GHANA ISNCE NKRUMAB: SOME PROBLEMS IN RESTARTING AN ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600010037-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 25
• Document Creation Date: December 22, 2016
• Document Release Date: October 1, 2009
• Sequence Number: 37
• Publication Date: July 1, 1968
• Content Type: IM

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Confidential
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Ghana Since Nkrumab: Some Problems
in Restarting an Economy
Confidential
ER IM 68-87
July 1968
copy N2 56
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP I
Eicluded from oulomalic
downgrading and
dnlatrificolion
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
July 1968
Ghana Since Nkrumah: Some Problems
in Restarting an Economy
Summary
The two major unsolved problems Nkrumah left to
Ghana two years ago -- an enormous foreign debt and
a greatly enlarged and inefficient state sector --
are still impeding efforts to get the economy moving
forward again. Unless Ghana can obtain more foreign
aid than now seems likely, economic recovery and a
resumption of development will be extremely difficult.
Domestic production will stagnate unless the supply
of imported spare parts and raw materials can be
significantly increased. But Ghana must increase
production for export and for import substitution
if it is to pay for greater imports and at the same
time meet scheduled debt repayments. Only if adequate
foreign aid, investment, and political stability could
be assured, would the prospects for rehabilitation
and economic development appear favorable. These
prerequisites are unlikely to be met in the next
few years, however, and economic progress will be
slow at best.
Ghana came to independence in 1957 with foreign
exchange holdings of more than $500 million, a boom-
ing cocoa-based economy, substantiar social and
economic infrastructure, and favorable prospects for
economic development. Nkrumah's government used
up the inherited foreign reserves and contracted an
unmanageable external debt in pursuit of rapid develop-
ment and a more important role for Ghana in African
Note: This memorandum was produced solely by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Current
InteZZigence.
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affairs. Much of the public investment went into
infrastructure, some of which was of economic utility
but much of which was for ostentatious public build-
ings, the army, and other non developmental projects.
Most of the economic development projects which were
undertaken by the government were poorly planned,
overly expensive, and unprofitable. Many cannot now
pay their way; others probably could if they received
fresh injections of capital and managerial skills.
Economic growth declined in the last years of Nkrumah
and by 1965 had practically stopped. Deficit financ-
ing and the scarcity of foreign exchange resulted in
rising inflation, and real private consumption de-
clined.
The new regime, a military-police junta, quickly
reversed most of Nkrumah's policies and joined
Indonesia in being the second less developed country
to turn its back on socialism. With the help of
Western advisers, it evolved a stabilization policy
designed to cope with the immediate crisis and to
reduce the government's role in the economy. Govern-
ment spending was cut, inflation was stopped, numerous
public employees were laid off, and imports were
restricted to essentials. Although 1966 was a year
of severe retrenchment in the public sector and real
domestic product grew by only about 1 percent, the
economy achieved a better balance. The pressing
external debt problem was postponed through re-
scheduling. Output improved somewhat in 1967, and
private per capita consumption rose for the first
time in years, but because of the lack of foreign
exchange, imports had to he restricted well below
the level considered necessary for economic re-
habilitation.
The first flush of economic reform is now over.
Labor is pressing for long-delayed wage increases,
and debt repayments are scheduled to rise rapidly
in 1968 and 1969. The damage done to the economic
structure (particularly, the cost of expanding the
state sector) has proved slow to undo, despite
serious efforts by the new regime and patience on
the part of the people. The single most important
constraint on economic recovery remains the severe
and continuing pressure on tho balance of payments
that is caused by the external debt burden. Ghana
cannot borrow abroad except on the most generous
terms. Economic rehabilitation will therefore be
long and painful unless receipts of foreign aid
are substantially increased.
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Economic Decline Under Nkrumah
1. At independence in March 1957, Ghana was
one of the most promising West African states.
Endowed with a variety of resources -- gold, diamonds,
manganese, bauxite, tropical hardwoods, and, above
all, numerous industrious cocoa farmers who produced
about a third of the world's supply -- Ghana appeared
to be off to a good start. Foreign exchange reserves
amounted to more than $500 million; roads, railroads,
and other infrastructure were reasonably well developed;
the subsistence sector was comparatively small; the
number of literate and skilled citizens was propor-
tionately higher than in much of Black Africa; and
the indigenous civil service was probably one of the
best on the subcontinent. By 1957, gross national
product (GNP) in real terms was growing at a rate of
about 5 percent a year and had reached more than $1
billion, or nearly $175 per capita. The prime source
of this growth was the high world price for cocoa.
2. Led by its charismatic president, Kwame
Nkrumah, Ghana embarked on a vigorous economic
development program and, at the same time, sought
to become the driving force behind the movement
toward pan-African unity. In
the course of his nine-year rule,
Nkrumah became increasingly dicta-
torial and increasingly enamored
of the "socialist road to develop-
ment." Political opposition was
gradually eliminated, and most
of the more democratic and pro-
Western political figures were
driven into exile, jai.:_ed, or
otherwise silenced, as were many
of the ablest civil servants and
professional people. Nkrumah
became more and more pro-Com-
munist and came to lean heavil
y
PAesideat Kwwanie Nk/cwnccli on the advice and example of
Communist states, particularly the Soviet Union.
3. In line with his penchant for statism and
espousal of socialism, Nkrumah focused on increas-
ing the size of the state sector of the economy and
on expanding the power and pervasiveness of the
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government appara -ups , The number of government
employees expanded rapidly, and by the end of 1965,
nearly 75 percent of recorded wage-earners* worked
for government establishments. Nkrumah's ambitious
development program was based or *wo main premises:
(1) that increased agricultural productivity and output
required large--scale mechanized farming, which could
only be achieved through direct investment and ad-
ministration of state farms, peasant cooperatives,
and equipment pools reminiscent of the Soviet
machine tractor stations, and (2) that enterprises built
and owned by the state ranging from public utilities
through a variety of manufacturing plants to such
projects as a steel plant, a gold refinery, and a
ship-scrapping facility were essential for quick
industrialization. The pursuit of these objectives
resulted in policies that discouraged private in-
vestment, both domestic and foreign. and private
economic activity.
4. Since independence, Ghana has consumed or
invested considerably more than it has produced,
financing the excess until about 1962 by drawing
down its foreign exchange reserves. During that
period, much public investment went to improve in-
frastructure -- roads, schools, health facilities,
the new port at Tema, and powerplants. After 1962,
investments were increasingly financed by short-term
and medium-term credit from domestic financial
institutions and from foreign private firms whose
loans to Ghana for specific equipment or facilities
were in most cases guaranteed by their .governments. Most
of these suppliers' credits were used to finance
either long-term or nonself-amortizing projects, yet
they were extended for relatively short periods --
averaging about five to seven years -- and usually
carried commercial rates of interest. Many of the
projects were ill-conceived, overly expensive and
elaborate, and badly administered. For example,
large state farms, elaborately equipped with im-
ported tractors and machinery, employed numerous
workers and usually produced no more, and sometimes
less, than had the peasants who previously had worked
the land. As time went on, the number' and value of
* Those in establishments employing more than 10
persons.
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t iris,
these supplier credit contracts -- usually accompanied
by sizable bribes to responsible officials and including
cuts for Nkrumah or the party -- rose to alarming levels.
By the end of 1965, Ghana had entered into more than 200
such contracts valued at over $700 million. Ghana obtained
no long-term loans under Nkrumah except for the Volta
hydroelectric project and a few other development projects.
(1967)
T;actwt Asscmb('i/ P.Ccit.t I3u.U.t with C:cch Aid
(1964)
IUv!t(e its 6'tI Bade Fctiu)i
iv7.S~~fs?iYrt,
The State I(ouse: Oiic 0T -tile
nIo)1e. eavisit p)tojec.ts bu,i.C,t
dtt! .i~tg the "Jfz-'tuma(t iteg.inie.
1966)
The Vo.C.ta fHtd'toe.Cec.t i. c
P-'tojec.t Coinp.Ce,ted -i;z 1965
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5. Particularly after 1962, the development
budget and current government expenditures grew
rapidly. From 1960 through 1965, the total budget
deficit averaged the equivalent of about 10 percent
of estimated GNP. In 1965, taxes were drastically
increased, the burden falling almost entirely on
private consumers, and government revenues rose by
more than 35 percent. Nevertheless, the government
recorded the largest deficit in its history.
6. Deficit financing was probably the leading
cause of the worsening inflation. Prices rose about
30 percent in 1965 alone, and by the end of that
year the consumer price index, based on March 1963,
stood at 161. Growing shortages of foreign exchange
also contributed to inflation after 1961, as the
government was forced to restrict imports.
7. Real growth slowed down and by 1965 had
almost ceased, in spite of the continuing high level
of total investment, because so many of the govern-
ment-sponsored projects were unproductive. Indus-
trial output grew only slowly and results in the
public sector were far from commensurate with input.
In the private sector, shortages of spares and re-
placement equipment and of imported raw materials
kept production well below capacity. Total private
consumption in real terms stagnated, and per capita
private consumption declined rapidly after 1963 (see
Figure 1). Agricultural output faltered because of
the government's emphasis on huge and, in most cases,
nonviable state farms and cooperative organizations,
which were more political than economic. Local food
prices soared, especially after 1964 (see Figure 2),
but domestic producers failed to respond to the in-
centive of higher prices for their produce because
of rapidly rising taxes and the disruption of es-
tablished marketing arrangements. Development of
agriculture was neglected -- farm-to-market roads
deteriorated, extension work increasingly favored
the politically correct farmers or traders, and
import and distribution facilities for fertilizer
and insecticides deteriorated.
8. By the time Nkrumah's government was over-
thrown in February 1966, the economy had been re-
duced to a shambles, and the new government -- the
National Liberation Council (NLC) composed of an
equal number of police and milit4ry leaders --
was confronted with a major economic and financial
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Ghana. Gross Domestic Product and Private Consumption Trends
!960-66
Index 1960=100
1960 1961
GDP at Current Prices
GDP at Constant (1960) Prices
1962 1963 1964 1965 1936
Index 1960=100
Private Consumption at Current Prices
Estimated Per Capita Private Consumption
at C
t
ons
80 1
ant (1960) Prices
1960 1961 1962 1963 1964
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1 2
1964
Ghana: Normal Consumer Price Indexes
March 1963-February 1968*
Local Food (weight= 52.0)
1 2
1965
1 2
1966
Index
March 1963=100
1 2
1967
4 Jan. Feb.
1968
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CON F l I )PAT l'lAl.,
ILLEGIB
crisis. The government's net foreign exchange
position was negative (see Figure 3), arrears in
external payments had risen to at least $60 million,
and many exporters were refusing to accept Ghanaian
letters of credit. Moreover, the country faced an
external debt servicing schedule that would have
equaled better than one-third of export revenues
for 1966. Output was stagnant, unemployment and
prices were rising, and shortages of such basic
imports as foodstuffs, drugs, and spare parts were
acute.
Problems in Rest-irting the Economy
Policies of the New Regime
9. The new regime, in which executive authority
is exercised by the National Liberation Council (NLC),
instituted a complete reversal of most of Nkrumah's
policies and joined Indonesia in becoming the second
less developed country to turn its back on the
"socialist road to development." Following an anti-
Communist reaction in the first few months, trade
and a few Communist-aided projects were allowed to
continue, but the NLC remains suspicious of Communist
intentions. Although remaining outwardly nonaligned,
the NLC is pro-West and relies on Western countries
fcl aid and advice. It has restored good relations
with neighboring countries and reopened borders long
closed by distrust of Nkrumah's goals. It has tried
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to assist private enterprise and to remove as many
obstacles as possible to increased private production.
It envisions the government role in the economy as
one of insuring financial stability, fostering private
initiative in agriculture and industry, and re-
serving new public investment for infrastructure
and for a few pioneer industries to be developed in
many cases for subsequent sale to private interests.
It has further sought to reduce the number of state-
owned enterprises by sale of full or part interest
to private investors, both Ghanaian and foreign.
10.
Only
after the first wave of enthusiasm had
subsided
and
the new regime had started to take
stock of
the
economic situation, did it begin to
realize
the
full measure of the economic and financial
crisis.
With the help of International Monetary Fund
(IMF) advisers, it formulated a phased rehabilitation
program to restore economic stability.
11. In the first, or emergency, phase, lasting
from March to June 1966, the new government sought
to relieve the pressing shortages of imported food,
drugs, raw materials, and spare parts necessary to
prevent a further decline in output. The United
States, West Germany, and Canada provided commodity
assistance totaling about $14 million for this pro-
gram, and the IMF approved a $36.4 million standby
arrangement from which Ghana made its first drawing
in early June 1966. The NLC began a thorough in-
vestigation into the financial and other irregu-
larities of the state corporations and suspended
work on low-priority projects. Deep budget cuts were
made across the board, under IMF guidance. The
government canceled contracts valued at more than
$100 million and sought other buyers for some of
Nkramah's extravagant purchases, such as a naval
frigate being built in Britain. Work on almost
all Communist-aided projects was halted while the
government assessed their utility.
Performance in Late 1966 and 1967
12. The second, o: stabilization, phase began
in July 1966 and was to last two years. During this
period, inflation was to be stopped, government ex-
penditures were to be brought into balance with
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Million US $
350 f-
Ghana: Net Foreign Assets
1960-February 1968*
100
50
- 50
1960 1961
Quarter 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th F
b
e
.
1962 1963 1964 1965 1966 1961 1968
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revenues, the balance-of-payments deficit was to be
reduced to manageable proportions through foreign aid
and a stretchout in debt repayment, and the numerous
inefficient or useless government enterprises were
to be reorganized or scrapped. The new regime has
been quite successful in implementing its policy of
retrenchment in the public sector. It has moved
slowly, however, to reorganize the government es-
tablishment and to sell, consolidate, or otherwise
improve the efficiency of public enterprises. More-
over, the continuing shortage of foreign exchange
has severely hampered private and government efforts
to utilize existing capacity.
13. Real gross domestic product (GDP) in 1966,
a year of severe and painful retrenchment, grew less
than in any year since independence -- about 1 per-
cent. Private consumption continued to decline, but
the major retrenchment effort was in the public
sector, where government consumption declined by about
10 percent. Price inflation was halted by mid-1966,
and prices declined fairly rapidly thereafter (see
Figure 2). Nearly 15 percent of the registered labor
force of about 370,000 were laid off -- 47,000 from
government jobs and several thousand in the private
sector. Imports dropped by about 20 percent com-
pared with 1965, well below the level considered
necessary to utilize existing manufacturing capacity
and to repair degenerating equipment, because foreign
aid materialized more slowly than expected* and ex-
port receipts dropped about 15 percent compared with
the previous year. The decline in export earnings
was largely attributable to a fall in cocoa receipts
because of a smaller harvest and because the Nkrumah
government had sold much of the crop forward at a
time when prices were mower.
14. GDP rose somewhat in 1967, in contrast to
the stagnation of the previous years, and was about
3 percent higher than in 1966. Private consumption
also increased, and per capita consumption rose
for the first time since 1963, but by very little.
Although gross fixed investment declined still.
further in 1967, utilizatica of capacity improved,
and a few new factories went into production.
Long-term foreign loans and grants to Ghana totaled
about $20 million in 2966, of which only about. $.1.1
million was disbursed in that year.
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There was also some improvement in the supply of
spare parts and raw materials and, as a result,
industrial output rose by about 15 percent. Agri-
cultural production also increased, largely because
of good weather, higher market prices, and the
greater availability of farm labor.
15. Exports rose about 10 percent but remained
below the 1965 level, and imports declined 15 per-
cent compared with 1966 (see Figure 4). Ghana re-
corded a trade deficit despite the severe restrictions
on imports, which hampered repair and restoration of
plant and equipment. Largely because the total value
of new loans and trade credits continued to decline,*
the country also incurred about a $46 million deficit
in its balance of payments, somewhat larger than in
1966.
16. In an effort to increase exports and govern-
ment revenues from export duties, to re:. trict im-
ports, and to bring its currency into line with
international purchasing power, Ghana devalued its
currency by about 30 percent in July 1967. Benefits
from devaluation are likely to be limited largely to
higher government revenues from export taxes, and
these gains are likely to be offset during the longer
run by rising domestic costs. It is unlikely to
stimulate cocoa exports greatly because the price
paid to producers has not been raised proportionately.
Moreover, a large increase in cocoa exports would
tend to depress world cocoa prices because Ghana
produces such a large share of the total crop. Even
after devaluation, few of Ghana's manufacturing
establishments are efficient enough to compete with
imports without tariff protection.
* In 1967, foreign aid co,nmitments to Ghana totaled
about $51 million; disbursements amounted to about
$17 million. In addition, Ghana drew a total of
$77 million from the IMF between mid-1966 and the
end of 1967.
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250
Ghana: Foreign Trade Balance
1957-67
Imports c.i.f.
Deficit
Exports f.o.b.
1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967-
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C;ON 1` 1 I)1?N'I'IA1,
S(ie.Cd'.i.iud Cococt - T'Lad-i..t.Lorta.C Ilartd Method
The Debt Burden
17. By mid-1966, when the new regime had accumu-
lated fairly complete information on the country's
external debt, the situation was approximately as
shown in the following tabulation (in million US $) .
Short-term trade arrears
Short-term foreign bank loans
Medium-term suppliers' credits
(principal only ) a/
Long-terns loans (principal. only)
IMT' repurchase commitments
Interest on long-term debts b/
Interest on suppliers' credits c/
Principal. and interest on private borrowing
Interest on bank loans
40
67
383
93
64
53
55
11
5
ILLEGIB
CON 1`II)EN'I?IA1,
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18. Ghana was unable to meet the 1966 and 1967
scheduled repayments, which would have required be-
tween 30 and 40 percent of annual export earnings;
it was even experiencing difficulty in clearing trade
arrears. In June 1966, with at least the tacit con-
sent of the major creditor countries, Ghana declared
a moratorium on repayments of medium-term debt (the
suppliers' credits) pending formal negotiations for
a stretchout.
19. A debt rescheduling conference with the major
creditors who are members of the IMF was held in
December 1966 and produced agreement on a moratorium
on all payments due for suppliers' credits from July
1966 to July 1967. In addition, 80 percent of the
principal and interest due during the consolidation
period -- 1 June 1966 through 31 December 1968 -- plus
the amount in arrears as of 1 June 1966 was to be
paid over the eight fiscal years 1972 through 1979.*
The amounts due after December 1968 were not re-
scheduled, but it was agreed that if Ghana should
find another such meeting necessary, the United King-
dom would convene it. The second rescheduling meeting
is now tentatively set for late 1968.
20. The effect of the first rescheduling, shown
in Figure 5, was to reduce greatly the debt-servicing
burden for fiscal years 1967 and 1968 but to raise
it in subsequent years. Ghana is slated to pay more
than $100 million in fiscal year 1969 but almost cer-
tainly will not be able to do so. Projected total
debt servicing, which includes long-term loans and
other commitments, is shown in Figure 5 .
The Foreign Exchange Gap
21. Severe and continuing pressure on the
balance of payments, largely the result of the debt
burden, appears to be the single most important
constraint on economic recovery. Because so much
of this debt was incurred for nonself-amortizing
projects, which will not contribute in any way to
foreign exchange earnings, Ghana may now be caught
in a vicious circle. Domestic output is likely to
stagnate unless there is a significant increase in
imports. However, unless production for export and
for import substitution increases, the country will
A Fiscal years begin on 1 July of the pret%ious year.
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Figure 5
Ghana: External Debt-Servicing Schedules Under Suppliers' Credits
Fiscal Years 1967-81"
Figure 6
ILLEGIB
Million its $ Ghana: Total External Debt-Servicing Schedules, Fiscal Years I967-83"
ILLEGIB
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lack the foreign exchange required both to pay for
greater imports and to service the external debt.
Large amounts of foreign aid and investment seem to
offer the only way out, but the prospects for large
inflows are not bright.
22. Ghanaian officials, with the help of the World
Bank, estimated the minimum necessary imports for 1967
to be about $400 million. This amount would have
provided enough raw materials and spare parts to allow
the use of about half of existing industrial capacity;
would have ihsured adequate supplies of foodgrains,
drugs, fuels, and lubricants; would have kept the flow
of investment goods large enough to complete viable
development projects underway; and would have begun
the rehabilitation of obsolescent facilities -- es-
pecially roads, trucks, and the railroad. Actual
imports, however, fell short of the goal by about
20 percent, in spite of fairly generous aid commit-
ments. The situation is expected to be worse in
1968, when imports will probably be lower than in
1967.
23. The balance-of-payments estimates, shown in
the table, illustrate the problem. Since 1966, Ghana
has paid most of the trade debts to Communist countries,
has incurred no new medium-term debts, and has made
a strenuous attempt to clear outstanding short-term
trade arrears. Other private and official capital
inflows have fallen far short of making up the dif-
ference, and the result has been a drastic reduction
in imports. The shortfall has in turn slowed down
economic recovery and reduced the level of output
that might otherwise have been achieved.
24. The only means available for reducing the
foreign exchange gap appear to be foreign aid and
foreign investment, because the value of exports can
be increased only slowly and will itself depend in
part on the amount of imports. Cocoa production,
which accounts for about 60 percent of total exports,
can be expected Co rise if the price paid to producers
is high enough to discourage smuggling and to en-
courage harvesting. Large increases in production,
however, will also require additional supplies of
insecticides and fungicides and the subsequent in-
crease in producer income will generate a greater
demand for imported consumer goods. Ghana produces
f-I lIATL'TT-% V kT'TT A T
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urnana:
balance or eayments a/
1965-68
1965
1966
1967 b/
1968 c/
Exports, f.o.b.
+321.1
+280.3
+305.0
+346.0
Imports, c.i.f.
-465.9
-361.9
-311.4
-278.1
Trade balance
Investment income
-144.8
- 81.6
- 6.4
+ 67.9
Inflow
+ 4.5
+ 4.2
+ 3.6
+ 3.1
Outf low
- 31.4
- 24.4
- 32.3
- 44.7
Transfer payments
- 13.1
- 8.7
- 17.9
- 18.0
n
O
z
Services and other
- 37.5
- 31.6
- 40.1
- 37.9
T1
I
Government capital transaction
[xj
Corr. iercial credits
+ 48.9
+ 39.9
+ 0.4
- 27.6
z
Bilateral balances
+ 34.7
- 6.2
- 20.6
Capital aid
+ 2.8
+ 8.9
+ 15.0
+ 51.4
Cam"
Private capital
Direct investment
+ 38.2
+ 59.7
+ 36.7
+ 29.9
Trade credits
+ 49.6
+ G.2
+ 9.8
- 33.6
Other
- 2.1
- 1.1
- 0.3
- 2.2
Capital account
+172.1
+107.4
+ 41.0
+ 17.9
Net errors and omissions
- 1.6
- 4.7
+ 6.0
Cumulative total
- 51.8
- 39.4
- 46.1
- 11.7
Net IMF position
- 5.6
+ 50.1
+ 21.8
a. Because of rounding, components may not aid to the totals shown.
b. Revised est- ate.
c. Preliminary estimate.
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 Approved For Release 2009/10/06: CIA-RDP85T00875R001600010037-0
CONFIDENTIAL
about a third of the world's cocoa, and if its output
rises faster than world demand (by more than 3 to 5
percent a year), the rise tends to depress the world
market price, as happened in crop year 1965 (see
Figure 7). Other exports could also be increased
gradually, but Ghana cannot expect total exports to
rise more than 4 to 5 percent annually during the
next few years. Even this rate of growth implies
sufficient imported inputs and a diligent effort to
upgrade the quality of investment and to improve the
efficiency of minin';;, forestry, and other enterprises.
25. Foreign aid receipts are expected to be con-
siderably higher ..n 1968 than in 1967, partly because
of the slowness with which previous commitments have
been disbursed, but they will probably not be great
enough to close the foreign exchange gap. Aid com-
mitments for 7.968 totaled about $65 million as of
May 1968: the United States has committdd about $27
million; other major donors include Canada, West
Germany, and the United Kingdom. Ghana is hoping for
more aid but will almost certainly not receive enough
to allow imports to equal even the low level of 1967.
Assuming a second rescheduling of medium-term debts,
Ghana will need at least $100 million a year in aid
if it is to resume moderate economic growth.
26. External assistance must be in the form of
grants or long-term loans with long grace periods.
Given the existing debt service burden, and assuming
frequent rescheduling;, Ghana cannot hope to service
extensive new medium-term loans, even for carefully
chosen and productive jzrojocts. The NLC welcomes
foreign-private invi_stment in existing state-owned
enterprises as well a!:; for new undertakings. Efforts
to attract foreign participation in public enter-
prises have, in some cases, met with strong popular
objections, however, and it may prove difficult to
attract much capital from abroad. In any event,
foreign-private investment is unlikely to be great
enough to have a significant impact on the balance-
of-payments problem in the next few years.
Prospects
27. Ghana has adequate human and natural re-
sources to support an orderly development; it is
one of the richer countries in West Africa. But
CONFIDENTIAL
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 Approved For Release 2009/10/06: CIA-RDP85T00875R001600010037-0
CONFIDENTIAL
whether its economy will stagnate under the burden
of debt repayment or recover and resume real growth
will depend to a large extent on the amount of foreign
aid it gets and on continued popular acquiescence to
a protracted period of austerity. In view of the
downward trend in aid from the major donors to the
less developed countries, it appears unlikely that
Ghana will obtain the annual minimum of about $100
million in gross aid necessary for recovery and
moderate economic growth. If foreign aid falls
substantially short of this target, economic recovery
will be long and painful, and significant new develop-
ment is unlikely for several years.
28. Plans are now under way for elections lead-
ing to a return to civilian rule within a year or so.
A popularly elected government may find it even more
difficult to continue restrictions on government
spending and on imports of consumer goods -- re-
strictions that appear essential for eventual re-
covery and growth. The Ghanaian people have shown
remarkable patience with stagnant or declining
personal incomes in the past half decade, but the
rising number of labor disputes and wildcat strikes
during the past six months indicates growing pressure
for long-delayed wage hikes. Continued austerity
may well contribute to political instability, es-
pecially under a civilian government.
CONFIDENTIAL
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 Million New Cedi
160 I--
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Distribution of Cocoa Export Earnings
Crop Years I958-67*
Total Export Receipts
Receipts to the Government
and Cocoa Marketing Board
Receipts to Farmers
1958 1959 1960 1961 1962 1963
1964 1965 1966 1967*
`Crop years begin on I October of the previous year
* ePreliminary-
Approved For Release 2009/10/06: CIA-RDP85T00875R001600010037-0