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GHANA, WEST AFRICA
Ghana's economy on a surge
R.Yofi Grant, executive director, Databank financial services, Ghana
Published: 20-JUN-05

The past two weeks have been exciting in the Ghana financial markets. An opposition led inspired 'Wahala' series of ineffective demonstrations are labouring to gain momentum, as they struggle to find a reason for them.

On the other hand H.E President J.A. Kufuor is chalking up significant credit. He continues to carry Ghana higher on domestic and international fronts, with a 100% debt relief for Ghana on the back of the HIPC initiative adopted by the NPP government in 2001. Ghana�s choice of going HIPC was met with great criticism by the opposition NDC.

Current events in the domestic market are also pointing in the right direction. A recent release by the Monetary Policy Committee of the Central Bank has generated optimistic feelings in the banking and business sectors.

The Bank of Ghana Prime Rate has been reduced from 18.5% to 16.5% on the back of subdued inflationary pressures, relative stability in the forex market, increased foreign reserves and increased liquidity in the forex market, as well as stability in the money markets.

Ghana has been cited as a good example of a model developing country as its democratic rule, good governance, successful and positive socio-economic reforms has yielded good economic benefits. Other laudable efforts include the private sector led by economic growth strategies, legal attempts to combat corruption.

The drive to stability was shown by the Governor of the Central Bank Dr Paul Acquah in a recent presentation. The primary reserve requirement by the Central Bank for the deposit-taking banks is down to 15%, of which 15% must be in medium term enterprises.

These have been positive implications for business and the banking sector. The banks are going to see reduced margins from lending, with reduced interest rates and a reduced primary reserve. They are in a better position to do more lending especially to the private sector, and also to improve on service delivery.

That is good news for SMEs and SMI who dominate this economy - at least they have a chance of accessing cheaper and longer term funding. All this is happening in terms of the new Venture Capital Act and the Long Term Savings Act, which will create large pools of long term capital to finance economic growth.

Credit may be given for prudent policies and better monitoring, and the economy is now responding to monetary and to fiscal policy in a more conventional manner. The Governor clearly outlined the strategies for the economy which have underpinned the current positive optimistic direction.

The salient point simply put is that the government on the back of political stability, has embarked on the right policies and chalked significant economic successes. This will dramatically improve the country's finances at home and abroad.

The debt forgiveness - of over US$4.1 billion owed to multilaterals such as the IMF, the World Bank and the AfDB - is one such dividend. The other is a sovereign rating of B+ by Fitch and Standard and Poors. These are all very positive for the international finance community.

But here in Ghana its not that clear whether we get the picture, so let�s look again: *Interest rates are down to the lowest since 1985 *Inflation rate is trending downwards *Depreciation has slowed down to an enviable low of 2.2% for 2004, the unpredictable cedi is showing stability and appreciated against some currencies *Corporate taxes are down to around 28.5% *Ghana has sustained a soverign rating of B+ from both Fitch and Standard and Poors in 2004. *Total debt relief may probably exceed US$4.1 billion *Foreign reserves in the region of US1.5 billion as at the first quarter of 2005 - about three and a half months import cover.

The reason for the excitement is that on one hand critics of the government are yelling about untold hardships to the people. Yet on the other hand, the economy is looking up and very quickly too.

The Bank of Ghana Composite Index, the CIEA which measures business confidence is already up the first quarter of 2005 by 13.4%, over the same period last year. This clearly means business confidence is rising.

Last year and the year before the Ghana Stock Exchange (GSE) yielded world leading returns, 87%and 142% in real terms respectively. Turnover in the GSE also increased significantly.

There has been an increase in the number of new cars bought domestically in the past two years, than over the previous five. There are more shops being opened all over the city.

South African retailer Woolworth has opened new shops in Accra. A new super-mall project involving the IFC (of the World Bank) is about to be built. Coca Cola is selling more volumes of cold drink than ever before. Between 2002 and 2004 the sales volume grew by 71%. These are significant indicators of a growing market.

There is also an illusive boom in commerce in Accra with almost every free corner, being converted into a shop. The mining industry- traditionally the mainstay of Ghana�s economy- has seen significant investment last year from the biggest global mining company Newmont and AngloGold Ashanti.

Goldfields recently invested over US$200 million to develop two mines in Ghana. Newmont is about to start a greenfields project in Ghana and are likely to invest more than the US$400 million already invested. Cocoa exports hit an all time high of approximately 739,894 tonnes in 2004, due to a new maintenance and spraying policy and better pricing for farmers.

Two Nigerian banks Guaranty Trust and Standard Trust have set up shop in Ghana. Alcoa have signed an MOU to invest in VALCO. Prince Al Waleed, one of the globe's most affluent people, is investing in a new hotel reputed to be run by the Move n 'pick group.

Most of the foreign investors seem to be seeing something many of us are not. Now government needs to motivate us all.

So what is the problem? Have we replaced nation building with politics and so everything is given a political implication? Maybe we need to step back and ask what we really want and how we can achieve it, rather than brandishing placards and guns.

After all we endorse the fact that the ballot box is the ultimate decider, so its our own fault if we made a mistake with our vote. But the real icing on the cake will come when we have taken advantage of the opportunities in the market place and followed them through with hard work.

No one is going to put money in our pockets without us working for it. Foreigners are seeing our potential and opportunities, while we are strangling our initiatives, our abilities to create wealth and our dynamism to death.

There is a silent dichotomy about our dear Ghana. Those of us who live here think there is much wrong, while those in the West African sub-region think there is much right. Development I have come to discover, is a mindset. Lets change our mindset and all help build a better Ghana and stop thinking the glass is half empty, when it's half full.

ECONOMIC INDICATORS INDICATOR Year-on-Year Inflation (%) 40.5 2000 21.3 2001 15.2 2002 23.6 2003 11.8 2004

INDICATOR

Real GDP Growth Year-on-Year Inflation (%)

40.5 2000 21.3 2001 15.2 2002 23.6 2003 11.8 2004 Real GDP Growth (%) 3.7 4.2 4.5 5.2 5.8 Interbank Midrate (End Period) US Dollar Pound Euro 6,889.28 10,277.79 6,400.77 7,255.23 10,512.13 6,414.67 8,351.91 13,382.99 8,743.13 8,805.50 15,681.29 11,104.92 9,029.73 17,397.59 12,315.80 Interest Rates (%) Short-term 28-day 56-day 91-day 182-day 1-year (End period) Treasury bill Treasury bill Treasury bill Treasury bill Treasury note 2000 - - 41.99 42.42 31 2001 - - 28.94 28.9 29.92 2002 - - 26.63 27.25 27 2003 - - 18.66 20.31 20.46 2004 16.47 16.79 17.08 17.85 17.85 Medium-term 2-year fixed 2-year floating 3-year fixed 3-year floating Bank Ghana End period rate note rate note rate bond rate bond prime rate End period% ___________________________________________________________________ 2000 - - - - - 2001 - - - - - 2002 - - - - 24.3 2003 - - - - 21.5 2004 20 21 21,5 20 18.5 ____________________________________________________________________ Selected total payments and receipts Year Nominal GDP Total revenue Total payments excluding grants (� billion) (� billion) 2000 27,152.0 4,810.7 9,916.0 2001 6,904.5 38,014.0 13,570.6 2002 8,799.9 47,764.0 15,447.0 2003 13,742.8 66,158.0 21,997.6 2004 18,998.0 79,803.7 28,736.8 Domestic debt (� billion) 2000 7,842.3 2001 10,194.7 2002 13,909.4 2003 13,591.2 2004 17,328.9 Selected Balance of Payments Items Year Merchandise Merchandise Current account Balance of export US$m imports US$m balance US$m 2000 1,936.3 2,766.6 386.5 116.8 2001 1,867.1 2,968.5 324.5 8.6 2002 2,063.9 2,705.1 15.6 39.8 2003 2,297.1 2,969.3 40.8 367.3 2004 2,733.1 4,158.5 151.3 123.4 Year Reserves US$m Reserves (in months of imports of goods and services) 2000 233.4 0.8 2001 364.8 1.2 2002 640.4 2.2 2003 1,425.6 3.9 2004 1,732.0 3.8 External Debt (US $ million) 6,062.0 6,376.8 6,585.3 8,034.6 6,200.0 Sources: Bank of Ghana Annual Reports, Budget Statements, Databank Research www.bog.gov.gh



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