GHANA: PRIORITIES FOR PUBLIC EXPENDITURES, 1986-88 TABLE OF CONTENTS Page No. COUNTRY DATA SUMMARY AND CONCLUSIONS i I. MAJOR ISSUES FOR PUBLIC EXPENDITURES POLICIES 1986-88 1 - Methodology used for the PER 1 - The Macro-Economic Framework 2 - Resources Likely To be Available 1986-88 4 - Cocoa Sector Policies 6 - Inter and Intra Sectoral Choices for 9 Public Expenditures II. PRIORITIES FOR CURRENT EXPENDITURES 1986-88 13 - Health Sector Expenditures 16 - Education Sector Expenditures 23 - The Government Wage Bill 33 - Subventions 39 III. PRIORITIES FOR PUBLIC CAPITAL EXPENDITURES 43 - Agriculture 47 - Mining 60 Energy 70 Public Sector Industry 89 Roads and Highways 99 Public Transport 106 Telecommunications and Postal Service 116 Water Supply 125 The "Core tt Development Expenditure Program - An Overview 127 IV. ANNEXES - Annex I Summary Statement - Core Capital Expenditure 1986-88 Period - Annex II The "Core/Non-Core" Program - Project Detail - Annex III The Financing of the "Core" Capital Expenditure Program This report is based on the findings of a World Bank Mission which visited Ghana in April-May 1985. The mission members were Shahid A. Chaudhry (Chief of Mission), R. Anderson, T. Allen, G. Billington, F. Bauer, H. Boehm, J. Cole, A. Cilingiroglu, B. Carlson, S. Cruickshank, S. Hafeez, I. Menezes, S. Mathrani, T. Nayar, T. O'Connor, T. Pankaj, D. Reedy, M. Rasheed, H. Schulte and N. Tin. Tariq Husain, R. Hindle, S. Lateef and L. Fox visited the Mission in the field and contributed substantially to the mission's work. Sherry Keith, S. Brushett, B. Ateng and S. Snell also assisted in the completion of this report. GHANA - SOCIAL INIHCATORS DATA SHEET GHANA R~FERgNCL GROUPS (~IGHTen AV~RAGES) la HOST (I'[)ST Rt:CENT r.:S'CL'1ATE) 10 R,;CEST LOll INCO!!f: AfRICA fllDOLE INCOME 196dl!. ~ 197dl!. ESTlMAT~/b SOUT!! OF SAHARA A,'RICA S. Ur' SA!!AllA BllOCATIOIf AIlJUSn:I) E~ROLlMENT RATIOS PRI'!AR't': TOTAL 36.0 64.0 76.0 67.l! 95.7 :!ALE 52.0 73.0 85.0 77 .6 [00.0 FmALE 25.0 54.0 66.0 54.9 83.2 SF.CONDARY: TOTAL 5.0 \4.0 34.0 13.5 17.3 MALE 9.0 21.0 42.0 17.9 25.0 FEMALE 1.0 8.0 26.0 9.1 14.M VOCATIONAL (% Of 5ECO~IlAR:{) 3.3 23.3 1.9 13.2 5.9 PUPIL-TEACM~R RATIO PRL'IAK'i 31.0 }O.O 26.0 1/ 44.~ 41.1 SI::CONDARY 16.0 JJ... 17.0 20.0 1/ 27.4 25.5 CONSlI41'TlOIi PASSENGER CARS/THOUSA/lD POP 3.0 4.6 6. a !.£. 3.<1 20.8 RADIO RECEIVERS/THOUSAND POP 42.a 81.6 170.9 55.8 107.8 TV RECEIVERS/THOUSAND POP 0.1 .!Jl. 1. ':I 5.9 2.6 20.8 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUS~~D POPULATION 29.9 58.0 30.9 Id 5.0 18.4 CINF.HA A.~UAL ATTENDA.~CE/CAPITA 1.6 2.2 0.4 /d 0.5 0.4 LA eo R FOICE TOTAL LABOR FORCE (THOUS) 2931.0 3424.0 4522.0 fE!'tALE (PERCENT) 42.6 42.1 41.3 34.2 36.2 AGRICULTURE (PERCENT) 64.0 58.0 53. u Ie 17.5 54.5 INDUSTRY (PERCENT) 14.0 17 .0 20.0 Te 9.7 18.3 PARTICIPATION RATE (PERCENT) TOTAL 42.9 39.7 35.6 39.3 36.8 !'tALE 50.0 46.6 42.1 50.9 47.1 FE!'1ALE 36.0 33.0 29.4 28.1 27.2 gCONO'!IC DF-PENDENCY RATIO 1.1 1.2 1.4 1.3 1.3 INCOHE DISTRIBUTION PEll.CENT OF PRIVATE INCOME RECEIV~D BY HIGHEST 5% OF HOUSEHOLDS HIGHEST 20% OF HOUSEHOLDS LOI'EST 2Q% UF HOUSEHOLDS LO~~ST 40% OF HOUSEHOLDS POVBRTY TAlGBT CROUPS STI~TED ABSOLUTE POVERTY INCO'!E LEVEL (US$ PER CAPITA) URSA:1 307.0 Ii 165.5 5~0. 7 RURAL 150.0 Ii 95.0 275.3 ESTL'IATEl) RELATIVE POVERTY INCOHE LEVEL (!iSS PER CAPITA) URlIA."; 156.0 Ii 113.1 545.6 RURAL 130.0 71 67.6 201.1 ESTL'!ATED POP. BELOU A8S0LUTE POVERTY It/COKE LEVEL (r.) URBAN 36.6 RURAL 61.8 NOT AVAILABLE NOT APPLICABLE NOT ~ S l..!. The grwp averages for each indicator are population-wu1ghted aritlaetic "",,,ns. Coverage of countries among the indicators depend. on availability of data and is not uniform. Unless otherwise noted. ttData for 1960" refer to any year between 19,~ and 1961; "Data for 197011 between 1969 and 1971; and data for "Most Recant Estimate" bet"",en 1981 and 1983. 1977; J.! 1979; J.!.. 1980; !i. 1962; .!.J. Public education only; .!Jl. 1964; l!. 1978. 1/ 1984. Mission Estimates. JU~E, 191:15 DEFINmONS OF SOCIAL INDICATORS NOles: Although the data are drawn fr~m sources gen~rally judged the most authontative and rehabl~. ~t should .:llso be noted that they may not be internationally comparable because of the lack of standardized definitions and con~epts used by dIfferent countnes tn collecting the data. The data are, nonetheless, useful to describe orders of magnitude, indicate .rends. and .:hara,teIlZe certam major dIfferences between countnes. The reference groups dre (I) the same country group of the subject country and (2) a country group with somewhat higher ave.:age income than th~ :ountry group of the subject count,,· ,except f"r "HIgh Income Oil E,porters" group where "Middle Income North Afnca and MIddle East IS cho>en because of >Ironger socio.cultural affinities). In the reference group data the averages are population weIghted amhmettc means for each md"ator a~d shown only when maJ.om~ of the countrie. on a group has data for that indicator. Since lhe coverage of counlries among the indicators dependson the availab,lny of data and IS not UOIform. caution must be e;;:ed::>. m!Clr Dl!l!t;;. !i',e:>wd" "InU total popUlation by ld 135.3 17.8 Imp::n:ts c. i. f · 571 627 Residual Oil. 31.5 4.1 T.inber 28.7 3.8 Invis:ibles (Net) -284 -225 Electricity 9.9 1.3 Services -280 -227 Manganese 8.1 1.1 Transfers -4 2.0 D:iaoond 7.3 1.0 All Other Goods 10.7 1.4 CUrrent Balance -415 -286 Capital Accounts Total 100.0 Grants 114 141 Official. Capital (Net) 67 88 EXIERNAL DEB!, DECEMBER 1983 Private Capital (Net) 45 59 Arrears' Pa~nts -34 -70.0 US$ Mil. wernli Balance 2/ -243 -121 Total CAltstanding and Disbursed MM.T 1,095.1 Gross International Total CAltst:andiI'.g and Reserves (Eni of Period) 214 391 Disbursed inc. short-teon 1,3iO.9 DEB! SERVICE RATIO FOR 1984 31 February 1973 - June 18, 1978 Total CAltstanding ar.d US$1 == ~1.15 Disbursed MM.T 34.8 Total CAltstanding and Since Aug. 26, 1978, US$1 = '/, 2.75 Disbursed inc. payment arrears 46.5 Since April 21, 1983, US$1 == '/,24.692 Since Oct. 10, 1983, US$l == rt30.oo IBRD/IDA LTh"DIN:; (Decerrber 31, 1984) Since March 25, 1984, US$1 = 1t35.oo Since August 25, 1984, US$l = rt38.50 IBlID IDA Since Dece:rber 3, 1984, US$1 == ¢S0.00 Since April 19, 1985, US$l == '/,53.00 CAltstanding & Disbursed 125.40 187.70 Un:lisburse.d 8.39 194.37 CAltstanding, incl. Unlisbursed 133.79 382.07 11 Provisional estimates subject to change. 21 Includes errors and anissions. 31 As % of exports of goods and non-factor services. July 1985 Summary and Conclusions Introduction i. A World Bank Public Expenditure Review (PER) Mission visited Ghana between April IS-May 15. 1985 to provide support to the Government in its task of preparing a public expenditure program for 1986-88. During the mission's discussions with the Ministry of Finance i t was indicated that the Government would prepare a formal Development Plan for the period which could be presented to the Consultative Group for Ghana in November 1985. It was accordingly agreed that the PER Mission would prepare appropriate draft documents in the field which would be transmitted to the Government by mid-May 1985. The PER Mission would then continue with further work at headquarters and through selective additional sector and program missions and transmit a more comprehensive report to the Govenment in August 1985. The Government on its part would constitute a formal working group in May 1985 to begin work on a draft 1986-88 Development Plan. This Development Plan was expected to be completed by end September 1985. i1. An Aide-Memoire setting out the preliminary findings of the May 1985 PER Mission was presented to the Government in May 1985. Field reports prepared by secto specialists (essentially draft working papers of the mission) were also attached to this Aide-Memoire. These documents as well as further additional reports on Ghana prepared by Bank sector specialists form the basis for this more comprehensive report. iii. The major issues in public expenditure policy for the period 1986-88 relate to: (a) The aggregate volume of resources likely to be available for public use (and particularly prospects for increased domestic resource mobilisation and increased foreign assistance); (b) Cocoa sector policies (primarily the percentage of cocoa export receipts to be passed on to farmers i.e ·· the effective export tax on cocoa and the appropriateness of activities being carried on by the Cocoa Board using the resources of the cocoa sector); (c) Inter and intra-sectoral choices for public expenditures which involve primarily judgements relating to the state of the education and health sectors and appropriateness of present levels of public expenditures in these areas; the public costs of an efficient administration system and the need for upgrading public sector salaries and maintaining a reasonable level of establishment costs; the level and rational of subventions (grants) to local governments. Boards and Authorities and private agencies; and the level and composition of capital expenditures to be undertaken by the Government directly and by public coprporations and agencies. Methodology Used for the PER iv. Macro-economic and sectoral strategy and resource availability issues were examined through alternative macro-economic projections made by an overlapping economic mission. The macro-economic and public finance projections used in this report are those developed as a possible 11 policy scenario for Ghana for the 1986-88 period by the economic mission }j. v. Cocoa sector analysis was based on a review of the Cocoa Board Budget for 1985 and projections for later years with a view to determining appropriate levels of cocoa producer prices and cocoa export taxes. The preliminary conclusion reached in this regard is that the recent increase in cocoa producer prices -- which increases the farmers share from 26-28 percent to 50 percent -- should be maintained. It may be possible also for the Government to retain its current share (about 35 percent) of cocoa export proceeds if the share being appropriated presently by the Cocoa Board could be reduced (from 36 to 15 percent) through streamlining and elimination of subsidy programs. A further detailed exercise needs to be carried out by the Government to examine the entire question of producer prices, farmers supply responses, appropriate levels of export tariffs and the requirements of a slimmed down Cocoa Board. vi. The current expenditures options open to the Government were examined through an assessment of the requirements of the health and education sectors after increased cost recovery (with mission sectoral specialists balancing needs against possible absorptive capacity limitations). the need to upgrade public administration through a higher and more selective salary structure (analyzed through a review of Civil Service employment and incomes policy by the overlapping economic mission). and requirements for subventions (particularly of the health, education. local government and water supply sectors). vii. Capital expenditure options were examined through an evaluation of sectoral strategies and an economic and financial analysis of almost all large programs and projects indicated to the mission (159 in number) including calculation of economic rates of return on capital investments in agriculture, mining, petroleum exploration, refining and distribution, roads and highways, railways and ports; domestic resource cost and financial analysis of public sector industrial activities to determine appropriateness of rehabilitation, modernisation and balancing investments; internal financial rate of return analysis for water supply proj ects and minimum supply cost and break-even energy analysis for electricity projects. In some cases, however, time and unavailability of data did not permit further detailed analysis and preliminary judgements were made by mission sector specialists on the economic viability of a program or project, pending further work. viii. The possible "core" capital investment program resulting from the analysis of large programs and proj ects was made internally consistent through examination of both the public corporate and direct government 1..1 "Structural Adjustment Issues in Ghana l1, World Bank Economic Mission, April/May 1985. iii sector with regard to the need for and availability of financial resources (both domestic and from foreign capital). The financial surpluses (or deficits) of public corporations were taken into account in this regard and the options for increased cost recovery examined (particularly for the roads and highways, posts and telecommunications sectors). Resources Likely To Be Available for Public Expenditures 1986-88 ix. Total resources likely to be available for public expenditures for the 1986-88 period are estimated at V!254 billion ($4.5 billion) 2/ compared to V!70 billion ($1. 2 billion) likely to be available in 1985. Receipts from taxes on all transactions except cocoa are projected to increase by 35 percent in real terms for the period 1986-88. While this will require a substantial revenue mobilisation effort there does exist considerable scope for increasing revenues mobilisation - particularly customs duties (where the effective duty on non-oil imports averages about 13 percent), sales taxes, excise duties and income taxes on the self-employed. Government receipts from cocoa are projected to increase by 18 percent over the period 1986-88, primarily as a result of increased cocoa sales from an estimated 175,000 tons in 1985 to an expected 230,000 tons in 1988 (an increase of about 30 percent) and through a drastic slimming down of the Cocoa Board (presently under way). The increase in cocoa sales projected requires a substantial effort in cocoa procurement by the Cocoa Board (which should be assisted by the recent price increases which will reduce smuggling to CFA countries) as well as increased production through rehabilitation of cocoa farms. Foreign capital inflows (both loans and grants) over the 1986-88 period are assumed to be roughly at the same level in current terms as in 1985. The estimate of total gross inflows for the period is $1640 million, current prices (or $1470 million, constant 1985 prices). The gross foreign inflow in 1985 is estimated at $550 million. Principal repayments on foreign debt are estimated at ~31.18 billion ($547 million) for the 1986-88 period. Total resources available for both current and capital expenditures over the 1986-88 period are therefore likely to be about V!223 billion ($3.91 billion) or about (/,74 billion ($1.3 billion) per annum. This compares with the corresponding amount of (/'56.2 billion ($986 million) in 1985. The increase in public resources likely to be available during 1986-88 is not very substantial and these resources would therefore have to be husbanded very carefully in order to attain the Government's growth and efficiency objectives for the economy. The Possible Current Expenditure Program, 1986-88 x. An Overview: A possible current expenditure program for the period 1986-88 was derived by the mission (as mentioned earlier) through an 1/ Projections for resource availability and resource use throughout this report are in constant 1985 prices (exchange rate of $1 = ~57). iv analysis of the wage and non-wage requirements of the Government (excluding corporate) sector. the need to euhci.llCe education and health facilities and the prospects for increased cost recovery in health and education. xi. The overall level of current expenditures proposed for 1986-88 (~128.6 billion) is 17 percent higher as an annual average than the 1985 level (~36.5 billion). The non-discretionary items -- pension payments and interest payments are estimated at ~6 billion and ~19.2 billion respectively (an increase of about 27 percent over 1985 levels). The wage bill (Item I in the Current Expenditure Budget) is proposed to increase in real terms by 35 percent to ~43.2 billion in accordance with the recommendations of the May '85 Economic Mission and the findings of the PER Mission on wage requirements in the health and education sectors. The non-wage bill (Items 2-5 in the Current Expenditure Budget) is estimated at ~43.6 billion for the period 1986-88. this is about 23 percent higher than 1985 budgeted levels. This non-wage bill is net of cost recovery in the health and education sectors (estimated at ~3. 025 billion). Given the fact. however. that the non-wage (Items 2-5) part of the Current Expenditure Budget has always been strictly controlled by the Government and actual expenditures in 1983 and 1984 on these items were about 25 percent of budgeted levels. the increases in expenditures envisaged will be substantial. Adequate provision has also been made to meet the wage and non-wage requirements of the health and education sectors. xii. The current expenditure program places emphasis on health and education and the needs of the public administration system. Total expenditure on health are projected to increase to ~16.12 billion (excluding cost recovery of ~2. 23 billion) -- an increase of 60 percent over the budgeted 1985 level of ~3.35 billion. In education the increase is more modest. Total expenditures are projected at ~23.78 billion (excluding cost recovery of ~0.8 billion) -- an increase of 12 percent over the budgeted level of ~7.05 billion. However. the 1985 budget (like earlier budgets during 1983 and 1984) is likely to be over-optimistic on the current expenditure side with regard to non-wage expenditure (Items 2-5 in the Budget) which amount to roughly 40 percent of the total. The amounts proposed therefore for health and education during 1986-88 represent a large increase in the volume of resources to be delivered to these sectors. xiii. Another significant feature of the proposed current expenditure program is the emphasis on restoring the viability and efficiency of the public administration in Ghana. This would be accomplished by: (i) a complete freeze on all hiring in support category positions during 1986-88 and (ii) by appropriate wage increases to encourage productivity, particularly at the higher levels where wages have been severely eroded. Government wage costs are presently estimated at ~10.6 billion. The number of Government employees is estimated at 291.000 (excluding defense personnel). The Government is actively considering a new grading structure which would increase the annual wage bill to ~15. 33 billion. The 1985 Budget has a provision of ~11.5 billion for Item 1 (wages and salaries) so there is some doubt whether this reform can be implemented in the present year. The v PER mission suggests the new grading structure should be introduced with a Tax Relief Program which would widen the differential in take home salaries between the various categories of civil servants from the present 2:1 ratio between the highest and lowest grade to at leaast a 3:1 ratio. The total cost of the new structure is estimated at ~15. 5 billion. The Current Expenditures projections for Item I expenditures are based on these new costs and total ~43.2 billion. The Possible Capital Expenditure Program 1986-88 xiv. A possible "large proj ect" capital expenditure program for the period 1986-88 was built from the "bottom-up" by reviewing sectoral strategies and programs and assembling information on all maj or programs and proj ects for the '''economic'' sectors (agriculture, mining, fuel and power, roads and highways, communications, water supply). Since the total program indicated was substantially larger than the volume of resources likely to be available for large projects in these sectors, the concept of a possible "core" program was used to bring capital expenditures into line with likely resource availability. Projects and programs were included in the "core" category on the basis of their economic viability. "Economically viable" proj ects or programs were defined as those having adequate economic rates of return (greater than 15 percent in most cases), DRCs' less than 1 for industrial projects, IRRs' greater than 15 percent for water supply projects. However, the mission's technical specialists applied practical judgements agains these mechanical numbers, and projects/programs having a somewhat lower rate of return were included in the "core" program i f in their view they had substantial non-quantifiable externalities. xv. A total of 159 programs/projects were evaluated and of these 104 made the "core" category. This surprisingly high number of apparently viable projects/programs reflect the essential rehabilitation and maintenance requirements of the economy and the fact that most projects/programs proposed are geared towards this requirement. With high existing sunk costs, rates of return on incremental investment are accordingly high. The total capital expenditure program for large projects/programs amounted to ~99.8 billion ($1.75 billion). The possible "core" large project program indicated at this stage of the PER review amounts to ~69.5 billion ($1.22 billion) of which ~42.8 billion ($751 million) is in the Corporate Sector and ~26.7 billion ($468 million) is in the direct Government Sector. The total Government share of these capital expenditures (i.e. excluding self financing by public corporations estimated at about (t12.4 billion - $218 million) is financed through the Development Budget, direct net lending to public corporations and authorities, foreign capital onlent to Government ministries and foreign capital onlent to public corporations and authorities. The requirement for these funds is about (t57 billion ($1 billion) which is well within the amount available for the purpose. However, requirements of government direct lending to the public sector will exceed availability of local resources and untied foreign capital counterpart funds will have to be used vi extensively to fill this gap. This also reflects the fact that many of the projects in the "core" program have yet to seek foreign capital financing. xvi. The agricultural "core" expenditure program of ~12. 76 billion ($223 million) involving 16 major programs/projects focuses on restructuring and rehabilitation of the agricultural ·sector. Ongoing high cost schemes -- particularly irrigation and the Northern Region Integrated Development Proj ect -- are proposed to be rationalised as quickly as possible. The only major new projects coming on stream in this period in the presently identified "core" program will be aimed at reinforcing existing institutional structures in the agricultural (including the cocoa) sector. The associated policy frame-work focuses on adequate price incentives for farmers, agricultural research and privatisation of certain activities (e.g., fertilizer distribution). xvii. In mining. the "core" investment program amounts to t;Z10.S billion ($184 million) spread over the five major mining companies. Strictly speaking, all the projects are rehabilitation projects. Increases in capacity envisaged till the end of the programming period (1988), whilst substantial, would still leave Ghanaian production in all mining sectors well below levels achieved in the early 1970 IS. The associated policy frame-work focuses on encouraging modernization through technical assistance and where possible. collaboration with international mining companies. The two gold mines (Ashanti and SGMC) and the bauxite mine (GBC) will in fact be managed by international technical partners during this period. It is also proposed that measures be taken to encourage local private sector participation in gold and diamond mining beyond the limited levels currently permitted and to bring into the official system the vast quantities of gold and diamonds which are privately mined and smuggled out of Ghana. xviii. The energy sector with 19 proj ects and a "core" investment program of ~10.9 billion ($191 million) is the only sector where major additions to capacity are envisaged. These occur in petroleum and primary electricity generation and distribution. In the petroleum sector it is proposed that this new capacity creation should, with the exception of the Tar Sands Development, be entirely undertaken in collaboration with international or other national oil companies -- with the Government either taking up an equity share or putting in "seed money". In primary electricity generation and transmission the new capacity is in combustion turbines (to supplement hydro-generation) and in putting in the third transmission circuit to CEB for electricity exports. In petroleum refining and distribution and in electricity distribution (which together accounts for about t;Z4 billion or about 37 percent of the energy sector program) all investments are in rehabilitation of capacity. xix. The public sector industry "core" program of t;Z1.97 billion ($331+ million) over 19 projects is entirely rehabilitation. The associated policy frame-work emphasizes financial autonomy and support for viable enterprises and rationalisation of state involvement in economically and financially non-viable enterprises where no prospects exist for their being turned vii around. The roads and highways, transport and communications and water supply "core" programs totalling ~33. 3 billion ($584 million) focus on rehabilitation of existing systems (with marginal additions of feeder roads and rural water supply). The policy emphasis here is on enhanced cost recovery to enable the systems to be maintained in the future. xx. While the "core" program of large projects in each sector is expected to comprise the bulk of new investments 1n the sector, it should not be considered to be the entire sectoral program. A small number of programs/projects have not been included in the "core" program for the sector concerned because of insufficient information, because the timing was uncertain, or because of doubt about the absorptive capacity of the sector to deal with them over the period 1986-88. These programs/projects covering almost all sectors need to be studied carefully and added to the "core" program if justified on economic grounds and if resources are determined to be available for the sector. This also applies to programs/projects which were not fully developed at the time of the mission. Conclusions xxi. The Government of Ghana's assessment that the present situation is appropriate to launch a Three Year Development Plan covering the 1986-88 period appears timely. While the Ghanaian authorities have been understandibly preoccupied in the recent past with the stabilisation and rehabilitation needs of the economy (the Economy Recovery Program), it is now appropriate to look ahead to steady and disciplined growth in a medium-term perspective. Within this context it appears that high priority must be assigned to rebuilding the public administrative sector and arresting and reversing the apparent decline in the health and education sectors. While resources available for this purpose are limited, an appropriately focussed program in these sectors stressing efficiency. high standards of services and cost recovery should be feasible to implement over the next three years. With regard to the more traditionally defined capital investment program for the period 1986-88. Ghana is fortunate in having in hand a large number of economically attractive projects which should be financed with both domestic and foreign capital. However, a closer look than that undertaken in this PER Mission is warranted for all major projects and a pipeline of additional viable programs/projects needs to be developed. This is expected to be undertaken in the context of the Ghana Development Plan for 1986-88 currently under preparation. PART I MAJOR ISSUES IN PUBLIC EXPENDITURE POLICIES, 1986-88 The Issues 1.01 The major issues in public expenditure policy for the period 1986-88 relate to (a) The aggregate volume of resources likely to be available for public use (and particularly prospects for increased domestic resource mobilisation and increased foreign assistance); (b) Cocoa sector policies (primarily the percentage of cocoa export receipts to be passed on to farmers i.e. the effective export tax on cocoa and the appropriateness of activities being carried on by the Cocoa Board using the resources of the cocoa sector; (c) Inter and intra-sectoral choices for public expenditures which involve primarily judgements relating to the state of the education and health sectors and appropriateness of present levels of public expenditures in these areas; the public costs of an efficient administration system and the need for upgrading public sector salaries and maintaining a reasonable level of establishment costs; the level and rationale of subventions (grants) ·to local governments, Boards and Authorities and private agencies; and the level and composition of capital expenditures to be undertaken by the Government directly and by public corporations and agencies. Methodology Used for the PER 1.02 Macro-economic and sectoral strategy and resource availability issues were examined through alternative macro-economic projections made by an overlapping economic mission. The macro-economic and public finance projections used in this report are those developed as a possible policy scenario for Ghana for the 1986-88 period by the economic mission l/. 1.03 Cocoa sector analysis was based on a review of the Cocoa Board Budget for 1985 and projections for later years with a view towards determining appropriate levels of cocoa producer prices and cocoa export taxes. The preliminary conclusion reached in this regard is that the recent increase in cocoa producer prices - which increases the farmers share from 26-28 percent to 50 percent - should be maintained. It might be possible also for the Government to retain its current share (about 35 percent) of cocoa sale proceeds if the share being appropriated presently by the Cocoa Board could be reduced (from 36 to 15 percent) through streamlining and elimination of subsidy programs. A further detailed exercise needs to be carried out by the Government to examine the entire question of producer prices, farmers supply responses, appropriate levels of export tariffs and the requirements of a slimmed down Cocoa Board. l/ IIStructural Adjustment Issues in Ghana", World Bank Economic Mission, April/May 1985. - 2 - 1.04 The current expenditures options open to the Government were examined through an assessment of the requirements of the health a.nd education sectors after increased cost recovery (with mission sectoral specialists balacing needs against possible absorptive capacity limitations). the need to upgrade public administration through a higher and more selective salary structure (analyzed through a review of Civil Service employment and incomes policy by the overlapping economic mission). and requirements for subventions (particularly of the health. education and local government sectors). 1. 05 Capital expenditure options were examined through an evaluation of sectoral strategies and an economic and financial analysis of all large programs and proj ects indicated to the mission (159 in number) including calculation of economic rates of return on capital investments in agriculture. mining. petroleum exploration, refining and distribution. roads and highways, railways and ports; domestic resource cost and financial analysis of public sector industrial activities to determine appropriateness of rehabilitation, modernisation and balancing investments; internal financial rate of return analysis for water supply projects and m~n~mum supply cost and break-even energy analysis for electricity projects. In some cases, however. time and unavailability of data did not permit further detailed analysis and preliminary judgements were made by mission sectoral specialists on the economic viability of a program or project. These judgements need to be confirmed or denied by further work which is expected to be undertaken both in the Bank and in Ghana. While the "core" program of large projects in each sector is expected to comprise the bulk of new investment activities in the sector. it is of course, not the entire sectoral program. These comprehensive sectoral programs are expected to be developed in the context of the Ghana Development Plan for 1986-88 currently under preparation. 1.06 The possible "core" capital investment program resulting from the analysis of large programs and proj ects was made internally consistent through examination of both the public corporate and direct government sector with regard to the need for and availability of financial resources (both domestic and foreign). The financial surpluses (or deficits) of public corporations were taken into account in this regard and the options for increased cost recovery examined (particularly for the roads and highways, posts and telecommunications sectors). The Macro-Economic Framework 1.07 The macro-economic outlook for the 1986-88 period developed by the Economic Mission as a possible policy scenario is based upon a strategy of completing a major structural adjustment of the economy through the 1986-88 period largely by correcting the incentive framework for the productive sectors (through exchange rate, trade and tariff policy adjustments) and by mobilising additional resources for investment in the public and private sectors. - 3 - 1.08 A sustained growth rate of about 5 percent per annum is envisaged for the period 1986-88. The impetus for this growth will come from both the private and public sector. Private sector investment (which comprises about 70 percent of the investment in the economy) is programmed to grow at 4.7 percent per annum. This will be a considerable achievement, and will require both a substantial further liberalization of the economy as well as ensuring that private sector savings are not diverted to the public sector (as has been the case in the past). A flow of funds exercise undertaken by the economic mission indicates that this objective is viable and that sufficient funds through domestic resource mobilization and external assistance would be available to meet the economically warranted expenditures of the public sector. Public sector investment expenditure would grow at 6.4 percent per annum. 1.09 Sectoral growth rates reflect the combined effects of both more appropriate incentive policies and the higher levels of investments planned. A growth rate of 4.4 percent per annum in agriculture is envisaged -- largely driven by increased production of cocoa and food and other tree crops. The cocoa strategy, discussed in greater detail below, is driven by restoring incentives to cocoa farmers and by giving consistent long term signals that a fair share (at least 50 percent) of the world price would be passed on to them. The program for the rest of agriculture is also based upon appropriate incentives to farmers (largely by doing away with erratic quantitative restrictions on imports and instead imposing a proposed 20-30 percent tariff on agricultural imports 2/ and by economic investments in the sector focussing on appropriate technological packages and delivery mechanisms. An industrial growth rate of 8.6 percent per annum is built upon a revitalisation of the large private sector (and rehabilitation and consolidation of the much smaller public sector) through app~opriate incentive policies (largely trade policy reform and replacement of quantitative restrictions on industrial imports by a doubling of related tariffs from 30 to 60 percent) and provision of foreign exchange for current imports and rehabilitation of capacity. The transport and communications sector is expected to grow at about 5.0 percent per annum largely through expanded investments in infrastructure and transport equipment. This will in large part provide the under-pinning for the growth of the economy in general and the export sector in particular. Services are expected to grow at a relatively modest 4.5 percent per annum, reflecting economic discipline but also ensuring that the essential requirements of the economy, particularly in fuel, power, water supply, health and education are met. Exports are expected to show sustained growth (10.6 percent per annum), largely in cocoa, timber and mining -- the latter two being rehabilitated through appropriate investments. This, in conjunction with a more modest but appropriate import growth rate (5.4 2/ The exact exchange rates/tariffs required to provide ~ppropriate incentives to agriculture are currently being studied. - 4 - percent per annum). should set the economy well on the way towards self-sustained growth. - - - - Actual - - - Est. Projected 1981 1982 1983 1984 1985 1986-88 GrONth Rates (Constant 1975 Prices) GOP at Market Prices - 3.2 - 7.7 0.7 6.7 4.9 5.0 Agriculture - 2.6 - 6.7 - 1.5 9.4 5.3 4.4 Industry -14.5 -16.7 - 2.7 3.5 6.0 8.6 Transport and Camun:i.cations 6.8 1.1 7.3 3.0 4.0 5.0 Services 0.6 - 6.7 5.5 3.7 4.1 4.5 Exports (GNFS) -20.4 16.8 -15.0 17.8 26.4 10.6 ~rts (GNFS) 10.9 -34.1 24.3 6.3 23.2 5.4 Other Indicators Fixed Invest:m:mt (% of CDP) 3.1 2.0 4.0 6.3 8.5 11.0 Public Invest:m:mt (% of CDP) 2.7 3.8 6.4 Private Invest:m:mt (% of CDP) 3.5 4.5 4.7 Current Accoont Balance (% of CDP) - 1.9 - 0.6 - 3.3 - 3.5 - 4.3 - 5.0 EXports GNFS (% of CDP) 2.7 2.1 4.4 6.4 7.4 7.9 Imports (NFS (% of CDP) 4.2 2.2 6.S 8.6 9.7 9.5 C'.onsum:!r Prices (rate of change (%» 116.5 22.3 122.8 35.0 25.0 15.0 Resources Likely To Be Available for Public Expenditures 1986-88 Tot81 resources likely to be available for public expenditures for the 1986-88 period are estimated at ~254 billion ($4.5 billion) 3/ comparea to ~70 billion ($1.2 billion) likely to be available in 1985- (Table 1.2). Of these Government revenues are estimated to contribute about ~161 billion ($2.8 billion) divided between taxes on all transactions except cocoa (~133 billion) and taxes on cocoa (~28 billion). Other financing is estimated at ~93.8 billion ($1.65 billion) comprising foreign loans and grants ~83.8 billion ($1.47 billion) and net public sector borrowing from the banking system of ~10 billion ($0.18 billion). 1/ Projections for resource availability and resource use throughout this report are in constant 1985 prices (exchange rate of $1 = ~57). - 5 - TABLE 1.2: PROJECI'ED PUBLIC SEcrOR Bl.JIXjEI (1984 and 1985 OJ.rrent Prices, 1986-88 Constant 1985 Prices Est. 1984 ktual 1985 Budget 1986-88 Projected I/M:l (%) I/M:l (%) I/M:l (%) I. Total Resrurces Available (II + III) 38,083 100 69,916 100 254,317 100 II. Goverrm:mt Revenues 21,727 57 38,109 55 160,535 63 1. Taxes non-cocoa 17,929 (47) 30,170 (43) 132,385 (52) 2. Tax on Cocoa sector 3,798 (10) 7,939 (12) 28,150 (11) III. Other Financing 16,356 43 31,807 45 93,782 37 1. Foreign Loans 7,575 (20) 23,142 (33) 64,182 (25) 2. Bank Borrowing 3,028 ( 8) 3,250 ( 5) 10,000 ( 4) 3. Grants 5,078 (13) 5,415 ( 7) 19,600 ( 8) 4. Other 657 ( 2) ( -) ( -) IV. Total Expenditure 38,083 100 69,916 100 254,317 100 1. OJ.rrent Fxpenditures 22,700 60 36,535 52 128,585 Sf (wages - Item 1) ( 5,055) (13) (11,459) (16) (43,239) (17) (Pension and Sever~ ( 988) ( 3) ( 1,810) ( 3) ( 6,000) ( 2) Payne:1ts) (Non-W:!ges Itans 2-5) (10,447) (27) (11,856) (17) (43,546) (17) (Interest Pa.ytIEllts) ( 3,425) ( 9) ( 4,786) ( 7) (19,219) ( 8) (Subventions) ( 2,785) ( 7) ( 6,624) ( 9) (16,581) ( 7) 2. Capital ElKpenditures 10,960 28 19,644 28 94,552 37 Govem:nent Direct Dev. EXpenditure 4,856 12 11,975 17 74,754 29 (fudget) ( 3,994) (10) ( 8,025) (11) (45,535) (18) (Net Lending to Public Sector) ( 862) ( 2) ( 3.950) ( 6) (29,219) (11) Project Aid 6,104 16 7,270 (10) 19.798 ( 8) 3. Principal Repaytrents on Foreign Debt 4,423 12 13,737 20 31,180 12 (Fran Budget) ( 3,257) C§) ( 6,196) C"9) (-) (-) (Direct Public Sector) ( 1,166) ( 3) ( 7,541) (11) (-) (-) - 6 - 1.11 Receipts from taxes on all transactions except cocoa are proj ected to increase by about 40 percent in real terms for the period 1986-88. This will require a substantial revenue mobilisation effort. The report of the May '85 Bank Economic Mission indicates that scope for increased revenue mobilisation exists in several major areas - particularly customs duties (where the effective duty on non-oil imports averages about 13 percent), sales taxes, excise duties and income taxes on the self-e~ployed. i/ 1.12 Government receipts from cocoa are proj ected to increase by 18 percent over the period 1986-88, primarily as a result of increased cocoa imports from an estimated 175,000 tons in 1985 to an expected 230,000 tons in 1988 (an increase of about 30 percent) and through a slimming down of the Cocoa Board (presently under way). The increase in cocoa sales projected requires a substantial effort in cocoa procurement by the Cocoa Board (which should be assisted by the recent price increases which will curb smuggling to CFA countries) as well as increased production through rehabilitation of cocoa farms. This is discussed further below. 1.13 Foreign capital inflows (both loans and grants) over 1986-88 period are assumed to be roughly at the same level in current terms as in 1985. The estimate of total gross inflows for the period is $1640 million, current prices (or $1470 million, constant 1985 prices). The gross foreign inflow in 1985 is estimated at $550 million. Principal repayments on foreign debt are estimated at ~31.18 billion ($547 million) for the 1986-88 period. 1. 14 Total resources available for current and capital expenditures together over the 1986-88 period are therefore likely to be about ~223 billion ($3.91 billion). This compares with the corresponding amount of ~56.2 billion ($986 million) in 1985. The increase in public resources likely to be available during 1986-88 is not very substantial and these resources would therefore have be husbanded very carefully in order to attain the Government's growth and efficiency objectives for the economy. Cocoa Sector Policies 1.15 Given the pre-eminence of the cocoa sector in Ghana (10 percent of GDP, 70 percent of merchandise exports), cocoa sector policies have important implications for the economy and for public expenditure. Three sets of policies are particularly important in this regard, viz: (i) cocoa producer price, i.e. the gross return to farmers; (ii) marketing margins, i.e. the gross return to the Cocoa Marketing Board; and (iii) cocoa export taxes, i.e. cocoa sector-related Government revenue. i/ "Structural Adjustment Issues In Ghana", World Bank Economic Mission, April/May 1985. - 7 - 1. 16 Cocoa production in Ghana has dropped from an average level of about 400,000 tons per annum in the 1970-75 period to 254,000 tons in 1980 and an estimated 150,000 tons in 1984. The dramatic drop is almost entirely due to neglect of existing trees and non-replanting of aged and diseased trees which in turn appear to be a result of a substantial decline in real producer prices. Real producer prices of cocoa are estimated to have declined by the early 1980's to less than half of the level of the early 1970's (see Table I.3 below). International prices for cocoa do not appear to have been a factor behind the problem - in fact these rose in real terms over a substantial part of the period and even today are above the levels of the early 1970's. TABLE I.3: CXXXlA PRCDUCER PRICE Total y MLG), annual growth rate of internal revenues of 28 percent for the 1986-88 period. A quadrupling of local taxes, immediately, would be required to balance the budget. But to attain a four-fold increase in internal revenues by 1986 will require a major effort in property revaluation and overhauling of municipal finance and budget procedures. Furthermore, requiring councils to use all internal resources on salaries would mean virtual cessation of municipal services and the effective elimination of taxpayer incentive to pay. 2.59 The optimal phasing of increasing the local tax base needs to be investigated further. Therefore while the Ministry of Finance's initiative to encourage local governments to increase their tax base is welcome, it would appear to be prudent to adopt a more phased approach towards elimination of government subventions to local governments to pay their wage bills. The level of subventions programmed for the 1986-88 pEn·iod is based on this assumption. TABLE II.14: REGIONAL CAPITAL DISTRICT COUNCILS REVENUES & EXPENDITURES Alternative 1 Alternative 2 1984 1985 1986-88 1986-88 (~~ (%) (~mn) (%) (~mn) (%) (~mn) (%) Total ExEenditures 400.9 100 442.8 100 1746.0 100 1746.0 100 Paid by District 108.5 27 209.0 47 1102.3 63 1102.3 63 Councils Salaries 78.2 18 608.7 35 608.7 35 Other Current 102.3 25 111.9 25 410.7 24 410.7 25 Capital 6.2 2 18.9 4 82.9 5 82.9 5 Paid bI Government 292.4 73 233.8 53 643.7 37 643.7 37 Salaries 291.3 73 230.7 52 608.7 35 608.7 35 Capital 1.1 0.3 3.1 1 35.0 2 35.0 2 Total Revenues 379.3 95 433.7 98 1693.9 97 1,746.0 100 Local Govt. Sources 94.2 23 116.5 26 448.6 26 1746.0 100 Property Tax 19.6 5 23.7 5 96.2 6 374.4 21 Basic Rate 5.4 1 6.6 1 25.4 1 98.8 6 Licenses & Fees 41.8 10 54.9 12 206.9 12 805.4 46 Other 27.4 7 31.3 7 120.1 7 467.4 27 Govt.(Subvention)/ Deficit 306.7 77 326.3 74 1297.4 74 - 42 - 2.60 Water Supply. The Ghana Water and SewerAge Corporation is charged with the responsibility for development, operation, maintenance and water quality control of urban and rural water supplies and for sewerage and sewage disposal. Its urban schemes cover 132 of 135 towns e. g. 2.5 million people or about 20 percent of the population. Additionally the urban systems serve over 900 rural locations having a catchment of about one million people. Apart from the one million rural, dwellers having access to the urban schemes a further 2.6 million are in receipt of a service making a total of 3.6 million rural dwellers or 28 percent of the rural population being served. At first sight, this appears to be a highly satisfactory situation at least in the urban areas. Unfortunately, this is not the case as many systems have insufficient installed capacity to meet current demands, and in most instances a lack of proper repair and maintenance has resulted in high system losses and frequent breakdowns. Shortage of foreign exchange to purchase spare parts, or even local currency where parts are available locally. has led to plant shutdown for extended periods. Similarly. fuel and chemical are often in short supply or the logistical support is not available to transport them to the regions. This leads to systems being operated intermittently, further reducing already insufficient per capita production as well as adversely affecting the quality of the water produced. Rehabilitation of many of the older systems ia a high priority in future programmes as will be the necessity to augment production capacity in most places if the consumers are to be provided with an adequate level of service. 2.61 GWSC' s finances can be put on a sounder footing only if a proposed 300 percent tariff increase is implemented. However. it is estimated that GWSC will need continued support from the Government in the 1986-88 period even after implementing this tariff increase early in 1986. Total Government recurrent subventions are programmed to be limited to ~1.500 million over the 1986-88 period (or 20 percent of gross operating expenses). While this implies an increase of about 60 percent over current levels. this level of subvention is considered appropriate given the requirements of the system. - 43 - PART III PRIORITIES FOR PUBLIC CAPITAL EXPENDITURES THE POSSIBLE CAPITAL EXPENDITURE PROGRAM 1986-88 3.01 An Overview: The main elements of a possible capital expendi- tureprogram for 1986-88 was derived through examination of the essential rehabilitation needs of the economy and particularly the strategic economic sectors -- i. e. agriculture (including the cocoa and timber export sub- sectors), mining (for exports), and economic infrastructure (fuel and power, transport and communications). Both the immediate and medium-term needs of these sectors were identified and a strategy for maximizing the growth of these sectors within the resources available was developed. The basic methodology used after the sectoral strategies and inter-sectoral linkages were identified was to focus on the larger programs and projects within each sector. These were subjected to technical, financial and economic analysis and a "core" program of viable projects was identified. While this "core" program of large projects in each sector is expected to comprise the bulk of new investment activities in the sector, it is not the entire sectoral program for the economic sectors. The mission did not attempt an aggregate sectoral breakdown even though the "core" program which emerged from the above analysis would absorb (net of self-financing) about 60 percent of the total resources available for public capital investment for the entire economy. As mentioned earlier, this was because considerable further work needs to be undertaken to ensure inter-sectoral and intra-sectoral balance which can only be undertaken in the context of a fuller development planning exercise (currently under way in Ghana). 3.02 The possible "core" capital investment program resulting from the analysis of large programs and projects was made internally consistent through examination of both the public corporate and direct government sector with regard to the need for and availability of financial resources (both domestic and from foreign capital). The financial surpluses (or deficits) of public corporations were taken into account in this regard and the options for increased cost recovery examined (particularly for the roads and highways, posts and telecommunications sectors). Annexure III presents the result of this analysis. 3.03 The overall volume of resources likely to be available for public sector capital expenditures is estimated at ¢94.6 billion ($1.66 billion) for the 1986-88 period. These are expected to be allocated as follows: (i) Government budget - ¢45.6 billion (an increase of 90 percent over the 1985 budget of 1t8.0 billion); (11) Project Aid to government ministries - ¢14 billion (a decline of 10 percent over the 1985 amount of ¢5.2 billion); (iii) Direct lending (non-project) to public corporations of 1t29.1 billion (an increase of 250 percent over the 1985 level of cedis 3.8 billion) and (iv) Project aid to public corporations of 1t5.8 billion ( a decrease of 16 percent over the 1985 level of ¢2. 3 billion). The percentage change in - 44 - allocations is driven by the slight decline in project assistance and increased program assistance (which is in line with the r!=quirements of l:1hana) and the increased emphasis on channeling investments through the public corporations than through government ministries. TABLE III. 1: PUBLIC CAPITAL EJU'OOI'IURES (rt Billion. Constant 1985 Prices) .. Est. - - Projected - - Total 1985 1986 1987 1988 1986-88 . I. Govemnent M:inistries DevelO(.llEI'1t EXpenditures 13.2 16.4 19.6 23.6 59.6 (i) Budget 8.0 12.0 15.0 18.6 45.6 (ii) Project Aid 5.2 4.4 4.6 5.0 14.0 II. Net I..ending to Public Co~rations 6.1 9.6 12.0 13.4 35.0 (i) Proj ect Aid Financed 2.3 2.1 T.8 1:9 5.8 (11) Other 3.8 7.5 10.2 11.5 29.1 I + II. Total Capital EXpenditures 19.3 26.0 31.6 37.0 94.6 3.04 The methodology used for the PER was to treat the public sector as one entity i.e. aggregate both the Government Ministries and the Public Corporate Sector and then look at sectoral strategies and the public investment requirements of each major sector. The review focussed on the larger programs and projects. A possible "large project" capital expenditure program for the period 1986-88 was built from the "bottom up" by assembling information on all major programs and projects for the "economic" sectors (agriculture, mining. fuel and power. roads and highways. communications. water supply). Projects and programs were included in the It core" category on the basis of their economic viability. "Economically viable" projects or programs were defined as those having adequate economic rates of return (greater than 15 percent in most cases). DRC's less than 1 for industrial projects. IRR's greater than 15 percent for water supply projects. However. the mission's technical specialists applied practical judgements against these mechanical numbers, and projects/programs having a somewhat lower rate of return were included in the "core" program i f in their view they had substantial non-quantifiable externalities. 3.05 A total of 159 programs/projects were evaluated for the economic sectors and of these 104 made the "core" category (See Table III. 2). This surprisingly high number of apparently viable projects/programs reflects the essential rehabilitation and maintenance requirements of the economy and the fact that most projects/programs proposed are geared towards this requirement. With high existing sunk costs. rates of return on incremental investment are accordingly high. The total capital expenditure program for - 45 - large projects/programs amounted to 1Z99.8 billion ($1. 75 billi<.:m). The total identified "large project" core program amounts to 1Z69.5 billion ($ 1. 22 billion) of which 1Z42.8 billion ($751 million) were in the public corporate sector and 1Z26.7 billion ($468 million) were in the direct government sector. The total government share of these capital expenditures (i.e. excluding self financing by public corporations estimated at about 1Z12.4 billion - $ 218 million) amounts to ¢57 billion ($1 billion). This is the amount which has to be financed through the Development Budget, direct net lending to public corporations and authorities, foreign capital on1ent to government ministries and foreign capital on1ent to public corporations and authorities. The requirement of government direct lending to the public sector will exceed availability of local resources and untied foreign capital counterpart funds will have to be used extensively to fill this gap. This reflects the fact that many of the projects in the "core" program have yet to seek foreign capital financing. 3.06 Other major issues in public capital expenditure strategy relate to: (i) the appropriate role of the public sector, i.e. are there activi- ties which are currently being undertaken by the public sector which could be better undertaken by the private sector and, if so, what policy actions are required in this regard; (ii) the financial viability of public corporate entities. i.e. the requirements for re-va1uation of assets. increase in equity if required and establishment of safe levels of borrow- ing, cost recovery issues and closing down of unviab1e enterprises. and (iii) the role for increasing technical cooperation to maximize efficiency of public sector institutions. 3.07 Privatization issues are particularly significant in the agricul- ture (including cocoa) and mining sectors; and to a lesser extent in the industry sector. Reform of the public corporate sector including financial viability and revaluation of assets is of general importance -- and is being addressed separately through an indepth study of the sector. However, certain public corporations examined in the course of the PER review reqUire immediate action including rationalization/disinvestment of unprofitable operations (industry) and action on increased cost recovery (transport, communications and postal services). Technical cooperation issues are of major relevance in agriculture (including cocoa, fuel and power, mining and transport and commu~ications. These issues are addressed in the course of the sectoral discussions which follow. - 46 - TABLE III. 2: SlW.ARY STAThlEl'."T SELECl'ED PUBLIC ctU?ITAL EXPENDITURES INDICATED FOR 1986-88 PERIsquito Coil Co. Printing & Paper Prod. NIC Group (9 canpa:nies) P.efrigeration & Hoosehold Co. GF.A Group (4 caxpanies) Distilleries Cannery G:iAMJl' GRaJP (3 caxpanies) Boat Yards Fibre Products Co. Cannery 3.117 The "core" program recommended suggested by the mission focussed on the requirements of the "big six" - Tema Food Complex, Bonsa Tire Co., Gihoc Pharmaceuticals, Gihoc Glass, Gihoc Steel and Gihoc Foundry - as well as thirteen other Gihoc companies which were deemed to be either viable or potentially viable under the above criteria. Major investments included in the "core" comprise ~341 million ($6 million) for the Tema Food Complex for flour milling and animal feed activities (and not for processing smoked fish or further investments in groundnut oil milling capabilities). rt227 million ($4 million) for Bonsa Tire Co. for rehabilitation of plant specifically aimed at a limited range of truck and heavy duty tires. rt705 million ($12.4 million) for Gihoc Pharmaceuticals present ongoing rehabilitation and expansion program 11/, ¢126 million ($2.2 million) for Gihoc Glass to complete installation and balancing of its equipment. ¢181 million ($3.2 million) for Gihoc Steel (,,,ithout continuous casting equipment) and ~194 million ($3.4 million) to complete the Gihoc Foundry. .' In addition ~191 million was included in the possible core for 13 Gihoc companies also deemed to be presently or potentially economically viable (Bottling Co.. Paints. Metal Industries, Paper Conversion, Electronics. Footwear, Ghana Manufacturing, Printing and Paper Production. Refrigeration, Boatyards, Fibre Products, Distilleries and Cannery). Projects excluded from the core include seven Gihoc companies ,(Brick and Tile, Meat Products, Vegetable Oil Co., Asiama Oil Co., Marble Works, A & B 11/ Being financed through a DM33 million credit from KFW. - 91 - Co., Ltd., Mosquito Coil Ltd.) and the entire NIC, GEA and GHAMOT Groups. With the exception of foreign loans already committed, the investment program envisaged is expected to be largely self-financed by the Corporations themselves (Table 111.16). 3.118 Tema Food Complex Corporation (TFCC). The corporation has six food processing units within the complex. In addition, ther.e are cold stores and livestock activities (poultry and pigs). The processing units consist of: (i) flour mill (capacity 75,000 tons, 1984 production 10,820 tons); (ii) animal feeds (capacity 5,500 tons, 1984 production 1,196 tons); (iii) oil mill (capacity 1,920 tons, 1984 production nil); (iv) fish cannery (capacity 29 m tins tuna/7.5 m tins sardine, 1984 production 58,000 tins); (v) fish smoking unit (capacity 400 tons, 1984 production 29 tons); and (vi) fish meal plant (capacity 600 tons, 1984 production 160 tons). Of the above, the most important units are the flour mill and the animal feeds mill. In 1984, these activities accounted for 75% of the total sales. The oil mill does not have a refining process and can only produce un-refined oil. Also with the current shortage of groundnuts available for processing. the unit cannot be operated economically. The shortage of fish for processing makes the fish processing units financially unviable. The productivity of the entire complex has deteriorated because of the old and poorly maintained equipment. Major rehabilitation is required in most sectors of the plants. The grain evacuation system in the floor mill is in urgent need of repair. The company's profit before tax was 8.2 percent of gross income. The low level of profitability is mainly because of losses of some divisions like oil mill and fish canning. 3.119 Domestic resource cost analysis indicates that the operations carried out by TFCC show comparative advantage. However. the present viability of the fish based operations is questionable given the raw material shortages. A feasibility study for the rehabilitation of the complex has been carried out by an Austrian team. The study recommended a programme to rehabilitate all units within the complex at a total cost of $14 million of which $8 million would be the foreign exchange element. In view of the shortage of inputs for the oil mill and fish processing units, it is recommended that rehabilitation should be restricted to the flour mill and animal feeds mill. This would reduce the investment required to $6 million of which $4 million would be in foreign exchange. A loan from the OPEC fund of $6 million is said to be available. 3.120 Bonsa Tyre Company Ltd.. The corporation is involved in the conversion of locally produced natural and imported synthetic rubber into vehicle tires. The rubber process involves compound mixing. bead and tread extrusion and tyre building and moulding. Management and technical expertise was provided by Firestone in a joint venture relationship until 1982 when Firestone pulled out and the Government purchased its share. Bonsa, however, has an agreement to use Firestone moulds till January 1989. - 92 - TABLE III.16: PUBLIC SECIOR INDUSl'RY Th'VESTMENT PRCXiF.AM (~.::::tant 1985 Prices) Total Expenditure Expenditure Foreign Fconanic Program/ Through Proposed F:i.n8ncing Viability Project Decanber 1986-88 Cannitted/Under ERR/DRC/IRR Cost 1985 Negotiation 1986-88 (a'Mn) (a'Mn) (a'Mn) (011) .l. Tena Focxl Canplex - Ir.dicated 713 n.a. 713 318 ("Core") (341) " (341) (318) Fconcmic with suggested invest- ment program 2. Bonsa Tire Co. 506 " 506 Uneconanic as Indicated proposed (''Core'') (227) . " (227) Econanic with suggested invest- ment program 3. GJHOC Phal:maceuticals Indicated 763 " 763 530 Fconcmic ("Core") (705) " (705) (530) Fcor'.anic 4. GIHX: Glass - Indicated 126 " 126 Potentially Fco- nanic ("Core") (126) (126) Potentially Fco- nanic 5. GIHOC Steel-Indicated 482 " 482 Potentially Fco- nanic ("Core") (181) (181) Fconanic II 6. Gmx: Foundry - Indicated 337 337 Potentially Eco- (''Core") (194) (194) nanic 7. Specified 13 Gmx: Co. IS In:licated )j 238 " 238 Econanic, treating ("Core") (191) " (191) previous investment as sunk. costs 8. Ramini:ng 7 GIHOC Co. IS Indicated Y II 159 159 Uneconcmic or (''Core") ( -) " ( -) minor operations 9. NIC Group - Indicated 11 371 " 371 ("Core") ( - ) " ( - ) Uneconanic Sub-Total 3.695 n.a. 3,695 848 (Sub Total ("Core Program")* (1,965) (1,965) (848) 1/ Bottling Co., Paints. Matal Industries, Paper Conversion. Electronics, Foot:vJear, Ghana manufacturing, - Printing and Paper Production, Refrigeration and Household FquiplOOIlt, Boatyards, Filire Products Co., Distilleries, Carmery 2/ Brick and Tile Co;, Maat Products, Vegetable Oil Mills, Asiama Oil Mill, Marble W:lrks, A & B Co. 3/ Replace 3 snail textile mills (¢265 ~.), install Lamp FquiplOOIlt (¢53 Ml.), replace soap - factory (¢53 million) - 93 - 3.121 - Although the nominal capacity of the factory is rated at 450,000 tyres a year, the lack of spare parts and maintenance has reduced feasible capacity to 120,000 tyres. Production has been continually declining in recent years and in 1984 reached a low of units (20% capacity utilization). Production has been constrained by the shortage of foreign exchange to import needed raw materials. spare parts and replacement equipment. The bead making and tread extruders are incapable of producing to an acceptable standard and constitute the major bottleneck to increased production (although the tyre moulding presses. moulds and other production equipment have also deteriorated). Quality control is also poor. There is a lack of trained and skilled manpower and no expertise and facilities for mould manufacture (this used to come from Firestone). The product mix is too wide leading to uneconomic production and over the longer term a major constraint will be the lack of technology for tyre design. The total domestic tyre market is around 500.000 tyres a year. No tyre factory could produce economically the range of tyres constituting this market and there would thus be a need to import substantial quantities of new tyres for the foreseeable future. Profitability has been achieved over the last few years. with net profit before tax in 1984 representing 16% of gross income. Other measures of financial health reveal a satisfactory performance. 3.122 Prices of Bonsafs tyres are currently 16-45% higher than imported duty paid prices. Concentrating a smaller range of tyres. increasing capacity utilization and improving operating efficiencies could lead to significant cost reductions. Bonsa tyres could be competitive with imported tyres at the current levels of duty and an appropriate exchange rate. The domestic resource cost analysis suggests there is no comparative advantage for the production of tyres based on current operating practices even if full capacity production can be achieved. However. a combination of product range rationalization. rehabilitation of equipment and improved technical performance should result in economic viability being achieved. 3.123 A study undertaken by Medi Rubber Ltd of India and Continental Gummi Works of Germany recommended program of rehabilitation to increase the capacity of the factory to 553.000 tyres per annum by 1988. The capital costs of the rehabilitation were estimated to be ~506 million, with a foreign exchange element of $6.3 million. An additional ~132 million was estimated to be required for working capital. The company is seriously considering implementing this program. The capacity proposed for the rehabilitated plan approximates the entire tyre market of Ghana. It is too optimistic to expect that one plant could produce economically the entire range of tyres. A less ambitious rehabilitation program should be embarked upon. As far as it is consistent with the maximum possible use of capacity. Bonsa should plan to produce largely a limited range of truck and heavy vehicle tyres and not try to expand its range of car tyres. The company should also take active steps to buy in a complete tyre design service as well as technical expertise in production. The aim should be to lift output of the limited range of tyres above 200,000 tyres per annum. To enable this to be achieved, ~ new bead line and a new tread extruder are urgent ly required, as well as spare parts for other machinery. New tyre moulding machinery will be required at a later date. - 94 - 3.124 GIHOC Steelworks Co. The company is engaged in the production of mild steel iron reinft.:.'rcing rods (mainly -1/2" and 3/4") and has a theoretical capacity of 30,000 tons per annum. It has two arc furnaces (one with capacity of 15 tonnes/hr and the other 10 tonnes/hr) for melting of scrap to cast billets, then reheated and rolled into reinforcing rods. Oxygen plant for producing oxygen for own use. New oxygen plant with capacity of 90m 3/h soon to be commissioned. Locally available scrap is principal raw material. Imported inputs include refractories and other production consumables. Since establishment, capacity utilization has never been high. Peak production was reached in 1971 at 9,000 tonnes (30% capacity utilization) while the highest level achieved in recent years was 5,400 tonnes in 1980 (18% capacity). Production has been increasingly constrained by the lack of foreign exchange to purchase needed imports of production consumables, particularly refractories and spare parts for the aging equipment (some of the equipment was rehabilitated in 1975). Considerable. production inefficiencies are also apparent. particularly in the areas of production planning, control and maintenance. However. the principal bottle-neck over the years has been the inability of the company to obtain and prepare sufficient scrap for charging the furnaces. The constraint on electrical power in recent years has also affected output. It is unlikely that the demand for reinforcing rods in Ghana in the medium term would exceed 15.000 tonnes. Thus, to achieve a capacity utilization in excess of 50%. the company would have to seek export markets in nearby countries,. which is unlikely if it cannot reduce considerably its production costs. Profitability has been achieved in the last two years, with net profits before tax in 1984 representing 28% of gross income. Other measures of financial health also reveal a reasonable performance given the country's current economic conditions. 3.125 Prices of steel have been set so as to ensure profitability even at low levels of capacity utilization. The present price for 1/2" rods, for example. is currently the equivalent of US$750 compared with a CIF price of imported rods of US$300. Increased capacity utilization and improved operating efficiencies could lead to significant cost reductions, although it is doubtful whether prices could be brought down to world price levels at current exchange rates. The domestic resource cost analysis for steel production in Ghana leads to inconclusive results, although when its capital costs are treated as "sunk costs" a favorable domestic resource cost measure is apparent. With improve operating practices and increased capacity utilization, it is likely that financial viability would continue to be achieved by GIHOC Steel Works with a moderate level of protection and an appropriate exchange rate. However, the commissioning of the continuous casting machinery would serve to worsen the economic viability of the operation (this is discussed further below). 3.126 The company aims to achieve an output of at least 10,000 tonnes per annum of reinforcing rods by 1986 (33% capacity utilization). In 1979. the company purchased a continuous casting machine with a rated capacity of 50 tonnes per hour and intends to commission the plant in 1986. A foundry has also been planned on land adjoining the Steelworks. To date $4 million on foundry equipment and $420,000 on a factory building have been spent. - 95 - The company plans to spend -~18.8 million (of which $2.3 million is on foreign exchange) during 1986~88. The diversion of majority of the capital expenditures in 1986-88 towards improved scrap collection and preparation is desirable. although consideration should also be given to the creation of scrap depots in key areas of the country. However. the commissioning of the continuous casting machinery is open to question: (i) scrap collection has not been able to be organized efficiently in the past and even with the planned expenditure in this area. it is unlikely that sufficient scrap will be available to charge a continuous casting operation at any where near a reasonable capacity level; (ii) in any case. it is improbable that the current market exceeds 15,000 tonnes of reinforcing rods a year and even if this was met the continuous casting furnace would only be operating at under 10% of rated capacity; (iii) the process controls, monitoring system and maintenance requirements of such an operation, are extremely complex and the company has neither the facilities nor the trained staff to meet such requirements; and (iv) the feasibility of the foundry would be placed in jeopardy since the financial justification of the project assumed 30% of foundry capacity would be utilized in supplying the steel works with ingot moulds -- the continuous casting process eliminates the need for ingot moulds. The overall program is also limited in that i t does not make allowance for the provision of technical assistance to improve operating practices. 3.127 The strategy should be to improve the performance of company to achieve a 10.000 tonne output target (33 1/3 capacity utilization). This will require immediate action to improve scrap preparation by obtaining suitable equipment or the cutting. baling and transport of scrap. In the medium term, scrap collection will need to be improved and for this purpose consideration should be given to the establishment of depots in Takoradi and Kumasi. so that scrap from these areas can be collected. selected. cut and baled prior to onward transportation to Tema. The continuous casting machine should be abandoned and the equipment sold. Effort should instead be concentrated on the establishment of the CIHOe Foundry. It is estimated that a further $1. 5 million is required to import the balance of the foundry machinery and equipment and $0.5 million will be required for training during commissioning. CIROe. in addition to the costs outlined above. have to find some ~80 million to finance the civil works required. The foundry should be capable of producing quality ferrous and non-ferrous castings for industry in general and for the requirements of the agricultural machinery manufacturers. The development expenditures over the 1985-88 period proposed by the company should be maintained although (1) the commissioning of the continuous casting should not be proceeded with (this will also eliminate the necessity for the melting shop extension) and (ii) the expenditures on workshop equipment. vehicles and spare parts should be scaled down. Provision should also be made in the program for technical assistance in process control. maintenance and cost control. 3.128 CIRoe Pharmaceuticals. The company produces drugs (49 types) -- tablets. capsules. ampules and syrups. Its installed capacity is 650 million units (excluding syrups) . Processing essentially involves - 96 - formulation and packaging of active ingredients from imported chemicals. It presently has no technical' agreements. Pre.vious agreements were with Abott Laboratories (USA) and then Calbiochem (USA). Its 1984 production was: Tablets 190.7 million; Capsules 10.1 million; and Syrups 71.549 litres (around 31% capacity utilization) 3.129 Severe water problems contributed to production reaching only around one-third of feasible capacity in 1984. The technical and operating performance of the Company has been satisfactory. The Company is one of the most profitable in the GIHOCgroup. Its profit in 1984 of «52 million was around 33% of gross income. Other measures of financial health reveal a highly satisfactory performance given the country's economic conditions. Pharmaceuticals also appear to have a favorable domest:i.c resource cost ratio. For certain products such as antiparalyzies and antimalarial drugs, there are substantial savings in producing them locally. The potential also exists for exports to nea:tby countries as well as increased local material content. 3.130 The Company plans to produce 225 million units in 1985. resulting in a capacity utilization of 35%. Overall sales are expected to be in the region of «400 million with a profit of «100 million. The Company plans a major investment program over the 1985-88 involving the construction of a new factory premises and the importation of new equipment. The Company has obtained a loan of DM 33 million from Kredit Anstalt fur Wiederaufbau of Germany to supplement its own funds for this investment. In 1985, capital expenditure foreseen out of the Company's own funds amounts to ~45 million, of which around (1:7 million represents foreign currency requirements. In addition about ~53 million is expected to be drawn from the KFW credit. The capacity after the expansion program is calculated to be L 4 billion units. The investment program for 1986-88 is estimated at ~175 million (of which $10 million is in foreign exchange. The program appears to be reasonable. No changes are proposed at this time to the company's planned development program. 3.131 GIHOC Glass Manufacturing Company Ltd. The company produces glass bottles. Its current capacity is 15 tonnes per day (original planned capacity was 90 tonnes). Processing essentially involves that raw material be prepared, batched and charged to the furnace. Molten glass is drawn off into the moulding machine. Prime inputs are silica sand and energy (electricity). The plant was not operating from 1976 until the end of 1983. In 1976, GIHOC established that it was cheaper to shut the factory and pay the workers rather than continue production. However, a maj or re-equipment of the hollow ware glass factory was embarked upon but this was not completed since the Government did not fulfill its obligation of providing some $3.2 million out of the total capital costs of $9.2 million (the African Development Bank funded $6 million). A new 60 tonne furnace and one moulding machine were purchased but another (planned) 30 tonne furnace and further moulding machines were never commissioned. The raw material preparation and finishing packaging equipment was also not to be purchased, leaving the installed and operating equipment out of balance. The current capacity of the plant is limited to approximately 15 tonnes a - 97 - day (against a planned capacity of 90 tonnes- a day). In order for production to be raised to a potentially viable level. it would be necessary to complete the installation and ensure the balancing of equipment. If the necessary steps were taken to complete the installation of the plant and equipment and to improve operations efficiencies. the manufacture of glass products - bottles. white glassware - should be economically viable. 3.132 Subject to verification of the economics of the operation, the completion of the installation of the plant and equipment is required so that a full capacity output of around 90 tonnes per day can be achieved. In order to achieve the above investment. the Company will need to be financially restructured. The outstanding debt due to the AFDB should be rescheduled either through direct talks with the Bank or an arrangement could be reached with the government to take over debt repayments and agree an acceptable repayment schedule from the company. Technical assistance should also be sought to ensure skill and technical development and to enable the company to meet planned output targets. The following need to be undertaken: (i) completion of installing and commissioning 30 tonnes furnace; (ii) completion of installation and commission of moulding machines; (iii) purchase, installation and commission of raw material preparation plant; and (iv) purchase, installation and commissioning of finishing equipment. This will re~uire approximately $2 million of additional investment in foreign exchange and ~14 million in local currency during 1986-88. 3. 133 . Rationalization of State Involvement. The companies which are presently financially and economically unviable and for which virtually no projects presently exist for turning them around (the NIC, Ghamot and GEA groups and 7 GIHOC companies) should be studied carefully with a view to determining government policy regarding their future. The management of the NIC group of companies has worked extremely hard and to reasonable effect to make the best use of the limited resources that were available. They have shown initiative in getting a number of the manufacturing units operational with only local resources available. The have used the trading units to earn money to finance the operations and they must be given credit for their efforts. However, the group is not a logical grouping, with a farm, trading units, operational and non-operational manufacturing units and a vehicle serv~c~ng facility. Accordingly, rationalization is necessary. The trading units and the vehicle servicing unit should be separated from the group. The textile division could be amalgamated with one of the major government textile companies (depending on a Textile Sector Study). The soap factory should be sold off to private enterprise and the metal and paints uhits could be transferred to GIHOC. The senior management could be used to strengthen the management of GIHOC and other state enterprises which are short of good quality management. The GEA and Ghamot Groups are, to all intent and purposes, virtually non-existen~ The only Ghamot company operating is the vehicle servicing unit (Ghamot Company Ltd). Consideration should be given to rationalization of the operation and possible amalgamation with the Government owned vehicle servicing group, Automotive Technical Services Ltd. The remaining companies in the - 98 - group are non-operational as the company does not have the financial ability to"re-equip new factories. The GEA Group is in a similar situation to the Ghamot Group except that it has no significant operation. The possible ownership problem must be solved and the company assets realized. One aspect that could be investigated is that, although a number of the factories have ceased operation, the buildings exist. It is possible that the empty factories, and the factories that could be cleared of redundant equipment, could be utilized as a pool of industrial units. These units could be offered to potential new businesses at a suitable level of rent to enable them to start business without the expense of " new buildings. With regard to the 7 GIHOC companies, GIHOC Brick and Tile is bankrupt - the government should accept the current situation and liquidate the company. However, as brick manufacture could be an economic activity, a study should be undertaken to examine the possibilities of setting up a new brick works, perhaps with private partners. The GIHOC Vegetable Oil Hills cannot be operated at economic levels of activity until suitable yields of produce are available for processing. GIHOC themselves have suggested that they should be handed over to the Regional Development Corporations so that they can provide a limited local service to the farmers. No new investment can be justified until raw materials are available in sufficient quantity. The GIHOC Meat Products Division is primarily not an industrial activity. Its main operation is batching. The corned beef factory at Bolgatanga cannot be run economically until there are sufficient cattle available in the area to operate the factory at an acceptable capacity utilization. GIHOC have suggested that the division be handed over to the Meat Development Board. The Marble Works Division of GIHOC is a small unit and is not of strategic importance to the government. There are two possibilities that could be considered. The first is to sell the business to private enterprise and the second would be for GIHOC to retain control and use the small company to train future management. GIHOC plan to use A&B Industries as a central vehicle workshop for their divisions in the Accra/Tema area. They hope to close all divisional workshops and concentrate all efforts at A&B. While apparently logical, especially for standard servicing, the condition of many of the vehicles means the breakdowns occur frequently at the plants. How the new system would function if no mechanics are available at the division level is not clear. This plan must be re-assessed and all · implications of the move examined. - 99 - ROADS AND HIGHWAYS EXPENDITURES Overview 3.l34 Ghana has a relatively well developed transport system comprising: (a) a network of about 14.100 km of trunk and urban arterial roads, and about an equal length of feeder roads; (b) a railway system of 947 km of main and branch lines linking the country's three major cities (Accra, Kumasi and Takoradi) in the southern half of the country; (c) two major deep-water ports of Tema and Takoradi and several fishing ports; (d) a small inland water transport system on the Volta Lake; (e) a national maritime shipping company, the Black Star Line (BSL); and (f) one international airport at Accra and three main domestic airports. and a national airline. Ghana Airways (GA). providing international, regional and domestic air transport services. 3.135 The present capacity of virtually all transport modes in Ghana is inadequate to meet even the current reduced level of demand, due to lack of regular maintenance and upkeep for several years. Ghana's transport system has nearly broken down over the past few years and remains a serious constraint to economic recovery. The Government's transport strategy emphasizes maintenance and rehabilitation rather than creation of new capacity. About 85% of road transport. which is the dominant part of the transport system, is operated by the private sector. The public sector. on the other hand, controls ports, lake transport. railways and domestic civil aviation. Though state intervention 'Jas a major feature of policy in the past, the present Government has clearly announced itself in favor of encouraging the private sector. reorganizing public sector organizations on more efficient lines. and privatizing some of them if justified. 3.136 Ghana's road network comprises about 28.300 km of classified roads, of which about 6,000 km are paved, and the remainder are gravel or earth surfaced. The road system is further classified as about 14,130 km of trunk roads (including 3,780 km of primary roads, 9,580 km of secondary roads. and 770 km of town roads) and about 14,160 km of feeder roads. Additionally, there are 6,000 km of village tracks and private mining and timber company roads. About 70% of trunk roads and 80% of feeder roads are located in the southern half of the country where population and economic activities are concentrated. 3.137 Traffic volumes are heaviest near the Accra-Tema area (the country's capital and main port). Traffic on the maj or arterial roads radiating from Accra is about 3,000 vehicles per day (vpd) near the city, and about 1,500-2,000 vpd towards Takoradi and Kumasi. Most other trunk roads carry between 200-750 vpd, while traffic volumes in the northern half of the country are much lower than in the south. Feeder roads have generally from 10 to 100 vpd. In general, traffic volumes have declined recently due to the fall in production levels and the poor condition of roads and shortage of vehicles. Fuel consumption data show an almost steady growth of 3% per annum on average from 1970 to 1981. and a 40% decline from 1981 to 1983. With the expected availability of larger fuel - 100 - imports, vehicle spare parts and an upturn in economic activity, traffic levels should rise age.i!1 in the' near future. 3.138 The Ghana Highways Authority (GHA), the agency responsible for the country's highways is beset with many problems. In addition to inadequate funds, it has 47 or about 65% of its engineering positions vacant, and a surplus of unskilled staff. Despite Government's efforts under the Bank Group's Second and Third Highway Projects, only about 20-25% of actual maintenance needs of the road system have been met during the past 10-12 years, the percentages being even less recently. As a result, road conditions in Ghana have deteriorated to such an extent that some important road sections have become practically impassable, and road transport costs are high allover the country. According to data compiled by GHA, the approximate condition of trunk roads (paved and gravel) is 15% good, 40% fair, and 45% poor (moderate to severe failure). Average vehicle operating costs are estimated to be about 15% higher for "fair", 40% highe:r: for "moderate failure". and 65% higher for "severe failure", compared to "good" roads. This condition will continue to worsen unless measures are taken immediately to arrest further deterioration. The main factors responsible for GHA' s poor road maintenance performance have been: (i) insufficient foreign and local inputs and related shortages of fuel, materials and spare parts due to the critical financial situation of Government; (ii) delays in payment to contractors and, more recently, in adjusting contractor rates after the 1,000% devaluation in 1983; (i,11) inefficient management of GHA particularly of its workshops and stores; and (iv) less-than-living wages for Government workers, resulting in lack of incentives, high absenteeism (50% in some units), low productivity, widespread demoralization and a virtual breakdown of the routine maintenance which is dependent on GHA's work force. Issues 3.139 A major issue relates to investment priorities and allocation of adequate resources for rehabilitating the transport sector. Investment planning has been weak and needs strengthening. It is important that: (i) rehabilitation of the transport sector should receive high priority in allocation of resources in view of the dilapidated condition of the basic transport infrastructure and its key role in facilitating economic recovery; (ii) funding for high priority projects should be adequate. while funding for non-priority projects should be excluded; and (iii) there should be proper monitoring of progress in project execution and financing. A second issue which is due to be addressed through new government policy measures concerns the inadequacy of road user charges. Users make practically no contribution to road maintenance and rehabilitation costs which is one reason why government is unable to provide adequate funding for road maintenance. The road maintenance budget during 1981-84 could meet only about 15 to 10 percent of the actual annual maintenance requirements. Gasoline and diesel prices in Ghana are currently only slightly above international prices at the current exchange rate, thus yielding no significant fuel tax revenue from road users. - 101 - Roads and Highways Expenditure Program for 1986-88 3.140 The expenditure program for roads and highways for 1986-88 is summarized in Table 111.17. It is based on the recent World Bank financed Fourth Highway Rehabilitation and Y~intenance Project and a program of bridge and trunk road projects prepared by GHA for 1985-89. The major elements of the program are as follows. 3.141 Road Maintenance (Fourth Highway Project). With respect to the trunk road system, the main operation in 1986-88 will be the execution of the World Bank's Fourth Highway Project at a cost of ¢4.9 billion (Item A of Table 111.17). The project comprises: (i) a three-year time-slice of the Government's core periodic maintenance program for trunk roads. (ii) rehabilitation of 14 bridges. (iii) a pilot feeder road program in the Western, Ashanti and Brong Ahafo regions, and (iv) rehabilitation of the Anynam-Kumasi section of the Accra-Kumasi raod. Financing for this project has been arranged as follows: IDA 31%, ADB 16%, WFP 6%. Saudi Arabia 8%, Government 27%, others 12%. The project has been carefully evaluated and its expected economic rate of return (ERR) is in excess of 50%. The ERR on the maintenance component is about 70%. 3.142 A special feature of the above project is the setting up of a Road Fund to mobilize domestic resources for a more sustained effort in regular road maintenance. In order to help finance road maintenance operations (mainly the periodic maintenance of trunk, urban and feeder roads) on a planned basis the Government has embarked upon the following strategy: (i) to levy a special fuel tax of 5 cedis per gallon of diesel and petrol from about August 1985, (ii) to set up a Road Fund from the proceeds of this tax and revenue from a new vehicle user tax and existing tolls on roads and bridges (initial annual fund size will be about US$12 million equivalent); (iii) to maintain the value of the tax against possible cedi depreciation; and (iv) to increase the coverage of road maintenance as a percentage of estimated needs, from about 30% average under the above project, 50% from 1991 onwards. During 1986-88, the Road Fund should generate about $36 million equivalent. This will help meet the entire Government contribution of about $25 million equivalent (excluding taxes) for the above project during the 1986-88 period, and also partly finance (i) additional trunk road period maintenance above the proj ect' s 30% coverage level, and (ii) country-wide periodic maintenance of feeder roads which is not included in the Fourth Highway Project. 3.143 Other Trunk Road Projects: In addition, GHA has proposed a total of 14 rehabilitation/construction works projects which would add up to ¢7.84 billion ($137.7 million) over the 1986-88 period (items Band C of Table 111.17). Of these, the 7 projects listed under item B are ongoing, most of them about 5m~ to 85% completed, and generally assisted with foreign funding. They involve a total investment of ~2.15 billion ($37.7 million) and are included in the core program since it is estimated that the completion of these works would yield a high incremental rate of return (greater than 50 percent). Item C comprises 7 relatively new or recently - 102 - started projects costing ¢5.68 billion ($100 million), described below, of which 3 deserve priority. (i) Rehabilitation of Tema-Aflao road - total cost of ¢2.4 billion (US$42.7 million) of which ~485 million ($8.5 million) are planned each for 1987 and 1988. According to a 1981 consultant's study the project would have an ERR of 30%. Present traffic is estimated at about 1.400 vehicles per day and this is likely to lower the ERR substantially. EEC is likely to commission a new feasibility study and may consider financing the project which is part of the Trans-West African Highway Scheme. Until this feasibility study is completed, it is not included 1n the core program. (11) Rehabilitation of Yamaronsa-Anwiankwanta road. This is an important connection between Takoradi and Kumasi through a rich agricultural and timber area. The paved road, which was built in the early 1970s, has broken down by now to the level of a "land-rover" road, and may deteriorate further. The GHA has prepared a feasibility study in February 1985 which shows an ERR of about 16% based on savings in vehicle operating costs. This excludes other development benefits to the area served by the road in improving the economic prospects of a large area which now lacks a good raod connection to Kumasi or Takoradi. This project deserves high priority and is accordingly included in the core program. (iii) Rehabilitation of the Yepi-Morno road and bridge approaches total cost ~1.45 billion ($25.5 million). This is part of Ghana I s main link to the Northern regions, and to neighboring Burkina Faso. A major component is repairing 12 kID of road approaches to the two bridges at Yapei and Morno which are eroded and nearly collapsing. A 1981 consultant's study showed only 10% ERR, based on vehicle operating costs. But with impending collapse of the bridge approach traffic would have to divert through a longer route and a ferry crossing at Yeji. A revised rate of at least 15% is likely. Work on this project has already started: Work was awarded to a contractor in September 1984. The project is included in the core program. (iv) Kintampo-Morno road. One section of this road (Kintampo-Soronuasi) was studied by consultants in 1981 and yielded 20% ERR. However until a feasibility study for the whole road is undertaken, the project is not included in the core program. (v) Reconstruction of Tepa-Junction-Sunyani. This project is in progress, and is 10% completed. This is an important road connecting two major towns and production centers. Based on - 103 - a 1981 consultant's study, the rate of return is about 28%. A revised rate should be above 20%. The project is accordingly included in the core program. (vi) Rehabilitation of Nsawan-Anynam road. This was originally appraised as part of the Fourth Highway project, but was excluded because of funding problem and lower priority. The project is not included in the core program. 3.144 Feeder Roads. Concerning the planned capital expenditure programme of the Department of Feeder Roads (DFR) , it was not possible to estimate rates of return of projects under the development/new construction program. As a general rule, a minimum rate of return of 15% should be aimed at as agreed for trunk roads works in connection with the Fourth Highway Project. As to the periodic maintenance programme, it should be noted that the rate of return on the pilot feeder road programme included in the Fourth Highway Project was estimated at 24%. It is to be expected that for the remainder of the maintenance programme a similar rate of return can be achieved. During 1984. DFR spent ~635 million ($18 million) on new construction and about ~137 million ($2.4 million) on maintenance. During 1986-88. they propose to spend about ~627 million ($11.0 million) on new construction and about !t325 million ($5.7 million) on maintenance. Since a large amount of backlog in feeder road maintenance remains. DFR should reduce construction expenditure and increase maintenance. 3.145 The urban expenditure programme comprises three main items: (i) rehabilitation of Accra City Roads, assisted under the IDA Accra District Rehabilitation Project which will cover the foreign exchange cost of works. The Bank's appraisal report demonstrated a return of over 70% on these works; (ii) rehabilitation of Kumasi City Roads for which assistance is to be provided under a bilateral agreement with the German Democratic Republic. As road conditions in Kumasi are worse than those in Accra (though traffic level is lower). similarly high ERRs (at least 30%) are to be expected; (iii) reconstruction of Kaneshie-Mallam, the urban section of the Accra-Takoradi road link. The project was studied in connection with the IDA Accra District project. Given the high traffic volumes and the poor present condition of the road, a high ERR (above 30%) 'is to be expected. - 104 - TABLE III. 17: R!.WJS AND HIGIWAYS I.NVES'll1El'I"I' PRCGRAM (Constant 1985 Prices) Total Expenditure Expenditure Foreign Econanic Program/ 'Ihrrugh Proposed Financing Viability Project Decanber 1986-88 Ccmnitted/Under EF.R/DRC/IRR (bst 1985 Negotiation 1986-88 (0-b) (~) (~) (0-h) <11ana H:i.gmva.y Authority A. Trunk Road System 1. Road Rehab. and Maintenance Project (IDA sponsored) * 4.907 n.a. 4.907 3.463 50% ERR (1985) B. Cbgo:ing Rehab. and Construction Proj ect (50%-85% canpleted) 2.153 n.a. 2.153 302 ERR est:imated at , lWre than 50% on invest::nent required for canpletion of project. 2. Reconstruction of ~ataba- Elubo* 325 n.a. 325 211 " 3. Assanby bridge Progran* 102 " 102 91 " 4. Reconstruction of Daboase .Junction To Takoradi* 900 " 900 " 5. Construction of Several Bridges* 40 II 40 " 6. Construction of Asukawkaw Bridge* 107 " 107 " 7. Reconstruction of YaIWransa Assim Preaso Road* 91 " 91 " 8. Reconstruction of Begoso-Ayanfuri Road* 587 " 587 " C. Other Rehabilitation (construction Projects) 8,226 n.a. 5,682 9. Rehabilitation of Tema Aflao Road 2,434 " 969 30% ERR (1981). 10. Rehab. of Yanarona- ilitdated study. Andankwanta* 992 " 992 16% ERR (1985) 11. Reconstruction of Yepi- t-bmo Road ar.d Bridge Approaches* 1,454 " 376 10% ERR (1981) - 105 - TABLE III. 11: DDS AND HIG1.WAYS INVESTMENl' I'Ra:;RAN (er 198fH38 Ccmnitted/lJnder EBR/DRC/IRR Cost 1985 Negotiation 198fH38 (010) (~) (¢1:1) (¢1:1) 12. Rehab. of KintampO-MJrIlO Road 1,140 n.a. 1.140 20% ERR (1981). 13. Reconstruction of wtdated study. Tepa Junction-Stmyani* 724 " 724 20% ERR (1985) 14. Rehab. of NSSNam-Anynan Road . 1.038 " 1,038 l.o!.Jer Priority (1985: 15. Construction of II Nsawan - Byepass 444 444 10% ERR (1985) Depa.rt:Irent of Feeder Roads 2.904 n.a. 2.904 -11- 1. Devel.opnent/Recons. * 1,936 1.936 15% ERR (Rule) tI 2. Pericrlic maintenance* 968 968 1.947 24% ERR (1985) Urban Beads 3.642 n.a. 3.642 1.947 1. Rehab. of Accra II City Roads* 1,026 1.026 807 70% ERR (1985) 2. Rehab. of K1:a:nasi II City Roads* 2.228 2,228 1.140 3D% ERR (1985) 3. Reconstruction of Kaneshie- tI Ma.llam Road* 387 387 30% ERR (1985) Sub-Total 21.832 n.a. 19.288 5.712 ("Core Program") * (15,698) (5.712) - 106 - PUBLIC TRANSPORT EXPENDITURES Overview 3.146 The rest of the public transport sector (i.e.excluding roads) comprises the railway system, ports, civil aviation, shipping, lake transport and some surface transport companies 3.147 Ghana's railwa~ system, operated by the government-owned Ghana Railway Corporation (GRC. has played a major role in carrying four of Ghana's most important export products to the ports: bauxite. manganese and timeber to Takoradi and cocoa to both Takoradi and Tema. Those four commodities constituted over 90 percent of total rail traffic which amounted to about 1.6 million tons per year in the early seventies. In addition, it transported close to 8 million passengers per year in 1972-74. However. in 1984. traffic was down to 376,000 tons and 2 million people. This decline was due to the overall slump in economic activity, increased competitiveness of the road transport industry. and steadily deteriorating efficiency of the railway system. An ongoing World Bank's Railway Rehabilitation Project supports the reorganization and physical rehabilitation of the system. It gave priority to rehabilitating the crucial Western Line. Work on track and sleeper renewal was speeded up dramatically when the export retention scheme was made applicable to sawmill supplies of sleepers to the project. A major part of overhaul work on locomotives and rolling stock as well as track work is expected to be completed by end-1985. 3.148 Ghana's two major ports at Tema and Takoradi were built with ample capacity but their present effective capacity is limited. Port operations have become increasingly inefficient in recent years due to the lack of handling equipment in working condition, general deterioration of installations, lack of maintenance and dredging for many years, and inefficient organization of the port agencies. This has resulted in extremely low loading and unloading rates. excessive ship time at berth, and high demurrage and freight charges. Total port cargo throughout was about 5.5 million tens in 1970 compared to 2.5 million tons in 1983. The port sub-sector is currently receiving emergency assistance frem IDA for spare parts and equipment, technical assistance and studies for the reorganization of port sector management. It is expected that a medium-term rehabilitation plan for the ports will be finalized by mid-1985, which may well be the basis for an IDA-supported ports rehabilitation project. 3.149 Lake Transport. Transport on the Volta lake is operated by the Volta Lake Transport Company Ltd. (VLTC), whose sole shareholder is the Volta River Authority. The lake transport facilities are currently being expanded with the help of a bilateral credit from the Federal Republic of Germany. 3.150 Concerning civil aviation, Ghana has one international airport at Accra and domestic airports at Kumasi. Sunyani, and Tamale, maintained and - 107 - operated by MOTC's Department of Civil Aviation. Available infrastructure appears to be sufficient for present low traffic volumes. Annual traffic at the Accra airport in the last few years have averaged 2.205 aircraft movements. 114.000 passengers. and 2.220 tons of freight. Accra is served by a number of major international carriers and by Ghana Airways Corporation (GH). the country's national airline. established in 1958. GH. which owns a small fleet of four aircraft. operates flights to Europe and the West African coast and provides domestic services. The company has been financially troubled for many years. Government has indicated that GH is now working as a commercial entity. and no subsidy was given to it during 1983 and 1984. Government view is that GH's problems. which are partly a reflection of Ghana's economic problems ""hich curtailed international travel. would ease in the near future. In the meantime. a technical assistance and training program financed by UNDP is gradually improving GH's operational efficiency and punctuality, and. as a result. its traffic volume. 3.151 The state-owned shipping corporation, Black Star Line. is going through a process of total restructuring after years of loss-making operations. Half of BSL non-sea going staff were made redundant in the last three months of 1984. The company also plans to reduce its fleet from thirteen to eight vessels by mid-1986. including four new container ships acquired under a joint venture agreement. Foreign operations are being reduced to one office only, in London. The company expects that the government will apply the UNCTAD code of conduct in 1986 which would enable BSL to carry at least 40 percent of all Ghana's foreign trade. Gross revenue is expected to rise from ~1. 03 billion ($18 million) in 1985 to ~3.6 billion ($63 million) in 1988. Although 1985 will still end in a net loss. 1986 should show a ~285 million ($5 million) profit, which is expected to double by 1988. 3.152 Rail/road competition for cocoa and timber traffic has been strong in the past but there are indications that as a result of lack of capacity in both modes. competition has lessened recently. Railway capacity shortage has prevented it handling even the limited amount of non-mineral traffic on offer. and has restricted the volume of captive mineral traffic transported. Railway freight traffic is concentrated on the Western line. between Kumasi/ Awaso and Takoradi and comprises mainly bulk manganese and bauxite. timber from the four state-owned timber companies (two of which have no road access) and cocoa. Increasing shortage of road transport capacity has recently led the Government to direct that cocoa should be rail carried wherever possible but GRC has as yet been unable to supply the necessary capacity. GRG carries a substantial volume of passenger traffic. which falls into two broad categor~es, long distance passengers who prefer the luggage space advantage of rail travel to the relative speed of road. and short-distance passengers between villages inadequately linked to the road system. Rail and river/lake transport does not compete. and road and river/lake only marginally. - 108 - Railways 3.153 The Ghana railway system (947 km) is in the form of a letter A. with the apex at Kumasi and the two "feet" at Takoradi and Accra/Tema. Except for completion of the Central line. only minor developments have taken place since 1944. The system lies entirely in the most heavily populated southern half of the country and distances are short. about 320 km maximum, constraining the railway's ability to compete with road transport. The terrain through which the railway passes is generally hilly, particularly between Kumasi and Takoradi (the Western line) and thus high average speeds are not possible. 3.154 The Ghana Railway is a 1,069 mm (3'6") gauge single line system with the exception of 30 km of double track between Takoradi and Manso. The three main lines are the Western (Takoradi/Sekondi-Kumasi), the Eastern (Accra-Kumasi) and the Central (Huni Va11ey-Kotoku Junction) lines. There are four branch lines (to Prestea, Awaso, Kade and Tema). The axle load is 12.5 tons on the Pres tea and Kade Brnach, 13.5 tons on the Eastern line and 16 tons on all other lines. The motive power fleet consists of 29 steam mainline locomotives, 68 diesel locomotives and 31 diesel shunters. GRC has 237 coaches of which about 65% (153) are more than 25 years old. The wagon fleet consists of 3,308 wagons; of these about 20% (675) are more than 25 years old. while another 1,833 wagons are equipped only with plain bearings. 3.155 Track maintenance and removal on the western line and locomotive and rolling stock rehabilitation is being carried out under the ongoing World Bank Project. The project provides for: (i) materials needed for renewal of weak sections of the Western Line (excluding rails, which GRC has recently acquired under an OPEC loan). (ii) establishment of facilities for producing their own sleepers and ballast, and (iii) maintenance equipment. The project also provides for rehabilitation of GRC' s sawmill which produces wooden sleepers. Adequate track fastening for 85 km of track is being provided. The Western line and the Awaso branch line lack sufficient ballast for efficient track maintenance and the project includes equipment for two existing quarries which GRC has leased from the gold mines to provide ample. good quality ballast. For track maintenance. GRC needed railcars. trollies. spare parts for exis ting machinery and tools, all of which have been provided by the project. Some tipper trucks and vehicles needed to transport ballast from the quarry and along the line have also been provided. 3.156 Locomotive and Rolling Stock Rehabilitation. The project provides for procurement of four new shunters and spare parts for the rehabilitation and overhaul of 37 mainline diesel locomotives. GRC obtained 10 new locomotives in 1978 but could get only a portion of the spare parts required for their maintenance due to foreign exchange constraints. These spare parts are now included in the project. The total number of freight cars available with GRC is sufficient but many of them are in need of repairs. Under the proj ect about 200 cars are being - 109 - equipped with roller bearings and an additional 40 cars, recently converted from wooden boxes to steel boxes, supplied with new bogies. 3.157 Telecommunications. Telecommunications equipment, and block in~truments are in extremely run-down condition. The project is financing an over-head insulated cable connection on the Western Line, replacing the old uninsulated c.onductors which were subject to frequent line faults caused by various external factors, like inclement weather, theft of copper wire, etc. t and hence were difficult to maintain. The capacity of the cable will be sufficient for (a) station-to-station telephone connections; (b) administrative trunk connections between the Central Traffic Control unit in Takoradi and Kumasi; (c) connections between the Railway headquarters in Takoradi and major Western Line junctions; (d) the block/token instruments. 3.158 Traffic Study. Most of GRC I S freight and half its passenger traffic are carried on the Western line. The Eastern and Central lines and the various branch lines carry much less traffic and it is doubtful if they are economically or financially viable. The project included a study to analyze and assess the operational and financial consequences of discontinuing certain unremunerative services on these lines. This will cover examination of all traffic on the Eastern and Central Lines and passenger traffic on the Western Line, their economic costs and benefits and, inter alia, the cost of alternative services, and the possibility of coordination of road and rail services. The study is scheduled for completion by August 1985. Ghana Railways Expenditure Program 1986-88 3.159 Ghana Railway Corporation (GRC) has recently submitted a complete capital expenditure and financing plan for the 1986-88 period which is shown in Table 111.18 and which totals ~6.2 billion ($108.5 million). New projects are broken down into "core" and "non-core" items. An evaluation of this proposed GRC program indicates the following: (i) Completion of the ongoing Railway Rehabilitation Project, (Item 1. Table 111.18) co-financed by IDA and ADB, in 1985 and 1986 at a cost of ~941 million is justified as this focusses on the improvement of the Western line of the GRC system. This includes the supplemental items for most of which financing has so far been assured. Recent analyses by GRC have shown that the incremental ERR on completing the project is of the order of 30%. (ii) With respect to Item 2 of GRC's Capital Expenditure Program (repairs to wagons and coaches, Eastern and Central Lines) for ~285 million ($5.0 million), little can be said at this stage as the ongoing studies on the viability of these lines are still not completed. The same comment applies to Items 3, 4 and 5 (i.e. replacement of 130 - 110 - passenger coaches, telecommunication for the central line and track for the centL"al. l.lne). (iii) There would appear to be a good prima facie justification for the smaller items Items 6-12 viz: (i) accident relief trains and one crane (~228 million); (ii) 150 wagon replacements (~428 million, which would be essentially for mineral traffic on the Western Line); (iii) workshop facilities (~126 million); (iv) training school (phase II) (~228 million); (v) three new locomotives (¢240 million); (vi) rehabilitation of buildings (¢102 million); (vii) technical assistance (¢188 million). (iv) With respect" to the new projects (Items 13-15 in Table 111.18), no economic justification has so far been provided. 3.159 In summary, GRC's proposed capital expenditure program for the 1986-88 period can be presented as follows: (i) ~1.1 billion ($19.4 million) for completion of the ongoing rehabilitation proj ect; (11) ¢l. 5 billion ($27.0 million) for investments for which there appears to be a good prima facie justification; (iii) ¢2.45 billion ($43.0 million) for investments whose justification can only be assessed once the ongoing feasibility studies are completed; and (iv) ¢969 million ($17.0 million) for "non-core" investments whose economic justification remains to be demonstrated. With respect to GRC's financial performance it is to be noted that the company expects its recurrent expenditures to be increasingly covered by its revenues. Government subsidies to cover GRC's operating losses are forecast to develop as follows: (i) 1986: ~348 million ($6.1 million); (ii) 1987: ¢103 ($1.8 million); (iii) 1988: nil. Ports 3.160 Lack of regular maintenance over many years has led to considerable erosion of port capacity in Ghana's two ports of Tema and Takorad. Port operations have become extremely inefficient in recent years due to the lack of handling equipment in working condition. general deterioration of installations, lack of dredging of the harbor basins and approaches and consequent draft limitations on ships. and inefficient organization of the port agencies. This has resulted in extremely low loading and unloading rates, excessive ship time at berths, and high demurrage and freight charges. Even though traffic declined from about 5 millions in 1975 to about 2.5 million tons in 1983, there was considerable congestion and ship-waiting in 1983 and 1984 due to the port's limited capacity. Though the situation has slightly improved due to some emergency measures recently taken (bringing spare parts and some equipment, provision of food for workers under a World Food Program, etc.) port capacity will remain an effective constraint in handling Ghana's increasing port traffic in exports and imports, unless the port installations and facilities are rehabilitated urgently. - 111 - 3.161 IDA's Export Rehabilitation Project and Export Rehabilitation Technic~l Assistance Projects (ERP and ERTAPj provided about US$5.0 million worth of assistance in spare parts, several equipment. technical assistance and studies for the ports. While these inputs have provided short-term emergency assistance, ~ medium-term rehabilitation plan for the ports was recently prepared by consultants employed by the Government. As a result of these studies the Bank has recently appraised a ~4. 2 billion ($73 million) project to rehabilitate both Tema and Takoradi ports. The project will include for both ports: (i) repair and rehabilitation of civil engineering infrastructure, (ii) removal of wrecks in the harbor, (iii) rehabilitation of existing equipment and harbor craft, (iv) purchase of new equipment and craft, (v) creation of a new container handling yard behind existing berths in Tema, (vi) technical assistance for project supervision and for improving port organization and operational and financial management. Estimates by the consultants (Halcrow) shows an economic return in excess of 40% from the overall project, and from inv~stments in each of the two ports. Major individual components have been separately evaluated and were found justified on both technical and economic criteria. The main project benefits would consist of savings in ship handling costs, compared with the present level of costs and the higher costs that would result if the present situation were allowed to deteriorate further. Ghana Airways Corporation 3.162 Ghana Airways (GH) at present appears financially viable and its management seem confident that they will be able to maintain this viability in the future provided their plans for the future materializes. These plans include traffic growth of 15.5% through 1988, purchase of two new MD-82 aircrafts at a total cost of US$60 million during 1986 and 1987 and sale of one old DC9 aircraft at about US$8 million. Ghana Airways also plans to open new routes to Dusseldorf, New York, Jeddah, and between the land locked countries of Mali, Burkina Faso, Chad and Sudan. 3.163 GR is facing the following constraints: (i) Finalizing the financing of the purchase of two new aircraft. GH has reached agreement in principle to borrow US$48 million (spare parts will be self-financed) from American banks. The remaining $12 million will be financed from the sale of the DC9 for $8m and own generated funds of $4m. GR, however, needs Government guarantees for obtaining the foreign exchange loans. GR maintains that only 30% of its revenues are in foreign currency whereas about 70% of operating costs are incurred in foreign currency; (ii) GH also needs Government's help in foreign exchange to meet debt service charges. The loan of $48 million will be secured for a 10 year period, payable quarterly, and at 12-5% interest rate; (iii) GH's program for capital expenditure includes rehabilitation of its ~light kitchen, stop-over restaurant, modern ground equipment to handle bigger aircraft, computerization of information system network and a housing project for GH office staff. Although some of the above activities, e.g. stop-over restaurants will boost GR's foreign exchange earning, GR would still need foreign exchange assistance from the Government. - 112 - 3.164 GH has capable staff and its aircraft crew (particularly the pilot.s) are well trained. The reliability of flights and quality of service has improved substantially in the past 8 to 10 months. It appears that GH is a good organization and therefore its capital expenditure plan for 1986-88 is including tentatively in the core program subject to further economic evaluation of the proposed aircraft purchases. Acquisition of both (or one) of the aircraft proposed must yield a rate of return of at least 15 percent for it to justify continued inclusion in the "core" program. If GH experiences financial difficulties in future years, the items of the capital expenditure that should be cancelled or postponed till later could be: (i) office and residential equipment and furniture ~211 million ($3.7 million); (ii) housing (Head office building and staff houses) ~952 million ($16.7 million). State Shipping Corporation Black Star Line (BSL) 3.165 The State Shipping Corporation's (BSL) financial situation is difficult. In 1984, BSL started with a deficit of ~435 million ($7.6 million) carried over from the previous year, occurred net loss of ~10 million and did not pay the net installment for the four vessels bought in 1980. In addition, BSL owes to various local creditors about ~137 million ($2.4 million). At the end of 1984, BSL needed financial assistance of ~890 million ($15.6million). This situation should not be allo\ved to continue especially since BSL has the potential to play an important role in the import/export trade of Ghana. The Government should: (i) establish by early 1986 the UNCTAD code of shipping conduct (40-40-20) which will enable BSL to carry at least 40% of all imports and exports which result in a tremendous boost in BSL' s earnings (presently much less than 40% is carried); (ii) examine the economic feasibility (with an ERR of at least 15 percent) of BSL' s disposing of three old vessels by early 1986 and possibly buying four combo type 12000 tons dwt, vessels with a container capacity of 500 TEU at an estimated cost of $7 million each in a joint venture with another organization which would mean that from 1986 onwards BSL will operate with a fleet of eight good vessels. BSL has successfully reduced a substantial number of its non-seagoing staff (thus reducing its total staff from 982 upto September 1984 to 487 after September 1985). Road Transport Companies 3.166 The Public Sector Road Transport companies (STC, OSA, City Express) were reviewed in a preliminary manner by the PER mission. Since these are independent financial entities presently obtaining no Government subsidies their capital expenditure programs were included tentatively in the "possible core". However, a more complete review of the performance and future of these public sector transport agencies should be undertaken as a matter of urgency and their capital expenditures only undertaken if they are found to be economically justified (i.e. having an ERR of at least 15 percent). - 113 - Financing of Capital Expenditures 3.167 Financing for the capital expenditures of the above entities for the 1986-88 period is expected to be as follows: (i) GRCls program of ~2418 million will be financed through on lent foreign capital (~485 million) and direct lending from the Government of ~2,414 million (this includes a subsidy to cover operating losses of ~418 million); (ii) The Ghana Ports Project of ~4,255 million is expected to be almost entirely financed through onlent foreign capital (~4,002 million), the Government di:t:ect lending for this purpose is estimated at only ~253 million; (iii) The Public Transport Companies expect to fund their capital expenditures through government guaranteed foreign loans ~2,736 million for Ghana Airways to purchase two new aircrafts and ~1,098 million for the BSL to buy four new vessels) and through self-financing. Annexure III provides details in this regard. - 114 - TABLE IILI8: TRANSPORT SECI'OR INVES'IMENI' PRCX::RAM (Constant 1985 Prices) Total Expenditure Expenditure Foreign Fconan:ic Programl 'Through Proposed Financing Viability Project December 1986-88 Conmitted/Under ERR/DRC/lRR Cost 1985 Negotiation 1986-88 (~) (~) (~) (~) A. torisation of Points 1\ of Selected Stations 114 114 15. Doubling of Track M:mso and Hunivalley II (36 km) 684 684 Sub-Total Indicated 6,186 3,648 6,186 485 (Core Program)* (2,481) (2,481) (485) Y May have to be IWVed to "Core" if passenger traffic conditions deteriorate further. - 115 - TABLE IILI8: 'I'RANSPORr SECIOR INVESlMENr :PR{X;RAM (Constant 1985 Prices) Total Expenditure Expenditure Foreign Economic Program/ Through Proposed F:inancing Viability Project Decariber 1986-88 Ccmni.tted/Under ERR/DRC/IRR Cost 1985 Negotiation ' 1986-88 (9'Mn) (010) (9'Mn) (9'Mn) B. Ports 1. CkIgoing Project ERS* 95 264 95 95 Economically viable 2. Proposed Rehab. Project, Tena. & Tak'oradi Ports 4,160 264 4,160 3,907 20% ERR (1985) Sub-Total Indicated 4,255 264 4,255 4,002 ("Core Program") * (4,255) (264) (4,255) (4,002) C. Chana AiIways 1. Aircraft Purchases * 3,078 3,078 2,736 15% ERR (Rule) (2 ID-82) 2. Hrusing (Head Office Bu:ild:ing & Staff Housing) 952 952 n.a. 3. Office & Residential Fq. & FUrniture 211 211 n.a. Sub-Total Indicated 4,241 4,241 2,736 ("Core Program") * (3,078) (3,078) (2,736) D. Black Star Line 1. 4 New Vessels * 1,098 1,098 1,098 15% ERR (Rule) Sub-Total Indicated 1,098 1,098 ("Core Program")* (1,098) (1,098) (1,098) E. State Transport Corporation 1. Purchase of 240 new buses 40 new trucks and 37 new tankers as rep1acemmt and expansion * 1,405 41 1,405 15% ERR (Rule) Sub-Total Indicated 1,405 41 1,405 ("Core Program")* (1,405) (41) (1,405) F. Omi fus Service 1. New Buses * 546 546 15% ERR (Rule) Sub-Total Indicated 546 546 ("Core Program")* ( 546 ) (546) G. City EXpress Transport 1. New Buses * 201 201 15% ERR (Rule) Sub-Total Indicated 201 201 ("Core Program") ( 201 ) ( - ) (201) Total Transport Sector 17,932 3,953 17,932 8,321 (Transport "Core Program") (13,064) (13,064) (8,321) - 116 - TELECOMMUNICATIONS AND POSTS Telecommunications 3.168 The telecommunications system in Ghana is inadequate and in a state of extreme disrepair. In 1984 it was estimated that the total number of telephones. connected were 35,000 -- a telephone density of 0.28 per 100 (compared to an average of 0.80 per 100 for Africa, 2.80 for developing countries as a whole and 83.7 for the USA). Of these, 45 percent were out of order. The country has only about 800 internal long distance circuits and 28 external (international) circuits. The only telex exchange in the country is at Accra and has a capacity of 784 with 300 telex subscribers and an estimated waiting list of 674. 3.169 This dismal state of affairs would be even worse if it was not for earlier external donor assistance in the sector in the mid-seventies. The three ongoing external donor assisted projects in the telecommunication sector (expected to be completed in 1985-86) were started as part of the 1976-80 Telecommunications Sector Rehabilitation and Development Program. The World Bank project of US$29.0 million consisted of rehabilitation and expansion of existing local automatic telephone exchange equipment and associated cable network and is expected to be completed in 1985. The financing for provision of a microwave link between Ghana, Ivory Coast and Togo, under the Telecommunications Sector development program was secured by the African Development Bank in 1977. The project called the Pan-Aftel proj ec t is also expected to be comp leted in 1985. The Japanese Overseas Economic Corporation Fund (OECF) initiated a proj ect to provide a link between the southern part of Ghana with its busy industrial and market centers to the main primary commodity producing areas of the Ashanti, Brong-Ahafo. Northern and Upper Regions. Whereas the OECF project together with the IBRD and the Panaftel project provided a basic microwave (VHF/SHF) network linking regional capitals and their important neighboring towns in Ghana, limited foreign exchange was devoted to the upkeep of the existing electronic and manual exchanges, underground cables and overhead wire connections, telephone and telex equipment and general maintenance of the system. Since imported spares were not forthcoming, the level of services and associated revenues declined substantially and this important sector, which could easily have been potentially self-financing J was allowed to relapse into a spiral of poor service, low revenues and stagnant investment. Telecommunications Sector Strategy 3.170 To fully support the ongoing economic recovery program, the Government of Ghana should adopt a strategy of focussing on strengthening communication links throughout the country. The post and telecommunications, railways, roads and highways, and other transport sectors are integral parts of a unified communications system, and their rehabilitation is expected to bring swift and substantial benefits in terms of enhanced economic activity and increased flow of exports and imports. A viable postal and telecommunication network is expected to generate - 117 - . substantial savings in terms of time, fuel, maintenance and vehicle costs as more subscribers are able to use telecommunication services instead. The short-term strategy for the telecom sector should be as follows: (i) Rehabilitate all existing malfunctioning segments of telecom facilities in the 'network', and (ii) Expand telecommunications facilities, where necessary, in main cities and/or towns in k~eping with the projected demand for telephone (both business and residential) telex and telegraph services. Telecommunications Public Expenditure Program 1986-88 3.171 The telecommunications sector investment plan proposed for 1986-88 consists of: (i) A rehabilitation component (Category I); (ii) New investment component (Category II). The total investment required for both Category I (rehabilitation) and Category II (expansion) of the inland telephone, telegraph and telex services is ¢3.1 billion of which the foreign exchange requirement is ¢2.3 billion or $40.3 million for the 1986-88 period. The total outlay required for the investment in the international telephone services for both Category I (core) and Category II (non-core) is ¢461 million with a foreign exchange component of ¢401 million or $ 7 million. 3.172 The investment proposed for the Internal Telecommunications Services provides for automatic exchanges, radio links, underground cables and overhead wires, both for rehabilitation of broken down segments within the network and for replacing eXisting old and obsolete equipment where capacity is considered to be less than the demand. Both Category I and Category II components are described below. 3.173 Rehabilitation: These comprise of the following: (i) Switching; (ii) Transmission; (iii) Local networks; and (iv) Subscribers equipment. Within switching, the rehabilitation component provides for rehabilitation (and extension) of either saturated or old and worn out automatic exchanges in Accra North (Accra Region), Kumasi (Ashanti Region) and Cape Coast (Central Region) to provide for effective service and increase in subscriber demand. The city of Accra has a multi-exchange system of three exchanges: Accra North, Accra Central and Accra Cantonments. Besides being an old as well as saturated Philips type exchange the Accra North exchange is unable to handle the increase in demand with its existing capacity of 10,000 lines which cannot be expanded for lack of space. The proposal is to replace Accra North with a digital automatic exchange of 15000 lines to cater for increasing demand. The Accra North exchange areas are continuing to expand and to cater for new demand in Achimota and Dansoman areas, it is proposed to provide remote subscriber line concentrators in these areas and parent them on the proposed new Accra North digital exchange which will have an adequate capacity to handle high telephone traffic and this feature would be made use of in satisfying any future additional demand. It may be mentioned that the exchanges in Accra Cantonments and Accra Central have already been rehabilitated under the existing IBRD proj ect. Following the same general principle a second digital automatic exchange is proposed for Kumasi I. Kumasi is expanding towards south as a town (called Kumasi II area) and it is costly and - 118 - difficult to maintain cable and overhead routes from the existing exchange in Kumasi I across to the expanding Kumasi II area with the present worn out exchange with an existing capacity of 4.600 lines. A digital exchange is expected to provide additional 5.000 lines for Kumasi; which would as a parent exchange with high traffic capacity. provide an additional 3.000 lines by the use of remote subscriber line concentrators as for Kumasi II. In addition to replacement of exchanges at Accra North. Kumasi I and Cape Coast. other existing exchanges which are not functioning properly due to lack of spares, in various areas. are proposed to be provided with the necessary spare parts and other equipment due for replacement. 3.174 Transmission. While the three ongoing IBRD, OECF and Pan-Aftel projects have created the backbone of a national trunk network. some of the existing microwave and UHF links between existing towns are old and either non-functioning. or not functioning satisfactorily. It is therefore, proposed to rehabilitate existing SHF and UHF links between: (i) Koforidua (Regional capital of Eastern region) and Ho (Regional Capital of Volta Region) through Akosombo; (ii) Sunyani (Regional capital of Brong Ahafo) through Pokukrom to Kumasi (Regional capital of Ashanti Region); (iii) Tamale (Regional Capital of the Northern Region) to its neighboring town of Yendi through Sand; (iv) Gambaga to Bawku (Upper Region); (v) Bolgatanga (Regional Capital of Upper Region) to Wa through Navrongo. Nakom. Tumu. Han. Lawra. and Nadoli. 3.175 Local Network and Subscribers Equipment. Underground cables in Accra and other areas are in very bad shape. Lack of spares and materials have contributed to inadequate maintenance and frequently arising faults on existing obsolete paper insulated cables (as opposed to more improved cables such as the jelly-filled type) is one of the primary reasons for the non-functioning of telephones throughout the country. According to one estimate. 80% of all faults are due to faulty cables. Notwithstanding investment in microwave and UHF links throughout the country. good quality of service remains dependent on proper functioning of underground cables. The investment package proposed provides for $15.2 million in foreign exchange and ~291 million ($5.1 million) in local costs for replacement of underground cables in Accra not covered under IBRD project. 3.176 Category II: Replacement/Extension. The replacement/extension component of the investment plan proposes expansion of automatic exchanges and related power supply equipment (power generators. rectifiers. batteries) as follows: (1) Madina. Dansoman and Achimota to be equipped with remote subscriber line concentrators and shall primarily be parented on the proposed main digital exchanges in Accra Cantonments and Accra North areas respectively; (2) Oda. an important timber producing area in the Eastern region is proposed to be linked up through a new automatic exchange to either Swedru or Nsawam; (3) Saltpond. another important industrial activity area is proposed to belinked to Cape Coast through an automatic exchange of a capacity of 250. 3.177 Transmission: (i) to connect the new exchanges at Oda to Nsawam or Swedru and Saltpond to Cape Coast respectively. UHF links are required. - 119 - - (ii) Existing Junction-cable links in Accra multi-exchange area between: Accra North--Accra Cantonments. Accra Cantonments-Accra Central. Accra Central-Accra North. are old and prone to frequent faults. The proposed investment seeks to provide microwave links between these three points for more efficient. less fault prone. therefore less costly maintenance. (iii) To provide for PCM junctions to link the proposed dependent remote subscriber- line concentrator exchanges in Madina. Achimota and Dansoman.' Kumasi II and the main exchanges at Accra and Kumasi respectively. 3.178 Local Networks. (i) More extensive underground cable networks are proposed used to reduce extensive open-wire (overhead) subscriber routes in all towns where new automatic exchange equipment has been proposed in the investment plan. (ii) Where replacement is necessary overhead open-wire routes shall be substituted by jelly filled underground cables for connections from exchanges to subscribers. TABLE IlL 19: 'I'.El..EXXMIJNlCATIOOS SECI'OR - EXPECI'ED INVES'IMrnl' PLAN BENEFITS 1986-88 1984 1985 1986 1987 1988 a. Internal Te1ecamunications EXchange Line Capicity 46.800 48.919 71.300 71.300 93.000 Unes Connected 37.000 43.800 46.222 49.184 59,430 waiting List 30.503 23.700 22.000 19.068 12,000 Unes out of order (%) 45 27 12 8 5 Nu:nber of local exchanges (Auto) 18 25 25 25 25 l'lurJi)er of local exchanges (MmJaJ.) 297 291 291 291 270 Percentage of autanatic 86 86 87 89 91 b. EXternal TelecOlllIl.lIli.cations Telex Line Capacity 784 784 1.000 1.000 1.000 Nunbers of Telex Subscribers 300 450 700 760 800 External Telecommunications Sub-Sector 3.179 The Proposed Expansion Program. The investment plan for the External Telecommunication Sector Services calls for a total outlay of ~704.5 million (US$13.3 million) of which the foreign exchange component is US$11.6 million or 87% of the total external telecommunication sector investment requirements. Categories I and II of the External Telecommunications Sector 1986-88 investment plan are as follows: 3.180 Category I. (i) Payment for international telephone switch for international direct dialling; (ii) Provision of 200 telex machines and 100 teleprinters annually; (iii) Expansion of international telex gateway; (iv) Maintenance vehicles for earth station and telex maintenance; (v) Completion of Takoradi and Tema Coast Station; (vi) Provision of Junction cables. - 120 - 3~181 Category II. (i) Expansion of Earth Station to link Kenya, Ivory Coast, Nlgt!,Lia and Holland; (ii) - Expansion of VFT Equipment; (iii) Establishment of Electronic Data Processing Center (EDP); (iv) Feasibility study for Accra-Lagos Submarine cable. The "Core" Program for the Telecommunications Sector 3.182 While the entire proposed investment program is economically viable, it is unlikely that internal telecommunication sector has the implementation capacity to undertake the program in a three year period. The program is accordingly proposed to be carried out over 5 years - with the "core" program for 1986-88 confined to rehabilitation expenditures only. The entire external C'Ommunications investment program proposed is included in the 1986-88 "coren program. The phasing of the program is accordingly as follows: (a) Phase I 0986-88) with an estimat..ed cost of rtl. 79 billion ($31 million of which $27 million in foreign exchange) would concentrate on: (i) network rehabilitation, including studies, technical assistance and training, necessary for the establishment of an effective operations and maintenance organization, (ii) completion of the basic long distance transmission network linking major economic centers, (iii) replacement and expansion of automatic exchanges in Accra North, Kumasi and Cape Coast, and (iv) consolidation of Bank and OECF funded improvements in financial management; (b) Phase II (1988-90) with an estimated cost of rt1.82 billion ($32 million of which $26 in foreign exchange) would concentrate on: (i) further exchange expansion in Accra and Kumasi to meet full demand in these centers, (ii) automatization of exchanges in all key regional centers, (iii) local network development to support higher telephone penetration in all these centers, and (iv) continued institutional development support as necessary after the execution of the Phase I project. Financing of Capital Expenditure 3.183 It is estimated that internal cost recovery will completely finance the cedi counterpart requirements of the program. - 121 - TABlE III. 20: TEr...E'C..CMiJCATIONS AND POSIS SECTCIR. (Constant 1985 Prices) Total Expenditure Expenditure Foreign Economic Program/ Through Proposed Financing Viability Project December 1986-88 Comnitted/Under ERR/DRC/IRR Cost 1985 Negotiation 1986-88 (0m) (¢l1n) (¢l1n) (0m) A. Internal Teleccm. Service 1. O:lgoing* 24 452 24 Economically viable II 2. Rehabilitation* 1.307 1,307 II 3. Ne.w 1,816 1.816 Sub-Total Indicated 3.147 452 3,147 (Sub-Total - Possible "Corell (1,331) (1,331) ( - ) B. EXternal Telecarm. Service Indicated * 461 461 Fconomically viable Sub-Total - Possible "Core" (461) (461) C. Postal Services - Indicated * 589 589 Economically viable Sub-Total - ''Core'' (589) (589) Total Telecommunications and Posts 4.197 452 4,197 ("Core Program")* (2.381) (2,381) - 122 - POSTAL SECTOR Overview 3.184 The postal services in Ghana have been undergoing serious decline due to a severe liquidity problem. Lack of funds for provision of facilities for housing, storing and sorting of mails, postal stamps and supplies, spares for vehicles for transportation of mails have all added up to a lag time of 1-3 weeks or more for a letter from Accra to reach, say Bolgatanga in the North. The service encounters further delays if the destination is in even remoter areas of the country. Accra handled 62% of all mail in 1984 with four post offices, each post office handled 1. 5 million units of mail in a year or 5,704 mail units a day. Each postman handled on average 565 units of mail each working day of the year and each serviceable vehicle was engaged in transportation of 17,988 units of mail each day. In other regions the mail traffic handled may be less; but so are the resources. In the Central Region, the only existing-vehicle is responsible for a mail traffic volume of 20,269 per day. In the Accra Region each working vehicle is supposed to deliver 17,988 units of mail each day. In the Volta Region there exists one vehicle for transportation of 115 mail units per day to each of the 123 postal agencies in the greater Volta region. The Postal Sector Investment Plan 1985-88 3.185 Table 111.20 also gives the postal sector investment plan for the period 1986-88. The total capital outlay calls for a gross investment of ~586.5 million ($11.1 million). A substantial portion of funds are intended for the construction of a mail distribution center in Accra and setting up a national security printing press. Other works include investment in establishing post offices. postal agencies, purchase of pillar and private letter boxes. 3.186 The Mail Distribution Centre, Accra. Themail traffic handled in the Accra GPO has· increased considerably in recent years. Of the 97.7 million units of mail handled in 1985. 62% passed through the GPO averaging 375,770 items every work day of the year. In Accra, all operations are performed manually. The present sorting office has been in use for the past 30 years without extension even though traffic has increased over ten-fold during the period. consequently it is faced with traffic volume far beyond its capacity. Due to overcrowding the existing layout cannot be improved upon. Equipment is inadequate and there is no room to put in more provision of a sorting office with suitable mechanical equipment which is urgently required for a speedy and efficient sorting and delivery of mail. Mechanization in this case implies the use of simple aids for indoor conveyance or correspondence from point to point J loading and unloading operations and outdoor conveyance. It is intended that the mail distribution center be provided with basic equipment such as moving belt conveyors and date-stamping machines etc. and then employ postmen to do the sorting. The proposed center when complete is expected to generate - 123 - substantial savings in time and considerably improve the efficient management and handling of nails throughout the country. 3.187 National Security and Printing Press. Ghana at present, expends substantial foreign exchange for the printing of stamps, air letter forms, postal orders. money orders and other security items. A national security and printing press was proposed a few years b~ck with the original complet'ion date December 1983. However. the contract has not yet been awarded and despite repeated budget allocations, no funds have been disbursed for commencement of the project. The total project cost over the 1986-88 period is expected to be ~85 million. When complete the printing press is expected to generate substantial foreign exchange savings by printing stamps. air letter forms. postal and money orders, check books. passports. airline tickets. identity cards and other items locally. 3.188 Post Office Buildings. The 1986-88 investment plan calls for construction of 17 small post offices in various regions across the country. 3.189 Plant and Equipment. Since door to door delivery of mails in Ghana is practically non-existent because of a lack of street and house numbering system. private letter boxes are relied upon by almost everyone for delivery of their post. The long waiting list for private letter box rentals testifies to the importance of providing sufficient letter boxes to satisfy a greater portion of the demand. The plan proposes to double the existing capacity with the number of letter boxes (large. medium and small) reaching 153,088 people throughout the country. The plan also calls for establishment of 132 postal agencies and upgrading of 38 existing postal agencies to the status of a full departmental post office to meet enhanced demand over the 1986-88 period. In addition to the above. provision has been made to increase the number of pillar post boxes in major cities and towns for greater convenience to the public and general improvement in the quality of service provided. Stamping machines. specie boxes and other small machine items have been included to facilitate handling of mails in maj or post offices in the nine regional capitals. The plan calls for provision of 78 new vehicles for collection and delivery of mails within the nine regional capitals. It was considered advisable that postal depa-rtmental vehicles be used fo-r only in-city transportation of mails thereby -reducing the costs of maintaining the vehicles. All other routes be negotiated with the State T-ransport Corporation, Ghana AiLWays and Ghana Railways fo-r t-ransportation of mails within the count-ry. It is expected that between Accra. Kumasi and Takoradi. the bulk of the mails be t-ransported through the Ghana Railways; between Accra and Tamali and Accra. and to all other towns whe-re Ghana AiLWays has scheduled flights. use be made of the airlift facilities provided by the Ghana AiLWays. For all othe-r areas, (including the -remote a-reas) the mails be transported under a contract with the State Transport Corporation. 3.189 Project Benefits from the Postal Sector Investment Plan 1985-88. The numbe-r of private letter boxes are expected to be doubled by 1988. The impo-rt of new vehicles and spares for existing vehicles are expected to - 124 - increase the number of functioning vehicles in the regional capitals by 27S% of the existing number. These, together with other supporting investments proposed will have a swift and substantial effect in the collection and delivery of mail within the main cities and it consequently expected that the average lag time for a local letter will decrease from between two days -- 2.S weeks to between 2-S days. Financing of the Postal Sector Investment Program 3.190 In order to finance the cedi costs of the proposed investment program it is proposed that the cost of a stamp currently valued at ~1 be raised to (l:3.S in 1986, (l:4.S in 1987 and further (tS.O in 1988. Basic airmail costs be increased from a flat rate of rt2 to lOlt in 1986 and further (tIS in 1987. Based on the revenue and expenditure estimates for the 1985-88 period, with increased stamp value and sales, internal cost recovery is more than sufficient to cover hoth the capital and recurrent costs of the postal sector for the programming period. - 125 - WATER SUPPLY CAPITAL EXPENDITURES Elements of the Investment Program 3.191 In the context of current economic and financial conditions, GWSC's proposed capital investment programme for the period 1985-89 embodies three major activ:J..ties; rehabilitating and maintaining existing facilities, completing works in progress and providing more rural water supply schemes. These categories of works were identified as priority investments which were selected in order to put scarce resources to their best use. Notably, the investment programme does not include any expansions of urban systems; these were determined to be of relatively low priority, although they do require reasonably early attention because of the high population growth in the urban areas. 3.192 The rehabilitation and maintenance schemes cover 128 systems at a cost of ¢2.25 billion. The components of these are: (i) Replacement, repair or overhaul of electromechanical equipment, treatment facilities, storage tanks, pipes, fittings, etc., 250 shallow wells, rehabilitation of wells and installation of hand-pumps (¢1,796 million); (ii) Materials and equipment for leak detection and repair (¢5.7 million); (iii) Purchase of meters, equipment for meter reading, billing and collection staff, construction of neighborhood collection kiosks, meter validation and connection regularization activities (¢7.64 million); (iv) Adequate support services including technical assistance, engineering, vehicles, buildings and training facilities (¢437 million). The completion of ongoing schemes in the urban areas cover several maj or urban areas at a cost of ¢5. 08 billion. These are: (i) Completion of existing project and other works in Greater Accra according to master plan (6.075 million); (ii) Completion of projects with current foreign aids involvement in Techiman Cape Coast. Sekondi-Takoradi. completion of projects in Kumasi, Kwahu Ridge, Koforidua. Ho (¢979 million); (iii) Adequate design, implementation and maintenance support (¢1026 million). The rural water supply schemes have a total cost of ¢1.1 billion. These cover: (i) About 1,700 new rural water schemes of which about 200 are hand dug wells and about 1,500 are shallow boreholes with hand pumps (¢883 million); (ii) Adequate design, implementation and maintenance support (¢218 million). 3.193 As a guide in ranking among the investment categories, internal financial rates of return (IRR's) were calculated by comparing quantifiable projects costs and project benefits. Project costs consist of capital costs, including design and support services, plus incremental operations and maintenance costs attributable to the investment; these costs have been assumed to be 2% of total capital costs. A minimum estimate of project benefits is obtained by valuing incremental consumption attributable to the investment at the average prevailing tariff. For FY84, the average tariff was about ¢20/1000 gallons. For comparison, a second calculation has been made for each proj ect using an average tariff of ¢60/1000 gallons. - 126 - 3.194 Ongoing sch~mes have been broken into two groups: those in six secondary cities aLld other (principally ATWA). Alt:hough only rough production estimates were available for the six cities projects, IRR's were estimated with the understanding that the IRRs would only be indicative due to the imprecise nature of the production estimates. The IRR's are also not estimating economic returns to the projects and are therefore not comparable to the rate of return displayed in other sectors. The calculated aggregate IRR at the ~20 tariff is negative; that calculated with the ~60 tariff is 3%. However, IFRs calculated for each of the six cities individually range from negative values to over 40%. The IRR for ATWA was estimated to be in excess of 50 percent. Further study of the · benefits related to each of the ongoing schemes including those in ATWA is warranted prior to finalizing the investment program. 3.195 The proposed Rural Schemes consist of wells and boreholes with relatively low yields. They produce benefits of improved access and improved health to about one-half million people, however, those benefits cannot be quantified. The IRR' s calculated using production valued at average tariffs of ~20 and ~60 are negative and 6%, respectively. Although the IRR's are marginal. unquantifiable benefits and other considerations, such as rural development objectives, help justify the rural schemes. 'IDrAL III.21: WATER SUPPLY INVESI'MENl' PR£::GRllM (Constant 1985 Prices) Total Experrliture Experrliture Foreign Econanic Program/ lhrough Proposed Financing Viability Project Decanber 1986-88 Comnitted/Under ERR/DRC/IRR Cost 1985 Negotiation 1986-88 «(lHl.) «(lHl.) (Q!Mn) (~) 1. Rehabilitation Programs (128 Systems) * 2,247 645 69% IRR (1985) 2. Caq>letion of ongoing schemes: Total 5,080 4,036 1,044 236 (- Accra)* (3,075) IRR 50% (1985) (- 6 other cities)* (979) IRR Neg. to 48% (198': (- Technical Asst) * (1026) 3. Rural water Supply: Total 1,101 473 6% IRR (1985) - 1700 Schemes * 883 - Tech. Asst. * 218 Sub-Total Indicated 8,428 4,036 2.162 236 (IICore Program")* 8,428 2.162 (236) - 127 - THE "CORE" DEVELOPMENT EXPENDITURE PROGRAM - AN OVERVIEW 3.196 A total of 159 programs/projects were evaluated for the economic sectors and of these 102 made the "core" category (see Annexure Table I for a summary statement and Annexure II for a detailed listing of these "core" projects). This surprisingly high number of apparently viable projects/programs reflects the essential rehabilitation and maintenance requirements of the economy and the fact that most projects/programs proposed are geared towards this requirement. With high existing sunk costs, rates of return on incremental investment are accordingly high. 3.197 The agricultural "core" expenditure program of ct12.76 billion involving 16 major programs/projects focuses on restructuring and rehabilitation of the agricultural sector. Ongoing high cost schemes - particularly irrigation and the Northern Region Integrated Development Project - are proposed to be rationalised as quickly as possible. The only major new projects to come on stream in the period in the presently· identified "core" program will be aimed at reinforcing existing institutional structures in the agricultural (including the cocoa) sector. The associated policy frame - work focuses on adequate price incentives for farmers, agricultural research and privatization of certain activities (e.g. fertilizer distribution). 3.198 In mining the "core" investment program amounts to ctl0.5 billion spread over the five major mining companies. Technically, all the projects are rehabilitation projects. Increases in capacity envisaged till the end of the programming period (1988), whilst substantially would still be leaving Ghanian production in all these sectors well below levels achieved in the early 1970's. The policy frame-work focuses on encouraging modernisation through technical assistance and where possible collaboration with international mining corporations. Ashanti, SAMC, and GBC will in fact be managed by international technical partners during this period. Measures should also be taken to encourage local private sector participation in gold and diamond mining beyond the limited levels currently permitted and to bring into the official system the vast quantities of gold and diamonds which are privately mined and smuggled overseas. 3.199 The energy sector with 19 projects and a "core" investment program of \tl0.9 billion is the only sector where maj or additions to capacity are envisaged. These occur in petroleum and primary electricity generation and distribution. In the petroleum sector this new capacity creation should, with the exception of the Tar Sands Development. be entirely undertaken by private international or other national oil companies - with the government either taking up an equity share or putting in "seed money". In primary electricity generation and transmission the new capacity is in combustion turbines (to supplement hydro-generation) and in putting in the third transmission circuit to CEB for electricity exports. In petroleum refining and distribution and in electricity distribution (which together accounts for about ct4 billion or about 37 - 128 - percent of the energy sector program) , all investments are in rehabilitation capacity. 3.200 The public sector industry "corell program of rt 1.97 billion over 19 proj ects is entirely rehabilitation. The policy frame-work emphasis financial autonomy and support for viable enterprises and disinvestment of state involvement in economically and financially non-viable enterprises where no prospects exist for their being turned around. The roads and highways, transport and communications and water supply "core" programs totalling rt33.3 billion focus on rehabilitation of existing systems (with marginal additions of feeder roads and rural water supply). The policy emphasis here is on enhanced cost recovery to enable the systems to be · maintained in the future. 3.201 While the "core" program of large projects in each sector is expected to comprise the bulk of new investments in the sector, it should not be considered the entire sectoral program. A small number of programs/projects have not been included in the "core" program for the sectors concerned because of insufficient information, because the timing was uncertain, or because of doubt about the absorptive capacity of the sector to deal with them over the period 1986-88. The programs projects (covering about all sectors and detailed in the relevant sectoral sections) need to be studied carefully and added to the "core" program i f justified on economic grounds and if resources are determined to be available for the sector. This also applies to programs/projects which were not fully developed at the time of the mission. THE FINANCING OF THE "CORE" DEVELOPMENT PROGRAM 3.202 The project review also allowed insights into the possible financing of the "core" development program. The core" large program amounts to ~69.5 billion of which ¢42.8 billion is in the Corporate Sector and rt26.7 billion is in direct Government Sector. The total Government share of these capital expenditures (1. e. excluding self financing by public corporations estimated at about ~12. 4 billion is financed through the Development Budget, direct net lending to public corporations and authorities, foreign capital onlent to Government ministries and foreign capital onlent to public corporations and authorities (see Annexure III). The requirement for these funds is about rt57 billion which is well within the amount available for the purpose. However, the requirements of government direct lending to the public sector will exceed availability of local resources and untied foreign capital counterpart funds will have to be used extensively to fill this gap. This also reflects the fact that many of the projects in the "core" program have yet to seek foreign capital financing. CONCLUSIONS 3.203 The Government of Ghana's assessment that the present situation is appropriate to launch a Three Year Development Program covering the - 129 - 1986-88 period appears timely. While the Ghanaian authorities have been understandably pre-occupied in the recent past with the stabilization and rehabilitation needs of the economy (the Economic Recovery Program), it is now appropriate to look ahead to steady and disciplined growth in a medium-term perspective. Within this context it appears that high priority must be assigned to rebuilding the public administrative sector and arresting and reversing the apparent decline in the health and education sectors. While resources available for this purpose are limited, an appropriately focused program in these sectors stressing efficiency, high standards of services and cost recovery should be feasibly to implement over the next three years. With regard to the more traditionally defined capital investment program for the period 1986-88, Ghana is fortunate in having in hand a large number of economically attractive proj ects which should be financed with both domestic and foreign capital. However, a closer look than that undertaken in this PER Mission is warranted for all major projects and a pipeline of additional viable programs/projects needs to be developed. This should be possible in the context of the Ghana Development Plan for 1986-88 currently under preparation. .. ANNEXDRE I lARGE PRruFCI' "CORE:' PUBLIC CAPITAL EXPENDI'IURES INDICATED FOR 1986-88 PERICD (Constant 1985 Prices) Foreign Financing Expenditure Q:mnitted/Under Number Proposed Negotiation Projects/ 1986-88 1986-88 Programs «(tM1) (9'Ml) 1. Agriculture "Core" 12,758 2,834 16 2. Mining "Core" 10,549 4,788 5 3. Energy Sector "Core" 10,915 3,507 19 4. Industry "Core" 1,965 848 19 5. Roads & Higl:1Nays "Core" 15,698 5,712 17 6. Transport & Carro. "Core" 15,445 8,321 19 7. i-hter Supply Sector ''Core'' 2,162 236 9 TOrAL 1-7 "CO~' PRO:iRAM 69,492 26,246 104 SELF FINANCED 1/ 12,491 TOrAL PUBLIC R.fuJRcEs RF.QJIRED 57,001 26.246 Y Fran Annexure III. ANNEXURE II page 1 of 7 "OO~I CAPITAL EXPENDITURE PR.CGRAt-I - PROJECT DEl'AIL (01i.llion Constant 1985 Prices) Total EXpenditure Expenditure . Foreign Econanic Program! Through Proposed Financing Viability Project/Progran Project Decanber 1986-88 Carmit/UOOer ERR/DRC/IRR Cost 1985 Negotiation 1986-88 (g)h) (g)h) (g)h) (g)h) I. liGRICULI1JRE Cocobod 1. Behabilitation & Planting) 2,100 Econanic · 2. Feeder Roads ) 10,505 1.348 2,400 Ecoru::mi.c M:inist!,! of Agriculture 3. Crop Services 860 860 Ecoru::mi.c 4. Vet. Services 270 270 Econcmic 5. Other Services 766 766 Econa:nic 6. Grains Development (GCDB) under (11) 1.214 Ecoru::mi.c 7. Volta Region NJP 2,581 n.a. 1,037 1,007 16%ERR(1982) 8. Cotton De'\Telormmt 675 675 Ecoru::mi.c 9. lotrlze support and Others 760 760 Econanic 10. Institutional Strengthening 260 260 200 Economic CSIR 11. CRI etc. 1,570 1,570 Econanic 12. Oil Palm 164 164 80 Economic 13. Cocoa Research 225 225 Econa:nic Oil Palm Plantations 14. Topp I 1,100 1,100 158 9"!.ERR( 1980) 15. Topp II 1,902 n.a 271 175 13%ERR(1983) Rubber 16. Grel 300 300 Economic 'IUfAL liGRIaJLTURE SH::IOR 21,938 12,758 2,834 II.MIN:IID 17. Ashanti Gold Fields Corp. 8,892 1,425 6,954 3,078 53%ERR(1984) 18. State Gold Mining Corp. 5,312 2,097 1,710 lErIoERR(l985) 19. Ghana. Bauxite Corp. 313 313 Ecoru::mi.c 20. Ghana. National Manganese Corp. 439 46 393 Econa:nic 21. Ghana. Consolidated Diawnds 1,761 820 792 Economic Sub-Total 717 2,337 10,549 4,788 ANNEXURE II page 2 of 7 "OORE,f' CAPITAL EXPENDlTIJRE PRJ:X;R.AM - PROJFCI' DEI'lill.. (¢ Million. Constant 1985 Prices) Total Expenditure Expenditure Foreign F.conomic Program! Through Proposed Financlng Viability Project Decanber 1986-88 Comnitted/Under ERR/DRC/IFR Cost 1985 Negotiation 1986-88 (~) (~) (~) (~) III. Energy Sector ~ Petroleum Sector 22. Saltpond 1.140 228 912 848 25% IRR (1985) 23. Tano Tar Sands 228 228 196 60% IRR (1985) 24. Sooth Tano Goverme:lt Costs 14.250 1.425 50% IRR (1985) 25. Exploration Prc:m>tion 171 171 26. GNPC Technical Assistance 171 171 171 SulrTotal 15.960 228 2.907 1.337 B. Petroleum Ref:i.ning and Distribution 27. Petroleum Refinery and Rehabilitation 1,026 355 1.026 688 65% ERR (1984) Phase I (ongoing) 28. Petroleum Refinery and Rehabilitation Phase II 342 342 342 Economic 29. Lube Blending Plant 855 85 F.coru:m:ic 30. Oil Depots Rehab. 114 114 F.conani.c 31. Retail CUtlets Rehab. 570 570 F.coru:m:ic 32. I.I:X; Marketing Facil. 285 285 F.coru:m:ic 33. Rural Area Petroleum Product CUtlets 342 342 Economic 34. Volta Lake Transportation 171 171 F.concmic SulrTotal 3.705 355 2.935 1,030 C. VRA P~r Generation Transmission 35. Netwrk Rehab. Phase II 741 741 Econanic 36. Grid Reinforcement 855 855 F.conomi.c 37. Canbustion . 1Urbine Units 1,311 1,311 F.coru:m:ic 38. Third Circuit to CEB 513 513 F.cor.cm:ic SulrTotal 3,420 3,420 ANNEXURE II page 3 of 7 "CXJRE' CAPITAL EXPENDITURE PRCX:;RAM - PROJECl' DErAIL «(/, Million. Constant 1985 Prices) Total &pend1i::ure Expenditure Foreign Froncmic Progran/ Through Proposed Financing Viability Project December 198&-88 Ccmoitted/Under ERR/DRC/IRR Cost 1985 Negotiation 1986-88 (~) (/fMl) (/fMl) (/fMl) D. Ern: Power Distribution 39. IDA System Rehab. Project I 1.311 1.311 1.140 Econanic · SulrTotal 1,311 1.311 40. E. NEB Renewable Fl'lergy 342 342 Econanic SulrTotal 342 342 IV. Industry 41. Tena Food Canplex 341 n.a 341 318 Economic with suggested invest- IIelt program 42. Bonsa Tire Co. 227 n.a 227 Econanicwith suggest invest- IIelt program 43. GlHCX:: Pharmaceuticals 705 n.a 705 530 Economic 44. GIHIX: Glass 126 n.a 126 Potentially Froncmic 45. GIHOC Steel 181 n.a 181 Potentially Froncmic 46. GIHIX: Foundry 194 n.a 194 Potentially 59. Specified 13 Econanic GIHOC Co. 's 1.1 191 n.a 191 Froncmic, treating previous investnalt as sunk costs SulrTotal 1.965 n.a 1.965 848 ~tal Industries, Paper Conversion. Electronics, Footwear Ghana manufacturing. 1/ Bottling Co ·· Paints. Printing and Paper Production. Refrigeration and Hrusehold EquiptSlt, Boatyards, Fibre Products Co ·· Distilleries. Cannery ANNEXURE II page 4 of 7 "Q)~I CAPITAL EKPENDlTIJRE l'R£.'(;RAM - PRO.JECI' DEI'AIL (rt Mi.llion Constant 1985 Prices) Total Expenditure Expenditure Foreign Economic Program! Through Proposed F:ina:ncing Viability Project December 1986-88 Conmitted./Ui:xler ERR/DRC/IRR Cost 1985 Negotiation 1986-88 (VHt) (VHt) (VHt) (0-h) . V. Roads and H:i.gbways Ghana Highway Authority A. Trunk Road Slstem 60. Road Rehab. and Maintenance Project (IDA sponsored) 4.907 4.907 3,463 50% ERR (1985) B. Ongoing Rehab. and Construction Project (50%-85% canpleted) 2,153 n.a. 2.153 302 ERR estimated at IllJre than 50% on investment required for completion of project. 61. Reconstruction of~taba- II Elubo 325 n.a 325 211 62. Assemby bridge Program 102 n.a 102 91 " 63. Reconstruction of Daboase Junction fI To Takoradi 900 n.a 900 64. Construction of II Several Bridges 40 n.a 40 65. Construction of II Asukawkaw Bridge 107 n.a 107 66. Reconstruction of Yarooransa Assim II Preaso Road 91 n.a 91 67. Reconstruction of II Begoso-Ayanfuri Road 587 n.a 587 68. Other Rehabilitation (construction Projects) 5,682 n.a 5,682 69. Rehab. of Yanarona- ArlviarIkwanta 992 n.a 992 16% ERR (1985) 70. Reconstruction of Yepi- ~roo Road and Bridge Approaches 376 n.a 376 10% ERR (1981) ANNEXURE II page 5 of 7 1t(J)REf' CAPITAL EXPENDITURE PRa;RAM - PROJECI' DEIAIL (ft l'lilli.on Constant 1985 Prices) Total EKpenditure EXpenditure Foreign Econood.c Program! Through Proposed Financing Viability Project Deca:Iber 1986-88 Cannitted/Under ERR/DOC/IRR Cost 1985 Negotiation 1986-88 (!1l-h) (~) (!1l-h) «(1'Mn) 71. Reconstruction of Tepa Junction-Sunyani 724 n.a 724 20% ERR (1985) Department of Feeder Roads 2,904 n.a 2,904 72. DeveloJ;m=nt/Becons · 1,936 n.a 1,936 15% ERR (Rule) 73. Periodic maintenance 968 n.a 968 24% ERR (1985) Urban Roads 3,642 n.a 3,642 1,947 74. Rehab. of Accra City Roads 1,026 n.a 1,026 807 7(1% ERR (1985) 75. Rehab. of Kumasi City Roads 2,228 n.a 2,228 1,140 30% ERR (1985) 76. Reconstruction of Kaneshi.e-Mal.1an Road 387 n.a 387 30% ERR (1985) Sub-Total 15,698 n.a 15,698 5,712 VI. Transport and Canrunications A. Ghana RaiJ.:.Jays 77. O:Jgoing inc. Suppl. Project 941 3,648 941 485 30% ERR (1985) 78. Two Accident Relief Trains and 1 Crane 228 228 Pr:imae-facie justifi. 79. 150 ~ Rep1.acEmmt 428 428 II 80. W,rkshop Facilities 126 126 81. Training School Phase II 228 228 " 82. 3 Locarotives 240 240 II 83. Rehabilitation of Buildings 102 102 II 84. Tecl:mical Assistance 188 188 II Sub-Total Indicated 2,481 3,648 2,481 485 ANNEXURE II page 6 of 7 "OORE" CAPITAL EXPENDITURE PR.(X;RAM - PROJI!X::I' DErAIL (¢ Million Constant 1985 Prices) Total Fxpenditure Expenditure Foreign Econanic Program/ Through Proposed F:i.IJancing Viability Project Decanber 1986-88 Conmltted/Under ERR/DRC/IRR Cost 1985 Negotiation 1986-88 (9*Hl) (9*Hl) (~) (9*Hl) B. Ports 85. Cklgoing Project ERS 95 264 95 95 Economically viable 86. Proposed Rehab. Project, Tena & Takoradi Ports 4.160 4,160 3,550 20% ERR (1985) Sub-Total Indicated 4,255 264 4,255 4,002 C. Ghana Airways 87. Aircraft Purchases 3,078 3,078 2.736 15% ERR (Rule) (2 ID-82) Sub-Total Indicated 3,078 3.078 2,736 D. Black Star Line 88. 4 New Vessels 1,098 1,098 1,098 15% ERR (Rule) Sub-Total 1,098 1,098 E. State Transport Corporation 89. Purchase of 240 new b.Jses 40 new trucks and 37 new tankers as replacaIent and expansion 1,405 41 1,405 15% ERR (Rule) Sub-Total 1.405 41 1.405 F. Q:mi fus Service 90. New Buses 546 546 15% ERR (Rule) Sub-TOtal 546 546 G. City EXpress Transport 91. New Buses 201 201 15% ERR (Rule) Sub-Total 201 201 H. Internal Telecom. Service 92. Cklgoing 24 452 24 Economically v"....able 93. Rehabilitation 1.307 1,307 " Sub-Total 1.331 452 1.331 I. EXternal Telecrnm. 94. Service 461 461 Economically viable J. 95. Postal Services 589 589 Economically viable ANNEXURE II page 7 of 7 tlCCJRE.ff CAPITAL EXPOOI'IDRE PR.(X;RAM - PRillEC.T DEI'AlL (¢ Million. Constant 1985 Prices) Total Expenditure EXpenditure Foreign FconI:mi.c Program! Through Proposed Financing Viability Project December 1986-88 Coomitted/Under ERR/DRC/IRR Cost 1985 Negotiation 1986-88 (~) (010) (010) (0-In) VII. vater Supply 96. Rehabilitation Programs · (128 Systems) 2.247 645 69% IRR (1985) Canpletion of ongoing schares: Total 5.080 4.036 1.044 236 97. (- Accra) (3.075) 50% IRR (1985) 103. (- 6 other cities) (979) Neg. 48% IRR (1985) (- Teclmical Asst) (1.026) Rural vater Supply: Total 473 6% IRR (1985) 104. - 1700 Schares 833 - Tech. Asst. 218 Sub-Total 8.428 4.036 2.162 236 Total (I-VII) 108.519 68.626 26.588 ANNEXURE III page 1 of 2 FINANC]N; OF 1HE "co~' DEVELOPMENr EXPENDTIURE ~ 1986-88 (rt Million, Constant 1985 Prices) Total Financing Develclfmmt Self Govt. Dir. Govt. Dir. Direct Foreign EXpenditures Financed lbdget lending to Foreign Capital Onlent EXpenditures Public Capital to Public Sector Govt.y Sector y 1. ..Agriculture 1. Ministry of Agriculture 2,156 1,956 200 2. MlA Projects & Authorities 4,016 1,795 2,221 3. Other .8gr. Projects 2,086 1,673 413 4. Cocoa Board 4,500 2,100 2,400 Sub-Total 12,758 2,100 6,151 1,673 2,421 413 II. Mining 1. KJ.:. 6,954 -265 4.141 Y 3,078 2. SCM: 2,097 377 10 1,710 3. OC 393 325 68 4. GEe 313 -264 577 5. GOC 792 -125 917 Sub-Total 10,549 48 5.713 4,788 III. Fuel & Power 1. GNPC 2,907 1,570 1,337 2. Refinery 1,368 338 1,030 3. GOIL 1,567 1,567 4. VRA 3,420 3,420 5. Em 1,311 171 1,140 6. NEB 342 342 Sub-Total 10,915 4,987 342 2,079 3,507 IV. Industry 1. Tana. Food Ccxrplex 341 23 318 2. Bonsa Tire Co. 227 117 110 3. GIRCC 1,397 867 530 Sub-Total 1,965 1,007 110 848 ANNEXURE I II page 2 of 2 FINANCING OF THE "CORE." DEVELOPMENT EXPENDTIURE PR(X;Rt.M 1986-88 (CXNID) (rt Million, Constant 1985 Prices) Total Financing Devel.oj;m:mt Self GJvt. Du. GJvt. Du. Direct Foreign Expenditures Financed Budget lending to Foreign Capital Went Expenditures Public Capital to Public Sector GJvt.y Sectory V. Roads & Highways l.GHA 9,152 1,098 4,289 3,765 2. Dept. of Feeder Roads 2,904 602 2,302 3. Urban Roads 3,642 352 1,343 1,947 4. Road F\md (1,908) Sub-Total 15,698 2,052 7,934 5,712 VI. Transport & Conmmic. 1. Ghana Railways 2.481 -418 2,414 485 2. Ports 4,255 253 4,002 3. Ghana Airways 3,078 342 2,736 4. Black Star Line 1,098 1,098 5. State Transport Corp. 1,405 1,405 6. Qmi Eus Service 546 546 7. City EXpress Transport 201 201 8. Internal Te1ecarm. 1,331 1,331 9. EK:ternal Te1ec.a:nn. 461 461 10. Postal Services 589 589 Sub-Total 15,445 4,115 3,009 8,321 VII. \iater SupplX Sector 1. (;W3C 2,162 -1,818 3,744 236 Sub-Total 2,162 -1,818 3,744 236 '!UrAL 69,492 12.491 14,427 15,328 8,133 18,113 1/ Identified as of May 1985. Y Likely to be darestic CCIIlIIJarcial bank borrONings.