SCENESETTER FOR VISIT TO GHANA OF HUD SECRETARY

UNCLAS ACCRA 002808

SIPDIS

SENSITIVE
SIPDIS

FOR AF/W: EMILY PLUMB;
STATE PASS TO HUD: REBECCA PEMBERTON

E.O. 12958: N/A
TAGS: ECON GH OTRA PGOV PREL
SUBJECT: SCENESETTER FOR VISIT TO GHANA OF HUD SECRETARY
JACKSON

REF: ACCRA 2706

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Summary/Introduction
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1. (SBU) Ghana is a democratic, market-oriented, pro-American
country in a region marked by conflict and authoritarian
rule. In 2007, Ghana will celebrate 50 years of
independence. President John Kufuor is nearly two years into
his second four-year term, which has so far been marked by
solid economic performance and continued political stability,
despite intra-party tensions and corruption scandals. Ghana
exerts regional leadership, strongly supports the Global War
on Terrorism, and is a committed, major contributor to UN
peace keeping operations. Ghana is a member of the
International Atomic Energy Agency (IAEA) and has a
non-permanent seat on the UN Security Council. Bilateral
relations are excellent and broad-ranging. President Kufuor
has met President Bush seven times, met with former President
Carter for the second time in October 2005, and hosted the
successful visit to Ghana of Mrs. Laura Bush in January 2006.
Ghana signed a five-year, $547 million Millennium Challenge
Account (MCA) Compact on August 1, 2006, which focuses on
accelerating growth and reducing poverty through private
sector-led agri-business. Ghana hopes to showcase itself at
several upcoming events. March 6, 2007, its independence
day, will be marked with a major Jubilee celebration. In
June and July 2007, Ghana will host the African Union Summit
and the African Growth and Opportunity Act (AGOA) Forum,
respectively. In February 2008, Ghana will host the African
Cup of Nations soccer tournament. End Summary/Introduction.

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U.S.-Ghana Relations
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2. (U) Ghana is a reliable, democratic partner for the U.S.
in peacekeeping, conflict resolution, counter-terrorism, and
economic development. U.S. interests center on support for
Ghana's fourteen-year-old democracy, promotion of open
markets, and the reduction of poverty. Key building blocks
of the broad U.S.-Ghana relationship are: democracy;
development assistance and trade; and Ghana,s regional
leadership.


3. (U) Democracy: Ghana's December 2004 parliamentary and
presidential election, the fourth election under the 1992
constitution, and September 2006 local elections were seen as
free, fair and generally peaceful. Ghana has a free, lively
media and civil society, a largely independent judiciary and
Electoral Commission, and an apolitical military. It
generally respects human rights and the rule of law.
However, the long-term success of Ghana's constitutional
democracy is not guaranteed and democratic institutions are
weak. While Ghana scores better than many countries in
Africa on Transparency International's Corruption Perception
Index (CPI),Ghana slipped from 65 to 70 globally in 2006,
its lowest ranking since 1999. Corruption is a growing
concern. Anti-corruption institutions are weak. The United
States has programs to help strengthen parliament, the
judiciary, the police, and the media.


4. (U) Development Assistance and Trade: In 2006, the USG
expects to provide about $75 million in assistance to Ghana,
not including support related to Millennium Challenge Account
Compact development. This includes one of USAID's largest
programs in Sub-Saharan Africa. Ghana receives approximately
$50 to $60 million in USAID grant assistance and food aid per
year, with a focus on education, health, HIV/AIDS, trade and
investment, and democracy and governance. The U.S. and Ghana
have a relatively dynamic trade relationship. U.S. exports
to Ghana in 2005 increased to approximately $338 million, a 9
percent increase over 2004; Ghana is consistently the fifth
or sixth largest market in Africa for U.S. goods, and is the
eighty-ninth largest market globally. U.S. imports are equal
to about $14 per capita, which is equivalent to about 3.5
percent of GDP per capita.


5. (U) Regional Leadership: Ghana provides solid cooperation
in counter-terrorism and counter-narcotics efforts. We have
a robust mil-mil relationship, in part a recognition of
Ghana's outstanding contribution to peacekeeping (Ghana is
the fourth largest contributor to UN peacekeeping forces
worldwide) and to regional stability. Ghana was key to peace
efforts in Liberia and Cote d'Ivoire. Ghana was elected to
serve a two-year term (2006 and 2007) as a non-permanent
member of the United Nations Security Council. Kufuor served
as Chair of the ECOWAS for two terms, ending January 2005.

ECOWAS Executive Secretary Mohammed Ibn Chambas is Ghanaian.
Ghana has also been welcoming to refugees and currently hosts
about 60,000 refugees, mostly Liberian. We support Ghana's
regional role through our mil-mil activities, USAID's West
Africa Regional Program (WARP) and our Refugee Coordinator
Office, all based in Accra.

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Internal Political Situation
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6. (SBU) President Kufuor is now nearly halfway through his
second four-year term. This term has been marked by
continuity in his priority themes and his cautious approach
to governance. Kufuor dropped two prominent ministers and
made other minor changes during an April 2006 Cabinet
reshuffle. In response to rising global oil prices and IMF
pressure, Kufuor raised petrol prices to cost-recovery levels
with minimal political repercussions, and established a
National Petroleum Authority. The GoG introduced a
Capitation Grant to pay for individual education costs, and
began to provide transit and food to school children to
increase enrollment. Ghana was one of the first two
countries to submit itself for review under the New
Partnership for Africa,s Development (NEPAD) African Peer
Review Mechanism, which evaluates political economic, and
social governance.


7. (SBU) Ghnaian politics is highly polarized. The New
Patiotic Party (NPP) and opposiion National Democratic
Congress Party (NDC) are nearly evenly matched in parliament,
the result of a very close 2004 national election. Leaders
of these two major parties intensely dislike each other. NDC
parliamentarians complain that the NPP throws its weight
around, using its majority to force legislation through the
system. The NPP and NDC both suffer from intra-party
divisions, which are increasing in the run-up to party
conventions in December and presidential/parliamentary
elections in 2008. There are nine smaller established
parties in Ghana, including two recently formed ones.


8. (SBU) The Kufuor government has faced recurring charges of
corruption over the past two years, highlighted by Ghana's
free media. Energy Commission Members were forced out under
a cloud. The Administration was attacked for alleged
corruption in the creation of Ghana International Airlines.
Media allegations have linked the President to a corrupt
hotel deal, although he was later exonerated. While probably
more the result of poor institutional capacity than
corruption, Ghana is currently under considerable
international pressure to address allegations that conflict
diamonds from Cote D,Ivoire are passing through Ghana,
despite checks under the Kimberley Process. Two public
opinion polls last year found a growing perception that
corruption is on the rise, especially by the president and
those in his office. The recently released Transparency
International Corruption Perception Index offers further
evidence of public perceptions that corruption is worsening.
In November 2005, the Enquirer newspaper revealed a
secretly-recorded tape in which the NPP Party Chairman

SIPDIS
alleged that government contractors pay kickbacks to the
president and his staff. The scandal resulted in the
resignation of the party chairman. The Minister of Roads and
Transport resigned in October after being found guilty of
abuse of government office following an investigation for
corruption. The GoG has also been grappling with a cocaine
trafficking scandal implicating some senior police and former
counternarcotics officials.

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Security
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9. (SBU) Ghana's 8,000 strong military is characterized by
its allegiance (at least over the past six years) to elected
civilian leadership, as well as a rich peacekeeping tradition
and a close relationship to the United States. Since 1960,
over 80,000 Ghanaian soldiers and police have participated in
peacekeeping missions worldwide, including currently in the
Democratic Republic of Congo, Lebanon, Liberia, and Cote
d'Ivoire. We provide, or have provided, support through: our
Excess Defense Articles (EDA) program; the International
Military Education and Training (IMET) program; the Foreign
Military Sales (FMS) and Foreign Military Financing (FMF)
programs; the Enhanced International Peacekeeping
Capabilities (EIPC) program; the African Contingency
Operations Training and Assistance (ACOTA) program; and a
robust DoD Humanitarian Assistance (HA) program. Ghana will
continue to receive increasing amounts of support under the

Global Peace Operations Initiative (GPOI),launched in 2004,
in the form of peace support operations training,
administered through ACOTA. Ghana opened the Kofi Annan
International Peacekeeping Training Center (KAIPTC) in 2004,
the only center of its kind in West Africa. The United
States European Command (EUCOM) provides direct support in
the form of a full-time liaison officer who is attached for
duty at the KAIPTC, and has provided approximately $1 million
in funding support.


10. (U) Our mil-mil relationship also includes West Africa
Training Cruises and Joint Combined Exchange Training. Ghana
is the newest member of the State Partnership Program (SPP),
partnered with the North Dakota National Guard (only the
second in Sub-Saharan Africa),which will further strengthen
mil-mil and civilian-military ties. In October 2006, as part
of &Med Flag 06,8 the North Dakota National Guard and the
U.S. Air Force Europe provided medical care at two sites in
northern Ghana and one site in Accra, and the U.S. Navy
provided training for Ghanaian military nurses on board
U.S.S. Elrod. Ghana participates as an African Fuel
Initiative Hub country, and allowed the construction of an
Exercise Reception Facility (ERF) at Accra Air Base under an
addendum of that Technical Arrangement (TA) signed in 2005.
Ghanaians avidly participate in DOD's Counterterrorism
Fellowship program (CTFP). Military visits over the past
year included three ship visits, ten General Officer or Flag
Officer visits, and a regional maritime and coastal security
conference.


11. (SBU) Ghana is a strong ally in the Global War on Terror.
Ghana has signed 12 of 13 UN terrorism conventions and a
Customs Mutual Assistance Agreement. We have excellent
police contacts and good cooperation with the police and
other security services. We have serious concerns about
growing narcotics trafficking (especially cocaine) and
financial fraud. We have assisted Ghana's police, customs,
and counter-narcotics agencies, including ongoing basic
training for the police.

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State of the Economy
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12. (SBU) In 2000, the Kufuor government inherited a
distressed economy: high debt levels; accelerating inflation
and interest rates; a plummeting currency (the "cedi"); all
exacerbated by declining world cocoa and gold prices (the
main foreign exchange earners); and rising crude oil prices.
Kufuor's government strengthened fiscal and monetary policies
considerably, reining in spending and borrowing, and cutting
subsidies by imposing badly needed energy and water price
increases.


13. (SBU) The improved policy performance along with higher
cocoa and gold prices since 2002 resulted in higher economic
growth, with growth rates exceeding 5 percent each year since

2003. In 2006, the growth rate is expected to be about 6.2
percent. Tight monetary policies since mid-2003 restored
confidence in the economy, and the IMF called the
government's control of expenditures during the 2004 election
year an "historic achievement." As a result of the improved
policies, inflation fell from over 30 percent in mid-2003 to
less than 15 percent from 2004 onwards. The prime rate has
also fallen to below 15 percent. The cedi has been
relatively stable against the dollar for more than two years.
However, the strong macro-economic performance has yet to
translate into widespread prosperity for Ghanaians. More than
35 percent live on less than $1 per day.

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Positive Economic Trends: MCA and Regional Role
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14. (SBU) Ghana is a gateway to West Africa, due in part to
its political stability and economic reforms, but also
because of turmoil in other parts of the region. Trade and
investment flows to and through Ghana are increasing, and
businesses, Embassies, NGOs, and international organizations
are increasing their presence in Ghana, using it as a
regional hub.


15. (SBU) In May 2004, the Millennium Challenge Corporation
(MCC) designated Ghana eligible for Millennium Challenge
Account (MCA) funding. The Ghanaians were slow to organize
their MCA team and the process languished for months,
sidelined by the 2004 election campaign and subsequent
reorganization of the cabinet in early 2005. Once the GoG
got the right personnel in place, the process moved along

well and a Compact was signed August 1, 2006. The
five-year, $547 million Compact will be carried out in 23
districts in three zones,: northern area; central Afram
Basin area; and southern horticultural belt area. More than
one million Ghanaians are expected to benefit, directly and
indirectly, from the program. The Compact activities are
designed to: 1) Enhance the profitability of commercial
agriculture among small farmers; 2) Expand transportation
infrastructure affecting agricultural commerce at
sub-regional and regional levels; and 3) Strengthen the
availability of basic community services and rural
institutions that provide services complementary to, and
supportive of, agricultural and agri-business development.
Ghana created the Millennium Development Authority through an
act of Parliament to implement the Compact. A key challenge
regarding the Compact is managing expectations. The Compact
has not entered into force (expected in early 2007) and
results will not show significantly until 2008.


16. (SBU) In July 2004, Ghana reached Completion Point under
the Heavily Indebted Poor Country (HIPC) Initiative. This
achievement also ensured Ghana's eligibility for further debt
relief under the G-8-led Multilateral Debt Relief Initiative
(MDRI),announced in June 2005. According to the World Bank,
in 2006, Ghana will benefit from combined HIPC and MDRI debt
relief in the amount of $364 million, and total estimated
benefits are estimated at $1.3 billion between 2006 and 2009.
Ghana is also realizing large foreign remittance flows.
According to the Bank of Ghana, private individuals
transferred $996.08 million in remittances between January
and August 2006. Ghana is also experiencing increasing
foreign investment, including from U.S. companies such as
Newmont Mining and ALCOA. The government has resolved many
of the investment disputes that undermined U.S.-Ghana
relations in recent years.


17. (SBU) Ghana's impressive performance has not gone
unnoticed. Standard and Poor's assigned Ghana a relatively
solid "B plus" sovereign credit rating. Fitch Rating Agency
upgraded Ghana to a "B plus" rating in March 2005, citing
HIPC Completion Point, improved economic indicators, and
fiscal restraint through the election cycle.

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Concerns: Energy, Business Climate, External Shocks
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18. (SBU) The government faces major challenges in its effort
to reform the economy. Ghana has a reputation as a slow and
steady reformer, and GoG leaders do not appear to be taking
full advantage of the current opportunities. While the
Finance Ministry and Central Bank have done an admirable job
of implementing macroeconomic reforms, the GoG has been slow
to implement the politically sensitive next level of reforms,
including privatization of utilities, civil service reform,
improving the investment climate, and attacking corruption
(especially in the ports). While fiscal discipline held
relatively steady, economic reform lost considerable mometum
during the 2004 lection year. Many NPP leaers were
concerned that the reform effort had no translated into
improved living standards for Ghanaian citizens, so pressure
increased on President Kufuor to delay politically difficult
reforms.


19. (SBU) Ghana,s failure to make adequate investments into
energy production is a constraint on growth and productivity.
It is estimated Ghana will need to acquire an additional 500
megawatts of generation capacity over the next five years.
Ghana experienced record low water levels in the Akosombo Dam
(which provides 65 percent of Ghana,s hydroelectric power)
in August 2006. The GoG began mandatory load shedding at
that time, causing rotating 12-hour electricity outages. Yet
this &crisis8 is no surprise. There is no short-term fix,
and the World Bank estimates that energy shortages could
reduce Ghana,s real GDP by 1 to 5 percent per year. The
government may be starting to respond. The 2007 budget
includes approximately $102 million for energy investment.
The West Africa Gas Pipeline, which is scheduled to be online
in 2007, will enable Ghana to reduce energy costs by
substituting some natural gas for petroleum.


20. Despite Kufuor's promise of a "Golden Age of Business,"
Ghana remains a difficult and risky place to do business.
Contract sanctity and difficulty in obtaining clear land
title are concerns. Ghana's congested courts make it
difficult to resolve disputes. Due to excessive bureaucracy
the average time to start a business exceeds 80 days, high
compared to Ghana's peers (i.e., other top performers). This
contributes to widespread corruption, as the heavy paperwork

and licensing requirements create incentives to bypass normal
channels. While the corruption damages Ghana's reputation,
it also scares away legitimate investors and diminishes the
potential impact of new investment on economic growth and
reducing poverty. Finally, Ghana's infrastructure is in poor
shape, and its dependence on commodity exports (gold, cocoa,
timber) leaves it highly vulnerable to external shocks.

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Economic Outlook
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21. (SBU) Despite these concerns, the overall outlook is
fairly positive. If Ghana maintains fiscal and monetary
discipline, world oil prices stabilize, and favorable
external conditions continue for gold and cocoa, the economy
should remain stable and continue to grow at the rate of 5 to
6 percent per year. The GoG goal is 7 to 8 percent growth in
order to reach middle-income status by 2015.
BRIDGEWATER