- Population awaits recovery, but none is predicted

By Kwaku Sakyi-addo REUTERS

ACCRA, Ghana, July 1 ? Ghana is in an economic rut, and with its currency in free-fall, import costs soaring, and prices for its main commodity exports at rock bottom, there seems little prospect of a recovery any time soon. The West African country?s cedi currency has plummeted 48 percent against the dollar on the interbank market this year alone; a parallel market is thriving, and year-on-year inflation by April was at 17.5 percent.

WITH INCOMES lagging far behind price rises of basic necessities, the government granted a 20 percent wage increase in May to civil servants, teachers, nurses and the judiciary.

Fears that such an increase would fuel further demands on state coffers are proving well-founded and in June university lecturers also snatched a 20 per cent pay hike after threatening an indefinite strike.

Junior prison officers throughout the country then took to the streets to demonstrate for better conditions, raising concerns that other poorly paid security services might follow their lead.

The 2000 budget provided for an 18 percent rise in public sector wages. IMF officials question whether the government can afford the extra two percent awarded to some sectors, and are concerned about pressure for larger increases from other state employees.

PRIVATE SECTOR'S TURN The private sector is also preparing for rising labor costs.

Kwasi Adu-Amankwah, deputy secretary-general of the Trades Union Congress, told Reuters that negotiations were due to begin this week on raising the minimum wage, currently 2,900 cedis ($0.58) a day.

?Our calculation at the end of last year was for a minimum wage of 4,300 cedis,? says Adu-Amankwah; ?but even that was based on a worker living alone in an urban area.?

Doctor Samuel Nii Ashong, a research fellow at the Center for Policy Analysis, an independent think tank, blames the country?s woes on the government for basing its plans on unrealistic economic targets.

Official projections for 1999 forecast real GDP growth of 5.5 percent, end of year inflation of 9.5 percent, and a total budget deficit of 5.2 percent of GDP.

?GDP turned out to 4.4 percent, inflation was 13.8 and the budget deficit was a whopping 8.2 percent ? everything was completely out of whack,? Ashong said.

Government officials have blamed falling prices for Ghana?s cocoa and gold exports, while the import bills, particularly for crude oil, have risen sharply to produce a trade deficit of $1.1 billion in 1999 ? 40.1 percent up on 1998.

Professor Ernest Aryeetey, deputy director at the Institute for Social Statistical and Economic Research (ISSER) at the University of Ghana, points out that even massive intervention by the Bank of Ghana failed to prop up the cedi under the weight of the trade balance.

?That intervention only delayed the onset of the current instability, otherwise the impact would have been gradual and would not have affected investment decisions so sharply,? Aryeetey said.

CEDI FALL TRIGGER PROTESTS The economic slump and government efforts to resolve it have led to protests by traders, who shut up shop in the capital Accra for a week in protest at the depreciation of the cedi.

The two million-member Ghana Union Traders Association also protested at a special 20 percent tax imposed by the government on certain imports, which Trade and Industry Minister Dan Abodakpi said was aimed at protecting local manufacturers from cheap imports blamed for undermining the cedi.

However, Aryeetey said the measure would not work. ?We need to have an incentive structure that rewards long term investments, and we don?t have it; if I can make more and quicker money trading, why should I build a factory?? Aryeetey said.

IMF representative Germa Bergashaw also points to interest rates which are close to 50 percent as a disincentive to local manufacturers to invest and expand to fill the gap the higher import tariffs would create.

The government hopes a $50 million shot in the arm from the World Bank and donors will give it some respite. France has made Ghana a member of its Priority Solidarity Zone, qualifying it for targeted French development aid.

?But the fundamental structure of our economy must change,? says Dr Yaw Osafo-Maafo, spokesman on trade and industry for the main opposition New Patriotic Party.

?We?ve been exporting the same raw materials since 1908, it?s time to add value otherwise any aid we get can only fill short-term gaps.?