US embassy cable - 05ACCRA1134

UNCLAS  ACCRA 001134 
 
SIPDIS 
 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, KMCA, EAGR, EFIN, ECPS, ENRG, GH 
SUBJECT: GHANA ECONOMIC HIGHLIGHTS, MAY 2005 
 
 
1. (U) This report covers noteworthy economic events and 
activities in Ghana for May 2005.  The issues covered are: 
 
-- GoG Moves Forward on MCA Program Development 
-- Ghana Hosts G8/NEPAD Summit on Agriculture 
-- GoG/donors discuss new Poverty Reduction Strategy 
-- Local Poultry Producers Sue Government 
-- GOG Reaches Agreement with Telecom Malaysia 
-- Economic Indicators Update:  Inflation Declines, Central 
Bank Cuts Prime Rate, Smaller Cocoa Crop 
 
GOG Moves Forward on MCA Program Development 
-------------------------------------------- 
2. (SBU) A team from the Millennium Challenge Corporation 
(MCC) visited Ghana in May to examine and advance Ghana's 
Millennium Challenge Account (MCA) program design and to 
begin discussions on a MCA compact.  During a three-day 
offsite, MCC officials and the GoG's core MCA team 
(established in April with a budget of $500,000) agreed on a 
work plan for completing Ghana's compact.  Ghana's proposed 
MCA project is for approximately $290 million and has four 
components supporting agri-business development: 
infrastructure; financial services; business services; and 
policy reforms.  The program targets three regions, selected 
for their agricultural growth potential and because they are 
among the poorest areas of Ghana. 
 
3. (SBU) Although Ghana got off to a slow start with its MCA 
planning, MCC, USAID, and State combined to persuade 
President Kufuor to become more actively involved and 
recommit the GoG to accelerating the MCA Compact process. 
Ghana is gaining momentum now:  the two sides are currently 
in the program development phase of the process, and the goal 
is to sign a compact by the fourth quarter of 2005.  (Note: 
The MCC has approved 609(g) funding for Ghana to assist the 
development of the Compact.  The funds will support an 
irrigation system feasibility study as well as the collection 
of household baseline data in the targeted regions.  End 
Note).  Once the proposed program is complete, the MCC will 
conduct formal due diligence, followed by negotiations.  The 
MCC will then submit the agreed upon Compact to the MCC 
Investment Committee for approval, after which it will go to 
the MCC Board and then Congress. 
 
Ghana Hosts G8/NEPAD Summit on Agriculture 
------------------------------------------ 
4. (U) The GoG hosted the G8/New Partnership for African 
Development (NEPAD) Summit on the Comprehensive Africa 
Agriculture Development Program (CAADP) May 5-6.  The Summit 
coalesced agriculture development programs that were drafted 
at separate regional summits by various African governments, 
NGOs, donors, and private sector parties.  The successful 
combination of the regional plans ensured that the 
comprehensive CAADP would be on the agenda for the G8 meeting 
at Gleneagles, Scotland (July 6-8).  USAID worked with the 
NEPAD Secretariat in South Africa and the local Ghana 
organizing committee, chaired by the Office of the President, 
to help develop the CAADP agenda, provide logistical support 
and sponsorship for many of the African regional 
organizations who attended the Ghana conference.  USAID 
Deputy Administrator for Africa, Lloyd Pierson, and USAID 
Assistant Administrator for Policy, Doug Menarchik, jointly 
led the USG delegation to the summit. 
 
GoG/donors discuss new Poverty Reduction Strategy 
--------------------------------------------- ---- 
5. (SBU) Finance Minister Baah-Wiredu and World Bank Country 
Director Mats Karlsson hosted a "mini-consultative group" 
meeting May 31 for Development Partners (DPs) to discuss the 
Growth and Poverty Reduction Strategy (GPRS II) for 
2006-2009.  The current Ghana Poverty Reduction Strategy 
expires 2005.  "Growth" will replace "Ghana" in the GPRS to 
emphasize that the key to poverty reduction is economic 
growth.  The GoG plans to finalize the GPRSII by June 30.  It 
is vetting the draft GPRSII with stakeholders, after which it 
will present it to Cabinet and Parliament.  The World Bank 
urged DPs to respond to the GPRSII by drafting a Joint 
Assistance Strategy (by September 2005).  The World Bank 
proposed that the GoG host a Consultative Group meeting in 
mid to late October 2005. 
 
6. (SBU) GPRSII's goals are to decrease poverty and 
accelerate growth to ensure Ghana becomes a middle income 
($1,000 GDP/capita) country by 2015.  GPRSII assumes 
population growth below 2.6%, fiscal discipline; sub-10% 
price inflation, and a stable exchange rate.  The four 
pillars of GPRSII are: 1) growth through the private sector; 
 
2) human resource development; 3) good governance; and 4) 
addressing the needs of the vulnerable and excluded. 
 
7. SBU) DPs urged the GoG to prioritize the elements f 
GPRSII, focus on the private sector, develop te vulnerable 
and excluded pillar, which ws weak in the first GPRS, and 
address corruption and much needed public sector reform.  DPs 
noted that the GoG should incorporate the completed (but not 
yet disseminated) NEPAD African Peer Review into the GPRSII, 
and should develop a monitoring and evaluation system to 
track results. 
 
Local Poultry Producers Sue Government 
-------------------------------------- 
8. (SBU) Ghana's poultry farmers have sued the Attorney 
General and Speaker of Parliament for neglecting to impose an 
increase in tariffs on imported poultry, claiming they have 
endured intense competition from foreign imports.  In 2003, 
Parliament passed a bill to raise the tariff on finished 
imported poultry from 20% to 40% to protect the domestic 
industry.  However, Ghana's farmers claim the Customs, Excise 
and Preventative Service (CEPS) suspended implementation of 
the new bill, leaving tariffs at 20%.  (Comment:  the GoG 
abandoned the new bill under pressure from the IMF and other 
donors.  According to local importers, including of U.S. 
poultry products, the GoG has instead controlled the volume 
of imports by limiting import permits.  Ghana's Director of 
Veterinary Services, charged with evaluating import permits, 
has even admitted to controlling the volume of poultry 
imports to protect domestic producers from foreign 
competition.  End Comment). 
 
GOG Reaches Agreement with Telecom Malaysia 
------------------------------------------- 
9. (U) The GoG has reached an agreement with Telecom Malaysia 
(MTB) to buy MTB's 30% stake in Ghana Telecom (GT).  In 
exchange, MTB will drop its arbitration case against the GoG, 
ignited in 2001 when the GoG used its 70% stake in GT to oust 
MTB's management team.  The GoG will also return $50 million 
that MTB paid for an additional 18% stake it never received. 
KPMG will value MTB's GT stock at current market value.  The 
transaction will leave the GoG as the sole shareholder in GT. 
 
Economic Indicators Update 
-------------------------- 
10. (U) Inflation Falls Marginally:  the 12-month inflation 
rate fell slightly from 16.7% in March to 16.6% in April, due 
to lower food and non-food prices in April.  Inflation jumped 
up from 11.6% in January to 16.7% in March after a 50% hike 
in the price of petroleum products in February.  The Bank of 
Ghana (BoG) states that the spike in inflation was driven 
solely by the fuel price increase.  BoG officials believe the 
April numbers confirm the shock was a one-off effect and that 
prices are returning to their normal trend path.  However, 
future petroleum price increases may still be necessary, 
which could jeopardize  the GoG's 2005 inflation target of 
13.5%. 
 
11. (U) Central Bank Cuts Prime Rate: The BoG reduced its 
prime rate from 18.5% to 16.5% on May 30, basing its decision 
on continuing strong economic fundamentals.  The cedi 
depreciated against the dollar by only 0.6% in March 2005 
compared with 4.8% in March 2004 reserve money increased by 
24.8% in March 2005 vrsus 35.3% in March 200, and money 
supply incresed by 23.9% in March 2005 compared with 39.7% 
i March 2004. 
 
12. (SBU) 2005 Cocoa Production to Decline by 23%:  The 
volume of cocoa produced is expected to fall from 735,000 
metric tons to 600,000.  BoG Governor Paul Acquah attributes 
the fall to changes in the harvesting cycle and the late 
flowering of cocoa trees.  Market analysts, however, believe 
that a crackdown on smuggled cocoa beans from Cote D'Ivoire 
could also be a factor.  Smuggled Cote D'Ivoire beans reduced 
the quality of Ghana's cocoa bean exports in 2004.  This led 
to over 10 arbitration cases against the Ghana Cocoa 
Marketing Company.  GoG authorities are now trying to 
preserve the quality of the cocoa beans, and thus are seeking 
to curb smuggling.   The significant reduction in the 
production volume may make it difficult for the GoG to hit 
its growth target of 5.8% for 2005, since cocoa is the 
largest contributor to economic growth (comprising 17% of 
2004's 5.8% GDP growth). 
YATES 
 
 
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