GHANA ECONOMIC HIGHLIGHTS, MAY 2005

UNCLAS ACCRA 001134

SIPDIS


SENSITIVE

E.O. 12958: N/A
TAGS: ECON KMCA EAGR EFIN ECPS ENRG GH
SUBJECT: GHANA ECONOMIC HIGHLIGHTS, MAY 2005



1. (U) This report covers noteworthy economic events and
activities in Ghana for May 2005. The issues covered are:

-- GoG Moves Forward on MCA Program Development
-- Ghana Hosts G8/NEPAD Summit on Agriculture
-- GoG/donors discuss new Poverty Reduction Strategy
-- Local Poultry Producers Sue Government
-- GOG Reaches Agreement with Telecom Malaysia
-- Economic Indicators Update: Inflation Declines, Central
Bank Cuts Prime Rate, Smaller Cocoa Crop

GOG Moves Forward on MCA Program Development
--------------

2. (SBU) A team from the Millennium Challenge Corporation
(MCC) visited Ghana in May to examine and advance Ghana's
Millennium Challenge Account (MCA) program design and to
begin discussions on a MCA compact. During a three-day
offsite, MCC officials and the GoG's core MCA team
(established in April with a budget of $500,000) agreed on a
work plan for completing Ghana's compact. Ghana's proposed
MCA project is for approximately $290 million and has four
components supporting agri-business development:
infrastructure; financial services; business services; and
policy reforms. The program targets three regions, selected
for their agricultural growth potential and because they are
among the poorest areas of Ghana.


3. (SBU) Although Ghana got off to a slow start with its MCA
planning, MCC, USAID, and State combined to persuade
President Kufuor to become more actively involved and
recommit the GoG to accelerating the MCA Compact process.
Ghana is gaining momentum now: the two sides are currently
in the program development phase of the process, and the goal
is to sign a compact by the fourth quarter of 2005. (Note:
The MCC has approved 609(g) funding for Ghana to assist the
development of the Compact. The funds will support an
irrigation system feasibility study as well as the collection
of household baseline data in the targeted regions. End
Note). Once the proposed program is complete, the MCC will
conduct formal due diligence, followed by negotiations. The
MCC will then submit the agreed upon Compact to the MCC
Investment Committee for approval, after which it will go to
the MCC Board and then Congress.

Ghana Hosts G8/NEPAD Summit on Agriculture
--------------

4. (U) The GoG hosted the G8/New Partnership for African
Development (NEPAD) Summit on the Comprehensive Africa
Agriculture Development Program (CAADP) May 5-6. The Summit
coalesced agriculture development programs that were drafted
at separate regional summits by various African governments,
NGOs, donors, and private sector parties. The successful
combination of the regional plans ensured that the
comprehensive CAADP would be on the agenda for the G8 meeting
at Gleneagles, Scotland (July 6-8). USAID worked with the
NEPAD Secretariat in South Africa and the local Ghana
organizing committee, chaired by the Office of the President,
to help develop the CAADP agenda, provide logistical support
and sponsorship for many of the African regional
organizations who attended the Ghana conference. USAID
Deputy Administrator for Africa, Lloyd Pierson, and USAID
Assistant Administrator for Policy, Doug Menarchik, jointly
led the USG delegation to the summit.

GoG/donors discuss new Poverty Reduction Strategy
-------------- --------------

5. (SBU) Finance Minister Baah-Wiredu and World Bank Country
Director Mats Karlsson hosted a "mini-consultative group"
meeting May 31 for Development Partners (DPs) to discuss the
Growth and Poverty Reduction Strategy (GPRS II) for
2006-2009. The current Ghana Poverty Reduction Strategy
expires 2005. "Growth" will replace "Ghana" in the GPRS to
emphasize that the key to poverty reduction is economic
growth. The GoG plans to finalize the GPRSII by June 30. It
is vetting the draft GPRSII with stakeholders, after which it
will present it to Cabinet and Parliament. The World Bank
urged DPs to respond to the GPRSII by drafting a Joint
Assistance Strategy (by September 2005). The World Bank
proposed that the GoG host a Consultative Group meeting in
mid to late October 2005.


6. (SBU) GPRSII's goals are to decrease poverty and
accelerate growth to ensure Ghana becomes a middle income
($1,000 GDP/capita) country by 2015. GPRSII assumes
population growth below 2.6%, fiscal discipline; sub-10%
price inflation, and a stable exchange rate. The four
pillars of GPRSII are: 1) growth through the private sector;

2) human resource development; 3) good governance; and 4)
addressing the needs of the vulnerable and excluded.


7. SBU) DPs urged the GoG to prioritize the elements f
GPRSII, focus on the private sector, develop te vulnerable
and excluded pillar, which ws weak in the first GPRS, and
address corruption and much needed public sector reform. DPs
noted that the GoG should incorporate the completed (but not
yet disseminated) NEPAD African Peer Review into the GPRSII,
and should develop a monitoring and evaluation system to
track results.

Local Poultry Producers Sue Government
--------------

8. (SBU) Ghana's poultry farmers have sued the Attorney
General and Speaker of Parliament for neglecting to impose an
increase in tariffs on imported poultry, claiming they have
endured intense competition from foreign imports. In 2003,
Parliament passed a bill to raise the tariff on finished
imported poultry from 20% to 40% to protect the domestic
industry. However, Ghana's farmers claim the Customs, Excise
and Preventative Service (CEPS) suspended implementation of
the new bill, leaving tariffs at 20%. (Comment: the GoG
abandoned the new bill under pressure from the IMF and other
donors. According to local importers, including of U.S.
poultry products, the GoG has instead controlled the volume
of imports by limiting import permits. Ghana's Director of
Veterinary Services, charged with evaluating import permits,
has even admitted to controlling the volume of poultry
imports to protect domestic producers from foreign
competition. End Comment).

GOG Reaches Agreement with Telecom Malaysia
--------------

9. (U) The GoG has reached an agreement with Telecom Malaysia
(MTB) to buy MTB's 30% stake in Ghana Telecom (GT). In
exchange, MTB will drop its arbitration case against the GoG,
ignited in 2001 when the GoG used its 70% stake in GT to oust
MTB's management team. The GoG will also return $50 million
that MTB paid for an additional 18% stake it never received.
KPMG will value MTB's GT stock at current market value. The
transaction will leave the GoG as the sole shareholder in GT.

Economic Indicators Update
--------------

10. (U) Inflation Falls Marginally: the 12-month inflation
rate fell slightly from 16.7% in March to 16.6% in April, due
to lower food and non-food prices in April. Inflation jumped
up from 11.6% in January to 16.7% in March after a 50% hike
in the price of petroleum products in February. The Bank of
Ghana (BoG) states that the spike in inflation was driven
solely by the fuel price increase. BoG officials believe the
April numbers confirm the shock was a one-off effect and that
prices are returning to their normal trend path. However,
future petroleum price increases may still be necessary,
which could jeopardize the GoG's 2005 inflation target of
13.5%.


11. (U) Central Bank Cuts Prime Rate: The BoG reduced its
prime rate from 18.5% to 16.5% on May 30, basing its decision
on continuing strong economic fundamentals. The cedi
depreciated against the dollar by only 0.6% in March 2005
compared with 4.8% in March 2004 reserve money increased by
24.8% in March 2005 vrsus 35.3% in March 200, and money
supply incresed by 23.9% in March 2005 compared with 39.7%
i March 2004.


12. (SBU) 2005 Cocoa Production to Decline by 23%: The
volume of cocoa produced is expected to fall from 735,000
metric tons to 600,000. BoG Governor Paul Acquah attributes
the fall to changes in the harvesting cycle and the late
flowering of cocoa trees. Market analysts, however, believe
that a crackdown on smuggled cocoa beans from Cote D'Ivoire
could also be a factor. Smuggled Cote D'Ivoire beans reduced
the quality of Ghana's cocoa bean exports in 2004. This led
to over 10 arbitration cases against the Ghana Cocoa
Marketing Company. GoG authorities are now trying to
preserve the quality of the cocoa beans, and thus are seeking
to curb smuggling. The significant reduction in the
production volume may make it difficult for the GoG to hit
its growth target of 5.8% for 2005, since cocoa is the
largest contributor to economic growth (comprising 17% of
2004's 5.8% GDP growth).
YATES


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