GHANA IS CREATING AN INVESTOR-FRIENDLY CLIMATE IN ORDER TO ATTRACT THE FOREIGN INVESTMENT NEEDED TO OVERCOME ITS ECONOMIC SLOWDOWN

A year after the elections that brought President John Kufuor to power, Ghana is gradually weathering the storm brought about by the fall in world prices of its two main export products, cocoa and gold, combined with high price of oil.
In 1999, foreign exchange reserves were consumed, inflation jumped from 15.7 % to over 50%, the currency was halved in value, interest rates shot up, and the government was obliged to contract a huge amount of short-term debt to ride out the turbulence.

KWABENA DUFFUOR Governor of the Bank of Ghana

According to Kwabena Duffuor, governor of the Bank of Ghana, the indicators start moving back towards the parameters that a developing nation can live with. “Our main priority still is to reduce inflation substantially but this will not be easy unless we control government expenditure,” says Dr. Duffuor. “We spend too much on imported food because the agriculture sector has not been modified to increase productivity. As this situation changes, we will be able to conserve foreign exchange currently going to pay for food imports and this will strengthen the value of the currency.”
Already there are indications that the government is on the right track. Despite the painful and politically risky necessity of raising the price of electricity, water and petroleum products, inflation was trimmed from 50 to 40 % and the rate of currency depreciation slowed considerably in the first quarter of the year. Dr. Duffuor is confident the government will succeed. “The moment we manage to discipline ourselves, meaning manage our resources in the most efficient way, inflation will go down and the currency will pick up.” The priority is now the diversification of the economy, driven by a revitalized private sector.

Also, the government aims to take primary agricultural exports and add value to them: sawing and processing timber, transforming cocoa into chocolate and–though this one is still a long way off–gold into hard-crafted jewelry. Foreign investment will be essential and President Kufuor has made it clear he intends to create an investment-friendly climate.

Paving the way for privatization. Ghana’s new administration has stressed that the country is open for business.

Even though Ghana is still struggling to deal with the problems of the past, the banking sector is in full boom as it gears up for the more prosperous times to come. Government banks are being snapped up as part of the ongoing privatization program, and non-performing institutions are being closed down–three were declared insolvent last year, with minimum disruption to the system–even as new ones open up.
The Ghana Commercial Bank is the best-known player in the sector, with the largest number of branches and the second-highest capitalization. The government has received several bids already for the 46% stake it wants to unload. Management has taken some important steps, says W.P. Bray, the bank’s managing director. “We decided to concentrate on our core business by outsourcing operations such as security and transport, and concentrating our full energies on banking. We’re also more focused on corporate banking, because that’s where the money is.”

Investment is vital to add value to Ghana’s primary agricultural exports

The GCB has 132 branch offices all throughout the country, 72 of which are fully computerized, and another 25 networked. “That gives us the ability to mobilize capital,” says Mr. Bray. “Because our capital basis is high we are able to lend more that others can to individuals, without having to syndicate.”
What does the future hold for Ghana’s financial system? If all goes to plan, the next phase will see Accra becoming the linchpin of the West African Monetary Union. The first step toward the creation of a common currency zone similar to the CFA that circulates in Ghana’s Francophone neighbors has already been taken with the establishment of the West African Monetary Institute, a body tasked with coordinating convergence criteria including inflation, budget deficit to GDP ratio, debt to revenue ratios, and foreign reserves.
Once it is up and running, the currency zone will set up a stabilization and cooperation fund to channel assets to members whose economies are knocked out of alignment by transient disturbances or distortions, such as Ghana experienced in 1999.