GHANA ECONOMIC HIGHLIGHTS MAY 2006

UNCLAS SECTION 01 OF 02 ACCRA 001236 SIPDIS SENSITIVE SIPDIS COMMERCE FOR MARIA RIVERO TREASURY FOR LUKAS KOEHLER DEPARTMENT FOR BIRGGITA MATTINGLEY E.O. 12958: N/A TAGS: ECON EINV EAID ETRD EAIR EMIN GH SUBJECT: GHANA ECONOMIC HIGHLIGHTS MAY 2006 ACCRA 00001236 001.2 OF 002 1.(U) This report covers noteworthy economic events and activities in Ghana for April and May 2006. The issues covered are: -- MCA Negotiations on Track for late July Signing -- ALCOA Enters Key Phase of Negotiations -- Fuel Price Increase to Reverse Downward Trend of Inflation -- Ghana International Airlines -- North-American Air offers direct flights to NY from Ghana -- Visit of OPIC Executive Vice President -- Visit of Mayor Anthony Williams MCA Negotiations on Track for late July Signing -------------- 2.(SBU) During a May 19 outbrief, Millennium Challenge Corporation (MCC) officials informed Ambassador Bridgewater that the MCC and Ghana MCA negotiating teams made significant progress over the previous two weeks ) both in Washington and in Accra -- and the two sides were on track for a late July signing in Washington, D.C., subject to MCC Board approval. The two sides resolved or are close to resolving the outstanding issues related to the agriculture, infrastructure, and financial services components, and the Ghana government created (with Parliamentary approval) the Millennium Development Authority (MiDA) to implement the Ghana-MCA agreement. 3.(SBU) The MCC officials briefed the Ambassador on the Ghana MCA Program Logic, with Program Goal of &Reduction of poverty through economic growth led by agricultural transformation.8 The Program Objectives are: 1) &Enhance the competitiveness of high value cash and food crops in local and international markets8; and 2) &Increase production and productivity of high value cash and food crops in three selected areas of Ghana.8 The targeted Program Outcomes are: 1) Commercialization of Agriculture (including increased farmer training, land tenure facilitation, increased irrigation, and improved post-harvest handling and access to credit); 2) Improved Transport Infrastructure (including improved access to air and sea ports); and 3) Delivery of Basic Community Services (including energy, water and sanitation, and educational services). ALCOA Enters Key Phase of Negotiations -------------- 4.(SBU) Charge and EconOff met with ALCOA executives May 3 and May 9 to discuss the current state of negotiations with the GoG. ALCOA has been negotiating a plan with the GoG for the creation of an integrated (mine-refine-smelt) aluminum industry in Ghana for the past twelve months. Total investment is expected to be in excess of $2 billion. ALCOA Commercial Director for Ghana Russell Grant told EconOff May 23 that both parties made good progress over the last few weeks, with both sides pledging their best effort to come up with a deal that will give the project an internal rate of return sufficient for ALCOA board approval. Fuel Price Increase to Reverse Downward Trend of Inflation -------------- -------------- 5.(U) Year on year inflation dipped 0.4% in April to 9.5%, continuing the downward trend that began in October 2005. This was the first time Ghana had seen single digit inflation since May 1999. Bank of Ghana officials, however, expect May's numbers to go back above 10% because of the 10% fuel price increase announced May 3. The National Petroleum Authority has increased fuel prices a total of 20% since January 1 in a series of small adjustments, thus easing inflationary pressure on overall prices. 6.(U) The general public appears to have accepted fuel price increases to date despite some demonstrations from a group called the Committee for Joint Action (CJA). The CJA, which is made up of representatives of several of Ghana's opposition parties, has called for the reduction of fuel taxes, which make up 30% of the total price. The NPA's May price increase introduced a new mode of pricing, which allows oil marketing companies to set their own prices within a margin of 650 cedis ($0.60),below the NPA's maximum price. 7.(SBU) The Bank of Ghana is forecasting inflation just above 10% by year's end, saying it expects monetary aggregates to provide an anchor for low inflationary environment, but that rising crude oil price may jeopardize the objective of attaining single-digit inflation in 2006. Post has also heard that the public utilities regulatory ACCRA 00001236 002.2 OF 002 commission is planning to increase electricity prices by 15-20% and water prices by 10-15%, starting August 01. This will also complicate the GOG's objectives of achieving single digit inflation. Ghana International Airlines(GIA) Dispute -------------- 8.(U) GIA-USA, which represents the private investors controlling 30% of Ghana International Airlines, filed suit in the Ghanaian court April 17 against the GoG, claiming that the GoG controlled board of directors had acted outside its authority when it dismissed CEO Bryan Presbury on April 7. The case was suspended May 14 after both parties agreed to enter mediation. The GoG, which owns 70% of the airline, is actively seeking a new private sector partner. North American Airlines (NAA) Adds New Flights to Accra -------------- -------------- 9.(U) On May 05,2006, the Ghana Civil Aviation Authority (GCAA) granted permission for North American Airlines to add two additional weekly flights between Accra and the U.S. May ¶5. With these new flights North American will have two weekly non-stop flights from Accra to New York and one weekly flight to Baltimore via Banjul. NAA expects to begin service on the new routes June 5. Visit of OPIC Executive Vice President -------------- 10.(U) OPIC Executive VP John Simon visited Ghana May 9 - 12 for a series of meetings with GoG officials and the private sector, as well as visits to some of OPIC's projects in Ghana. Mr. Simon, accompanied by OPIC VP for Investment Policy Dr. Christine Emery and EconOff, met with the Minister of Trade, the Minister of Works and Housing, the Deputy Finance Minister, the CEO of the Volta River Authority, USAID, AmCham members, and CAL Bank CEO Frank Adu. OPIC is currently negotiating a $30-million investment project to provide mortgages for private homes in Ghana. Mr. Simon stated his intention to work closely with USAID, Millennium Challenge Corporation, and other USG development agencies to increase the impact of USG assistance programs. Visit of Mayor Anthony Williams -------------- 11.(U) Washington DC Mayor Anthony Williams visited Accra May 7 - 11 with a 30-person delegation including, among other notables, the Mayor's wife, the wife of former DC Mayor Marion Barry, former AF Assistant Secretary Constance Berry Newman, and AGOA legislation author Charles Williams. The Embassy helped kick off the visit with a country team briefing that received high praise from the Mayor and several other delegates. Accra Mayor Blankson and Mayor Williams also initiated an Accra-Washington D.C. sister city program. Local press gave the visit extensive and positive coverage. BRIDGEWATER