USITC STUDY AND REQUEST FOR INFORMATION ON U.S. --

UNCLAS SECTION 01 OF 03 ACCRA 001681 SIPDIS DEPT FOR AF/EX DEPT PASS TO USITC LYN SCHLITT AND NANNETTE CHRIST E.O. 12958: N/A TAGS: EINV EFIN ECON ETRD PGOV PREL GH SUBJECT: USITC STUDY AND REQUEST FOR INFORMATION ON U.S. -- SUB-SAHARAN AFRICAN TRADE AND INVESTMENT REF: A. STATE 137500 ¶B. 03 ACCRA 1295 ¶C. 03 ACCRA 841 ¶D. 03 ACCRA 933 ¶E. 03 ACCRA 652 ¶F. 03 ACCRA 2000 ¶G. ACCRA 01234 ¶1. In response to Ref A, Post submits the following information to assist the USITC in its investigation for its study, U.S. Trade and Investment with sub-Saharan Africa. This cable builds on Post's previous submission of November 2003 (Ref B),and includes activities of USAID's West Africa Regional Program (WARP),which is based in Accra, Ghana. Developments in Economic, Trade or Investment Policy -------------- -------------- ¶2. 2003 was a good year for Ghana's economy, mainly due to sound macroeconomic policies and high cocoa and gold prices. Ghana is succeeding in getting the budget under control, improving transparency and accountability in its use of public resources, and is maintaining fiscal discipline as its top economic priority. Real GDP growth was 5.2 percent for 2003, up from 4.5 percent in 2002. The cedi is stable, foreign exchange reserves surpassed USD 1 billion, inflation is falling, as are interest rates, and Foreign Direct Investment (FDI) flows through June 2003 exceeded FDI for all of 2002. ¶3. Standard and Poor's acknowledged the GoG's commitment to sound economic management in September 2003, when it assigned Ghana a "B-plus" sovereign credit rating. Standard and Poor's based this rating on Ghana's macroeconomic performance and reforms, political and social stability, and the substantial debt reduction expected under the Highly Indebted Poor Country (HIPC) initiative. Fitch Rating Agency simultaneously rated Ghana's sovereign credit at "B" with a positive outlook. ¶4. Ghana reached HIPC completion point in July 2004, and will realize significant budgetary savings as a result. Total debt forgiveness from IMF, World Bank, ADB and official creditors will exceed USD 3.5 billion. As one of the few stable, democratic countries in the region, Ghana is increasingly seen as a gateway to West Africa and a hub for international business, NGOs and international organizations. Developments in Major Regional Groupings -------------- ¶5. Ghana is participating in talks on the ECOWAS Common External Tariff (CET),which is based on the existing CET shared by the eight member states of the predominantly francophone West African Economic and Monetary Union (WAEMU). The CET is supposed to go into effect January 1, 2005, with each country phasing in new tariff levels over three years so that all ECOWAS member states have harmonized tariff structures by December 31, 2007. ¶5. Although the CET treaty was originally signed by ECOWAS heads of state in 1975, and revised in 1993, the process was resuscitated by the EU's declaration that it will only negotiate trade agreements with or disburse European Development Funds to regional groups after 2007, not individual countries. Under the new Cotonou Agreement, the negotiation of WTO-compatible new trading arrangements between the EU and African, Caribbean and Pacific (ACP) countries must be completed by 2008. The European Commission proposes that regional reciprocal free trade agreements replace the current non-reciprocal preferences in the trade relations between the EU and ACP countries. The next round of CET negotiations will take place in September. ¶6. The West African Monetary Zone (WAMZ),comprised of Ghana, Gambia, Guinea, Sierra Leone and Nigeria, remains committed to launch the West African Common Currency -- ECO -- in July ¶2005. Before this happens, the countries and the West African Monetary Institute must first finalize and implement plans for statistical harmonization, currency unification and West African Central Bank operations. The countries must also meet four preconditions: single-digit inflation, budget deficits under 4 percent of GDP, foreign exchange reserves covering over three months' exports, and domestic debt limited to 10 percent of tax revenue. The West African Central Bank, based in Accra, will manage the single monetary policy and pooled foreign reserves, and will work to maintain price stability. ¶7. WAMZ's goals in introducing the ECO are to create a larger regional market, increase cross-border trade and investment, achieve lower inflation and stable prices in response to good monetary policy and financial discipline, maintain stable exchange rates, and attract FDI. Although donors are skeptical about the attainability of the July 2005 launch date, they support the process because it provides stronger external discipline to fiscal policy. PRIVATIZATION EFFORTS -------------- ¶8. Ghana embarked on a privatization program in the early 1990s that resulted in the sale of more than 200 of approximately 300 state-owned enterprises. The GoG's privatization program stalled due to political sensitivities surrounding certain industries, lack of legitimate partners for divestiture, and the inefficiencies and management concerns that render some industries less appealing. Refer to Refs B, C and D for reporting on Ghana Commercial Bank divestiture, water privatization efforts and cocoa sector liberalization. GHANA AND AGOA -------------- ¶9. Ghana's AGOA exports have increased rapidly, although overall trade to the U.S. has declined. 2003 AGOA exports were USD 40.6 million, compared to total exports to the U.S. of USD 83.6 million. President Kufuor has announced several special initiatives ) including textiles and industrial starch -- aimed at taking advantage of AGOA, but they are thus far small in scale. The GoG on occasion has extended beyond its regulatory mandate of ensuring compliance with AGOA regulations, and has sought to select specific companies to export under AGOA. This has caused concern among private businesses opposed to government interference. The USAID-funded West Africa Trade Hub is assisting Ghana and other countries in the region to take fuller advantage of AGOA. ¶10. Ref E provides updated information for the President's 2003 AGOA report. Ref F, an AGOA Eligibility Review, provided more detailed accounts of AGOA-related trade and investment and GoG reform efforts. Ref G discusses the potential impact in Ghana of ending the AGOA third country fabric provision. US TRADE CAPACITY BUILDING EFFORTS -------------- ¶11. USAID's West Africa Regional Program (WARP) provides technical assistance to both WAMZ Common Currency and ECOWAS Common External Tariff negotiations. ¶12. In March 2003, the U.S. inaugurated the West African Trade Hub, which reinforces regional efforts to enhance trade competitiveness. The USAID/WARP-financed Trade Hub focuses on enhancing the potential of West African producers to sell to the U.S. market under the Administration's Africa trade initiative, thereby permitting the region to take greater advantage of the increased trading opportunities provided through AGOA. ¶13. The Global Trade and Technology Network (GTN) is a USAID funded program that links companies around the world through an electronic/internet-trading platform to establish international trade and business linkages in the form of joint ventures, direct sales or direct purchases, agent/distributorships, licensing and franchise agreements. ¶14. Growth through Engendering Enterprise in ECOWAS Countries (ECOGEE) is a three-year USAID/WARP-funded project that began in September 2002. ECOGEE supports West African women's efforts to overcome barriers to business development and regional trade. ¶15. The U.S. Trade and Development Agency (USTDA) advances economic development and U.S. commercial interests in Ghana by funding various forms of technical assistance, feasibility studies, training, orientation visits and business workshops that support the development of a modern infrastructure and a fair and open trading environment ¶16. West Africa International Business Linkages (WAIBL) is a USAID/WARP-funded program to increase commercial partnerships between U.S. and West African businesses. These relationships can take many forms including export/import agreements, joint ventures, and equity partnerships. ¶17. USAID/Ghana's Trade and Investment Reform Program (TIRP) is a 5-year activity aimed at improving the investment environment and technical/managerial capacity of Ghanaian enterprises, reforming regulations that adversely impact international competitiveness in sectors with the best export potential and promoting non-traditional exports, including tourism. ¶18. USAID/WARP is supporting a USDA-APHIS advisor, to be based in Ghana and working in the West Africa region. The advisor will work with WATH, ECOWAS, WAEMU, West African governments, and private businesses to assist agricultural producers in preparing their products for export to the U.S. market. Such assistance will include the facilitation of the design and submission of Pest Risk Assessments, improving regional capacity to analyze plant health risks, augmenting the trade capacity of regional producers and governments, and the dissemination of information regarding U.S. regulations on the importation of agricultural goods and the Sanitary and Phyto-Sanitary (SPS) regulations of the U.S. and WTO. ¶19. The USAID/WARP funded Market Information System project aims to enhance economic growth in West Africa through increased intra-regional trade in agricultural commodities and inputs. This will be accomplished by strengthening networks of market information systems and traders' organizations. This activity will provide critical market information like commodity prices through radio broadcasts and mobile-phone subscriptions to traders and producers to spur trade. The end result of this effort will be increased regional economic integration in West Africa through closer economic ties and improved food security. ¶20. The Department of Treasury also participates in capacity-building assistance through the U.S. Customs and Border Protection, which in May 2003 conducted a customs operation and training needs assessment to assess Ghana's compliance with AGOA and identify areas that could benefit from additional training. Treasury's Debt and Tax teams provide resident and intermittent advisors to the GoG. The tax team provides management training to Ghana's IRS and VAT agencies, and assists with improving customer service and taxpayer assistance, expanding the taxpayer base and improving delinquent collections. ¶21. The Treasury debt team's resident advisor supports and advises the Finance Ministry and Central Bank on domestic debt issues. Projects have included coordinating with the rating agencies for Ghana's first sovereign credit ratings, revising government debt auction procedures, implementing a cash forecasting system for use by the GoG, and creating and introducing new debt securities to help with the transition to a more efficient capital market. The debt team has also provided technical assistance to help design and implement a new central depository system for government securities and equities. YATES