GHANA ECONOMIC HIGHLIGHTS, SEPTEMBER 2005

UNCLAS SECTION 01 OF 02 ACCRA 002012

SIPDIS

SENSITIVE

DEPARTMENT PLEASE PASS FOR TREASURY LUKAS KOELER
MILLENNIUM CHALLENGE CORP. FOR ROD NORMAN
COMMERCE FOR MARIA RIVERO
USTR FOR LAURIE-ANN AGA

E.O. 12958: N/A
TAGS: ECON EFIN EAGR ETRD EAID ENRG GH
SUBJECT: GHANA ECONOMIC HIGHLIGHTS, SEPTEMBER 2005


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

-- GoG/Donors plan for November 7 Consultative Group Meeting
-- U.S. Customs Assesses Ghana Customs' Capabilities, Needs
-- Ghana's oil refinery suffers exodus of senior employees;
remaining staff gets 40% pay raise
-- Bank of Ghana Review of the Economy Through Third Quarter

GoG/Donors plan for November 7 Consultative Group Meeting
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1. (SBU) The GoG and World Bank hosted meetings September 22
and 27, respectively, with Heads of Missions to finalize
plans for the upcoming Consultative Group (CG) meeting,
postponed from October 28 to November 7. During the
September 22 meeting, GoG Senior Minister J.H. Mensah
provided the current draft of the Second Growth and Poverty
Reduction Strategy (GPRS II). This is Ghana's version of the
Poverty Reduction Strategy Paper (PRSP) and organizes Ghana's
policies and programs to promote growth and reduce poverty.
It also serves as the blueprint for donor support for these
programs. GoG officials, development partners (DPs),and
civil society representatives will discuss and approve the
GPRS II document during the CG meeting, which President
Kufuor will preside over.


2. (SBU) The GoG achieved relative macroeconomic stability
and modest economic growth under the previous strategy --
GPRS I -- issued in 2003. GPRS I focused on attaining the
anti-poverty objectives of the UN's Millennium Development
Goals. GPRS II continues a focus on macro stability, with
added emphasis on promoting a vibrant private sector, human
resource development, and good governance. The GoG's
intention with GPRS II is to accelerate economic growth and
poverty reduction through private sector-led wealth creation
and employment generation, principally through expansion and
modernization of the agricultural sector.


3. (SBU) The GoG has been slow to complete the draft GPRS II
and has yet to present documents critical to development
partners, such as the matrix of expected results, the donor
harmonization plan, and, critically, the analysis of cost
estimates for the GPRS II's various initiatives. The World
Bank and other DPs informed the GoG they will not commit
specific resources for the GPRS II at the CG without
clarification of the costs.


4. (SBU) The World Bank, IMF, and DPs were also hoping to use
the CG to influence the GoG's 2006 budget, which the Ministry
of Finance plans to present to Parliament November 10 (the
first time ever that the GoG will present the budget before
the start of the fiscal year). The delay of the CG from
October 28 to November 7 precludes this, so the World Bank
has proposed using the CG preparatory process during the
month of October to impact the budget process.

U.S. Customs Assesses Ghana Customs' Capabilities, Needs
-------------- --------------

5. (SBU) A four-person team from U.S. Customs an Border
Protection (CBP) visited Ghana September 19 through 23 to
assess Ghana's Customs, Excise and Preventative Services
(CEPS) strengths and possible areas for future technical
assistance. The team visited Kotoka International Airport in
Accra, the main port at Tema, and the Ghana/TOGO border. The
team was impressed with the level of automation CEPS had
achieved, especially in light of the overall weakness of the
telecom infrastructure in the country. The CBP team will
complete its report and recommendations before the
commissioners of CBP and CEPS meet in Florida in October.


6. (SBU) COMMENT: CBP's help could not be better timed or
more welcome. The troubles in TOGO and Cote d'Ivoire have
resulted in a 400% increase in imports to Ghana since 2001.
Most of the traffic is destined for Burkina Faso and points
north. CEPS staffing and funding has not increased
significantly during the same period. Although the Ministry
of Finance recently authorized CEPS to retain some of the
revenue it collects, it is still underfunded and its managers
lack the skills necessary to deal with the increased
workload. END COMMENT.

Ghana's oil refinery suffers exodus of senior employees;
remaining staff gets 40% pay raise
-------------- --------------

7. (SBU) Fourteen senior technical and engineering staff at
the parastatal Tema Oil Refinery (TOR) resigned September 23
to take higher-paying jobs in refineries in Oman and Qatar.
This has lead to a partial reduction in refining capacity.
One media report claims that in the last year at least 60
employees -- about 10 percent of the total workforce -- may
have left for higher paying positions overseas. On September
26, in an effort to increase retention, Minister of Energy
Mike Oquaye announced a 40% pay raise for TOR's remaining
employees. TOR also temporarily replaced the fourteen
departed engineers with twelve Korean nationals, at a cost of
$10,000 per worker per month. This is more that four times
the salary the departing employees will earn in their new
jobs in the Middle East.


8. (SBU) COMMENT: When the newly created National Petroleum
Authority (NPA) raised gasoline prices less that 2% in
August, despite increases in world prices of over 20%, the
NPA claimed new-found efficiency at TOR -- which supplies
70-80% of the fuel on the Ghanaian market, with imports
supplying the remainder -- had mitigated the need for larger
increases. Post has since learned that the third quarter
tender for imported gasoline was 30% higher than that which
prompted the 2% increase in August. The implication is that
significant fuel price increases will be necessary to
compensate for the higher import costs and TOR's reduced
output and increased payroll. END COMMENT.

Bank of Ghana Review of the Economy Through Third Quarter
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9. (U) The Bank of Ghana's (BoG) Monetary Policy Committee
announced September 12 that macroeconomic developments
through September indicate downward pressure on inflation and
interest rates and the exchange rate remains stable, largely
due to continued slowdown in monetary growth and fiscal
restraint. Annual year/year inflation fell to 14.9% in July
from 16.7% in March. Interest rates continued their decline
in the third quarter. The benchmark 91-day Treasury bill
rate falling from 15.5% in July to 13.9% by early September
and the two-year fixed rate note declined from 20% to 18.5%
for the same period. Commercial bank base rates, after
declining in the second quarter, stayed within a range of 22%
to 23.5%.


10. (U) Private remittances ) transfers from NGOs, religious
groups, individuals, Embassies ) increased almost 56% to
$2.35 billion for January-July, 2005, compared to $1.51
billion for the same period in 2004. Approximately 29% of
remittances were from individuals. Gross International
Reserves reached $1.64 billion through early September 2005,
compared to $1.35 billion recorded for the same period in

2004.


11. (U) The GoG mostly stayed on budget for the first half of
2005 (Jan-June),due to strong tax revenues and restrained
expenditures. Total tax revenue increased 24% over 2004, and
totaled 20.2% of GDP. Non-Tax revenue fell short of the
budget target due to delays in donor assistance. Therefore,
while GoG expenditures were 6.6% below the budget target, the
GoG recorded a budget deficit, excluding grants, equivalent
to 3.7% of GDP on an annual basis for the first half of the
year. Although this is above the target of under 2%, it
continues the steady decline in the fiscal deficit from 9% in
2001 to the current level, which is the lowest in the last
five years.


12. (U) The BoG identified slightly weakening terms of trade,
with average cocoa prices and the cocoa crop both lower in
2004/2005 compared to 2003/2004. Cocoa exports totaled
$551.5 million through July 2005, compared with $669.5
million for the same period in 2004. Gold prices remained at
near 20-year highs ($435/ounce),and gold exports through
July 2005 totaled $516.7 million, up from $488 million in

2004. However, oil prices increased from $36 at year-end
2004 to near $70 currently, and fuel imports through July
2005 totaled $507.5 million, 31% higher than the same period
in 2004. Continued oil price volatility is the major
downside risk going forward, as a sustained surge in prices
would weaken the external payments position, increase
inflation, and limit growth.
LANIER