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Country Commercial Guides for FY 2000: Ghana Report prepared by U.S. Embassy Accra, released July 1999

CHAPTER II:   Economic Trends and Outlook

1.   Major Trends and Outlook

Ghana achieved real economic growth of 4.6 percent in 1998 in spite of an energy crisis that slowed down economic activity in the first half of the year. The 1998 growth rate is a slight improvement over the 4.2 percent recorded in 1997. Agricultural growth was 5.3 percent, one percentage point above that of 1997. This performance is attributable to the cocoa, timber and logging sectors which grew by 11.0 and 22.1 percent respectively. The industrial sector was adversely affected by the energy crisis, recording a growth rate of 2.5 percent in 1998 as against 6.4 percent in 1997. The services sector grew at 6.0 percent, maintaining its lead as the fastest-growing sector of the economy.

The government remains under heavy pressure from international financial institutions and donors to adhere to a policy of fiscal discipline in order to set the stage for renewed growth. The year 1998 witnessed an adoption of far-reaching economic policy initiatives aimed at ensuring macro-economic stability. These measures injected considerable resilience into the economy. The Government of Ghana (GOG), in collaboration with the central bank (the Bank of Ghana), has been able to lower inflation to 9.4 per cent, the lowest since 1985, as well as effecting a fall in interest rates. Nevertheless, these efforts are threatened by the continued fall in the prices of gold and cocoa, emanating from the Asian financial crisis and sales of gold reserves by foreign banks.

2.   Principal Growth Sectors

Gold mining remains the focus of growth in Ghana's industrial sector, although recent reductions in the price of gold may have a dampening effect on the economy for FY2000. Exploration work by most foreign mining firms has been put on hold, but current production in Ghana is continuing to expand. Cocoa production for the 1998/99 cocoa season is estimated by the U.S. Foreign Agricultural Service to be about 400,000 metric tons. This target could even be exceeded, since weather and rainfall conditions, which have been favorable, are the principal determinants of cocoa production. The liberalization of Ghana's telecommunications sector, including operation of a second network operator, should offer good opportunities for service and equipment providers. Several major hotel projects in Accra and elsewhere are indicators of increasing commercial interest in Ghana and a growing tourism sector.

3.   Government Role in the Economy

The GOG continues the process of divesting state-owned enterprises and disengaging from a direct role in the economy. The government has retained a minority stake in many divested enterprises but does not intend to play an active management role. The government does, however, play a major role in the air transport and cocoa sectors. Ghana Airways remains wholly owned by the GOG, which also retains a monopoly on the export of cocoa.

4.   Balance of Payments Situation

The government recorded a balance of payments surplus of USD 99 million for 1998 as against a surplus of USD 25 million in 1997. This is largely attributed to the improvement in the current accounts balance (including official transfers) from USD 590 million to USD 272 million. The trade deficit declined from USD 638 million in 1997 to USD 384 million in 1998, mainly due to an increase of about USD 350 million in export earnings. The trade deficit decline, coupled with a significant increase in net official transfers, resulted in the improved current accounts balance. Although the surplus on the capital account declined by about USD 121 million for the same period, it was enough to finance the current account deficit to generate a balance of payments surplus.

The government projects a balance of payments surplus of USD 60 million for 1999. This presumes an increase in exports of 9.7 percent, with cocoa and gold contributing about 30 and 38 percent respectively. The share of non-traditional exports is expected to move up to 14.6 percent of total exports as against 13.9 percent in 1998. Imports are forecast to grow by 2.4 percent.

The foreign exchange value of the cedi vis-a-vis the dollar declined by 4.1 percent in 1998 as against 22.7 percent in 1997. After adjustment for inflation, the cedi has appreciated in real terms since 1995. Although depreciating faster than in 1998, Ghana's local currency is expected to remain relatively stable in 1999. The Bank of Ghana (Ghana's central bank) maintains strict supervision of the local banks and foreign exchange bureaus in order to ensure compliance with the law.

5.   Infrastructure Situation

In the past, infrastructure shortcomings have created substantial impediments to domestic productivity and discouraged foreign direct investment. However, improvements continue to be made at most levels, especially in the telecommunications sector as a result of the privatization of Ghana Telecom and the granting of a second network operator license. The availability of wireless services is expanding and there has been much growth in voice traffic and data transmission systems.

The GOG has committed substantial resources to road building efforts, although the generally still poor quality of Ghanaian roads slows down the delivery of goods, especially during the rainy season.

The GOG has made significant efforts to address the Year 2000 problem by holding workshops, conferences and raising awareness through the media. A special Y2K Office has been established within the Ministry of Communications. Most banks and major financial institutions are now believed to be Y2K compliant. The Ghana Civil Aviation Authority has declared itself Y2K compliant, and compliance measures are presently underway in most GOG ministries and departments.