Ghana: signs point to the start of economic recovery and growing trade with U.S

For the first time in years, Ghana's economic trends are positive. The Ghanian government has, so far, demonstrated its ongoing commitment to continue economic policies and fiscal austerity necessary to restore self-sustaining economic growth. The outlook is for U.S.-Ghanaian trade to increase this year. Development projects financed by IBRD and U.S. AID hold best prospects for hard currency-backed sales.

Following well over a decade of steady decline, Ghanas's deteriorating economy was further jolted by a forceful change of goverment at the end of 1981 and during 1982-83 by unforeseen bushfires, drought, and the forced repatriation of up to one million Ghanaians from Nigeria. The severe bushfires, aggravated by a prolonged drought, resulted in sharply lower harvests of foodcrops (cassava, corn and rice) and cocoa, Ghana's principal foreign exchange earner. Food shortages required emergency shipments of food aid from the United States and other, mainly Western, donors. Severe electric power cuts resulting from the drought-starved low level of Lake Volta forced a complete shutdown in late 1983 of the U.S.-owned Valco aluminum smelter, the largest in Africa and a major foreign exchange earner. Power cuts, coupled with severe shortages of imported oil, raw materials and spare parts, as well as an almost complete breakdown of internal transportation services, also resulted in closure or sharply reduced operations of other industrial plants. Overall, most factories were operating at an estimated 10-15 percent of capacity or less.

Faced with this crisis situation, Ghana in April 1983 launched the Economic Recovery Program (ERP), which was supported by successive International Monetary Fund (IMF) stand-by arrangements in August 1983 and August 1984. Perhaps the most severe such program yet undertaken in sub-Saharan Africa, the ERP embraces wide-ransing economic reforms, including movement toward a realistic exchange rate, establishment of realistic relative prices, gradual liberalization of price controls, restoration of fiscal and monetary discipline, a reduction in external payment arrears, and rehabilitation programs for key economic sectors (e.g., exports and transportation). Since the start of the ERP in April 1983, there have been six currency devaluations (from a grossly overvalued 2.75 cedis to the dollar to a much less overvalued 53 cedis to the dollar in April 1985), and more are in the offing. Ghana's performance thus far under the ERP has received high marks from the IMF, the World Bank and the Western aid donors' Consultative Group on Ghana (CG), most recently at the December 1984 Paris CG meeting. Based on highly preliminary estimates, Ghana's Finance Minister recently announced that the country's real GDP grew by about 7 percent in 1984, compared with 0.7 percent in 1983, and projected a 5.3 percent GDP rise in 1985. We thus may be seeing "the beginning of a beginning" of an economic recovery if Ghana has the tenacity to stay the perhaps decade-long course in pursuing its ERP.

Ghana's external debt stood at an estimated $1.1 billion at the end of 1983. Debt service in 1982 was estimated at about 10.7 percent of exports, but this rose sharply to an estimated 34 percent in 1983 as the result of a decline in export earnings and the expiration of the grace period on rescheduled debt. Arrears on Ghana's short-term debt rose from $245 million in 1977 to $601 million by the end of April 1983. These arrears are now being reduced in a phased manner under the ERP. By the end of 1984 they were down to $257 million, a rate of reduction beyond the IMF requirement, and a further net reduction in arrears of over $50 million is planned for 1985.

Trade with U.S.

The United States traditionally has been Ghana's largest trading partner, but two-way trade has fallen off drastically since 1982, mainly the result of the closing of the U.S.-owned Valco aluminum smelter and the country's severe foreign exchange problems. U.S. imports from Ghana declined from $362 million (of which $289 million or 80 percent represented aluminum imports) in 1982 to $119.8 million (of which $72.2 million or 60 percent was aluminum) in 1983, and dropped to $47.4 million (mainly cocoa and fish) in 1984. U.S. exports to Ghana actually increased during this period, from $115.8 million in 1982 to $118.7 million in 1983 (the latter figure including a $63.6 million DC-10 sale to Ghana Airways), but then dropped sharply to $46 million in 1984.

U.S.-Ghanaian trade will increase in 1985, but it will be some time before it recovers to pre-1983 levels. Despite the low level of trade, however, sales opportunities do exist in a market starved of much of its imports in recent years, and these opportunities have increased since the start of the ERP as the result of enhanced economic assistance programs. Western and Eastern European countries plus South Korea, India, Brazil, and Japan are actively seeking commercial opportunities and the Federal Republic of Germany, the European Community, the United States, Japan, the United Kingdom and Canada (plus the IBRD) are the most important Western aid donors. U.S. exporters interested in Ghana should register with the International Bank for Reconstruction and Development (1818 H Street, N.W., Washington, D.C. 20433) and with the U.S. Agency for International Development (320 21st Street, N.W., Washington, D.C. 20523). In both these cases, U.S. suppliers can provide the goods and services for development projects that are backed with hard currency from these agencies. U.S. manufacturers with subsidiaries in Western Europe should also explore the possibilities for their subsidiaries to participate in development projects financed by the European Community or under bilateral economic assistance programs (the latter would apply to Canadian subsidiaries as well).

U.S. exporters should be aware that stringent import controls and foreign currency restrictions remain in force. Importers must go through a long and difficult process when seeking to obtain import licenses (except in the case of SUL licenses described below). They must remit under letters of credit in order to transfer foreign exchange abroad. In addition, a preshipment inspection by the SGS Superintendence Company is required fro consignments of almost all merchandise valued at over $2,000 (C&F), in order to ensure that merchandise is received in the form and quantity ordered and that the cost is reasonably fair and competitive. Ghana also has in effect a system of Special Unnumbered Licenses or SUL, which are readily available to importers with access to foreign exchange outside of Ghana, and which are used mainly for the importation of consumer goods. However, a heavy fee (recently increased from 20 percent to 50 percent of the value of the merchandise to be imported) in addition to the normal customs charges is imposed on the issuance of SUL licenses.

A new investment law

On July 13, Ghana's long-awaited new investment code was signed into law, replacing the moribund 1981 Investment Code. It is reported that the new code is basically the 1984 draft code that resulted from an examinatin of investment codes that have successfully attracted foreign investment (principally Malaysia) and from the invited comments of domestic commerce and industry representatives, foreign investors, professionals, and academics. It is also reported that most of the changes in the signed instrument relate to the clarification of its various provisions. The draft code specified priority areas for investment (petroleum exploration, minerals, timber and wood processing, agriculture, fishing, food processing, export industries, and indigenous manufacturing) and established clearly calculated levels of benefit related to the nature of the investment.

Also possibly boding well for foreign investment are recently announced regulations permitting the operation of foreign exchange (forex) accounts in Ghana. Forex accounts may now be opened by resident as well as nonresident Ghanians but also by non-Ghanaians with any authorized dealer banks in Ghana. However, customers may open deposit and/or current accounts with foreign exchange earned from sources other than the following export of goods and services originating from Ghana, agency commissions, and discounts on imports into Ghana. Authorized dealer banks will pay interest in foreign exchange on time or call deposit accounts opened for their customers at rates comparable to those prevailing in the country of deposit. Furthermore, interest will be excempt from Ghanaian tax; accounts will be fed only with convertible currency resources; and the operation of the forex accounts will be free from exchange control restrictions; i.e., transfers from abroad from these accounts will be made without exchange control approval.

For additional information on Ghana, contact the Commerce Department's desk officer, John Crown, on (202) 377-4564.

COPYRIGHT 1985 U.S. Government Printing Office
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