GHANA Oil prizeThe Jubilee fieldhas been broughton­stream to costand on schedulePage 4FINANCIAL TIMES SPECIAL REPORT | Thursday December 15 2011

InsidePoliticsThe twomainpartieshavebeen incampaignmode for the pastsix months andelections are notuntil next DecemberPage 2

AgricultureRice project showswhat is possible whenthe stars alignPage 2

Economy Spectaculargrowth means little inthe crowded streets ofpoor neighbourhoodsPage 3

Gas Early recovery ofgas would have been aboon for thepresident’s pollprospects, given itspotential to employthousands of peoplePage 4

Ports Piles ofcontainers are

testamentto thedifficultyofhandlingrapidgrowth in

trade Page 5

Cocoa Things arelooking up down onthe farm but youngpeople want morecertainty Page 6

MiningGolddealssigned inthe1990sshould beexempt fromcorporation tax rises,the companies arguePage 6

It is 45 years sinceKwame Nkrumah,Ghana’s independenceleader was overthrown

in a coup that reverberatedacross Africa, signalling anend to his dream of a free,united and industrialisingcontinent, facing the worldfrom a position of strength.

Through the political tur-moil and bankruptcy of the1970s and the recovery thatfollowed under Flight Lieu-tenant Jerry Rawling’smeandering 20-year rule totoday, it has been the vastAkosombo dam built duringMr Nkrumah’s time thathas powered the economy.

Mr Nkrumah’s ideas, con-troversial as they some-times were, are still reso-nating. Some of the sameinfrastructure plans he had,the road and rail networks,power and industrial plantshave been dusted off nowthat the country can lever-age bigger loans with new-found oil.

Accompanying these is anational desire to be treatedby the rest of the world asan emerging black powerrather than an aid-depend-ent African reformer, col-lecting World Bank stars.

Thanks to the onset ofoil production followingAfrica’s largest offshore dis-covery of the decade in2007, the economy is grow-ing faster this year, at 13.6per cent, than most others.

When national incomewas recalculated in 2010 forthe first time in 20 years,gross domestic product wasraised $500 per capita to$1,300. This propelled thecountry into the lower mid-

dle income category lessthan a decade after it wasclassified as highly indebtedand poor.

In 2012, Ghana is headinginto an election year afterbecoming in the last decadeone of only a handful ofAfrican countries to experi-ence two peaceful and con-stitutional transfers ofpower.

For all its political ten-sions, it has become one ofthe few countries on thecontinent with a traditionof peaceful change.

Despite these achieve-ments Ghana is neitherentirely free, nor yet indus-trialising.

On both sides of a venom-ous political divide betweenleft of centre and right ofcentre parties, roughly con-tingent with ethnic splits,this rankles.

Even if their country isfeted as a star performer,Ghanaians seem disen-chanted with their leadersand frustrated with thepace of change.

Accra’s urbane elites ago-nise over why they havenot done better, why pov-erty remains so pervasiveand why their country stillexports, as it did in colonialtimes, raw materials andimports manufacturesrather than processing its

own. They worry too abouteducation standards, onefoundation that Mr Nkru-mah helped to lay that isfast eroding.

“To put it bluntly, growthhas outstripped develop-ment in almost every aspectof our lives except tele-coms,” says the chief execu-tive of an Accra-basedbank. “When we had 7mpeople we had functioningrailways. Now, we are 24mand have none to speak of.”

A whiff of fatalism isdetectable too, as millionsflock to Pentecostalchurches where pastorsconvey God’s blessings togrowing congregations in

return for a chunk of theirincome in tithes.

The discovery of oil andrapid launch of productionat the field operated off-shore by Britain’s TullowOil, has provided a renewedbelief in Ghana’s capacityto reach the land that MrNkrumah promised.

The quantities discoveredso far are not on a par withAfrica’s biggest producers.But with more than 2bnbarrels of proven reserves,prospective revenues gosome way towards balanc-ing the budget.

Oil earnings, and savingsaccrued to a stabilisationfund, should also cushion

the country against thekind of external shocks thatsent the economy reeling inthe past, when the cost ofoil imports rose, and stapleexports gold and cocoa fell.

Both the latter have seenrecord revenues this year.But it is the gas, says SethTekper, the deputy financeminister, that is most stra-tegic to Ghana, and couldincrease the output andlower the cost of electricity,helping to power industryin the future.

What oil will not do is fixthe political system, whichheats up the economy dur-ing election years, settingthe country back each time,

as whichever party is inpower attempts to spend itsway to victory. The pros-pect of easy money raisesthe stakes in the electoralcontest.

Officials from both par-ties – the ruling NationalDemocratic Congress, andopposition National Patri-otic party – worry that who-ever wins a year from nowwill be able to hang on foryears.

“The commitment to thedemocratic principle isgrowing stronger,” says JoeAbbey, who runs the Centrefor Policy Analysis, an inde-pendent think-tank. “Butwe can’t take things forgranted.”

Ghana’s institutions aremore robust than many onthe continent. The electoralcommission is consideredgenuinely independent,although a margin of just40,000 votes in the last pres-idential elections in 2008brought the country tooclose to the edge for com-fort.

Against this, there aremurmurings that the four-year electoral calendar, andbinary party system arefailing to meet aspirations,and that neither PresidentJohn Evans Atta Mills, aformer tax lawyer reputedfor his integrity, nor hismain challenger, NanaAkuffo-Addo, also a lawyer,has the strength of visionGhanaians crave.

“A country that is devel-oping needs a nationalproject. People are waitingfor a third force, somethingbetween these two dino-saurs,” says Samia Nkru-mah, daughter of the lateindependence leader whorecognises that the “Nkru-mah-ist” party she chairshas a way to go before itcan match the other parties’organisation and finances.

“We should be much

Politics frustrates pace of changeWilliam Wallisreports on acountry whoseeonomy is amongthe fastest growingin the world

President Mills turns on the taps: oil cannot fix a system that, in election years, heats the economy as those in power try to spend their way to victory Reuters

Continued on Page 2

www.ft.com/ghana­2011 | twitter.com/ftreports

2 ★ FINANCIAL TIMES THURSDAY DECEMBER 15 2011

Ghana

bolder and more coura-geous. But, somehow, hav-ing an election every fouryears limits our ambitions,”she says.

Yet, almost by default,because of its relative sta-bility and low crime rate,Ghana is becoming the cho-sen centre in west Africafor business, “an accidentalhub”, as one banker puts it.

Rich Nigerians send theirchildren to Accra privateschools and universities,and increasingly are buyingproperty in the city as sec-ond homes.

Among multinationalsthat have regional head-quarters in Ghana are MTN,the South African mobilephone company, GeneralElectric, and Nestlé.

Standard Chartered bankdoes all its west African

backroom processing inAccra.

But if the country isbeing courted for its stableposition in an increasinglystrategic region for worldenergy supplies, it has alsobeen harried by the interna-tional attention that oil hasbrought.

A bruising dispute withUS companies in which thegovernment was pressedinto partial retreat by nega-tive publicity in the USpress and, according to sen-ior officials, aggressive lob-bying by the state depart-ment, brought this homelast year.

Now, the InternationalMonetary Fund hasweighed in to challenge a$3bn Chinese loan towardsfinancing the pipeline andplant to process gas andbuilding a road and railwaynetwork in the region near-

est the oil. Under the termsof an IMF agreement,Ghana is supposed to limitcommercial loans to $800ma year.

These tussles have pro-vided a reminder of howfraught it can be for a smallAfrican country to defendits interests, as Washingtonseeks to consolidate itsinfluence, Europe fights tostay in the game, and Chinabangs at the door.

“The old style of diplo-macy is under review andbarefaced self-interest is nolonger appropriate,” saysMr Abbey, reflecting a com-mon feeling that both Euro-pean powers and the UShave overstepped the markin attempting to steerGhana along the way.

He adds: “You [in thewest] should stop pretend-ing you are afraid on ourbehalf, because everyone

knows you are afraid foryourselves.”

As Mr Nkrumah believed,having stronger allies in theneighbourhood would helpprovide a more robust front.But Ghana finds itself curi-ously alone these days.

Nigeria, a natural Eng-lish-speaking ally, is preoc-cupied with troubles athome, says a senior securityofficial, while neighbouringIvory Coast is in more hos-tile mode.

President Mills was slowto back the winner in itselections last year thatalmost led to civil war.

Ivory Coast has since,seemingly in retaliation,claimed some of the off-shore waters where Ghana’soil was found.

Being top of the class inwest Africa has its advan-tages. But it can also belonely at the top.

Politics frustrates the pace of change ContributorsWilliam WallisAfrica Editor

Patrick SmithEditor, Africa Confidential

Robert WrightFT Shipping and LogisticsCorrespondent

Orla RyanFT International Page Editor

Stephanie GrayCommissioning Editor

Steven BirdDesigner

Andy MearsPicture Editor

For advertising contact:Mark Carwardine on:+44 (0) 207 8734880;mark.carwardine@ft.comor your usual representative

All FT Reports are availableon FT.com. Go to:www.ft.com/reports

Continued from Page 1

UT Bank Reaching parts of the market others shun

A new bank has arrived in Accra that mightjust shake up Ghana’s staid financiallandscape. UT Bank was formed out of afinancial services company 14 years ago byPrince Kofi Amoabeng.

A retired army captain and charteredaccountant, he had $20,000 of seedcapital. With a partner, he began providingshort­term loans at steep rates from anoffice in the Makola Market, swimming inthe same waters as loan sharks to theinformal sector.

By all accounts the bank does what itsays – it lends to real people. For that, ithas drawn comparisons with Equity Bank inKenya, which has conquered the eastAfrican market in the space of 10 years byfinding a niche among previously unbankedsegments of the population. UT’S model isdifferent, however, from that of Equity,which has built much of its business onconsumer loans.

UT is still what competitors refer to as“second tier”. But it has been ascendingrapidly since it bought the carcass of adefunct peer, and won regulatory approval18 months ago to operate as a bank –meaning it can take deposits and providelines of credit.

With about 350m cedis on its books, itprovides almost as much funding to theprivate sector as Ghana Commercial Bank,the part state­owned bank that is thecountry’s largest lender.

UT bank lends in smaller chunks,however, than is typical for the market –typically providing short­term financing ofbetween $2,000 and $100,000.

The secret is simple, says MrAmoabeng. He and hiscolleagues have foundways of controllingrisk and retrievingloans in parts of theeconomy otherbankers shun. Mostof the bank’sclients do not, atleast initially,provide accounts.

By the timemost banks inGhana have sentloan requests upthe hierarchyfrom this

segment of the market – by someestimates 70 per cent of the economy –and come back with a decision, somebusinesses have gone bust, says PearlEsua­Mensah, deputy managing director.

“When such a person comes to you, heusually needs money immediately. So wehave to be responsive,” she says.

Provided clients can answer a stapleround of questions, UT bank guarantees tomake decisions on loans within 48 hours.

One of the keys, says Ms Esua­Mensah, isthe ability to collateralise loans in theinformal sector. The bank keeps apermanent office open at both the land andvehicles registry. Cars are a favourite.“Ghanaians don’t want to lose them,” shesays. When financing trade, or clearinggoods for clients through customs, the bankholds a portion of the imports until the loanis paid off.

Financial analysts familiar with UT, saythe bank has also built its reputation on thestrict military discipline with which its affairsare run and its ability to recover as well ascollateralise loans. It does not go to thepolice and the courts.

Ms Esua­Mensah singles out Zoom Lion, astart­up that the bank financed, as afavourite tale. The company, which wasrunning a small printing press, decided togo into street cleaning. Accra at the timewas very dirty. With the credit provided byUT bank, the group began getting contractsfrom local councils to sweep the streets.Zoom Lion is now present in several citiesand towns across Ghana and employs30,000 people.

The interest rates UT bankcharges are not exactly

a gift, sometimes 3 to5 per cent a month forindigenous traders.About 12 per cent ofthe bank’s loanportfolio is non­performing. Profitsare up 30 per centyear on year.

William Wallis

UT Bank:reputation builton militarydiscipline

Nigerian born Toks Abim-bola landed in Ghana as hemight have done in his pre-vious incarnation as aninvestment banker: withhand luggage and a room atthe Holiday Inn in Accra.

Less than two years laterhe, his business partner,and the investors backingtheir start-up, have becomethe largest commercial ricefarmers in the country, with500 hectares of land undercultivation and another4,500 hectares still to plant.

It is early days and thereis plenty that could go

wrong. But the trajectory ofGamco, their company, is ofa kind that could breakopen Ghana’s agriculturesector by showing what ispossible in farming whenthe stars align.

Many parts of west Africaare littered with failed riceprojects. These have mostlybeen piloted by the state,aided by foreign expertsand investors, and abettedby development agencies.

The intention is usuallynoble: to show it is possibleto become self-sufficient infood. But when projects fail,they often end up suggest-ing otherwise.

Rice is one of westAfrica’s single largestimports, a drain on foreignreserves and, recently, asworld food prices havesoared, a significant driverof inflation.

It engenders a precarious

dependency. Africa importsrice from meagre Asian sur-pluses that are being slicedback as consumption growsin Asia. Yet, despite thestrategic nature of the com-modity, until now, it is hardto point to a single large-scale west African projectthat achieved its aim.

For all the talk of howcentral agriculture will beto Africa’s development,farmers trying to scale upproduction of all but themost strategic crop, cocoa,list the same problems yearafter year: inadequate stor-age, poorly marketed inputsand complex overlappingland tenure systems thatmake it difficult to createthe necessary scale.

Ghana is not a placewhere you can grab land. Itis too subdivided and tooemotive an issue.

That is why Mr Abim-

bola’s confidence and thepace with which his groupis clearing and planting, at80 hectares a week, is sostriking.

It was in late 2008, afterthe collapse of LehmanBrothers that the seeds ofthe project were sown. Thewest African infrastructurefund Mr Abimbola was try-ing to raise was dying inthe midst of global financialmeltdown. So he and hisBritish Indian businesspartner began researchingrice growing as an alterna-tive to unemployment.

He identifies severalingredients of their initialsuccess. One is the timethey put in to researchingsuccessful models in otherparts of the world.

Brazil has achieved spec-tacular growth in rice pro-duction in similar agro-nomic conditions, so they

brought in Brazilianexperts, and piggybackedon their extensive researchand development.

Another important ingre-dient was ensuring theygrew the right product.“African consumers areextremely discerning. There

is no point growing some-thing they are not going toeat,” says Mr Abimbola.

Meanwhile, instead ofnegotiating an initial leasefor the 5,000 hectares ofundulating valley they arefarming by the Volta river,they agreed to pay a shareof revenues annually to the

local community, ensuringtheir interest in the successof the farm.

“You can’t engage in agri-culture in Africa withoutbeing inclusive. You wantthe community to developin line with the farm. It’sbad news if the farm is 10years ahead,” he says.

Crucially, their businessmodel also involved thecollaboration of Ghana’slargest distributor of foodand importer of rice, Finat-rade. If other projects havefailed, or struggled, it hasoften been because themanagers underestimatedcapital costs.

Typically, before farmscould reach the scale neces-sary to become profitable,credit starts slowing, dryingup or disappearing throughmismanagement.

Within three years, andwith a targeted 30,000

tonnes production, Gamcowill be a $100m business,Mr Abimbola believes.

Nabil Moukarzel, chiefexecutive of Finatrade,which has annual turnoverof $1bn, guarantees to buyGamco’s production forcash.

Mr Abimbola says his ini-tial investment has beenless than $10m. This waspart funded by SummitCapital, a hard-nosed Seat-tle based hedge fund. MrAbimbola is equally hard-nosed. “I didn’t leave myflat [in London’s elegant]Holland Park to live in thevillage. I came to makemoney,” he says.

The farm employs severalhundred workers mostly intheir mid-20s. Some are uni-versity graduates with moreof an appetite for farmingthan the received wisdomabout the urban inclina-

tions of Africa’s educatedyouth would suggest.

For Mr Moukarzel, sellinglocal rice is more lucrativeand less trouble thanimporting. Buying locallyalso provides a hedgeagainst febrile world foodmarkets and the protection-ist instincts of the govern-ment. “We need this towork to persuade the gov-ernment that there is analternative to slapping ontariffs,” he says.

The region needs it towork too. Food productionis rising up the priority listof African governments, asurban populations grow andinflation fosters social ten-sion. So far, there are fewmodels.

It’s a marathon not asprint, says Mr Abimbola.Success will come from“disciplined action everyday”.

Entrepreneur defies experience to succeed with riceAgricultureWilliam Wallis ona venture spurredon by Lehman’scollapse

In monetary and politi-cal terms, the stakesin Ghana’s elections inDecember 2012 could

hardly be higher. The twomain parties have been incampaign mode for the pastsix months, with local opin-ion polls putting the opposi-tion marginally ahead.

Now classified by theWorld Bank as a lower mid-dle-income country, Ghanais due to earn billions ofdollars in oil exports overthe next five years andwants to launch a fast trackindustrialisation plan.

But it is about more thaneconomics: under itsstraight-talking director,Kwadwo Afar-Gyan,Ghana’s Election Commis-sion has won a reputationfor running credible andgenerally peaceable elec-tions over the past 20 years.

That reputation will beseverely tested next yearwith some party militantstaking about a “do or die”election.

Technology and Ghana-ians’ avid use of socialmedia and the local FMradio stations in most big

cities should provide somesafeguards against the poli-tics getting out of hand.

Politicians across the ide-ological spectrum calculatethat the winners next yearcould hold power for a gen-eration, and reshape thecountry in their image.

Ministers with a sense ofhistory compare the Ghanaof today with the independ-ence era under KwameNkrumah, the first presi-dent after independence,who used $500m of foreignreserves from cocoa exportsto embark on a sweepingmodernisation programme.

Verdicts on the successesand failures of Mr Nkru-mah’s socialist policiesmark out partisan politicsmore than 50 years later.Many of the landmarks andthe former state-owned fac-tories in the capital date tothat era, and so do many ofthe arguments.

Ministers in the rulingNational Democratic Con-gress (NDC) enthuse aboutthe role of the “developmen-tal state” and learning fromthe more corporatist strate-gies in Asian economiessuch as South Korea, Indo-nesia and China.

Ranged against them areMPs in the opposition NewPatriotic party (NPP), whoaccuse the government of“statism” and an uncriticalrelationship with China.They say the NDC, whichhas its roots in the military-

backed Provisional NationalDefence Council regime inthe 1980s, is by turns dys-functional and an exponentof command economics.

When it was in govern-ment from 2000-2008, theNPP under President JohnKufuor claimed to haveushered in a “golden age ofbusiness”. But the NDC hasspent considerable time,since taking power in Janu-ary 2009, investigating someof the NPP government’sdeals in telecommunica-tions, gold mining, oil andgas and says it was more a“golden age of cronyism”.

Already, the rhetoricaltemperature is soaring.Nana Addo Dankwa Akufo-Addo, the NPP’s presiden-tial candidate, has likenedthe NDC’s president JohnEvans Atta Mills to “DrDolittle”, much to thedelight of local newspapercartoonists. Although theyare both lawyers and intheir mid-60s, Mr Mills andMr Akufo-Addo couldhardly be more differenttemperamentally.

Mr Mills, who headed

Ghana’s internal revenueservice, is academic andamenable: he rarely givesor takes offence. That cau-tious stance is not univer-sally popular in the NDC.

Among Mr Mills’ biggestcritics is former PresidentJerry John Rawlings andhis wife, Nana AgyemanRawlings, who accuse MrMills of timidity, failing torein in some of the influ-ence peddlers around thegovernment in Accra and,most of all, failing to raiseliving standards.

At the NDC national con-ference in July, Mrs Rawl-ings challenged him for theparty’s presidential nomina-tion. Although she got just90 votes compared withmore than 2,000 for MrMills, the divisions openedup in the party by her cam-paign are yet to heal. JerryRawlings’ record in poweris controversial but heremains popular with vot-ers in some of the poorestareas of the country.

The barons of the NDCare struggling to find waysto bring the former firstcouple back into the tentfor fear of losing support insome of the most contestedconstituencies.

Mr Akufo-Addo, a sea-soned defence counsel, hailsfrom a political family: hisfather was briefly presidentduring a break from mili-tary rule in the 1970s. Withhis Oxbridge intonation and

combative style, Mr Akufo-Addo finally seems to haveunited his party behindhim.

More of a social democrat-style politician than MrKufuor, Mr Akufo-Addo isfocusing on cost-of-livingissues, arguing that MrMills has failed to deliverthe “better Ghana agenda”that he promised in 2008.

Mr Akufo-Addo lost thatelection to Mr Mills by justover 40,000 votes and isdetermined to win thereturn match.

In statistical terms, theMills government may havedelivered winning acco-lades, in public at least,from the World Bank andthe International MonetaryFund, even if many Ghana-ians are yet to see muchpractical benefit.

Mr Akufo-Addo and theNPP insist that much of thegroundwork for thisprogress was laid duringtheir time in power.

Yet the coming electionwill be more about thefuture and the extent towhich Ghana can capitaliseon its new economic cir-cumstances. It will be up tothe parties to persuade vot-ers that they will be thebest custodians of theincoming revenues.

For now, there is everyreason to suspect that thecontest next December willbe as hard fought as thelast one.

Bid to shape next generationPoliticsMinisters comparethe Ghana of todaywith Nkrumah era,says Patrick Smith

Many of thelandmarks dateback 50 years,and so do manyof the arguments

Ahead in the polls: Nana Addo Dankwa Akufo­Addo (above), the NPP candidate. His party accuses government of an uncritical relationship with China AP

ToksAbimbolalooked atrice as analternative tojoblessness

FINANCIAL TIMES THURSDAY DECEMBER 15 2011 ★ 3

Ghana

G hana is the fast-est growing econ-omy in the worldthis year, expand-

ing at a forecast 13.6 percent thanks largely to theonset of oil production.

It is also the only main-land country in west Africato have achieved lower mid-dle income status on statis-tics revised last year to takeinto account a decade ofrapid expansion in services.

Yet, there is little sense ofa boom. Three years into anInternational MonetaryFund-backed stabilisationprogramme, businesses areimpatient, while thecrowded streets of poorneighbourhoods speak offrustration and hardship.

Accra has its share ofgifted entrepreneurialthinkers with the capacityto turn dreams into reality.In information technology,banking and even farming,projects are steadily gettingoff the ground.

Almost accidentally, as aresult of all the troubles inthe neighbourhood and thecountry’s comparativelystable political environ-ment, the capital is becom-ing the de facto regionalhub for corporations.

But the pace of job crea-tion is slow, governmentborrowing is still crowdingout the private sector, banklending rates are prohibi-tively high, and the feel-good factor that the firstyear of oil production wasexpected to bring has yet tomaterialise.

Joe Abbey, a formerfinance minister who runsthe Centre for Policy Analy-sis, an independent think-

tank, describes the growthas “jobless”. Record produc-tion of cocoa was thanks,not to increased labour andland use, but to improve-ments in yields (and smug-gling from neighbouringIvory Coast.)

The first year of oil pro-duction has brought about 7per cent of gross domesticproduct into the economy.But this was capital- ratherthan labour-intensive, andhas produced little by wayof a trickle-down effect.

Meanwhile, gold revenuesincreased not on the back ofnew mining ventures somuch as on the soaringworld price. Amid continu-ing constraints in powersupply and credit, manufac-turing, which might provideemployment, is still strug-gling to get going.

The danger, as anotherelection year approaches, isthat the government mightincrease borrowing andturn on the taps again, justas the conditions forprogress are beginning tofall into place. This is par-ticularly so as Ghana willsoon no longer have accessto the soft loans that multi-lateral donors brought.

“This [lower middleincome status] provides thebasis for traditional part-ners to withdraw, and grantelements to decline. But ifyou use non-concessionalloans in the same way, itwill be a fast track to super-HIPC (highly indebted poorcountry) without hope ofdebt relief, Mr Abbeywarns.

Part of the problem is thepolitics. President JohnEvans Atta Mills inheritedan unholy mess when hewon power in 2008. Therival National Patrioticparty had attempted andfailed to spend its way tovictory in elections.

Foreign reserves weredrained and the budget defi-cit had reached a record

14.5 per cent. Just as Ghanaseemed set to take off, ithad to slow down again.

It is a pattern that hasbeen repeated in electionyears since the beginning ofmulti-party politics inGhana in the 1990s.

In an interview last year,John Kufuor the formerpresident, defended hisrecord, and the “golden ageof business” he says heushered in by adoptingmore liberal policies duringeight years in power. Buttellingly, he also said: “Theimportant thing in an elec-tion year is to be able toroam with the budget.”

Little of the money hisgovernment raised from a$750m eurobond, and thesale of Ghana Telecom wentinto productive invest-

ments. Instead, the incom-ing government was sad-dled with an array of nepo-tistic local contracts anddubious debts.

The first task, says SethTekper, the deputy financeminister, was to stabilisethe economy. The timingwas awkward. Just as thepromise of oil revenues hadraised popular expectations,the government was com-pelled to clamp down andusher in austerity.

Only now, three yearslater, it is planning to startspending with an infra-structure programme,financed mostly by borrow-ing from China, that mightinject liquidity back intothe economy.

In the minds of manybusinesspeople, the patternof events has created a split

between a party thatfavours business but over-heats the economy and thecurrent, more cautious,National Democratic party,instinctively more orien-tated towards state inter-vention and equally pronein the minds of its critics tocorruption and waste.

Mr Abbey, who can berelied on to give a causticassessment of Ghana’sprogress neverthelessbelieves the economy isreaching the kind of stablefooting that could engenderreal progress, provided fis-cal discipline is observed.

He bases his optimism onseveral factors. One is oil,which will help to balancethe budget and neutralisethe swings in terms oftrade.

Another factor is recentprogress in fiscal reform.Tax revenues went up in2011 from among the lowestin the region, to closer toaverage, at 18 per cent ofGDP. Having brought inter-est rates down and tamedinflation, the governmentnow needs to deal with baddebts in the largest lenders.

The tendency has been touse the partly state-ownedGhana Commercial Bank tofinance off-budget spending,including subsidies onimported fuel. This saddlesthe bank with non-perform-ing loans and forces it to setinterest rates at about 25per cent. Other banks reaplarge profits by setting theirrates close to the GCB’s.Under these conditions, realsectors of the economy can-not grow.

The economy is becomingmore diversified and sophis-ticated. But it mostlyexports raw materials, as itdid in colonial times andimports finished goods.Lower interest rates andthe cheaper power that gasshould eventually deliver, itwould stand a better chanceof industrialising.

Rapid growth is yetto translate into jobsEconomyAusterity put a chillon oil windfall, saysWilliam Wallis

The danger is, asan election yearapproaches, thegovernment may‘roam with budget’

On the rails: the first year of oil production has added 7 per cent to the country’s GDP but little has trickled down Alamy

* Forecast

GDP Growth

Sources: IMF; Thomson Reuters Datastream

Annual % change

0

2

4

6

8

10

12

14

2007 08 09 10 11*

Budget deficitAs % of GDP

-8

-6

-4

-2

0

2007 09 10 11*

InflationAnnual % change inconsumer prices

2007 08 09 10 11

8

10

12

14

16

18

20

Bank of Ghana interest ratePer cent

2008 09 10 11

12

14

16

18

20

4 ★ FINANCIAL TIMES THURSDAY DECEMBER 15 2011

Ghana

T he geostrategic swaggerthat oil has broughtNigeria, Ghana’s biggerwest African neighbour

has sometimes rankled in Gha-naian minds.

While Ghana has reformedand recovered over the decadesto become one of Africa’s moststable and prosperous democra-cies, its economy has beendependent until now on humili-ating infusions of foreign aid.

It has suffered too fromswings in trade terms, when thecost of oil imports rise and sta-ple exports, gold and cocoa, fall.

Since the 1960s, when inde-pendence leader Kwame Nkru-mah attempted to build anindustrialised nation out of thecash crop and mines-based econ-omy inherited from the colonialstate, oil has been the missingingredient.

So when a small US companyfound oil in 2007, 60km offshorein the Atlantic, the countryseemed poised to realise a longcherished dream. The discoveryof the Jubilee field heralded itspotential transformation into adynamic middle-income nation,free to choose its own develop-ment path.

Following a complex plot ofpersonal rivalry, local intrigueand great power politics, thedream has turned into some-thing of a soap opera. Oil pro-duction began on schedule inDecember 2010. Subsequentprogress towards target output

of 120,000 b/d has been ham-pered by technical difficulties.

Neighbouring Ivory Coast hascomplicated matters by raisingmaritime boundary questionsaround the Jubilee field andrelations between stakeholdershave oscillated from the suspi-cious to the acrimonious.

On top of this, there is thedelicate task of meeting interna-tional expectations, as Washing-ton seeks to consolidate itsinfluence on Africa’s newest oilproducer, China and otheremerging global powers bang atthe door, and Europe fights tostay in the game.

Last year, the state-ownedGhana National Petroleum Cor-poration effectively vetoed a$4bn deal under which Exxon-Mobil would have bought outKosmos, the privately owned USstart-up that discovered Jubilee.GNPC officials had issues withthe way ExxonMobil and Kos-mos agreed the sale withoutrequesting their consent. Theyfavoured a deal with China andBP.

At the same time, the incom-ing government was investigat-ing the relationship betweenKosmos and EO, a minoritystakeholder that the Texan com-pany was financing and thathad good connections to theformer ruling New Patrioticparty.

But the Chinese never quitearrived, BP was distracted bydifficulties in the Gulf of Mex-ico, Russia and Libya, and Kos-mos decided eventually not tosell. Instead, it listed on theNew York Stock Exchange toraise its share of developmentcosts.

Last July, GNPC approved the$300m sale to Britain’s TullowOil of the EO Group’s 1.75 percent interest in Jubilee, just

months after government offi-cials had predicted chargesagainst the company which,along with Kosmos, denies anywrongdoing. “We came underenormous pressure from Wash-ington,” says a senior official.

Less successful at managingthe currents of Ghanaian poli-tics were Aker of Norway andits local partners, who werekicked out of the South Deepwa-ter Tano Block when allegationsof impropriety began to surfacefollowing the change of govern-ment in 2009. The fate of theblock, regarded as highly pro-spective, remains uncertain. Inspite of apparent interest frominternational oil companies,there are no plans for a competi-tive licensing round.

The environment in theregion has become more prob-lematic. Last April, LaurentGbagbo was ousted as presidentof Ivory Coast after a doomedattempt to manipulate electionresults. Ghana remained one ofMr Gbagbo’s few allies almostuntil the end; within weeks ofthe installation of AlassaneOuattara as his successor, IvoryCoast made territorial claims onoffshore waters already licensedby Ghana.

Officials say they first gotwind of this when the Ivoriangovernment wrote to oil compa-nies requesting that they ceaseactivities in waters long consid-ered to be on Ghana’s side. Theyacknowledge relations with thenew administration in Ivory

Coast are tense and privatelymaintain the border claim is astrategy designed at least par-tially to punish President JohnEvans Atta Mills for backing thewrong side.

While both countries continueto emphasise the need for apeaceful resolution to the dis-pute, legal moves to resolve asimilarly complex demarcationof maritime boundaries in otherparts of Africa have taken sev-eral years.

Against this uncertain back-ground, Ghana’s achievementsin oil are impressive. One of thebiggest oilfields in Africa hasbeen brought into production atcost and on schedule, in theabsence of any of the maininternational oil companies.

”Jubilee has set a good exam-ple for the rest of Africa. A lotof people who said oil would bea curse have been provedwrong,” says Aiden Heavey,CEO of Tullow, operator of thefield..

Accra has faced down some ofthe industry’s biggest names inits determination to remainmaster of such a strategicresource, although infightingbetween rival factions withinthe administration is said to beat least partly responsible forthe slow pace of efforts todevelop gas reserves..

The government has pushedthrough legislation aimed atensuring prudent managementof the proceeds by dividing reve-nues between a stabilisation

fund – to guard against swingsin prices – a savings fund forthe future and the rest whichgoes directly to the budget.

Meanwhile, Tullow, and Kos-mos continue to report promis-ing results from explorationefforts – including confirmationof two further fields thattogether could equal the Jubileefield’s proven 1.2bn barrelreserves. Amerada Hess is alsoappraising a discovery.

Other potential investors con-tinue to hesitate, perhaps help-ing to contribute to the bestresult for Ghana: an industrythat is developing at a pace thecountry’s emerging administra-tive capacity and political ambi-tions can most effectivelyabsorb.

Nation eagerto remainmaster of itsown destinyOilField has beenbrought on­stream atcost and on schedule,says William Wallis

The Jubilee field: discovery heralded its potential transformation into a dynamic middle­income nation, free to choose its own development path

The slow pace with whichGhana has set about devel-oping the infrastructure togather natural gas associ-ated with its offshore oillooks set to have politicalas well as economic andtechnical consequences.

Ideally, pipes and process-ing plants would already bein place and connected toexisting power plants whenoil production began a yearago. Turf wars between dif-ferent government institu-tions with opposing planson how to go about this,together with disagree-ments with the oil compa-nies over where to run thepipes, have contributed todelays.

Much hinges now on atussle between the govern-ment and multilateraldonors over Chinese financ-ing towards building theinfrastructure.

Technically, early recov-ery would have enabledTullow, the operator of theJubilee field, to avoid rein-jecting gas as it pumped oil.Industry officials say fur-ther delays could make itnecessary either to beginflaring – which is banned inGhana – or to reduce outputfrom the current 85,000 b/dto ensure the stability ofthe field.

Politically, early recoveryof gas would have been aboon for President JohnEvans Atta Mills’ prospectsof re-election. Ghana’spower plants are partly runby expensive diesel imports.The West African Gas Pipe-line which distributes fromNigeria along the Atlanticcoast is so far insufficientto meet Ghana’s needs.

Gas produced locallywould have significantlylowered the output cost ofelectricity, and hastenedthe commercial viability ofa new generation of powerplants.

Meanwhile, ambitious

plans to build an associatedindustrial complex mighthave helped deliver to theruling party the hotly con-tested western region near-est the gas come the nextelections in November 2012.

Gas, more than oil, hasthe potential to deliverthousands of jobs, both inassociated industries, andthrough increased produc-tion of cheaper electricity.

Traditional chiefs in thewestern region have beenvocal about the need toinvolve locals in the energyindustry.

At Bonyere, near the bor-der with Ivory Coast, andwhere the government hadinitially planned to run thepipe, Awulaye AnomorAdjaye, the local chief, haslobbied for his communityto be given an equity stakein the gas plant and associ-ated industry.

“There has to be a waythat people see a direct ben-efit from the energy indus-try that is changing ourexistence,” says Nana Awu-lai Amo Adjei, another tra-ditional chief and academicinvolved in the campaign.

As things stand, thepromise by the newly cre-ated Ghana National GasCompany to have every-

thing in place before theelections looks optimistic.Prospects depend partly ona debate between the gov-ernment and the Interna-tional Monetary Fund overthe Chinese funding thatcould make it happen.

Ghana has agreed theterms of a $3bn loan fromthe China DevelopmentBank, that would finance,among other things, theconstruction of the gas

infrastructure by China’sSinopec and be guaranteedby future oil production.

The loan, however, poten-tially breaches the terms ofGhana’s IMF programme.After the rebasing of theeconomy in 2010 to takeinto account rapid growthin the services sector inparticular, Ghana wasreclassified as a MiddleIncome Country withper capita gross domestic

product of more than $1,300.After a transition period

of three years, it will nolonger have access to softloans from multilateraldonors. In the interim, how-ever, it can continue to doso if it limits the amount offunding on commercialterms to $800m a year.

Seth Tekper, the deputyfinance minister, says thegovernment only intends touse the maximum $800mfrom the Chinese loan,which is at Libor plus 2 percent, over the next year.

He says all the projects itcovers, including road andrail links, are self-financing.“In the case of the gasplant, it will pay for itselfwithin five years,” he says,adding that the governmentis relying on the IMF grant-ing a waiver in this case.

Chinese officials are furi-ous at the delay, which theysee as further evidence ofwestern interference intheir attempts to scale upengagement with Ghana.

The stakes are high forall parties. If the IMF wereto block the loan, it woulddelay gas recovery furtherand potentially force thegovernment to hand overcontrol of constructionplans to the oil companies.

If the government wentahead regardless, it wouldderail the IMF programmeand potentially cut offaccess to multilateralfinancing.

But the risks for the IMFand World Bank are alsoconsiderable. Both are try-ing to engage China incloser co-operation on thedevelopment agenda inAfrica, but in the Demo-cratic Republic of Congoand elsewhere, they havealso angered the Chinese bystalling their plans.

A diplomat at the Chineseembassy in Accra says: “Onone hand, our governmentis constantly approached bywestern countries appealingto us to co-ordinate our pro-grammes with multilateral,tripartite operations.

“On the other hand, insome other fields, Chinesecompanies are stoppedfairly or unfairly fromreaching commercial deals.This is contradictory.”

Turf wars stymie potentialfor increase in employmentGasWilliam Wallisreports on the highpolitical andeconomic stakes

Ideally, pipes andprocessing plantswould have beenconnected toexisting powerplants a year ago

Seth Tekper, the deputy finance minister

FINANCIAL TIMES THURSDAY DECEMBER 15 2011 ★ 5

Ghana

M odern con-tainer shipsentering theport of Tema,

west of Accra, pass, unno-ticed by most of the crew, aseries of symbols of theport’s progress.

To the vessel’s east lie thesurf-pounded beaches thatonce served as the make-shift port for this part ofGhana’s coast. The vesselspass tiny fishing smacksheading to and from Tema’sfishing harbour but, until50 years ago, similar craftwould have shuttled goodsto and from vessels waitingoffshore to load and unload.

Once inside the break-water of the 1960s-built har-bour, the vessels aregreeted by tall, modernquayside cranes. They aretestimony to how MeridianPort Services (MPS), thelargely private companythat runs the terminal, hastransformed operationssince it took over the facil-ity in 2007.

The changes have madepossible a remarkable trans-formation in trade. Importgrowth through Tema, byfar the country’s leadingport, has been running at 15to 20 per cent in manyrecent years.

This year, import growthis running at 28 per centand export growth at 25 percent. Whereas the port’strade once came predomi-nantly from Europe, 60 percent of vessels calling atTema now come from Asia.

A look beyond the termi-nal, however, reveals con-tinuing difficulties. Con-tainers are stacked highthroughout the terminaland in every available spoton the edges of the port –testimony to the difficultyof handling such breakneckgrowth in a constrainedspace. Many of the roadsbeyond the port are heavilypotholed and seriously over-crowded.

Nevertheless, Shamim ulHuq, managing director forGhana of Maersk Line, thelargest container shippingline serving the country,insists the main story ofrecent years has been thetransformation in perform-ance at Tema since MPStook over.

“It didn’t happen from thevery first day, but it has gotsignificantly better,” saysMr ul Huq, whose companyis part of Denmark’s APMøller-Maersk. “There hasbeen a more customer-cen-tred approach.”

The effects of the port’simproved efficiency are tobe found 45 minutes’ drivefrom Tema at Makola Mar-ket, in the centre of Accra,where stalls are stackedhigh with boxes reading“Product of the PRC” andmany of the models posingon the boxes for cheap elec-tronic goods are Chinese.

Although most stallhold-ers are reluctant to discusstheir goods’ Chinese ori-gins, it is clear that Chinesegoods now enjoy significantprice and availabilityadvantages over theirrivals.

Mr ul Huq says Chinese

imports account not onlyfor the obvious consumergoods but also significantquantities of building mate-rials provided under directaid schemes from the Chi-nese government and,increasingly, foodstuffs.

Mary Kesewax, a stall-holder in Makola Marketwho boasts proudly aboutthe Ghanaian origin of herstall’s cloth, has neverthe-less just bought elsewherein the market a large tin ofimported Malaysian palmoil.

“A big chunk of whatcomes in from Asia is com-modities such as rice,sugar, oil,” Mr ul Huq says.“Palm oil is a big import.”

Yet the journey backfrom Accra to Tema illus-trates the difficulties facedby the privatised terminalat Tema and plannedexpansions at the Port ofTakoradi, in westernGhana, the heart of thecountry’s oil and gas indus-try.

Trucks hauling contain-ers just released from theport stumble into potholeson the crowded road, whilethe sheer volume of trafficslows all movement to littlebetter than walking pace.

The scene testifies to thestruggle of all Ghana’sinfrastructure to cope witha sudden surge in growththat has produced a signifi-

cant increase in vehicletraffic of all kinds.

Hans-Ole Madsen, head ofbusiness development forthe Middle East and Africafor APM Terminals, APMøller-Maersk’s terminalsarm, points out that termi-nals form only one link inthe logistics chain. APMTerminals owns 35 per centof MPS, while France’s Bol-loré Group owns another 35per cent and the govern-ment’s Ghana Ports andHarbours Authority owns30 per cent.

“There are a lot of othersteps,” Mr Madsen says.“The most obvious is, whatdoes the infrastructure looklike when you go outsidethe gate? We can becomeworld-class inside the gate.If you go outside the gateand there’s no road, ofcourse you start choking upagain.”

Mr ul Huq accepts thepoint both about the land-side infrastructure and thefacilities inside the port ofTema.

“The concern is thatwe’ve reached a pointwhere the next develop-ment needs to take place,”Mr ul Huq says.

Even though handlingspeeds at the berths havesignificantly improved,many of the ships dottedalong the horizon are wait-ing for the chance to berth.

Demand for the termi-nal’s two berths is suchthat, unlike the other signif-icant west African ports ofLagos in Nigeria and Abid-jan in Ivory Coast, Tema isunable to offer vessels fixed“berthing windows” – afixed time when a berth willbe free for them if theyarrive on time. Instead, ves-sels are treated on a firstcome, first served basis andcan wait offshore for sev-eral days.

“Today, MPS is operatingtwo berths,” Mr ul Huqsays. “Everybody is waitingfor those berths.”

It is high time, he says,that MPS or another com-pany with similar skills wasgiven the chance to operatemore berths. Only that willallow the ports to keep serv-ing Ghana’s fast-growingneeds.

“There are certainly a lotof shipping companies thatare anxious to come in in amore structured manner,having a proper berthingwindow,” Mr ul Huq says.

Alphabet Soup What happens when the IMF and World Bank move in

Three decades of World Bank and IMFtutelage and Ghana has become one ofAfrica’s highest­yielding producers ofacronyms.

Three hundred are listed in the 2012budget, which is guided by the newheadline policy, GSGDA.

Few areas of public life go un­catered for by alphabet soup. As astrategic earner of hard currency,cocoa has its own subdivisions. Thusthe general overseer, COCOBOD,manages everything from NPECLC toCRIP and CODAPEC.

SOBs are what MoFEP relies on forextra­budgetary spending duringelection years.

Ultimately, this drainsreserves from the BoG.

“WAMI’s half yearsurveillance report indicatesthat overall economicperformance in theWAMZ remainedstrong,” the financeminister announced

in his 2012 budget speech. “MadamSpeaker,” he later pleaded, “asrequired by PRMA, government wishesto submit to this august house foryour approval the ABFA.”

Years back, PUFMARP was conjuredup to foster better management ofpublic finances.

PUFMARP has since been replacedby the more sophisticated BPEMS(pronounced bee­pimms) also run byGoG out of MoFEP.

The hope is that GoG never straysthe way of PIIGS. When it last did, itwent HIPC.

Ghana has since graduated to theLMIC category of country. It will pay

more to borrow.But it should

be freer to devise – on its own terms– the BPEMs of the future.

ABFA – Annual Budget FundingAccountBoG – Bank of GhanaBPEMS – Budget and PublicExpenditure Management SystemsCOCOBOD – Ghana Cocoa BoardCRIP – Cocoa Road ImprovementProgrammeGoG – Government of GhanaGSGDA – Ghana Shared Growth andDevelopment AgendaHIPC – Highly Indebted Poor CountryLMIC – Lower Middle Income CountryNPECLC – National Programme for theElimination of the worst forms of ChildLabourPIIGS– Portugal Ireland Italy Greeceand SpainPMRA – Petroleum RevenueManagement ActPUFMARP – Public FinancialManagement Reform ProgrammeSOB – State­owned bankWAMI – West African MonetaryInstituteWAMZ – West African Monetary Zone

William Wallis

Budget day:KwabenaDuffuor, thefinance minister

Terminals struggle tokeep pace with tradePortsRobert Wrightfinds an unevenquality toinfrastructure

Import growththrough Tema porthas been runningat 15 to 20 per centin recent years

High­tech terminal: but many of the roads beyond the port are heavily potholed Robert Wright

6 ★ FINANCIAL TIMES THURSDAY DECEMBER 15 2011

Ghana

W hen Ghana’s cocoacrop topped 1mtonnes for the firsttime this year, the

world’s second-biggest producerhad much to celebrate.

The beans that feed chocolatefactories around the worldremain one of the country’s big-gest export earners. The moneythey bring in for the country’sestimated 720,000 cocoa farmerstransforms rural lives andremote villages during the busymain season between Octoberand January.

For the Ghana Cocoa Board,which runs the industry, thereasons for the bumper crop areclear.

“We are encouraging farmersto apply fertiliser. We areencouraging farmers to preventthe spread of disease. We havegiven them a very good price,”says Yaw Adu-Ampomah, dep-uty chief executive in charge ofagronomy and quality control.

“When we said we were goingto get 1m tonnes, we knew whatwe were doing,” he says, refer-ring to the board’s long-termstrategy to increase production.

Good weather also helped out-put, analysts say.

“Two things went right: theweather was extremely goodand the husbandry was good,”says Jonathan Parkman, head ofagriculture at Marex Spectron,the commodities broker.

“Every 10 days or so it rainedjust above normal. When theyneeded rain they got it. Basichusbandry can really boost pro-ductivity.”

Mr Adu-Ampomah deniesspeculation that beans smug-gled from Côte d’Ivoire – whereEuropean Union sanctions and agovernment ban halted exportsthis year – had boosted Ghana-ian production.

But even if smuggling did fig-ure in the bumper crop, Ghana’soutput represents a huge jumpfrom the previous record of

740,000 tonnes in 2005-06. TheGhanaian regulator forecastsoutput of between 850,000 and900,000 tonnes this season.

The rise in output is in nosmall part the result of a gov-ernment plan to incentivise pro-ducers by paying them a decentprice. This year, farmers willreceive 3,280 cedis ($2,000) pertonne.

For several years, the govern-ment, which sells its cocoa for-ward, has sought to pay them aminimum of 70 per cent of thenet free on board (FOB) price,where the seller is responsiblefor all costs up to the pointwhere goods are loaded fortransport.

Officials in nearby Côted’Ivoire, which abolished its

marketing board about 10 yearsago, are working on a reformplan which in part seeks to rep-licate the Ghanaian experience.

Much more needs to be doneto boost productivity, which canin some cases be as little as 250kilograms per hectare.

Productivity is at 40 per centof its estimated potential,according to a 2008 report com-

missioned by Cadbury, thechocolate maker, on Ghanaiancocoa production. Farmers, whotypically have smallholdingsand lack formal training, rarelyadopt a scientific approach toagriculture.

This weak productivity has itsroots in the history of the westAfrican crop. The cocoa boom ofthe last 100 years, which saw

Ghana adopt the crop andquickly dominate the market inthe early 20th century, wasmade possible by the readyavailability of land and labourrather than advances in produc-tivity or technology.

The marketing board is tack-ling this problem, it says. Itssales of subsidised fertilisers hasreached one-fifth of farmers,says Mr Adu-Ampomah. Othergrowers – encouraged by thehigh yields of their neighbours –have also started to buy ferti-liser and equipment.

Increased productivity couldpose risks, however. Overallsupply in the 2010-11 season,which has just ended, isexpected to have outstrippeddemand by up to 400,000 tonnes.This has weighed on marketprices.

Greater productivity shouldgive farmers more choice andsecurity, says Philip Sigley,chief executive of the Federa-tion of Cocoa Commerce.

“Through diversification, theland that is released byimproved productivity [should]be brought into food-crop pro-duction,” he says, adding thatthis would not only boost foodsecurity but would give ruralcommunities additional sourcesof income.

At the same time, the hori-zons of rural Ghanaians nowstretch farther than the cocoafarm. The average age of farm-ers is 51 and even if farm-gateprices remain high, many oftheir children are eager to startlife in the city, their earnings donot depend on the vagaries ofthe weather and where they canreceive a monthly income – notjust a bumper pay-out once ayear for the cocoa harvest.

“There is a genuine concernthat young people do not wantto be cocoa farmers – we haveageing trees and ageing farmers,although in Ghana there hasbeen a commitment to replant-ing the trees,” says Mr Sigley.

The fate of the cocoa industryrests on the willingness ofsmallholders in remote commu-nities to harvest the beans. Iffuture generations are to farmthe main ingredient needed forthe world’s favourite sweet, saysMr Sigley, then the governmentand donors need to invest morein rural communities.

Incentives produce a steadily rising cropCocoaProspects will dependon young peoplestaying on farms,reports Orla Ryan

‘Two things wentright: the weatherwas extremely goodand the husbandrywas good’

Bean counters: the money they bring in transforms rural lives and remote villages during the busy season between October and January Reuters

Ghana was not called theGold Coast for nothing.When a group of childrenran excitedly back to theirparents last month, claim-ing to have found glitteringtraces of dust on the sandybeach, they set off a goldrush that has drawn thou-sands of people to the coast.

Initially, state officialswere sceptical about thefind, which is situated justbelow the 15th century Por-tuguese fort at Elmina (“themine”). But tests latershowed the gold was forreal. The luckiest diggerfound six ounces worthabout $6,000 in Accra,according to traders on site.

The government waseffectively powerless to stopthe rush, even though ero-sion at the beach could tar-nish one of Ghana’s biggesttourist draws, and mercuryassociated with crude refin-ing will cause environmen-tal pollution.

Illegal mining is prolifer-ating across a gold belt thatstretches all the way fromElmina to Bolgatanga, 400miles to the north. One ofthe latest controversiesinvolves Chinese diggerswho, with local partners,have started mining ingrowing numbers.

The informal rush isindicative of a broader prob-lem with the country’s min-ing sector – the sense thatforeign companies haveminted it from their conces-sions delivering few bene-fits either to the Ghanaianeconomy or to the widerpopulation beyond theemployment they provide.

Ghana was one of thefirst African countries inthe 1990s to deliver a min-ing code designed to drawin foreign investors. In thepast 18 years alone, minershave extracted 36m ouncesfrom Ghana’s seams, gener-ating about 40 per cent ofexport earnings. But in gen-

erating the investment nec-essary, the government setthe bar low. Ever since,there has been a growingbacklash.

Governments acrossAfrica are trying to extractmore revenue from the min-ing industry against thebackdrop of booming com-modity prices and wide-spread perceptions that theregion’s mineral wealth hasnot translated into broaderprosperity.

In Ghana’s case, this ledto a rise in corporate taxesfor miners from 25 to 35 percent in the 2012 budget. Thegovernment is also seekingto impose a 10 per centwindfall tax.

The corporate tax is prob-lematic, however. Ghanagranted stabilisationclauses to many of the com-panies who rushed to thecountry in the 1990s andthereafter. Any subsequentchanges to the terms, wouldbe a breach of contract.

AngloGold Ashanti, forexample, has said it doesnot expect to be affected by

the new taxes because ofthe agreement it signedwith the Ghanaian state in2004.

This, it says, should keepin place the taxation condi-tions agreed at the time forthe next 15 years.

Officials from other min-ing companies have beenquick to label the move as asign of “resource national-ism” creeping in to Africa’ssecond largest gold pro-

ducer, and the world’sninth. But the backlash isalso the result of genuinegrievances.

Tax breaks and otherincentives mean that, ofmining revenues totalling$2.1bn in 2009, only $146m –or 7 per cent – was paid to

the state in royalties, taxesand dividends, according tothe Chamber of Mines.

One lawyer employed bya gold miner in the 1990stold the FT that the com-pany he worked for system-atically falsified itsaccounts to underestimateprofits, thereby deprivingthe state of millions of dol-lars in taxes.

There are growing suspi-cions in government circlesthat similar tax fraud,known as transfer pricing,has been exercised system-atically by companies in thesector.

But the new tax regimehas also alarmed someinvestors, who argue it willmake Ghana less competi-tive and will stymie freshinvestment. “Is Ghana pric-ing itself out of the mar-ket,” asks a banking execu-tive. It is a question some ofthe gold companies havebeen quick to answer.

Gold Fields, the world’sfourth-largest gold miner,has said planned projectsthat could bring $1bn ininvestment are at riskbecause of the changesannounced. The company istargeting an increase in itsoutput in west Africa to1.25m ounces in 2015 fromjust under 1m now.

Julian Ashun, an Accra-based businessman with agold concession, says theanswer is to devise a slidingscale of royalties and taxes,depending on the price.

Ghana has applied one forthe oil industry in such away that when prices rise,the profits are sharedequally between the stateand companies, and whenworld prices fall, companyinvestments are protected.

“The problem at themoment in the gold sector,is that government tends toget a smaller share in royal-ties the higher the goldprice goes. The tax regimeshould change dependingon the price environment.”

Mr Ashun also arguesthat better regulation isrequired so that Ghanaianscan go into small-scale min-ing more readily andlegally. When there is rush,the benefits can be spreadmore evenly and with lessdamage to the environment.

Growing backlash againstgroups who are ‘minting it’MiningThe government istrying to extractmore revenue fromthe industry, writesWilliam Wallis

There is aperception thatmineral wealth hasnot translated intobroader prosperity

An AngloGold miner. The company doesn’t expect to pay tax