Buoyed by first oil lift in late 2010, the government has placed infrastructure development at the centre of its strategy for economic growth and job creation. Although the funding for infrastructure projects remains a key concern, its central position in government plans bodes well for Ghana’s contracting and engineering firms.
HELPING THE ECONOMY: The prominence placed on infrastructure was clear for all to see with the November 2011 announcement of the 2012 budget, entitled, “Infrastructure Development for Accelerated Growth and Job Creation”. Speaking to Reuters following the budget announcement, the minister of finance and economic planning, Kwabena Duffuor, said, “It is a budget that will improve on the infrastructure and development of our country. Over the year we have consulted economists and have realised that we need a strong infrastructure base to help our economy grow.”
In many facets of infrastructural development, Ghana is ahead of much of the continent. According to the “2010 Africa Infrastructure Country Diagnostic Report” (AICD) published by the World Bank, Ghana scores well above its low-income peers on household access to power, water and mobile telephones. The condition of the road network, both paved and unpaved, also scores well. Nonetheless, the country still has a long way to go, ranking 110th out of 139 countries on infrastructure under the World Economic Forum’s Global Competitiveness Index (GCI) 2011-12, and lagging behind middle-income countries in Africa.
The government, which has said oil and gas will take Ghana to middle-income status, is now looking to bridge this gap. While it already spends $1.2bn per annum on infrastructure – some 7.5% of GDP according to the World Bank – the AICD said it would have to close an annual funding gap of $1.5bn if it is to gain parity with the region’s middle-income economies on infrastructure. However, the World Bank adds, with improved efficiencies, this funding gap could be reduced to $400m annually, or 1.3% of GDP. The potential rewards of finding this funding are sizeable. According to the World Bank’s “Public Appraisal Document on Public Private Partnership Project 2012”, infrastructure has contributed a little over one percentage point to Ghana’s per capita growth in the past few years. However, investing to improve standards could bump this up more than 2.7 percentage points.
COMMITTED TO INVESTMENT: The 2012 budget is, therefore, an important statement of the government’s commitment to investing in infrastructure. With the state budgeting for hydrocarbons revenues of some GHS1.24bn ($735.2m), in 2012, representing 8.6% of the total estimated budget revenues, the government is perhaps better placed than any of its predecessors to turn its attention to infrastructure investment. With the Petroleum Revenue Management Act mandating that oil and gas revenues directed into the annual budget must be spent on four specific areas including roads and other infrastructure, the prospects for a raft of public construction tenders in the coming years looks strong. Under the budget, GHS2.67bn ($1.6bn) has been earmarked for domestically financed capital expenditure, while GHS3.03bn ($1.8bn) has been allocated for foreign-financed capital expenditure.
The government has allocated the biggest budgets to the Ministry of Education (GHS2.87bn, $1.7bn) and the health sector (GHS1.8bn, $1.1bn). While much of this will be for recurring expenses and non-construction-related programmes, these funds will also include several construction projects such as emergency classroom and dormitory blocks throughout the country at a combined cost of GHS239.6m ($142.1m, see Education chapter) and the upgrade and expansion of health training institutes, hospitals and the construction of five new polyclinics (see Health chapter).
TRANSPORT UPGRADE: The most ambitious infrastructure projects will be executed in the transport sector using a combination of foreign and domestic funds. The government has allocated a combined total of GHS1.26bn ($747.1m) to the Ministry of Roads and Highways and the Ministry of Transport for 2012. This will be supported by a $3bn loan facility from the China Development Bank (CDB), sourced in 2011. While there was some speculation in the press in mid-2012 that this facility was in jeopardy, the minister of finance and economic planning said in early July 2012 that the loan was ready for disbursement.
The CDB facility will be used for the Western Corridor Gas Infrastructure, the Western Railway Line Modernisation project, the rehabilitation of Takoradi Port, the Western Corridor Oil Enclave Toll Road project and the Eastern Corridor Multi-Modal Transportation project, among others. Ghana’s oil and gas production has not only improved its revenues, but has also enhanced its borrowing capabilities. In December 2011 the IMF and the World Bank increased Ghana’s eligibility to borrow on commercial terms from $700m to $3.4bn.
NEW PROJECTS: While Ghana spends an average of 1.5% of GDP on road infrastructure, one of the highest in West Africa, according to the World Bank, and has a strong system of funding maintenance, construction in this segment of the market is likely to increase. One of the major projects is the $1.8bn Eastern Corridor, a road network linking parts of Western Togo to Burkina Faso through the east and north of Ghana. While there were concerns that this project was being dropped in 2011, a June 2012 announcement that the EU has provided €25.9m for the construction of a 46.6-km single carriageway road between Dodo Pepesu-Nkwanta on the Eastern Corridor has breathed new life into the project (see Transport chapter).
As well as the roads, the government is also concentrating on the rehabilitation of its rail network to facilitate the movement of goods and people. According to Emmanuel Opoku, the CEO of the Ghana Railway Development Authority, “We want to upgrade the lines and move from narrow gauge to standard gauge. We’re getting $500m from the CDB to reconstruct the western line, and think it will take about three years to complete, starting in 2012. We have already done the feasibility study on this.” The Ghana Railways Development Authority also plans to upgrade and rehabilitate the central and eastern rail lines, both of which are currently closed. However, despite the injection of capital into the infrastructure sector, funding is likely to remain a significant challenge going forward.
Indeed, while the government is able to broker better loan facilities, rely on donor funding and inject more public revenues into infrastructural development, the country will still require private sector funds and participation across the board to meet all its infrastructural plans. According to a 2012 paper by the World Bank, “Budgetary and efficiency constraints mandate that Ghana further develop public-private partnership (PPP) schemes to meet these investment needs.”
PPP EFFORTS: To date Ghana has found it difficult to implement PPPs. According to Opoku, “Even for infrastructure development, we wanted private participation, but they were not interested.” The country has encountered problems in its attempts to create the requisite environment for PPP development. The government announced a national PPP policy in 2011 that included the introduction of a project development facility to fund appraisal and feasibility studies, a viability gap scheme that will provide funding to support PPP projects that are not commercially viable and an infrastructure finance facility to help raise the long-term local currency financing for private sector partners.
This strategy was given a boost in March 2012 when the World Bank agreed to offer a $30m interest-free loan to the government to support the development of PPPs in the country. Under the project, the World Bank will work with the government to improve the legislative, financial and technical framework “to generate a pipeline of bankable PPP projects”.
CHALLENGES: However, there are significant impediments to the realisation of these goals. According to Lawrence Kumi, the director of road transport services at the Ministry of Transport, “We’re looking at the PPP arrangement but so far it has not been successful because of the long-term investment required. There has not been a single PPP in the road sector yet because of the long period necessary for recouping money.” The World Bank itself has alluded to these challenges, noting the small size of commercial banks compared to the funding needed for large-scale infrastructure projects and the asset liability mismatch between these funding requirements and their short-term deposits. As the World Bank noted, “There is an overall shortage of long-term locally denominated debt financing.”
Nonetheless, with plans for an infrastructure finance facility, the government is confident that private partners will be able to access long-term financing and as such has already earmarked several road projects, including the dualisation of the Accra-Kumasi and Accra-Cape Coast roads, for PPP arrangements. If these projects set a precedent for PPPs, the construction industry could be set to feast on infrastructure contracts for the coming decade. With the government’s additional revenue stream bolstering its borrowing capabilities, infrastructure development is likely to remain at the top of Ghana’s agenda for some time.
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