US embassy cable - 05ACCRA2012

UNCLAS SECTION 01 OF 02 ACCRA 002012 
 
SIPDIS 
 
SENSITIVE 
 
DEPARTMENT PLEASE PASS FOR TREASURY LUKAS KOELER 
MILLENNIUM CHALLENGE CORP. FOR ROD NORMAN 
COMMERCE FOR MARIA RIVERO 
USTR FOR LAURIE-ANN AGA 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, EAGR, ETRD, EAID, ENRG, GH 
SUBJECT: GHANA ECONOMIC HIGHLIGHTS, SEPTEMBER 2005 
 
1. (U) This report covers noteworthy economic events and 
activities in Ghana for September 2005.  The issues covered 
are: 
 
-- GoG/Donors plan for November 7 Consultative Group Meeting 
-- U.S. Customs Assesses Ghana Customs' Capabilities, Needs 
-- Ghana's oil refinery suffers exodus of senior employees; 
remaining staff gets 40% pay raise 
-- Bank of Ghana Review of the Economy Through Third Quarter 
 
GoG/Donors plan for November 7 Consultative Group Meeting 
--------------------------------------------- ------------ 
1. (SBU) The GoG and World Bank hosted meetings September 22 
and 27, respectively, with Heads of Missions to finalize 
plans for the upcoming Consultative Group (CG) meeting, 
postponed from October 28 to November 7.  During the 
September 22 meeting, GoG Senior Minister J.H. Mensah 
provided the current draft of the Second Growth and Poverty 
Reduction Strategy (GPRS II).  This is Ghana's version of the 
Poverty Reduction Strategy Paper (PRSP) and organizes Ghana's 
policies and programs to promote growth and reduce poverty. 
It also serves as the blueprint for donor support for these 
programs.  GoG officials, development partners (DPs), and 
civil society representatives will discuss and approve the 
GPRS II document during the CG meeting, which President 
Kufuor will preside over. 
 
2. (SBU) The GoG achieved relative macroeconomic stability 
and modest economic growth under the previous strategy -- 
GPRS I -- issued in 2003.  GPRS I focused on attaining the 
anti-poverty objectives of the UN's Millennium Development 
Goals.  GPRS II continues a focus on macro stability, with 
added emphasis on promoting a vibrant private sector, human 
resource development, and good governance.  The GoG's 
intention with GPRS II is to accelerate economic growth and 
poverty reduction through private sector-led wealth creation 
and employment generation, principally through expansion and 
modernization of the agricultural sector. 
 
3. (SBU) The GoG has been slow to complete the draft GPRS II 
and has yet to present documents critical to development 
partners, such as the matrix of expected results, the donor 
harmonization plan, and, critically, the analysis of cost 
estimates for the GPRS II's various initiatives.  The World 
Bank and other DPs informed the GoG they will not commit 
specific resources for the GPRS II at the CG without 
clarification of the costs. 
 
4. (SBU) The World Bank, IMF, and DPs were also hoping to use 
the CG to influence the GoG's 2006 budget, which the Ministry 
of Finance plans to present to Parliament November 10 (the 
first time ever that the GoG will present the budget before 
the start of the fiscal year).  The delay of the CG from 
October 28 to November 7 precludes this, so the World Bank 
has proposed using the CG preparatory process during the 
month of October to impact the budget process. 
 
U.S. Customs Assesses Ghana Customs' Capabilities, Needs 
--------------------------------------------- ----------- 
5. (SBU) A four-person team from U.S. Customs an Border 
Protection (CBP) visited Ghana September 19 through 23 to 
assess Ghana's Customs, Excise and Preventative Services 
(CEPS) strengths and possible areas for future technical 
assistance.  The team visited Kotoka International Airport in 
Accra, the main port at Tema, and the Ghana/Togo border.  The 
team was impressed with the level of automation CEPS had 
achieved, especially in light of the overall weakness of the 
telecom infrastructure in the country.  The CBP team will 
complete its report and recommendations before the 
commissioners of CBP and CEPS meet in Florida in October. 
 
6. (SBU) COMMENT: CBP's help could not be better timed or 
more welcome.  The troubles in Togo and Cote d'Ivoire have 
resulted in a 400% increase in imports to Ghana since 2001. 
Most of the traffic is destined for Burkina Faso and points 
north.  CEPS staffing and funding has not increased 
significantly during the same period.  Although the Ministry 
of Finance recently authorized CEPS to retain some of the 
revenue it collects, it is still underfunded and its managers 
lack the skills necessary to deal with the increased 
workload.  END COMMENT. 
 
Ghana's oil refinery suffers exodus of senior employees; 
remaining staff gets 40% pay raise 
--------------------------------------------- ----------- 
7. (SBU) Fourteen senior technical and engineering staff at 
the parastatal Tema Oil Refinery (TOR) resigned September 23 
to take higher-paying jobs in refineries in Oman and Qatar. 
This has lead to a partial reduction in refining capacity. 
One media report claims that in the last year at least 60 
employees -- about 10 percent of the total workforce -- may 
have left for higher paying positions overseas.  On September 
26, in an effort to increase retention, Minister of Energy 
Mike Oquaye announced a 40% pay raise for TOR's remaining 
employees.  TOR also temporarily replaced the fourteen 
departed engineers with twelve Korean nationals, at a cost of 
$10,000 per worker per month.  This is more that four times 
the salary the departing employees will earn in their new 
jobs in the Middle East. 
 
8. (SBU) COMMENT: When the newly created National Petroleum 
Authority (NPA) raised gasoline prices less that 2% in 
August, despite increases in world prices of over 20%, the 
NPA claimed new-found efficiency at TOR -- which supplies 
70-80% of the fuel on the Ghanaian market, with imports 
supplying the remainder -- had mitigated the need for larger 
increases.  Post has since learned that the third quarter 
tender for imported gasoline was 30% higher than that which 
prompted the 2% increase in August.  The implication is that 
significant fuel price increases will be necessary to 
compensate for the higher import costs and TOR's reduced 
output and increased payroll.  END COMMENT. 
 
Bank of Ghana Review of the Economy Through Third Quarter 
--------------------------------------------- ------------ 
9. (U) The Bank of Ghana's (BoG) Monetary Policy Committee 
announced September 12 that macroeconomic developments 
through September indicate downward pressure on inflation and 
interest rates and the exchange rate remains stable, largely 
due to continued slowdown in monetary growth and fiscal 
restraint.  Annual year/year inflation fell to 14.9% in July 
from 16.7% in March.  Interest rates continued their decline 
in the third quarter.  The benchmark 91-day Treasury bill 
rate falling from 15.5% in July to 13.9% by early September 
and the two-year fixed rate note declined from 20% to 18.5% 
for the same period.  Commercial bank base rates, after 
declining in the second quarter, stayed within a range of 22% 
to 23.5%. 
 
10. (U) Private remittances ) transfers from NGOs, religious 
groups, individuals, Embassies ) increased almost 56% to 
$2.35 billion for January-July, 2005, compared to $1.51 
billion for the same period in 2004.  Approximately 29% of 
remittances were from individuals.  Gross International 
Reserves reached $1.64 billion through early September 2005, 
compared to $1.35 billion recorded for the same period in 
2004. 
 
11. (U) The GoG mostly stayed on budget for the first half of 
2005 (Jan-June), due to strong tax revenues and restrained 
expenditures.  Total tax revenue increased 24% over 2004, and 
totaled 20.2% of GDP.  Non-Tax revenue fell short of the 
budget target due to delays in donor assistance.  Therefore, 
while GoG expenditures were 6.6% below the budget target, the 
GoG recorded a budget deficit, excluding grants, equivalent 
to 3.7% of GDP on an annual basis for the first half of the 
year.  Although this is above the target of under 2%, it 
continues the steady decline in the fiscal deficit from 9% in 
2001 to the current level, which is the lowest in the last 
five years. 
 
12. (U) The BoG identified slightly weakening terms of trade, 
with average cocoa prices and the cocoa crop both lower in 
2004/2005 compared to 2003/2004.  Cocoa exports totaled 
$551.5 million through July 2005, compared with $669.5 
million for the same period in 2004.  Gold prices remained at 
near 20-year highs ($435/ounce), and gold exports through 
July 2005 totaled $516.7 million, up from $488 million in 
2004.  However, oil prices increased from $36 at year-end 
2004 to near $70 currently, and fuel imports through July 
2005 totaled $507.5 million, 31% higher than the same period 
in 2004.  Continued oil price volatility is the major 
downside risk going forward, as a sustained surge in prices 
would weaken the external payments position, increase 
inflation, and limit growth. 
LANIER