 20 Corruption perception index: African countries, 1999 22 Consumer prices 22 Ghana: cocoa production 23 World cocoa production forecast, 1999/2000 25 GSE: Ten largest shares by capitalisation—performance in 1999 29 Foreign trade 30 Direction of trade

List of figures

12 Gross domestic product 12 Real exchange rates 18 Total donor pledges 21 Exchange rate 23 Cocoa prices 25 Gold prices

EIU Country Report 1st quarter 2000 © The Economist Intelligence Unit Limited 2000

Ghana 3

January 17th 2000 Summary

1st quarter 2000

Outlook for 2000-01 The vice-president, John Atta Mills, remains the clear favourite as the NDC’s presidential candidate and has adopted a more aggressive stance against opposition parties as the 2000 election campaign starts to gather steam. But clear favourites to be vice-presidential candidates for either the NDC or the main opposition party, the NPP, have yet to emerge. The NDC candidate is likely to win the presidential election, and the party will retain its parliamentary majority. Fiscal policy will come under pressure, as weak cocoa and gold prices reduce government revenue and the government is tempted to keep expenditure promises in the run-up to the 2000 elections. GDP growth will remain relatively robust, recovering from the EIU’s estimated growth rate of 4.2% in 1999 (compared with the government’s 4.4%) to 5.2% in 2000 and 5% in 2001. Ghana will stick closely to its IMF adjustment programme and aid inflows will continue to help mitigate the worse impact of a negative external environment. The cedi will remain weak in 2000, falling by 26%, although the depreciation should slow to only 10% in 2001.

The political scene A cabinet reshuffle in the run-up to the elections reflects the political fallout from the Ashanti crisis and the need to revamp the cabinet for the election campaign. Although the formation of a Joint Action Committee by the main opposition parties should increase co-ordination in fighting the elections, it only has a limited mandate.

Economic policy and trends The government will present a bleak outlook for the economy in the run-up to the budget, although it has secured IMF and donor support for its policies, which will remain broadly unchanged. Monetary policy was tightened in the last quarter of 1999 to bring inflation back under control, and will be unchanged in 2000 in order to offset a marginally expansionary fiscal policy. With weak export earnings, a falling cedi and strong growth, the current- account deficit is estimated to reach 9% of GDP in 1999.

The domestic economy • Rising cocoa production and a falling exchange rate will help to offset low international cocoa prices. The PBC is being privatised.

• Ashanti Goldfield’s hedging crisis is gradually being resolved, but the political fallout is still apparent. However, its Geita operations may have to be sold.

• PBC is listed on the GSE , but it fell by 42% in US dollar terms in 1999. • There may be a need for greater co-ordination of an increasing number of power projects that have been proposed since the 1998 power crisis.

Foreign trade and Although eligible, Ghana is unlikely to apply for HIPC debt relief in 2000 for payments fear of damaging its links with some current bilateral lenders. Editor: David Cowan All queries: Tel: (44.20) 7830 1007 Fax: (44.20) 7830 1023 Next report: Our next Country Report will be published in April

EIU Country Report 1st quarter 2000 © The Economist Intelligence Unit Limited 2000 4 Ghana

Political structure

Official name Republic of Ghana

Form of state Unitary republic

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

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

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

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

National government Cabinet, partially appointed by the president in February-May 1997; major reshuffle in January 2000

Main political parties Progressive Alliance (PA), the ruling coalition, consisting of the National Democratic Congress (NDC, the majority party) and the Every Ghanaian Living Everywhere (EGLE) party. Opposition parties include: the New Patriotic Party (NPP); the People’s National Convention (PNC); the Convention Party (CP); the People’s Convention Party (PCP); United Ghana Movement (UGM). The National Reform Party was formed in July 1999 by a breakaway faction of the NDC

President Jerry John Rawlings

Vice-president John Atta Mills

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

Central bank governor Kwabena Duffour

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Economic structure

Annual indicators

1994 1995 1996 1997 1998a GDP at market prices (C bn) 4,950 7,418 10,385 14,113 17,364b Real GDP growth (%) 3.6 4.5 5.2 4.2 4.6b Consumer price inflation (av; %) 24.9 74.3 34.0 27.9 19.4 Population (m) 16.86 17.34 17.83 18.34 18.75 Exports fobc ($ m) 1,238 1,431 1,571 1,490 1,813 Imports fobc ($ m) 1,580 1,678 1,937 2,128 2,563 Current-account balance ($ m) –255 –145 –324 –541 –350 Reserves excl gold ($ m) 583.9 697.5 828.7 508.0b 377.0 Total external debt ($ m) 5,464 5,872 6,202 5,982 6,057d External debt-service ratio, paid (%) 22.9 21.4 23.5 27.4 21.5d Cocoa productione (‘000 tonnes) 290 404 323 409 390 Gold production (m fine oz) 1.5 1.6 1.6 1.7 2.3 Exchange rate (av; C:$) 957 1,200 1,637 2,050 2,314

January 17th 2000 C3,410:$1

Origins of gross domestic product 1997 % of total Components of gross domestic product 1997 % of total Agriculture, forestry & fishing 36.6 Private consumption 80.0 Industry 25.4 Government consumption 12.4 Manufacturing 9.2 Gross domestic investment 23.6 Services 28.7 Exports of goods & services 19.8 GDP at factor cost 100.0f Imports of goods & services –36.5 GDP at market prices 100.0g

Principal exports 1998 $ m Principal imports 1990 $ m Gold 682 Capital goods 544 Cocoa beans & products 621 Intermediate goods 356 Timber & products 172 Fuel & energy 210 Consumer goods 124

Main destinations of exports 1998h % of total Main origins of imports 1998h % of total Togo 12 Nigeria 14 UK 12 UK 12 Italy 11 Italy 9 Netherlands 8 US 7 US 7 Spain 6 a Actual. b Official estimate. c Balance-of-payments basis. d EIU estimate. e Crop years beginning in October of calendar year. f Does not total at source because of omission of net indirect taxes. g Does not equal total because of rounding. h Based on partners’ trade returns; subject to a wide margin of error.

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Quarterly indicators

1997 1998 1999 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr Prices Consumer prices Accra (1995=100) 187.1 199.0 221.6 221.2 217.6 n/a n/a n/a % change year on year 18.5 15.6 18.2 14.0 16.3 n/a n/a n/a Cocoa, New York & London (US cents/lb) 78.3 76.1 79.0 76.8 72.1 63.2 51.4 48.0 Financial indicators Exchange rate C:$ (av) 2,235.5 2,289.1 2,309.2 2,325.0 2,333.4 2,370.0 2,462.7 2,591.6 C:$ (end-period) 2,272.7 2,325.6 2,325.6 2,325.6 2,325.6 2,439.0 2,500.0 2,02.7 M1 (end-qtr; C bn) 1,767.3 1,695.3 1,783.5 1,720.6 2,073.1 1,961.8 1,971.5 n/a % change year on year 45.4 39.1 34.5 25.8 17.3 15.7 10.5 n/a Sectoral trends Cocoa exports (qtrly totals; ‘000 tonnes) 42.1 103.9 114.4 65.1 39.8 119.8 n/a n/a Foreign trade (qtrly totals; $ m) Exports foba 456.0 503.7 469.4 563.6 489.0 505.6 n/a n/a cocoa beans 75.4 188.6 214.2 113.0 102.7 181.0 90.2 100.4 gold 138.6 160.4 157.9 186.3 169.4 182.8 141.3 n/a Imports cifa 851.7 782.1 797.0 838.7 999.3 794.2 n/a n/a Trade balance –395.7 –278.4 –327.6 –275.1 –510.3 –288.6 n/a n/a Foreign reserves Reserves excl gold (end-qtr; $ m) n/a 494.2 351.7 330.7 377.0 382.5 261.8 n/a a DOTS estimates; figures are subject to revision. Sources: ICCO, Quarterly Bulletin of Cocoa Statistics; IMF, International Financial Statistics; Direction of Trade Statistics, quarterly; Bank of Ghana, Quarterly Economic Bulletin.

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Outlook for 2000-01

Forecast summary ($ m unless otherwise indicated) 1998a 1999b 2000c 2001c Real GDP growth (%) 4.6 4.2 5.2 5.0 Consumer price inflation (av; %) 19.4 12.9 15.1 13.6 Overall budget deficit (% of GDP) –7.1 –6.5 –6.6 –5.9 Exports 1,813 1,657 1,764 1,900 of which: cocoa 621 400 418 435 gold 674 672 741 845 Imports 2,563 2,498 2,336 2,342 Current-account balance –350 –797 –554 –442 Exchange rate (av; C:$) 2,314.15 2,659.23 3,591.53 4,000.53

a Actual. b EIU estimates. c EIU forecasts.

John Atta Mills will go on The vice-president, John Atta Mills, continues to be the clear favourite to the offensive— become the presidential candidate for the ruling National Democratic Congress (NDC) in the next elections, due by December 2000. Mr Atta Mills has continued to raise his profile at home and abroad in recent months and has even adopted a more aggressive stance against opposition parties (see The political scene). Although he has a reputation as a quiet technocrat, those backing Mr Atta Mills—especially the president, Jerry Rawlings—are keen to show that he has the stomach for the political battles that go with the job. The formal nomination will take place at the NDC party congress sometime in March or April, but it appears that the real battle will be among those who are competing to stand as his running mate.

—and the battle to become The government has recently proposed a constitutional amendment that his running mate heats up would make it easier for the president to name and replace his deputy, which might indicate that the post could be used to entice opposition parties into a future government. However, opposition parties, and some legal scholars, have challenged this move, because they are loath to concentrate any more power in the presidency (and because they privately fear some kind of unforeseen plot by Mr Rawlings). Despite the possible weakening of the position, manoeuvring within the ruling party for the vice-presidential slot is likely to become increasingly fierce.

The current favourite remains the highly experienced Attorney-General and minister of justice, Obed Asamoah, the long-time foreign minister. Other potential candidates are the former minister of defence, Mahama Iddrisu, the minister for communications, John Mahama, and the minister of transport, Edward Salia. However, given that there are concerns over the age of Mr Iddrisu and the health of Mr Salia, the deputy minister of education, Mohammed Chambas, has also gained support. Already viewed as a rising star of the party, although he failed to gain any promotion in the recent cabinet reshuffle, he is nevertheless a politician to watch. Another high flier, the popular Kofi Yankah,

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has been dismissed as Ashanti regional minister and appears to have fallen well out of favour with Mr Rawlings (see The political scene). Finally, despite her extremely divisive personality within the party, speculation that the president’s wife, Nana Konadu Rawlings, is still hoping to run for a top spot in the party has refused to go away.

The NPP is also looking for Ghana’s main opposition party, the New Patriotic Party (NPP), is also looking a running mate for a running mate for its leader, John Kufour. Since the party has a reputation of being elitist and overly influenced by the Ashanti, Ghana’s largest ethnic group, it is seeking a vice-presidential candidate to balance out Mr Kufour, an uninspiring lawyer from the Ashanti region. The NPP’s most outspoken official is Nana Akuffo-Addo, but he is also from Ashanti and has been directly involved in a number of unsavoury incidents (see The political scene). Another name frequently mentioned is that of Ama Busia, the daughter of the late former president, Kofi Busia, who led Ghana from 1969 to 1972. There is also the possibility that the NPP could team up with one of the other opposition parties, naming a running mate from either the splinter National Reform Party (NRP) or the Convention Party (CP). Charles Wereko-Brobby of the United Ghana Movement (UGM) and Edward Mahama of the People’s National Convention (PNC) have already declared that they will stand as independent presidential candidates.

The NDC is likely to Despite the fact that the opposition appears to be uniting in an effort to ensure win again that the elections is carried out fairly, the smaller parties will continue to have a difficult time competing with the NDC’s access to resources and other benefits of incumbency. Although the NPP has significant resources, it faces two major problems. First, it has to widen its support beyond its traditional Ashanti heart- land. Second, it could face a possible loss of support to the NRP. Recently, some NRP officials have claimed that up to one-third of the NDC’s parliamentarians are poised to break away and join the NRP, which formally split from the ruling party in July last year. However, with little financial support or organisational capacity, it is only likely to win over the most disgruntled NPP members. While the EIU expects these elections to be closer than the two previous ones—Mr Rawlings won about 58% of the vote in both 1992 and 1996 while the NDC won solid majorities in parliament—the overall outcome is still for Mr Mills to win the presidency and the NDC to retain its parliamentary majority.

There is also little reason to believe that the economic troubles facing the country will affect the outcome of the elections. A recent survey by the independent Accra-based research institute, the Centre for Democracy and Development (CDD), concluded that a strong majority blamed the current government for Ghana’s economic problems. However, it also found that 36% of the population considered the government’s overall performance to be “good” or “very good”, while a further 34% considered it “fair”—hardly a stinging condemnation of the Rawlings administration.

A coup remains highly Because of Ghana’s unstable political history—it has had nine changes of unlikely government and four military coups since independence—the possibility of a military takeover remains ever-present. With the arrival of multiparty

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democracy in 1992 and an active campaign to professionalise the army, this threat appears to have faded. However, in the wake of two recent events the possibility of another coup in Ghana has resurfaced: the emergence of a group calling itself the Ghana Armed Liberation Movement (GALM) and a coup on Christmas Eve in neighbouring Côte d’Ivoire which deposed the president, Henri Konan Bédié. While an Internet message by GALM claiming it was set to overthrow the government was hyped in the local media, it was almost certainly a hoax (see The political scene). The Ivorian coup, however, is potentially more destabilising, as this was first ever coup in a country that had been considered one of the most stable in Africa. Since Mr Rawlings surprisingly did not condemn the coup, it probably reflects his confidence in the loyalty of the armed forces and his close relationship with the officer corps.

However, the events in Côte d’Ivoire may influence Ghana in two ways. First, since pay was a key factor that led to the coup, the Ghanaian government is likely to ensure that its troops are paid on time and that regular increases are given. Second, public support for the Ivorian coup can be traced to efforts by Mr Bédié to undermine his country’s electoral process and thwart the campaign of one of his leading challengers, Allesane Outtara. As a result, the government will be keen to avoid being seen as blatantly disrupting the activities of the opposition parties. The main scenario under which a coup in Ghana can be envisaged would be if President Rawlings changed his mind about retirement and refused to step down, using extra-constitutional measures, with the military then moving in to restore constitutional order.

Ashanti Goldfields will The debacle at Ashanti Goldfields Company (AGC) will continue to have remain politically political ramifications (4th quarter 1999, pages 7-8, 12-14 and 21-22; see also contentious Mining). As the government retains a 20% share in the company as well a “golden share” veto, any major changes require its approval. Additionally, AGC holds a special place in Ghana’s heritage and national consciousness, and the government is only too aware of it. In the past, when things at AGC were going well, there was a strong feeling of co-operation between the company and the government, as their interest were largely one and the same. However, in the wake of AGC’s financial crisis following its hedging disaster and a growing personal rift between Mr Rawlings and AGC’s chief executive, Sam Jonah, the relationship has turned antagonistic.

The minister for mines and energy, Fred Ohene-Kena, who also sits on Ashanti’s board, has already been sacked after he appeared too sympathetic to a buyout bid by Lonmin, a bid which has since collapsed (see Mining). The minister of finance, Kwame Peprah, is also AGC’s chairman and has tried to represent both sides. Although rumours have circulated that Mr Peprah’s days are numbered—both as minister and as chairman—he retains both positions. He has, however, been far less prominent in recent months, allowing his deputies at the Ministry of Finance, Victor Selormey and Moses Asaga, to represent him in parliament and at meetings with the press and donors. While this may be because he is busy behind the scenes trying to sort out a face- saving rescue package for Ashanti, it also presents the image of a weakened minister. As this report goes to press, it appears highly likely that Ashanti will sell part of its promising Geita concession to ease its financial constraints.

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While this may hurt the company’s long-term growth plans because Geita is in Tanzania and not Ghana, it will be a politically expedient move, and one that the government will approve.

Fiscal policy will come The government has continued to claim that it will not loosen fiscal policy in under pressure — the run-up to the elections, as it did in 1992 and 1996. In the light of declining prices for Ghana’s exports (see below) and rising international oil prices, the Ministry of Finance has indicated that there will be a serious negative effect on public finances in 2000. It has already revised its estimate for the 1999 budget deficit upwards several time––from 5.2% of GDP to 5.9% of GDP and then again to 6.2% of GDP––while the EIU expects that the figure will turn out at around 6.5% of GDP. The 2000 budget is expected to be presented in early February and will, in line with recent government statements, present a picture of a well-meaning government battered by external shocks and deserving of both foreign assistance and public understanding.

While this picture does have a ring of truth, it should also be noted that despite government claims to the contrary electoral pressures are likely to boost expenditure, with the government certain to keep its promises of civil service wage increases, maintaining high cocoa prices for farmers and keeping up high levels of spending on roads and other infrastructure. The forthcoming elections year may also make the government unwilling to raise the value- added tax (VAT) rate from 10% to 12.5%. Given these developments, the government’s current budget deficit target of 4.7% of GDP in 2000 will almost certainly be exceeded––we are currently forecasting that it will be marginally higher than in 1999, at 6.6% of GDP. However, with the elections over and in a more favourable international economic environment, fiscal policy is expected to be tightened in 2001, with the budget deficit being brought down to 5.9%.

—and donors will make up After the conclusion of Article IV consultation with the IMF and a largely the difference successful donor consultative meeting in November in Accra, when $1.7bn was pledged over the next two years (see Economic policy), Ghana appears set for several more years of donor largesse, which should help bridge any financing gap. With Ghana's enhanced structural adjustment facility (ESAF) in place until May 2002, the country should also receive a regular inflow of grants and concessional financing from a range of multilateral and bilateral donors.

Ghana may not apply for While Ghana is likely to qualify for debt relief under the enhanced heavily HIPC debt relief indebted poor countries (HIPC) initiative agreed at the September 1999 meeting of the IMF and the World Bank, there are indications from the government that it will not apply. Some government officials have claimed that this is because Ghana’s debt indicators are just below the required thresholds, but the real reason is that Ghana wants to protect bilateral aid from Japan (see Foreign trade and payments). Although the major international financial institutions and bilateral donors, such as the UK and the US, are supporters of the HIPC initiative, Japan is not, and since Japan is Ghana’s largest bilateral donor, this lends it disproportionate weight in the debate. Indeed, a $55m concessional loan from Japan was recently delayed pending clarification of Ghana’s intentions towards HIPC.

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Real GDP growth will The performance of the agricultural sector appears to have been strong in 1999, improve in 2000-01 thanks to good rainfalls, and should continue to grow if normal weather patterns prevail in 2000-01. Early signs from the Ghanaian Cocoa Board indicate that output in the 1999/00 growing season will be higher than last year’s estimated 390,000 tonnes, with the EIU forecasting 410,000 tonnes. While the fixed prices promised to farmers by the government should continue to encourage plantings in 2000-01, some uncertainties over cocoa sector reforms may begin to have a negative effect in 2001. The mining industry will continue to be affected by low international gold prices and uncertainty over management and financing at Ashanti Goldfields Company, but is expected to continue to post modest sectoral growth. The manufacturing sector is also forecast to continue growing, as regular power supplies are available and a weaker cedi improves competitiveness, although higher interest rates could stifle expansion plans. Greater government spending in the run-up to the December 2000 elections will also boost the services sector, with civil service wage increases expected to keep private consumption high. Overall real GDP growth is forecast to improve from an estimated 4.2% in 1999 to 5.2% in 2000 before dropping back marginally to 5% in 2001.

Inflationary pressures will Inflation has been on an upward trend in the second half of 1999, reaching a resume— year-on-year rate of 13.2% in November. Another expected rise in December is estimated to push up the year-end inflation forecast to 13.5%, just above the revised official target of 13%. This pressure on consumer prices stems from higher import costs following the rapid depreciation of the cedi in the final quarter of 1999, plus rising international oil prices. The upward trend in the inflation rate will continue into 2000, aided by healthy pre-election government spending and ongoing currency depreciation. We are therefore forecasting an average inflation rate of 15.1%, but with the government holding down expenditure growth in 2001 and a slowdown in the fall of the cedi, inflation is forecast to fall back to an average of 13.6%.

—but the slide of the cedi The cedi slipped by nearly 23% in the final quarter of 1999, ending the year will slow down 33% against the US dollar (See Economic trends). This appears to be the result of lower inflows of foreign exchange following disappointing disbursements of donor assistance and low prices for gold and cocoa. It is also likely to be part of a deliberate strategy by the Bank of Ghana (BoG, the central Bank) to ease some of the imbalances within the economy caused by both external shocks and the real appreciation that occurred in 1998. The BoG was also signalling to donors that it was prepared to allow the exchange rate to find its own rate in the market. However, with donor inflows set to pick up in 2000 and the cocoa marketing season will under way, pressure on the cedi should ease considerably. In addition, tighter monetary policy by the BoG is expected, which will ensure interest rates remain relatively high. As such, we expect that the depreciation of the cedi will slow in 2000, falling by a further 12% by year- end to C3,794:$1 (the average for 2000 is forecast at C3,592:$1, down by 30% from the 1999 average). In 2001 the cedi’s slide will slow again, but continued low prices for Ghana’s export commodities and the substantial current-account deficit will maintain further downward pressure on the currency, with a forecast average exchange rate of C4,001:$1.

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Cocoa prices will remain Strong growth in global cocoa production and stagnant consumption have weak— continued to push international cocoa prices down. According to the EIU’s World commodity forecasts: food, feedstuffs and beverages, cocoa prices, which dropped by an estimated 31% in 1999, are forecast to fall again by an average of 12% in 2000, before staging a slight 2% recovery in 2001. However, the crop is extremely vulnerable to disease and weather conditions, and all cocoa price forecasts are therefore highly tentative. Given that signs for Ghana's crop in 2000-01 are positive, we are forecasting a crop of 410,000 tonnes in 1999/00 (October-September). Assuming that producer prices are maintained this year by the government, production should increase again to 420,000 tonnes in 2000/01. Even with weak international cocoa prices, the increased output means that export earnings are forecast to recover slightly from only $400m in 1999 to $418m in 2000 and $435m in 2001.

—while gold prices are With the uncertainty over central bank sales temporarily settled, gold has forecast to rebound returned to levels of $280-290/oz (see Mining). We expect a modest recovery in gold prices, averaging $302/oz in 2000 and $325/oz in 2001, up from an average of just $279/oz in 1999. For Ghana, solid output growth is forecast to continue, assuming that AGC's current financial troubles do not affect production, with some 2.5m oz of gold in 2000 and 2.6m oz in 2001. Overall, we expect total gold exports to grow from an estimated $672m in 1999 to $741m in 2000 and to $845m in 2001.

The current-account deficit With prices for the country’s two main exports in the doldrums, the current- will remain large account deficit is estimated at 10% of GDP in 1999, although it will decline to 8% of GDP in 2000 and to 6% in 2001. Fortunately, despite relatively strong economic growth, the depreciation of the cedi will act to constrain consumer demand for imported goods. As a result, the total value of imports in 2000 and 2001 will remain broadly constant at $2.3bn. Despite moderately strong growth in tourism earnings, the service and income accounts will record substantial deficits. However, with ongoing high inflows of aid, net current transfers will remain firmly in credit. This, coupled with the forecast reduction in the trade deficit, will drive the fall in the current account.

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The political scene

There is a cabinet With several vacancies in the cabinet and a long election campaign to fight, on reshuffle— January 10th the president, Jerry Rawlings, made several major changes to his cabinet. The most important of these was the appointment of a new minister for mines and energy, John Abu. Mr Abu, a former agriculture official and Western regional minister, was moved from the Ministry of Trade and Industry to replace Fred Ohene-Kena, who had been sacked in October 1999 over his role in the Ashanti Goldfields debacle (4th quarter 1999, page 12). During the final few months of year the need to find a full-time replacement minister had become pressing, as the acting replacement minister, Ekwow Spio-Garbrah, proved too busy with his own crises in the Ministry of Education (see below) to really concentrate on the Ashanti crisis. Mr Abu’s deputy, Dan Abodakpi, was named the new minister for trade and industry.

Other changes included the promotion of the deputy minister of local government, Cecilia Johnson, to full minister, and the effective demotion of her boss, Kwamena Ahwoi, to a new non-cabinet position as minister of planning and regional economic co-operation, which is presumably a glorified liaison officer with the Economic Community of West Africa States (ECOWAS). The ambassador to Cuba, Kwame Danso Boafa, was brought home to take over as minister of health. His predecessor, Samuel Nuamah-Donkor, was appointed Ashanti regional minister in November, and the portfolio was temporarily managed by Alhaji Mahama Idrissu, a key presidential aide (see below).

—and the NDC shows signs Mr Rawlings also moved some other top officials in early November. Most of internal discord notably, he moved the popular Ashanti regional minister, Kojo Yankah, to the moribund National Development Planning Commission. There was deep suspicion in the regional capital, Kumasi, that the move was prompted by Mr Rawlings’s anger at Mr Yankah’s handling of the Asantehene (Ashanti king) succession issue (4th quarter 1999, pages 13-15). Surprisingly, Mr Yankah refused to accept the new post and promptly resigned (he kept his parliamentary seat), a development that was quickly seized on by the opposition as a sign of an imminent crisis within the ruling party. More likely, the ambitious Mr Yankah is asserting himself as a major player not to be easily dismissed, and biding his time for the post-Rawlings era. The major unknown factor is whether any disenchantment within the ruling party will lead members to join the splinter National Reform Party (NRP), which broke away from the National Democratic Congress (NDC) in July 1999 (3rd quarter 1999, page 13). Some of the local media, which are notoriously unreliable, have claimed that up to 40% of NDC parliamentarians are poised to join the NRP but have yet to make their defections public (see Outlook for 2000-01).

The opposition parties put Although there have been claims in the media that an internal campaign was up a show of unity— afoot to unseat John Kufour as leader of the New Patriotic Party (NPP), Ghana’s main opposition party still appears relatively united and is continuing to express optimism about its chances in the next elections. As in the past, the NPP is teaming up with the other opposition parties to try and present a single anti-NDC front. The four main opposition parties—the NPP, the NRP, the

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Convention Party (CP) and the United Ghana Movement (UGM)—have formed a Joint Action Committee (JAC). This appears less ambitious than the Alliance for Change in 1996, which was a more direct electoral alliance among opposition parties, with the JAC currently limiting its mandate to monitoring the electoral register and campaign activities to ensure fairness. Although the parties have pledged to co-operate, it remains unclear if they will co-ordinate candidate lists or agree to field a single candidate in some constituencies. Since both Mr Kufour and the leader of the UGM, Charles Wereko-Brobby, signed a JAC new year’s message as “presidential candidates”, it appears that at least several presidential candidates from the opposition are likely to emerge.

—and hold a The four parties of the JAC successfully held a demonstration in central Accra demonstration in Accra on November 25th. (The People’s National Convention also participated in the march, but its leader, Edward Mahama, did not sign the joint new year’s message and has not formally stated that the party is a member of the JAC.) Although the march was promoted as a protest against government economic mismanagement—placards complained about taxes, corruption and user fees for health and education—it was more of an overt campaign event for the parties involved. There were heightened tensions prior to the demonstration, as violence was widely expected, but the NDC repeatedly called on its supporters not to interfere. Bolstered by a heavy police presence, the day passed peaceably––unlike the last major demonstration in the city, a protest against value-added tax (VAT) in 1995 which ended in five deaths. The opposition claimed that the event was a success, but no reliable attendance figures are available. The international weekly West Africa, which was recently bought by Ghana’s state-owned Graphic Corporation and re-launched, claimed that an NDC rally two weeks later drew much larger crowds, but again there are no reliable numbers. While crowd sizes, especially in urban centres where support for the NDC is weakest, tend to be poor indicators of actual party popularity, the NDC’s relatively calm response seemed to indicate greater political maturity. Indeed, given that the government allowed this particular demonstration but not another one planned by debt relief campaigners to coincide with a donor consultative meeting a few days earlier (see Economic policy) seems to show that the NDC is less afraid of the opposition parties than upsetting relations with donors.

Rumours of a coup plan There have been no credible reports of an attempted military coup since the resurface— mid-1980s, but given Ghana’s history of frequent military intervention in politics, such an eventuality is always a possibility. As if to reinforce this viewpoint, in October and November a group calling itself the Ghana Armed Liberation Movement posted messages on the Internet claiming that it was set to topple the government. In a message posted on November 18th the group even claimed that the coup would occur on the 26th of that month. While this is almost certainly a hoax by exiles seeking to instigate disturbances, the minister for national security, Kofi Totobi-Quakyi, was forced to make a public statement assuring the country that the security forces were aware of the threat and were capable of maintaining the peace. Tellingly, Mr Totobi-Quakyi said that he was not so much concerned about a coup as about the effect of such claims on investor confidence. Although this series of events happened well

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before the coup in neighbouring Côte d’Ivoire (see below), President Rawlings appeared unaffected by the news, emotionally claiming in a speech in Accra that he was “not the sort of person to be afraid of coups”. He has, of course, led two successful coups himself, on June 4th 1979 and December 31st 1981. The EIU continues to maintain that the chances of a coup in Ghana in 2000-01 are extremely slim (see Outlook for 2000-01).

—as a tape scandal opens On October 29th the local Weekend Statesman published transcripts from a tape old wounds recording of conversations implicating President Rawlings in a series of murders and bombings. According to the tape, which contains the voices of a man identified only as “Albert” and an unidentified woman, a man claims responsibility for the bombings of the Ringway Hotel in 1992, the abduction and murder of a Catholic priest in 1985 and the attempted bombings of the late brother of the minister of foreign affairs, Tony Gbeho, and the president’s former national security advisor, Kojo Tsikata (the cousin of the former presidential aide and current head of the national petroleum company, Tsatsu Tsikata). In the tape “Albert” claims to have acted at the behest of “the old man”, presumably President Rawlings. (According to the London-based Africa Confidential, the president does have a long-time security officer named Albert Gbafa.)

However, it has proved very difficult to verify the contents of the tape, and their credibility is further undermined by the fact that the Statesman is owned by a highly partisan NPP member of parliament, Nana Akufo-Addo, whose family also owns the Ringway Hotel. Adding further to the intrigue, Mr Akufo- Addo claims that he does not know the source of the tape, as it was delivered by an unknown person to the newspaper’s offices in early October. Although the newspaper claims it also sent copies of the tape to the police and the Ministry of Information prior to publication, both Mr Akufo-Addo and the managing director of the newspaper, Amfo Kwakye, have been charged with publishing false news. The government was quick to condemn the tape as a forgery and has attacked the credibility of the newspaper. The NPP has also distanced itself from the tape but called for a formal investigation.

Given the mysterious origins of the tape, speculation over its source consumed Ghana’s tabloids for several weeks. Several seized on the story as proof of what they had believed for years: that President Rawlings was personally involved in silencing and eliminating his enemies, especially in the early 1980s. However, government-affiliated papers have rushed to Mr Rawlings’s defence, claiming that the entire episode is a fraud intended to incite discord within the NDC and embarrass the president prior to the visit of the UK’s Queen Elizabeth. While there may never be a definitive answer to the source of the tape or the truth of its contents, the episode has served as a reminder of the skeletons still lurking in Mr Rawlings’s closet.

A tabloid is hit by a In another incident which highlighted the intense politicisation of Ghana’s libel sentence media, in early November a former editor of the staunchly anti-government Free Press was sentenced to 90 days in jail for intentional libel. The case stemmed from reports in 1995 published by the paper which claimed that the first lady, Nana Konadu Rawlings, had been smuggling gold to Europe and was

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dealing in narcotics. Although the editor, Eben Kwaku, could have been sentenced to up to three years in prison, the judge claimed that he did not want to “dampen the vibrancy of the present media”. In the past, both government and opposition figures have used libel laws against the press, but it does not appear to have tempered their penchant for publishing outrageous stories.

The universities re-open Ghana’s universities re-opened in November after student strikes had forced their closure in mid-September (4th quarter 1999, pages 15-16). Students had initially boycotted classes to protest against substantial fee increases. In the end the government agreed to lower fees by 30% and provide new loan facilities, but the highly contentious issue of user fees and how to finance soaring enrolment numbers will not go away. The problem is made worse because many of the campuses, including the University of Ghana’s flagship campus at Legon, just outside Accra, have been hotbeds for anti-government sentiment, while some academic staff have often been overtly associated with opposition parties, creating added tensions between the universities and the Ministry of Education. As students went home for the holiday break, the campuses were reportedly calm and classes had resumed, with exams scheduled to held about five weeks late. Nevertheless, the issue of school fees is likely to resurface during the election campaign, and again before the next academic year begins.

Mr Rawlings reacts to the While normally a coup in a neighbouring country would set off alarm bells in coup in neighbouring Ghana, President Rawlings appeared notably unfazed when on Christmas Eve Côte d’Ivoire the military overthrew the president, Henri Konan Bédié, in Côte d’Ivoire. He later stated that the coup was regrettable but commented: “We must also recognise that events could have degenerated into a far worse scenario if the military had not stepped in … We must allow time to assess even an unconstitutional change in order to determine whether there are redeeming features that would temper our reaction towards them." Although these comments could be interpreted as justification for the coup which brought him to power, it is nonetheless remarkable for a sitting president who had relatively good relations with Mr Bédié. Mr Rawlings will probably also relish the opportunity to have Ghana seen as the new anchor of political stability in the region, together with the added international stature that may bring him.

Economic policy

The Ministry of Finance On October 27th the deputy minister of finance, Victor Selormey, addressed warns of a fiscal crunch parliament on the state of the economy. He painted a bleak picture, which he largely attributed to external factors—the low international prices for cocoa and gold coupled with high oil prices—and noted that as a result of the changed global environment the government had revised all its estimates for 1999. Most notably, real GDP growth was revised downwards to 4.4% from 5.5% (see Economic trends), while the year-end inflation target was raised from 9.5% to 13%. He also claimed that the fall in cocoa prices would result in a shortfall of some $79m in foreign exchange, up from $30m originally anticipated. On the fiscal side, total receipts have been revised downwards by

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7%, but statutory payments up by 9%. As a result, discretionary expenditure, which includes most development projects, has been revised downwards by 17%, which could have a longer-term impact on economic growth. Overall, the budget deficit is now predicted to rise to 5.9% of GDP, up from the original target of 5.2%. (Data released by the IMF and the government in November indicated a slightly higher budget deficit of 6.2% of GDP, but the EIU still expects it to be closer to 6.5%.).

Revised government macroeconomic estimates, 1999 (C bn unless otherwise indicated) Original target Revised target Difference (%) Budget balance (% of GDP) –5.2 –5.9 0.7 Real GDP growth (% change) 5.5 4.4 –1.1 Inflation (%; year-end) 9.5 13.0 3.5 Source: Ministry of Finance.

There may be reasons for In addition to worsening commodity prices, in his speech Mr Selormey pointed being overly pessimistic— to a shortfall in donor disbursements, claiming that less than 30% of promised assistance had materialised. While it is true that Ghana’s terms of trade deteriorated considerably in 1999, it is the absence of donor funding that was at the heart of the minister’s speech: his true audience was not necessarily parliament but donors who were due to arrive in the capital, Accra, the following month for a consultative meeting laying out Ghana’s aid package for the next two years (see below).

—especially the hidden The new data released by Mr Selormey in his speech did not specify the benefits of the currency exchange rate they was based on. This is important, because many of the weakness government’s commitments are in local currency but inflows arrive in foreign exchange––for example, the 23% depreciation of the cedi in the fourth quarter of 1999 may compensate for some of the forecast revenue shortfalls. Similarly, the fall in the exchange rate also helps offset falling cocoa earnings in the face of plummeting international cocoa prices. With the cocoa producer price fixed at C2.25m/tonne and production estimated at 395,000 tonnes (which appears overly conservative; see Agriculture), this implies a fixed payment to cocoa farmers of C889bn. But when the original budget was announced, the exchange rate was about C2,450:$1, which would imply paying farmers $363m. At the current exchange rate of about C3,450:$1, this corresponds to just $258m, a windfall of $105m in foreign exchange for the public purse.

The predicted value of the exchange rate is also important if the government is to keep its promise to raise producer cocoa prices to 60% of international fob price. With cocoa prices now about $950/tonne, at the original exchange rate prevailing in February 1999 this would have meant paying producers 97% of the international price, severely reducing government revenue. But at the current exchange rate this implies paying 69%, a marked improvement for the government. This calculation also assumes no recovery in cocoa prices as the season progresses—the government expects average prices of $975/tonne, while the EIU has forecast $1,014/tonne—and no further currency slippage (see Outlook for 2000-01).

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Article IV consultations As expected, the executive board of the IMF concluded its Article IV with the IMF are concluded consultation with the government on November 19th. This effective stamp of approval allows Ghana’s three-year SDR155 ($209m) enhanced structural adjustment facility (ESAF), which expires in May 2002, to continue for another year, and a $30m tranche was released that same day. In its announcement the IMF also noted that:

• macroeconomic performance was broadly in line with performance targets in the first half of 1999, but programme implementation had weakened in the third quarter owing to both external shocks and policy slippage;

• Ghana missed several performance targets because of lower non-tax revenue and lower divestiture receipts; and

• a key performance criteria, the sale of the cocoa-exporting Produce Buying Company (PBC) was delayed (it had been due in June but did not happen until December 1999).

The Fund also urged the government to:

• maintain strict fiscal discipline in the run-up to the elections due in December 2000;

• allow exchange-rate flexibility to cushion external shocks; • seek exceptional external financing to protect the poorest segments of the population from the current external shocks (this item was clearly targeted at other donors rather than the government); and

• consider a new pricing structure for cocoa producers that encourages improvements in output and quality but also generates public revenue (this was clearly a warning against fixing producer prices for volatile commodities).

A donor meeting yields With the Fund’s approval secured, the door was opened for Ghana’s tenth $1.7bn, while privatisation donor consultative meeting in late November. Representatives from all the makes some headway— major bilateral and multilateral donors attended, while the government side was led by the vice president, John Atta Mills. In line with Mr Selormey’s speech to parliament, the government pledged to continue on the path of reform and urged international support to help the country through the external shocks currently being experienced. In the end, donors pledged about $1.7bn in total assistance for 2000-01, although the government had hoped for $2bn. According to Ghana’s other deputy minister for finance, Moses Asaga, $463m was for general programme support and about $1.2bn for various projects. In effect, the heavy donor support should enable Ghana to continue its reform programme despite the difficult economic climate, but it also highlights the fact that 15 years after structural adjustment began, the country is as dependent on foreign assistance as ever.

The IMF has praised the government for finalising the divestiture of a cement factory and the State Transport Company in October. Although the Fund noted the delay in privatising the Produce Buying Company (PBC), the state-owned domestic buying agent of the Ghana Cocoa Board (Cocobod), shares were formally offered to the public on December 1st (see Agriculture and Financial

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services). In mid-November the minister of roads and transport, Edward Salia, told a visiting French business delegation that the government was working out terms for the privatisation of the Ghana Railways Corporation. A concession to run the railway is expected to be offered before the end of 2000, with the hope of injecting cash into the ageing system, which needs new investment and modernisation. Rail workers and some members of the public have already expressed concerns over the plan, especially since the sale of a controlling stake of Ghana Telecom to Telekom Malaysia in 1996 has given rise to heightened criticism after investment targets were missed and the service failed to improve significantly.

—but may face more According to a report in the opposition-affiliated Business Chronicle, a group of legal delays unnamed lawyers are preparing a legal challenge to the Divestiture Implementation Committee (DIC) over the procedures adopted for the forthcoming sales of several state-owned enterprises. The report cited the Electricity Company of Ghana, Ghana Airways and the Ghana Water and Sewerage Company, which are all expected to be divested within the next two years. Although their case is apparently on the basis that only the DIC, and not the sectoral ministries, have a legal mandate to divest government interests, ministries have been intensely involved in preparatory work. While legal challenges, which are extremely common in Ghana’s highly litigious society, may succeed in delaying the process—as they did in the 1994 floatation of Ashanti Goldfields Company—they are unlikely to derail it.

VAT will be raised One of the government’s responses to its worsening fiscal position has been to propose raising the rate of VAT from 10% to 12.5%. Although this is being presented as a “drastic” measure to combat a deteriorating international economic climate—namely low prices for cocoa and gold—the rate remains well below that originally envisioned by the government when it introduced VAT in 1995 (17.5%). At the time violent protests forced a revision down to 15% before the tax was withdrawn altogether. When it was peacefully re- introduced in December 1998, it was preceded by a massive public education campaign, and at a rate of only 10%, both to simplify its calculation and to ease public discord.

No progress is reported Ghana has slipped to 63rd position in the annual corruption perceptions index in an annual of the Berlin-based watchdog, Transparency International. Although its score corruption index remained unchanged from 1998 at 3.3 out of 10 (4th quarter 1998, page 13), the 1999 survey included 99 countries instead of 85, when Ghana ranked 55th. Denmark was again rated the best in the world, while Botswana retained its position as Africa’s least corrupt country.

Cameroon and Nigeria scored the worst on the continent, with the former placed again at the bottom of the table. Ghana ranked roughly in the middle among African countries, below Zimbabwe, Senegal and Zambia, but ahead of Uganda, Kenya and Côte d’Ivoire. However, Ghana did score just below the average for Sub-Saharan Africa of 3.4. Regionally, Southern Africa soundly beat the other regions, with every country from that region scoring above the average, while no east or west African nation scored above the average. This

may partly reflect better business practices in Southern Africa, but it also probably reflects a bias in the surveys, which are taken from the private sector, stemming from a likely preponderance of South African businessmen polled.

Corruption perception index: African countries, 1999 Rank Country Score 24 Botswana 6.1 29 Namibia 5.3 34 South Africa 5.0 36 Mauritius 4.9 45 Malawi 4.1 45 Zimbabwe 4.1 56 Mozambique 3.5 56 Zambia 3.5 58 Senegal 3.4 63 Ghana 3.3 75 Côte d’Ivoire 2.6 87 Uganda 2.2 90 Kenya 2.0 93 Tanzania 1.9 98 Nigeria 1.6 99 Cameroon 1.5 Sub-Saharan average 3.4 Source: Transparency International.

A national census will take The government has announced that the national statistical service will place in March conduct a nation-wide population and housing census, for about two weeks, beginning on March 27th. According to the minister of finance, Kwame Peprah, a total of C19bn ($5.5m) has been budgeted for the exercise, which is intended to improve official statistics and development planning. He added that the data were unrelated to the electoral register and that they should not be seen to have political overtones. Nevertheless, the future distribution of resources will inevitably be affected, which may give some local officials reason to exaggerate the population in their areas.

The domestic economy

Economic trends

Real GDP growth for 1999 Official projections from the Ministry of Finance for real GDP growth in 1999 is revised downwards have recently been revised downwards to 4.4% from the 5.5% forecast contained in the budget. According to the deputy minister of finance, Victor Selormey, this is mainly attributable to the price effects from external shocks, notably low prices for Ghana’s key exports combined with a rise in international oil prices. This has diverted resources away from development and other investment projects and into current consumption. Although this

latest figure was released in late October, the IMF projected a slightly higher figure of 4.5%, which presumably also comes from the Ministry of Finance, in late November. Nevertheless, both of these figures are more in line with previous EIU projections of 4.3% than the original official forecast (4th quarter 1999, page 10)––the EIU is currently estimating real GDP growth of 4.2% in 1999. Although Mr Selormey said that all sectors of the economy were affected, no new sectoral data were released. The 2000 budget, due in early February, should provide more detailed information.

The cedi takes a dive— The cedi has continued its slide in the final quarter of 1999, ending the year at nearly C3,388:$1, which represents a 33% depreciation in the year. Most of this fall came in the fourth quarter, when the cedi slipped by almost 23%. According to the Bank of Ghana (BoG, the central Bank), this decline was in response to much lower inflows of foreign exchange caused by disappointing disbursements of donor assistance and low prices for gold and cocoa. To some extent this slide is also the inevitable result of the real appreciation from 1998, when the cedi fell by just 4% against the US dollar, while inflation averaged more than 19%.

The central bank has continued to insist that it has not been intervening to prop up the cedi. However, its claim that the previous exchange-rate stability was not damaging export competitiveness is belied by current claims from officials that a weak cedi will now be beneficial. Indeed, the overvalued cedi had made it impossible for the government to keep its promise of paying cocoa farmers a fixed rate (see Economic policy). With expectations of large donor inflows in the first quarter of 2000, and the BoG’s reserves likely to be replenished, the cedi’s fall should slow (see Outlook for 2000-01). Both to combat inflation and to build business sector confidence, the BoG is keen to regain at least a modicum of exchange-rate stability. Indeed, the precipitous fall in the final months of 1999 was also probably a deliberate sign to donors prior to the consultative meeting that it was allowing the market to determine the exchange rate—an implicit condition for continued donor assistance.

—and inflation creeps up After falling to a 15-year low of 9.4% in May 1999, the year-on-year inflation to 13.2%— rate rose for the third straight month to 13.2% in November. The main factor behind this recent jump in prices comes from the housing and utilities subcomponent, indicating that higher fuel prices are beginning to be felt. Further increases in petrol prices in early December, combined with higher import prices owing to a weaker cedi, are likely to put additional pressure on prices in the coming months (see Outlook for 2000-01). With this in mind, the government revised its 1999 end-year forecast to 13% from its original 9.5% target. However, we still expect the rate to have gone up in December, and a rate of about 13.5% for the year is still more likely.

Consumer prices (% change, year-on-year) 1998 1999 Year Sep Oct Nov Dec Inflation (av) 19.4 11.8 12.6 13.2 13.0a

a Revised target. Sources: Bank of Ghana; Ministry of Finance.

—as the Treasury bill rate With the cedi slipping and the central bank insisting that it will tighten jumps by nearly 10% monetary policy to curb rising inflationary pressures, the yield on benchmark 91-day Treasury bills spiked in the final months of 1999. At the end of December T-bills were yielding 34.2%, up from 24.5% as recently as late September. In an interview with the local press the governor of the central bank, Kwabena Duffour, confirmed that the BoG was intensifying its open- market operations to mop up excess liquidity.

Agriculture

The cocoa-buying season This year’s cocoa-buying season started slightly late—towards the end of gets under way— October rather than at the beginning—but early returns point to another good season. However, there have been concerns over heavy rain as late as November and December—the dry season in the central cocoa growing region usually runs from November to about February—which raised fears that the crop could be effected by black pod disease. Although it is still relatively early to make accurate estimates, cumulative cocoa purchases at the start of January, the tenth week of the 1999/2000 season, were reportedly 299,000 tonnes, about 11% higher that the corresponding week last season. The Ghana Cocoa Board (Cocobod) has estimated this year’s crop to be 400,00-420,000 tonnes, up from 390,000 tonnes last year.

Ghana: cocoa production (‘000 tonnes) 1996/97 1997/98 1998/99 1999/2000 Production 323 409 390 410a

a EIU forecast. Source: Cocobod.

The previous year’s 390,000 tonnes were boosted by high levels of smuggling from Côte d’Ivoire, especially in the mid-crop season (May-Sep; see 3rd quarter 1999, page 19). The Christmas coup in Côte d’Ivoire, the world’s largest cocoa producer, is not expected to affect international prices, but political uncertainty may lead to increased smuggling into Ghana, although the forecast depreciation of the cedi will reduce the price paid in CFA francs (see Economic policy).

World cocoa production forecast, 1999/2000 (Oct-Sep; ‘000 tonnes) Côte d’Ivoire 1,200 Ghana 410 Indonesia 365 Nigeria 185 Brazil 135 Cameroon 130 Source: EIU, World commodity forecasts: food, feedstuffs and beverages.

—as cocoa prices continue Owing to high production levels in the three main cocoa producing to fall countries—Ghana, Côte d’Ivoire and Indonesia—combined with stagnant global consumption, international cocoa prices have continued to fall. The International Cocoa Organisation (ICCO) daily average fell to $950/tonne in December, with benchmark March-delivery cocoa futures selling in the $830- $850/tonne range. According to the EIU’s World commodity forecasts: food, feedstuffs and beverages, average prices in 1999 were $0.53/lb, or $1,162/tonne, and are set to fall a further by 13% to $0.46/lb, or $1,014/tonne (see Outlook for 2000-01). The government is assuming a slightly lower price of $975/tonne in 2000.

The Produce Buying As promised in the government’s policy framework paper released in May Company is privatised 1999, Cocobod’s domestic buying arm, the Produce Buying Company (PBC) was privatised, with shares offered to the public. Although the government had originally scheduled the sale for June, shares were eventually offered on December 1st (see Financial services).

While this step is integral to the medium-term cocoa restructuring strategy, it has not been without controversy. Private domestic buyers of cocoa have been allowed since 1992, but farmers, Cocobod officials and nationalist politicians have raised concerns about a fall in quality and problems with market access for remote farmers. The fact that shares were sold to the public, rather than to a foreign strategic investor, has probably deflected some of the nationalist criticism, but Cocobod officials will be closely watching developments on the domestic purchasing front in the board’s new role as regulator. Cocobod retains its monopoly on external marketing, and this is unlikely to change until the government has had a chance to examine the results of a similar restructuring already under way in Côte d’Ivoire.

Mining

The Lonmin bid for Although it appeared in October that Ashanti Goldfields Company (AGC), Ashanti Goldfields falls Ghana’s largest mining firm, was going to merge with Lonmin, the former through— mining arm of Lonrho, the deal has since fallen through. This is the result of a number of factors:

• the pressure on AGC from its hedging activities, which pushed its liabilities over $500m, allowing creditors to make margin calls of over $200m, eased as the gold price fell back below $290/oz (see below);

• AGC is reported to have re-structured its hedge book frantically, although no details have yet emerged; and

• the government, which retains a 20% share in the company plus a “golden share” veto, rejected the offer, believing that the company’s financial troubles were temporary and that the Lonmin offer was too low.

—as criticism of AGC’s Given that AGC is such a source of intense national pride, the government was hedging strategy grows— clearly shocked and angered by the problems stemming from its speculative financial activities. Questions were repeatedly raised over how AGC could have allowed its hedge book—its portfolio of forwards and options—to become so exposed. The picture that emerged was that of a company using its hedge book not to protect itself during times of low gold prices—as AGC was claiming—but as a source of new profit growth. In effect, the mining company had become a major speculator on the gold price falling further—a bet that it lost.

In an interview with the London’s Financial Times the chief executive of AGC, Sam Jonah, hinted that the company’s hedging may have been “reckless”, and the Ghanaian media seized on this as an admission of guilt, intensifying the political pressure being brought to bear on the government ministers who are also members of the AGC board, namely the minister of finance, Kwame Peprah, who is also AGC’s chairman, and Fred Ohene-Kena, who was sacked as minister for energy and mines in the midst of negotiations in late October (see Outlook for 2000-01). In what is becoming increasingly common reaction, the company responded to this criticism with a public statement carried in the local press. It rejected the label of “reckless”, saying Mr Jonah’s comments were taken out of context, and defended its activities, pointing out that “Ashanti has realised nearly $700m from hedging activities over the past five years”.

—but a tentative deal is On October 30th AGC reached an agreement with its 15 creditor banks for struck with creditors margin-free trading for three years in return for warrants of up to 15% of the company, exercisable at a price of $4.75/share. In early January AGC was trading in New York at about $3/share. The main condition was that the company produced an acceptable restructuring plan by December 2nd, which it did. As this report goes to press, the various banks and the government are still considering the plan for final approval. In the meantime, the expiration for the standstill agreement has been delayed twice, with a decision expected in late January.

Meanwhile, AGC has appointed Barclays Capital to arrange financing so that the company can complete the commissioning of its Geita project in Tanzania, a very promising mine acquired in the purchase of Samax Gold in 1998 (4th quarter 1998, page 18). Some creditors had reportedly been pressing for AGC to dispose of Geita to cover its losses, but the company is pinning much of its future growth on the mine and is loath to lose it. If it cannot secure the roughly $110m in funding, however, it may have little choice. In early January, in the face of a looming court battle brought by disgruntled minority shareholders demanding that the company directors resign, rumours grew that AGC might seek to sell 50% of Geita. The Canadian firms Barrick Gold and Placer Dome, plus South Africa’s Anglo Gold, all companies that have expressed interest in a possible buyout of AGC as a whole, have reportedly visited Geita with a view to taking at least a partial stake.

The gold price falls back After the temporary panic buying of gold that sent the price over $325/oz in to under $290/oz late September, following the announcement of no more planned sales by the European Central Bank, the price has fallen again. As of early January gold was trading at about $282/oz. Although the drop would normally be bad news for Ghana, which counts on gold for some 40% of its exports, it was welcomed by AGC, as it eased its hedging liabilities.

Financial services

PBC is to become Ghana’s Shares of the state-owned cocoa purchasing arm of Cocobod, the Produce 23rd listed company Buying Company (PBC), were offered to the public on December 1st, with the offer originally set to run until January 14th but subsequently extended to the end of January 2000. The company is selling 384m shares at C500 ($0.15) each, representing 25% of total capitalisation. The government is retaining 20%, with the rest to be allocated to the Social Security and National Insurance Trust (SSNIT), farmers and PBC employees. PBC is expected to be formally listed as the 23rd company on the Ghana Stock Exchange (GSE) in February.

GSE: Ten largest shares by capitalisation—performance in 1999 (% change) Cedi US$ Ashanti Goldfields Company (AGC) 4a –30a Aluworks 0 –33 British American Tobacco 17 –21 Ghana Commercial Bank –42 –61 Guinness Ghana 19 –20 Home Finance Corporation 0 –32 Mobil Oil Ghana –19 –45 Standard Chartered Bank –21 –47 Social Security Bank –12 –40 Unilever 16 –22 All-share index –15 –46

a Based on the last quoted price on the GSE, but AGC has not traded on this exchange for several months; the final quoted price was C18,700, or $5.50, well above the $3 quoted in New York. Source: Ghana Stock Exchange (GSE).

The GSE falls sharply In 1999 the GSE suffered its second worst year ever—and the worst in 1999 performance in all of Africa—with the all-share index falling by 15% in local currency terms, or by 42% in US dollar terms. In stark contrast, in 1998 the GSE rose by 69%—or 63% in US dollar terms––making it the best performing market in Sub-Saharan Africa. Market capitalisation also fell to under $1bn during 1999 for the first time since the listing of AGC in 1994. AGC continues to be the largest share, accounting for 65% of total capitalisation.

Infrastructure and other services

The government is Until recently Ghana relied almost exclusively on the giant 1,072 mw planning more new Akosombo hydroelectric dam for power. The government has been slow to power projects encourage other sources of power, with only a smaller second dam downstream and a thermal plant at Aboadse, near Takoradi, coming on-stream by the mid- 1990s. However, apparently spurred by the 1998 energy crisis there has been a flurry of new activity in Ghana’s energy sector, with several upgrades of existing facilities and a handful of new independent power projects (2nd quarter 1999, pages 21-22). In fact, there have been so many announce- ments of new schemes over the past 18 months that concerns are being voiced that the government is not co-ordinating the projects and may soon find its relatively small market quickly overcrowded and confused. A US government energy task force visited the country in 1998 with the aim of helping with strategic planning in the sector, but no new policies seem to have resulted. With the capable former mining engineer Fred Ohene-Kena no longer at the helm of the Ministry of Mines and Energy, this problem may even grow worse. In this context, two new power projects have recently been announced.

• The 400-mw Bui hydroelectric project on the Black Volta River in Brong Ahafo has been on the drawing-board for some time. In October a consortium led by the UK’s Brown & Root signed a memorandum of understanding with the Volta River Authority (VRA) to invest $450m and have the project running by the end of 2001. The other partners in the consortium are Britain’s Alstom Hydro, Dragados of Spain and South Korea’s Hyundai.

• According to the Paris-based Africa Energy & Mining, another Spanish company, Union Fenosa, has agreed with VRA to build a 80-mw co-generation facility near Tema.

The crowded mobile phone After lobbying by several of the existing mobile phone networks, the minister market draws criticism of communications, John Mahama, has announced that the government will not issue any more licenses. Ghana’s mobile phone market already has five existing providers: the market leader, Millicom Ghana, Scancom, Celltel, Telkom Malaysia and ACG-Telesystems. While the move is not surprising as a period of consolidation in the market had long been expected (4th quarter 1998, page 23), the reason for the decision was apparently in response to complaints by parliamentarians about poor quality service for consumers. According to estimates from the EIU’s Pyramid Research, Ghana’s total mobile subscriber base was only 55,000, but this was up from just 31,000 a year earlier.

Foreign trade and payments

Ghana’s debt is estimated In the run-up to the donor consultative meeting in late November (see at $5.6b— Economic policy), the deputy minister of finance, Victor Selormey, told parliament that Ghana’s total external debt stocks stood at $5.6bn as of June 1999, down nearly $300m since December 1998. Although he offered no further details, this fall appears to have been entirely the result of exchange- and interest-rate movements, as the decline was nearly 50% more than principal repayments during the same period and does not include any new borrowing over the same period. (The EIU, using World Bank data up to 1998, estimates a total external debt stock of $6.2bn in 1999.)

—but it may pass on HIPC Mr Selormey added that the government was still considering applying for debt relief under the enhanced framework of the IMF and World Bank’s heavily indebted poor countries (HIPC) initiative, but that “Ghana may be better off not accessing HIPC”. This is because some bilateral donors are showing signs of unwillingness to lend new money to African countries which apply for HIPC debt relief. In Ghana’s case, a concessional $55m loan from Japan, the country’s largest bilateral donor, appeared to be at risk. In particular, the Japanese government has not embraced debt relief and has made it clear that it will not disburse new loans if it is likely to be asked to write them off a few years later. Although Japanese aid officials have attempted to keep this position low key, African officials—Ghana is not the only country caught in this short-term dilemma—have leaked the implicit Japanese threat in a move to bring other donor pressure to bear. In early December Ghana’s other deputy minister of finance, Moses Asaga, told the Daily Graphic: “Now that we have decided not to join the countries to benefit from the [HIPC] initiative but rather pursue a Ghana-specific situation in trying to overcome our debt problem, Japan is prepared to honour its commitment.” On December 22nd Ghana’s parliament ratified the Japanese loan.

Donor inflows resume With Ghana’s IMF Article IV consultation successfully concluded and the sub- sequent donor consultative meeting leading to substantial new aid pledges, donor inflows are expected to begin to pick up in the opening months of 2000. On top of the $30m tranche from the IMF released in November, the World Bank approved a $46m credit in December for a literacy programme. According to Mr Asaga, an $80m loan from the World Bank and $55m from the African Development Bank are also due to arrive in January or February.

Trade data

Foreign tradea ($ ‘000; monthly averages) UK USb Germany Jan-Oct Jan-Oct Jan-Dec Jan-Dec Jan-Dec Jan-Dec 1998 1999 1997 1998 1997 1998 Exports to Ghana fob Food, drink & tobacco 1,280 1,395 4,323 3,757 333 631 of which: cereals & preparations 302 271 3,936 3,442 95 121 Textile fibres, yarn, fabrics & mnfrs 891 666 1,055 977 393 19 Petroleum & products 127 357 855c 192c 84c 73c Chemicals 4,202 4,148 3,747d 2,890d 1,336d 1,163d Paper & manufactures 395 335 80 215 464 264 Non-metallic mineral mnfrs 310 355 152e 88e 94e 72e Iron & steel 878 907 822f 731f 358f 537f Metal manufactures 2,006 1,641 69g 40g 191g 238g Machinery incl electric 11,233 7,381 7,426 5,401 4,272 3,939 Transport equipment 2,488 1,768 4,693 1,712 3,157 1,806 Total incl others 29,990 23,253 26,067 18,434 13,806 12,209 Imports from Ghana cif Cocoa beans 13,320 13,038 588 1,758 5,834 2,566 Cocoa butter 709 657 119 150 1,395 2,711 Wood & mnfrs 1,552 1,382 1,540 2,069 2,755 3,012 Metalliferous ores & scrap 762 624 0h 52h 0h 54h Mineral fuels 0 2 0 1,057 0 0 Non-metallic mineral mnfrs 7 6 8,986e 5,895e 47e 12e Aluminium & alloys 1,280 0 739f 296f 3,137f 2,388f Total incl others 23,346 22,553 13,293 12,798 14,663 12,193 a Figures from partners’ trade accounts. b US exports to Ghana averaged $18.4m and $20.2m per month in the period January-November 1998 and 1999. US imports from Ghana averaged $12.9m and $18.5m per month in the period January-November 1998 and 1999. c Mineral fuels. d Including crude fertilisers and manufactures of plastics. e Including precious metals & jewellery. f Including manufactures & scrap. g Tools etc and miscellaneous metal manufactures. h Ores, slag and ash. Sources: UK HM Customs & Excise, Business Monitor, MM20; UN, External Trade Statistics, series D; US Department of Commerce News, FT900.

Direction of tradea ($ ‘000; monthly averages) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Exports fob 1995 1996 1997 1998 Imports cif 1995 1996 1997 1998 UK 19,583 22,333 16,800 19,433 Nigeria 32,333 35,500 39,442 40,617 Togo 13,083 15,417 16,958 19,333 UK 34,667 43,167 41,467 33,742 Italy 4,833 12,000 4,358 18,192 Italy 7,500 19,083 10,392 26,050 Netherlands 4,500 3,583 10,558 12,658 Côte d’Ivoire 8,417 11,333 12,442 23,125 US 15,333 13,583 12,075 11,625 US 14,417 27,083 28,808 20,492 Germany 16,000 12,833 13,283 11,125 Spain 4,833 5,750 10,683 16,475 France 10,417 10,583 9,650 8,458 Germany 16,083 14,250 16,450 14,333 Total incl others 134,083 141,000 143,767 168,808 Total incl others 211,417 265,417 274,050 284,758 a DOTS estimates. Sources: IMF, Direction of Trade Statistics, yearly, quarterly.