On a roll: Brisk economic expansion is putting pressure on infrastructure

As Ghana’s growth rate continues to hover around 7%, the country’s transportation network is under increasing pressure to keep up with the rise in commodity exports, processed imports and local distribution. The country’s road and railway networks are comparatively well developed in comparison to other regional economies, but as with many African countries, they are also under-maintained. Ports and airports, in particular, are feeling the strain of rising freight volumes and passenger numbers, leading to a renewed focus on infrastructure developments as it attempts to absorb higher levels of traffic across the board.

Government plans for highway, port and airport expansion will see new construction aimed at increasing capacity in the coming years, alongside a focus on public-private partnerships (PPPs) to meet infrastructure needs. With major development deals inked in 2012, Ghana is well situated to realise its ambitious goals for infrastructure expansion, but will need to ensure sustainable maintenance financing if the enhanced capacity is to be of long-term value.

INDICATORS: The transportation and storage sector saw moderate growth in 2012, reaching 11.3% of the country’s total GDP, compared to 10.7% in 2011, according to the Ghana Statistical Service. This rise is driven by a steady uptick in both trade and domestic consumption in the country, following the continued high influx of post-oil investment to the economy.

Imports and exports both increased over the course of 2012, with imports reaching $17.56bn compared to $15.84bn the previous year, and exports jumping in value to $13.73bn, up from $12.79bn in 2011.

The Ghana Investment Promotion Centre reported that 399 new projects were registered in the country in 2012, with a total estimated value of GHS10.14bn ($5.63bn), of which 239 were foreign enterprises. Though this is a decline from the 514 projects in 2011, valued at $7.68bn, it is clear that investors are still flocking to Ghana as oil development increases and gas production kicks off. While the boom in activity has increased the sector’s overall value, the transportation industry is facing a number of challenges that have put a strain on broader economic output.

CHALLENGES: The World Bank’s 2012 Ghana Poverty Reduction Strategy paper found that the country’s transport network faces an underdeveloped intermodal transport system; poor facilities; insufficient funds for maintenance, upgrading and rehabilitation; and poor coordination among relevant regulatory institutions.

That there is room for improvement in both planning and execution comes as little surprise. According to the government’s 2013 budget statement, “Infrastructure deficits in the energy, water, roads and transportation sectors present severe problems affecting the viability of many businesses, especially in the manufacturing and services sectors of the economy. These affect their ability to expand and create job avenues.”

However, the payoffs for addressing these issues, which are very much a priority according on government statements and plans, are quite sizeable. By World Bank estimates, raising the country’s infrastructure spending level to that of the upper-middle-income countries such as Mauritius could boost Ghana’s annual growth by as much as 2.7%.

ROAD NETWORK: Like nearly all African countries, Ghana’s transport sector is dominated by road activity, which currently accounts for 98% of freight and 95% of passenger traffic. Managed by three separate departments, Ghana’s 40,186-km road network is split into three divisions: trunk, feeder and urban. The Ghana Highways Authority (GHA) is responsible for developing Ghana’s 14,500-km highway network, with the Department of Feeder Roads and Department of Urban Roads responsible for the remainder.

The country’s road transport indicators are strong, though still lacking compared to upper-middle-income countries. A 2010 World Bank report found the road network quality “quite reasonable”, with 75% of the paved network in a good or fair condition and 74% of the unpaved network also in a good or fair condition.

FUNDING STREAMS: The government has three recurring funding sources for road improvements: the Ghana Road Fund, used for maintenance, the Consolidated Fund for development works, and donor funds used for both. According to the World Bank infrastructure report, Ghana allocates its road funding roughly evenly across networks, with rural and urban roads receiving 30% and 25% of funding, respectively. The country has also adopted a fuel levy of GHS0.06 ($0.03) per litre that, while commensurate with road maintenance needs in 2006, has since been eroded by depreciation and criticised by road contractors as being too low.

The country’s highway network is under pressure from new traffic, both in terms of volume of vehicles and trip frequency. Some 141,819 new vehicles were registered in Ghana in 2011, compared to just 102,330 in 2010, and by June 2012, 95,441 new vehicles had already been registered that year, according to the Ministry of Transport. This increase has come despite rising tariffs on imports: “Duties and taxes set in Ghana end up making luxury car cost around $20,000 or more than in Europe or in the US, which leads to increased Cargo traffic at Tema Port, 2007-12 grey market activity,” Subhi Accad, CEO of Auto Parts, told OBG. Imad Ghorayeb, general manager at Japan Motors, agreed that current duties are misplaced: “A duty should not be placed on the power of the engine, but on environmental damage and CO emissions, which is a huge problem as there is no control on the age or quality of the cars imported,” he said.

The country has 1.47m vehicles on the road, of which heavy trucks (weighing up to 32 tonnes) make up 7.2%, or 106,768 vehicles, which leads to increased stress. “We have more new vehicles on the roads each year, putting more wear and tear on our highway networks. Axle overloading has been a major problem in Ghana, with an influx of heavy trucks causing damage to highways,” Lawrence Kumi, head of road transport services at the Department of Transportation, told OBG.

UPGRADES: The government’s 2013 budget statement focused strongly on infrastructure upgrades and highlighted the successful completion of a number of projects in 2012, including construction of 84 bridge projects, installation of more than 200 new traffic signals, and most importantly, routine maintenance on 10,674 km of the trunk road network, 8500 km of the feeder road network and 945 km on the urban road network. The government has also installed 14 weigh stations to improve enforcement of axle load regulation, with plans to build an additional 12 in 2014.

Major road projects in Ghana are currently aimed at enhancing links between resource-rich outlying areas in the eastern and western regions and urban centres in the south. The Eastern Corridor Roads Project, aimed at rehabilitating an 800-km stretch of road between Tema and Kulungugu on the border with Burkina Faso, is the most notable of these, with construction under way since 2012. The government also has plans to rehabilitate its western highway corridor through a two-phase construction project covering a 755-km stretch between Elubo, on the border of Côte d’Ivoire, and Hamile on the border of Burkina Faso in the north.

MAINTENANCE: Funding remains the biggest challenge facing highway maintenance and upgrades. Despite the government focus on infrastructure development, the transportation budget decreased in 2013. The government allotted GHS893.81m ($459.5m) in total funding to the Ministry of Roads and Highways and the Ministry of Transport in 2013, down from GHS1.26bn ($647.8m) in 2012. In August 2012 the World Bank put the price tag of necessary infrastructure upgrades at $26bn, urging the government to move forward on road improvements and upgrades.

Increasing the fuel levy would be one of the easiest methods of drawing further from the tax base; 93% of Road Fund revenues are generated by fuel levies, which have not increased since 2005, according to the Association of Ghana Road Contractors. “A fuel levy of $0.10 per litre is regarded as optimal, since raising the levy beyond this could push inflation up and impede economic growth,” said Stephen Abbey, CEO of the GHA.

However, the government has already come under fire for bumping the price of subsidised fuel up by 20% across the country in February 2013, in an effort to reduce the deficit. The administration of John Dramani Mahama went one step further in June 2013 when it announced a halt to fuel subsidies, estimating that petrol and liquefied petroleum gas prices will rise by 3%, while diesel will rise by 2%. Since fuel levies are charged at the pump, raising the levy from GHS0.06 ($0.03) to $0.10 could lead to popular unrest, as similar moves in countries like Nigeria have shown.

FINANCING: As a result, the preferred option for road infrastructure projects lies in PPPs. Under its Transport Sector Development Programme, the GHA plans to cofinance its highway projects through PPPs, using either loans with 20- to 30-year concessions, or a build-operate-transfer (BOT) model in which the private sector is responsible for development of a project, and recoups its costs by operating the project upon completion. The BOT PPP model appears to be paying off so far, with a number of tenders awarded in 2012 for projects including the dualisation of the Accra-Takoradi and Accra-Kumasi highways, as well as the refurbishment and expansion of the Accra-Tema motorway.

Recent announcements for investments in road networks include $146.8m from DSC International to widen a 240-km stretch of the Accra-Kumasi highway in 2012, and $50m from Link Infrastructure to construct an overpass on the Teshie Link motorway.

Development assistance is also being put towards highway works. The government received $60m from the Danish International Development Agency to construct six bridges in the country’s Upper East Region, and in May 2013 the Japanese government announced it would provide $6.5bn in aid to fund infrastructure, including transportation projects within Ghanaian cities. The government has also secured $250m from the Brazilian government, $34.38m from the EU, and GHS113.4m ($54.85m) from the China Jiangxi Corporation for portions of the Eastern Corridor Roads Project, and signed a memorandum of understanding with Samsung for development in the Western Corridor.

AVIATION: Road networks are not alone in experiencing intensified pressure as a result of new businesses and travellers entering the country. Air travel in Ghana has been on a strong upward trajectory recently, with 2012 showing a rise in both domestic and international passenger traffic. As the government moves forward on plans for a new airport in the Ningo-Prampram area outside of Accra, and with ongoing upgrades for services at the Kotoka International Airport (KIA) and other regional airports, capacity increases will allow Ghana to handle long-term growth of its air services, passenger numbers and flight offerings. However, the aviation industry is experiencing some growing pains, with high fees, construction delays, insufficient domestic facilities, and ongoing issues of inefficiency and overcapacity remaining problematic in the short term.

TOUCHING DOWN: Domestic and international passenger air traffic saw strong growth in 2012. At KIA, the country’s only international airport, the Ghana Airport Company (GACL) reported that passenger numbers rose by almost 9%, reaching 1.73m compared to 1.59m in 2011. Upside estimates forecast an increase to some 10m by 2024. In the short term, aviation growth is projected to inch up to 10% in 2013, according to the Ghana Civil Aviation Authority (GCAA).

Domestic passenger numbers saw dramatic growth in 2012, according to the GCAA, skyrocketing to 544,583 passengers from 199,073 in 2011 – an increase of 174%, driven by price wars between new carriers and a rising middle class with increased purchasing power, on top of new business travellers flocking to the cities of Takoradi and Kumasi. The busiest of Ghana’s domestic airports, Kumasi, recorded a rise of 300% in passenger throughput, from an average of 4000 passengers per month in 2011 to 16,000 a month in 2012.

“Ghana has been the talk of the industry for the past couple of years. It is obvious that the government is serious about transforming the country into a regional aviation hub,” said Gloria Yirenkyi, country manager for South African Airways in Ghana.

However, this growth has created some challenges. As a result of the huge influx of passengers, the country’s airports have struggled to keep up with demand. KIA’s cramped terminals and lengthy queues have proven frustrating, and under-developed facilities have led to frequent fuel shortages due to a scarcity of storage space, according to Yirenkyi, who estimated airlines at KIA have only a three-day reserve of fuel at any time. At the same time, freight through KIA decreased from 50,260 tonnes in 2011 to 46,577 tonnes in 2012.

IMPROVEMENTS: In 2012 GACL announced its need to raise $738.2m through a PPP to help develop the country’s five airports. Of this sum, $402m will be earmarked for developments at KIA, $173.2m for the Kumasi domestic airport, $64m for the Tamale airport, and $63.5m for the airport in Takoradi.

The GACL’s 2008 KIA Master Plan has identified nine upgrade and construction priorities to be carried out by 2024, including airfield and landside facility improvements, airfield maintenance facilities, terminal developments, and fuel facility improvements. Under the $96m plan, KIA’s terminal will be expanded from 25,000 to 62,300 sq metres; taxiways will be widened from the current 27 metres to 60 metres to accommodate larger planes; baggage handling equipment will be brought Cargo traffic at Takoradi Port, 2007-12 into operation; and new aprons and fuel mains will be installed to handle more frequent services.

INTERNATIONAL FOCUS: Even more promising for air travel in Ghana are the government’s plans to build a new airport outside of Accra, which could cater exclusively to international passengers, while KIA would be redeveloped as a domestic carrier in order to ease traffic congestion. In May 2013 the minister of transport, Dzifa Attivor, announced that the government had acquired 6475 ha of land in the Ningo-Prampram area in the Greater Accra region, and is undergoing a final round of feasibility studies before starting construction on a new, yet-to-be-named international airport. A budget for the project has not yet been released. The GACL hopes to expand its landholdings in Ningo-Prampram to 24,280 ha before starting construction on the greenfield project. “The 6475 ha will be used for core airport-related works and infrastructure development, and the 17,805 additional ha will be used to construct an ‘airtropolis’, with shopping malls, offices, banks and so on,” MacDavids Torgbor Torto, director of technical services at GACL, told OBG.

China Airport Construction has already carried out preliminary feasibility studies at the Ningo-Prampram site, and Torto said engineers will return for a final study by the end of 2013 before ground is broken. He estimates the airport will take a minimum of eight years to complete, because the site’s distance from Accra requires that water, electricity and road connections be built in addition to terminals and runways.

FEES: The government has shown commitment to improving the business environment in other ways. While high landing and passenger fees are a challenge throughout Africa, leading to expensive intra-regional prices – in some cases prompting large disputes between airlines and the government, as in South Africa – airfares in Ghana have been unusually high for a number of reasons. For example, ground services have been outsourced to the GACL, resulting in higher-than-average service charges of $80,000 to $90,000 monthly, according to Yirenkyi. Passenger fees are also considered high, with first-class passengers paying $200, business class paying $150, economy class paying $100 and regional passengers paying $60. All of these costs get passed on to the consumer, and the GACL estimates that 64% of ticket prices goes towards taxes, fees and surcharges, compared to 35% in Nigeria.

REGIONAL DEVELOPMENTS: Outside of the international market, growth in domestic air traffic has compounded the need for expansion at the country’s four regional airports. There are currently 27 airlines operating in Ghana’s domestic and international airports, up from 23 in 2010, as new carriers including Starbow, Fly540 and Africa World entered the market, drawn by the country’s rising middle class, growth in passenger numbers, and relatively untapped domestic market. A price war between low-cost domestic carriers saw oneway flights from Accra to Kumasi drop from $155 to $25 after Starbow and Fly540 cut prices in 2012. A third operator, Africa World, owned by China’s HNA, also started offering flights to Kumasi in 2011. “We look at it as a positive development. Even though low-cost carriers operate a different model, they don’t pull the thread. Legacy carriers benefit from low-cost carriers, which act as feeders bringing in passengers. It’s in everyone’s interest that these firms thrive,” said Yirenkyi.

But while domestic passenger numbers are showing massive growth, existing facilities at regional airports leave much to be desired. Security lines can stretch for hours as a result of inefficiencies and a lack of electronic ticket scanners and metal detectors, and domestic carriers must carry enough fuel for a return trip because re-fuelling facilities are not available outside of Accra. “When you have to carry that amount of fuel on outgoing domestic flights, and you have a full flight and passengers with a lot of baggage, something’s got to give. It can be the cargo or the passengers, but it can’t be the fuel,” said Yirenkyi. Further, fuel pressures affect services; in February 2013, domestic flights from KIA were cancelled for three days due to shortages.

Addressing these challenges will become critical in the coming years as new waves of business travellers and a growing middle class take to the skies in Ghana. Although frequent delays and slow construction will continue to frustrate travellers in the short term, the government has shown commitment to improving flight facilities and passengers’ experiences.

CALLS AT PORT: Patience in the short term will also be necessary at Ghana’s ports, which, perhaps more than any other transportation segment, are experiencing unprecedented demand and capacity challenges. Cargo volumes and vessel numbers are down at Tema Port, the country’s largest and busiest, as problems of congestion and long wait times lead to diverted traffic to other destinations.

Ghana had previously benefitted from an increase in transit and trans-shipment activity following the 2011 conflict in Côte d’Ivoire, which had slowed inbound traffic to the Port of Abidjan, which is one of the region’s biggest. However, with the Francophone country once again stable, and facilities at Tema Port facing a heavy influx of new activity, shipping firms are slowly beginning to shift back to Abidjan.

Unlike Tema, Ghana’s other main port in Takoradi showed strong growth in 2012, backed by new demands from the country’s burgeoning oil industry. The government is moving forward on a series of much-needed upgrades at both of these ports, but the lengthy expected timeline for these projects means port traffic will continue to face challenges in the medium term.

Tema Port covers 166 ha of water enclosed by two breakwaters. The port has two quays housing 12 multi-purpose berths, operated as common-user, and handles a variety of cargo, including dry bulk, containers, steel products and vehicles. The port’s oil berth can accommodate tankers up to 250 metres long, with a maximum draught of 9.7 metres. In 2004 Meridian Port Services (MPS), a PPP between the Ghana Ports and Harbours Authority (GPHA) (30%) and Meridian Port Holding was established, with MPS now controlling two berths and handling 80% of traffic at the facility.

Takoradi Port is smaller, having four berths with draughts between 9 and 10 metres, and three berths dedicated specifically to bauxite, manganese and oil. Takoradi Port is poised to see substantial growth in the coming years, as it is located in the heart of Ghana’s oil development. It currently handles 60% of total exports, including bauxite, gold, timber and cocoa.

CONGESTION: Broadly speaking, the shipping industry is grappling with congestion, indicating an increase in traffic. Indeed, a 2013 report from the Ghana Shippers Authority (GSA) found that overall traffic at Tema and Takoradi increased by 8% in 2012 to reach 19.4m tonnes, with cargo traffic reaching 15m tonnes at Tema.

However, according to GPHA tallies taken during ship loading and discharge, cargo traffic at Tema Port decreased by 23.3% in 2012, falling to 8.79m tonnes from 11.45m tonnes in 2011. Container traffic also dropped by 18.7% to 615,104 twenty-foot equivalent units (TEUs), compared to 756,899 TEUs in 2011. A decline in traffic at Tema could be explained as a return to normalcy after the growth and import demand seen in 2011, but 2012 played out differently at Takoradi. The port there saw cargo volumes increase by 7.3% to 5.31m tonnes, compared to 4.95m tonnes in 2012, according to GPHA statistics. Meanwhile, vessel calls dropped to 1521 at Tema in 2012, their lowest levels since 2004, and a significant drop from the peak of 1994 vessels in 2006. It is possible that this reflects the impact of increased congestion at the port. “The ports remain severely congested with ships waiting several days before being able to berth. This adds an unnecessary cost to the shipping industry and increases the Traffic statistics at KIA, Q1 2013 overall cost of doing business in Ghana,” Syed Naved Uz Zafar, managing director of Maersk Ghana told OBG.

Zafar said efficiency at Tema had deteriorated in recent years as increased demand for imports and lack of handling capacity and processes choked the ports. According to Zafer, a large part of the challenge is that the road network leading to Tema is full of traffic, and freight rail services have been slow to come, making it difficult to transfer shipments (see analysis).

REHABILITATION: Still, in light of the faster-thanexpected rise in demand, the government is also planning to roll out a ports rehabilitation programme at Tema and Takoradi in several phases over the coming years. Phase one will kick off in 2014 when the GPHA begins dredging work at Takoradi and Tema, deepening the draught at both to 16 metres, which will create capacity for vessels carrying up to 10,000 TEUs and allow for ships larger than current WAFMAX ships. The project moved forward after the government signed a $200m contract with Belgian’s Jan De Nul in 2012 for dredging and constructing a breakwater and jetty to handle bulk mineral ores at Takoradi. But the high cost of port infrastructure presents some challenges, and the government is likely to seek loans and PPPs to cover the costs of these developments.

“The phased development for Tema Port is estimated to be in excess of $2.5bn. Some parts of the works would require commercial loans,” Komla Ofori, principal engineer at GPHA told OBG.

By the time the project hits the third and final phase, in 8-10 years’ time, Ofori hopes the government would not need to look for funding as the established basic port infrastructure would offer concessions to operators, including terminals for trans-shipment and even rig repair services. “In the long run, it is possible to have companies buy and run concessions within the port estate and pay royalties to government via the GPHA. Under such circumstances, GPHA would take steps to sustain regulations, tariffs, etc., to maintain a competitive business environment,” said Ofori.

OUTLOOK: Ghana’s pursuit of middle-income status, bolstered by developments in the oil and gas sector, has put a corresponding strain on its transport networks. The country’s roads, ports and airports are in need of upgrading and new construction, a gap the government has used as an incentive for more private investment in the country. Although the largest projects will take some time coming to fruition, the government has shown strong commitment to bolstering economic growth through infrastructure enhancement.

Improving maintenance, increasing cooperation between the government and private sector, and rolling out new construction projects are all expected to help the country cut down on delays and increase economic production. The PPP model has shown initial signs of success so far and enhanced cooperation between the government and private sector will be critical to realising the country’s long-term economic goals as petroleum activities ramp up, cargo volumes and passenger numbers increase, and as a host of new multinationals enter the market to take advantage of this growth.

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The Report: Ghana 2013

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