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
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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.

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Banking
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Ghanaian Banks Get Reprieve in Bank Recapitalization
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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


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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