GHANA'S PRIORITIES AND CHALLENGES IN THE NEXT FOUR

C O N F I D E N T I A L SECTION 01 OF 06 ACCRA 000658

SIPDIS

CDR USEUCOM FOR GEN WALD/POLAD SNELL FROM AMBASSADOR YATES
TREASURY FOR ALEX SEVERENS
USTDA FOR BRYCE TERNET
MILLENNIUM CHALLENGE CORP. FOR ROD NORMAN

E.O. 12958: DECL: 03/30/2015
TAGS: EAID ECON EFIN GH KMCA PGOV PHUM PREL EINV
SUBJECT: GHANA'S PRIORITIES AND CHALLENGES IN THE NEXT FOUR
YEARS

REF: ACCRA 2307

Classified By: Ambassador Mary C. Yates for reasons 1.5 d and e.

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Summary
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1. (C) Post,s view of Ghana,s prospects over the next
four years follows, and is in part based on the President's
hour-long tour d'horizon with the Ambassador on March 9 and
post-election conversations between Emboffs and key Ghanaian
players. The political challenges ahead include increases in
violent crime and ethnic/religious tensions, especially in
the north, which the president underscored. Partisan
political tensions will require careful management, as will
neighboring regional conflicts.


2. (C) We expect broad continuity in President Kufuor's
second term, with a greater focus on the economy. This is
evident in the three biggest decisions to date of his second
term: the deregulation of petroleum prices, his budget
priorities, and some of his choices for key positions.
Corruption remains the opposition NDC's rallying cry against
the NPP and the President needs to move decisively against
corruption if Ghana is to attract the foreign investment
necessary for economic growth.


3. (C) Over the longer term, Ghana must boost economic
growth to keep pace with a growing population and meet the
aspirations of a population increasingly active politically.
Ghana also needs to strengthen democratic institutions and to
move from a dependency mentality to greater self-sufficiency.
The USG will continue to play an important role through both
civilian and military engagement. After decades of military
dictatorship and economic decline, there is reason for
optimism about Ghana's future. End summary.

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Kufuor Two: The Government Sets Themes
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4. (U) During President Kufuor's second term, he will try
to consolidate the gains of his first four years by
translating macroeconomic success into poverty reduction for
the masses. In his meeting with the Ambassador, the
President prioritized improving education, health care,
infrastructure and private sector development as his biggest
challenges.


5. (U) These themes were reflected in President Kufuor's
February 3 State of the Nation address. The speech was
largely a repackaging of the five priorities of his first
term, but was focused, sensible and devoid of the partisan
rancor of past State of the Nation addresses. Kufuor
highlighted three priorities: 1) human resource development,
2) private sector development, and 3) a continued emphasis on
good governance.


6. (U) On human resource development, he proposed some
minor changes to the education system, stressed IT
development, and committed to teacher training. For private
sector development, he called for the creation of a new
department in the Private Sector Development Ministry to
promote the information business sector specifically. He also
called for facilitated business financing, modernizing
agriculture, and continued financial sector discipline. On
good governance, Kufuor affirmed it as "the guiding principle
which has underpinned all policies of this government." He
highlighted past achievements: passage of Right to
Information and Whistle Blower bills, initiation of a
National Policy on Gender and Children, the creation of 28
new District Assemblies, and ongoing efforts to strengthen
the police force.

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Political Challenges
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7. (C) Ethnic/religious tensions: President Kufuor
privately spoke of his deep concerns over the increasing
"ethnic/religious" tensions, especially in the north
(reftel). He associated growing "gangster and criminal"
activities, especially in Kumasi, with an increasingly
conservative Muslim population. He also alleged a "hidden
hand" was orchestrating growing tension, and growing Muslim
opposition to the NPP, alternately accusing foreign forces
and/or former President Rawlings. He said that the NPP had
lost in all the "zongos" (Muslim "ghettos") during the
December election. From Accra to Kumasi and farther north,
Muslims had listened to their Imams' encouragement to vote
against the NPP. Later the President cited the growing
influence of Iran in Ghana, especially in its successful
outreach in building new mosques and health clinics.


8. (C) Kufuor explained that the upcoming April by-election
near Kumasi would test the ethnic tensions and that the NPP
was extremely worried about the results. Initially the NPP
was running a respected female candidate, but retracted her
candidacy after local Imams preached against her because she
was a woman. Kufuor countered by recalling his Ambassador to
Guinea, a Muslim from Kumasi, to represent the NPP in the
election. Kufuor also lamented that most Muslims fail to give
him and the NPP credit for the historic move of choosing a
Muslim vice president. He said the Muslims did not seem to
recognize the government's efforts to improve living
standards in Muslim areas, pointing out that people in the
north already receive free schooling. He expressed
disappointment that the community's receptivity during his
frequent campaign trips to the north, especially in the
troubled Dagbon area, had not translated into votes. The
President came close to accusing President Rawlings of the
Dagbon Ya-Na's March 2002 assassination. (Note: During the
second NDC demonstration against petroleum increase on March
17, President Rawlings suggested that Kufuor's government had
a hand in the Ya-Na's killing. End note.) The Ambassador
made the point that the inflammation and politicization of
this northern ethnic problem in Ghana must be watched
carefully, and pointed out problematic regional north/south
trends from Cote d'Ivoire to Nigeria. (Comment: The
north/south divide in Ghana is real, as are ethnic tensions
in the north. However, we were surprised by the President's
view of Muslims. Muslims vote overwhelmingly NDC because the
NDC did a better job at courting them when they were in power
than the NPP has since 2000. Muslims are frustrated by the
small number of Muslims in Kufuor's Cabinet. Muslims also
associate the NPP with the expulsion from Ghana of Muslims in
1969-71, under former President Busia. While there are small
radical elements in the Muslim community, Muslim-Christian
relations are generally good in Ghana. Kufuor's link of
Muslims to a Rawlings or foreign plot is farfetched, but
reflects the deep distrust between Kufuor and Rawlings. End
Comment.)


9. (C) Managing Political Acrimony: Despite a very
successful December 2004 democratic election, post-election
partisan enmity has grown in the first few months of Kufuor
II. The close election results (NPP 52.4% to NDC 44.6%) and
poor showing of other small parties revealed a country
divided. The NPP generally did well among urban, wealthier,
more literate, more industrial and ethnically Akan voters,
especially in the south, center and west. The NDC by
contrast was strong among rural, lower income, less literate,
Muslim and non-Akan voters, especially in the north and east.
Neither major party gave significant prominence nor
recognition to the growing youth population. Top NPP and NDC
officials voice strong dislike for and suspicions of each
other. Rawlings and Kufuor (as well as the NPP leadership)
have exchanged sharp verbal attacks over the past few weeks,
prompting some renewed public outcry for reconciliation
between the two leaders in the interest of national
stability, including a call for mediation by the National
House of Chiefs.


10. (C) The NPP markedly improved its position in
parliament and has assertively thrown its weight around, with
support from the smaller opposition parties. The NDC has
sought opportunities in parliament to embarrass the
government. After an NDC walk-out during the selection of
parliamentary leaders, the NPP got its way on all three top
leadership positions, completely shutting out the NDC. The
heightened intra-party tension is polarizing parliament,
alienating some within the NPP, and sowing the seeds for
possible delays in important legislation and more rancorous
inter-party conflicts in the coming months.


11. (C) Keeping the Neighborhood Safe: Ghana will continue
to work to guard against spillovers from regional conflicts,
but it will be difficult for Ghana to avoid all consequences
from the crises in Cote d,Ivoire on its western border and
TOGO to the east. In his State of the Nation address, Kufuor
said the GOG would maintain a policy of "good neighborliness"
in ECOWAS and Africa, while "strategic geopolitics" will
prevail in the rest of the world. This will likely mean
strong continued engagement in ECOWAS (and for African Union
initiatives) and support for regional efforts, as well as
encouraging political reform in Cote d,Ivoire and TOGO while
not destabilizing or alienating either. Ghana may apply
pressure behind the scenes, but in public it lets others lead
(Thambo Mbeki in Cote d'Ivoire and ECOWAS in TOGO.) Ghana's
cautious pragmatism stems from its inability to effectively
control its borders. Its 8,000 man military is overextended
in peacekeeping operations and it lacks the means to capably
man its borders for interdiction of narcotics, illegal
weapons, or smuggling of goods and people. Ghana's
civilian/diplomatic bureaucracy, including its Foreign
Affairs Ministry, is also poorly staffed and not empowered to
make decisions.

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Economic Challenges
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12. (U) Petroleum Price Hike: On February 20, the GOG
increased the price of petroleum products, including a 50
percent jump in gas prices, and began to shift pricing to the
new private-public National Petroleum Tender Board (reftel.)
The GOG had postponed the price rise, which partially
fulfills an IMF and World Bank commitment under HIPC, until
after the election. Its decision to go ahead with it
reflected a desire to continue with difficult economic
reforms while taking advantage of a political honeymoon
period. (However, in response to intense local opposition to
price increases, the GOG subsequently decided to delay full
implementation of petroleum deregulation, as required by the
IMF.)


13. (U) The Budget: Citing the President's three
priorities, Finance Minister Wiredu's February 24 budget
raised the minimum wage, reduced the corporate tax rate by
around 4 percent, and cut two other taxes by 2.5 percent.
These tax cuts were bigger than expected, and should
encourage savings and investment by those companies which
actually file taxes.


14. (C) Appointments: Kufuor's appointments have stressed
personal chemistry, continuity and, in may cases, basic
competence. Among the (excessive in our view) 88 ministerial
and deputy ministerial appointments, there were some
surprises, most notably switching the Ministers of Finance
and Education. The new Finance Minster, an accountant by
education, has already demonstrated he intends to be deeply
involved in and demanding of his ministry, by making helpful
MCA preparation interventions. Kufuor also replaced several
other key economic policy makers including the Ministers of
Agriculture and Energy. The President confided to the
Ambassador when discussing troubling FAA issues that the
airport/airline portfolio had shifted from the Ministry of
Transport to the Presidency under his watchful eye. Overall,
the appointments do not appear to be especially impressive,
nor are they merely political choices. It is too early to
reach a considered judgment but our initial impressions are
middle of the road, at best.


15. (C) Stemming Corruption: The Kufuor administration has
a mixed record on corruption. While his "good governance"
priority is encouraging, President Kufuor has not offered (or
implemented) new ideas on how to diminish endemic corruption.
The President stuck by three ministerial nominees whose
vetting was held up because of alleged corruption (although
he said their ordeal and the allegations caused him
"anguish"). Parliament then announced it did not have the
means to investigate corruption allegations against the
nominees. Kufuor stays loyal to some other top officials who
are longtime allies but known to be corrupt. In his second
term, Kufuor may have an even more difficult time containing
corrupt NPP politicians, as some may seek to feed at the
trough before it is taken away, which may hurt the NPP in the
2008 elections. The NDC,s primary 2004 election platform
plank was NPP corruption, and it has already re-surfaced as a
major issue in Parliament.


16. (SBU) Improving the Investment Climate: The Kufuor
government has not put in place sufficiently
investment-friendly procedures or policies. While the
rhetoric is pro-market, the reality is often protectionist
and statist, reflecting Ghana's socialist legacy. Foreign
and domestic investors find that the GOG has difficulty
making decisions and frequently lacks transparency in
decisionmaking. Cote d,Ivoire,s continuing unrest, coupled
with the high price of cocoa, bring trade and hard currency
opportunities to Ghana. But there is also an increase in
Nigerian businesses, which import their style of corruption.
The largest impediment to serious foreign investment remains
the land tenure issue. As long as the Ghana,s traditional
chiefs remain the major land holders, modern Ghana cannot
progress and economic growth can not take off as quickly as
it should. The GOG's recent backtracking on further
petroleum price increases and its cautious, bureaucratic
approach to the MCA are examples of inconsistent and
sometimes timid decisionmaking.

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Implications for the United States
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17. (C) Ghana will remain a strong partner for the United
States across the full range of our Mission Program Plan
goals, and we should take advantage of the political window
offered by the first year of Kufuor's second term to further
our objectives. The recent in-depth conversation between the
President and Ambassador offered a good start and exchange on
a number of these issues.

-- Building on growing concerns over north/south ethnic and
religious tensions, post will continue to implement MPP goals
through our Muslim outreach programs, and targeted USAID,
Self Help, military humanitarian assistance and State
Partnership Program (SPP) programs in the north. We believe
we are making a real difference in public attitudes toward
the U.S. and some gains in development and improved health.

-- This is an important time to strengthen Ghana's democratic
institutions and law enforcement capabilities and reinforce
anti-corruption messages. The Parliament has made great
democratic strides, but the judiciary needs more reform and
support. We are continuing our police and security training,
and will make certain the GOG does not lose sight of the
genuine requirements and responsibilities of a functioning
democracy.

-- Our assistance to economic growth should include rapid
conclusion of the MCA compact with Ghana. It is a win/win
because of the focus on agribusiness and the significance of
assisting with infrastructure development in a stable
democracy in troubled West Africa. Infrastructure was cited
several times by President Kufuor as one of his government's
most urgent challenges to economic growth.

-- This first year of Kufuor II is important for supporting
economic reforms, especially as they affect improving the
investment climate and poverty reduction. President Kufuor
may attend the Corporate Council for Africa conference in
Baltimore in June and will likely attend the Glen Eagles G-8
meetings, offering opportunities for senior USG engagement on
economic issues. The necessity for continued economic
openness and for economic rule of law must be constantly
reiterated.

-- We should look for ways to support President Kufuor's
commitment to enhance human resource development through
educational and IT opportunities and programs which stimulate
the return of diaspora talents and resources from the U.S.
-- We need to continue to work to consolidate and enhance
Ghana's regional leadership role as a peacemaker and
peacekeeper. Post will continue to recognize the
professionalism of Ghana's military, which is heavily engaged
in peacekeeping, through military-to-military programs,
including the placement of a U.S. military officer at the
Kofi Annan Center. The beginnings of our SPP with the North
Dakota National Guard appear very positive at the moment.
Further dialogue on the Gulf of Guinea initiative by U.S.
military senior representatives will reinforce growing USG
interest in the region.

-- An invitation to President Kufuor to join a small group of
democratic African leaders in a meeting with President Bush
(possibly to coincide with CCA Baltimore conference timing)
would provide positive reinforcement for Ghana's
accomplishments.

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Comment
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18. (C) President Kufuor is off to a reasonably strong
start in his second term. He moved forward with petroleum
deregulation and a solid budget, and has set out clear
priorities. His team is experienced, although he missed an
opportunity to reduce the size of his bureaucracy and replace
some poor performers. The opposition is acting responsibly
and Kufuor's style is methodical and steady rather than
innovative or bold. We do not expect major surprises in the
next year. President Kufuor has about one year before the
jockeying for succession within his party heats up in a way
which could substantially distract from policy making Backed
by a recent election victory and his party's improved
strength in parliament, the central question will be how
effectively Kufuor uses this year to push forward with
economic reform. However, the pace and success of this
effort will depend in large measure on his ability to manage
growing north-south tensions, assuage intra- and inter-party
friction, broaden his ethnic appeal, contain corruption, and
insulate Ghana from the spillover of regional conflicts.
Former President Nkrumah may have forged a national
consciousness at Independence that transcended ethnic
considerations, but it may take Kufuor,s coalition-building
leadership to continue to keep the Ghanaian fabric together
as 2008 approaches.


19. (C) Kufuor's second term will have a significant impact
on Ghana's longer term outlook. When Ghanaians are asked
about the future, they typically look to the past and remark
on how far Ghana has come over the past twenty years,
especially in transitioning from military dictatorship to
democracy. A majority genuinely like Kufuor and believe they
are better off now than they were under Rawlings. Political
leaders are risk averse and focused on the short term, with
little sense of vision for the next decades. Over the longer
term, Ghana needs to make significant progress in economic
development. It desperately needs to diversify its economy
to reduce its current vulnerability to cocoa and gold price
shocks. It needs to boost investment to create jobs for its
youthful population (50% of Ghanaians are under age 18 and
the population is predicted to increase by 50 percent by
2025). Ghana needs to accelerate beyond a 4-5 percent growth
path, which will require improvements in infrastructure and
the investment climate. The main political challenge of the
next decade will be consolidating democracy and forging a
stronger sense of national unity. Some of this may take
constitutional change -- for example, selecting local
District Chief Executives through elections rather than by
appointment and reducing the percentage of ministers who are
also members of parliament. With economic and political
development, Ghana can move from an entrenched dependency
paradigm, and the international community can shift from a
predominantly aid/debt relief relationship increasingly to a
partnership based on trade and Ghanaian leadership in the
world community. None of this is inevitable but in Ghana,
more than in many African countries, there is good reason for
optimism.


LANIER