At a Glance: 2001-02

COUNTRY REPORT

Ghana At a glance: 2001-02

OVERVIEW The new administration will spend the outlook period consolidating its position in power and laying the foundations for a return to robust economic growth. The key to promoting growth in the long term will be the need to reduce the fiscal deficit and diversify the economy. But whereas the latter is a long-term goal, the deficit can be addressed more quickly. At present the EIU forecasts that the deficit will fall, though this will be due to increased aid inflows rather than to an increase in revenue or greater control of expenditure. In the meantime, the economy will expand (GDP will grow by 3.5% in 2001), against a background of falling inflation and a more stable cedi. The former ruling party, the National Democratic Council, is attempting to reform itself in preparation for the 2004 elections. Key changes from last month Political outlook • The new administration has begun to reform the security services, and now faces a much reduced threat of a military coup. Economic policy outlook • The government’s economic policy over the outlook period will be led by the 2001 budget, which seeks to tighten fiscal policy through a number of measures, such as the government’s decision to freeze expenditure for the next six months. However, it will be revised as the government gets a clearer picture of the state of the economy. • No changes to the IMF poverty reduction and growth facility are envisaged. But, in sharp contradiction of its previous statements, the government has now applied for debt relief under the heavily indebted poor countries (HIPC) initiative. Economic forecast • The budget deficit is forecast at 5.9% of GDP in 2001 and 3.9% of GDP in 2002. • The current-account deficit is forecast at 4.3% of GDP in 2001 and 3.6% of GDP in 2002.

April 2001

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Copyright © 2001 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author’s and the publisher’s ability. However, the EIU does not accept responsibility for any loss arising from reliance on it.

ISSN 1350-7052

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

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Contents

3 Summary

4 Political structure

5 Economic structure 5 Annual indicators 6 Quarterly indicators

7 Outlook for 2001-02 7 Political outlook 8 Economic policy outlook 9 Economic forecast

12 The political scene

15 Economic policy

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

27 Foreign trade and payments

List of tables

10 International assumptions summary 11 Forecast summary 16 Selected economic indicators 17 Medium-term expenditure framework 23 Agricultural growth 28 Exports 28 Current account

List of figures

12 Gross domestic product 12 Real exchange rates 21 Inflation, 2000 22 Exchange rate 25 Ghana’s electricity deficit, 2001

Ghana 3

Summary

April 2001

Outlook for 2001-02 The New Patriotic Party (NPP) government has begun to restructure the security services, and the possibility of the military intervening in politics following the election is now diminishing. The new administration has published its first budget, which seeks to lay the foundations for macroeconomic stability and robust economic growth. The statement also commits the government to seek entry into the World Bank-IMF’s heavily indebted poor countries (HIPC) debt relief initiative. Growth is forecast at 3.5% in 2001 and 3.7% in 2002, led by the agricultural sector and the resumption of donor inflows, which will provide the foreign exchange required by the import-reliant services and industrial sectors. Higher inflows will also reduce government reliance on domestic debt, allowing a loosening of monetary policy and relieving the crowding out of the private sector. The improved outlook and greater inflows should also help to slow the depreciation of the cedi over the outlook period.

The political scene While the NPP consolidates its position in power, the National Democratic Council, Ghana’s governing party from 1982 to 2000, is attempting to reform itself in time for the elections in 2004. An 18-member National Reorganisation Committee is holding consultative meetings in all areas of the country to ascertain the reasons for the party’s defeat and to draw up a programme of reform for the party.

Economy policy The new administration has published its first budget statement. The main macroeconomic targets for 2001 include real GDP growth of 4%, an year-end inflation rate of 25% and an overall budget deficit equivalent to 5.2% of GDP. In addition, the government has applied to enter the heavily indebted poor countries (HIPC) initiative. We expect it to qualify for debt relief by the beginning of 2002.

The domestic economy Ghana has applied for debt relief under the heavily indebted poor countries (HIPC) initiative. The government has decided to pay to cocoa farmers a total of C80.38bn (US$1.1m) as compensation for the loss in revenue due to the fall in world cocoa prices during the past two years.

Foreign trade and payments The Ministry of Finance estimates that the current-account deficit will be US$265m in 2001. Its projections show that the value of exports will increase marginally by US$41.2m or 2.1%, whereas imports will decline by US$52.8m or 1.8%.

Editors: John Arthur (editor); David Cowan (consulting editor) Editorial closing date: April 17th 2001 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

Political structure

Official name Republic of Ghana

Form of state Unitary republic

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

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

National elections December 2000 (presidential and parliamentary); next elections due December 2004

Head of state President, elected by universal suffrage for a maximum of two four-year terms; John Agyekum Kufuor was sworn in on January 7th 2001 for his first four-year term.

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

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

President John Agyekum Kufuor Vice-president Alhaji Aliu Mahama

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

Central bank governor Kwabena Duffour

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

Economic structure

Annual indicators

1996 1997 1998 1999 2000a GDP at market prices (C bn) 11.3 14.1 17.4 20.3 25.9 GDP (US$ bn) 6.9 6.9 7.5 7.7 4.9 Real GDP growth (%) 4.6 4.2 4.5 4.2 1.0 Consumer price inflation (av; %) 46.6 27.9 14.6 12.4 25.2b Population (m) 17.5 18.0 18.5 18.9 19.4 Exports of goods fob (US$ m) 1,570.1 1,489.9 2,090.8 2,116.6 1,940.6 Imports of goods fob (US$ m) 1,937.0 2,128.2 2,896.5 3,228.1 2,832.5 Current-account balance (US$ m) –324.7 –549.7 –380.0 –766.0 –457.7 Foreign-exchange reserves excl gold (US$ m) 828.7 480.1 377.0 453.8 320.0 Total external debt (US$ bn) 6.4 6.3 6.9 6.9 7.1 Debt-service ratio, paid (%) 23.8 28.5 20.0 17.1 14.9 Exchange rate (av) C:US$ 1,637.2 2,050.2 2,314.2 2,647.3 5,321.7b

April 20th 2001 C7,483:US$1

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

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

Main destinations of exports 1999c % of total Main origins of imports 1999c % of total Togo 21 Nigeria 15 UK 19 UK 9 US 15 US 8 Italy 15 Italy 4 Netherlands 12 Spain 3 a EIU estimates. b Actual. c Based on partners’ trade returns; subject to a wide margin of error.

Quarterly indicators

1999 2000 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Central government finance (C bn) Revenue and grants 858.5 830.7 1,025.1 1,084.7 1,026.9 1,251.3 1,950.5 n/a Expenditure and net lending 1,164.6 1,131.4 1,345.2 1,404.9 1,561.0 1,631.1 2,386.4 n/a Balance –306.1 –300.7 –320.1 –320.2 –534.1 –379.8 –435.9 n/a Prices Consumer prices Accra (1995=100) 228.2 243.6 248.1 246.1 262.3 289.2 315.0 342.9 % change, year on year 14.7 9.9 12.2 13.1 14.9 18.7 27.0 39.3 Gold price, London (US$/fine oz) 286.82 273.51 259.18 295.62 290.19 280.15 276.51 269.16 Financial indicators Exchange rate C:US$ (av) 2,370.0 2,462.7 2,591.6 3,165.0 3,716.5 4,613.5 6,200.3 6,756.5 C:US$ (end-period) 2,439.0 2,500.0 2,702.7 3,448.3 4,166.7 5,555.6 6,666.7 7,142.9 Interest rates (%) Deposit (av) 28.9 24.8 20.4 20.2 23.5 24.7 32.8 33.5 Discount (end-period) 32.0 27.0 27.0 27.0 27.0 27.0 27.0 27.0 Treasury (av) 26.1 25.1 24.5 29.8 31.5 33.4 39.6 40.6 M1 (end-period; C bn) 1,961.8 1,971.5 1,948.2 2,129.4 2,269.4 2,183.1 1,986.2 n/a % change, year on year 15.7 10.5 13.2 2.7 15.7 10.7 1.9 n/a M2 (end-period; C bn) 3,331.4 3,455.7 3,586.1 3,843.8 3,984.4 4,183.4 4,058.5 n/a % change, year on year 26.8 23.3 26.0 16.2 19.6 21.1 13.2 n/a GSE all-share index (end-period;1990-1993=100) 829 806 765 736 763 818 856 858 Sectoral trends Cocoa beans Exports (‘000 tonnes) 117.2 77.8 105.0 24.3 87.4 101.0 115.3 n/a Price, New York & London (US cents/lb) 63.2 51.4 48.0 43.3 40.9 41.9 41.2 40.0 Foreign trade (US$ m) Exports foba 463.9 449.3 482.6 548.8 479.7 513.7 536.8 n/a cocoa beans 205.4 131.2 130.8 18.3 105.6 113.3 118.7 n/a gold 182.8 149.2 160.9 180.9 175.8 148.6 141.3 n/a Imports cifa –775.4 –866.2 –808.6 –854.5 –892.8 –743.4 –724.3 n/a Trade balance –311.5 –416.9 –326.0 –305.7 –413.1 –229.7 –187.5 n/a Foreign reserves (US$ m) Reserves excl gold (end-period) 382.5 378.7 349.5 453.8 410.8 396.3 237.2 n/a a DOTS estimates. Sources: IMF, International Financial Statistics; Direction of Trade Statistics; Bank of Ghana, Quarterly Economic Bulletin.

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

Outlook for 2001-02

Political outlook

Domestic politics The New Patriotic Party (NPP) government has consolidated its position during its first three months in power and sought to tackle its two stated priorities: ensuring the loyalty of the security services and laying out a comprehensive programme for returning the economy to growth and tackling the structural weaknesses which were highlighted by the fall in the cedi in 2000. Although it now seems that the likelihood of the military or security services seeking to intervene in politics is much diminished, it still remains unclear whether the government will be able to implement many of aspects of the economic reform programme which it has started to outline, despite its apparent commitment to making difficult changes.

Not surprisingly, one of the new president’s first acts in office was to begin a comprehensive reform of the military by replacing key senior officers in all the services. Also, senior members of the police, many of whom are thought to support the National Democratic Party (NDC), have been retired. The government is also restructuring the internal security bureau. To date there have been no significant protests to these changes, suggesting that the government is close to securing its position and faces a much reduced threat from the security agencies.

With regard to economic reform, although the government’s broad policy thrust will remain strongly influenced by the IMF and World Bank, it has started to outline its part of the overall strategy to return Ghana to macroeconomic stability. In its first budget statement, the government, as expected, identifies fiscal indiscipline by previous administrations as the main cause of Ghana’s present economic problems, and commits itself to restoring fiscal probity. Moreover, in a surprising and controversial move, the government has also applied for debt relief under IMF-World Bank’s heavily indebted poor countries (HIPC) initiative. However, no matter how strongly the government is committed to reform, it will face some formidable obstacles to its implementation. Parliament is the first obstacle, because without a majority in parliament, the government may find it difficult to pass unpopular reforms. Second, the government is currently enjoying a honeymoon period, and it is not certain how long this will last. Finally, there is the continued problem of low capacity in the Ghanaian civil service—without an efficient body of technocrats to carry out policy, the government’s goals may be hard to achieve.

While the NPP comes to grips with the challenges of holding power and implementing policy, the National Democratic Council (NDC) is attempting to rebuild the confidence of its disillusioned members. After remaining virtually silent during the three months since its defeat in the 2000 presidential and parliamentary elections, the NDC has put together an 18-member National Reorganisation Committee, which is holding consultative meetings in all areas of the country to ascertain the reasons for the party’s defeat and to draw up a

programme to reform the party. Since the party’s defeat, NDC insiders have complained about the frantic jostling and manoeuvring by leading personalities in the party concerned about, or interested in, the vacuum in party leadership which has emerged since the elections. Although the NDC’s ability to act as the main opposition party is unaffected by such internal manoeuvring, John Atta Mills and the rest of the party leadership face a difficult task in trying to shake off the shadow of the former president, Jerry Rawlings (he is still the party’s official leader) and to present a sufficiently united face to the electorate for it to challenge the NPP for power in 2004.

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

Economic policy outlook

Policy trends Since the late 1980s Ghana has been regarded as a star pupil of the World Bank and IMF, as it closely followed their policy advice in a series of structural adjustment programmes. However, in recent years the reform effort has faltered, and the serious economic and currency crisis of 2000 has highlighted the need for further comprehensive reform. Unsurprisingly, establishing macroeconomic stability, through fiscal discipline, will be the focus of government policy during the outlook period. The government also hopes to push ahead with the reform programme outlined in the poverty reduction and growth facility (PRGF) agreed between the previous government and the IMF. Whether it will be more successful is far from clear at present. As a pro-business party, the new government appears to understand many of the economic issues facing the country, and is fully committed to economic reform. However, its progress may be impeded by the lack of a parliamentary majority, little real commitment to reform outside a small governmental elite and the shortcomings of Ghana’s civil service.

In a controversial move, and contrary to previously stated policy, the new government has applied for debt relief under the heavily indebted poor countries (HIPC) initiative. Acceptance of HIPC terms has imperilled future bilateral lending from Japan, but the government has stated that budgetary allocations and donor grants will be sufficient to fund new infrastructure projects in the outlook period, with no need for new loans.

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

Fiscal policy Perhaps Ghana’s most serious economic problem in recent years has been its persistent large budget deficits. The government provisionally estimates the deficit at C2.1trn (US$296m or 8.3% of GDP) in 2000—even though the expected slowdown in aid inflows from donors concerned about fiscal indiscipline during an election year did not materialise (donor inflows were substantially higher than in 1999). But the large deficit had still obliged the previous government to borrow C1trn from the banking sector to balance the domestic budget, which crowded out the private sector and forced banks to increase lending rates. In its first budget, the NPP government committed itself to tackling this problem through measures including: cutting expenditure; aggressively re-engineering the revenue collection agencies to increase revenue yields; implementing anti-corruption procedures; restoring expenditure monitoring and commitment controls; and pushing ahead with the divestiture of state-owned enterprises. It also aims to improve the management of domestic debt, with a switch towards long-term financing from development partners. The government is likely to make some progress, but the measures will take considerable time to implement and to take effect, so that any fall in the deficit in the next few years is more likely to be as a result of increased aid inflows. In its election manifesto the NPP promised a deficit of 2% of GDP by the end of 2003, and more recently President Kufuor committed his government to balancing the budget by the end of his first term in office. At present the EIU forecasts a budget deficit of 5.4% of GDP in 2001 and of 3.8% of GDP in 2002, suggesting the government’s 2003 target may be achievable.

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

Economic forecast

International assumptions Our forecasts for the world’s economy have changed considerably in the last six months: the EIU now estimates that world growth will average 3% in 2001 (at purchasing power parity exchange weighting), after reaching 4.8% in 2000. But it will rebound in 2002, with growth forecast at 3.9%, as the US economy picks up again. Price forecasts for Ghana’s main export commodities will be mixed during the outlook period. Gold prices will decline gradually, falling from US$259/troy oz in 2001 to US$255/troy oz in 2002. Cocoa will remain static at 52 US cents/lb in 2001and 2002.

International assumptions summary (% unless otherwise indicated) 1999 2000 2001 2002 Real GDP growth World 3.5 4.8 3.0 3.9 OECD 3.0 4.0 1.8 2.6 EU 2.4 3.3 2.6 2.6 Exchange rates (av) ¥:US$ 113.9 107.8 122.5 122.0 US$:¤ 1.07 0.92 0.97 1.07 US$:SDR 1.37 1.32 1.31 1.36 Financial indicators ¥ 2-month private bill rate 0.27 0.24 0.28 0.30 US$ 3-month commercial paper rate 5.18 6.32 4.89 5.39 Commodity prices Oil (Brent; US$/b) 17.9 28.4 23.9 23.0 Gold (US$/troy oz) 278.8 279.3 258.8 255.0 Cocoa (US$/lb) 0.52 0.40 0.52 0.52 Food, feedstuffs & beverages (% change in US$ terms) –18.6 –6.1 8.0 14.8 Industrial raw materials (% change in US$ terms) –4.6 13.4 2.6 5.1 Note. Regional GDP growth rates weighted using purchasing power parity (PPP) exchange rates. Economic growth Following the economic crisis in 2000, growth is forecast to begin to pick up in 2001, but this recovery will be constrained by the tightening of the government’s fiscal stance. Real GDP growth is forecast at 3.5% in 2001 and at 3.7% in 2002. Given the constraints imposed by more stringent fiscal policy and already tight monetary policy, the performance of agriculture, particularly the all-important cocoa sector, will be crucial to growth. Cocoa production will receive a boost from a new government plan to pay farmers a bonus and provide free mass-spraying of farms in 2001, to compensate for the loss of revenue due to falling world market prices in the last two years. Therefore, if the climate remains good and the government maintains cedi prices for domestic producers, we forecast that cocoa production will rise to 430,000 tonnes in 2001 and to 450,000 tonnes in 2002. The improvement in donor inflows (disbursements were delayed in early 2000 because of donor fears of fiscal indiscipline during an election year) will allow the government to continue infrastructural development, and will provide the foreign exchange required by the import-dependent services and industrial sectors, both of which saw the prices of their imported inputs rise dramatically as a result of the currency crisis in 2000. Higher inflows will also reduce government reliance on domestic debt, leading to reductions in interest rates and reduced crowding-out of the private sector.

The huge devaluation in 2000, large fiscal deficit and rising energy prices led to a strong upsurge in inflation in 2000: inflation in the 12 months to end- December 2000 reached 40.6%. Inflation is likely to rise in the first half of 2001, led by the increases in domestic fuel prices, but with a good harvest, a more stable cedi and a government committed to tighter fiscal policy and to maintaining its monetary policy stance, we expect inflation to fall gradually in

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

the second half of 2001. This trend should continue into 2002, and we forecast average inflation rates of 27.7% in 2001 and 17.4% in 2002.

Forecast summary (% unless otherwise indicated) 1999a 2000b 2001c 2002c Real GDP growth 4.2 1.0 3.5 3.7 Gross agricultural growth 4.0 6.0 4.5 4.5 Consumer price inflation Average 12.4 25.2a 27.7 17.4 Year-end 13.4 40.6 22.0 13.0 Short-term interbank rate 26.4 36.3 32.0 29.0 Government balance (% of GDP) –10.6 –17.5 –5.4 –3.8 Exports of goods fob (US$ bn) 2.1 1.9 2.3 2.7 Imports of goods fob (US$ bn) 3.2 2.8 3.0 3.2 Current-account balance (US$ bn) –0.8 –0.5 –0.2 –0.2 % of GDP –10.0 –9.4 –3.7 –3.3 External debt (year-end; US$ bn) 6.9 7.1 7.5 8.0 Exchange rates C:US$ (av) 2,647.3 5,321.7 7,576.1 8,843.0 C:¥100 (av) 2,324.1 4,938.5 6,116.3 7,122.6 C: (year-end) 3,464.1 6,706.4 8,065.0 10,296.9 C:SDR (year-end) 4,732.8 9,306.4 10,493.7 12,746.8

a Actual. b EIU estimates. c EIU forecasts.

Exchange rates A large external terms-of-trade shock in 1999-2000 caused the cedi to undergo a swift and sustained fall. However, its slide against the US dollar began to decelerate in the last two months of 2000. With donor inflows accelerating and strong forecast growth in export volumes, pressure on the cedi will ease in 2001, though a substantial current-account deficit and continued low prices for Ghana’s export commodities will mean the currency continues to depreciate. The average annual exchange rate is forecast at C7,576:US$1 in 2001 and at C8,843:US$1 in 2002, representing nominal average depreciations of 29% and 14%, respectively. However, another sharp fall in the cedi cannot be ruled out entirely, probably towards the end of the outlook period, if the government does not make progress with economic reform.

External sector Export earnings are forecast to rebound in the outlook period, to US$2.3bn in 2001 and US$2.7bn in 2002. This will be driven by an increased volume of exports against a background of gradually declining gold prices and a forecast modest rise in cocoa prices. In addition, now that the election is over, current transfers should pick up in 2001 as donor disbursements rise in support of a government which seems committed to accelerating the reform process (there will be a surge in transfers in 2001 as some of those delayed in 2000 are released, but more normal levels will resume in 2002). These factors, and the pick-up in GDP growth, will boost imports to US$3bn in 2001 and US$3.2bn in 2002. Despite relatively strong growth in tourism earnings, the services and income accounts will remain in deficit during the forecast period. As a result of these trends, we forecast a current-account deficit of 3.7% of GDP in 2001, falling to 3.3% of GDP in 2002.

The political scene

Mr Kufuor restructures the Soon after he was elected in December 2000, President John Kufuor declared security agencies that his first priority would be to secure his government against subversion. Such an announcement was hardly surprising given that, apart from the administration of the previous president, Jerry Rawlings, every other civilian administration in Ghana since independence has been overthrown in a military coup, two of them led by Jerry Rawlings. To reduce the threat from the military to his new government, President Kufuor has retired and replaced senior members of Ghana’s security agencies, pending the establishment of the Armed Forces Council. President Kufuor has also effected major changes in the command structure of the Ghanaian armed forces, and Major-General Seth Obeng has been recalled from his current UN posting in the Lebanon (he was commander of the United Nations Interim Force in Lebanon, UNIFIL) to assume the role of chief of defence staff. Several older air force, navy and army commanders have been retired and replaced with new appointees, while a directive from the inspector-general of police signalled a new policy towards police officers on contract and those who have reached the compulsory retirement age of 60—they are now required to leave the service immediately, whereas under the previous administration officers beyond retirement age, and with no special policing skills, routinely remained in their jobs. The police have also publicly denied rumours that the affected officers are NDC active members of the former ruling party, the National Democratic Congress. Senior officers within the feared internal security agency, the Bureau of National Investigation, have also been replaced, and the government has stated its intention to restructure the bureau. So far, these changes have not met significant resistance, and it appears that the Kufuor administration has successfully improved its security.

A new Council of State is Ghana’s constitution makes provision for a Council of State to “counsel the being appointed President in the performance of his duties”. The Council of State acts as a sober second chamber, in the absence of a second parliamentary chamber.

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The new Council of State

President Kufuor has started appointing a new Council of State designed to inform his decision-making from a wide political perspective. Additional members of the council will be selected by each of the ten regions, each region forming a regional electoral college to vote one member on to the council. Although the process is not yet complete the range of appointees so far shows that the new Council is likely to be far less partisan than under the previous administration. Members appointed to date are:

• Alex Kwapong—former vice-chancellor of the University of Ghana and former rector of the UN University, Tokyo;

• Alhaji Alhassan Bin-Salih—retired principal secretary in the civil service;

• A Deku—former police commissioner;

• Clement Tedam—former minister and educationalist

• Ama Busiah—former principal domestic bursar, at Legon University (she is the sister of a former prime minister, Kofi Busiah of the Progress Party, the antecedent to the NPP);

• Adisa Minkaila—former deputy minister under President Limann (this government was in the Convention People’s Party-Nkrumahist tradition and was overthrown in a coup by Jerry Rawlings in 1981)

• Emma Mitchell—minister of trade and industry in the Rawlings government (she resigned after one year of office but stood for parliament in 2000 as an NDC candidate);

• Kwesi Armah—high commissioner to the UK under President Nkrumah;

• Nana Otuo Siriboe—a traditional chief and former university lecturer;

• Adu Boahen—professor of history and the NPP’s presidential candidate in 1992;

• Professor Adzei Bekoe—former vice chancellor of the University of Ghana and an active member of the NPP

The constitution requires the Council to be consulted by the president for many key appointments. The Council also has a responsibility to advise on proposals for constitutional amendments before they are referred to parliament or a national referendum (in the case of clauses that can only be changed by referendum). Although the Council’s advice is not binding, it carries significant weight because its composition is supposed to be tilted towards experienced and eminent citizens. However, under the Rawlings government, the Council of State became politicised: appointees openly identified with the NDC and simply rubber stamped presidential decisions. While in opposition, the NPP protested strongly against the politicisation of the Council of State and, carrying out his promise of inclusive government, President Kufuor has appointed a new Council of State that cuts across the political spectrum. Appointees include members of the New Patriotic Party (NPP), the NDC and

the Convention People’s Party (CPP). Although the quality of the advice given by the new Council is not yet known, the composition of the Council should enable it to give dispassionate, unbiased advice to the president, although it may struggle to agree a unified position on some issues.

The NDC tries to pick Following its defeat in the December 2000 elections, the National Democratic itself up Congress has put together an 18-member National Reorganisation Committee, which is holding consultative meetings in all areas of the country to examine the possible causes of its election loss and to draw up a programme to reform the party. Splits and divisions are already showing within the party and, as Mr Rawlings appears to show more interest in international statesmanship than in the party leadership, the initial task of trying to revive the party’s fortunes remains with John Atta Mills, the former vice-president and defeated presidential candidate.

Mr Atta Mills will lead the Contrary to rumours that he may return to work at a university abroad, party for a while Mr Atta Mills recently stated that his immediate future would concentrate on re-energising the NDC and, in a morale boosting statement, he broke his long silence and responded forcefully to a long list accusations from the ruling NPP government on his poor performance as leader of the NDC’s economic management team. It appears likely that the NDC will try and repackage Mr Atta Mills so that he can stand as presidential candidate in 2004. But, if Mr Atta Mills wants to be his party’s presidential candidate again, he will have to be approved by the party congress, which may not be as easy for him as it was last time when, as Mr Rawlings’s chosen successor, he was elected unopposed. There are many members of the NDC who believe that they lost the election because they did not follow the proper process in selecting the party’s presidential candidate, and all recent NDC pronouncements indicate that no candidate will be chosen unopposed again.

Although Mr Atta Mills may win the support of his party, it remains to be seen how he will be viewed by the electorate, and what their perception will mean in electoral terms. Even if he becomes a presidential candidate, he may always be seen as little more than ex-president Rawlings puppet, harming the NDC’s chances of support from urban voters. Conversely, the effect on rural voters may be to increase his support. In fact, the links between Mr Rawlings and the NDC will continue to remain a problem for the party. At present, Mr Rawlings is still life chairman, but there is a move to change this, again because some elements within the party attribute its failure at the polls to lack of internal democracy and the development of a personality cult around Mr Rawlings. However, with Mr Rawlings continuing to play a dominant role in Ghanaian political life, he may well not be removed as life chairman until after a second electoral defeat. Meanwhile, with the 2004 elections still some way off, these questions should not affect the NDC’s ability to act as the leading opposition party, but they may well have to be resolved if the party is to have any hope of regaining power.

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Economic policy

Fuel price reform goes Fulfilling a manifesto promise, the new administration has given an early ahead demonstration of its commitment to reform, despite any political unpopularity this may cause, by removing the heavy subsidies on petroleum products set by the previous government. The measure resulted in a 64.3% increase in fuel prices earlier this year. In coming years, future increases in world crude oil prices will be quickly passed on in local fuel prices, preventing them from moving far out of line. The prices of utility services such as water and electricity, which had also been held back by the previous government during the election campaign, are also expected to increase dramatically during the first half of 2001, as the government tries to restore their commercial viability.

The government presents The new finance minister, Yaw Osafo-Maafo presented the new government’s its provisional 2001 budget first budget to parliament on Friday 9th March 2001, less than three months after being appointed to office. The emphasis of the budget was on promoting macroeconomic stability and creating a viable and sustainable environment for robust economic growth, with the private sector as the main agent for wealth creation. In the budget the government also uncontroversially identified the major problems in the economy as: the huge fiscal deficit and public-sector debt; the continuous decline in economic growth rates; rising unemployment; the accelerating inflation rate coupled with rising interest rates, which is stifling production; an unmotivated private sector; and the deteriorating position of the cedi against the major currencies. The budget has outlined a range of measures to deal with all of these.

It is only likely to be a Although it seems that the government is making good progress in formulating temporary budget a clear and coherent economic policy, it is also very clear that the budget is an interim document which was put together in quite a hurry, with numerous inconsistencies in the data, some which are of questionable accuracy (most obviously, certain figures in the text of the budget statement do not correspond with the data in the tables). Fortunately, the government has also been brave enough to admit to this: the minister pointed out that there was a “critical lack of adequate and reliable data on the state of the national economy” and that the government needed to use the first six months of its term of office “to get a handle on the problem”. The government therefore intends to undertake a strategic audit into the state of Ghana’s finances, which it hopes will provide it with a more realistic picture of the economy, and then to review and present a new budget as soon as possible after June 2001.

However, the government was still confident enough to use the budget to set out the following main macroeconomic targets for 2001:

• a real GDP growth rate of 4%; • a year-end inflation rate of 25%; and • an overall budget deficit equivalent to 5.2% of GDP.

Interestingly, none of these targets looks all that challenging, and should therefore, be achievable. In fact, most are pretty close to the figures that the EIU has been forecasting for 2001. However, as the new government would probably argue, it is better to set targets that it can reach rather than to set out a series of goals that it cannot—a common occurrence under the various Rawlings governments. Most worrying, however, is the provisional estimate for GDP growth in 2000, which seems to be extremely optimistic and probably illustrates more than any other figure the statistical problems confronting the government (see The domestic economy).

Selected economic indicators (%) 1999 2000a 2001b Real GDP growth 4.4 3.7 4.0 Agriculture 3.9 2.1 3.7 Industry 4.9 3.8 4.0 Services 5 5.4 4.3 GDP deflator 13.9 27.2 40.0 Inflation Average 12.4 25.2 35.0 Year-end 13.8 40.5 25.0

a Provisional. b Projection. Source: Ministry of Finance; Ghana Statistical Service.

The government deficit Although the 2000 budget is not yet finalised (some tax revenue is still to be increases in 2000 accounted for and expenditure is still to be made), with rapid growth in inflation and a falling exchange rate against the background of an election, not surprisingly there has been a large increase in both revenue and expenditure in nominal cedi terms. Although the government’s chosen measure of its fiscal performance, the overall cash deficit, shows that there was an increase in the budget deficit from 6.5% of GDP in 1999 to 8.5% of GDP in 2000 (C2.3trn). But the picture is actually much worse if a broader definition of the fiscal deficit is used—for example total revenue and grants less statutory and discretionary expenditure gives a deficit of C4.5trn, 17.5% of GDP, which has then been financed by privatisation receipts and foreign and domestic loans. What is also clear is that in 2000 the deficit has been kept at this level only because donor support remained high, despite the slowdown in disbursements due to the rift with the IMF in 2000 over the loosening of fiscal policy in the run-up to the election. Grants were C574.3bn, compared with a target of C1.3trn, but both external programme and project loans were substantial, allowing them to finance the level of expenditure that they did. However, even this was not enough to fully finance the expenditure and, according to the budget speech, the government also ran up considerable arrears, which rose to C345.8bn at the end of 2000, an increase of over a 100% on the previous year.

The deficit is forecast to These broad trends are continued into 2001, with the budget projecting a large fall in 2001 increase in revenue and expenditure (in nominal cedi terms) in 2001, with total payments and receipts of C13.83trn (US$1.8bn), up from C9.92trn (US$1.4bn) in 2000, an increase of nearly 40%. However, the overall cash

EIU Country Report April 2001 © The Economist Intelligence Unit Limited 2001 Ghana 17

budget deficit/GDP ratio is projected to fall to 5.2%, compared with the 8.5% provisionally estimated by the government in 2000. This projection is based on an anticipated 51% increase in revenue and grants to C8.15trn, comprising tax revenue of C5.93trn and non-tax revenue of C350bn. The government also expects a substantial increase in external assistance (C1.87trn compared with C574.3bn in 2000, an increase of 226%, and above the level projected in 2000), based on commitments made at the Consultative Group meeting in 1999. But though these commitments have been made in good faith, there may still be lingering doubts about whether they will be fully disbursed.

The budget also set out a series of measures designed to enhance revenue mobilisation to achieve the projected revenue targets. The measures include: improvements in the operational capacity of revenue collection agencies; a review of tariffs; a review of exemptions; widening of the tax base; upward revision of fees, charges and airport taxes; and aggressive collection of dividends due to the government. These measures seem credible, although questions need to be asked about the speed at which the operational capacity of the revenue collection agencies can be improved.

Medium-term expenditure framework (C bn) 1999 2000 2001 Actual Provisional Projected % of GDP Total expenditure 5,848.0 9,916.0 13,826.7 36.4 Statutory 2,240.0 4,653.4 7,770.1 20.4 Discretionary 3,608.0 5,262.6 6,056.6 15.9 Total receipts 5,845.7 9,916.0 13,826.7 36.4 of which: revenue & grants 3,702.2 5,385.0 8,154.9 21.5 tax revenue 3,089.2 4,414.7 5,932.9 15.6 non-tax revenue 310.0 396.1 350.0 0.9 grants 303.0 574.3 1,872.0 4.9 Deficita –2,143.6 –4,531.0 –5,671.7 n/a Overall cash deficitb –1,339.6 –2,301.8 –1,959.9 n/a Primary surplusb 474.8 664.9 1,134.1 n/a Financing –2,143.6 –4,531.0 –5,671.7 14.9 Privatisation receipts 53.0 322.6 391.2 1.0 Project loans 737.0 1,009.1 842.5 2.2 Programme loans 236.0 802.1 1,070.1 2.8 Net domestic financing 1,117.6 2,397.2 760.3 2.0 Additional receipts required 0.0 0.0 2,607.7 6.9

a Revenue & grants less total expenditure. b Deficits as presented in budget; no detailed definitions available, as in the 2000 budget. Source: Budget statement.

The 2001 budget has a large Despite the projected increase in revenue, there is still a funding shortfall of financing gap C2.61trn (US$304m).projected in the budget. Although the budget statement gave no indication of how the financing gap is to be met, it makes it clear that the expenditure presented will only be implemented once firm arrangements for their non-inflationary financing have been secured. During the next six months the Ministry of Finance will only authorise payments to the extent of

actual receipts of revenue, loans and grants, a form of cash budgeting which has been popular in a number of African countries. Statutory payments will take precedence, followed by public-service wages and salaries, while all other expenditure will remain frozen. The finance ministry has already denied other ministries, departments and agencies the funds they have requested, and the government seems determined to maintain this fiscal rigour, realising that the alternatives of increased domestic borrowing or printing more cedis to finance the deficit are exactly the type of economic mismanagement that pushed Ghana into crisis in 1999 and 2000. The government’s new stringency is, at least in part, a demonstration to its development partners, on whom it will continue to depend for support for some time to come.

Details of privatisation Although there was a substantial increase in divestiture receipts in 2000, up to have yet to emerge C323bn from C53bn in 1999, and a small increase is forecast for 2001, the government has still not provided details of the privatisation programme. In fact, so far it also only confirmed that it will continue the programme as a sign of its commitment to the development of the private sector. However, in view of the public outcry over the manner in which state property has been sold off in recent years (some sales attracted claims of corruption, fraud and untransparency of procedures), it is perhaps not surprising that the government has adopted a cautious approach to the issue and, before moving ahead, it has decided to carry out a financial and managerial audit of the Divestiture Implementation Committee as an institution. Only then will a clear aggressive programme of divestiture be pursued, which will limit the role of the government in the economy, reinforce the private sector and facilitate the mobilisation of donor programme support. However, with such a large scale audit of all the other government accounts also under way, this move could be substantially delayed, and a full divestiture programme will not really get going until 2002.

Moving ahead with divestiture will be important for the government, as in many African countries it has proved a useful source of finance to help repay growing domestic debt and put the country finances back on a sounder footing. In 2000 the government borrowed C2.4trn from domestic sources, which represents 9% of GDP. This pushed the stock of domestic debt up to C9.4trn or 36% of GDP, the vast majority of which was in the form of short- term Treasury bills at high interest rates—interest payments accounted for 27% of total revenue and grants in 2000. However, in 2001 with domestic borrowing only projected at C760bn the domestic debt stock is projected to fall to C6.6trn (US$1.2bn) by the end of 2001 although total interest payments will still remain high at 25% of revenue and grants. As well as using privatisation proceeds to retire some outstanding debt, the government has outlined a number of options, where appropriate, to ease the domestic debt burden; they include debt conversion programmes, debt swaps, and the use of restructuring options with banks and other institutions.

Ghana applies for HIPC According to the 2001 budget, Ghana’s total external debt is estimated to have reached C31.7trn (US$7bn) at the end of 2000 and it is expected to increase to around C34.1trn (US$ 7.5bn) as a result of net inflows of around US$402.3m.

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However, following a debt sustainability analysis, which confirmed the country’s inability to raise enough revenue from domestic resources or attract external inflows beyond its presently committed level, the new government has decided to apply for external debt relief under the heavily indebted poor countries (HIPC) initiative as part of its debt management strategy. In 2000 the country spent 9% of GDP on servicing external debt, and this year the government is expected to spend C4.4trn on servicing external debt, representing 11.7% of GDP

However, expectations that Ghana will begin enjoying the benefits of HIPC by the middle of this year are probably overoptimistic. The IMF and World Bank have said that Ghana is still a considerable way from even reaching the decision point—the stage at which the IMF decides whether a member qualifies for assistance under the HIPC initiative (normally at the end of the initial three-year performance period under a poverty reduction and growth facility) and decides on the amount of assistance to be committed. This was also confirmed by the resident representative of the IMF in Accra, Girma Begashaw, who has said that the earliest Ghana could get relief is January 2002. The IMF has also argued that the new administration needs to finalise its poverty reduction strategy paper (PRSP) which will replace the interim PRSP the last government presented to the IMF in 2000 (this is also another criterion for access to HIPC). However, this seems to run counter to the British view: the British government, which has been a strong advocate for Ghana’s adoption of HIPC terms, has indicated that Ghana could get millions of dollars in debt relief by 30th June this year. However, the two views are not completely irreconcilable, as the British government could unilaterally forgive its bilateral debts to Ghana without it having qualified for HIPC, although it has not previously done this with other African countries.

The HIPC initiative

For almost two decades unsustainable borrowing, poor macroeconomic policies, low levels of foreign direct investment and heightened political instability has undermined economic development in many of the world’s poorest countries. This has been particularly profound in Africa. The HIPC initiative is a partnership between the IMF, World Bank and bilateral lenders which aims to reduce debtor countries’ public and publicly-guaranteed debt repayments to a sustainable level, with the effect of releasing resources for poverty reduction. Relief is provided within a context of macroeconomic reforms—combined with lower debt stocks—with which the multilateral institutions hope to ensure countries need not reschedule again. HIPC links debt assistance to macroeconomic policy reforms and sound management through the Fund’s poverty reduction and growth facility (PRGF)—at the beginning of 2000 PRGF replaced the Fund’s enhanced structural adjustment facility (ESAF) programme. This is because an important feature of the proposed debt-reduction programme is to free up government resources currently used for external debt-servicing for allocation to health and education expenditure, which should help to reduce poverty. A central element of the PRGF is that it places greater emphasis on the recipient government to design and implement its own policies for economic reform, rather than

accepting a list of targets and policy changes drawn up by the Fund and World Bank. Although the Bretton Woods institutions will remain the driving force for change in PRGF negotiations, before a country can receive a PRGF it must have drawn up its own reform proposals and be willing to consult development agencies, unions and civil society on the way forward.

The domestic economy

Economic trends

The government says real Some of the most seemingly irreconcilable data in the budget have been the GDP grew by 3.7% in 2000 government’s provisional estimates of the country’s GDP in 2000—these indicate that real GDP grew by 3.7%. Although this is 1.3 percentage points below the government’s original targeted growth rate for the year and lower than the growth achieved in 1999 (4.4%), it contrasts with most other estimates of GDP growth for Ghana in 2000 which put growth at only 1-2% (the EIU estimates that growth in 2000 was 1%).

It is an overoptimistic The main difference between the provisional figures produced by the estimate government and those of other analysts, such as the EIU, is that in the provisional government data both the services and industrial sectors have posted strong growth. The problem with this is that, although some services and industries have undoubtedly gained from the current crisis, notably financial services, which have lent large amounts to the government, and those that have benefited from the increase in government expenditure, the precipitous fall in the value of the cedi is likely to have had an even larger negative effect on both the services and industrial sectors, which we suspect the government data may have underestimated. This is because much of Ghana’s services sector is dominated by the trading of imported goods and is therefore totally reliant on foreign exchange. Industry too is heavily dependent on imported inputs, both raw materials and capital goods, which became increasingly expensive as the crisis proceeded. Add to this the reduced access to, and higher cost of, credit, as a result of the government’s tight monetary policy, under which the T-bill rate was increased to 42% in late 2000, together with the growth in arrears, and it becomes difficult to see how either sector could have shown such positive growth rates as estimated by the government.

Gross domestic product, official and EIU estimates (%) 1999 2000a Actual Official figures EIU Agriculture 3.9 2.1 6.0 Industry 4.9 3.8 0.5 Services 5.0 5.4 –3.5 GDP 4.4 3.7 1.0

a Estimates. Sources: Budget statement; EIU.

We would normally alter our forecasts to reflect the new government data, but there is enough doubt about the figures to stop us doing that until there is independent corroboration of the government’s data. What we expect is that, as in many Sub-Saharan African countries, Ghana’s provisional data are often produced in a hurry from an extremely limited sample survey and will be subject to substantial revisions. Moreover, in this case the government has already highlighted in the 2001 budget statement that there is a critical lack of adequate and reliable data on the state of the national economy. Thus we strongly suspect that these provisional estimates will be lowered considerably, when more detailed information becomes available later in the year.

Inflation remains high At the beginning of 2000, the government projected a year-end inflation rate of 12.5%, but the fall of the cedi against major international currencies and the loosening of fiscal policy took inflation up to 40.6% by December 2000. Inflation was driven mainly by the non-food index, which grew at an average monthly rate of 4% during the year, rising sharply from 20.8% in December 1999 to 54.2% by the end of 2000. This inflation level has persisted since then, and at the end of February 2001 inflation was 40.1%. In contrast, food inflation was relatively low during 2000, until August, when it accelerated to 10.9% and ended the year at 24.3%. Given price liberalisation this trend is likely to continue.

High interest rates The interest rate on the 91-day Treasury bill rose continually during 2000, from 31.5% at the end of December 1999, peaking at 40.6% in July. before falling to 38% at the end of December 2000. However, although interest rates rose, credit growth has remained strong. By the end of 2000, total credit granted to public institutions and the private sector by commercial banks had increased by 74.9%, from C2.16trn to C5.04trn. Outstanding credit grew by 59.5%. Of the outstanding credit, the private sector accounted for 76.5%, while the remainder went to public institutions. During the year the manufacturing, commercial and financial sectors all saw their borrowing double. Other sectors to see substantial increases in credit were services and agriculture. The growth in credit to the private sector appears to fly in the face of arguments claiming that government borrowing was “crowding out” the private sector. However, there is evidence suggesting that this rise in borrowing was not to fund new investment, but rather as a consequence of the fall in the value of the currency and increased inflation. In particular, import-dependent sectors such as manufacturing and services saw the price of their inputs rise dramatically, requiring increased borrowing to finance them. In addition, with the economy slowing, borrowing increased simply to maintain operational levels. Furthermore, though credit to the private sector may have grown, the question might be asked how much larger this growth would have been if government borrowing had been lower.

Depreciation of the cedi The cedi has shown some particularly odd trends during the latter part of 2000 shows a strange pattern and into 2001 The end-period exchange rates have remained the same for a number of months, while the period average rates have changed each month. September and October both ended with an exchange rate of C6,666.7:US$1 and the months from November 2000 to February 2001 each ended with an

exchange rate of C7142.86:US$1. This is a remarkable pattern, especially given that the daily exchange rates have shown marked fluctuations. All of this strongly indicates that the Bank of Ghana (the central bank) was intervening in the foreign exchange market in the run up to the elections, a strategy perhaps made possible by the late release of donor funds. Such a policy can also be confirmed by the fall in central bank reserves in the last few months of 2000. As the new government seeks macroeconomic stability and the fall in the value of the cedi slows, the central bank should be under much less pressure to intervene.

Agriculture

Agricultural growth fell to Despite our concerns about the government’s provisional estimates of growth 2.1% in 2000 in the industrial and service sectors, its figures for agriculture look broadly reliable. However, with only 2.1% growth in 2000, compared with 3.9% in 1999, the overall performance of the sector during the year can only be described as disappointing, especially as the agriculture sector dominated the country’s economy, accounting for 36% of total GDP in 2000. Looking at growth by subsector, the “crops and livestock” growth rate of 1.1% was easily the most disappointing, compared with the 4.7% growth recorded in 1999. Moreover, this is an important subsector in agriculture—it accounts for around 36% of total output and is the activity of most small-scale peasant farmers. The underperformance of the crops and livestock subsector was due in part to the effects of the currency crisis on the price of imported fertilisers, as occurred during the sharp devaluation of the cedi at the outset of Ghana’s first economic recovery programme in the early 1980s. However, this subsector is prone to chronic underperformance, because of the structural obstacles it faces, such as poor access to credit, few extension services and low technology. However, it is also worth noting that this is also the hardest subsector to measure, and, of all the subsectors of agriculture, is the most likely to be revised substantially.

Agricultural growth (%) 1999a 2000b Cocoa production & marketing –0.5 6.2 Crops & livestock 4.7 1.1 Forestry & logging 6.8 11.1 Fisheries 1.0 1.6 Agriculture incl others 3.9 2.1

aActual. b Provisional estimates. Source: Ministry of Finance.

In contrast, the “cocoa” and “forestry & logging” subsectors both recorded impressive growth rates, of 6.2% and 11.1% respectively, in 2000. However, as the forestry and logging subsector accounts for only 4% or so of agricultural output the growth is from a very small base. Cocoa showed strong growth despite the poor world price, but, regardless of its importance as an export crop, it only accounts for around 5% of all agricultural output. Given good weather conditions, the EIU forecasts a rebound in agriculture over the outlook period, with growth rates of 4.5% in both 2001 and 2002.

Cocoa farmers are to receive The government has decided to pay cocoa farmers a total of C80.38bn C80bn in compensation (US$1.1m) in compensation for the loss in revenue due to the decline in world market prices during the last two years. The compensation will be equally shared between bonus payments to the farmers and mass spraying of their cocoa farms. Measures will be put in place to sustain the cocoa industry. These include increased production by assisting farmers to rehabilitate and replant old, abandoned or destroyed farms in the cocoa-growing areas. In addition, there will be the use of high-yielding varieties, the adoption of productivity- enhancing technologies, improved access to credit, better quality control, better internal and external marketing, the encouragement of local processing, and higher producer income. In line with the cocoa sector reform strategy worked out with stakeholders, the government intends to continue to increase farmers’ share of cocoa export prices: in the current crop season, the share will be raised to at least 65%. These measures will undoubtedly have a positive impact on the cocoa sector, but, cocoa prices on international markets are still little higher than the historically low prices experienced in 2000, and as a result the full effects of these measures are unlikely to be enjoyed until prices recover further.

Scottish investors to invest In an early boost to the diversification of the economy, including the US$9m in fisheries agricultural sector, Scottish investors are to invest about US$9m in the fisheries industry. The investors are expected to concentrate on building storage facilities, including cold stores along the various fishing beaches, and train fishermen in the proper handling of fish to meet international standards. Emphasis will be on the export of sea products to foreign markets.

Cashew growing receives a Ghana is to launch a cashew improvement programme aimed at doubling its boost 3,000 tonne annual output, after receiving a US$1m loan from the African Development Fund. Currently, cashews are only grown on 18,000 ha in

Ghana, but under the new scheme production will be stepped up. The project is expected to establish 20 clonal gardens, increase the number of small-scale cashew producers to 20,000 from 6,500 and bring cashew nut processing to 2,000 tonnes a year from the current 210 tonnes.

Industry and mining

The petroleum institutions As well as an increase in local fuel prices, which should help solve supply are to be reorganised problems, the government is to reorganise the operations of the Ghana National Petroleum Corporation (GNPC), the Tema Oil Refinery (TOR) and the Bulk Oil Storage and Transport Company (BOST) to ensure that they properly fulfil their roles. The GNPC is to be reorganised to enable it to concentrate on its core business of promoting the exploration of Ghana’s hydrocarbon resources. BOST is to be restructured and its role in the distribution network ended. The new arrangement, which requires direct relations between the refinery and oil marketing companies, is designed to lead to greater efficiency and lower costs. Firm arrangements are being made for crude oil supplies and also finished products to TOR, to ensure a regular supply of petroleum products in the country.

Neuvo finds no oil in Keta Ghana’s hope of finding substantial oil reserves suffered a severe setback, when well a major foreign company, Neuvo Energy, plugged and abandoned its first exploration well offshore Ghana as a dry hole. Neuvo’s first exploration well in its 1.9m-acre (770,000-ha) Accra-Keta permit was started on January 10th (January 2001, page 21). Despite this setback, the company is still enthusiastic about the potential for discovering significant reserves in the country’s extensive holdings offshore.

Ashanti and AngloGold Ashanti Goldfields and AngloGold of South Africa closed the sale of 50% of conclude the sale of Geita Ashanti’s interest in the Geita mine in Tanzania. This concluded the joint venture between Ashanti and AngloGold to jointly operate and manage the mine. The sale realised US$335m in cash, and allowed Ashanti’s bridge facility, estimated at US$151m of its revolving credit facility to be retired in full. The Ashanti Group’s borrowings following the Geita sale have been reduced to around US$400m. Ashanti is not currently developing new mines, but is concentrating its resources on the support and development of its current operations, where the full benefits of additional reserves can be more rapidly realised.

Red Back plans six pits at Australia’s Red Back Mining is now looking at digging six open pits as the first Chirano stage of developing its Chirano gold project in Ghana. The firm expects the mine to produce at an average rate of 113,000 oz per year in its first six and a half years. However, this is still only a small fraction of the country’s total estimated output of 2.5m oz. Red Back Mining has made no pronouncement on the question of whether the ore will be processed on site or at the nearby units of Bibiani and Obotan, owned by Ashanti and Resolute.

Infrastructure and other services

The VRA is upgrading its The Volta River Authority (VRA) has begun the refit of its generating station at plant Akosombo. The project is to improve the efficiency and maintain the reliability and availability of all the six VRA Akosombo generating units so that a reliable supply of electricity to the country over the next 30 years can be guaranteed. The total estimated cost of the project is US$115m. The European Investment Bank (EIB), the International Development Association (IDA) of the World Bank and the VRA, are jointly financing the project, which began in January 2001. The project will include the consecutive replacement of the old turbine runners with more efficient and technologically superior ones and is expected to be completed in 2005. The rehabilitation of the first generating unit has been successfully completed and is currently in operation. The retrofitting of each generating unit is expected to take nine months.

However, a major problem facing the sector is that the forecast energy requirement for this year is about 8,500 gwh, which exceeds the production capacity of the existing hydroelectric plants. The shortfall in energy supply of over 2,000 gwh was expected to be met by the thermal generation from VRA’s 660-mw capacity Takoradi power station (January 2001, page 23). However, the thermal power station at Aboadzi in Western region is in financial difficulties following the inability of the company to meet its operational costs. The US$411m plant has been in debt since it began operations, because it pays uneconomic prices for fuel. About 60% of the operating costs of the plant goes on fuel, and the plant has been hit by the increase in crude oil prices on the world market. As a result the plant imports power from Côte d’Ivoire, which is cheaper. It now owes Côte d’Ivoire US$34m. The company has proposed a tariff increase of C432 per unit to the Public Utility and Regulatory Commission (PURC). If approved, it will enable the company to survive and avoid having to take concessionary loans to support its operations. Unless the government takes steps to rectify the situation, the country will not be able to meet its energy requirements for the year and therefore may not be able to meet its targeted GDP, as industries may be forced to operate below capacity.

The IFC pumps US$100m The International Finance Corporation has finalised a US$100m investment in into telecoms the Ghanaian telecommunications sector. The project will increase telecommunications access in the country and improve the quality of service to consumers. Under the project, Ghana Telecom will expand its fixed-line network, develop a nationwide GSM cellular network and invest in a regional submarine fibre-optic cable. The project will help Ghana Telecom meet its coverage requirements and alleviate network congestion. Of particular importance are to bring services to remote areas and increase the capacity for interconnection with all operators in the sector. The fibre-optic cable will enable better communications within Africa and worldwide, and the upgrading of the telecoms infrastructure will also bring in modern technology and provide support for business and residential needs.

The project had been delayed by a dispute between Ghana Telecom and a number of competitors, who took out an injunction against Ghana Telecom over the operation of its mobile phone service. However, the dispute was resolved out of court and the court injunction has been lifted. Interconnectivity between Ghana Telecom and the other operators has been restored, except with Westel Telesystems because of a technical hitch which is being resolved (January 2001, page 22).

Financial services and other services

Ghana Commercial Bank Ghana Commercial Bank (GCB) has reclaimed its position as the country’ most returns to top position profitable bank, having posted a pre-tax profit of C179.54bn for the 2000 financial year. This represents an impressive 69.7% increase on 1999. GCB recorded a total income of C472.8bn in 2000, which is an increase of 115.9% on 1999. Both net interest income and commissions and fees contributed significantly to this growth in total income.

Financial institutions will The government is to establish a levy, known as National Reconstruction Levy pay a 10% levy (NRL), on banks, pension funds and insurance companies. According to the budget statement of the minister of finance, Yaw Osafo-Maafo, these institutions were to contribute 15% of their chargeable income during the period 2001-02. However, after negotiations between the financial institutions and the government, the government has decided to reduce the levy to 10%. The levy is an attempt by the government to recapture part of the huge profits made by some of the financial institutions by buying government Treasury bills at high interest rates. While the levy is not pro-business or particularly conducive to attracting FDI, and appears to be punishing the banks for buying T-bills issued as a result of the huge government deficit, it has probably been chosen as one of the few opportunities for the new administration to make swift progress in expanding revenue, and can be used by the banks to justify the large profits they made at a time of economic crisis. The budget statement describes the NRL as a means of supporting the government during the current financial crisis.

The stockmarket remains The ongoing macroeconomic instability, coupled with uncertainties about the bearish political transition, inhibited investors’ interest in the stockmarket,

undermining liquidity and weakening share prices during 2000. Several foreign investors attempted to transfer their funds to other markets, but were constrained from selling by low liquidity and scarcity of foreign exchange. Despite the light trading throughout the year, the Ghana Stock Exchange (GSE) all-share index, which began the year at 736.16, ended the year at 857.98. a rise of 16.6%, but though the stockmarket showed a total return of 25% in nominal terms, real returns stood at around –15%, as inflation rose to 40.5 in December. The nominal return compares favourably with that of 1999 (–7%) but does not measure up to the returns on government’s money market instruments. However, when looked at in dollar terms the performance of the GSE appears much weaker. EIU data on the annualised change in the dollar value of the stockmarket index show that the value fell by 43.7% between the end-1999 and end-2000.

Whether market capitalisation will grow substantially in 2001 will depend largely on the government’s commitment to privatise some major state enterprises through the stockmarket. Some of the state enterprises earmarked for privatisation through the stockmarket by the previous administration include, Ghana Telecom, the State Insurance Corporation and Ghana Oil Company. However, we do not expect these to go ahead until 2002.

Foreign trade and payments

Export earnings estimated The government estimates total export receipts for 2000 at US$1.94bn, to have fallen in 2000 compared with US$2.12bn in 1999; earnings from cocoa fell by an estimated 18% during the year, from US$537m in 1999 to US$437m in 2000, mainly on account of the weak world price. Gold earnings were also down to US$702m in 2000, compared with US$711m in 1999. In 2000 the average price of gold exported was US$280.4/oz, slightly higher than the average price of US$278.7/oz realised in 1999, but the volume exported fell from 2,550,766 oz in 1999 to 2,503,858 oz in 2000. Despite a 15.2% year-on-year increase in the volume of timber exports, their export value was US$175m, just about the same as that in 1999 and 1998. This was due to a 13% decline in average prices. Miscellaneous exports (including non-traditional exports) fell to US$569m, compared with US$680m in 1999. With the economy slowing sharply in 2000 (according to the EIU’s estimates), it is not surprising that the total value of imports (fob) in 2000 fell by 12.3% year on year to an estimated US$2,833m. Non-oil imports declined significantly by about 20% owing to the sharp depreciation of the cedi. But the value of crude oil and refined oil products rose by 56%, owing to the increase in crude oil prices from an average of US$17.9/barrel in 1999 to US$28.4/barrel in 2000. Given these trends, especially the import compression, the trade deficit in 2000 was US$892m, a significant fall on 1999. On the invisible trade account the trend also seems to have been influenced by the economic slowdown. For example, the services deficit fell by 37%. In contrast, private transfers rose, reflecting an increase in remittances from Ghanaians overseas supporting their families at a time of economic crisis. However, official transfers fell in 2000, as international donors slowed disbursements during the election year. As a result, the government’s

provisional estimate of the current account deficit was US$475m in 2000, or 9.7% of GDP.

Exports 1999 2000 2001a 2002b Gold (US$ m) 711 702 644 714 Volume (m oz) 2.6 2.5 2.5 2.8 World price (US$/oz) 279 279 259 255 Cocoa (US$ m)c 537 437 489 488 Volume (‘000 tonnes) 347 420 430 460 Local price (US$/tonne) 1,434 1,092 1,164 1,364 Timber (US$ m) 174 175 183 209 Volume (‘000 cu metres) 432 499 522 548 Price (US$/cu metre) 402 351 351 381 Non-traditional 680 626 666 700 Total exports incl others 2,117 1,941 2,257 2,696

a Budget estimates. b EIU forecasts. c Cocoa receipts are for crop year (Oct-Sep). Sources: Budget statement; EIU.

Current account (US$ m) 1998 1999 2000 2001 Goods exports (fob) 2,091.0 2,012.1 1,940.4 1,981.7 Goods imports (fob) –2,896.0 –3,228.2 –2,833.4 –2,780.6 Non-oil –2,681.0 –2,894.9 –2,313.3 –2,289.6 Oil –215.0 –333.3 –520.1 –491.0 Trade balance –805.2 –1,216.1 –893.0 –798.9 Services (net) –369.0 –333.0 –209.6 –248.5 of which: interest payments –148.8 –131.2 –107.0 –143.2 Private transfers 453.8 470.0 495.7 520.4 Current-account balance excl official transfers –720.4 –1,079.1 –606.9 –527.0 Official transfers (net) 280.1 148.0 131.8 262.0 Current-account balance incl official transfers –440.3 –931.1 –475.1 –265.0 Source: Government of Ghana Budget 2001.

In a further indication of the unreliability of economic data coming from Ghana, it is interesting to note that the Ghanaian government’s figures on the current account differ markedly from those produced by the International Monetary Fund’s International Financial Statistics (IFS). For example, the IFS puts Ghana’s current-account deficit in 1999 at US$766m, whereas the figure published in the budget statement was US$931m. It is interesting to note that although there is very little divergence over the data for visible trade for that year, important inconsistencies exist elsewhere. The EIU will continue to use IFS data up to 1999 and then build its forecasts based on the trends in the government’s provisional data.

Cocoa exports expected to In spite of the low world market prices for the country’s major export increase in 2001 by 11.9% commodities, Ghana’s Ministry of Finance forecasts that the current account deficit in 2001 will fall to US$265m, or 5.8% of GDP. Its balance-of-payments projections for the year 2001 show that the value of exports will increase marginally, by US$41.2m, or 2.1%, with the value of cocoa exports expected to increase by 11.9% to US$488.6m, thanks to an increase in export volumes and a slight recovery in prices. Gold exports are projected to decrease by US$57.9m to US$664.1m owing to a fall in the world market price, while export volumes will remain constant. Receipts from timber exports are projected to increase by 4.6% to US$183.3m, the rise is due to an expected increase in volume. Total receipts from other exports, including non-traditional exports, for 2001 are expected to be US$665.7m, an increase of US$39.3m on the 2000 provisional outturn. The outlook is poor, with only timber recording a gain in value in 2001 compared with 1999. It appears that the import data are unreliable, since the forecast pick-up in the economy and slowdown in the fall of the cedi, should result in some recovery in non-oil imports

European beef imports The Ministry of Trade and Industries has placed a temporary ban on the import are banned of beef and beef products, including corned beef, from Italy and Denmark. The ban follows an outbreak of BSE (mad cow disease) in some European Union countries. The ministry is monitoring the situation in Europe and will review the ban if necessary.