GHANA TPR: ADDITIONAL REFORMS WOULD FURTHER BOOST GROWTH

Tariff cuts and structural economic reforms have contributed to Ghana's improved growth rates and macroeconomic fundamentals since 2001, according to a new report by the WTO Secretariat.

The review of Ghana's trade policy (WT/TPR/S/194) noted that competitiveness was hampered by its complex tariff structure and shortages of infrastructure, skilled labour and access to finance. It said that continued reforms, including the adoption of a competition policy, streamlined customs procedures, a rationalised tariff regime, further privatisation, and multilateral trade liberalisation, would make Ghana's trade regime more predictable and contribute to more efficient resource allocation and higher economic growth. Market opening by Ghana's trading partners would help, the report added.

The WTO Trade Policy Review Body met on 28 and 30 January so that delegates could discuss the report.

Ghana's main economic policy objective is to achieve middle-income status by 2015, which would imply substantial poverty reduction. Goals include becoming a leading agro-industrial country, with an expanded agricultural processing sector, as well as promoting regional and global integration and export diversification.

Despite growth, poverty remains major problem

Since the last review in 2001, Ghana's GDP grew by an average of 5.1 percent annually from 2000 to 2006, with per capita income rising from $320 to $450. Macroeconomic fundamentals also looked better: inflation fell from 27 percent in 2003 to 10.6 percent in 2006. Boosted by greater government revenues and money from international donors, the fiscal deficit fell. Foreign debt has also been reduced substantially under the Highly Indebted Poor Countries (HIPC) initiative.

Despite these indicators and notable achievements in poverty reduction, poverty levels remain high, with half of Ghana's population - some 23 million people - living on less than a dollar a day.

The government continued to be heavily reliant on imports duties (including VAT and excise duties imposed on imports) which make up more than 55 percent of public revenue. Simplified tax structures and customs procedures have helped the government increase the duty collection ratio.

Agriculture key growth driver

Agriculture was the key driver of growth, helped by productivity increases, high international prices and trade reforms. The sector accounts for 38 percent of GDP and 50 percent of employment. Cacao is Ghana's main cash crop and most important export product together with gold and timber. Other cash crops included oil palm, coconut and coconut.

Despite growth in production the report found that Ghana's agricultural sector as a whole was characterised by small-holder farms affected by low productivity. The government provides assistance through extension services and subsidized seeds.

Production and exports of logs and timber has declined, and the government has prohibited exports of round or unprocessed logs and raw rattan cane and bamboo to encourage domestic processing.

Ghana has a relatively diverse industrial base centred around agro-processing, textiles, pharmaceuticals and electronics, but manufacturing accounts only for a modest 10 percent of GDP, the report found. The low competitiveness of Ghanaian industry was reflected in the positive tariff escalation in food products and textiles that also implied a high effective protection for value-added sectors.

State enterprises in the energy sector had escaped privatisation, with a state monopoly on electricity transmission and distribution. Low water levels in the Volta dam had disrupted electricity production and caused power cuts, even though the country normally exports electricity. An offshore oil discovery was announced in 2007 but production had yet to start. Fuel subsidies accounted for a large share of government expenditure.

While the share of mining and quarrying in GDP fell below 5 percent, gold, Ghana's second most important export product, generally accounted for over 30 percent of total exports in most years covered. Mining also attracted the predominant share of the country's foreign direct investment inflows.

As for services trade, the review found that Ghana was a net importer of services, mainly freight. Travel was an important foreign exchange earner and transport and communications revealed high growth rates. State-owned enterprises dominated the sectors of reinsurance, fixed-line telephony, postal services, inland water transport, and maritime port operations. The country has made binding WTO commitments in the tourism, financial services and telecommunications sectors to open its market to competition from foreign services companies.

The EU accounted for 40 percent of Ghana's imports and 50 percent of its exports. Nigeria and China are its next biggest trading partners. Despite steps towards regional integration -- Ghana belongs to the Economic Community of West African States (ECOWAS) -- intra-regional trade has remained low. ECOWAS' moves to establish a customs union have been delayed.

Tariff structure may inhibit competitivess

Ghana's average applied MFN tariff fell from 14.7 percent in 2000 to 12.7 percent in 2007. Farm products faced an average rate of 17.5 percent while that for industrial products was 12 percent. Diary products and tobacco were the most heavily protected agricultural goods.

The report pointed to some complexities in Ghana's tariff structure: 'negative escalation' (lower tariffs on more processed products) in for agricultural commodities; positive escalation for food and beverages, textiles and apparel, chemical, and non-metallic products; and mixed escalation for wood and paper products. It warned that such a tariff structure may inhibit the competitiveness of certain industries and discourage investment in others, and proposed duty and tax incentives as a solution.

Areas where Ghana needs technical assistance include customs reform and capacity building, the development and implementation of standards and other technical requirements, drawing up implementing legislation for WTO intellectual property rules, and enhancing the negotiating capacities of trade officials. The report also mentions difficulties caused by inadequate representation at WTO headquarters in Geneva.

During discussions of the review at the WTO, US Ambassador Peter Allgeier praised Ghana's progress on reforms, and urged it to privatise infrastructure services such as electricity, suggesting that this would help improve industrial competitiveness and attract investment. He also called on the West African country to strengthen the protection and enforcement of intellectual property rights.

Other Members urged Ghana to adopt a competition policy and reduce the role of state-owned enterprises. Concerns were also raised about the application of various charges on imported products for which tariffs have been bound at zero. Members asked for information about the few remaining restrictions in Ghana's generally liberal investment regime, and encouraged it to increase its notifications of compliance with its multilateral commitments to the WTO.

ICTSD reporting.