After the closely fought electoral battle for power in 2008, the two main political parties will be cranking up in 2011 for a new contest at the end of 2012. Splinter groups in the ruling National Democratic Congress (NDC) and the opposition New Patriotic Party (NPP) could become more assertive as polls approach. The main political challenge facing the administration of President John Atta Mills will be to control the party’s increasingly restless rank and file, commonly referred to as its ‘foot soldiers’.
A group backing former first lady Nana Konadu Agyeman-Rawlings and led by Raphael Cubagee has not yet won convincing support, but many observers suggest that she would like to run against Mills as the party’s presidential candidate. She and her husband have been vehement critics of the current government. Former President Jerry John Rawlings has gone as far as to say, “Give me my party and take your government,” and has described the coterie around Mills as “mediocre” and “greedy bastards”.
The challenge for Mills within the next two years is to deliver at least some of the policies and programmes on which he campaigned in 2008, when he used the slogan “A better Ghana”. These policies include improved access to free health care and education, new infrastructure and reliable supplies of water and power, especially in rural areas. The pressure will be on for the foot soldiers to benefit from youth employment programmes in roads, health and education, as well as from agricultural-development programmes in the three northern regions.
The leadership of NPP flag-bearer Nana Akufo-Addo was reinforced by his receiving 80% of the votes in primaries held in August 2010, but there are important divisions in the party too. An Ashanti caucus, seen as having the backing of ex-President John Agyekum Kufuor, has arisen and claims to have the support of Akufo-Addo’s main rival, John Alan Kwadwo Kyerematen. The NDC government is being urged by the opposition and Western donors to speed up the passage of laws governing the oil and gas sector and to enact a Right to Information bill to increase transparency.
The production of oil in commercial quantities is due to start before the end of 2010, with output rising to 120,000 barrels per day (bpd) of oil and 120m cubic feet of gas within three years. In a second phase, the main Jubilee offshore field is expected to boost production to about 250,000bpd. Estimates as to how much revenue Ghana can expect from this production vary widely.
One local think tank, Imani, believes it could be as low as $400m a year over 15 years. Government agencies, including the Ghana National Petroleum Corporation, have put the figure as high as $1bn a year, while some private estimates are even higher, depending on the international crude oil price. While the oil revenue should help a government which inherited a fiscal deficit of 20% of GDP and a current account deficit of 15% of GDP in 2009, it will not be enough to propel the economy forward at the rate required to reach the NDC’s goal, which is take Ghana to middle-income status by 2015.
Finance minister Kwabena Duffuor has stuck rigidly to the conditions agreed with the IMF to cut government spending and increase revenue. These policies have also squeezed the inflation rate from over 20% in January 2009 to 9.4% in the third quarter of 2010. However, this has been at the expense of a squeeze on business, coupled with massive utility price hikes introduced at the beginning of August to reduce the huge debts of the utility companies.
The energy and water utilities have been struggling to restore their balance sheets. The Tema Oil Refinery’s debts have been refinanced by just over $300m, but the Volta River Authority (VRA), Electricity Company of Ghana and Ghana Water Company still face financial difficulties. Revenue collection in the power subsector will have to improve greatly if Ghana is once again to become a net exporter of power.
Private investors are hoping to break VRA’s power-generation monopoly, and the first independent power producer, the Sunon-Asogle joint venture between Chinese and Ghanaian companies, plans to supply 200MW to the national grid in 2011. However, the issues of cost-sharing with VRA and ensuring a reliable supply of gas from the West African Gas Pipeline still have to be resolved. While the gold mining industry is still holding its own, the cocoa industry is damaged by the loss of some 60,000tn every year through smuggling, especially to Côte d’Ivoire.
This represents an annual loss of 8.5%, and the government has introduced new producer prices for cocoa for the 2010-2011 mid-crop season, bringing local prices close to par with those paid over the border. Even if prices remain roughly equal, some smugglers prefer to be paid in cash for cocoa bought by purchasing companies in Côte d’Ivoire. Ghana’s Cocoa Board continues to use a cumbersome cheque payment system, which is not widely popular because of rigidities in the banking system.
Until oil money begins to flow into government coffers, the economy will remain dependent on a combination of cocoa and gold revenues as the launch pad for the 8%-plus growth rates Duffuor believes are required to achieve middle-income status. Nevertheless, the IMF forecasts real GDP growth of 5% in 2010 and 10% in 2011. The government is contemplating a policy of hedging its oil purchases for 2011, although views vary within the NDC administration on the risks involved.
The cabinet has already approved the hedging policy and the CEO of the National Petroleum Authority said that he is ready to implement it. The government says it will organise wide-ranging consultations between the main players in the oil and gas sector to advise President Mills on a way forward. The banking sector continues to resist pressure from the government and the Bank of Ghana (BoG) to lower interest rates and increase lending to the small businesses that form the backbone of the economy.
Leading banker Prince Kofi Amoabeng, who heads the only indigenously owned company on the 2010 top-10 list compiled by the Ghana Export Promotion Council, argues that the BoG should be paying interest to private banks on primary reserves, which currently stand at 9% of all cash deposits they are required to hold with the central bank. Amoabeng says that banks make provision to hold up to 5% of their cash holdings at their branches because the economy remains largely cash-based. With up to 14% of their assets tied up and earning no interest, he says the banks are in no position to reduce lending interest rates from their current high levels, some as high as 33%.
Oil stakes and high diplomacy
On a state visit to Beijing in September, President John Atta Mills and his entourage secured financing facilities worth $12.9bn from the China Development Bank and China Exim Bank. Several sectors of future development are covered by the plans, but hydrocarbons are a key focus. The China National Offshore Oil Corporation (CNOOC) has been making it very clear that it hopes to buy a stake in Ghana’s offshore assets.
Ghana’s governing party appears to favour CNOOC’s interest over other bids, such as that of ExxonMobil, which offered $4.2bn in 2009 to buy Kosmos Energy’s 24.5% stake in the Jubilee field, estimated to hold up to 1.8bn barrels of recoverable reserves. The government’s objections to partnering ExxonMobil have soured relations between Accra and Washington. US President Barack Obama held up Ghana as a shining example of democratic and economic practice in Africa during his state visit in 2009, but that political capital may now have been spent. Oil industry analysts believe that the NDC is not overly concerned to do business with US oil and that China remains the preferred partner, but the inexperience of CNOOC and Ghana National Petroleum Corporation in operating offshore deep-water installations presents a technical challenge that could prove insurmountable.