Identifier
Created
Classification
Origin
04ACCRA1784
2004-09-01 17:29:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Accra
Cable title:  

READOUT OF MCC CEO PAUL APPLEGARTH'S VISIT TO GHANA

Tags:  KMCA EFIN ETRD ECON GH MCA 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 03 ACCRA 001784 

SIPDIS

SENSITIVE

MCC FOR ROD NORMAN
TREASURY FOR ALEX SEVERENS

E.O. 12958: N/A
TAGS: KMCA EFIN ETRD ECON GH MCA
SUBJECT: READOUT OF MCC CEO PAUL APPLEGARTH'S VISIT TO GHANA

Summary
-------
UNCLAS SECTION 01 OF 03 ACCRA 001784

SIPDIS

SENSITIVE

MCC FOR ROD NORMAN
TREASURY FOR ALEX SEVERENS

E.O. 12958: N/A
TAGS: KMCA EFIN ETRD ECON GH MCA
SUBJECT: READOUT OF MCC CEO PAUL APPLEGARTH'S VISIT TO GHANA

Summary
--------------

1. (SBU) Millennium Challenge Corporation (MCC) CEO Paul
Applegarth visited Ghana August 23-24, conducting site visits
and meeting with President Kufuor, Finance Minister Osafo
Maafo, and the Ministry of Finance team in charge of
preparing Ghana's Millennium Challenge Account (MCA) compact.
The GoG's MCA team outlined a preliminary MCA proposal,
identifying infrastructure, agro industry, private sector
development, social infrastructure and good governance as
possible targets for MCC funding. They envision a USD
300-400 million program over four years. GoG officials
acknowledged they are in the early stages of the process, but
aim to sign a compact before year-end. CEO Applegarth also
met with donor representatives. End Summary.

MCC Visit to Ghana
--------------

2. (SBU) MCC CEO Applegarth, John Hewko, VP for Country
Relations, Maureen Harrington, Senior Advisor to the CEO, and
Rod Norman, Director, Africa Department, visited Ghana August
23-24 to conduct meetings with GoG officials and civil
society representatives. They also visited sites that
represent sectors the GoG is considering for MCC funding.
The Ambassador and Embassy officers accompanied Applegarth
and MCC staff for the August 24 meeting with President
Kufuor, where Applegarth congratulated Ghana on its selection
as an MCA-eligible country and assured the President that the
MCC was prepared to work with the Finance Ministry team on
developing a MCA compact. (Comment: Kufuor was pleased that
the visit had gone smoothly and expressed his dedication to
the MCA principles and intention to push for completion of
the GoG MCA compact. However, he was uncharacteristically
subdued, and was clearly worn out by his constant campaigning
throughout the country in the run-up to the December
elections. End Comment)

August 23 Site Visits Highlight Energy and Agriculture
-------------- --------------

3. (SBU) Applegarth, the Ambassador, and the MCC team visited
Athena Foods Limited, a fruit juice processing company that
receives USAID technical assistance. GoG officials selected
this site because, as company executives explained, while the
company is rapidly increasing exports to the U.S. and Europe,

lack of access to investment capital, congested ports,
unreliable electricity and water supply, and low worker
capacity have limited growth.


4. (SBU) The GoG also organized a visit to Akosombo Dam to
give Applegarth a visual idea of the energy sector issues --
inadequate generation and poor distribution -- that make it
difficult to do business in Ghana. Joshua Ofedie, CEO of the
Volta River Authority (VRA),which operates the dam and is
responsible for power generation and transmission in Ghana,
explained that the dam, built in the 1960s, no longer
produces sufficient power to meet Ghanaian demand, which is
increasing at 10 percent a year. Although the GoG
supplemented hydro-power with petroleum-fired thermal power
plants, high oil prices make it more economical to import
electricity from Cote d'Ivoire's gas-fired plants. Ofedie
made a strong case for completing the West Africa Gas
Pipeline, which will bring in cheap natural gas from Nigeria
to power Ghana's current and planned thermal plants, and
would also allow Ghana to export power in support of the West
Africa Power Pool. He also argued that major reforms are
needed to improve transmission and distribution, some of
which are ongoing with World Bank and other donor support.

GoG Organizational Structure for MCA Compact Development
-------------- --------------

5. (SBU) The Government of Ghana (GoG) has established a
"Core MCA Team," headed up by a London-based consultant,
Michael Ansah, to manage the compact development process.
This team is comprised primarily of Finance Ministry
officials. The "MCA Working Group," comprised of private
sector and civil society representatives, and including the
core group, will conduct the initial technical review of
proposed projects and recommend a program to the "MCA
Steering Group," which is comprised of eight cabinet
ministers and two representatives of local think tanks. The
Steering Group will oversee the MCA Working Group, and will
finalize the program and will vet it in public forums.

Meeting with MCA Core Team
--------------

6. (SBU) On August 24, Finance Minister Osafo Maafo and the
MCA Core Team members briefed Applegarth on the team's work
to date. Team leader Ansah presented a preliminary outline
of the GoG's plan to use MCC funds to support its overall
strategy for economic growth, as outlined in the Ghana
Poverty Reduction Strategy (GPRS). Osafo Maafo emphasized
that the consultation process is a key feature of their
program and also explained that considerable consultation has
already taken place and will continue so that full consensus
is achieved. Ansah explained that the components of the
GoG's proposal would address Ghana's principal constraints
and vulnerabilities.

Constraints to Growth
--------------

7. (SBU) Ansah listed the constraints to growth in Ghana that
MCA funding would address: 1) inadequate energy, roads, and
telecommunications infrastructure; 2) financial capital,
particularly the lack of long term credit; 3) inadequate
health and education; 4) low agricultural productivity; 5) a
weak private sector; 6) poor government coordination and
monitoring; and 7) weak government institutions. Osafo Maafo
stressed that financial sector reform is also critical.

Key Economic Vulnerabilities
--------------

8. (SBU) Ansah and Osafo Maafo identified a number of
critical vulnerabilities to growth that call for greater
diversification of the economic base. Ghana is heavily
reliant on foreign exchange earnings from cocoa and gold
exports, which together bring in 70 percent of total foreign
exchange. Crude oil consumes 25 percent of Ghana's foreign
exchange earnings, and 25 percent of oil imports go to
produce electricity. Hydro-power is insufficient to cover
local demand, and the GoG is increasingly concerned about the
impact on the economy (and government budget) of high energy
import costs.

GoG MCA Concept -- A Summary
--------------

9. (SBU) Ansah stated that the GoG's proposal would be
anchored on investments in infrastructure, particularly in
energy, roads and telecommunications, as the backbone for
accelerating sustained growth in agro-based industry and
private sector development. The GoG's goal is to position
Ghana as a major player in the ECOWAS market of 250 million
consumers and would also make Ghana more competitive in the
world market.


10. (SBU) The GoG plan will also focus on expanding economic
opportunities in rural areas by developing linkages between
larger commercial businesses and rural production units. The
GoG will support the concept through efforts to develop a
pro-active policy environment conducive to trade and
investment. The strategy would call for complementary
efforts to strengthen health and education services and to
develop a stronger institutional framework for addressing key
economic policy and trade reforms. The policy framework
would also address capacity building of democratic
institutions at all levels: national, regional and local.


11. (SBU) Osafo Maafo echoed VRA CEO Ofedie's argument that
the insecurity in energy supply and the related import bill
is a serious impediment to growth and investment and, hence,
to reducing poverty. Energy will, therefore, figure
prominently in the GoG's MCA compact. Specifically, the GoG
will want MCA to support completion of the West Africa Gas
Pipeline (and gas distribution systems) and construction of
new thermal power plants. Other projects mentioned included
the rehabilitation of Ghana's ports, developing large
commercial farms and related export processing facilities,
and reforming the financial sector.

Policy Environment
--------------

12. (SBU) Osafo Maafo stressed the GoG's commitment to a
strong policy reform agenda. He highlighted the ongoing
effort to reform "public sector financial management" and
stated that the GoG had pushed several laws through
Parliament recently that were designed to improve financial
management and auditing, and create a transparent and
streamlined public procurement process. The GoG is also
implementing comprehensive financial sector reforms,
beginning with new banking and insurance laws, and
introducing legislation to encourage savings mobilization
(Long Term Savings Bill) and capital market development (the
Venture Capital Bill).

Cost, Timeline and Outcomes
--------------

13. (SBU) Ansah stated that the GoG's proposed budget for the
program would be between USD 300 and 400 million over four
years. Osafo Maafo noted that the Core MCA Team would
justify the price tag, costing out each of the elements and
setting up an evaluation and monitoring program to ensure
measurable results would be achieved. The GoG's long-term
goals for the MCA program are to increase employment, income
and foreign exchange earnings. Ansah estimated that
investments in the energy sector would result in savings from
lower oil imports of 15,000 barrels/day, the equivalent of
about USD 900 million over the four-year period. He said the
target increase in foreign exchange earnings from higher
exports is USD 1 billion/year; the target increase in GDP
growth rate is 3 percent/year. Osafo Maafo added that other
objectives include increasing literacy rates and improving
health and educational facilities.

MCC Reaction to GoG Draft Proposal
--------------

14. (SBU) Given that this was the first opportunity to
analyze the state of MCA preparations in Ghana, the MCC team
limited advice and criticism and focused on pushing GoG
participants to narrow the scope of their proposal.
Applegarth noted that the preliminary proposal was very
broad, covering almost every aspect of the economy. He and
other MCC team members argued that the GoG's goal should be
to prioritize the various components and focus on the
critical projects, their potential impact, and means to
monitor and evaluate implementation and results.

Next Steps
--------------

15. (SBU) The Core MCA Team plans to consult further with the
MCA Working Group in developing its concept paper, which it
will then provide to the MCC for review. The goal for
completing the concept paper is September 2004. Following
additional consultations with stakeholders, the GoG Cabinet
and the MCC, the GoG will submit a draft proposal to the MCC
later in the fall. Ansah commented that the GoG's goal was
to negotiate and sign a compact with the MCC by late fourth
quarter of 2004.

Donors Push for MCA as Budget Support
--------------

16. (SBU) During a lively dinner with other development partners,
including the main participants in the Multi-Donor Budget
Support group, donor representatives argued strongly in favor
of running MCA funds through Ghana's budget. Their main
justification is that direct budget support encourages the
government to take responsibility for managing the funds and
promotes improved financial management and capacity building.
Applegarth responded that the U.S. government believes
budget support encourages dependency, since the recipient
government becomes accustomed to using the assistance to fund
recurrent expenditures and begins to treat it as a reliable
revenue stream. However, he stated that he would be willing
to continue this debate in the future.

Comment
--------------

17. (SBU) The GoG's presentation, while professional, gave
the impression that MCA funds would somehow result in the
overhaul of the entire economy. Minister Osafo Maafo and his
team agreed with MCC comments that it needs much more
specificity. The President and Minister Osafo Maafo are
committed to the MCA program, and we are sure they consider
completing a compact one of the GoG's top priorities.
However, they and the entire government are distracted by the
election campaign. MCC CEO Applegarth's visit should
reinvigorate the GoG effort, but their timeline may be overly
ambitious. End Summary.
YATES