Ghana - Economic Round-up

UNCLAS SECTION 01 OF 02 ACCRA 000415 SIPDIS SIPDIS E.O. 12958: N/A TAGS: ECON EFIN EAGR ENRG GH SUBJECT: Ghana - Economic Round-up Ref: Accra 225 ¶1. (U) Summary: this cable provides a summary of notable developments in the economic sector in February 2008 and March 2008: -- Inflation Continues to Rise; -- Cocoa Farmgate Price Increased to Check Smuggling; -- Banking Ghanaian Banks Get Reprieve in Bank Recapitalization; Libyan Bank Opens in Ghana; -- Rail Strike; -- First Provisional License for Credit Reporting. End Summary. Inflation Continues to Rise -------------- ¶2. (U) Inflation for February 2008 rose to 13.21 percent from 12.81 percent in January 2008. This is the fifth consecutive increase after declining to 10.2 percent in September, 2007 and is well above the target of 6-8 percent for 2008. The rise in inflation is largely explained by higher food prices and the increasing price of petroleum products. Inflation may continue to climb upwards until June when the harvesting period begins. ¶3. (U) In response to the underlying inflationary pressures, the central bank tightened its monetary policy by increasing the prime rate to 14.25 percent from 13.5 percent. This is the second increase in 5 months. The rate was raised from 12.5 percent to 13.5 percent in November 2007. Some banks have responded by increasing their base rates by 1 percent. The dampening effect on credit growth is yet to be felt. Cocoa Farm Gate Price Increased to Check Cocoa Smuggling -------------- ¶4. (U) The government of Ghana in February raised the farm gate price of cocoa beans by 26.4 percent in an effort to check the smuggling of the crop to Cote D'Ivoire and Togo. Smugglers have been taking advantage of the price disparity between countries. The farm gate price in Cote d'Ivoire, which fluctuates with world market prices, was higher than Ghana's price which is fixed by the GoG. One analyst estimated that 20,000 tons of cocoa were smuggled over the border during the season. The increase from GHC 950 (about USD 1,000) per ton to GHC 1,200 (about USD 1,263) was on par with the average price in February in Cote d'Ivoire. However, Ghanaian farmers who sell to licensed buyers are assured of a bonus at the end of the season, which would bring the Ghanaian price above prices in Cote d'Ivoire. This is the first time the GoG has raised prices in the middle of a season and it appears to have stemmed the smuggling to a large extent. In the past, more emphasis was laid on border patrols to check smuggling. The cocoa crop, as of the end of the 2007/2008 season in August, is expected to exceed the projected 650,000 tons by about 50,000 tons. -------------- Banking -------------- Ghanaian Banks Get Reprieve in Bank Recapitalization -------------- -------------- ¶5. (U) Existing banks with Ghanaian majority share ownership (local banks) will have until 2012 to fully increase their capital base to GHC 60 million (about USD 63 million),while banks with majority foreign ownership need to meet the target by 2009. The local banks are, however, expected to increase their capital base to GHC 25 million by the end of 2010 from the current minimum capital requirement of 7 million Ghana cedis (about USD 7.4 million) for all banks. The central bank, Bank of Ghana, extended the timeframe after the local banks contended that it would not be possible for them to raise GHC 60 million within two years. ¶6. (U) All new banks will be required to have a capitalization level of GHC 25 million at the start of their operations, but should attain GHC 60 million by 2009 for foreign banks and 2012 for local banks. ¶7. (U) Ten of the 27 banks in Ghana are local banks, only two of which have a capital base exceeding GHC 60 million. Some analysts believe the time extension for local banks to meet the new capital requirements will slow consolidation in the sector that many believe is necessary. Libyan Bank Opens in Ghana -------------- ¶8. (U) The first Libyan bank in Ghana, BSIC Ghana Limited, a Sahelo-Saharienne Bank for Investment and Commerce was inaugurated by President Kufuor on March 25, 2008. It is reported to be its 12th country branch in Africa and the 27th bank in Ghana. The opening is a follow up to Ghana's ascension to the membership of the Sahelo-Saharienne Community. Rail Strike ACCRA 00000415 002 OF 002 -------------- ¶9. (U) Ghanaian rail workers have been on strike since February 12 over salary arrears and a demand for a large increase in salaries. The Ghana National Railway Company Limited (GRCL) is supposed to operate on a full cost recovery basis but has been suffering considerable losses for several years. Typical of other struggling State-owned enterprises, management acknowledges the need to lay off some workers but argues it cannot afford the severance pay. Ghanaian commerce does not rely heavily on rail; the impact is greatest on bauxite, manganese, cocoa and timber sectors. The Managing Director of GRCL estimates the company is losing about USD 30,000/day in revenue. First Provisional License for Credit Reporting -------------- ¶10. (U) XDSData Ghana Limited, a South Afican - Ghanaian joint venture, has received a provisional license to operate as the first Credit Reporting Company in Ghana. It is expected that their operation will improve access to information on borrowers especially for retail banking. Brown