VZCZCXRO4827
RR RUEHMA RUEHPA
DE RUEHAR #0321/01 0431315
ZNR UUUUU ZZH
R 121315Z FEB 07
FM AMEMBASSY ACCRA
TO RUEHC/SECSTATE WASHDC 3673
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHLMC/MILLENNIUM CHALLENGE CORP
RHMFISS/CDR USEUCOM VAIHINGEN GE
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0623

UNCLAS SECTION 01 OF 02 ACCRA 000321 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR ECON EFIN GH SOCI
SUBJECT: GHANA AT 50: A MIXED ECONOMIC RECORD 
 
REF: A. 05 ACCRA 1679 
 
     ¶B. 05 ACCRA 658 
 
ACCRA 00000321  001.2 OF 002 
 
 
¶1.  (SBU) Summary:  This is the fourth in a series of scene 
setter cables on Ghana at 50.   Ghana can not only boast 
stability and an emerging democracy (septels), but also two 
decades of sustained economic growth and modest poverty 
reduction.  However, economic stability is fragile, heavily 
dependent on continued strong cocoa and gold prices as well 
as foreign assistance and debt relief.  The structural reform 
agenda remains incomplete and progress on improving social 
indicators such as child mortality and education has been 
slow.  This state of incomplete transformation undermines 
confidence in Ghana,s long-term future.  End summary. 
 
The Economic Story: A Long Recovery 
----------------------------------- 
 
¶2.  (U) Ghana,s economy was relatively stable and prosperous 
at independence but fell into steady decline starting in the 
mid-1960s as a result of political infighting, economic 
mismanagement and a collapse in cocoa prices.  Per capita GDP 
fell by 24 percent  from 1970 to 1981, when inflation reached 
116 percent.  By 1983, the economy was on the brink of 
collapse.  With IMF and World Bank support, Rawlings 
implemented significant reforms, including removing trade 
barriers and exchange rate controls.  While the reforms 
caused substantial shocks in some sectors, particularly 
agriculture and textiles, the overall effect was positive and 
helped bring about a measure of economic stabilization and 
recovery.  However, a big drop in world cocoa and gold prices 
hurt growth and, in the face of pending elections, spurred 
government spending, leading to an increased deficit, falling 
currency and high inflation at the time Kufuor took office in 
¶2000. 
 
¶3.  (U) The economy has performed well under the Kufuor 
administration but Ghana,s fundamental vulnerabilities 
remain.  The Kufuor administration has continued the economic 
stabilization begun under Rawlings but major debt relief, 
large inflows of donor resources and relatively high cocoa 
and gold prices have been the keys to the steady improvements 
in real GDP growth, which in 2004 topped 5% for the first 
time in a decade and is now estimated at 6.2%.  Further debt 
relief, continued large aid inflows, favorable commodity 
prices, and $4 billion in gross annual remittances (note: 
this includes remittances from individuals as well as NGOs 
and embassies; individual remittances are estimated at about 
$1.8 billion in 2006) put Ghana in a stronger balance of 
payments position than at the end of the Rawlings years. 
 
Economic Clouds 
--------------- 
 
¶4.  (U) While Ghana,s macroeconomic management has been 
good, significant problems remain.  Ghana is highly 
vulnerable to price shocks in cocoa, gold, and to a lesser 
extent, timber (which account for 70% of exports).  It 
remains heavily dependent on foreign inflows of aid and on 
remittances (which largely go into nonproductive activities, 
such as housing construction but have probably helped keep 
the currency relatively stable). 
 
¶5.  (U) There has been little growth in the formal job sector 
(which accounts for only 10% of employment).  Seventy percent 
of Ghanaian companies are micro-enterprises, with few 
entrepreneurs possessing the skills, vision or even desire to 
expand.  Financial services are growing but Ghana remains 
largely a cash society and access to credit is difficult, 
short term and expensive.  Infrastructure to support growth 
is poor, particularly power generation and water supply. 
 
¶6.  (SBU) Privatization of the remaining state-owned 
enterprises (telecom and oil refining most notably) is mired 
in politics and allegations of corruption.  There is also 
significant need for structural change in agriculture, 
including land reform.  The GOG appears uninterested in 
tackling these and other important but politically difficult 
economic reforms until after the 2008 election. 
 
A Mixed Poverty Record 
---------------------- 
 
¶7.  (U) The national poverty rate has dropped from 52% in 
2002 to 35% in 2006 and many social indicators shw steady 
 
ACCRA 00000321  002.2 OF 002 
 
 
improvement over the past few decades.  Nonetheless, progress 
has been generally slow.  Per Capita Gross National Income 
($450) in 2005 compared to an average of $745 for low income 
sub-Saharan African countries, according to World Bank,s 
2007 World Development Report.  Maternal and infant mortality 
rates are well below levels in the 1980s but remain high and 
have not changed in ten years.  While access to education has 
grown, quality is a major challenge.  GOG census data show a 
slight drop in overall adult literacy from 58% in 1984 to 54% 
in 2000, below average for sub-Saharan Africa.  Although 
overall hunger levels have reduced significantly, food 
insecurity and malnutrition are problems in some areas, with 
child malnutrition levels stagnant over the past decade. 
Guinea Worm infestation has re-emerged while malaria remains 
endemic.  In the past few years, the quality of basic social 
services has deteriorated. 
 
The Dissatisfied Poor 
--------------------- 
 
¶8.  (U) Most Ghanaians reportedly do not feel they have 
benefited from the country,s macroeconomic success, 
according to several recent studies.  According to the Center 
for Democratic Development,s 2005 Afrobarometer survey, 53 
percent of respondents thought their standard of living had 
declined over the previous year, compared to 38 percent in a 
similar survey in 2002.  Respondents in 2005 were 
significantly more gloomy than in 2002 about their economic 
future. 
 
¶9.  (SBU) Economic contacts concur with anecdotal evidence 
suggesting a widening overall income gap.  According to 
Ernest Ayeete, Director of the Institute of Statistical, 
Social and Economic Research, the north-south income gap 
reduced in the 1990s, but the nationwide urban-rural gap 
increased, especially in the north.  Poverty reduction was 
fastest in export-producing rural regions and in Accra, while 
much more limited in non-export agricultural areas.  Ayeete 
told Polchief he was disturbed that the growing urban-rural 
divide is being perceived in northern regions as deliberately 
discriminatory GOG policy.  This income gap, together with 
growing urbanization and a youthful population (50% of 
Ghanaians are under age 18), could fuel crime and other 
social problems. 
 
Comment 
------- 
 
¶10.  (SBU) Despite some real accomplishments in democratic 
and economic development, Ghana at 50 is in many ways a 
disappointing story of unfulfilled potential.  Most Ghanaians 
are still very poor.  The economy has not diversified 
significantly since independence and is almost as vulnerable 
to commodity price shocks as it was a decade ago. 
Corruption, poor governance, and a dominant public sector 
fuels cynicism.   As an example, the government faces 
substantial criticism for its failure to consult with other 
parties or parliament about the nature or cost (now put at 
$32 million) of Jubilee celebrations.  Disorganization, poor 
implementation and lack of vision have also constrained 
economic progress.  Ernest Ayeete recently summed it up when 
discussing why the country has not developed more rapidly 
since independence:  &we haven,t quite decided on what to 
do as a nation8. 
 
¶11.  (SBU) As reported ref A, Ghana is still held back by 
historical legacies of Nkrumahist state-oriented economics, 
Rawlings-era constitutional compromises, and an in-grained 
dependency mentality.  It is constrained by the strong hold 
of traditional rulers who control and fight over land, by 
senior politicians polarized by past grievances, and by the 
lack of an entrepreneurial tradition.  These legacies will 
probably not prove regime-threatening.  However, without 
significant efforts to tackle these issues in ways that 
translate macroeconomic stability into accelerated growth and 
poverty reduction, Ghana is unlikely to reach its goal of 
achieving middle-income status by 2015. 
 
 
 
BRIDGEWATER