SCENE SETTER FOR THE AGOA FORUM-JULY 18-19, 2007

UNCLAS ACCRA 001483

SIPDIS

STATE PASS TO USAID, USTR, NSC, USDA; AF/EPS FOR MJ WILLS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ETRD ECON EAGR AMGT GH
SUBJECT: SCENE SETTER FOR THE AGOA FORUM-JULY 18-19, 2007



1. (U) Summary: On March 6, Ghana celebrated its fiftieth
anniversary as sub-Saharan Africa's first independent country.
Ghana has emerged from a turbulent history into a period of
stability, democracy and sustained economic growth. Ghana and the
United States have enjoyed strong, positive ties for the past decade
that are now at an all-time high. Ghana is a reliable, democratic
partner for the United States in peacekeeping, conflict resolution,
counter-terrorism, and economic development. U.S. interests center
on support for Ghana's fifteen-year-old democracy, the promotion of
open markets and poverty reduction, security cooperation, and
enhanced people-to-people ties. Our bilateral relationships will be
increasingly important in light of Ghana's growing global leadership
position. Despite its many successes, Ghana still struggles with
persistent poverty, political divisiveness, corruption, and
governance and security challenges. This document will give you an
overview of the history of Ghana, including its political and
economic situation. It will also discuss Ghana's international
leadership position and what to expect for the upcoming AGOA Forum.
End Summary.

Historical Context
--------------

2. (U) Nkrumah as President: The contributions of Ghana's first
President Kwame Nkrumah were numerous. He laid the foundation of
Ghana's foreign policy based on four enduring pillars: Ghana's
strong commitment to multilateral organizations, its commitment to
the Non-Aligned Movement, its leadership in promoting African unity,
and its partnership with neighboring states.


3. (U) Difficult Years: Beginning in 1961, Ghana became a
socialist state and its foreign policy agenda followed suit.
Nkrumah was a founding member of the Non-Aligned Movement. Ghana
gained a reputation for being independent-minded in foreign affairs
and vocal on international issues. Although Ghana officially
remained within the Non-Aligned Movement, it developed close ties to
the Soviet Union, China and Cuba.


4. (U) Eventually, Nkrumah abolished regional assemblies, banned
ethnic, religious and regional parties, and put in place the
Prevention Detention Act used to imprison thousands of his
opponents. By 1964, he had created a one-party state and declared
himself president for life. His economic and internal security
policies contributed to his ouster in a military coup in 1966,
although today he is still revered by many Ghanaians.


5. (U) The following decades brought five military coups and
numerous coup attempts, a revolution, thousands of cases of human
abuses, and almost two decades of economic decline that nearly ended
in financial ruin. There were also periods of serious violence,
including the 1979 execution of three former heads of state, the
1982 murder of three Supreme Court judges and a retired army major,
and the 1994 "Guinea Fowl" ethnic war in the north, which left an
estimated 2,000 dead.

Building stability
--------------


6. (U) Although Nkrumah's socialist vision and lack of ethnic bias
did much to unify Ghana, the credit for stabilizing Ghana goes more
to former president J.J. Rawlings. Despite his autocratic style and
early revolutionary tendencies, over a period of almost twenty years
he led Ghana through a democratic transition, which ultimately
steadied the rudder of Ghanaian politics. He strengthened grass
roots organizations, empowered the judiciary, and gradually reduced
the role of the military. Rawlings created a system of local
government and forged a new constitution. He allowed political
party competition, private media development, and competitive
elections. Faced with economic disaster, in 1983 he embraced
IMF-led economic reforms which helped lay the foundation for food
security, improved social infrastructure and strengthened the
stability of many sectors of society.


7. (U) In December 2000, John Agyekum Kufuor became president. He
built on this stability, strengthening civil liberties and governing
institutions, further opening the political space and improving the
economy. In 2004, he initiated a National Reconciliation
Commission, which helped move the country beyond its often-turbulent
past.

Democracy in Ghana
--------------


8. (U) Ghana's political success today is reflected in several
prominent surveys. Ghana scores well on the Freedom House Index of
Political Rights, going up from a score of 2 to 1 in 2006 because of
the 2004 free and fair elections and a "general maturing of
electoral institutions." Ghana ranks among the best in the 2006
Fund for Peace Global Failed States Index, with only South Africa
and Mauritius scoring better in Africa. (The index tracks such
factors as demographic pressures, economic decline, criminalization,
violation of human rights, and factionalism.) In addition, Standard
and Poor and Fitch give Ghana a B-plus sovereign credit rating,
which reflects an assessment of limited political and economic risk
of default.


9. (U) Other surveys give Ghana somewhat weaker political marks.
The Economist Intelligence Unit's new 2006 democracy index ranks
Ghana a "hybrid regime," 95th out of 167 countries. Its overall
score of 5.35 out of 10 ranks below eight other countries in
sub-Saharan Africa and incorporates lower-than-average scores in the
categories of "functioning government," "political participation,"
and "political culture." The World Bank's "Governance Matters 2006"
report listed Ghana as a reformer, citing the country's progress on
governance. Nonetheless, it ranked Ghana seventh in Africa on good
governance, with a score of only 38 out of 100 on corruption. The
2005 NEPAD African Peer Review report on Ghana praised Ghana's
democratic progress as "remarkable, albeit fragile in some
respects." The review identified the problems of low governance
capacity, corruption, and weak intuitions as "likely to diminish the
sustainability of democratic politics."

Democracy Taking root
--------------


10. (U) After 15 years of democratic governance, Ghanaians are
committed to democracy. Voter turnout has been high in three
consecutive national, free and fair elections. The Center for
Democratic Development (CDD)'s 2005 Afrobarometer survey found that
since 1999 Ghanaians have overwhelming supported democratic
government.


11. (U) Ghana has long had significant space for opposition and
debate, starting with its lively multiparty competition prior to
independence, and carrying on to some extent even during periods of
military rule. Civilians had an important role in almost all of
Ghana's military governments. While parliament has become
increasingly polarized, there is still political space for the
opposition, with almost half of parliament in the hands of the main
opposition National Democratic Congress (NDC) party. This helps
keep inter-party friction within reasonable boundaries.


12. (U) Civil society groups, including religious associations, are
well organized. The majority of Ghana's educated elites studied in
ethnically mixed boarding schools, which helped build ethnic
tolerance. There is a lively, free media, which allows people to
vent frustrations and concerns.

Economics in Ghana
--------------


13. (U) Ghana's economy was relatively stable and prosperous at
independence, but fell into steady decline starting in the mid-1960s
as a result of political infighting, economic mismanagement and a
collapse in cocoa prices. Per capita GDP fell by 24 percent from
1970 to 1981, when inflation reached 116 percent. By 1983, the
economy was on the brink of collapse. With IMF and World Bank
support, Rawlings implemented significant reforms, including
removing trade barriers and exchange rate controls. While the
reforms caused substantial hardship in some sectors, particularly
agriculture and textiles, the overall effect was positive and helped
bring about a measure of economic stabilization and recovery.
However, a big drop in world cocoa and gold prices hurt growth and,
in the face of pending elections, spurred government spending,
leading to an increased deficit, falling currency and high inflation
at the time Kufuor took office in 2000.


14. (U) The economy has performed well under the Kufuor
administration but Ghana's fundamental vulnerabilities remain. The
Kufuor administration has continued the economic stabilization begun
under Rawlings, but major debt relief, large inflows of donor
resources and relatively high cocoa and gold prices have been key to
the steady improvements in the real GDP growth, which in 2004 topped
5 percent for the first time in a decade and reached an estimated
6.2 percent in 2006. Further debt relief, continued large aid
inflows, favorable commodity prices, and $4 billion in gross annual
remittances (note: this includes remittances from individuals as
well as NGOs and embassies; individual remittances are estimated at
about $1.8 billion in 2006) put Ghana in a stronger balance of
payment position than at the end of the Rawlings years.


15. (U) Ghana was recognized for its economic and democratic
achievements in 2006, when it signed a five-year, $547 million
anti-poverty Compact with the United States Millennium Challenge
Corporation. The Compact focuses on accelerated growth and poverty
reduction through agriculture and rural development. The Compact
has three main components: enhancing the profitability of commercial
agriculture among small farmers; reducing the transportation costs
affecting agricultural commerce through improvements in
transportation infrastructure; and expanding basic community
services and strengthening rural institutions that support
agriculture and agri-business. The Compact is expected to
contribute to improving the lives of one million Ghanaians.

16. In close coordination with other donors, USAID/Ghana supports
the Government of Ghana's poverty reduction strategy by
strengthening decentralized governance systems, promoting private
sector competitiveness, improving health care delivery, enhancing
access to quality basic education, and increasing food security.
Funding levels have averaged around $37 million per year from 2004
to 2007, plus an additional $22.5 million in food aid.

Economic and Health Challenges
--------------


17. (U) While Ghana's macroeconomic management has been good,
significant problems remain. Ghana is highly vulnerable to price
shocks in cocoa, gold, and to a lesser extent, timber (which
together account for 70 percent of exports). It remains heavily
dependent on foreign inflows of aid and on remittances (which
largely go into nonproductive activities, such as housing
construction, but have probably helped keep the currency relatively
stable).


18. (U) There has been little growth in the formal job sector,
which accounts for as little as 20 percent of employment. Seventy
percent of Ghanaian companies are micro-enterprises, with few
entrepreneurs possessing the capacity or resources to expand.
Financial services are growing but Ghana remains largely a cash
society and access to credit is difficult, short-term and expensive.
Infrastructure necessary to support growth is poor, particularly
power generation and water supply. The country is currently
experiencing a full-blown energy crisis with scheduled 12 hour power
outages every second day.


19. (U) The poverty rate has dropped to 28.5 percent in 2005/2006,
down from 40 percent in 1998/99, and many social indicators have
shown steady improvement over the past few decades. Nonetheless,
progress has been slower than hoped. Stability and GDP growth have
not yet translated into broad-based prosperity and well-being, and
income inequality is growing. Per capita gross national income was
$450 in 2005 compared to an average of $745 for low-income
sub-Saharan African countries, according to the World Bank's 2007
World Development Report.


20. (U) Maternal and infant mortality rates are well below levels
in the 1980s but remain high and have not changed in ten years.
While access to education has grown, quality is a major challenge.
Results from Ghana's National Education Assessment indicate that
less than 15% of Ghana's youth attain proficiency in Grade 6
English, and only 5% attain proficiency in Grade 6 mathematics. GOG
census data shows a slight drop in overall adult literacy from 58
percent in 1984 to 54 percent in 2000, below average for sub-Saharan
Africa. Although overall hunger levels have been reduced
significantly, food insecurity and malnutrition are problems in some
areas, with child malnutrition levels stagnant over the past decade.
Guinea worm infection has re-emerged while malaria remains endemic.
In the past few years, the quality of basic social services has
deteriorated.

The Dissatisfied poor
--------------


21. (U) Most Ghanaians reportedly do not feel they have benefited
from the country's macroeconomic success, according to several
recent studies. According to the Center for Democratic
Development's 2005 Afrobarometer survey, 53 percent of respondents
thought their standard of living had declined over the previous
year, compared to 38 percent in a similar survey in 2002.
Respondents in 2005 were significantly gloomier than 2002 about
their economic future.

Other Challenges
--------------


22. (U) In his New Year's address to the nation, Kufuor noted
Ghana's main challenges in 2006: high oil prices, road and boat
accidents, narcotics trafficking, an increase in violent crime, and
power shortages. These developments "failed to destabilize the
society and economy to the extent that was feared," he concluded,
crediting the openness of social discourse, efficient macroeconomic
management and a gradual but steady improvement in law and order.


23. (U) Ghana's politics remain highly polarized between the ruling
New Patriotic Party (NPP) and main opposition National Democratic
Congress (NDC) party (there are also nine smaller parties).
Increasingly, Ghanaian politics is focused on the presidential and
parliamentary election of 2008, which is already causing significant
inter- and intra-party friction. The NDC has chosen its candidate,
former Vice President John Atta Mills, who is actively campaigning.



24. (U) The NPP has almost 20 presidential aspirants and will
choose its presidential candidate in a National Convention in
December 2007. President Kufuor recently asked the eight sitting
ministers who are also presidential aspirants to resign. While it
is unclear at this point if they will resign immediately, those who
are serious about running for president will likely resign or be
forced out of office in the coming months, including Foreign
Minister Nana Akufo-Addo, Defense Minister Addo Kufuor and Trade and
Industry Minister Alan Kyerematen.


25. (U) Corruption and cronyism are problems. Ghana also faces a
range of security challenges, including a rise in violent street
crime, a proliferation of small arms, and an increase in narcotics
trafficking, including trafficking of cocaine and heroin to the
United States.

U.S. - Ghana Relations
--------------


26. (U) U.S. - Ghana relations are excellent and broad-gauged. The
U.S. Mission in Ghana is the third-largest U.S. Mission in Africa.
It includes the oldest Peace Corps program in the world and our
development assistance program began with Ghana's independence. The
United States has strong commercial, political, military-military,
and people-to-people relations with Ghana. The Embassy moved into a
new $100 million complex in June.

Internationalism: The AGOA Forum in Context
--------------


27. (U) Ghana is playing an increasingly significant global
leadership role, as a non-permanent member of the UN Security
Council, member of the Board of the International Atomic Energy
Agency, active member of the Economic Community of West African
States (ECOWAS) and recently selected chair of the African Union.


28. (U) Ghana's role as co-host of the AGOA Forum reflects this
expanded international profile. The Government of Ghana took the
lead to define the structure and agenda of this year's Forum. The
Minister for Trade, Industry, Private Sector and President's Special
Initiatives, Alan Kyerematen argued forcefully that the Forum should
belong to the Africans and has been personally involved in every
substantive decision related to the Forum. The agenda for the Forum
is designed to produce discussion of practical benefit to
AGOA-eligible countries. It is meant to: provide a realistic
assessment of how AGOA has been implemented so far; look at key
sectors which have been identified as of interest to Africans; and
identify tools Small and Medium Sized Enterprises (SMEs) can use to
overcome challenges to maximizing benefits available to them under
AGOA.


29. (SBU) In order to foster dialogue and practical outcomes, the
GoG decided the private sector and civil society would be integrated
into the main forum, rather than run parallel events as has occurred
in the past. Implementing the GoG vision of a unified Forum has
presented coordination challenges; representatives from the private
sector and civil society representatives have expressed concern that
they have not been consulted or included as fully as they would have
liked.


30. (SBU) Minister Kyerematen has been the driving force behind the
African Trade Ministers consultative group and has pushed for the
African regional economic communities to develop strategic AGOA
implementation plans. However, at the request of President Kufuor,
all ministers aspiring to run for President, including Minister
Kyerematen, have submitted their resignations. Kufuor has accepted
the resignations but they will not become effective until
replacements are in place. We expect Kyerematen to stay on through
the Forum. Nevertheless, Kyerematen's near-term resignation means
he will not be able to drive follow-up; it is not clear who among
the African ministers will pick up the reins.

Bridgewater