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Ghana Signs $13 Billion Loan Deals

Source: Reuters 9/23/2010, Location: Africa

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Ghana signed nearly $13 billion worth of loan deals with Chinese investors, the government said on Wednesday, announcing one of China's largest financial commitments in Africa to date. The accords, signed during a visit by President John Atta Mills to Beijing, were viewed with caution by analysts who noted a lack of specifics over the terms and who added that loans of that size could violate Ghana's IMF commitments. The accords are aimed at funding energy, agriculture and transport projects in the West African state, Ghana's Deputy Finance Minister Fiifi Kwetey said by telephone from Beijing.

China has signed a number of other big money deals across Africa -- including a $6 billion deal with Congo -- as it seeks to lock up resources to fuel its dramatic growth, and it is among the investors competing for a stake in Ghana's offshore Jubilee oil field.

The new loans include $3 billion from the Chinese Development Bank to finance Ghana's oil and gas infrastructure and agricultural development, Kwetey told Reuters. 'It's a comprehensive facility that would be used to develop the oil and gas sector and also to scale up infrastructure for agro-industries throughout the country,' Kwetey said. A second deal for $9.87 billion was signed with Chinese Exim Bank for road, railway and dam work, he said. Kwetey said the broad framework for the use of the loans had been agreed but he declined to give details and said the specifics would be worked out later. He added the loans will require final approval from Ghana's parliament.

Analysts said the details of the agreements were crucial to understanding their importance. 'We don't know if this is a loan or a credit line, what portion will be tapped, and what are the terms,' said Richard Segal of Knight Capital. 'We've seen many times in the past when there is a large loan figure announced and it turns out to be misleading. A degree of scepticism is advisable.'

Ghana, an IMF member and one of few sub-Saharan countries with a Eurobond, has cut its debt to around 8 percent of GDP from over 20 percent in 2008 but runs the risk of backsliding due to higher public borrowing. 'The IMF has recently relaxed its own constraints on programme countries' non-concessional borrowing, for countries like Ghana which have adequate debt management capacity,' said Richard Fox, head of Middle East and Africa Sovereign Ratings at Fitch. 'But higher debt inevitably increases risks, especially in countries with volatile income streams. Ghana's debt burden is already one of the highest in sub-Saharan Africa,' he said.

A Chinese loan deal to Democratic Republic of Congo was trimmed to $6 billion from $9 billion last year after the IMF raised concerns the contract, which used mineral reserves as a guarantee for infrastructure projects, would plunge the central African country deeper into debt.

The onset of oil production in Ghana is expected to help boost its growth into the double-digits next year, making it Africa's top performing economy. Production is forecast to quickly ramp up to 120,000 barrels per day and eventually reach 250,000 bpd -- making it sub-Saharan Africa's No. 6 producer.

Ghanaian Deputy Energy Minister Emmanuel Buah told Reuters last week Ghana was making progress in talks with unnamed Chinese investors interested in buying a stake in the big offshore Jubilee field. It was not clear whether there was a link between that and the loans agreed in Beijing. Jubilee, operated by Britain's Tullow Oil, holds around 1.6 billion barrels of light crude.

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