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General News of Wednesday, 23 May 2007

Source: Statesman

Economist Intelligence Report On Ghana

... Economic growth down, deficit up as power crisis continues
... Mills is tainted

For the first time since 2001, economic growth for 2007 is expected to be lower than the previous year, largely as a result of the energy crisis.

The Economist Intelligence Unit Report, the internationally-reputed research arm of the Economist newspaper, has revised its predictions for this year in the light of the ongoing lights-out problem. Gross Domestic Product is now expected to rise by just 5.7 percent, down from the previous forecast of 6.2 percent.

Power shortages are also behind an increase in the predicted current-account deficit, now expected to be 6.1 percent instead of 5.7 percent. Meanwhile, Bank of Ghana targets of single-digit inflation are not realistic, according to the Economist experts, who are instead predicting a rise in inflation during the second half of the year - to 10.2 percent at the end of 2007, and 10.5 percent next year.

The revised predictions come in the same week as several other negative projections. Databank, the country's leading financial service provider, is also anticipating a reduction in growth as a direct result of the energy crisis: the economy stands to lose $1.4 billion by the end of the year if the situation does not let up, according to Daniel Ogbamey Tetteh, head of the research unit.

The Monetary Policy Committee of the Bank of Ghana has also admitted the power crisis is hindering national growth. Speaking at an MPC presentation this week Paul Acquah, Governor of the Bank of Ghana, said that the load shedding programme will prevent the Ghanaian economy from surpassing the BoG growth estimate of 6.5 percent this year. However, he denied that the bank is preparing to follow the Economist in cutting that prediction.

The Economist report cites the effect of the power crisis on both the manufacturing and services sector, and in particular the closure in April of the Volta Aluminium Company facilities – with more job cuts also predicted. The reduction in electricity supply is likely to increase tariffs for utilities and raise costs for domestic producers, which are then likely to be passed on to consumers, according to the report.

The outlook is not all bad, as the Intelligence Report places a current deceleration in growth in the context of recent economic successes and continued optimism for the future:

"Positively for the government, real GDP growth is forecast to remain reasonably strong, owing to a high international price for gold and a good cocoa harvest. Against the background of a stable inflation rate and a steady cedi, the NPP will be able to campaign on a sound macroeconomic record."

Already, GDP has grown from $6.2bn in 2002, to an estimated $11.9bn in 2006, and real GDP growth is estimated to have grown by 6 percent in 2006, reflecting a high international price for gold and a record year for cocoa production. For certain sectors, the outlook remains very positive. The report predicted continued strong growth in the cocoa sector and in the agricultural sector in general. Furthermore, "high international gold prices and production from new mines will offset any negative effect from the power shortages on the contribution of gold mining to overall economic growth," according to the Economist team.

Mills is tainted

The Economist Intelligence Unit has this week issued its May report on Ghana and it makes interesting reading on the political fortunes of the two leading parties of Ghana.

The Economist's regular reports on countries serve as a major credible reference point for investors, institutions, journalists and politicians worldwide. For 60 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide.

For the New Patriotic Party, the latest report on Ghana warns, "There is a danger that the open campaigning by so many NPP figures will appear as an undignified scramble for power and may alienate the electorate.”

While, acknowledging that the “main opposition party, the National Democratic Congress, has had an easier time in selecting its candidate, John Atta Mills, for the 2008 presidential election,” the EIU report is markedly gloomy about Prof Mills’ chances:

“The apparent unity within the NDC is a relatively new development and indicates an awareness of the importance of public perceptions of the party that may presage a more media-savvy campaign than has previously been the case,” it begins.

“However, it is unclear if the 62-year-old [Prof] Mills will be able to unseat the NPP. In particular, Mr Mills does not represent the break with the past and the fresh start for the NDC that many argue is needed to increase the party’s appeal outside its traditional core of voters.”

The Economist goes on to explain its dingy audit of the NDC: “As a former vice-president of an NDC government, Mr Mills is tainted with links to an administration that has been accused of human rights abuses and economic mismanagement.”

Not only does the report consider the NDC as a vehicle of liability, it is equally damning of the man ostensibly in the driving seat as well: “Mr Mills’ record is further blotted by two previous presidential election defeats, in 2000 and 2004. Such criticisms, as well as doubts surrounding his health, were used against him during the nomination process and are expected to be raised during the election campaign.”

But, it is not all funereal for the party founded for and by Jerry John Rawlings.

According to the EIU report, "In a bid to counter this, the NDC will continue to challenge the NPP on a number of issues, particularly corruption and governance."

An almost entrenched but seemingly dangerous augury in the NPP is that for the next general elections, the actual contest is in who wins the NPP flagbearership, with the presidential race somewhat complacently considered as a foregone conclusion. But not so, says the prognosis of the Economist Intelligence Unit:

"Overall, we expect the 2008 vote to be reasonably close."

In 2004, though President Kufuor won 'one touch,’ many within his party were somewhat miffed by the victory margin. Mr Kufuor won 52.75% of the vote. Prof Mills gained 44.32% of the vote, which attracted a turnout of 83.2%. The Economist believes that "The NDC’s popularity is expected to remain strong, particularly in the north and east, and it will seek to extend this voting base by appealing to the poor ‘whom it believes to be excluded by NPP policies’ with social welfare schemes".

On the other hand the report says the NPP has declared that it wants the leading parties to be judged on the basis of a comparison between the NDC’s record in government in 1992-2000 and its own record in 2000-08, focusing in particular on economic and business management.

The intelligence unit of the world’s leading current affairs and economics magazine predicts political tensions in the country heightening. It cites the People’s Representation (Amendment) Act (2005) as one such time bomb. "It is becoming increasingly clear that as the NDC seeks to discredit the NPP, Ghana’s political atmosphere, which is already characterised by bickering and parliamentary boycotts, is set to become yet more bellicose.

"A particular area of contention will be recent legislation allowing Ghanaians who are not living in the country to vote in the elections. The NDC is wary of the potential advantage that this gives the NPP, as well as the likely administrative problems in identifying and registering overseas voters, and believes that the legislation could be used as an opportunity for the NPP to manipulate the electoral outcome."

Meanwhile, with the NDC strengthening its official presence in Togo, there is a fast-growing worry in the NPP that while the NDC may be diverting attention to Ghanaians domiciled in Europe and North America, the biggest votes from ROPAA may be far closer to home than previously anticipated.

After the 2000 general elections, the NDC claimed that around 2 million of its voters were prevented from crossing over from Ghana’s eastern border to vote due to the decision by the Togolese government to close its borders during the Ghanaian polls.

The Economist Intelligence Unit provides a constant flow of analysis and forecasts on more than 200 countries and eight key industries. They help decision makers make informed decisions about their countries of interest through dependable intelligence delivered online, in print, in customised research as well as through conferences and peer interchange.