Ghana: Input for AGOA Eligibility Review

UNCLAS ACCRA 001324

SIPDIS

STATE FOR AF/EPS-MALLORY AND BREITER; STATE PASS TO USTR

E.O. 12958:N/A
TAGS: ECON ETRD GH
SUBJECT: Ghana: Input for AGOA Eligibility Review

REF: A) STATE 85086

Country Background Summary
--------------


1. Ghana is a country of 22 million people with a constitutional
democracy dominated by a strong presidency. President John Kufuor
has governed since assuming office democratically in January 2001,
succeeding Jerry Rawlings, who ruled for 19 years. Presidential
elections are scheduled for 2008.


2. The Bank of Ghana estimated 2007 GDP to be $15.2 billion. The
Government of Ghana (GoG) is pursuing generally sound monetary and
fiscal policies, but increased spending to address strong growth
constraints and rising oil prices have weakened macroeconomic
stability in 2008. Real GDP growth has exceeded 5% annually
starting in 2003 and was an estimated 6.3% in 2007. The growth has
been accompanied by a significant decrease in poverty. In 1991,
51.7% of Ghana's population lived in poverty; for 2005/2006, the
figure is 28.5%. Ghana is on track to be the first sub-Saharan
African country to reach the Millennium Development Goal of reducing
the percentage of people living in poverty by 50%.


3. Ghana reached HIPC Completion Point in July 2004 and is a
beneficiary of the Multilateral Debt Relief Initiative (MDRI).
Total debt relief under HIPC and MDRI is expected to total more than
$215 million in 2008.


4. Overall U.S. trade with Ghana increased in 2007 compared to

2006. U.S. exports to Ghana in 2007 were $404 million and imports
were $199 million. Imports under AGOA (including GSP) also
increased to $69 million from $45 million in 2006. The first half
of 2008 shows an increasing trend. Total trade increased about $142
million (from about $290 million to about $432 million) compared to
the same period in 2007 and imports under AGOA plus GSP decreased
slightly from $40.2 million to $37.3 million.

--------------
Comments on Eligibility Requirements
--------------

Market-based Economy
--------------


5. Major Strengths Identified

-- Ghana has a market-based economy with fewer policy barriers to
trade and investment relative to other countries in the region.
-- The GoG strengthened fiscal and monetary policies considerably
over the past 10 years, reining in spending and borrowing,
eliminating price controls and cutting subsidies but over the last
year inflation and the fiscal deficit have risen sharply as oil
prices and government spending have increased.
-- Increased cocoa and gold prices since 2002, along with relatively
good macro-economic management, helped bring stronger growth rates.
-- The government turned over the regulation of fuel prices to an
independent authority and prices now reflect costs. The government
has committed to cost-recovery tariffs for utilities and made
significant increase in 2007. In 2008, however, the government only
raised tariffs for mining companies, while other users are
subsidized.
-- According to the July 2008 Bank of Ghana Monetary Policy
Committee Report, private remittances (transfers from NGOs,
religious groups, and individuals) increased about 33% to $4.2
billion for January-June 2008 compared to the same period in 2007.
Of the total, about 19%, or $790 million accrued to individuals.
-- Encouraging foreign investment is a government priority. Ghana
has attracted $1.5 billion in foreign direct investment since the
beginning of the Kufuor Administration in January 2001. According
to Bank of Ghana balance of payments data, Ghana attracted about
$466 million in foreign investment in 2007, compared to $435 million
in 2006.
-- In June 2008, Standard & Poor's affirmed Ghana's B plus sovereign
debt rating, first issued in September 2003 and Fitch Rating Agency
raised its rating to B plus in March 2005. However, in 2008 Fitch
cut the outlook on Ghana's sovereign B plus credit rating to stable
from positive, citing rising external financing needs and a widening
current account gap. The ratings serve as useful benchmarks to
measure economic progress in Ghana.
-- The World Bank Doing Business Indicators published in 2007 showed
that Ghana was one of the world's top ten reformers in 2006-2007.
-- The IMF projects that the recent oil discovery is expected to
generate additional fiscal revenue of about 3 Q 4 of percent of GDP
annually for the next 20 to 30 year period.



6. Major Issues/Problems Identified

-- The GOG faces serious challenges in continuing structural reforms
and translating macro stability into widely shared prosperity.
Income inequality is rising.
Labor productivity is low; most jobs generated over the last 15
years are characterized by low pay and low productivity.
-- The fiscal deficit increased to more than 9% of GDP in 2007 in
part due to investment to address energy supply bottlenecks,
above-budget spending on the public sector wage bill, and increased
utility subsidies.
-- Ghana has privatized the majority of its parastatal companies.
Two telecom companies were privatized in 2008, but progress has been
slow on divestiture of the Tema Oil Refinery.
-- Domestic credit and subsidies to public utilities continue to
present quasi-fiscal problems and the GoG has yet to resolve the
management problems and inefficiencies in the state-owned utility
companies.
-- U.S. firms have expressed concerns regarding the lack of
transparency in government procurement, although there have been no
formal complaints to the GoG. The concerns are mainly related to:
1) undefined timeframes for rendering decisions; 2) unclear bidding
requirements; and 3) allegations of favoritism.
-- The business and investment climate, while improving at a good
rate, remains challenging.
-- The GoG continues to pursue a practice of intervention in the
economy. Investors typically cannot move forward without engaging
the government at its highest levels.
Land tenure issues compound investment challenges.
-- GhanaQs infrastructure is inadequate to support more rapid
development and the needs of the private sector. Energy and water
are often in short supply and major roads are poorly maintained and
congested. Failure to address infrastructure needs sustainably
will undermine Ghana's growth prospects and attractiveness to
investors.

Political Reforms/Rule of Law/Anti-Corruption
--------------


7. Major Strengths Identified

-- The Kufuor Administration has pledged a commitment to ensuring
the rule of law. Ghana has passed important anti-corruption
legislation, including public procurement, audit, financial, and
whistleblower laws.
-- The presidential elections of 2004 were peaceful, free, and
transparent. Democracy continues to be vibrant, with the two major
parties vigorously contesting each other, and with a lively, free
media and civil society. The Electoral Commission certified two new
political parties in August 2006. Presidential and Parliamentary
elections are scheduled to take place in December, 2008.
-- The GoG worked to reduce the backlog in its courts by
establishing a commercial court and automating High Courts
authorized to hear cases involving banks, investors, human rights,
electoral petitions, government revenue, specified commercial and
industrial cases and certain criminal cases.


8. Major Issues/Problems Identified

-- Police use of excessive force resulted in the deaths of several
suspected criminals as well as in the deaths and injuries of several
innocent bystanders. Members of the police beat suspects in
custody, and police arbitrarily arrest and detain persons.
-- Vigilante justice has increased sharply, due in part to delays in
prosecuting suspects, rumors of police collaboration with criminals,
and a widespread perception of police ineptitude.
-- Court delays persist, even in the "Fast Track" automated courts.
At least one American investor encountered more than three years of
repeated delays before a judgment was finally rendered.
-- The integrity of the judicial system is compromised by corruption
and a severe lack of financial, human, and material resources.
-- Corruption is pervasive among all branches of government. Police
set up barriers to extort money from motorists, and judicial
officials accept bribes in exchange for expedited or postponed cases
or for losing records.
-- Arbitrary arrest and detention, and prolonged pretrial detention,
remain problems.
Prison conditions continue to be harsh and life-threatening.
Juvenile detainees are not housed in separate facilities.
-- Anti-corruption institutions are weak. A 2005 survey conducted
by the local chapter of Transparency International revealed that 92
percent of respondents considered corruption a serious problem in
Ghana. Significant oil and gas discoveries have the potential to
exacerbate institutional corruption.
-- Parliament is weak; it does not have independent financial
authority and is heavily influenced by the executive branch.

Poverty Reduction
--------------


9. Major Strengths Identified

-- Ghana's poverty reduction strategy is set out in its Growth and
Poverty Reduction Strategy (GRPS) II, 2006-2009, which builds on
GPRS I. The central objective of GPRS II is to increase growth to 8
percent annually in order to accelerate the pace of poverty
reduction and progress toward achievement of other MDGs, and reach
middle income status by 2015.
-- Coordination with and among donors in support of poverty
reduction is relatively strong, helping to minimize duplication and
inefficiencies.
-- Poverty declined, from about 42 ercent in 1997 to 28.5 percent
in 2005/2006.
-- Debt relief under HIPC and the MDRI will make about 1.3 billion
available during the GPRS II period (2006-2009) primarily for
support of goals under GPRS II.


10. Major Issues/Problems Identified

-- Ghana continues to have significant levels of poverty,
particularly in certain regions where rural poverty tops 90 percent,
and income inequality is increasing.
-- The government's actual commitments do not always back up the
rhetoric. For example, education and health spending as a
percentage of GDP is flat and donors pick up about 90 percent of the
water and sanitation development budget which includes
infrastructure, training and capacity building.
-- GhanaQs aggressive move to take full advantage of the apparel
benefit under AGOA is facing serious problems. Major apparel
factories have not made significant exports in 2008. Apparel
exports decreased in 2007 and exports at end of June 2008 was $0.7
million compared with $5.2 million in the same period in 2007.

Workers' Rights/Child Labor/Human Rights
--------------


11. Major Strengths Identified

-- Labor unions have legal protections in Ghana and operate in both
the public and private sectors.
-- Ghana is a signatory to ILO convention 182 on the worst forms of
child labor.
The 2006 Ghana Poverty Reduction Strategy II commits to intensifying
efforts to combat the worst forms of child labor and continues to
implement the 2006-2011 National Plan for Elimination of Child Labor
in Ghana. The government is also collaborating with ILO-IPEC on a
4-year, $4.75 million USDOL-funded QTimeboundQ program, which
establishes timeframes for progress on the elimination of selected
worst forms of child labor in Ghana.
-- The National Labor Commission, an independent body that
arbitrates labor disputes, was established to bring Ghana's labor
laws into conformity with the ILO Convention and became operational
in 2005.
-- In October 2005, the newly-created Union of Industry, Commercial
and Financial Workers (UNICOF) was incorporated, representing the
interests of workers at Ghana Commercial Bank, Standard and
Chartered Bank, Ghana National Procurement Agency, and Agricultural
Development Bank, among others.
-- The GoG has increased its efforts to fight trafficking in persons
through cooperation with NGOs and international organizations to
identify and return internally trafficked children. In February,
the GoG successfully prosecuted a trafficking case for the first
time.
-- Ghana is working closely with the U.S. and other donor countries
to assess the extent of cross-border trafficking.
-- In spite of some problems on its human rights record, the GoG
continues efforts to improve its human rights practices.
-- Police received training in tactics of non-lethal force and human
rights protection.
The GoG passed the Domestic Violence Bill in February 2007, which
defines domestic violence and provides greater protection to its
victims. The GoG also strengthened the Domestic Violence Victim
Support Unit to aid women and children who have been victims of
domestic violence, and the courts increasingly gave longer prison
sentences for those crimes.
-- In June 2007, the law was amended to confer jail sentences on
convicted practitioners of female genital mutilation (FGM).


12. Major Issues/Problems Identified

-- While the law allows unions to conduct most of their activities
without interference, only unions that represented the majority of
workers in a given company can obtain a Collective Bargaining
Certificate, which is required to engage in collective bargaining.
- While there was an increase in the minimum wage, it did not
provide a decent standard of living for a worker and family.
Violation of the minimum wage law is widespread.
Forced and bonded child labor is a problem and is common in the
agricultural and fishing industries, domestic work, and quarries.
-- Women and children continued to be trafficked for forced labor
especially in the informal sector. In some cases the situation can
lead to the sexual exploitation of women (who are trafficked for
forced labor).
-- Violence against women and children continues to be a problem.
Domestic abuse was rarely prosecuted and the cases were often on
trial for three years or more.
FGM is practiced, particularly in the northern regions of the
country.
Societal discrimination against women, persons with disabilities,
homosexuals, and persons with HIV/AIDS occurred throughout the
country, particularly in rural areas.

International Terrorism/U.S. National Security
-------------- -


13. Major Strengths Identified

-- The GoG has been explicit in its sympathy and support for the
United States regarding September 11 and the fight against
terrorism. It has ratified or acceded to all international
anti-terrorism conventions.


14. Major Issues/Problems Identified

-- Narcotics trafficking and financial crime are serious and growing
problems.
-- GOG police and counterterrorism institutions are weak. Ghana
lacks terrorism finance legislation.

BROWN