Ghanaian government targets improving the country's transport network amid rising demand

 

Many factors are increasing pressure on transport infrastructure in Ghana. The urbanisation rate is steadily increasing and is expected to reach 72% by 2035, according to the African Development Fund. The Ministry of Transport (MoT) also reports that the vehicle-to-population ratio grew from 50 vehicles per 1000 people in 2010 to 70 in 2015. Furthermore, exports are on the rise as total earnings from gold, cocoa and oil increased from $10.3bn in 2015 to $11bn in 2016, according to the Bank of Ghana (BoG). These steps are indicators of increased economic opportunity, but they also contribute to congestion on roads, at ports and in the air.

The overall growth of the past decade has put pressure on the sector to keep pace and facilitate rapid transit of both people and commodities. “Even though the scope for infrastructure development is wide, transportation is always a priority,” Solomon Asamoah, CEO of the Ghana Infrastructure Investment Fund (GIIF), told OBG. “Its impact can be felt across different sectors, especially mining and agriculture.” In 2017 Ghana found itself at a critical juncture to ensure that infrastructure and policy requirements are in place to maintain this momentum.

Sector Status

According to the most recent data available from the BoG, GDP from the transport and storage sector increased from GHS3.35bn ($802m) in 2011 to GHS3.84bn ($919m) in 2016, with 2015 and 2016 both seeing greater growth of 3% and 2.2%, respectively, compared to 2013 and 2014, which saw -0.5% and 0.3%, respectively.

As one of President Nana Akufo-Addo’s main campaign platforms in 2016, the government has been increasing focus on transport infrastructure. There has been a particular push for airport and port development. “The change in government has come with a new set of ambitious policies for the transport sector to make involvement of the business sector more convenient and productive, by scrapping the special import levy and tax on spare parts,” Patrick Paintsil, a transport journalist for Ghana’s Business and Financial Times, told OBG.

Private Sector

This sustained encouragement of private sector involvement builds on previous government efforts to facilitate such cooperation. The Akufo-Addo administration, inaugurated in January 2017, has stated its commitment to pass the Public-Private Partnership (PPP) Bill, which was submitted to Parliament in 2016 and was drafted to accelerate public infrastructure projects. “The administration has shown a strong willingness to engage with the private sector and to address their concerns,” Kader Coulibaly, country manager of international logistics company DHL, told OBG. “This is very promising for the country’s ability to do business.”

Authorities also hope to attract matching funds from private partners via the GIIF. Established in 2014, the GIIF finances infrastructure development in power generation, railways, roads and port services. It operates in direct coordination with industrial projects to attract private capital from foreign and domestic sources. Securing financing for these projects is crucial: in an April 2017 report the World Bank estimated that countries in Africa could see GDP growth increase by 2.6 percentage points per year if they achieve infrastructure quality and quantity comparable to that of highly developed economies.

Financing

Encouraging this private sector financing is crucial for infrastructure projects, given the government’s push to cut the budget deficit and unnecessary outlays. Ghana is hoping to meet the targets of its current IMF deal, reducing its deficitto-GDP ratio from 8.7% in 2016 to 6.5% in 2017 and 3-4% in 2018. Attempts to improve public fiscal health have yielded some encouraging results, with the IMF commending these efforts in early 2017. However, it also cautioned that the 2016 deficit increase has correspondingly heightened the country’s reliance on private foreign investors. The government is looking to diversify its sources of funding – particularly for transport projects – beyond PPPs. These efforts have had initial success: in July 2017 the Ghana Railway Development Authority (GRDA) signed a memorandum of understanding (MoU) with Russian railway company Geoservice to build a 947-km line from Accra to Paga, as well as other routes, on a build-operate-transfer basis. Furthermore, in late 2016 the Japan International Cooperation Agency extended a $100m development loan to build a 520-metre bridge over the Volta River at Dofor Adidome. This was the first agreement of its kind between the two countries in 17 years. This is part of the government-backed Eastern Corridor project to boost capacity along the route between Port of Tema – the country’s largest port – to the Greater Accra, Volta, Northern and Upper East regions, and to Burkina Faso.

Improved financing is also vital for local firms, according to Joseph Kojo Biney, CEO of logistics and freight-forwarding company Baj Freight. “Credit is still a major issue for local logistics operators, since they do not have the same access as their international counterparts,” Biney told OBG. “Local companies, therefore, need to rely on local banks, which offer double-digit interest rates.”

China

Perhaps the most significant foreign capital agreement was a $19bn deal with China, signed in summer 2017. Of this, $15bn was secured during an official visit to China by Mahamudu Bawumia, Ghana’s vice-president, in late June, during which the governments signed several MoUs. This was agreed under a commodity-swap arrangement, whereby Ghana will give China a portion of its bauxite reserves – 5% or less, according to Bawumia – in exchange for this funding. The country has 960m tonnes of bauxite resources, valued at $460bn.

Funding was increased by $4bn – bringing the total to $19bn – on July 13, 2017, when the government signed a deal with state-owned Sinohydro Corporation to develop energy and infrastructure projects, including a multipurpose hydroelectricity scheme in Pwalugu and several solar power plants. The largest proportion of this capital, however, will be directed towards an integrated aluminium refinery project, including the development of infrastructure to transport the metal. “To develop the bauxite project with its railway and convert bauxite into aluminium, we will need about $10bn,” Yaw Osafo-Maafo, a senior minister for the country, told local media following the signing of the MoU. Under the agreement funding will be available through the Chinese Development Bank, and will support the construction of a 1400-km railway network to connect Ghana’s Nyinahin and Kyebi bauxite mines to the new aluminium refinery, along with countrywide rail links.

Streamlining Trade

Hard infrastructure projects will significantly improve transport sector capacity, but soft infrastructure has also been a focal point for reform in recent years. According to the World Bank’s “Enabling the Business of Agriculture 2017”, Ghana is one of the least efficient economies in terms of transport regulations, ranking 59th out of 62 countries. This partially results from a lack of both regulation on cross-border transport and company-level licence requirements.

Furthermore, the World Bank’s “Doing Business 2018” report found that a container destined for export took an average of 108 hours to complete border compliance procedures, such as inspection and clearance. This is longer than the regional average of 100 hours and nearly 10 times longer than the OECD high-income country average of just over 12 hours. At 89 hours, the country performs slightly better on import times, beating the sub-Saharan average of 136 hours, but this is still 10 times greater than the OECD average. Overall, at 158th out of 190, Ghana fares better in the “trading across borders” category than regional powerhouse Nigeria (183rd), and comparably to Côte d’Ivoire (155th). Nevertheless, the country registered a slight decline in this sub-ranking position, falling four spots from 154 in 2017. This underwhelming performance has resulted in a push to streamline trade and transport regulations. The Customs process is currently fragmented and time consuming. Multiple bodies can demand container inspections, and the system has not been digitised. “One of the biggest process issues is the time it can take to get containers out of port, with times of 30 to even 60 days after the vessel arrives,” Kevin Taylor, managing director of Maersk Ghana, told OBG. “Streamlining, automation and digitisation are key to reducing the cost of doing business.”

Alex Atakorah, managing director of Amaris Terminal, further emphasised that the right incentives need to be in place to attract more business. “Duties are still high compared to neighbouring economies like Togo, and the turnaround process takes 40% longer than other regional hubs,” he told OBG. “Even with a new port, people will do business elsewhere if taxes are high and processing times are long.”

Single Window

The government has been working to make this end-to-end transit more efficient and cost effective with a three-point policy to establish joint inspection of containers, paperless processes and the removal of Customs barriers, all of which have been effective since September 2017.

Efforts to establish a National Single Window (NSW) have been under way since December 2015. This will allow those engaged in trade and transport to log information and documents with a single standardised entry port to fulfil regulatory requirements. It uses an electronic data system, the Ghana Community Network, to create a portal through which all regulatory agencies involved with imports and exports can interact to expedite the process.

West Blue Consulting, the firm contracted to undertake Ghana’s NSW programme, projects a 50% drop in costs and a 25% reduction in time of international trade – including import, export and transit – by 2022. In March 2017 Ghana launched the NSW online registration system, with the Ghana Export Promotion Authority (GEPA) enabling exporters to register all goods electronically in one place. “Whereas the country was stagnant in the 2018 trading across borders sub-ranking, the recent paperless reform will ensure Ghana’s ranking improves, not just regionally but globally,” Valentina Mintah, CEO of West Blue Consulting, told OBG.

Focus On Exports

Ghana has a persisting trade deficit: in 2016 imports were worth $12.7bn, while exports totalled $11.1bn. There are ongoing efforts to reduce imports, particularly in the agriculture sector (see Agriculture chapter). Industry players are hopeful that Ghana can develop a trade surplus with proactive export facilitation measures. “The volume of exports is still low. This could be increased by encouraging young graduates to go into farming, processing export-ready agricultural products and supporting the government’s One District, One Factory agenda, which could increase finished-product exports,” Atakorah told OBG. “We also need to provide more subsidies and tax exemptions, increase access to credit facilities at low interest rates and simplify export processes. We ship nearly 2000 twenty-foot-equivalent units (TEUs) per month abroad, and we expect this to increase by 25-30% in 2018 if such bottlenecks are addressed.”

GEPA also announced it aimed to earn $4bn from non-traditional exports in 2017, an increase over the $2.46bn – 23% of total exports – recorded in 2016, with the long-term goal of $10bn by 2021.

Port Expansions

Because the maritime sector is responsible for nearly all of the country’s external trade, it is a primary focal point for transport upgrades to support increased exports. Expansion efforts continue at both of Ghana’s main ports: Tema, around 30 km east of Accra, and Takoradi, 220 km to the west. These two ports collectively handle 85% of the country’s trade, according to the Ghana Ports and Harbours Authority (GPHA), the government body responsible for domestic port oversight.

The GPHA reports that Tema receives an average of 1650 vessels per year. With a three-phase, $1.5bn expansion plan led by Meridian Port Services (a joint venture between GPHA, Bolloré and APM Terminals) scheduled to be complete by 2019, growth of the port likely means both volume and categories of maritime traffic will expand. While the current port has a draught of 11.5 metres, the expansion will increase the draught to 16 metres, allowing the port to accommodate all ship sizes. The development will also raise Tema’s annual capacity from 1m TEUs to 3.5m, making it the largest port in West Africa. By comparison, Abidjan in Côte d’Ivoire takes in 1.5m TEUs and Lomé in Togo handles about 2m, although expansion plans are under way in both of those ports as well. The project is expected to employ up to 5000 people, and construction is due to be complete in 2020. Takoradi Port, in the Western Region, is also expanding to accommodate a wider variety of vessels. This port is being positioned as the primary oil and gas services port in this region. The proximity of Takoradi to offshore oil and gas fields has made it an increasingly frequented stop, serving as an outlet for the landlocked neighbouring economies of Niger, Mali and Burkina Faso. As reported by the GPHA, Takoradi handled 27% of national seaborne traffic in 2015, including 68% of seaborne exports. This was down from 31% of seaborne traffic and up from 66% of seaborne exports, respectively, in 2012. Other bulk goods have prompted a number of infrastructure upgrades. The World Bank confirmed in March 2017 that interested bidders for implementation of the Takoradi Port Dry Bulk Terminal and Integrated Terminal are being evaluated. To this end, in June 2017 Ghacem, a domestic cement company, broke ground on a €1.2m cement truck terminal in Takoradi.

Road

According to the MoT, typically over 80% of the government’s annual budget for the transport sector is channelled into road infrastructure projects. This allocation of funding is understandable, given that the Ghana Investment Promotion Centre estimates that road transport accounts for 96% of combined domestic passenger and freight traffic.

Although there is still work to be done to improve the network – particularly to reach rural areas in the north and decrease congestion in urban centres (see analysis) – there has been progress in modernising the domestic road network. An April 2017 World Bank report on infrastructure development across the continent noted that Ghana has the highest road density in the region, and it was even above international averages. However, the proportion of high-quality paved roads is below average for other members of the lower-middle-income category.

In 2017 the government allocated GHS871.2m ($208.6m) to the Ministry of Roads and Highways, a 39.5% increase over the 2016 budget. This highlights the MoT goal that the percentage of maintained or rehabilitated roads increase from 57% in 2016 to 70% in 2017. Especially as ports expand and absorb more goods, road improvements will be necessary complementary efforts, preventing bottlenecks in overall connectivity and logistical infrastructure.

Notably, two priority projects supported by the World Bank are continuing. Feasibility studies related to the Accra-Takoradi Motorway and the procurement of a concessionaire for the project were scheduled to be completed in 2017, while feasibility studies continue for the Accra-Tema Motorway.

In June 2017 the World Bank also approved a $150m International Development Association credit for Ghana’s Transport Sector Improvement Project. This will improve road connectivity and reduce travel times in the north, not only by rehabilitating roads between cities such as Tamale, Yendi and Tatale, but also by adding around 200 km of roads linking agricultural commodities to their respective markets.

Rail

A 950-km rail network connects three of the country’s largest cities – Accra, Kumasi and Takoradi – theoretically to link the mining-resource-rich areas in the Ashanti Region with Tema and Takoradi ports to facilitate export of these commodities.

However, currently only the Western Line, running from Kumasi to Takoradi, is even partly suitable for use. Local press reported that 133.6 km – or 14% of the entire rail network – is operational due to poor maintenance of this infrastructure, a common problem in many African economies.

In 2016 feasibility studies began for the 340-km Western Line. As detailed in the budget, the government planned to invite developers and source funding for construction in 2017. The 330-km Eastern Line – running from Accra to Kumasi – will also soon be put up for bid for rejuvenation, following a soon-to-be completed feasibility draft for the line. Private sector partners will soon be invited to submit proposals. A 200-km Central Line from Kotoku on the Eastern Line to Huni Valley on the Western Line also has yet to be rehabilitated, though this is a lower priority, due to a lack of demand. The MoT will also perform feasibility studies in Accra and Kumasi as part of efforts to develop a suburban railway line between the two largest cities.

Traditionally overseen by the Ministry of Railways Development, which supports overall policy formulation, the GRDA has been the regulator and manager of the railway industry since 2008, while the Ghana Railway Company serves as operator of railway passenger and freight services across the country. There are plans for the GRDA to be separated into two distinct bodies: one to regulate and the other to oversee infrastructure development.

The renewed focus on railways was reflected in the 2017 budget, which allocated GHS518m ($124m) to the Ministry of Railways Development and called for greater PPP activity. In addition to this, in June 2017 Joe Ghartey, the minister of railways development, told local media that more than $7bn would be committed to the rail sector between 2017 and 2021, supporting 1394 km of routes.

“Upgrading the railway sector will attract more trading partners to the country because costs to transport imports or cargo by road are over 50% greater than those by rail,” Paintsil told OBG.

Indeed, the government and private players alike hope that once the corridor is completed, it will facilitate the transport of manganese, bauxite, cocoa, and other bulk commodities. The MoUs that China signed with the country in summer 2017 will further support these efforts, as a significant portion of the $19bn deal will fund transport of bauxite, the main source of aluminium (see Mining chapter). This will include the development of railway infrastructure.

Air

Stakeholders in air transport are also taking steps to increase domestic and international air traffic (see analysis). In addition to the MoT and the Ministry of Aviation, key government actors include the Ghana Civil Aviation Authority – which regulates the safety and security of operators – and the Ghana Airports Company, which facilitates and oversees the development of both public airports and aircraft. The Ghana Civil Aviation Authority noted that there are 10 licensed domestic air transport operators for passenger traffic and cargo flights, with DAC International Airlines, a subsidiary of Aero Precision Holdings, being added in 2017.

As reported in the Ministry of Aviation Medium-Term Expenditure Framework for 2017-19, the feasibility study for the re-establishment of a national airline is complete, with Cecilia Dapaah, the minister of aviation, announcing plans to launch this new domestic and international airline in 2019.

This move would fill a void in the market left when Ghana International Airlines – the second iteration of a national airline following the closure of Ghana Airways in 2005 – ceased operations in 2010. The government announced it will not directly finance the venture, but will rather request carried interest under a PPP model. In 2017 local press reported that several foreign carriers have expressed interest in bidding for the project, although as of December 2017 this has yet to be officially confirmed.

Airport Upgrades

Expansion work on a third terminal at Accra’s Kotoka International Airport began in March 2016 and is expected to be completed by July 2018, allowing the airport to accommodate an additional 5m passengers per year, with the capacity to handle up to 1250 passengers per hour (see analysis). This would represent a significant increase over the most recent figures from the Ghana Civil Aviation Authority, which showed that 2.17m passengers used the airport in 2016, with international travellers accounting for 1.75m of the total. The new 45,000-sq-metre terminal – designed especially to support international traffic – will be composed of a large retail area, three business lounges and seven air bridges, as well as parking for more than 700 cars.

Construction and rehabilitation of airport infrastructure is also continuing to take place outside of Accra. For example, the first phase of the Kumasi Airport rehabilitation project was completed in 2014, and construction is ongoing for Ho Airport and Wa Airport in the Volta and Upper West regions, respectively. In June 2017 the GIIF also approved a $30m corporate loan to the Ghana Airports Company – the first to be approved by the GIIF’s newly appointed board – in support of these efforts.

Outlook

Ghana has made considerable strides in the development of its infrastructure environment, particularly in comparison to some of its neighbours. However, substantial work remains to be done, particularly to bridge the $1.5bn gap in annual funding. Overcoming this funding shortfall will be necessary in order to complete the current projects facilitating transport of commodities and people. The government has renewed focus on transport, which contributes to a cautiously optimistic outlook for the sector.

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The Report: Ghana 2018

Transport chapter from The Report: Ghana 2018

The Report: Ghana 2018

The Report

This article is from the Transport chapter of The Report: Ghana 2018. Explore other chapters from this report.

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