VZCZCXRO3933
RR RUEHLMC
DE RUEHAR #1521/01 3371405
ZNR UUUUU ZZH
R 021405Z DEC 08
FM AMEMBASSY ACCRA
TO RUEHC/SECSTATE WASHDC 7322
INFO RUEHPC/AMEMBASSY LOME 2175
RUEHCO/AMEMBASSY COTONOU 0815
RUEHOU/AMEMBASSY OUAGADOUGOU 0556
RUEHAB/AMEMBASSY ABIDJAN 0812
RUEHUJA/AMEMBASSY ABUJA 0788
RUEHOS/AMCONSUL LAGOS 1781
RHEHAAA/WHITE HOUSE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0662
RUEHLMC/MILLENNIUM CHALLENGE CORP

UNCLAS SECTION 01 OF 02 ACCRA 001521 
 
WHITE HOUSE FOR USTR LAURIE-ANN AGAMA 
 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EIND EFIN EINV GH
SUBJECT: GHANA MACROECONOMIC AND FINANCE HIGHLIGHTS, NOVEMBER 2008 
 
¶1. SUMMARY: 
 
¶A. (U) According to the Governor of the Bank of Ghana, Accra's 
financial isolation may provide the country with a temporary respite 
from the global economic downturn unfolding in international 
financial centers, while leaving open the potential for a slide if 
traditional exports, FDI and private remittances decline. 
 
¶B. (SBU) Ghana's external debt has almost doubled in two years, 
exacerbated particularly by high oil prices.  Furthermore, some of 
the external borrowing has funded pre-election pork-barrel schemes 
and other expensive projects of questionable economic priority, and 
a lack of technical expertise hampers some of the state's potential 
gains. 
 
¶C. (U) The cabinet is mulling revised investment regulations on 
foreign investment that would lead to more restrictive provisions on 
activities and levels of investment, along with prescriptions for 
local content.  The draft bill and the surrounding publicity appears 
to be a sop to domestic commercial interests for electoral 
advantage; the bill has little prospect for Parliamentary approval 
before the formation of the next government. 
 
---------------- ----------------------------- 
¶A. Financial Isolation: Ghana's Secret Weapon 
---------------- ----------------------------- 
 
¶2.  (U) As a consequence of the global economic downturn, some 
economic observers have noted a drop in remittances to Ghana from 
the U.S.  In addition, the GOG decision to call off (or postpone) a 
USD 300 million sovereign debt issuance was likely due to weak 
market interest.  Conversely, Post notes that the downturn has led 
to lowered oil prices, and that the higher cost of oil in 2008 has 
also contributed heavily to Ghana's negative balance of payments. 
Accordingly, one positive impact of the financial crisis is lower 
global oil prices, which will help lower Ghana's external deficit. 
 
¶3. (U) Ghana Central Bank Governor Paul Acquah said the global 
financial crisis would not affect Ghana's economy too drastically 
because the country's financial sector--including the domestic 
capital market--was not well integrated with the international 
markets.  He admitted that Ghana could be affected in the long run. 
He noted the banking sector relies heavily on domestic deposits.  In 
Ghana, the banking sector's outstanding external borrowing as a 
source of funding is less than five percent; cause for concern would 
only be reached at levels of external borrowing exceeding 50 
percent.  Additionally, a decrease in the prices of Ghana's major 
exports, such as cocoa and gold, and a decline in foreign direct 
investment and private remittances, could worsen the country's 
external and fiscal balances and create inflation. 
 
------------------------------- 
¶B. Rising Tide of External Debt 
------------------------------- 
 
¶4. (U) Ghana's total external debt increased from USD 2.14 billion 
at the end of 2006 to USD 4.03 billion by the end of September 2008. 
The total public debt including domestic debt is about 55 percent of 
GDP.  Ghana received a debt cancellation of USD 4.2 billion by 
external creditors under the HIPC and MDRI in mid-2006 out of the 
total USD 6.35 billion in GOG external debt. 
 
¶5. (U) The single largest factor on Ghana's debt position in the 
past year was higher oil prices.  Additionally, some external debt 
is financing current government expenditures, which include 'pork 
barrel' projects tid to this year's elections.  The most recent 
example is a 19 million Euro German bank loan for budget support. 
Accordingly, an economic think tank, the Institute of Economic 
Affairs (IEA), and the opposition in parliament have raised concerns 
about Ghana's rising level of external debt, particulary given the 
government's conspicuous spending on four soccer stadiums, an 
opulent presidential palace and fulsome celebrations in honor of 
Ghana's 2007 golden jubilee.  Econ Section contacts believe this 
trend could abate in the first two years of a new GOG administration 
following December's general elections. 
 
¶6. (SBU) Beyond meeting energy needs through oil imports, an 
additional segment of Ghana's external debt has gone into beneficial 
 
ACCRA 00001521  002 OF 002 
 
 
infrastructure investments.  However, even for projects with 
anticipated economic benefits, there is evidence that some agencies 
within the GOG lack the technical expertise to maximize the state's 
gains from the investments. 
 
 
--------------------------------------- 
¶C. Revised Investment Bill: Last-Minute 
Electioneering? 
--------------------------------------- 
 
¶7. (U) A draft revised investment law was submitted in late November 
to the cabinet for approval (the step prior to forwarding to 
Parliament for approval).  Reports suggest the revision proposes an 
increase in the minimum capital requirement for foreign investment 
in retailing from USD 300,000 to 1,000,000.  The draft also reserves 
the distribution of pharmaceuticals exclusively for Ghanaian firms. 
Finally, the draft is reported to require local participation and 
procurement in ancillary services for the oil and gas sector. 
 
¶8.  (SBU) The bill--and its very public announcement-- 
is best understood as a government tactic of appearing responsive to 
domestic pressure groups.  In November 2007, the Ghana Union of 
Traders Association (GUTA) shut down their shops and presented a 
petition to Parliament to revise the current Investment law, and to 
press for better enforcement.  GUTA pressed the GIPC to penalize 
foreign retailers who did not meet the required USD 300,000 minimum 
and employment of at least 10 Ghanaians.  GUTA proposed the increase 
of the minimum capital to USD 1.5 million.  Responding to these 
demands, the GIPC shut down over 40 shops, mainly owned by 
Nigerians, Chinese and Indians. 
 
¶9. (SBU) COMMENT: Since the bill will not be passed before the 
December 7 general elections, the announcement of this revised law 
is likely a last minute attempt by the ruling New Patriotic Party 
(NPP) to win votes from Ghanaian retailers.  Parliament is expected 
to resume on December 16 (after elections) and will not likely 
address this bill, leaving this issue for the next administration. 
END COMMENT. 
 
TEITELBAUM