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Friday, June 25, 2010

RE: Ghana Ranked 9th Worst Economy In The World

On 10th June, 2010, Forbes Magazine issued a report on Ghana, titled “Ghana Ranked 9th Worst Economy in the World”.

We believe that the report is being done with 2008 and 2009 as the reference years. If this is the case, then most of the data and information used have a lot of factual inaccuracies.

The Ghanaian economy was faced with serious difficulties in 2008 as a result of huge domestic spending and coupled with the food and fuel crises, as well as the global financial crises, the economy, like many other economies including the most advanced ones, encountered a number of challenges, registering high inflation as well as high fiscal and current account deficits.

Consequently, the Government was faced with serious economic challenges particularly in 2009. It was against this background that the Government was committed to pursuing measures that will ensure the attainment of macroeconomic stability and significant progress has been made in this respect. The report fails to acknowledge the progress made in the last fifteen months. Real GDP growth in Ghana for 2009 slowed down, but it was higher than what pertained in most sub-Saharan African countries and exceeded the average growth rate for sub-Saharan Africa. Consumer price inflation fell to 16.0 percent in December 2009 and further to 10.68 percent in May 2010, after peaking at 20.7 percent in June 2009. The fiscal and current account deficits were reduced from 14.5 percent and 18.7 percent to 9.5 percent and 5.1 percent, respectively. Gross International Reserves increased from US$2 billion in 2008 to US$3.2 billion in 2009 and is projected to increase to US$3.7 billion in 2010.

With all these achievements in a year Ghana cannot be said to be a typical example of the World’s worst-managed economies. We wish to further comment on some specific issues.

Per Capita GDP Per capita GDP in Ghana increased by 20 percent from GH¢768 in 2008 to GH¢924 in 2009. The Forbes report quoted the per capita GDP in US dollars without making reference to what happened to the exchange rate during the year. The amount in US dollars shows a decline because in 2009, there was about a 15 percent depreciation of the Ghana Cedi to the US dollar. In real terms, Ghana’s per capita GDP increased from GH¢347 in 2008 to GH¢355 in 2009. The exchange rate of the Ghana Cedi has stabilized against the US dollar, and since the beginning of 2010, the Ghana Cedi has appreciated against the US dollar by about 7 percent. This is part of the evidence that good fiscal and monetary policies are holding.

Trade Deficit Ghana’s trade deficit in 2009 was US$2.2 billion and not US$3 billion as reported by the Forbes Magazine. There was a reduction in the trade deficit from about US$5 billion in 2008 to the US$2.2 billion that was recorded in 2009.

Settlement of Bills It is not true that Ghana is struggling to pay its bills. Ghana has serviced its external and domestic debts regularly and on schedule without any default. Delayed payments to domestic providers of some services and contractors have sometimes been part of cash management challenges that are common in economic management strategies. This is one of the key issues that the Government is addressing in its Public Financial Management Reforms.

Shortages in Energy The power supply to the Volta Aluminium Company (VALCO) has not, as it were, been “diverted” anywhere. The fact of the matter is that Ghana already has substantial electricity supply deficit which is still being addressed. This is as a result of the low level of water in the Volta Lake which is due to natural causes and not mismanagement. The shutdown of the smelter has allowed conservation of water in the Volta Lake as against the risk of running down of the water in the dam which generates energy and sells at ridiculously low rates to the Smelter when it operates (lower than what the lowest paid residential consumer pays). Furthermore, with the very low prices for aluminum and world market conditions, the smelter had no option but to shut down. In fact, the original managers of the smelter, Kaiser of the USA, divested its interests in the smelter when it became unprofitable. Thermal power generation which is very costly, considering the high international market price of crude oil, is being used to supplement hydro power generation. It is expected that with the coming on stream of gas from the West Africa Gas Pipeline and Ghana’s own gas production, power generation will become less costly.

Private Investment The Forbes report indicates that “the Government is discouraging private investment – economic growth – through policies of crony capitalism, expropriation or arbitrary enforcement of the laws”.

It is unfortunate that the report does not explain this assertion and how it relates to Ghana, but we wish to state without reservation that Ghana is one country where the rule of law is respected, especially, when it comes to matters of foreign investment. There are so many incentives and concessions that are available to private investors. Government, through the appropriate laws of the land will protect all genuine and law-abiding foreign and local investors, but will not allow for fraudulent foreign investors to rape the country’s natural resources. Government is accountable to the citizens of Ghana, subscribes to the Extractive Industries Transparency Initiative (EITI), and will ensure that revenues from the country’s non-replaceable natural resources are accounted for in a very transparent manner.

The increase in foreign direct and portfolio investments attests to the conducive investment climate that exists in Ghana. Over the last two years, the country continues to receive countless proposals from foreign financial institutions which are ready to provide financing for projects in Ghana. The confidence that the markets have in the Ghanaian economy is attested by the fact that Ghana’s sovereign bond currently trades at a premium on the international capital markets.

We believe these comments will correct the factual inaccuracies and set right the wrong perceptions that the report may have induced.



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