COUNTRY REPORT Ghana April 2002 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom Ghana at a glance: 2002-03 OVERVIEW After a year in office, the president, John Agyekum Kufuor, and his New Patriotic Party government have consolidated their position in power. During the outlook period they will concentrate on implementing economic reforms aimed at achieving macroeconomic stability and growth. Apart from economic matters, domestic politics will be focused on the government’s attempts to investigate maladministration and corruption by the previous government. The government’s progress with economic reform has been slower than it initially expected, and real progress with structural reforms will be possible only in 2002-03, since the momentum of reform will be difficult to maintain in 2004 as the elections approach. In addition, it is likely that domestic politics will become further polarised as a result of the crusade against corruption. However, the Economist Intelligence Unit still expects that the economy will continue to pick up: the real GDP growth rate will rise steadily to 4.8% in 2003, and inflation will fall back to 11.1% against the background of a more stable cedi. Key changes from last month Political outlook • The Supreme Court has ruled that the Fast Track Court used by the government to expedite its anti-corruption strategy is unconstitutional. This could be a setback for its strategy of “zero tolerance for corruption”. Economic policy outlook • The minister of finance has presented the budget for 2002. The deficit is projected to rise to 6.9% of GDP, so it is unlikely that the government will meet its manifesto target of a deficit of 2% of GDP by 2003. Economic forecast • Provisional data show that gold and cocoa exports in 2001 were lower than we originally forecast. But imports and interest payments were also lower. The current-account deficit, now estimated at 4.2% of GDP in 2001, will rise to 4.5% of GDP in 2002 and 4.7% of GDP in 2003.
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COUNTRY REPORT
Ghana
April 2002
The Economist Intelligence Unit15 Regent St, London SW1Y 4LRUnited Kingdom
Ghana at a glance: 2002-03OVERVIEWAfter a year in office, the president, John Agyekum Kufuor, and his NewPatriotic Party government have consolidated their position in power.During the outlook period they will concentrate on implementing economicreforms aimed at achieving macroeconomic stability and growth. Apartfrom economic matters, domestic politics will be focused on thegovernment’s attempts to investigate maladministration and corruption bythe previous government. The government’s progress with economic reformhas been slower than it initially expected, and real progress with structuralreforms will be possible only in 2002-03, since the momentum of reformwill be difficult to maintain in 2004 as the elections approach. In addition, itis likely that domestic politics will become further polarised as a result of thecrusade against corruption. However, the Economist Intelligence Unit stillexpects that the economy will continue to pick up: the real GDP growth ratewill rise steadily to 4.8% in 2003, and inflation will fall back to 11.1%against the background of a more stable cedi.
Key changes from last monthPolitical outlook• The Supreme Court has ruled that the Fast Track Court used by the
government to expedite its anti-corruption strategy is unconstitutional.This could be a setback for its strategy of “zero tolerance for corruption”.
Economic policy outlook• The minister of finance has presented the budget for 2002. The deficit is
projected to rise to 6.9% of GDP, so it is unlikely that the government willmeet its manifesto target of a deficit of 2% of GDP by 2003.
Economic forecast• Provisional data show that gold and cocoa exports in 2001 were lower
than we originally forecast. But imports and interest payments were alsolower. The current-account deficit, now estimated at 4.2% of GDP in2001, will rise to 4.5% of GDP in 2002 and 4.7% of GDP in 2003.
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7 Outlook for 2002-037 Political outlook8 Economic policy outlook
10 Economic forecast
13 The political scene
17 Economic policy
22 The domestic economy22 Economic trends24 Agriculture26 Industry and mining28 Infrastructure30 Financial and other services
31 Foreign trade and payments
List of tables
10 International assumptions summary11 Forecast summary16 Bimbilla by-election results18 Macroeconomic targets for 200219 Arrears payments19 Revenue and expenditure projections in the 2002 budget20 Government investment22 Real GDP growth by sector23 Inflation and interest rates, 200125 Cocoa production, exports and prices, GPRS and IMF figures31 Balance of payments32 Import forecasts
12 Gross domestic product12 Real exchange rates20 Grants in 2002 budget22 Real GDP and inflation projections26 Ashanti Goldfields Company gold production32 External debt interest payments
After a year in office, the president, John Agyekum Kufuor, and his NewPatriotic Party (NPP) government have consolidated their position in power.They will now concentrate on implementing economic reforms designed tobring about macroeconomic stability and growth. As well as on economicissues, domestic politics will focus on the government’s attempts to investigatemaladministration and corruption by the previous government. The problemfor the government is that it has made slower progress with economic reformthan it initially foresaw, and real progress with structural reform will only bepossible in the outlook period, since the momentum of reform may proveincreasingly difficult to maintain in 2004 as the elections approach. Inaddition, domestic politics are likely to polarise further as a result of thecrusade against corruption. However, the Economist Intelligence Unit stillexpects the economy to continue to pick up: the real GDP growth rate will risesteadily to 4.8% in 2003, and inflation will fall back to 11.1% against thebackground of a more stable cedi.
The Supreme Court has ruled that the Fast Track Court used to try variouscorruption cases is unconstitutional. The attorney-general has said that thegovernment will challenge the ruling, but its policy of zero tolerance forcorruption will be interrupted. The NPP has won the Bimbilla by-election andgained a valuable additional seat in parliament.
Mr Kufuor outlined the government’s broad economic objectives in his state ofthe nation address to parliament. The themes outlined in the speech wereamplified in the budget speech and the Ghana Poverty Reduction Strategywhich is soon to be officially published. The 2002 budget has been presentedto parliament. We now estimate that the deficit in 2001 was 4.1% of GDP. Thegovernment projects that it will increase to 6.9% of GDP in 2002.
Provisional estimates show that real GDP grew by 4.3% in 2001, led by stronggrowth in services. Although agriculture grew by 4.5%, the crucial cocoa sectoris provisionally estimated to have contracted. Gold production also fell in2001, because of the problems at Ashanti Goldfields and strikes in the miningsector. Inflation and interest rates fell sharply in the second half of 2001.
Provisional current-account data published by the Ministry of Finance and theIMF show that the current-account deficit was only 4.2% of GDP in 2001.Earnings from traditional exports were lower than in 2000, but so wereimports. Interest payments also fell sharply.
Editors: David Cowan (editor); Paul Gamble (consulting editor)Editorial closing date: April 1st 2002
All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] report: Full schedule on www.eiu.com/schedule
A new constitution, based on the US model, was approved by referendum in April 1992
Parliament; 200 members elected by universal suffrage every four years
December 2000 (presidential and parliamentary); next elections due in December 2004
President, elected by universal suffrage for a maximum of two four-year terms; JohnAgyekum Kufuor was sworn in on January 7th 2001 for his first term
Cabinet, appointed by the president in January 2001
New Patriotic Party (NPP), the ruling party; National Democratic Congress (NDC), themain opposition party; other parties include People’s National Convention (PNC),Convention People’s Party (CPP), United Ghana Movement (UGM) and NationalReform Party (NRP)
President John Agyekum KufuorVice-president Aliu Mahama
Attorney-general & justice Nana Akufo AddoChairman of economic management team John Henry MensahCommunications & technology Felix Owusu AdjapongDefence Kwame Addo KufuorEconomic planning & regional integration Paa Kwesi NduomEducation Christopher Ameyaw AkumfiEnergy Albert Kan-DapaahEnvironment, science & technology Dominic FobihFinance Yaw Osafo-MaafoFood & agriculture Courage QuarshigahForeign affairs Hackman Owusu AgyemanHealth Richard W AnaneInformation & presidential affairs Jake Obetsebi-LampteyInterior Malik Yakubu AlhassanLands & forestry Kasim KasangaLocal government Kwadwo Baah-WireduManpower development & employment Cecilia BannermanMines Kwadwo Adjei DarkoParliamentary affairs Papa Owusu-AnkomahPrivate sector development Kwamena BartelsRoads & transport K Adjei-DarkoTourism Hawa YakubuTrade & industries Kofi Konadu AprakuWorks & housing Yaw BarimahYouth & sports Edward Osei Kwaku
Main destinations of exports 2000d % of total Main origins of imports 2000d % of total
Togo 15 Nigeria 20
Netherlands 13 Italy 12
US 11 UK 9
UK 7 US 7
Germany 6 Côte d’Ivoire 5
a EIU estimates. b IMF data show an average inflation rate of 14.6% in 1998, whereas according to the Bank of Ghana the rate was 19.4%;neither figure is likely to be revised in the short term. c Actual. d Based on partners’ trade returns; subject to a wide margin of error.
After a year in office, the president, John Agyekum Kufuor, and his NewPatriotic Party (NPP) government have consolidated their position in powerand made progress with implementing their manifesto commitment toeconomic reform aimed at achieving macroeconomic stability and growth.They have also pushed ahead with investigating maladministration andcorruption by the previous government. However, progress with economicreform has been slower than the government had hoped, and it will need tomake real progress over the next two years since it may find it difficult to keepup the momentum of reform in 2004 as elections approach. In addition, afurther polarisation of domestic politics may occur as a result of the ongoingcrusade against corruption.
As expected from a centre-right, pro-business party, which inherited aneconomy in crisis, restoring macroeconomic stability and carrying outeconomic reform will remain at the top of its domestic political agenda. In hisstate of the nation address to parliament on January 31st, Mr Kufuor gave aclear picture of the government’s priorities when he outlined the government’sagenda for the next two years. This will focus on five major areas of economicreform: infrastructure development, modernising agriculture and ruraleconomic development, improved social services with emphasis on health andeducation, good governance, and promoting private-sector development. Thefive priority areas are then expected to pull along other sectors of the economy.However, speedy implementation of government policy is not easy. In manycases the civil service lacks the capacity to make the changes required, andpolicy initiatives announced by the government can take a long time to beimplemented. Moreover, the government has only a narrow majority inparliament and some proposed legislation may be rejected. There are alsoconcerns that some members of the NPP itself do not fully support the reformprocess. Although many of these issues are being addressed by the re-invigorated donor-funded National Institutional Renewal Programme, whichwas initially launched in 1997, it remains unclear whether the government willbe able to implement many of the economic reforms it has outlined, despite itsapparent commitment to the process.
Despite the recent setback of the Supreme Court’s ruling that fast-track courtsto try cases of corruption are unconstitutional, the Economist Intelligence Unitexpects the government to maintain a high level of commitment to itsinvestigations into cases of maladministration and corruption by the previousgovernment. However, there will be a temporary delay as the government seeksto have the Supreme Court ruling overturned, or has to seek a new legalapproach. But it does face a problem with its chosen strategy of aggressivelypursuing cases of corruption: the danger that it could further polarise thecountry between supporters of the NPP and supporters of the main opposition,and former ruling, party, the National Democratic Congress (NDC). Suchpolarisation may also worsen as the government implements its National
Reconciliation Act. The act sets up a South African-style truth andreconciliation commission to conduct hearings into the excesses of previousmilitary regimes and was passed in the face of serious reservations expressed bythe parliamentary opposition. It is expected that the National ReconciliationCommission will be set up in 2002 and will begin to investigate the grievancesof individuals who were victims of the brutalities of previous military regimes.However, it is unlikely that these tensions will lead to political conflict in widersociety, as the NPP has tightened its grip on the security forces over the pastyear, making a military coup unlikely.
The main opposition parties will reorganise themselves into more effectivepolitical forces before the 2004 presidential and parliamentary elections. TheNDC is now scheduled to hold its national delegates congress in April 2002(originally scheduled for December 2001) to elect its national executive. Theparty’s national reorganisation committee, which was established to restructurethe party, has been developing proposals for the congress which, if accepted,will ensure that in future all positions in the party will be filled democratically.Initial indications are that the congress will face strong pressure from delegatesfor a separation of powers between the party’s founder and leader; this willstrip ex-president Jerry Rawlings of his dominant role in the party. Meanwhile,the year long merger talks between the Nkrumahist parties—the ConventionPeople’s Party, the People’s National Convention and the National ReformParty—have concluded in an agreement to form a single new party. Support fora strengthened Nkrumahist party is likely to be at the expense of the NDC, butthat will depend on the success of the NDC in reinventing itself in the post-Rawlings era.
The main thrust of Ghana’s foreign policy in the outlook period will be to tryto encourage closer regional economic co-operation. The centrepiece of thiswas to be plans to establish a West African Monetary Zone, but these arecurrently under review following the meeting of ECOWAS heads of state heldin Dakar in December 2001. The importance the government attaches toregional economic affairs was clearly illustrated by its lobbying for thenomination of Mohammed Ibn Chambas as executive secretary for theEconomic Community of West African States which proved successful (as DrChambas was a sitting member of parliament for the opposition NDC, hisappointment also backs up Mr Kufuor’s election promise to run an inclusivegovernment). The government will also seek to maintain good relations withits main bilateral donors. Its decision to apply for debt relief under the heavilyindebted poor countries (HIPC) initiative has led to the loss of new lendingfrom Japan, but grant aid will still be available.
Economic policy outlook
The overall direction of economic policy in 2002–2004 will be guided by theGhana Poverty Reduction Strategy (GPRS), which is expected to be approved inthe first half of 2002. The central policy thrust of the GPRS was publicly outlinedby Mr Kufuor in his 2002 state of the nation address to parliament. The
government’s five medium-term policy priorities are: infrastructure develop-ment; the modernisation of agriculture and rural economic development; theimprovement of social services, with particular emphasis on improving healthand education provision; good governance; and the promotion of private-sector development. The GPRS will be supported by the government’s ongoingattempts to reduce the fiscal deficit and lower its domestic debt burden and by itsrelatively tight monetary policy. We also expect that the GPRS will receive strongsupport from the IMF and World Bank and from bilateral donors. The GPRS isquite similar to poverty reduction strategies introduced in other Africancountries in recent years. It aims to promote macroeconomic stability andincrease the rate of real GDP growth to at least 4.5%, while increasing spendingon poverty reduction through heavy financing from donors and debt reliefunder the HIPC initiative. The government will also implement a reinvigorateddivestiture programme. However, there will be setbacks. Unless these policiesare firmly entrenched by the end of 2002, political pressures in the run-up tothe 2004 elections could undermine the government’s stabilisation efforts.Progress will also depend on the reform of the public sector, which has beenunder way—with only limited progress—since 1997 under the NationalInstitutional Renewal Programme. Both the president and his ministers havepublicly criticised the capacity of the public sector and its inability to attractthe calibre of professionals needed to implement their policies because of poorpay. Progress in resolving these issues is likely to be slow.
Using data in the 2002 budget statement and our GDP data, we estimate thatthe budget deficit in 2001 was only 4.1% of GDP. This represents a sharp fallcompared with 2000, owing to much lower debt-service payments anddomestically financed capital expenditure against the background of relativelybuoyant revenue. Although we expect the government to continue with arelatively tight fiscal policy, the deficit will rise to 5.2% of GDP in 2002 asrevenue growth slows. The budget also proposes short-term measures toincrease transfers to households to offset proposed increases in utility prices. Asin 2001 the budget has a financing gap, this time of only C427bn (US$56m),which the government intends to close through additional donor support—although if this does not materialise expenditure will be cut. Robust economicgrowth will help revenue growth to pick up and relative financial disciplinewill continue. We thus expect the fiscal deficit to fall back to 4.1% of GDPagain in 2003; the government will discreetly abandon its election manifestopledge to bring the fiscal deficit down to 2% of GDP by the end of 2003 asnational elections loom closer. Because the government is committed toreducing domestic debt, the deficit will be financed through external donorsupport and debt rescheduling.
The Bank of Ghana (the central bank) has undergone considerable reform inrecent months. A new governor has been appointed and a new Bank of GhanaBill has been passed, which seeks to insulate the governor from politicalinterference and restricts government borrowing from the central bank in anyyear to 10% of its revenue. These changes will help the government in itsefforts to fight inflation, particularly as they will be coupled with a tighterfiscal policy. Together these should create the appropriate conditions to bring
inflation down substantially over the outlook period. The central bank is alsoworking to restructure domestic debt away from its current concentration inTreasury bills. The bank is proposing to issue additional debt instrumentsfollowing the success of the government of Ghana’s index-linked bond whichwas launched in September 2001. As inflation eases, interest rates will fall.
Economic forecast
We are forecasting that the global economic recession will bottom outsometime in the first half of 2002, and that growth will resume, albeit weakly,in the second half of 2002. Global growth will average 2.7% in 2002 (weightedusing purchasing power parity exchange rates), little better than in 2001—andin a few countries the 2002 growth rate will be worse than in 2001. We arecurrently forecasting a global expansion of 4.1% in 2003 as growth picks up.
International assumptions summary(% unless otherwise indicated)
2000 2001 2002 2003
Real GDP growthWorld 4.7 2.3 2.7 4.1OECD 3.8 1.0 1.5 3.0EU 3.4 1.6 1.3 2.6
Industrial raw materials (% change in US$ terms) 13.4 –9.8 5.5 11.2
Note. Regional GDP growth rates weighted using purchasing power parity exchange rates.
In terms of individual commodities, we are forecasting that gold prices willgradually improve over the outlook period, from US$271/troy oz in 2001 toUS$282/troy oz in 2002 and US$287/troy oz in 2003. Cocoa prices havealready shown a marginal recovery to 49 US cents/lb in 2001, compared withUS$40/troy oz in 2000, and are forecast to continue this recovery, rising to 64US cents/lb in 2002 and 66 US cents/lb in 2003.
Provisional government estimates show that real GDP in Ghana expanded by4.3% in 2001, led by strong growth in agriculture and services. We expectgrowth of 4-5% over the outlook period, owing to a steady recovery in cocoaand gold production against a background of improved macroeconomicstability, brought about through greater fiscal and monetary discipline. Inaddition, the recent falls in the cedi will provide a major boost to export
competitiveness—perhaps even enough to drive substantial growth in non-traditional exports towards the end of the outlook period. Economic growthwill also be supported by the government’s efforts to boost infrastructurespending, although this will be partly offset by its efforts to controlgovernment wages. However, although the overall outlook is positive, growthin all sectors of the economy has been erratic in recent years and a number offactors, ranging from poor weather conditions to power shortages, make usreluctant to forecast growth of over 5% per year, although this would bepossible if all sectors were to grow robustly in any one year.
Forecast summary(% unless otherwise indicated)
2000a 2001b 2002c 2003c
Real GDP growth 3.7d 4.3d 4.3 4.8
Gross agricultural production growth 2.1d 4.0d 4.5 5.0
a Actual. b EIU estimates. c EIU forecasts. d Official estimate
Year-on-year inflation continued to follow a downward trend in 2001. SinceMarch 2001, when the rate of inflation (year on year) reached 41.9%, inflationhas been falling steadily to reach a year-end rate of 21.3%, lower than thegovernment’s 2001 year-end inflation target of 25%. This is mainly the resultof the relative stability of the cedi and the government’s tight fiscal andmonetary policies. Although utility prices are likely to increase as part of thegovernment’s plans to gradually reach cost-recovery prices in early 2002, weexpect a continuation of broad policy trends and this, along with stable foodprices, will cause inflation to continue its downward trend. We are forecastinga year-end inflation rate of 14% in 2002—compared with a target of 13%—and7% in 2003.
The cedi stood at C7,190:US$1 at end-2001, having fallen by only 2% againstthe US dollar over the year. The relative stability of the cedi during 2001compared with 2000 can be attributed to the modest decline in imports (in fobterms) during the year—helped by the decline in oil prices in the second halfof 2001— improved donor inflows, and improved fiscal and monetarydiscipline on the part of the government. The cedi will remain relatively stable
at C7,552:US$1 in 2002, as the current-account deficit is forecast to remainmodest when compared with the late 1990s and the government will continueto ensure macroeconomic stability. However, although these factors will bebroadly unchanged in 2003, we still expect the cedi to slip towards the end ofthe period as concerns about its competitiveness will arise after two years ofrelative stability. We are forecasting an average exchange rate of C8,507:US$1in 2003.
Provisional data from the government and IMF have led us to estimate thatGhana’s current-account deficit for 2001 narrowed sharply compared with2000. Although production and prices of the country’s two main exports, goldand cocoa, were depressed in 2001, we estimate that the current-account deficitwas only US$216m or 4.1% of GDP, owing to a small decline in imports (in fobterms) compared with 2000, coupled with strong current transfers andsubstantially lower debt-service payments. As production and prices for bothgold and cocoa are forecast to rise over the next two years, there will be asteady rebound in Ghana’s traditional export earnings. The competitiveness ofnon-traditional exports has been boosted by the fall in the cedi in recent years.This increase in visible exports will be supported by stable current transfers, asdonors continue to support a government that seems committed toaccelerating the reform process, and a steady increase in service earnings astourism starts to pick up again following the September 11th attacks on the US.However, these gains will be offset by the return of interest payments tohistorical levels after their temporary decline in 2001. The increase in foreign-exchange inflows, coupled with the forecast upturn in GDP growth, will raisedemand for imports. However, this will be offset by the higher cost of importsas a result of the depreciation of the cedi in recent years, leading us to forecastthat imports will rise only modestly to US$3.1bn in 2003. As a result of thesetrends, we are forecasting that the current-account deficit will increasemodestly to 4.5% in 2002 and 4.6% in 2003.
On January 31st, the president, John Agyekum Kufuor, gave his state of nationaddress to parliament. As would be expected from a president who leads aparty that made the state of the economy a central theme of his electioncampaign, much of the address concentrated on economic issues and thegovernment’s recent economic performance. Consequently, the address oftenseemed little more than a primer for the budget which was presented less thana month later. However, unlike the budget, much of the economics in thespeech did have important political implications. The address included:
• a defence of why Mr Kufuor’s government had sought to enter the heavilyindebted poor countries (HIPC) initiative. The president argued that thepaucity of the budget data inherited by his government and the need to behonest with the people about the government’s weak financial position werecrucial to his decision to seek the extra support that HIPC could provide. Heacknowledged that it had nonetheless been a difficult decision, as Ghanaiansare a proud people and Ghana is potentially a rich country; and
• an expression of the need to continue with fiscal discipline. Mr Kufuorsaid that his government is now getting the macroeconomics right, but that itis absolutely crucial not to lapse into the bad habits that put it in its currentdifficulties.
The president then argued that having stabilised the economy, thegovernment’s next priority was to push ahead with promoting economicgrowth. As a centre-right party, the emphasis is on promoting the developmentof the private sector as the main engine of growth, or turning the slogan of theNew Patriotic Party (NPP), “the golden age of business”, into reality. However,this was only the fifth of the five development priorities Mr Kufuor outlined inthe speech. The other four development priorities are as follows:
• The promotion of vigorous infrastructural development through roadbuilding, reviving the buses and railways, and boosting the capacity of theports. Three strategically important roads have been identified as immediatepriorities. These are the Accra-Yamoransa; Accra-Aflao and the Accra-Kumasi.Work on all three will commence in 2002.
• The modernisation of agriculture and promotion of wider ruraldevelopment. Particular attention will be given to the land tenure system andrural infrastructure. The government will also seek to promote agri-businessand diversify the range of crops.
• The improvement of social service provision, with particular emphasis onhealth and education. The government will try to meet its manifesto pledge toupgrade at least one senior secondary school in each of the 100 districts.
• The promotion of good governance.
In many ways the speech can be seen as the end of the government’sconsolidation period. It is now clear that it had not really expected to win the
December 2000 elections and although it came to office with a manifesto, ithad little experience of government and was not sure whether it would bepossible to implement the measures in the manifesto. To make matters worse,it inherited very chaotic government accounts. In effect, it has taken thegovernment a year to resolve these problems and formulate its currenteconomic strategy, which emphasises not just the halting of economic declineand the restoration of macroeconomic stability, but also the promotion ofgrowth. Probably the most important step in this direction was the decision toapply for debt relief despite considerable domestic opposition.
The government is aware that there are many potential pitfalls to its economicstrategy. As the Economist Intelligence Unit has long argued, the civil service isweak and not always able to implement agreed policy initiatives. There is alsothe problem of the government’s lack of a parliamentary majority and the factthat it is not yet certain that all the NPP’s members of parliament are ascommitted to the reform programme as the party’s leadership. There is alsostrong concern that the government’s close links with many businessmencould result in its becoming prone to lobbying by the private sector to supportits vested interests, rather than pushing ahead with reform. For example, ratherthan the minister of private-sector development actually promoting private-sector development, he could simply become the focal point of intensivelobbying by vested interests to support their particular policy wish or preservetheir particular monopoly status. This issue is likely to become an increasingconcern towards the end of the NPP’s current term in office.
The National Democratic Congress highlights problems withgovernment policy
Although the president sought to highlight his government’s economicachievements in the state of the nation address, the opposition NDC is stillvery active in criticising the government’s economic record. In a press briefingheld on January 30th, the day before the president’s speech, it attempted to getits criticisms of government policy in first. In a 25-page document presented atthe press conference it put forward the following arguments.
• Although there has been macroeconomic stabilisation, the economyremains very fragile and the more benign international economicenvironment is the main cause of the improved stability.
• The cutback in investment has affected growth. In particular, the hurrieddecision to seek HIPC debt relief means that the government has lost, andwill continue to lose, critical support in various investment projects such asroad improvement schemes.
• There was still considerable confusion over much economic policy; forexample, an energy policy has not been published, despite a commitmentin the budget to have one by the end of 2001.
• The increases in fuel prices, agricultural inputs, and taxes and levies underthe NPP government have had a negative impact on the poor.
• There is concern that the “zero tolerance for corruption” policy may beused as a means of political persecution. In particular, the NDChighlighted the government’s apparent unwillingness to investigate the
Sahara oil deal and the lack of transparency in the award of the contract torehabilitate the presidential residence, the Castle.
• Although there is little doubt that some of these criticisms are correct, theopposition is giving little acknowledgement to the poor state the economywas in when the government inherited it. The opposition also vastlyoverplays the impact that the improved international economicenvironment has had on the macroeconomic situation in Ghana.
Although the government does appear to be moving forward with its efforts toimprove the implementation of economic policy, it has suffered a majorsetback in its efforts to highlight the corruption and mismanagement thatoccurred under previous, NDC governments. On February 28th Ghana’sSupreme Court gave a five to four ruling that the Fast Track High Court whichwas being used by the government to try Mr Tsatsu Tsikata—the former chiefexecutive of the Ghana National Petroleum Company (GNPC)—for allegedlycausing financial loss to the state, was unconstitutional. The case arosefollowing the forensic audit of GNPC under which Mr Tsikata, who was a closeconfidant of former president Jerry Rawlings, was alleged to have by-passed theboard of directors and committed GNPC to guaranteeing a loan of FFr5.5m(US$900,000) granted by the French development agency, Caisse francaise dedeveloppement, to Valley Farm, a private cocoa growing company. Valley Farmsubsequently defaulted on the loan, forcing GNPC to settle the firm’s debts.
After the ruling, the attorney-general’s office announced almost immediatelythat it disagreed with the verdict, claiming that the court had made an error inpassing judgement and requesting a review of the Supreme Court’s ruling.Speaking at a press conference, the attorney-general and minister for justice,Nana Akufo Addo, argued that although he respected the Supreme Court’sdecision, he believed that the court had made an error and, given the narrowmajority of the verdict, there is a possibility that it can be convinced tooverturn its initial ruling. It is far from clear whether any legal challenge willbe successful, but most legal opinion within Ghana seems to feel that theattorney-general would have been wiser to have waited until the exact basis ofthe Supreme Court’s legal ruling is known, and only then to have decided howbest, and on what grounds, the government can challenge the ruling.
If a review of the Supreme Court ruling is successful, then the whole incidentwill represent little more than a setback to the NPP administration, although itwill turn the spotlight onto Ghana’s legal system in general. Whereas someanalysts view the judgement as a vindication of the independence of thejudicial system, others believe that the ruling is a deliberate attempt by the fiveSupreme Court judges, who owe their appointments to the erstwhile NDCgovernment, to undermine the anti-corruption strategy of the NPP admin-istration. In an effort to diffuse tension, the attorney-general was keen to playthe decision down and argued that it did not represent a crisis in the judicialsystem. What is clear, however, is that if an appeal against the decision is notsuccessful then the NPP will have to go back to the drawing broad and developa new strategy to move ahead quickly with its efforts to prosecute corruptioncases under the previous government. The question also arises of how best totreat the 60-plus cases that have already been dealt with by the Fast Track High
Court to date, and in particular, the cases of a number of high-profileindividuals jailed by the Fast Track High Court, such as Mallam Yusif Isa, theformer minister of youth and sports, and Victor Selormey, a deputy minister offinance in the Rawlings regime, both of whom may have to be freed.
Shortly after the Supreme Court declared the Fast Track Courtunconstitutional, the government swiftly refiled the charges against Mr Tsikatain the regular High Court, but suffered a second setback as Mr Tsikata’sdefence team successfully argued in court that the law which criminalisedwilful actions that cause financial loss to the state was not in force at the timewhen Mr Tsikata was alleged to have committed the offence. As a result, thecharges against Mr Tsikata have been dropped. However, it is likely thatMr Tsikata will soon be back in court, given the long list of financialimproprieties that were uncovered in the forensic audit of GNPC.
On a more positive note for the government, on March 16th Dominic Nitiwul,the NPP candidate, secured a relatively easy victory in the Bimbilla by-electionin the northern region. The by-election was the first major voting test for thegovernment since the general election and assumed extra significance becauseit was seen by all parties as a barometer of the impact of the NPP’s first year inoffice and because of the tension between the two main parties. The electionwas called owing to Mohammed Ibn Chambas’s decision to resign as a memberof parliament for the Bimbilla constituency following his appointment asexecutive secretary of the Economic Community of West African States.
Bimbilla by-election results(votes)
NPP 14,380
NDC 9,091
PNC 605
Democratic People’s Party (DPP) 154
Great Consolidated People’s Party (GCPP) 144
Independent 289
Source: National Electoral Commission.
Although the election appears to have sent a positive signal that the NPP ismaking progress in building its support base, the by-election was marred byconsiderable controversy. The first sign of this arose when the People’sNational Convention (PNC) accused the NPP of using monetary influence andother pressures to persuade its candidate in the by-election to defect andcontest the poll on an NPP ticket. This followed the declaration by DominicNitiwul, who was initially the prospective PNC candidate (and given the movesto form a united party also the candidate for the other Nkrumahist parties, theConvention People’s Party and the National Reform Party), that he had joinedwith the NPP in the battle for the seat. The PNC therefore filed a writ at TamaleHigh Court seeking to restrain the Electoral Commission from fieldingMr Nitiwul as a parliamentary candidate for the Bimbilla Constituency by-election and also to restrain Mr Nitiwul from presenting himself as both amember and parliamentary candidate of the NPP until his true status has been
determined. However, the court ruled in favour of Mr Nitiwul, and the PNCwas forced to field another candidate for the election. There were also someclashes between supporters of the NPP and the NDC during the voting over thearrest of several NDC supporters suspected of trying to vote twice. Tensionincreased to the point where the police were compelled to fire warning shots todisperse a fighting crowd outside the Bimbilla police station.
The British prime minister visits Ghana
The British prime minister, Tony Blair, paid a three-day working visit to Ghanain February, accompanied by a delegation comprising high-profile politiciansand a number of businessmen and industrialists. Issues discussed during hisvisit included measures to strengthen bilateral relations between Ghana andBritain, British economic assistance to Ghana and general support for efforts torevamp the economy including the British Government’s support for the HIPCinitiative. Mr Blair’s visit to Ghana was part of a West African tour that tookhim to Ghana, Nigeria, Senegal and Sierra Leone. In a speech to parliament,Mr Blair expressed Britain’s admiration for Ghana’s efforts towards building astable democracy.
Economic policy
On February 21st the minister of finance, Yaw Osafo-Maafo, presented thegovernment’s financial policy and budget statement for 2002 to parliament.The budget has been designed to work within the overall policy framework setout in the Ghana Poverty Reduction Strategy (GPRS), the five central themes ofwhich had already been outlined by the president, John Agyekum Kufuor, inhis state of the nation address. In terms of the annual budget, the main policyaims which the government will try to achieve during 2002 are:
• strengthening revenue collection and administration through the creationof a National Tax Audit Team and the appointment of someone to head theRevenue Agencies Governing Board which will enhance co-ordination amongthe separate agencies;
• finalising the transitional pricing policy for electricity and water anddrawing up a timetable for moving utility prices to full cost recovery whilegiving special consideration to subsidies to reduce water rates for the poor;
• making provision for subsidies to utility companies to reduce theirexpected losses;
• consulting oil companies and other stakeholders with a view toencouraging competition in crude oil purchases;
• the fast-track sale of government holdings in 12 companies, includingGhana Telecom and Coca Cola Ghana—sales are expected to begin in thesecond quarter of 2002 and raise at least US$50m; and
• eliminating the special import tax, which will be replaced later with anti-dumping measures that comply with international norms and regulations.
The government has given itself considerable leeway, in that it has based thebudget on a quite realistic set of macroeconomic forecasts for 2002. If thesewere exceeded by a substantial margin, it would be relatively easy for thegovernment to meet targets such as that for the budget deficit. The budget isbased on a real GDP growth rate of only 4.5% and on the assumption thatinflation will be brought down to 13% by the end of 2002. These projectionsare close to the Economist Intelligence Unit’s forecasts for the economy. Thesetting of realistic targets is a relatively wise approach, in that many Africanbudgets are based on excessively optimistic macroeconomic projections whichmake it necessary to revise the budget constantly after it has been adopted. Asnoted in the draft of the GPRS, this has certainly been the case in Ghana. Inthe various budgets presented during the life of the 1997-2000 Medium TermDevelopment Plan, the average budget forecast for real GDP growth was 5.3%,compared with an actual average growth rate of 4.3% (the plan forecast averagegrowth of 7.8%). It is much easier to adjust the budget upwards, or accept alower deficit, if, for example, growth and revenue turn out to be higher, or ifdonor support is greater than initially estimated.
Macroeconomic targets for 2002(% unless otherwise indicated)
Real GDP growth 4.5
Inflation Average 15.9 End of period 13.0
Overall budget deficit (% of GDP) 6.9
Domestic primary budget surplus (% of GDP) 4.2
Gross official reserve holdings (months of import cover) 2.6
Source: Ministry of Finance, Budget Statement and Economic Policy for the 2002 Financial Year.
According to the official budget projection, the government is actuallyforecasting an increase in the overall deficit in 2002 compared with 2001.According to government data, the overall deficit will increase from anestimated 4.4% of GDP in 2000 to 6.9% of GDP in 2001. Although initially thisappears strange for a government committed to reducing the budget deficit toonly 2% of GDP by 2003, there are a number of logical reasons for the increasein the deficit. These are as follows.
• The government’s overall external debt payments in 2001 were muchlower than initially planned. In the original 2001 budget the government hadplanned external debt payments of C4.43trn (US$587m). However, the actualpayments were only C1.87trn, as the government rescheduled some debtrepayments and had some cancelled after its application to join the heavilyindebted poor countries (HIPC) initiative. However, debt repayments areexpected to increase again in 2002, although not as steeply as initially expectedin 2001, to reach C2.89trn in 2002.
• Although the government made substantial progress in paying off itsarrears in 2001, there is still a substantial backlog and it will have to pay offarrears at quite a high level in 2002, which will place an additional constrainton reducing expenditure.
Source: Ministry of Finance, Budget Statement and Economic Policy for the 2002 Financial Year.
• As part of its anti-poverty drive, the government has included in thebudget a sharp increase in its transfers to households. These include pensionsand gratuity payments and, for the first time, social security contributions. Inaddition, a total of C589.6bn (US$118m) has been set aside for subsidisingproposed increases in utility prices. This is supposed to be a temporaryallocation and has been earmarked to offset the cost to consumers of theproposed increases in utility tariffs by the Electricity Company of Ghana andthe Ghana Water Company.
Revenue and expenditure projections in the 2002 budget(C bn)
2001 2002Revised budget a Provisional Outturn Budget
Revenue & grants 8,524.7 8,476.8 10,767.7 of which: total revenue 6,605.2 6,904.5 8,785.6
Discretionary payments 7,498.7 6,206.3 9,465.1 of which: personnel emoluments 2,620.0 3,036.5 3,122.1 administration & service 898.1 717.3 1,115.0 total investments 3,434.3 1,859.4 3,583.8
Total payments 13,073.5 11,680.8 16,359.7
Memorandum itemsOverall cash balance –3,405.6 –1,661.7 –3,236.2 % of GDP –9.0 –4.4 –6.9Nominal GDP 38,014 38,014 46,875
a The revised budget was presented on November 8th 2001 (January 2002, page 15).Source: Ministry of Finance, Budget Statement and Economic Policy for the 2002 Financial Year.
Overall projections in the 2002 budget reinforce our view that the governmentwill quietly drop the idea of achieving its target of a 2% budget deficit by 2003and will either move the deadline to 2004—as the GPRS indicates—ordiscreetly drop the 2% target altogether. However, the government willmaintain a responsible fiscal stance within the framework of the GPRS.
A complicating factor in the government’s presentation of the budget is thatalthough the budget includes a figure for total investment, most of this isactually being financed from external sources, but this does not seem to beclearly included in the revenue side. The data indicate that there was a sharpdrop in capital expenditure in 2001—owing to the political transition, the lossof Japanese aid following the decision to apply for HIPC debt relief andattempts to clarify the government’s financial position—but the government isplanning increased capital expenditure in 2002 as part of its efforts to boostspending on health and education, as well as infrastructure development. Aswas the case in 2001, there is also a large financing gap in the 2002 budget(although at C792.4bn it is much lower than the huge gap of C2.61trn in2001). If the experience of 2001 is a guide, the government will have littledifficulty in raising this exceptional funding via donors. However, if it provesunable to do so, or only manages to raise part of the financial gap, then totalinvestment, in effect capital expenditure, is probably the area in which thegovernment will seek to make spending cutbacks.
Source: Ministry of Finance, Budget Statement and Economic Policy for the 2002 Financial Year.
The government also used the budget speech to announce that acomprehensive development framework will be drawn up during 2002 andpresented to parliament. Although this will use the macroeconomicprojections developed for the GPRS as its base, its projections are likely to bemuch more detailed and focused on the wider issue of economic development,of which poverty reduction is only one element.
Ghana reached decision point under the HIPC initiative on February 26th2002. The decision point confirms a country’s eligibility for assistance underthe initiative and provides a trigger for additional external assistance so thatthe country can reach the HIPC sustainability targets. These are a net presentvalue (NPV) debt/export ratios of 150% plus the NPV debt-to-revenue target of250%. The total relief that Ghana will receive in 2002 is estimated at US$249m,which is equivalent to about 4% of GDP. As outlined in the budget, thegovernment proposes to use 80% of the 2002 relief on poverty reductionprogrammes and 20% on domestic debt reduction. The IMF has also released amuch longer HIPC decision point document which is similar to the GPRSdocument.
The IMF has also completed its fourth review under the Ghana povertyreduction and growth facility (PRGF) arrangement and has agreed to extendthe arrangement period, which was due to expire on May 2nd 2002 toNovember 30th 2002. Because of this agreed extension, the Fund has approvedthe immediate release a further US$65m under the PRGF arrangement. Thegovernment met most of the performance criteria under the 2001 programme,which aimed to stabilise the economy and restore conditions for economicgrowth and poverty reduction through the significant reduction of inflation,the stabilisation of the exchange rate and sound fiscal policy. Owing to thegovernment’s efforts to maintain the programme’s current and futureobjectives, the Fund waived the non-observance of a few performance criteriain the following areas:
• the stock of outstanding short-term external debt contracted or guaranteedby the government or the Bank of Ghana (BoG; the central bank);
• the stock of government road arrears;
• the restructuring of the bank debt of the Tema Oil Refinery; and
• the completion of the audit of domestic arrears in 2000 and the plan fortheir liquidation.
Although the IMF Article IV report was, in general, quite complimentary aboutthe government’s progress with economic reform to data, it did also highlightsome important concerns. The Fund is concerned that although thegovernment has set out a framework to improve expenditure control andincrease revenue, it must push ahead quickly with the implementation of thesemeasures to ensure that they are effective and that the government does notbuild up additional arrears. The Fund also stressed that the government mustpush ahead with its planned structural reforms; a failure to do so is a commonproblem with most IMF-supported economic reform programmes in Africa.Finally, the IMF wants the government to continue its efforts to improve thecountry’s statistical database, the quality of which has come increasinglyunder the spotlight.
Provisional estimates of Ghana’s economic performance in 2001 indicate anoverall GDP growth rate of 4.2%. This exceeds the government’s target for2001 by 0.2 percentage points, although it could be argued that as this is aprovisional figure and, given the general weaknesses of the country’s overalldata, it is more likely that only 4% growth was achieved. The provisionalgrowth rate for 2001 is also 0.5 percentage points higher than the 3.7% growthrate recorded in 2000. The estimates reflect a 4% expansion in the agriculturalsector, compared with a growth rate of only 2.1% in 2000. Strong growth inthe agricultural sector was also supported by robust growth of 5.1% in theservices sector. Growth in the industrial sector in 2001 is provisionallyestimated at only 2.9%, much lower than the 2000 growth rate of 3.8%.
Real GDP growth by sector%
2000 2001a 2002b
Agriculture 2.1 4.0 4.1
Industry 3.8 2.9 4.7
Services 5.4 5.1 4.7
Real GDP 3.7 4.2 4.5
a Provisional. b Projections.Source: Ministry of Finance; Ghana Statistical Service.
Inflation reached 40.6% at the end of 2000 because of the government’s loosemonetary and fiscal policies in the run-up to the December elections, the freefall of the cedi against major international currencies and large increases in fuelprices. Consumer prices fell sharply in 2001, owing to much tighter fiscal andmonetary policies, coupled with a good food crop harvest and a decline ininternational oil prices. Inflation fell steadily throughout 2001 to reach 21.3%by the end of year, 3.7 percentage points below the government’s stated year-end target of 25%. The downward trend has continued into 2002, inflationstanding at 19.9% at the end of January 2002. Although the government iscommitted to increasing various utility prices in 2002, which will have anegative impact on the overall inflation rate, increases in fuel prices are notexpected during the course of 2002 and, owing to the government’s continuedpursuit of policies geared towards reducing inflation, the projected target of13% by the end of 2002 is attainable.
Although inflation fell steadily from its peak in March 2001, interest ratescontinued to rise until May-June 2001 and then failed to fall as fast as inflationin the second half of the year. However, over the last six months of the yearinterest rates did drop steadily as the government reduced the fiscal deficit andthe downward trend in inflation became stronger. The yield on benchmark 91-day Treasury bills declined from an average of 47% in June to only 29.7% in
December and ended the year at only 23.8%. Deposit rates followed a similar,downward trend in the second half of 2001. But, as is often the case in manyAfrican countries, although various financial institutions in the country haveannounced reductions in their prime lending rates—at the end of 2001 theyranged between 29% to 35%—they have not declined as quickly as T-bill rates.
Inflation and interest rates, 2001(%, year on year; average for month)
Source: Ghana Statistical Service; IMF, International Financial Statistics
The cedi depreciated by just 2% from the end of December 2000 to the end ofDecember 2001, ending the year at C7,190:$US1 according to IMF data. Therelative stability of the currency has been underpinned by the government’sefforts to restore fiscal discipline, along with substantial foreign-exchangeinflows from both exports and donor assistance, against a background of amodest decrease in imports in US dollar terms. However, since the beginningof 2002 the cedi has once again depreciated against the dollar, and has beenquite volatile, the exchange rate standing at C7,312:US$1 at the end ofFebruary. It is not clear whether the downward trend is the start of a renewedbout of weakness in the currency or a temporary phenomenon. The marketseems more inclined to see it as temporary, local economists arguing that therecent slide of the cedi against the dollar has been caused by a substitution ofdollars for euros by travellers to Europe, because of limited availability of euroson the market following the launch of the new currency in January 2002.Owing to expectations of large donor inflows during the second quarter of2002, we are forecasting that the depreciation of the cedi will be slow.
Ghana poverty reduction strategy (GPRS), 2002-04
The GPRS is based on the assumption that although the percentage of thepopulation living in poverty in Ghana fell from 51.7% in 1991-92 to 39.5% in1998-99, there are still areas where poverty has deepened and where it is still amajor problem amongst certain groups in society, such as women and foodcrop farmers—although export farmers have also been affected by the lowinternational price of cocoa. In geographic terms, poverty is much worse in thethree northern savannah regions (the Upper East, Upper West and Northernregions). In fact, these three regions experienced a significant increase inpoverty in the 1990s according to the GPRS.
The main factors identified in the GPRS as limiting a more significant andsustained reduction in poverty in Ghana in recent years include: highinflation, limited growth in the agricultural sector, unsustainable and poorlytargeted social spending, and major weaknesses in the management andplanning of government poverty reduction programmes. Although the present
government has made strides to improve the macroeconomic climate, it mustnow push ahead with the reforms required to make progress in the other areas.
According to the GPRS, the main ways to achieve a sustained and rapidreduction in poverty—in addition to improved macroeconomic stability andsustained economic growth—are:
• increasing production and productivity in the economy, particularly theagricultural sector;
• improving equitable human resource development;• promoting gender equality;• promoting good governance and increasing capacity within the public
sector; and• ensuring the active involvement of the private sector in economic
development.
In terms of macroeconomic targets, the GPRS sets the goal of increasing thereal GDP growth rate from 4.5% in 2002 to 5% by 2004, by pushing thegrowth rate of the agricultural sector up from 3.7% in 2001 to 4.8% in 2003and 2004. The higher rate of agricultural growth will have a strong impact onreducing poverty. Although the government is committed to diversifying theeconomy away from its dependence on cocoa (and gold), it is also realisticenough to know that in the short term it will take time for its plans for agri-business to have an impact and that cocoa production will remain themainstay of the agricultural sector. The government is forecasting that cocoaexports will increase from 410,000 tonnes in 2001 to 466,000 tonnes in 2004,against the background of a very modest increase in the international price.The GPRS argues that the targeted growth rates are realistic in that they do notrepresent historical highs and are, in fact, modest assuming the proposedpolicy measures are successfully implemented. The GPRS forecasts thatinflation will continue its downward trend, consumer prices declining from33% in 2001 to 6.5% in 2004. The GPRS predicts that government expenditurewill actually fall from 30.6% of GDP in 2001 to only 25.7% of GDP in 2004,owing to rapid growth and the government’s commitment to fiscal discipline.Against the background of modest increases in revenue as a percentage of GDP,the overall budget deficit is forecast to fall to 2.1% by 2004.
Agriculture
After recording growth of only 2.1% in 2002, the agricultural sector grew by4% in 2001 according to government estimates. The strong growth was drivenby sharply improved performance in crops and livestock, the largestcomponent of the agricultural sector. There were increases in crop productionacross all staple crops in 2001, with the exception of maize and millet wherethere were small falls in output. Agricultural growth was supported by growthin the fisheries subsector, although this was weak in 2001 at only 2%, and theforestry and logging subsector, which expanded at 4.8% (significantly down onthe 11.1% growth rate recorded in 2000).
Perhaps most worrying for the government is the poor performance of thecocoa production and marketing sector, which is estimated to have contractedby 1% in 2001, compared with growth of 6.2% in 2000. Ghana is facing theprospect of a major cocoa supply problem as a result of the smaller-than-expected harvest due to damage caused by the black pod disease. The flow ofcocoa beans has declined steadily for over a month and buyers fear that thepoor crop may deprive the local industry of sufficient supplies unless theGhana Cocoa Board buys back beans sold forward earlier in the season—exportcontracts were entered into in the anticipation of a good crop. Availableforecasts are as low as 380,000 tonnes, compared with initial estimates of430,000 tonnes. Over the last year, black pod diseases have become moreprevalent across Ghana despite the mass spraying of farms, funded by the NewPatriotic Party administration. The government approved C80bn to finance thecocoa diseases and pest control programme in 2001, but experiencedimplementation difficulties. This total is to rise to C178.4bn in 2001. If it goesahead as planned, the programme is set to start in May 2002 and should coveraround 1.23m ha of cocoa.
In addition to the impact of disease, sales from farmers have also been lowerthan in previous years owing to smuggling into Côte d’Ivoire. Ghanaian cocoaexports are expected to decline considerably this season as a result of anunprecedented increase in the smuggling of beans. Since the beginning of theseason, there has been an escalation of cocoa smuggling from farms in Ghanainto Côte d’Ivoire. This has significantly reduced the volume of cocoa reachingthe Ghana Cocoa Marketing Company—the largest Ghanaian exporter. Priceshave risen dramatically for Ivorian beans while those in Ghana have remainedrelatively low. Up to 60,000 tonnes of Ghanaian cocoa were estimated to havebeen sold illegally to buyers in Côte d’Ivoire last season because of pricedifferentials between the two countries.
Cocoa production, exports and prices, GPRS and IMF figures
IMFVolume (‘000 tonnes) 395 428 431 448Price (US$/tonne) 1,012 1,166 1,051 1,125Exports (US$ m) a 416 469 520 581
a Cocoa beans and cocoa products.Sources: Ghana Poverty Reduction Strategy; IMF, Article IV Report, March 2002.
One way for the government to overcome the problem of smuggling is toincrease its own domestic purchase prices for cocoa. Although perhaps too latefor 2002, the government has increased the producer price of cocoa fromC4.384m (US$581) per tonne to C6.2m, an increase of 41%. The increase is inline with the government’s policy of increasing the farmers’ share of the fobprice of cocoa—which currently stands at 67%—every year to reach a target of
70% by the 2004/05 season. This move is part of the government’scommitment to improve the cocoa industry and husbandry methods.
A modern, US$3m, state-of-the-art starch processing plant is to be built in thecentral region of the country to produce 20,000 tonnes of industrial starch forexport. The plant is an important first step in the development of thepresident’s “special initiative” for cassava. It is planned that the plant, which isexpected to process three tones of cassava an hour, will be fully operational bySeptember to coincide with the beginning of the cassava harvest in October.There is currently an agreement with the International Starch TradingCompany in Denmark to market Ghanaian starch on the international market.It is estimated that about 2,500 farmers are currently engaged in the cassavainitiative, but this number is expected to increase to 25,000 over the next threeyears. It is projected that these farmers will cultivate 90,000 tonnes of freshcassava, out of which 20,000 tonnes of industrial starch will be produced.
Industry and mining
According to the provisional data outlined in the budget, industry expandedby a disappointing 2.9% in 2001, considerably lower than the 3.8% growthrate recorded in 2000. The mining and quarrying subsector did particularlybadly, recording negative growth of 1.6% compared with growth of 1.5% in2000. The decline was worst for gold mining, owing to ongoing financialconstraints at the country’s largest gold producer, Ashanti Goldfields Company(AGC), which reduced its overall output in 2001, labour unrest within themining sector and the closure of a number of smaller mines during the yearbecause of the relatively weak global gold price against a background ofincreased fuel and utility prices. All the other subsectors within the industrialsector recorded slightly lower growth rates in 2001 than in 2000.Manufacturing was provisionally estimated to have grown by 3.7%, electricityand water by 4%, and construction by 4.4%.
One of the ongoing problems facing the mining sector in the past 12 monthshas been the financial problems at the country’s largest producers, AGC. AGChas announced that it has now reached agreement in principle to restructureUS$219m of convertible debt—this was issued in 1999 to avert financialcollapse as a result of the company’s hedging crisis. The principal terms of theproposed restructuring are the conversion of US$54.6m of debt into equity.AGC believes that a successful restructuring of the debt will benefit thecompany by strengthening the company’s balance sheet through the con-version of debt to equity; unlocking value for shareholders as the company’sfinancial position becomes stronger; and tying the maturity profile of the debtmore closely to AGC’s cash-flow profile. Currently, AGC is in bilateraldiscussions with each of its hedging counterparties to seek an extension of itsmargin-free trading arrangements—of the 11 active hedge counterparties,agreement has been reached on this basis with four.
Although AGC recorded a strong operating performance for the year 2001,total gold production was down on 2000. According to AGC, production of
1.66m oz was at a cash-operating cost of US$189 per ounce, compared withproduction of 1.74m oz at a cost-operating rate of US$187 per ounce in 2000.The reduction in gold production resulted from the closure of surface miningoperations at Obuasi, the cessation of operations at Ayanfuri mines and thesale of the 50% share of the Geita mine in Tanzania to Anglo Gold.
Prestea Gold Resources Limited (PGRL) has announced that it is bankrupt withtotal debts standing at US$10m. The government has taken over the companyand entered into an agreement with Bogoso Gold Limited (BGL) to revive andsustain the mine. GBL has since acquired a 35% share in PGRL and isconducting feasibility studies on the Prestea mine, with a view to ensuring thatwork on the Prestea surface and underground mines is sustained. BGL is alsoconsidering a major rehabilitation of machinery at the mine. Production costsat the mine had recently risen to US$550/oz.
Normandy Gold Ghana, the Ghanaian affiliate of Australia’s Normandy Gold,has been awarded a license to start full-scale mining in the Brong-Ahafo region.The concession covers 1 sq km of land between Subinso in Tano district andObengkrom in Asutifi district. The company has two years to start work on theconcession, the potential reserves of which have been estimated at 2.9m oz.The scheme is expected to employ 2,650 Ghanaians.
Goldfields Ghana has offered to pay C1bn (US$1.35m) compensation to thevictims of, and the communities affected by, the October 2001 cyanide spillagethat occurred near Tarkwa in Western region (January 2002, page 24). Thecompany will also construct educational complexes and libraries and rehab-ilitate roads in the area. This compensation package is expected to improve thelivelihood of the communities involved and restore the ecology of the area.Although welcome, the one-off payment is probably not sufficient. If theinternational mining industry is to avoid further accidents of this scale andpresent a more environmentally friendly image of its operations in Ghana, itwill probably have to embark on long-term development programmesaddressing environmental damage. There needs to be either a long-term, inter-nationally-supported, environmental monitoring programme of the majorrivers in the region, or an attempt to improve the local credibility ofinstitutions that should be fulfilling this role, such as the EnvironmentalProtection Agency or the Mines Inspectorate Division. The last major cyanidespill in the region was in 1997 from the Teberebie goldmine into the RiverAngonaben—no compensation was paid.
The Volta Aluminium Company (Valco) has had to shut down one out of itsfour operational pot lines, thus reducing its total aluminium output capacityfrom 160,000 to 120,000 metric tonnes. This is because of the difficulties beingfaced by the Volta River Authority (VRA) in generating enough power to meetthe needs of the increasing Ghanaian population. The government has had tonegotiate with Valco to shut down one pot line, which has resulted in thelaying-off of some 200 workers including both junior and senior staff. Thegovernment’s negotiating team has advocated Valco’s paying realistic prices forits power supplies which are currently heavily subsidised. In addition, it has
been agreed that the allocation of power to Valco must be made in the contextof the nation’s overall power requirements.
Ghana National Petroleum Corporation (GNPC) has decided to search for apartner for the development of the North and South Tano gasfields. Until now,GNPC had been firm in its determination to develop the fields, which wereoriginally discovered by Phillips, by itself. However, following the restructuringof GNPC by the government, an internal decision has been made that GNPCwill be unable to raise the US$450m needed for development from eitherinternal or external sources, and that it could do with some farm-in moneyfrom a new partner. The fields are in shallow water and have estimated totalgas reserves of 420bn cu ft and total crude reserves of up to 130m barrels—thegas will be used for power generation. The gas reserves are estimated to besufficient to power a 100-140mw plant for 15-20 years.
Infrastructure
As outlined in the president’s state of the nation address and in the budget, thedevelopment of infrastructure will be a top priority for the government whichwants to open up the country, introduce competition and create an enablingenvironment for the private sector. In line with this objective, the governmenthas stated that it will push ahead with the following infrastructure projects in2002:
• renegotiate existing telecommunications agreements to introduce morecompetition and accelerate access to telephones, the Internet and informationtechnology throughout Ghana;
• initiate the construction of three major highways: Accra-Yamoransa; Accra-Aflao; and Accra-Kumasi. This will open up the country and link it with thetrans-Economic Community of West African States highway project;
• in each region select for rehabilitation one major road that links rural areaswith a productive area;
• accelerate the development of the ports (Tema, Takoradi and inland ports)through private-sector participation to make them competitive for global trade;
• take all steps necessary to increase the availability of energy to boostindustrial growth and production. This includes the construction of the WestAfrica gas pipeline and the Bui dam, the expansion of the thermal plant atTakoradi and increased use of solar energy.
Despite the Volta River Authority’s claims to the contrary (January 2002, page25), worries over an imminent energy crisis will not go away. The currentreserve of 60 mw is only 40% of the preferred reserve margin, so there isconcern that an accident or maintenance problems with one of the generatingunits could create a sever energy shortage. However, the Energy Commissionhas outlined short, medium and long-term plans to address the situation.
• An emergency power plant will be installed to increase the reserve marginto 180 mw and provide a short-term security system.
• The medium-term plans include an upgrading of transmission betweenPrestea and Obuasi to allow the evacuation of all available supply from theWestern Corridor. This is expected to be completed by March 2003. Anadditional, 110-mw generating unit will be installed at Takoradi and the Effasupower barge is expected to provide a further 125 mw.
• The long-term measures are to re-evaluate the Bui dam project andcomplete the West African Gas Pipeline Project in 2005.
The national carrier, Ghana Airways, is on the brink of collapse having built upa total debt of US$150m. Mounting debts and the inability of the airline tobreak even have combined to threaten this once viable and enviable airline tothe extent that only immediate government intervention can prevent it fromgoing bankrupt. The debt burden is made up of US$90m in overdue suppliercredit and US$60m in loans. Seizure of Ghana Airways’ aircraft by creditors isbecoming increasingly common. Ethiopian Airlines recently abrogated itscode-sharing agreement with Ghana Airways following the failure of the cash-strapped airline to pay Ethiopian Airlines for tickets issued by Ghana Airwaysfor Ethiopian Airline flights.
The chairman of the Ghana Airways board of directors, Sam Jonah, has longbeen promising to revamp the airline, but so far success has eluded him.Observers of the aviation industry are of the opinion that the possible collapseof the national airline will have far-reaching, negative consequences on thenational economy. Areas that could be affected if an immediate solution to thecompany’s present predicament is not found include the Gateway Project—which aims to establish Ghana as a hub for manufacturing and commerce—tourism, regional integration and privatisation. This would be in addition tothe loss of US$100m of national revenue to foreign carriers and the loss of1,400 jobs. The government will have to step in to salvage the company, whichhas the potential to become the dominant subregional carrier with stations inall the countries in the subregion, or allow it to die naturally.
The government has taken over the management of Ghana Telecom followingthe expiry of the technical and consultancy services agreement between GhanaTelecom and Telecom Malaysia. The board of directors has also beenreconstituted to reflect the equity holdings of the shareholders. Thegovernment has a total shareholding of 70% and has now taken six seats onthe board. Telecom Malaysia has a 30% stake and takes the remaining threeseats on the nine-member board. This puts an end to the duopoly in thetelephone sector experienced in the country over the past five years. Thegovernment made it clear that any future management contract will begoverned by terms and conditions that will enhance performance and account-ability. The government has also made known its intention to off-load part ofits 70% shareholding to private investors who are in a position to bring inresources sufficient to develop a minimum of 400,000 fixed lines. This willenable the government to realise its vision of extending telephone services to
every town in the country. Would-be investors will have to prove that theypossess the requisite know-how to deliver, and should also be in a position topay a fair and reasonable price for the portion of government shares thatwould be offered for sale.
Financial and other services
One of the new policy initiatives announced by the recently appointedgovernor of the Bank of Ghana (BoG; the central bank), Paul Acquah, was thatthe BoG would introduce a Lombard facility to provide overnight lendingfacilities to banks. A Lombard facility is a standby overnight facility underwhich the central bank lends funds at a penal rate to banks in need ofovernight liquidity. The rate on the Lombard facility thus sets an upper limiton money-market interest rates. The recent announcement by the BoG that ishas now introduced the Bank of Ghana prime rate is the actualisation of theLombard facility. It also means that the discount house industry, which waslaunched in 1987 with the establishment of Consolidated Discount House, hasfinally lost its role as the provider of overnight liquidity to the banking system.It was originally envisaged that the discount houses would accept funds frombanks with surplus funds and only lend funds to banks with deficits, acting asthe sole intermediaries with borrowing privileges from the central bank. Inrecent years, the discount house industry has lost business to an increasinglyvibrant interbank market for overnight funds and will now lose more groundwith the formalising of a central bank overnight facility. Some predict that thethree discount houses in Ghana—CDH Discount, Securities DiscountCompany and Fidelity Discount House—will go the way of discount houses inSingapore, South Africa and the UK, which all went out of business asinterbank lending and central bank facilities became better established.
The German Development Bank (DEG) has expressed interest in the divestitureof the National Investment Bank (NIB). The head of the German Departmentfor Financial Co-operation, Stefan Oswald, indicated that his government isprepared to participate in the divestiture and provide the privatised bank withprivate equity and long-term loans to enable it to boost private-sectordevelopment. DEG, which is the development financing institution of theGerman government, aims to promote the private sector in developingcountries by financing and supporting sustainable private-investment projects.
The European Investment Bank (EIB), the EU’s long-term financing institution,is providing €9m (US$8m) from risk capital resources for medium-termfinancing to the leasing sector in Ghana. The loan will be used to financeinvestment in equipment in industry, agro-industry, mining, transport,tourism and related service sectors and possible micro-lease operations. Theloan is expected to encourage investors, and stimulate employment andeconomic activity across a wide range of sectors. It aims to provide medium-term financing for productive equipment in the domestic and export-orientedindustries and also to trigger investment in small and medium-scaleenterprises, which otherwise might not have occurred. It is also hoped that the
loan will contribute to the establishment of a more efficient financial marketby encouraging competition between Ghanaian leasing companies anddeepening the range of financial products available to investors. The facilitymay also help to enhance the analytical skills of local financial institutions.
The Ghana Stock Exchange (GSE) all-share index increased by 3.23% to 986.86during the first quarter of 2002. Total market capitalisation stood at C3.96trn.The five best-ranked equities listed on the market were Ashanti GoldfieldsCompany, Aluworks, Ghana Commercial Bank, Standard Chartered Bank andSocial Security Bank. GSE has approved the application by Sam Woode to belisted on the exchange, making it the first publishing company to be listed—and the third indigenous company after Mechanical Lloyd and Camelot. Thisbrings the number of listed companies on the exchange to 23.
Provisional current-account data have been published in both the budget andthe recent Article IV IMF report on Ghana. The IMF takes the data projectionsup to 2005 whereas the government’s its projections only go up to 2002. It isclear from the data that exports performed below expectation in 2001, mainlybecause of poor results for both cocoa and gold. Total gold exports fell fromUS$702m in 2000 to an estimated US$626m in 2001, as a result of labourunrest and the closure of some mines. Cocoa and cocoa products generatedUS$378m in 2001, which was below 2000 earnings of US$437m. The shortfallin cocoa earnings was mainly because the crop was smaller than had beenexpected. Despite the reported increase in the volume of timber exports in2001 compared with 2000, the export value of timber actually fell to US$169min 2001. The lower value for timber exports was caused by a drop of 0.6% inthe unit price per cubic metre from US$353.3m in 2000 to US$351.3m in 2001.
One of the most significant features of the provisional estimates for 2001 is theimprovement in the services balance, which is expected to return to a morenormal level in 2002. This improvement in the services balance in 2001 wasthe result of a substantial cut in interest payments (although according to theIMF’s Balance of Payments Manual V, which is closer to the presentation used bythe Economist Intelligence Unit, these would be classified under incomepayments). Interest payments were reduced because of the debt reschedulingdeal agreed with the Paris Club of official creditors and the favourable responseof donors to Ghana’s application to join the heavily indebted poor countriesinitiative. Although this led to a sharper than expected fall in the current-account deficit in 2001, the deficit will widen in 2002 as higher interestpayments are resumed.
The other key variable in the balance of payments forecast is the speed atwhich imports will recover. Having peaked at US$3.25bn in 1999 imports havecontracted sharply in 2000 and 2001, reaching an estimated US$2.65bn in2001. This is mainly because of the sharp fall in the value of the cedi, whichhas pushed up the cost of imports in local currency terms, and the tighteningof the government’s fiscal policy. Although the fall in the currency will stillmake imports seem expensive over the next few years, the pick-up in growthwill have the alternative effect of increasing demand for imports. The extent towhich either of these factors dominate will determine overall import growth.At present, most forecasts tend to err on the side of the latter, the IMFestimating that imports will recover from the decline in 2000 and 2001 toreach the level recorded in 1999 in 2004. However, it should be noted thatmost African countries have a latent demand for imports, and if the cocoa andgold sectors perform better than the rather cautious forecasts issued by the IMFand Ministry of Finance, the increased availability of foreign exchange couldcause a sharp surge in imports.
