Ghana - Economic Round-up

UNCLAS SECTION 01 OF 02 ACCRA 002484

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EAGR ENRG GH
SUBJECT: Ghana - Economic Round-up

Ref: Accra 2169


1. (U) Summary: this cable provides a summary of notable
developments in the economic sector in October and November: --
Parliament Passes Anti-Money Laundering Bill;
-- Central Bank Proposal to Raise Banks' Capital Base;
-- Bank of Ghana Monetary Policy Committee Increases Prime Rate;
-- Cocoa Production Set to Increase in 2007/2008;
-- GUTA Demonstrates Against Foreign Retailers;
-- Telecom Privatization Updates
Cable on 2008 budget presented November 15 will follow septel.

Parliament Passes Anti-Money Laundering Bill
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2. (U) On November 2, 2007 Parliament passed the Anti-Money
Laundering bill, which broadly prohibits money laundering. The bill
is awaiting the President's signature to become law. Most notably,
the bill creates a Financial Intelligence Unit that will gather and
analyze intelligence to help in identifying proceeds of unlawful
activity. The new law strengthens Ghana's only money laundering
law, the Narcotics Drugs (Control, Enforcement and Sanctions) Law,
1990 (PNDCL 236),which criminalizes money laundering only as it
relates to narcotics. A related law that deals with the proceeds of
unlawful activity including money laundering is being drafted.


Central Bank Proposes to Raise Banks' Capital Base
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3. (U) The Bank of Ghana in October 2007 proposed an increase in
the minimum capital base for banks in Ghana from the current
requirement of 7 million Ghana cedis (about USD 7.4 million) to 50
to 60 million Ghana cedis. The aim of the proposal is to enable the
financial institutions to take on bigger transactions in areas such
as infrastructure and to absorb increased risks. Currently, no bank
is able to lend more than $10 million to a single borrower.
According to the Deputy Governor of the Bank of Ghana, the total net
worth of all the banks in Ghana is about 749 million Ghana cedis
which is less than the $900 million borrowed by only COCOBOD for the
2007/2008 season cocoa beans purchase from farmers.


4. (SBU) This measure may force some consolidation among the banks
as not all will be able to raise the necessary capital. In order to
avoid a chaotic transition, the Deputy Governor said that banks that
cannot meet the new requirement will be able to remain in business
but will not have access to direct clearing with the central bank.
They will need to do that through a bank that meets the new higher
capital requirement. The banks are expected to present their
capitalization plan to the central bank by December 31, 2008 and
meet the requirement by January 2009, but there is discussion of
offering an additional six months grace period.


5. (U) Currently, the increase can easily be met by the foreign
banks and two local banks. Ten smaller local banks feel threatened
by the central bank's proposal and have formed an association of
indigenous Ghanaian banks. The banks are in discussion with the
central bank to ensure that they are not marginalized.


Bank of Ghana Monetary Policy Committee Increases Prime Rate
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6. (U) The Monetary Policy Committee (MPC) on November 2, 2008
increased the Bank of Ghana prime rate to 13.5 percent from 12.5
percent, where it had been since December 2006. The last change
occurred in December 2006 when it was decreased from 14.5 percent to
12.5 percent. According to the MPC, the decision to raise the prime
rate is due to the increase in core inflation (core inflation
excludes energy and utility prices and selected food items subject
to volatility) by 0.7 percentage points from September to October
2007, bringing it to 8.2 percent in following several months of
decline in the single digit range. This signals the underlying
pressures from the year long energy crisis and rising food and fuel
prices in the economy. The bank is also worried about fiscal
slippages, increasing liquidity and the potential labor demand for
pay increase in 2008, which is an election year.


7. (U) One bank has already increased its base lending rate by one
percent to 20.5 percent. Other banks can be expected to follow
suit. Bank lending rates are minus two or plus six of their base
rate. Some experts believe this may not be the MPC's last increase
since this may not have the desired effect of slowing the growth in
liquidity.


Cocoa Production Set to Increase in 2007/2008
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8. (U) The Ghana Cocoa Board forecasts cocoa production to be about
650,000 metric tons for the 2007/2008 season which is about 36,000
metric tons above 2006/2007 season output. A private research

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company also forecasts 700,000 metric tons. Favorable rainfall has
improved the prospects for cocoa production for the main crop which
began in October 2007. However, prolonged rainfall in some areas
threatens the increase because of the rise in the incidence of black
pod disease.


9. (SBU) There is concern among buyers over the improper use of
pesticides on the plants, particularly in Cote D'Ivoire. This has
led to a decision by one major buyer to shift all its purchase to
Ghana.


GUTA Demonstrates Against Foreign Retailers
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10. (U) Members of the Ghana Union of Traders Associations (GUTA)
on November 14 closed their shops and marched in Accra to protest
what they term as unfair competition from foreign retailers. GUTA
says the Ghana Investment Promotion Center (GIPC) is not
implementing the GIPC provisions that require trading companies
either wholly or partly-owned by non-Ghanaians to have a minimum
foreign equity of USD 300,000 and employ at least ten Ghanaians.
Foreign investors, including Chinese, Nigerians, Indians and Turks
have also set up retail shops after registering with the GIPC to
operate as import and distribution businesses.


11. (U) The GIPC has recently taken enforcement actions against 18
firms, either by closing them or requiring compliance with the terms
of their registration (i.e., to operate only in the wholesale
market). GIPC is also considering a proposal from GUTA to increase
minimum capital requirement to between one million dollars and 1.5
million dollars and employment of Ghanaians to 25.


12. (U) GUTA is made up of the following associations; Abbosey Okai
Spare Parts Dealers Association, Odaw River Spare Parts Dealers
Association, Ghana Electrical Dealers Association, Ghana Electronics
Dealers Association, Fishing Nets Traders Association, Kantamanto
Hardware Traders Association, Kantamanto Second Hand Clothes Dealers
Association, Sawing Accessories Sellers Association, among others.

Telecom Privatization Updates
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13. (U) There is uncertainty over whether government will be able
to conclude the sale of its two telecom companies before the end of
the year. Failure to conclude this will worsen government's budget
deficit position, as the 2007 budget included an expectation of
about $500 million from the sale of these companies.


14. (SBU) After the botched sale of Westel to Kinz Telecom (see
reftel) government selected Celtel at an agreed price of $120
million s opposed to the $250 million Kinz price. According to the
GoG, the Celtel price is without Wimax and 3G licenses. It is now
rumored that the Celtel deal is being held up because of tax
exemption negotiations.


15. (SBU) For Ghana Telecom, it has been reported that out of the
final three companies, France Telecom, Vodacom and Telecom Portugal,
short-listed for the purchase of 51 percent of Ghana Telecom, France
Telecom has been selected but has yet to negotiate a price with
government. However, we understand the initial bids were well under
$500 million, which the government will probably reject as too low.
The Chief Director of the Ministry of Communications said reports of
any decision are untrue and that he believes a bid of $500-$600
million would be far too low given GT's extensive infrastructure
assets.

Bridgewater