AFRICA TRADE AND INVESTMENT CONFERENCE

PRESENTATION BY

KWADWO BAAH-WIREDU M.P.

HON. MINISTER OF FINANCE AND ECONOMIC PLANNING REPUBLIC OF GHANA

A NEW AFRICA

3-4 APRIL, 2008

BAY HOTEL, CAPE TOWN, SOUTH AFRICA

Mr. Chairman;
Distinguished Invited Guests;
Ladies and Gentlemen;

Introduction

1. I deem it a great honour and privilege to be invited to this important function. I also cherish the opportunity you have given me to address you all.

2. My presentation today will cover the issues that are of prime importance to us as Africans and will primarily use Ghana’s as a case for what is happening around in Africa today. Issues of macroeconomic management, financial development, trade and business are the critical ingredients on the lips of all Governments, the business community and our development partners.

POLITICAL GOVERNANCE

3. Ghana gained independence in 1957, the first sub-saharan country to do so.

4. From 1957 to 1960, Ghana was practicing parliamentary democracy with a Prime Minister and a multi party environment. From 1960 to 1966, we had a presidential democracy but a one party system.

5. From 1966-1969, there was military dictatorship ending the first republic. This was changed in 1969 with parliamentary democracy with a Prime Minister and President up to 1972.

6. From 1972 to 1979 there was a military regime. This was the end of the second republic.

7. This continued from 1979 to 1981 where there was parliamentary and presidential democracy and the third republican status. The military took over again in 1982 up to 1992. From 1993 to date we have enjoyed a parliamentary and Presidential regime and that has marked Ghana in the fourth republic.

8. Our various development plans have also followed the political dispensation at the time. We have had development plans ranging from medium to long term with the annual budget statements as the short term plans.

MACROCEONOMIC DEVELOPMENTS

Mr. Chairman,
9. Having faced some critical challenges at the close of the century, Government policies over the past few years have focused on providing a framework for achieving the overall policy objective of Growth and Poverty Reduction as contained in Ghana’s Growth and Poverty Reduction Strategy (GPRS II) document, our development blueprint for the medium term.

10. Government’s key objective from that document is to reach the middle-income status by 2015, and this would be achieved by accelerating growth to reduce poverty. The strategy would ensure that growth is private sector driven, and it is achieved by maintaining macroeconomic stability and debt sustainability.

Macroeconomic Stability

11. The strategy and the reforms have ensured that the current macroeconomic stability has been achieved through a monetary-fiscal framework oriented towards macroeconomic stabilization.

12. The fiscal policy stance of Government has centered on the pursuit of robust revenue generation through reforms in tax administration and improvements in the tax regime, expenditure control, external debt relief under the HIPC and Multilateral Debt Relief Initiatives and the Millennium Challenge Account.

Mr. Chairman,
Stabilisation and Sustainability
13. The economy has responded well to these policies. The economic stabilisation has taken hold with a significantly reduced inflation, rising GDP growth, improved external account balances and rising foreign exchange reserves.

Macroeconomic Developments
14. Headline inflation has been reduced from 40 per cent to 13.2 per cent at the close of February 2008 and is targeted to fall within single digits – a key objective of Ghana’s monetary policy. The exchange rate of the cedi has been relatively stable against the major currencies. GDP growth has risen steadily from 3.7% in 2000 and averaged 6 percent for the period. The country has managed to reduce the poverty significantly, with the population living below the poverty line reducing from about 52% in 1991/2 to 28.5% in 2005/6. This really indicates that we are on track to achieve the poverty millennium development goal of halving poverty before the 2015, one of the few African countries to do so.

Ease of doing Business
15. Ghana has been noted as one of the global top ten economic reformers and the leading reformer in the sub-Saharan Africa in 2007 in the ease of doing business among African countries in the latest World Bank’s Doing Business report and foreign investors have taken note of Ghana’s improved policy environment and economic performance.

International Capital Market
16. Sharing in our 50th anniversary of independence last year, Ghana was the first sub-Saharan country after South Africa and the first post-HIPC country to access the international capital market with the debut Eurobond which was highly over subscribed. Of the total amount of US$ 750 million, US $ 460 million is allocated for the energy sector, US $ 200 million for the construction of roads and US$ 90 million to improve the railway sector.

INFRASTRUCTURAL DEVELOPMENT

Mr. Chairman, Ladies and Gentlemen,

Energy
17. In September 2006, shortfalls in energy supply coupled with increased energy demand arising from accelerated economic activities caused serious crises in the energy sector. The reduction in the water levels in the Akosombo Dam resulted in a reduction in energy generation by between 25-30%. Government stepped in to resolve the crisis with a number of short, medium and long-term measures to improve upon the generation, transmission and distribution of electricity. Since 2006 and by end-2008, government’s total budgetary expenses would have exceeded US$2 billion. This includes purchase of crude oil and generation and transmission equipment. Crude oil purchases alone would have received an allocation of about US$1 billion for the same period.

Bui Project (Hydro)
18. The Government was able to negotiate a $622.0 million loan for the construction of the Bui dam (discovered in 1920) and Bui City which is the second largest single investment in the history of the country after the Akosombo Dam in Eastern Ghana. This project is to increase the generation of Hydro energy by 400 mw. In addition, Government is in the preparatory stages for smaller dams on the Pra, Ankobra and Tano rivers in Western Ghana with a Brazilian loan to meet the long term measure at addressing the energy crisis.

West African Gas Pipeline (WAGP)
19. Government recognizes the importance of energy infrastructure for private sector development and economic growth. As part of the efforts to promote inter regional trade in energy, the West African Gas Pipeline and the West African Power Pool projects are on-going to ensure that Ghana, Benin and Togo benefit from the natural gas in Nigeria. Some of the infrastructural developments on the project include the complete installation of the entire 570 km 20-inch main high pressure pipeline. Shore crossing and termination line at Takoradi have been completed while the Tema shore crossing work is also ongoing.

Crude Oil
20. As you are aware by now, Kosmos Energy and Tullow have made significant oil discoveries in the Tano/Off Shore Cape Three Points in Western Ghana. Government has also signed new agreements with 3 other international oil companies to pursue vigorous prospecting for oil. With Ghana’s strike of oil in commercial quantities, the energy sector has become a viable investment hotbed over the medium term

21. The Government has specifically provided an amount of US $460 million out of the international capital market funds to be invested over the next 3 years to improve the energy generating capacity of the country. A number of initiatives described are:

• 125 MW Osagyefo barge to be operational soon;
• 126 MW power plant which VRA is acquiring;
• A 300 MW thermal power plant will also be installed in Tema by 2009;
• 110 MW Takoradi International Company power plant;
• Procurement of 80 MW power plant by the mining companies; and
• 110 MW energy power plants.

Fuel Prices
22. The current oil price shocks which have risen from US $ 55 to about US$ 110 are negatively affecting the oil importing economies. What is even more critical is the size of the shock, both in terms of the percentage increase in oil prices and the real price and the shock’s persistence. For this year alone, the price has hit and sometimes exceeded the US $100 mark. The option available to Government is the frequent adjustment in the domestic fuel prices with its related terms of trade shocks in the BoP, inflationary pressures and public outcry.

Insurance Cover (Crude Oil Prices)
23. Standard Chartered Bank has collaborated with us on suggestion in the reduction of the country’s vulnerability. This is in the area of reducing risks through the purchase of insurance cover as a means to dampen the effects of oil prices on the economy. We want to implement this policy as soon as possible. Different views have been obtained but the insurance (hedging) seems to be the best.

ICT
24. Global trends have shown that investment in ICT facilities serves as a lubricant to increase productivity in the economy and also improve good governance. The increase in the telecommunication sector saw the country achieving the fastest teledensity growth rate in Africa in 2006.

Mobile Hand Sets
25. All taxes on mobile phones have been removed. It is to increase teledensity and ensure a greater spread of the benefits from easy communication. Companies that are in the assembling and renting of mobile handsets are welcome to invest in this area. On the other side, a six percent service tax on time usage has been introduced. We are earmarking not less than 20% of expected revenues from this tax to support the National Youth Employment Programme under the poverty reduction strategy.

Health Sector
26. Effective Healthcare delivery depends on early detection and diagnosis of diseases. This needs equipment in the areas of :

a. Pathological services;
b. Medical imaging such as CT scan, MRI, Nuclear medicine equipment;
c. Molecular Biology in the area of DNA technology; and
d. Pharmaceutical manufacturing in generic drugs and the establishment of Introviral plant.

27. Medical Infrastructure in these areas can be capital intensive but the rate of return is very good.

FINANCIAL SERVICES

Banking/Insurance/Discount Houses/ Security and Stock Brokerage/ Stock Exchange

28. The government’s vision for the financial sector is to have a modernized sector that is efficient in the mobilization and allocation of funds, and that is fully integrated with the global financial system in order for it to function as a powerful driver of the economic development.

29. Six key objectives have been designed to strategically place the financial sector within the medium term to realize this vision, which are to:

a) Be the preferred source of finance for domestic companies;
b) Promote efficient savings mobilization;
c) Establish Ghana as the financial gateway to the ECOWAS region;
d) Enhance competitiveness of Ghana’s financial institutions within the regional and global setting;
e) Ensure stronger and more facilitative regulatory regime; and
f) Achieve a diversified domestic financial sector within a competitive environment.
Reforms

30. To ensure the stability of our financial sector development, a number of reforms had been undertaken over the past recent years. These include the:

a) Borrowers/Lenders Bill
b) Credit Reporting Act
c) Know Your Customer (KYC)
d) Anti-Money Laundering Bill
e) Abolition of secondary reserve requirements
f) Foreign Exchange Act (2006)
g) Non-resident participation in domestic government securities
h) Licensing of New Banks
i) Re-denomination of the local currency (Cedi)
j) Listing of Government Securities on the GSE
k) The establishment of e-zwich smart card

Acts/Bills
31. All these Acts / bills are geared towards reinforcing the central bank’s powers to conduct effective supervision of the banking system; modernize the legal framework for the payment system. It is interesting to note that all these are positively affected the banking sector with the introduction of new banks and the opening of more branches by the old ones.

Interbank Settlement
32. Government has established a Real Time Gross Settlement system (RTGS) for high value inter-bank settlements. A Central Securities Depository system (CSD) has been introduced to ensure electronic security of title to investments in government debt instruments. Efforts are far advanced to ensure that a common platform with a domestic switch for all banks including a biometric identification smart card (e-zwich) is set in place in April 2008 to ensure financial stability.

Notes / Bonds
33. The domestic money market has also been very vibrant in recent times. Government’s 2-year and 3-year notes are now listed on the Ghana Stock Exchange. A 5-year Government of Ghana Golden Jubilee Savings bond which was opened to external investors for the first time was heavily over-subscribed largely as a result of foreign investor interest. The US$ 50 million generated will be used to improve on the infrastructure base of the economy. We are currently planning on a 10 year bond for 2008.

Exchange Control
34. Ghana has maintained a liberal trade and exchange system largely free of restrictions. A new Foreign Exchange Act has been passed to simplify the documentation and approval procedures that burdened the system under the old Exchange Control Act thereby liberalising the system and effectively opening the economy to the global markets.

Mr. Chairman, ladies and Gentlemen,
Standard Chartered Bank
35. Let me take this opportunity to show my personal appreciation to our sponsor Standard Chartered Bank. A bank with over 100 years presence in Ghana. Standard Chartered Bank Ghana has been instrumental in the support of the great things happening in Ghana and the continent at large. Our Agricultural – Cocoa, Infrastructural, Manufacturing and Education Sectors have benefited immensely from the support of the Bank.

36. Over the medium term, Government has identified investment in Roads, Water and Energy as the focus areas for closing the infrastructure gap.

37. In paragraphs 61 – 64 of my 2008 Budget Speech to Parliament, I stated the intention of Government to construct and tar about 15 kms of roads in each district over the course of this year and over the 10 year period 150 kms with the support of Banks and Financial Institutions to pre-finance the project.

38. Another critical point in ensuring timely cash flows from the domestic revenue sources, the current practice deferred duties at the Customs, Excise and Preventive Service (CEPS) and Ware Housing locks up potential revenue from importers. I strongly believe that banks can support us in this area so that Government can get its revenue on time and importers can use the imported goods as collateral.

CHALLENGES

Competition
39. Despite these achievements, there are a number of challenges facing our industries. Critical among these are ensuring competitiveness of our industries in the wake of a volatile crude oil prices.

Macroeconomic Stability
40. Maintaining macroeconomic stability despite the weakening US dollar and developments on the world capital markets.

FDI
41. Ensuring that we increase and attract more Foreign Direct Investments into Ghana in the areas of mining, manufacturing, banking and agriculture.

CONCLUSION

42. In conclusion, Ladies and Gentlemen, my appreciation goes to every one here who has made it possible for this event to take place and to impress on all that, now is the time for Africa to take its rightful place in this globalised economy. I wish you all a fruitful deliberation and thank you for listening to