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FACTBOX-Key political risks to watch in Ghana

Fri, 11 May 2012 13:35 GMT

Source: reuters // Reuters

By Kwasi Kpodo

ACCRA, May 11 (Reuters) - The start of commercial oil production in 2010 has helped promote Ghana into the ranks of the world's lower middle-income nations, fuelling local hopes of ending dependence on aid and forging a bright future as one of Africa's star economies.

While President John Atta Mills's government is seen to have done well in knocking public finances into shape since 2008, the main threat to the economy is the weakness of the cedi, the local currency, dragged lower by strong local demand for imports to fuel the growing economy.

As Mills gears up for re-election in December, he must ensure this does not feed a new bout of income-eroding inflation. He also has a job on his hands to satisfy persistent public sector wage demands while not hurting the public purse.

Here are the main political risk factors Ghana faces:

RESOURCES

UK-listed operator Tullow Oil is talking of more than two billion barrels or more of oil reserves under offshore Ghana, following discoveries in the Jubilee oil field.

Aside from state-owned Ghana National Petroleum Corporation (GNPC), Tullow's major partners in Jubilee are U.S. producer Anadarko Petroleum and U.S. public energy firm Kosmos.

The partners originally aimed for output of 250,000 bpd by 2013, putting Ghana among the world's top 50 producers. Tullow said on May 3 it would probably ramp up production to a delayed first phase plateau target of 120,000 barrels per day next year. Currently, Jubilee is producing at a daily average of 70,000 barrels with plans to increase to 90,000 barrels by year-end.

Ghana is the world's second largest cocoa producer behind Ivory Coast. After raising its output forecast for 2011/2012 to around one million tonnes, sector regulator Cocobod now says it could be lower than that due to bad weather conditions.

Cocobod is also investigating a shortfall of around 70,000 tonnes of beans between official cocoa purchases and its inventory after buyers reported inflated volumes. The International Cocoa Organisation has projected Ghana's output for this year at 970,000 tonnes.

Cocoa prices fell to three-year lows by late-2011 as investors dumped commodities amid the European debt crisis, but have since moved upwards.

Spot prices of gold, of which Ghana is the second largest African producer after South Africa, rose strongly in 2011 due to the euro zone crisis but have since edged back as the dollar has strengthened.

What to watch:

- Any new read-out on progress of work towards Tullow's new target of 2013 for reaching plateau first-phase production of 120,000 bpd from Jubilee.

- Commodities markets, especially cocoa. They in turn are dependent on expectations for the remainder of Ivory Coast's season, where an improved outlook has contributed to recent price weakness.

- What becomes of Cocobod's probe into the discrepancy between declared purchases and the official inventory and what measures are put in place to prevent recurrence. Will this enough to hurt Cocobod's credibility in the eyes of international banks which provide it with credit for annual crop purchases.

ECONOMY AND PUBLIC FINANCES

In its bleakest warning yet, the Bank of Ghana on April 13 warned that the depreciation of the cedi - which has fallen over 14 percent against the dollar this year so far on a surge in demand for imports - "could act to offset the gains made in macroeconomic stability".

The statistics office announced on May 9 that inflation rose to 9.1 percent in April, from 8.8 percent in March, mainly due to the depreciation of the cedi which has fallen more than 12 percent so far this year.

The Bank hiked its key interest rate by a further one percentage point in April to 14.5 percent, reintroduced short-term bills and changed bank reserve and asset requirements.

It also required 100 percent cedi cover for vostro balances -held by local banks on behalf of foreign banks - to help stabilise the cedi. It is planning to issue a 3-year bond at the end of May ahead of a 5-year bond in July.

On the fiscal front, higher-than-expected wage claims and the continued cost of fuel subsidies means Ghana could struggle to stick to a 2012 deficit target of 5.2 percent of national output excluding oil.

Finance Minister Kwabena Duffuor said the government was barring public institutions from spending plans that were not included in the 2012 budget in a bid to ensure fiscal discipline ahead of elections later this year.

What to watch:

- Duffuor said Bank of Ghana's new measures will stabilize the cedi in mid-May. Will it work? Its scope for intervention is limited and analysts doubt there is much appetite to substantially raise the interest rate in an election year.

- Mills's government will come under increased pressure from sections of the 450,000-head public sector for wage hikes. Will it buckle?

- Ghana agreed a $13-billion credit facility with China back in 2010. To what extent will it be tempted to draw on that facility and on what terms?

- The government says negotiations were completed for the disbursement of the first $3 billion - mainly for oil and gas infrastructure building, and that talks had begun on another $6 billion that it hopes to invest in social amenities.

- Investment in the Ghanaian economy was hit by the eurozone debt crisis that made many investors more risk-averse. But rising yields - the short-end of the curve has gone by 400 basis points since December - could start to encourage investors back.

POLITICS

Ghana is one of the more stable nations in the region, with a solid record of power changing hands peacefully. As has been the case since 1992, the 2012 presidential and parliamentary elections will be a race between the ruling National Democratic Congress (NDC) and the New Patriotic Party (NPP).

However, a recent exercise to compile a new voter register saw pockets of violence and high intolerance by political activists against opponents with ethnic undertones.

The NDC overwhelmingly endorsed Mills as second-term candidate in the poll that will set him against the NPP's Nana Akufo Addo, whom he narrowly beat in December 2008.

What to watch:

- Registration violence -- Is this a sign of growing intolerance in the local political scene that could mar Ghana's good credentials in the upcoming polls, or is it limited to the registration exercise? Investors will be watching.

- The public sector. The outcome of the vote depends largely on how successfully Mills can meet the high expectations of some 470,000 public sector workers in implementing a new public sector wage package. Migration to the Single Spine Salary Scheme (SSSS) has been fraught with discrepancies, leading in some instances to long strikes by health professionals.

- Fraud charges. The state anti-graft agency has indicted a so-called financier of the ruling party for using fraudulent representation to the courts to obtain judgment pay-out of about $30 million. Two ministers have lost their jobs over the case, which has severely embarrassed the government. This is expected to be a campaign issue against the ruling party.

- Impact of the 2012 budget. The budget uses some 17.5 billion cedis of spending to develop infrastructure and boost jobs. Its success - or otherwise - in achieving those goals will be a key factor in how Ghanaians vote.

- Rawlings. Despite peace efforts by party elders, relationship between Rawlings and Mills remains frosty. Can this be mended before the elections? Rawlings and his flamboyant wife who contested Mills in the ruling party's primary last