Document of FILE COPYThe World Bank

FOR OFFICIAL USE ONLY

Report No. P-2716-GH

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

TO THE

REPUBLIC OF GHANA

FOR A

THIRD HIGHWAY (EMERGENCY MAINTENANCE) PROJECT

May 5, 1980

This document has a restricted disrHibution and ay be used by recipients only in the performace oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

Currency Unit Cedis (¢)US$1 2.75 Cedis1 Cedi = US$0.36

FISCAL YEAR

July 1 - June 30

ABBREVIATIONS AND ACRONYMS

BHC - Bank for Housing and ConstructionCIDA - Canadian International Development AgencyGDP - Gross Domestic ProductGHA - Ghana Highway AuthorityIDA - International Development AssociationIMF - International Monetary FundKfW - Kreditanstalt fur WiederaufbauMTT - Ministry of Transport and TelecommunicationsNIB - National Investment BankOSA - Omnibus Service AuthorityPP - Plant Pool, Ltd.SCC - State Construction CorporationSDR - Special Drawing RightsSTC - State Transport Corporationvpd - Vehicle per dayvkm - Vehicle kilometers

FOR OFFICIAL USE ONLY

GHANA - THIRD HIGHWAY (EMERGENCY MAINTENANCE) PROJECT

CREDIT AND PROJECT SUMMARY

Borrower: Republic of Ghana

Amount: IDA Credit of US$25 million equivalent

Terms: Standard

Relending Terms: US$4 million of the proceeds of the credit would berelent to the Bank for Housing and Construction (BHC)at 12-1/2 percent per annum for 8 years including 2 yearsof grace.

ProjlectDescription: The project aims primarily at reactivating the road

maintenance program initiated under the Second Highway(Maintenance) Project, which virtually came to a stand-still due to Ghana's severe shortage of foreign ex-change, and at increasing the capacity of the domestictrucking fleet to permit transportation of food and otheressential commodities. Specifically, the project would:(a) enable Ghana to carry out for the next two yearsroutine maintenance on all public roads and periodicmaintenance on about 6,000 km of paved, gravel and feederroads by providing spare parts, lubricants, bitumen andtools required for Ghana Highway Authority (GHA) andprivate domestic contractors engaged in road maintenance;(b) increase the capacity of private domestic contractorsand quarry operators to undertake road maintenance worksby providing equipment and related spares through a lineof credit to BHC; (c) enable remobilization of part ofthe domestic trucking fleet by providing spare parts,lubricants and tools; and (d) strengthen the institutionalcapacity of BHC and the private domestic contractorsthrough technical assistance. The main project risk isthat project-financed spare parts and other supplies forthe private sector may be diverted from their intendedrecipients. The project would attempt to minimize therisk through pricing measures as well as involvement ofBHC in monitoring distribution and final use.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

- ii -

US$ millionsEstimated Cost: Local Foreign Total

(i) Spare parts, tires, lubricantsand bitumen for GHA 6.22 11.70 17.92

(ii) Supply and installationof generators for GHA 0.07 0.15 0.22

(iii) Sub-loans for contractorsand quarry operators 2.40 4.00 6.40

(iv) Imports of spare parts andmaterials for contractorsand truckers 12.00 6.00 18.00

(v) Technical assistance 0.59 1.05 1.64

(vi) Price Contingencies on:

(a) Supplies for GRA 0.79 1.98 2.77(b) Technical assistance 0.13 0.12 0.25

TOTAL 22.20 25.00 47.20

Duties and Taxes 8.60 - 8.60

Project Cost (Net of Tax) 13.60 25.00 38.60

Financing Plan: Local Foreign Total(US$ millions)

IDA - 25.00 25.00Government 2.30 - 2.30Contractors and Truckers 10.90 - 10.90BHC 0.40 0.40

Terms of BHC's Sub-Loans: BHC sub-loans to contractors andquarry operators, to financeequipment, would carry interest at18-1/2 percent p.a., and a commitmentfee of one percent p.a. Sub-borrowers

would bear the foreign exchange risk.Amortization would be up to five yearsincluding an average of nine monthsof grace. The free limit would beUS$200,000 on individual sub-loansand an aggregate limit of US$2million.

EstimatedDisbursements:

FY1981 FY1982 FY1983(US$ millions)

Annual 9.0 14.5 1.5Cumulative 9.0 23.5 25.0

Economic Rate of Reti.rn: In excess of 100 percent

Staff Appraisal Report: None

Map: IBRD 14888

INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECOIThENDATION OF THE PRESIDENT OF THEINTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE EXECUTIVE DIRECTORS ON APROPOSED CREDIT TO THE REPUBLIC OF GHANA FOR ATHIRD HIGHWAY (EMERGENCY MAINTEITANCE) PROJECT

1. I submit the following report and recommendation on a proposeddevelopment credit of US$25.0 million equivalent on standard IDA terms tothe Republic of Ghana to help finance the Third Highway (Emergency 11ainte-nance) Project. US$4.0 million of the proceeds of the credit would berelent to the Bank for Housing and Construction (BHC) for eight years includ-ing two years of grace at 12-1/2 percent per annum.

PART I - THE ECONOMY 1/

2. An economic report entitled "Ghana: Economic Memorandum" wasdistributed to the Executive Directors in May 1979 (2345-GH). An economicmission visited Ghana in October, 1979, and its principal findings areincorporated in the following paragraphs. Basic economic data and selectedsocial indicators are summarized in Annex 1.

Basic Structural Characteristics of the Economy

3. Agriculture is the largest sector of the economy accounting for51.1 percent of GDP in 1978. Industrial production and services account for17.2 and 31.7 percent respectively. Although Ghana had traditionally enjoyeda fairly high standard of living compared with most other West African nations,the growth performance of the economy in recent years has been uneven andpoor. In the period 1973-78 real GDP declined at an average annual rate of0.4 percent, implying a decline in per capita income of 3.1 percent annually,as population was growing at 2.7 percent. The per capita GNP is estimated atUS$390 in 1978.

4. The most significant factor underlying Ghana's poor economicperformance in recent years has been the decline in the volume of exports,which depend almost entirely on a few traditional export commodities--cocoa(of which Ghana is the world's third largest producer), timber, manganese,gold and diamonds, which together constitute 94 percent of exports. Inaddition to contributing about 80 percent of the country's export earnings,cocoa provides around 48 percent of government revenues and employs more than20 percent of the labor force. Cocoa exports have declined substantially inrecent years due principally to low producer prices, inadequate rehabilitation

1/ Substantially unchanged from the President's Report for Volta RegionAgricultural Development Project dated April 2, 1980 (Report No.P-2762-CH).

efforts, and shortages of labor, imported inputs and transport equipment.Aggravated by adverse weather conditions in 1975-77, cocoa output in 1977-78fell to 271,000 tons, compared with well over 400,000 tons in the early 1970s;in 1978/79 output fell further to 265,000 tons. Cocoa export earnings,however, remained firm because of the high world market price for the crop.Production of most of the minerals is stagnating, because of depletion of themineral ore reserves, poor transport facilities and run-down equipment.

5. Near self-sufficiency had been reached in basic cereal productionwith the "Operation Feed Yourself" program launched in 1972. But food pro-duction declined due to the prolonged drought in 1975-77, and because ofinadequate support services and lack of fertilizers and inputs requiringforeign exchange. Rising food prices have been an important component ofthe high inflation rate. With improved rains,food production recovered tosome extent in 1978, and the indications are that this recovery has beensustained in 1979.

6. Manufacturing in Ghana remains heavily dependent on imported inputs.Manufacturing contributed 14 percent of GDP in 1971 but this figure hasdeclined progressively to 10 percent in 1978 due to lack of raw materialsand spare parts caused by continuing foreign exchange shortages. Most plantsare estimated currently to be operating at around 20-30 percent of installedcapacity. This sector provides full and part-time employment to about 12percent of the labor force.

7. Traditionally, Ghana has imported its entire petroleum requirements,mostly in the form of crude oil which is refined domestically and used chief-ly as a source of fuel for the transport sector. Rising oil import priceshave resulted in crude oil imports absorbing an increasingly large percentageof Ghana's export earnings, from 12.5 percent in 1978 to 25 percent in 1979.Recently, some oil deposits have been discovered and commercial exploitationhas commenced. Production in 1979 has reached 7,000 barrels a day, equivalentto about one-fifth of Ghana's oil requirements. Hydroelectric power meetsmost of Ghana's non-transport energy requirements in the modern sector.

8. Despite its economic problems, Ghana has in the past devoted con-siderable efforts to development of its human resources. The education systemis well established, elementary education has been free and universal since1962, and there has been considerable investment in public health facilities.However, social infrastructure and basic amenities in the rural areas remainpoor: for example, only 14 percent of the rural population have access to safewater and only 21 percent of the country's health establishments are in ruralareas.

Recent Economic Developments

9. During the last decade the country's economic performance has beencharacterized by a high rate of inflation, widening budget deficits and apersistent foreign exchange shortage. This deterioration took place notwith-standing a relatively good natural resource endowment and a significant improve-ment in the country's terms of trade and has to be ascribed essentially topoor economic management. There was a growing imbalance in public finances

- 3 -

due to rapid growth of budget current expenditures and slow growth in budgetrevenues reflecting in part a sharp decline in cocoa production. Also, theuneconomic operations of a large number of government enterprises have been anadditional factor contributing to the budgetary imbalance. Tax revenuesdeclined as a Droportion of GDP from 15 percent in 1974 to 8 percent in 1977,and with lack of control over Government expenditures, the overall budgetdeficit increased from about 6 percent of GDP to nearly 11 percent over thesame period. With virtually negligible external capital inflows, the growingoverall deficit was financed through an excessive reliance on inflationaryborrowing, mainly from the Central Bank. During the period 1971-77, moneysupply increased on average by about 35 percent per annum. In 1977/78 alonethe money supply increased by 60 percent. With no significant increase inproduction in the economy, the rate of inflation accelerated, reaching about116 percent in 1977. In the management of the external sector, too, Ghana hasbeen afflicted by the adverse effects of continuing domestic price increases.With the official rate of exchange fixed at 01.15=US$1 since February 1973,the cedi came to be increasingly overvalued, providing a strong disincentiveto exports and encouragement to smuggling with consequential losses to thecountry's official reserves.

10. In June 1978, in face of an increasingly critical economicsituation, the authorities commenced a program of stabilization. A manageddownward "float" of the cedi was introduced, and in August 1978, a 58 percentdevaluation was implemented which changed the rate to 02.75 to one USdollar. The devaluation was quickly followed with a tough budget for 1978/79which aimed at drast:cally reducing the overall budget deficit. Other measuresincluded: a doubling of cocoa producer price from 040 to 080 a headload(30 kg) to stimulate production; a 25 percent limit on the increase in moneysupply in 1978/79; and tightening of credit.

11. The outcome for the year 1978/79 shows that in the management ofits budget, the Government did make serious efforts to limit governmentexpenditures on both capital and current accounts which were kept at aboutthe same nominal levels recorded in the preceding year--representing,therefore, almost a one-third reduction in government spending in realterms. In revenue collection, however, the shortfall in FY78/79 was 0645million, from an estimated total collection of V3,206 million. Theoverall budget deficit for FY78/79 is estimated at 0981 million, comparedwith the targeted deficit of 0738 million and with the FY77/78 deficit of02,156 million. It is noteworthy that this is the first occasion in recentyears that Ghana's budget deficit has actually been reduced. Following thereduction in the budget deficit, growth in money supply has also beensharply curtailed--money supply increased by only 29 percent in FY78/79 asagainst a 60 percent increase in the preceding year. The demonetization inMarch 1979 which cancelled 0631 million from circulation also contributedto limiting monetary growth.

12. Curtailment of monetary growth, improved local food suppliesand the rolling back of prices between June and September 1979 under coercionby the Armed Forces Revolutionary Council, which took power in June 1979,have all contributed to moderating Ghana's inflation. After registeringa 116 percent increase in 1977, the consumer price index rose by 73 percent

- 4 -

in 1978 and by about 54 percent in 1979. Although this is a significantachievement, the Ghanaian rate of inflation still far exceeds internationallevels and the beneficial effects of the 58 percent devaluation of August1978 have now been negated. The overall balance of payments in 1978 regis-tered a deficit of US$72 million as against a small positive balance in1977. The financing of the deficit as well as an increase in the reserveposition was made possible by allowing payments arrears to rise. In termsof growth in GDP, the recovery initiated in 1977 continued into 1978 and theindications are that it has been sustained during 1979. The cocoa crop inparticular is expected to improve with good rains and a further price boostto ¢120 a headload in July 1979.

13. In late 1978 the IMF approved a one-year standby arrangementof SDR 53 million and Trust Loan Fund of SDR 25 million (totalling US$102million) in support of the Government's stabilizatLon program introduced inJune 1978. As a mid-term review of progress under the standby arrangementcould not be completed by the IMF as scheduled in May 1979 because ofthe military intervention at that time, Ghana is not eligible to draw thelast two installments of SDR 10 million each under the standby.

Prospects

14. Ghana is relatively well endowed in terms of natural resourcesand has the potential to achieve a rate of growth considerably in excess ofits performance of the last decade. The country's slow growth in revenuesand export earnings and the acute inflation have severely hampered economicdevelopment; the restoration of economic stability is an essential pre-requisite for Ghana to resume effective development. The measures on thebalance of payments and the budget initiated in June 1978 reflect an awarenessof needed policy directions. The indications are that the new civilian Govern-ment which assumed office in September 1979 will continue to pursue theprogram of stabilization and policy reforms initiated by the previous Govern-ment. The Government has also indicated that its development strategy willemphasize increased food production through assistance to small farmers,rehabilitation of existing infrastructure, including mines and transport, andsupport for manufacturing enterprises giving priority to those using locallyproduced raw materials. However, the present acute shortage of foreignexchange constitutes a severe constraint upon the Government's efforts to moveas quickly as the situation demands to increase production and generallyrehabilitate the country's existing assets.

15. Ghana's growth prospects over the next few years will depend toa considerable extent on constant reassessment and follow-up actions insupport of the objectives of the recent stabilization program. Key policymeasures should continue to aim at: (a) correcting the imbalance on externalaccount through a more realistic structure of prices and costs and themaintenance of a viable exchange rate; (b) restraining growth in consumptionand reducing the strong inflationary tendencies associated with large publicsector deficits; and (c) promoting an expansion of domestic production (ofcocoa, food crops and industrial goods) through more appropriate priceincentives, support services and more assured supplies of necessary inputs.Stabilization is clearly a formidable task and is likely to take time. On

- 5 -

the basis of the policy advances effected so far, and with improvements in

performance over the recent past, growth in GDP of 3 percent per annumshould be feasible. With sustained improvement in economic manage-

ment the economy is capable of even higher rates of growth. However, the

attainment of even a modest rate of growth will require that Ghana's own

efforts be supported by an augmented flow of external assistance to overcome

the present external resource constraint.

External Debt and Creditworthiness

16. An agreement on a long-term rescheduling of Ghana's medium-termexternal debt was concluded in March 1974. Under this agreement, all

payments due after February 1, 1972, in respect of pre-1966 debt obliga-

tions, will be paid over a period of 28 years, including a grace period of

10 years, at 2-1/2 percent per annum. Ghana's medium- and long-term exter-

nal public debt outstanding and disbursed at end-1978 is estimated at US$877

million representing 20 percent of GDP. The debt service ratio of publicand publicly guaranteed medium- and long-term debt was about 4 percent of

exports of goods and non-factor services and is expected to rise modestly in

the late 1980s after the grace period on the rescheduled debt expires in

1982. Arrears on Ghana's short-term debt increased from US$245 million in

1977 to US$489 million by end-1978. By January 1980 these arrears haddeclined to US$453 million.

17. Ghana is relying on official sources for the bulk of the external

capital required to support its development program, and relatively littleof its medium- and long-term borrowing is on commercial terms. As at end-

1979, Bank loans and IDA credits disbursed together represented about 20

percent of the estimated country's total public external debt. Service

payments on Bank loans and IDA credits in 1978 accounted for 26 percent and 3

percent respectively of the country's external debt service.

18. The country's difficult economic situation and its vulnerabilityto fluctuations in cocoa export earnings, make it desirable that future

debt service obligations should be kept as low as possible. Therefore,IDA credits will have to constitute the bulk of Bank Group assistance to

Ghana over the next few years. This is also consistent with Ghana's rela-

tively low per capita income. At the same time, to ensure an adequate flow offoreign exchange resources to the country it would be appropriate to finance a

portion of the local costs of projects.

PART II - BANK GROUP OPERATIONS IN GHANIA

19. Since 1962, when the Bank Group financed its first operation in

Ghana, the Bank has made 10 loans totalling US$190.5 million and 14 creditstotalling US$124.3 million. Bank Group lending has covered power generation

and distribution, highways, agricultural development (including oil palm,

-6-

cocoa, sugar, livestock, fisheries and regional agriculture), water supply,telecommunications and two DFC operations. Ghana is also a beneficiary ofa Bank-financed regional clinker project covering three nations (Togo,Ivory Coast and Ghana). There are no IFC investments. The recent highinflation in Ghana and the shortage of foreign exchange have adverselyaffected the implementation of several ongoing projects. Annex II contains asummary statement of Bank loans and IDA credits as of March 31, 1980 and noteson the executions of ongoing projects.

20. The principal objectives of Bank Group assistance to Ghana are:(a) to support the adoption of economic policies designed to strengthen thebalance of payments and improve domestic demand management, (b) to help reha-bilitate and improve capacity utilization of the country's existing assets,(c) to stimulate agricultural and industrial production, particularly forexport promotion e.g., cocoa, and efficient import substitution, and (d) toimprove the country's essential infrastructure so as to relieve constraintsupon economic growth. The Bank Group is also supporting projects aimed atraising the living standard of the poorer groups of the population.

21. In line with the country's development priorities, future BankGroup lending will place increasing emphasis on the agricultural and manu-facturing sectors. In agriculture, a credit has been approved recentlywhich is designed to improve farm incomes and the standard of living of about60,000 smallholder farming families in the Volta Region. This would be thesecond Bank-financed integrated agricultural project in Ghana, following asimilar ongoing smallholder project in the Upper Region. Following the twoongoing cocoa projects--one in the Eastern Region and the other in the AshantiRegion--further assistance is contemplated for increased cocoa output tostrengthen Ghana's foreign exchange earnings. As a prelude to a third project,a cocoa sector study is underway to analyze the present constraints toincreased production and to make policy recommendations for the sector.Further Bank Group assistance to the sector being considered includes aforestry project, currently under preparation, which would rehabilitate fourstate-owned wood industries, improve port facilities at Takoradi, strengthenforestry institutions and prepare a forestry and forest industries developmentplanning study.

22. In industry, a second line of credit to NIB was approved by theExecutive Directors in May 1979. The project aims at stimulating increasedproduction and improved capacity utilization in priority manufacturing andagro-industrial enterprises so as to expand the industry's contributionto foreign exchange earnings and savings and strengthen linkages with othersectors. This would be followed by a small-scale industries project, cur-rently under preparation, which would provide financial and technical assist-ance to small entrepreneurs utilizing local raw materials.

- 7 -

23. In infrastructure, the proposed credit would provide urgently neededforeign exchange to import spare parts, lubricants and equipment to reactivatethe country's road maintenance program assisted under the Second HighwayProject and assist in the remobilization of the trucking fleet to improve thetransport of foodstuffs and other agricultural commodities. Also a railwayrehabilitation project is being considered, which aims at strengthening thefinances and operations of the Ghana Railways Corporation and improving thecapacity of the railways for the movement of Ghanaian exports. A technicalassistance project designed to strengthen the Ghana Water and Sewerage Cor-poration (GWSC), which had been assisted under previous Bank Group projects,has been negotiated recently. Under consideration is an urban developmentproject which would seek low-cost solutions to Ghana's urban problems andprovide sites and services, infrastructural and social services as well asurban employment in low-income areas.

24. As noted in Part I of this Report, Ghana has experienced severeeconomic difficulties during the last few years and there has been a lowlevel of Bank Group lending during the last two years. Continued improvementin the Government's management of the economy will be important in determin-ing the level of future Bank Group lending.

PART III - THE TRANSPORT SECTOR

A. Introduction

25. Compared with other countries in West Africa, Ghana has a relativelywell developed transport system comprising an extensive road network, arailway, lake transport, two ocean ports and three major airports. Untilrecently, the system has adequately served the country's needs. In recentyears, however, the country's macro-economic difficulties, especially theshortage of foreign exchange, have severely constrained the capacity ofGovernment to maintain existing transport infrastructure. While the shortageof foreign exchange has adversely affected the operations of all sectors, itsimpact has been especially severe on the transport sector which depends on acontinuous supply of imported spare parts and supplies to maintain its exist-ing facilities and to keep its vehicles and equipment operating. As a conse-quence, the whole system has deteriorated sharply, and it has now come toconstitute a most serious obstacle to the timely flow of goods. In particu-lar, the movement of foodstuffs has been badly disrupted, aggravating foodscarcities in the urban areas and fueling inflation; the evacuation of cocoaproduction has also been adversely affected with a resultant loss in thecountry's export earnings.

- 8 -

26. Due primarily to a lack of maintenance, the country's extensiveroad network (see para. 30) has deteriorated to the point where many of theroads have become extremely hazardous to travel. Even on major trunk roadslinking the country's primary economic centers, such as the roads from Accrato Kumasi and Accra to Takoradi, traffic is severely disrupted where sectionsof the pavement are missing or blocked by numerous large potholes and byflooding. The condition of the secondary and feeder roads is even worse;truckers are reluctant to serve remote areas for fear of a breakdown, andagricultural produce is not evacuated (see para. 40). Vehicle operatingcosts on a large part of the road network are estimated to be almost doublethose expected on good running surfaces. On many roads the deterioration hasprogressed to the extent that, unless preventive maintenance work is carriedout urgently, expensive rehabilitation works will have to be undertaken.

27. The country-wide shortage of spare parts and the resultant neglectof maintenance has also been responsible for a sharp decline in the capacityof Ghana's railways, which comprises about 1,300 km single-line systemcarrying Ghana's bulk export cargo (bauxite, manganese and timber). Forexample, the railways locomotive availability during 1977/78 went as low as22 percent. A railway project is currently under preparation to rehabilitatethe system (see para. 23). The operation of Ghana's commercial port system(comprising the main import and fishing port at Tema and the main export portfor timber, bauxite and manganese at Takoradi) has also been severely con-strained by the shortage of spare parts and modern equipment. At the Temaport, cocoa has been loaded by hand for three years because its cocoa loadingfacility is broken. The shore handling equipment and dreiger are out ofoperation at the Takoradi port for want of spares. Finally, more than 40percent of the country's large motor vehicle fleet (see paras. 39-40) hasbeen immobilized due to the scarcity of tires, spare parts and operatingsupplies. Given the already extensive investment in transport infrastructure,considerable savings and increased capacity can be achieved by the infusionof relatively small amount of spare parts and inputs in the sector, since thetransport system is presently operating at very low efficiency.

28. The shortage of foreign exchange and rapid domestic inflation alsodisrupted Ghana's transport investment program. Under the 1975-80 NationalDevelopment Plan, the transport sector accounted for 31 percent of totalproposed investments, of which 44 percent was destined for roads, 6 percentfor railways and 18 percent for ports. However, the actual investments in thetransport sector were substantially reduced. For instance, in the roadsub-sector, actual investments during FY1976-79 were about ¢430 millionwhich represents around 7 percent of total investments compared with 13percent proposed in the Plan.

29. Two recent bilateral lines of credit have provided some foreignexchange for the transport sector. The Overseas Development Ministry (ODM,United Kingdom) provided a I20 million program loan in 1978, and Kreditan-stalt fur Wiederaufbau (KfW, Federal Republic of Germany), a DM35.5 millionin commodity aid in 1979. These two loans supported ports, the most pressingneeds of railways, airports, river traffic and Government-owned road transportservices. US$5.0 million equivalent also went to the Ghana Cocoa MarketingBoard (GCMB) which operates its own trucking fleet. However, no externalresources are presently available for road maintenance, or for privately-ownedtrucking firms, which are the focus of the proposed project.

B. The Road Transport Sub-Sector

The Road System

30. Ghana has about 25,400 km of classified roads, including 3,700 km ofprimary roads, 8,600 km of secondary roads, and 13,100 km of feeder roads.About 4,700 km are paved, and the remainder are gravel or earth surfaced.There are an additional 6,000 km of village tracks and private mining andlumber company roads. Traffic volumes are heaviest near Accra, tapering offon the main roads to Kumasi and Takoradi to between 1,000 and 2,500 vpd.Other trunk roads carry between 200-750 vpd, while volumes in the northerntwo-thirds of the country are much lower. Traffic is estinated to have grownat about 6 percent p.a. from 1970 to 1977, but appears to have stagnated andeven declined since then. This is because of the shortage of spare parts andoperating supplies which have immobilized a major part of the country'svehicle fleet and brought the country's road maintenance program to a virtualstandstill.

Administration

31. The responsibility for all public roads is vested in the GhanaHighway Authority (GHA) which is an autonomous agency with its own Board ofDirectors appointed by Government. GHA comes under the purview of theMinistry of Works and Housing. GHA is organized into a headquarters and nineregional offices, which are subdivided into 36 district offices. GHA isadequately staffed and is considered a reasonably efficient institution,capable of effectively carrying out a wide range of activities in the roadsector.

32. Practical training of GHA's engineers is provided by a systemof staff rotation through the various branches of the Authority. Lowerechelon staff, such as technical officers, superintendents, foremen, andmechanics are trained in the Authority's training school at Shai Hills,which has a capacity of about 150 students. The Second Highway Projectfinanced a training program during 1975-79, which included the provision oftraining advisors and equipment. Some 2,400 staff were successfully given a

- 10 -

variety of short technical training courses. Training is presently handi-capped because teaching aids and workshop tools cannot be used because of lackof electricity. Two generators are therefore included in the proposed projectin order to make full use of existing facilities.

33. Funds for capital and recurrent expenditures are provided fromthe Government's annual budget. However, almost no foreign exchange has beenmade available for spare parts, lubricants, and bitumen during the last fewyears, severely constraining GHA's operations (see para. 35). Local currencyallocations were generally adequate until the mid 1970s; thereafter rapidinflation caused the real value of the budget to decline about 60 percentbetween 1976 and 1979 (Annex VII), further constraining GHA and contractoroperations.

Road Construction

34. Major road construction and rehabilitation works are carried out bycontractors under GHA supervision. There are at present 88 ongoing trunkroad and bridge projects. The completion of many of these projects has beendelayed due to the shortage of bitumen, spare parts for construction machineryand cost overruns resulting from high domestic inflation. The Government hastherefore decided to reduce the scope of road construction activities and tofocus on projects with high priority. The Bank Group's First Highway Project(Cr. 438-GH) included rehabilitation of 155 miles of trunk roads comprisingthe Takoradi-Yamoransa-Mankesim road (73 miles) and two sections of theAccra-Kumasi road (82 miles). Work on the Accra-Kumasi road sections has

considerably slowed down due to lack of bitumen and other imported materials.The Takoradi-Yamoransa-Mankesim road has experienced a cost overrun due tothe need for additional earthworks and the effect of depreciation of the USdollar. In addition, the contractor for this road declared bankruptcy inJanuary 1979. The Government has recently decided to complete 12 miles ofthis road where works have started, using its own resources (see Annex IVwhich describes more fully Bank Group's ongoing highway projects).

Road Maintenance

35. During the late 1950's and early 1960's, the Government carried outa major program of road construction. By the early 1970's, however, thesystem had deteriorated into a generally poor condition, primarily because ofunexpectedly high traffic increases particularly of heavy vehicles, and alsobecause the maintenance program had become inadequate due to lack of equipmentand trained staff, and cumbersome funding procedures. The Bank Group's SecondHighway Project (Loan 1182-GH and Credit 594-GH) approved in 1975 was designed

- 11 -

to remedy the situation by establishing within GHA an effective maintenance

organization and operating procedures, training maintenance personnel and

providing equipment to GHA and private domestic contractors to execute the

first four-year phase of an eight-year (1975-1983) road maintenance program

(see Annex IV). Specifically, the Second Highway Project aimed at implement-

ing during 1975 79 routine maintenance on about 12,100 km of main roads and

about 9,700 km of feeder roads, and periodic maintenance on about 8,100 km of

main roads and selected feeder roads, with a view to achieving a fully ade-

quate level of maintenance output by the end of the eight-year program.

Routine maintenance was to be carried out by force account by GHA's regional

offices, while 75 percent of regravelling and 50 percent of resealing were to

be carried out by private contractors, and the balance of periodic maintenance

operations by GHA. Under the Second Highway Project GHA purchased US$12.1

million of maintenance equipment including a two year supply of spare parts.

Government was supposed to provide from its own resources foreign exchange

needed to import operating supplies and materials (lubricants, fuel, bitumen,

etc.) and spare parts totalling US$3-5 million per annum. In practice,

however, GHA was able to import only US$200,000 in spare parts and equipment

during 1977-79, and was forced to make do with the initial stock of spare

parts provided under the Second Highway Project. Fuel was provided except

during a temporary country-wide shortage in mid-1979, but other imported

supplies were not. As a consequence, a large proportion of GHA fleet is out

of service (on the average, about 40 percent) with the actual utilization

ratio varying between 20 to 50 percent depending on the type of equipment.

For instance, some 60 out of 130 serviceable motor graders and 74 out of 164

serviceable tipper trucks were idle in June 1979 for want of spare parts.

Also the government bucgetary allocations for recurrent local costs of road

maintenance have been inadequate (see para. 33). As a result, the execution

of the maintenance program was significantly curtailed: during the last four

years, an average of about 25-30 percent of programmed periodic maintenance

were carried out, and in 1979 much less. Overall the execution of the eight-

year road maintenance program is now two to three years behind schedule.

36. GHA is an efficient organization, which was provided with suffi-

cient maintenance equipment and related support and successfully began to

implement its maintenance program in 1976. If the problem of imported

supplies could be resolved, it is expected that GHA would be able to increase

its maintenance output quickly to meet the most urgent needs of the road

sector. The proposed project, which would be supplemental to the Second

Highway Project, would provide necessary spare parts, materials and operating

supplies to keep the maintenance equipment running for the next two years to

increase the average maintenance output from the present 25-30 percent of the

targets set under the Second Highway Project to 70 percent. In order to

assure that the spare parts are procured and used quickly, the proposed

project would also provide technical assistance to GHA's central workshop.

The Contracting Industry

37. Over 600 private Ghanaian contractors are registered with the Civil

Engineering and Building Contractors Association of Ghana. About 170 are

also currently executing GHA contracts for roadworks. Domestic contractors

accounted for 44 percent of all construction contracts awarded by GHA in

- 12 -

FY1978. In 1972 Government established the Bank for Housing and Construction(BHC) 1/ a publicly-owned development bank, to provide financial assistancefor the development of the domestic construction industry. The SecondHighway Project included a line of credit to BHC for the purchase of equip-ment for private domestic contractors; the aim was to enable private contrac-tors to participate in GHA's road maintenance program. In 1975, BHC createda wholly-owned subsidiary, Plant Pool (PP), as a commercially-run firm leasingequipment to contractors. Plant Pool Ltd., which has become one of the moresuccessful companies in Ghana, operates a large fleet of vehicles andequipment servicing contractors throughout the country. In general, Ghana'sdomestic contracting firms are well managed, aggressive and capable ofundertaking greater volume of construction works. Contractors who wereprovided with equipment under the Second Highway Project have made goodprogress in preparation of their participatior. in the GHA's road maintenanceprogram and have already begun work. However, they have not been able tooperate at an adequate level of efficiency because foreign exchange shortagesprevented them from purchasing spare parts they needed to maintain theirequipment in good condition and to replace key pieces of equipment that havereached the end of their economic life but were not financed under the SecondHighway Project. The proposed project therefore provides spare parts forcontractors' existing equipment as well as replacement for worn-out equipmentto enable them to carry out about one half of the periodic road maintenance.

38. There are approximately 25 active quarry sites in Ghana. CIDAfinanced two mobile crushing plants for GHA. The Second Highway Project alsoprovided US$1.0 million through BHC for equipment and spare parts for threeexisting quarries. Most recently KfW agreed to provide DM13.3 millionthrough BHC for two to three new quarries. However, very few are producingon a regular basis due in part to the shortage of foreign exchange for spareparts. The resulting scarcities of crushed stone have seriously affected themaintenance operations of GRA and construction industry in general andadditional equipment will still be needed to meet road maintenance require-ments. The proposed credit therefore provides funding for further sub-loansthrough BHC to a few active quarry companies for additional equipment, spareparts, explosives and other operating materials.

Road Transport Industry

39. The motor vehicle fleet totalled about 96,000 vehicles in 1978,including about 12,000 heavy trucks, 28,000 light trucks or buses; and 56,000cars or taxis. The fleet grew at six percent p.a. from 1975 to 1978. Theroad transport industry comprises government-owned firms, including the StateTransport Corporation (intercity buses and trucking) and the Omnibus Services

1/ The organization, management and operations of BHC are described inAnnex V.

- 13 -

Authority (urban buses), in competition with a well developed private sector.The latter includes 8-10 firms with more than 30 vehicles, about 50 firmswith 2-30 vehicles, and several thousands of owner drivers. The privatesector operates in a generally market oriented framework, although it isconstrained by the inability to obtain spare parts for vehicles.

40. Although precise figures are not available, it is estimated thatmore than 40 percent of the road vehicle fleet is presently out of service,due to the unavailability of tires and spare parts. For example, only 28percent of the OSA's buses, and 60 percent of the trucks belonging to theCocoa Marketing Board (GCMB) were operable at end 1979. At the same time thePrivate Road Transport Union, a labor union for the private sector, claimsthat more than half its members' vehicles are out of service. This hasresulted in capacity shortages, especially in the North and in other ruralareas where spare parts are even more difficult to obtain and poor roadconditions increase the risk of a breakdown. A number of Government agencieshave responded to the shortage by building up their own truck and bus fleets.These fleets are not professionally managed leading to low vehicle utilization,inadequate maintenance, and the importation of a wide variety of vehicletypes which aggravates the spare parts problem. The shortage of spare partsis particularly severe among the smaller private truckers, who are responsiblefor most agricultural transport but yet have little influence over importlicensing decisions. Funds for spare parts primarily for small privatetruckers are therefore included in the proposed project.

PART IV - THE PROJECT

41. The new civilian government which took office in September 1979identified the extremely poor condition of the country's road transport systemas a major and immediate obstacle to its development strategy aiming atincreased food production and improved utilization of the country's existingproductive capacity. The Government has set the objective of concentrating,for the next two years, on urgent road maintenance activities to keep theroads open for movement of foodstuffs to ease the critical food situation inthe cities, and for evacuation of cocoa for increased export earnings. Inparallel, the Government also seeks to improve the country's road transportcapacity through proper repair and maintenance of the existing vehicle fleet.While the Government states its intention, in its FY80 budget statement, toincrease foreign exchange allocation for importation of spare parts in supportof these objectives, Government's efforts are seriously constrained by thecountry's severe shortage of foreign exchange. The Government has requestedurgent Bank Group assistance to help rehabilitate the transport sector.

- 14 -

42. A joint Highways/IDF mission identified the components and appraisedthe proposed project in November/December 1979, based on data collected byGHA and BHC. A Staff Appraisal Report has not been prepared because GRA'smaintenance program was fully appraised under the Second Highway Project andin view of the importance of providing a rapid response to the needs of thesector. Details of technical data and analyses are recorded in the projectfiles. The credit was negotiated in London from April 2 to 4, 1980 with theGhanaian delegation led by Mrs. MIary Chinery-Hesse, Principal Secretary,Ministry of Finance and Economic Planning.

Objectives

43. The project aims at relieving, on an emergency basis, the mostpressing constraints affecting the road sector, in particular road mainte-nance and trucking operations. The proposed project would permit theimportation of urgently needed spare parts, equipment, tools, tires, bitumenand lubricants, in order to enable GHA to resume its eight-year (1975-83)maintenance program, partly financed under the Second Highway Project, whichis now two to three years behind schedule because much of the equipment isinoperable. The project would similarly provide through BHC spare parts tothe private trucking industry to repair vehicles and increase capacity. Inaddition, the proposed project would strengthen BHC through further technicalassistance, to ensure proper and timely execution of the project, andstrengthen this important development institution.

Description

44. The project would consist of implementing GHA's road maintenanceprogram during 1981 and 1982, and increasing the capacity of the domestictrucking industry by about 75 million vehicle kilometers. The maintenanceprogram would include performing effective routine maintenance on all publicroads (25,400 km); resealing about 1,350 km; resurfacing about 250 km; andregravelling about 2,600 km of main roads and about 1,800 km of feederroads. To carry out the project, the proposed credit would finance thefollowing components:

(i) Spare Parts, Tires and Lubricants for CHA: The backlog needs andthe 1981-82 requirements for GHA road maintenance equipmentwould be supplied;

(ii) Bitumen for Resealing and Resurfacing: A two-year bitumen supplywould be provided for resealing and resurfacing operationsbased on GHA's periodic maintenance program;

(iii) Generator for GHA's Training Center: Two three-phase 125 KWgenerators, including a year's supply of spare parts, would beprocured and installed in the Training Center;

- 15 -

(iv) Sub-loans to Private Domestic Contractors and Quarry Operators:The project would include funds for sub-loans to be extended byBHC to enable procurement of equipment and related spareparts for (a) about 16 contractors who are executing GHA roadmaintenance contracts, but whose operations have been disruptedbecause part of their equipment requires replacement, and(b) about 4 quarry operators which are supplying materials forthe road maintenance program and similarly need to replaceunserviceable equipment;

(v) Special Import Facility for Spare Parts for Contractors andTruckers: The proposed project would include funds, to beadministered by BHC, to provide spare parts, tires, toolsand lubricants for (a) about 45 contractors executing roadmaintenance works for GRA; and (b) about 200 small privatetrucking firms engaged in agricultural transport; and

(vi) Technical Assistance: The project would include a total ofabout ten man-years of technical assistance to strengthen themanagement and operations of BHC, to improve the operationalcapacity of private domestic contractors, to assist in theimplementation of the Special Import Facility component of theproposed project, and to strengthen the operations of the CHA'scentral workshop.

Project Cost

45. Total project costs are estimated at US$47.2 million including dutiesand taxes of about US$8.6 million. The foreign exchange component estimatedat US$25.0 million represents about 65 percent of total project cost net of tax.The local cost estimated to total US$13.6 million equi-valent net of tax com-prises largely handling costs, trader markups and fees for BHC and the Govern-ment. A summary breakdown of project costs is given at the beginning of thisreport. The allocation for spare parts, tires and lubricants for GHA are basedon a sample inspection of equipment, and the estimate that operating equipmentneeds 10 percent of its replacement value in spare parts each year. Bitumenneeds are based on the maintenance program, by which about 1,350 km will beresealed and 250 km resurfaced in 1981 and 1982, and suppliers' cost esti-mates. The cost of the generators are based on suppliers' estimates. Thecost of technical assistance is based on man-month rates of similar servicesin Ghana. The billing rate for consultant services is estimated at an averageof US$8,000 per field man-month and includes salaries and overheads; otherexpenditures, consisting primarily of housing and local transportation, areestimated to total US$2,000 per field man-month. No quantity contingenciesare included because the project would primarily provide for stocks of spareparts and operating supplies. Price contingencies for bitumen are based on anexpected inflation rate of 15 percent per annum in foreign costs and 20percent per annum in local costs; price contingencies for other GHA suppliesand the technical assistance are based on expected inflation rates of 11percent in 1980, 9 percent in 1981 and 8 percent in 1982 in foreign cost; and20 percent per annum in local costs. Although the recent annual rate ofinflation in Ghana has been close to 60 percent, this is largely attributable

- 16 -

to increases in the price of food; a price contingency of 20 percent should beadequate since the local cost component comprises largely dealer markups andfees for BHC and the Government.

Financing

46. The project cost would be financed as follows:

Local Foreign Total(net of tax)

-------(US$ millions)-------

IDA - 25.0 25.0

Government 2.3 - 2.3

Contractors, Quarry Operatorsand Truckers 10.9 - 10.9

BHC 0.4 - 0.4TOTAL 13.6 25.0 38.6

In addition, the Government would finance the remaining recurrent costs ofthe routine and periodic maintenance program, principally for salaries, wages,fuel, and payments to domestic contractors. These are estimated to totalabout ¢110 million (US$40 million) in FY1981, 0136 million (US$49 million)in FY1982 and ¢161 million (US$58 million) in FY 1983, in constant end 1979prices. This increase in constant terms is mainly due to the increasingamount of periodic maintenance to be carried out between FY1981 and FY1983.The Government agreed that it would provide in its annual budget, and makeavailable in advance of each quarter on the basis of GHA estimates, funds tocover recurrent expenditures and payments to contractors. The Governmentfurther agreed that it would review with IDA the adequacy of its road main-tenance budgets for FY1982 and FY1983 not later than six months prior to thebeginning of the respective fiscal year (draft Development Credit Agreement,Section 3.02). Also, the Government gave an assurance that it would providean adequate supply of fuel needed to undertake the road maintenance program(draft Development Credit Agreement, Section 3.02). GHA's requirements fordiesel fuel and gasoline are estimated to total 2.4 million gallons in FY1981,2.8 million gallons in FY1982 and 3.2 million gallons in FY1983.

Project Execution

47. GHA would have overall responsibility for executing the roadmaintenance program. GHA would undertake all routine maintenance operationsand part of periodic maintenance comprising all resurfacing, about 25 percentof regravelling and about 50 percent of resealing operations. The balance ofperiodic maintenance would be carried out by domestic contractors. BHC wouldbe responsible for relending part of the proceeds of the IDA credit through

- 17 -

sub-loans to contractors and quarry operators. BHC, together with PP, wouldalso be responsible for administering, on behalf of the Government, theSpecial Import Facility component of the project and monitoring its progress.The technical assistance component of the project would be implemented by BHCand PP, except that 12 man-months of consultant services would be provideddirectly to GHA to strengthen the operations of its central worrahop andto help expedite the implementation of the GHA components of the project.The project implementation would start in mid-1980 and would be completedby end 1982. In order to speed up implementation of the Special ImportFacility component, early recruitment of a procurement expert, to be financedunder the project, is required to assist BHC and PP. Retroactive financingof up to US$50,000 is recommended to cover the estimated foreign costsincurred after March 1, 1980 but before credit signing.

Procurement

48. GHA Component: GHA's immediate needs through end 1981 for spareparts and tires, as well as its lubricant requirements for the period to June1981 (totalling US$5 million) would be procured on the basis of limitedinternational tendering. Thereafter, GHA's requirements for spare parts,tires and lubricants through end 1982 (US$3.7 million) would, to the extentpossible, be standardized and purchased in bulk under contracts awardedon the basis of international competitive bidding following Bank Groupguidelines, except that spare parts which cannot be purchased in bulk would beprocured on the basis of limited international tendering up to an aggregateamount of US$500,000 equivalent. In all cases, the list and quantity of itemsto be procured would be subject to prior approval by IDA. Bitumen, which isestimated to cost US$3.0 million in foreign exchange, would be procured fromthe country's only bitumen refinery under a negotiated contract satisfactoryto IDA. The generators for the GHA Training School estimated to cost US$0.15million would be procured on the basis of limited international tendering.

49. BHC Component: Spare parts, tires, tools and lubricants for con-tractors and truckers under the Special Import Facility estimated to cost US$6million would be procured by local trading companies which would be selectedby BHC in accordance with the procedures set out in para 55 below. Inter-national suppliers of major construction and transport equipment are adequatelyrepresented in Ghana. The procurement of equipment for contractors and quarryoperators under the sub-loan component estimated to cost US$4 million would beon the basis of limited international tendering except that contracts forsuch items not exceeding US$200,000 would be procured on the basis of quotationsreceived from not less than three suppliers.

Disbursements

50. The proposed credit would be disbursed to cover 100 percent ofthe foreign cost of each project component as follows: (i) spare parts,tires, and lubricants for GHA, totalling US$8.7 million; (ii) bitumen total-.ling US$3.0 million; (iii) generators, totalling US$0.15 million; (iv)equipment for contractors and quarry operators, totalling US$4 million;(v) spare parts, tires, lubricants and tools for contractors, totallingUS$3.0-million; (vi) spare parts, tires, lubricants and tools for

- 18 -

truckers, totalling US$3.0 million, (vii) technical assistance for BHCincluding related vehicles and office equipment totalling US$0.93 million,and (viii) technical assistance for GHA including a vehicle totalling US$0.12million. The remaining balance of US$2.1 million would be unallocated.

Technical Assistance to BHC

51. The BHC, which would be responsible for implementing part of theproposed project including the sub-loan component, was established in 1972 andis one of three publicly-owned development banks in Ghana. It has primaryresponsiblity for promoting and financing the building materials industries,private contracting industries and public and private housing schemes. TheSecond Highway Project included foreign exchange for a line of credit throughBHC to private civil works contractors (US$6.5 million) and quarry firms(US$1.0 million) for the purchase of capital equipment and related spareparts. In spite of operational and technical improvements introduced in1977-78 and recruitment of competent staff, BHC's overall performance has beenuneven. In particular, financial management has been deficient. In 1978, theSecond Highway Project provided technical assistance to analyze and proposemeasures to deal with the range of problems confronting BHC including inade-quate control over banking, accounting and lending procedures, a high level ofarrears and a lack of organizational integration. The proposed project wouldprovide technical assistance and training to BHC based on the initiativesalready begun to improve BHC's financial management, operating procedures andorganizational arrangements. Specifically, the project would provide a totalof 6 man-years of consultant services comprising financial systems and report-ing expert, a project appraisal and supervision expert and short-term consul-tants in organizational management, accounting practices and varioustechnical/engineering fields. The proposed project would also finance 24man-months of a technical consultant, based in BHC, to advise the contractingindustry on contracts, bidding and technical matters, and 9 man-months of aprocurement specialist to assist BHC and PP in the implementation of theSpecial Import Facility component of the project.

Sub-Loans to Contractors and Quarry Operators

52. The Government would relend US$4 million of the credit proceeds at12-1/2 percent per annum to BHC to finance sub-loans for private domesticcontractors and quarry operators who execute GPIA road maintenance contracts.BHC's sub-borrowers would assume the foreign exchange risk. The repayments toGovernment by BHC would take place over eight years including two years ofgrace. The conclusion of a subsidiary loan agreement satisfactory to IDAbetween Government and BEC would be a special condition of disbursement ofthis credit component (draft Development Credit Agreement, Schedule 1, para4). Screening of sub-borrowers would be undertaken jointly by BHC and GHA,and BHC would conduct a full subproject evaluation. It is expected that about16 contractors and four quarry operators will be selected.

- 19 -

53. BHC's sub-borrowers would pay the maximum allowable interest rateof 18-1/2 percent per annum, plus a commitment fee of one percent, thusallowing BHC a six percent spread on its lending under this project. BHCwould retain four percent of the spread to cover administrative costs andfinancial risk, with PP receiving two percent for technical services andequipment storage related to hire purchase. Sub-borrowers would bear theforeign exchange risk. The domestic inflation rate, around 60 percent in1979, should continue to subside provided Government continues with itseconomic stabilization program and in particular, curtails the size of thebudget deficit and growth in the money supply (see para. 11). The proposedinterest rate combined with the foreign exchange risk is considered adequate.The interest rate would be subject to periodic review with IDA. The averagematurity of sub-loans would be three years for contractors and four years forquarry operators, including six to nine months of grace. A free limit onindividual sub-loans of US$200,000 and an aggregate free limit of US$2 millionwould apply to this line of credit totalling US$4 million (draft DevelopmentCredit Agreement, Section 2.03).

BHC's Arrears

54. Mainly as a result of weak financial management and, until recently,poor project evaluation procedures, arrears have posed a major problem for BHC(see Annex V, paras 13-14). BHC's calculations showed an exposure rate (percent-age of portfolio affected by arrears) of 40 percent on term loans, largely due tolate payments of seven large industrial clients. Although the loan loss provisionand reserves amounting ti 010.7 million as of the most recent audit (June 30,1979) are currently adeqiate to cover the absolute amounts in arrears of ¢3.2million under the industrial term loan portfolio, given the present exposure rate,these may not be sufficient and BHC needs to tighten up collection of arrears.The technical assistance program under the proposed project would initiallyconcentrate attention on resolving the problem of arrears. In the meantime,BHC has agreed to prepare, by December 31, 1980, an arrears collection programsatisfactory to IDA and implement the program to reduce, within a time periodacceptable to IDA, its loans outstanding affected by arrears of more thanthree months to a level not exceeding 30 percent (draft Project Agreement,Section 3.05).

Special Import Facility

55. BHC, with Plant Pool Ltd, would be designated by the Government asthe administrator of the Special Import Facility. Trading companies whichimport and service the most widely used brands of contracting equipment andtrucks, would be invited to submit lists and CIF price quotations of spareparts and materials for which demand had been strong but unsatisfied. BHCwould select up to ten trading companies on the basis of the competitivenessof the price quotations, the geographic coverage and capacity of servicefacilities and the proper balance in the composition of spare parts andmaterials the company is prepared to import. The selected trading companieswould be required to draw up a detailed import plan for those spare parts and

- 20 -

materials for the procurement of which they have been selected. The importplan which BHC would conclude with each trading company would specify typesand quantity of goods to be ordered, schedules of delivery and a commitmenton the part of the trader to distribute and sell imported items only tocertified contractors and truckers. Each import plan would be submitted toIDA for approval prior to implementation. The trading company would place theorder, provide BHC with the documentation, and BHC, through Government, wouldsubmit the application with supporting documents to IDA for direct payment tothe foreign suppliers.

56. The eligibility for assistance under the Facility would be limitedto contractors who are participating in GHA's road maintenance program andtrucking companies engaged in agricultural transport. Contractors andtruckers qualified to participate would be selected, and their use of spareparts and equipment monitored, by BHC and PP. In selecting truckers, prioritywould be given to small-scale operators owning not more than three trucks(draft Project Agreement, Schedule 2). Individual contractors and truckerswould be assisted by BHC/PP in identifying their need for spare parts.Participating contractors and truckers would first pay a fee of 65 percent ofCIF costs to BHC/Plant Pool at the time of being certified eligible topurchase goods under the Facility. BHC will retain 10 percent, which will beshared with Plant Pool as an administrative charge, and pay the balancedirectly to the Government. The contractor or trucker would then purchasethe authorized items directly from the participating trading company at theofficial retail price, recently increased to 235 percent of the CIF cost. 1/The end-user prices under the Facility would thus be equivalent to 300percent of the CIF costs. The objective of the additional fee is to move theprice of the project goods further toward a level more closely reflectingreal values for such imported items in Ghana. Participating contractors andtruckers may independently apply to BHC for a working capital loan to purchasespecified items, if their cash flows are insufficient. Since the systeminvolves the importation of varied and large number of small items whichcould easily disappear or be misallocated, PP would also maintain itsown inventory records of goods procured under the project and monitor salesby trading companies.

Project Justification

57. The extremely poor and hazardous condition of the roads in Ghanacoupled with the immobilization of a significant part of the country'strucking fleet constitute a major impediment to economic recovery. There arewidespread delays in the movement of agricultural produce and other commodi-ties and some goods are not transported at all and wasted. This results insignificant loss of income due to foregone output and disruption of produc-tion processes. Moreover, food scarcities in the urban areas have aggravatedthe rate of inflation. By enabling Ghana to keep its roads open throughresumption of road maintenance activities and by restoring part of thecapacity of its trucking fleet, the project would have an immediate and

1/ The official retail price includes import duties, handling costs,local insurance, storage and dealer margins.

- 21 -

substantial benefit of improved flow of foodstuffs and other commodities,alleviating food shortages in the urban areas, increasing cocoa exports andhelping to restore normal production processes in other dependent sectors.Other project benefits would include additional agricultural and industrialoutput, avoidance of premature road reconstruction, savings in vtLicleoperating costs, time savings, accident reduction and institutional strengthen-ing of BHC, GHA and the domestic contractors.

58. Given the nature of the project, it is difficult to quantifythe overall economic benefits of the project, which are widely spread.However, on the basis of the vehicle operating savings alone, the roadmaintenance program, which accounts for 77 percent of total project cost,yields an economic rate of return in excess of 100 percent, and a benefit/costratio of 5:1. The calculation includes the cost of spare parts, operatingsupplies and materials, equipment for contractors and quarry operators andtechnical assistance as well as other direct costs of periodic maintenanceoperations. The cost of salaries to repair equipment and GHA's recurrentadministration costs were not included as they would be incurred with orwithout the project. Vehicle operating savings were based on estimatedaverage traffic of 750 vpd on paved roads and 75 vpd on gravel roads to bemaintained during 1981 and 1982. Representative economic vehicle operatingcosts on good running surfaces were estimated to range from ¢0.55 pervkm for a light vehicle to ¢2.10 per vkm for a heavy truck, and to be70-110 percent higher on poor surfaces. All costs and benefits were calcu-lated net of taxes and subsidies at end 1979 prices, and a shadow exchangerate of ¢5.9=US$l was applied.

Risks

59. GHA has done its best to make effective use of the very limitedforeign exchange resources it has received over the last two years andis eager to avail itself of the possibility of building up its level ofmaintenance activity through this project. Their endeavor could be hamperedby shortages of funds for recurrent local expenditures to match the foreignexchange provided under the project; however, the Government has agreed toprovide the necessary level of funding and the mechanism to facilitate timelyrelease of local funds has been worked out (para 46). Wlhile the proposedproject would address the short-term needs, there is no guarantee that Ghanawill be able to sustain a proper level of road maintenance on a long-termbasis. However, this depends to a large extent on the measures to increasethe country's foreign exchange earnings, which would enable Ghana to sustainroad maintenance increasingly with its own resources. Another risk is thatthe spare parts and other supplies for the private sector may be divertedfrom their intended recipients. Strict PP and BHC monitoring of their dis-tribution and final use, coupled with the proposed price markup that wouldreduce the price difference between project-financed goods and the blackmarket would limit this risk, although some leakage cannot be excluded.Finally, to avoid project implementation delays which could reduce the rela-tive impact of the project in the face of a rapidly deteriorating situation,the procurement mechanism has already been set into motion.

- 22 -

PART V - LEGAL INSTRUMENTS AND AUTHORITY

60. The draft Development Credit Agreement between the Republic of Ghanaand the Association and draft Project Agreement between the Association and BHC,together with the Recommendations of the Committee provided in Article V,Section 1 (d) of the Articles of Agreement are being distributed to the ExecutiveDirectors separately.

61. In addition to the features of the Development Credit and ProjectAgreements whiclh are referred to in the text and listed in Section III ofAnnex III,a condition of disbursement with respect to the BHC sub-loan compo-nent would be that a subsidiary loan agreement satisfactory to the Associa-tion has been concluded between the Government and BHC.

62. I am satisfied that the proposed credit would comply with theArticles of Agreement of the Association.

PART VI - RECOMMENDATION

63. I recommend the Executive Directors approve the proposed credit.

Robert S. McNamaraPresident

by Ernest Stern

Attachments

Washington, D.C.May 5, 1980

- 23 -

GHANA

THIRD HIGHWAY (EMERGENCY MAINTENANCE) PROJECT

List of Annexes

ANNEX I Social Indicators Data Sheet

ANNEX II Status of Bank Group Operations in Ghana

ANNEX III Supplementary Project Data Sheet

ANNEX IV On-going Highway Projects in Ghana

ANNEX V Bank for Housing and Construction

ANNEX VI Estimated Schedule of Disbursements

ANNEX VII Capital and Recurrent Expenditures onRoads (FY1976-79)

-24 - ANNEX I

Page 1 of 5 pagesTALE 3A

GNAIIA - SOCLAL INDICATORS DATA SHEET

GIAN .EtUCE CIOUPS (USTED ApAESLAND AREA (THOUSAND SO. Km. ) - MOST IEC'C ESTINTE) tOtAL 238.5 SAK SAME NZ SIGHFRAGCULTURAL 134.0 MOST RECENT GICRPIICC INCOM INCOME

1960 L 1970 h ESTIMaTE Lb REGION j& GROUP d GROUP a

GNP PER CAPITA (US5) 200.0 280.0 390.0 306.1 467.5 1097.7

ENERGY CONSUMPTION PER CAPITA(KILOGUMS OF COAL EQUIVALENT) 106.0 173.0 157.0 80.6 262.1 730.7

POPULATION AND VITAL STATISTICSPOPIATtION, MID-YDA (MILLIONS) 6.8 8.6 10.6OURAI OpULATION (PERCENT or TOTAL) 23.1 29.2 32.0 17.1 24.6 49.0

POPLATION PRoJ* O vSPOPLaION IN TYAR 2000 (MILLIONS) 21.0STATIONARY POPULATION (EMLLIONS) 57.0YEAI. STATIONART POPULATION IS REACXD 2130.0

POPULATION DENSITYPM SQ. Dl. 29.0 36.0 44.0 18.4 45.3 44.6PE SQ. KM. AGRICULTURAL LAND 46.0 63.0 79.0 50.8 149.0 140.7

POPULATION *GE STRUCTURE (PERCENT)0-14 nS. 46.9 46.9 47.5 44.1 45.2 41.3

15-64 ns. 51.5 49.5 49.5 52.9 51.9 55.365 TRS. AND ABOVE 1.6 3.6 3.0 2.8 2.8 3.5

POPULATION GROVU RATE (PERCENT)TOTAL 4.4 2.4 3.0 2.7 2.7 2.4UU0II 8.2 4.6 5.1 5.7 4.3 4.5

CRUDE BIRH RATE (PM THOUSAND) 49.0 49.0 48.0 46.3 39.4 31.1CRUDE DEATH RATE (PQ THOUSAJD) 24.0 20.0 17.0 17.2 11.7 9.2GROSS ICPIODUCTION RATE .. 3.2 3.3 3.1 2.7 2.2PAMIL PLANINCArCCPTORS. AWUAL (THOUSADS) .. 8.3 32.0UISES (PERCE3T OF mAIED Wo) .. 2.0 2.1 .. 13.2 34.7

FOOD AND NUTLITIONINDEX OF FOOD PRODUCTION

PE CAPITA (1969-71-100) 105.2 101.0 79.0 94.3 99. L 104.4

PEU CAPITA SUPPLY OFCALORIES (PERCENT or

REU0lIREM2iTS) 89.0 99.0 101.0 89.5 94.7 105.0PROTEINS (GRAMS P DAT) 45.0 46.0 53.4 55.8 54.3 64.4

Or WI11CR ANIML AND PULSE .. 10.OLg 16.3 17.9 17.4 23.5

CNILD (AGOs 1-4) MORTALITY RTE 36.0 29.0 23.0 22.3 11.4 8.6

HEALTHLIFE EXPECTANCY AT JIT (TEAS) 40.0 45.0 48.0 47.0 54.7 60.2INFANT NORTALITY RATZ (PRT3OSAN D) 155.0 115.0 .. .. 68.1 46.7

ACCESS TO SAP! wATER (PtCZlT OFPOPULATION)

TOTAL .. 35.0 35.0 20.3 34.4 60.8URBAN .. 86.0 86.0 53.9 57.9 75.7

UAL .. 14.0 14.0 10.1 21.2 40.0

ACCESS TO ERzUQz DISPOSAL (PERCENTOr POPUIATION)

TOTAL .. 55.0 56.0 22.5 40.8 46.0URBAN .. 92.0 95.0 62.5 71.3 46.0RURAL .. 40.0 40.0 13.9 27.7 22.5

POPULATION PM MSICWI 21000.0 12950.Oti 10200.0 17424.7 6799.4 2262.4POPULATION PER NISflNG PERSON 2740.OjL 1070.0jl 860.0 2506.6 1522.1 1195.4POPULATION PER HOSPITAL 8ED-

TOTAL 1370.0 760.0 600.0 502.3 726.5 453.4URlAN '' 770.0 440.0 201.4 272.7 253.1RURAL .. 790.0 720.0 1403.6 1404.4 2732.4

ADMISSIONS PER HOSPITAL BED .. .. .. 23.4 27.5 22.1

HOUSINGAVERAGE SIZE OF ROUSENOLD

TOtAL .. 4.7 .. 4.9 5.4 5.3)3.AN .. .. .. 4.9 5.1 5.2RURAL .. .. .. 5.5 S.5 5.4

AVERAGE SUMER OF PE95ONS PER ROOMWTOAL .. .. .. .. .. 1.9-U3RAN .. .. .. .. .. 1.6RURAL .. .. .. .. .. 2.5

ACCESS TO ELECTRICITY (PERCENTOF DWELLINGS)

TOTAL .. .. .. .. 28.1 50.0URBAN .. .. .. .. 45.1 71.7RURAL .. .. .. .. 9.9 17.3

25 - ANNEX I

TABLE 3A Page 2 of 5 pagesGtSANA - SOCIAL INDICATORS DATA SlEET

REFERENCE GROUPS (dDJUSTED ASERAGESGHANA - HOS. RECE':T ESTIMATE) a

SAMlE SAllE NEXT HIGHERMOST RECENT GEOGRAPHIC INCOME INC011E

1960 /b 1970 /b ESTIMATE /b REGION /c GROUP /d GROUP ?e

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRDIMARY: TOTAL c9.0 61.0 44.0 59.0 82.7 102.5MA LE 80.0 69.0 50.0 64.2 87.23 1d.6FEMALE 39.0 53.0 38.0 44.2 75.8 97.1

SECONDARY: TOTAL 3.0 11.0 50.0 9.0 21.4 33.5MALE 4.0 16.0 59.0 12.0 33.0 38.4FEMALE 1.0 6.0 39.0 4.4 15.5 30.7

VOCATIONAL ENROL. (% OF SECONDARY) 13.0 23.0 17.0 7.0 9.8 11.5

PUPtL-TEACHER RATIOPRL'ARY 31.0 30.0 30.0 42.2 34.1 35.8SECONDARY .. 17.0 23.0 22.9 23.4 22.9

ADLTLt LITERACY RATE (PERCENT) 27.0/i 30.0 30.0 20.8 54.0 64.0

CONSUNPTIONPASSENGER CARS PER THOUSAND

POPULATION 3.0 5.0 6.2 4.0 9.3 13.5

RADIO RECEIVERS PER THOUSANDPOPULATION 17.0 78.0 107.0 44.3 76.9 122.7

TV RECEIVERS PER THOUSANDPOPULATION D.l/i 1.8 6.0 2.9 13.5 38.3

NEWSPAPER ("DAILY GENERALiNTLREST") CIRCULATION PERTHOUSAND POPULATION 30.0 34.0 51.0 5.6 18.3 40.0CINEMA ANNUAL ATTENDANCE PER CAPITA- 2.0 2.0 0.1 0.4 2.5 3.7

LABOR FORCETOTAL LA8OR FORCE (THOUSANDS) 2700.0 3300.0 3700.0

FEMALE (PERCENT) 40.2 41.8 41.6 31.9 29.2 25.0AGRICULTURE (PERCENT) 63.8 58.4 54.0 77.6 62.7 43.5INDUSTRY (PERCENT) 14.1 16.7 19.0 7.9 11.9 21.5

PARTICIPATION RATE (PERCENT)TOTAL 41.3 38.8 37.6 40.8 37.1 33.5mALE 48.9 45.6 44.3 53.9 48.8 48.0FEMALE 33.5 32.2 31.0 25.6 20.4 16.8

ECONOtIC DEPENDENCY RATIO 1.2 1.3 1.4 1.2 1.4 1.4

INCOME DISTRIBUTIONPERCENt OF PRIVATE INCOMERECEIVED ay

"ICGHEST 5 PERCENT OF 'OUSEtOLDS .. .. .. .. 15 . 2 20. 8HICGHEST 20 PERCENT OF EOUSEROLDS .. .. .. .. 48.2 52.1LOWEST 20 PERCENT OF HOUSEHOLDS .. .. .. .. 6.3 3.9LOWEST 40 PERCENT OF HOUSEHOLDS .. .. .. .. 16.3 12.6

POVERTY TARGET GROUPSESTIMATED AaSOLL'TE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. .. 265.0 187.6 241.3 270.0RURAL .. .. 137.0 96.8 136.6 183.3

ESTIMATED RELATIVE POVERTt INCOMELEVEL (US$ PER CAPITA)

URBAN .. .. 152.0 138.4 179.7 282.5RURAL .. .. 127.0 71.0 103.7 248.9

ESTI11ATED POPULATION BELOW ABSOLUTEPO7ERTY INCOME LEVEL (PERCENT)

URBAN .. .. .. 34.5 24.8 20.5RURAL .. .. .. 48.7 37.5 35.3

Not availableNot applicable.

NOTES

/a 'he adjusced group averages for each indicator are population-eighted geometric means, excluding the extrecevalues of the indicator and the most populated country in each group. Coverage of countries among the

indicators depends on availability-of data and Is not uniform.

/b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969and 1971; and for Most Recent Estimate, between 1974 and 1977.

c Afrtca So,th of Sahara; /d Lower Middle Income ($281-SSO per capita, 197b); /e Litermediate MiddleIncome (S551-1135 per capita, 1976); /f 1966-68; at Registered, not all practicing in the country;ih 1962; Ji The rate is for ages 6 and over; LI 1964.

Most Recent Estimate of GNP per capita is for 1978.

August, 1979

Notes; lthoughthe dat ste drse feenourcesgeneralyooroeceireIC collecinggthedata. Teppage

tL__ t.d. d f- ~ .go..lyjudgad the meet uthoritatire ed rel-iable, it should .als he noted that they my not be oft- 5tRnalyo lra1 b-oans of the lank of standardIsed definitions and onunept. used by oiffeesn are, senetthhetl.es.e,tuseful to di.scribe orders of ntd, indicate trends, sed charaterice cetanapo differneshenenconris

The dJ.ute,, gpnvssae ro, .- ,h indicator arepplation-esighted geometric mean, e-o.dlng the ectres niIes of the indicator end the most ppimltedtrysijlsIi9'j ..TTi to lank of data, group arages of all indicators for Capitol Surplus Oil E.oprtere and of indicators of Ace..s to Water sod Eborta

iPosI, Hosn, -cm Distribution and Pverty for other cuostry groups ar ppolatlc-neIglted geomtrio mean ithout e..elusio of the exrm ale cthe motppoplated coutry.aSnetr oese foutries amog th indlatra deedsc n-ilablity of data and is not ocora cation aun it eeroinr

inreltg vrrof on7nlatrt nthr -hs orrgese motiy usful no appro.m_tion.s f"rooe ouo- aenoea tic .eles Of oneind1.honcc Si a tine anen tie ooutry -ed referene groups.

iAM AREA (thousan.d sq.hsi.) Acces to Diortndic-si (erro-t of peootio-tta,unnsirri-Total - Total surfe are compising lnd -re sd inland eaes hnke.r of -people total, rban, on e)crvdiyeoet ipslnAgricuturl - hos.t rbeet ectoate of agrbcot-rl sce ned tecocraily percetages of their repective populativos Zocreto diopoo..Isoy iIodid

orperannt ly for -ePo, Patrs.aket end ditchec gardens or to ticocloooond disposal., ccit or ithout treat-tc f teas escrtolie faio. nod caste-tace by sane-born systems or the -s of c-it primes and s e

iO? PS? CAPITA 11U04) - SteP Per capita estimates no curent maket prices, P intio per Pbysliai - Ppulatico dIvided by nuber off praeoc.a onytocana"""Elaiit'ie"iPby onversion method as Wrld Bank Atlas (1975-77 hauls); qulfe o edclcho.l at universty 1c-I

l~,1970, and 1977 data. Popoltioc per Nusig Perso - PpUatic- ddrided by outer ci practicingslsIWMoYCIODIMPrilePh CAPITA - Aneea. cnsmyif or o erbial energy and female graduate -uSes, praotial nuss,ad assistant cures

(coalr andligniote, etroLeu, natural gas and hyd-, nucea and gao- Pnpslatia hrFospital Bed - ttal, urban ani rura - Population total, c-bce,theraIl. r.;p in kilogram of coal equlenlet per capita; en6 d rua,divided by their respective ut- of hosp Ital lees aeilable in1970, end 1976 data.bI.- r-..r1 db.pt1- ...

HospitaLs are stahlisbaants peranently staffed by st ie.st one physici-nPOPrATIOnN ADE VITAL STATISTICS Smntabiisnts, providing pisci pay cutodial car ar cot included. Ou-l

totl c~itTcT9

y~7llins - s f ulyi;l~, 170 ed hospitals, ic-ev-, iolude' helto end medical centers oct permanently utaffed

i97 dta by a pbweicie hut bya meia -sistant, surs, aidaife, etc.) ohi-ooftrSrhan Populto ;ervet of total) - batic of urban to total popseitio; in-patient aecadation end pr-id. a limited rsage of medicab acltis

different lefloitiun of urban area m affect comparbility of data Adml-ssicas per bsical Bed - Total cuter of adalions.. to or dis3oarges C -sang cutis li, 1970, and 1975 data. hospioul dved by the cankr of beds.

pomssition in yer Ow - Curret popultion projections ar basd o HWlSI1975 total popu-latio by ag and sea ens their, mortality and fertility A-crue Dice of H-uehId (esa per household) - tota.1 rban, end rora -ra.tes. Prjectica parmters for mortality yates comprise of three A bhu.ebId ocaistc of a group of individuals oh share liiag qartero andlevel assumig life e-pctancy at birth incrasng with coutry's their asI meals. A boarder or lodger may or ma sea he Icludee oc thePer capita become evei, and female Life eapstsny etbiliiag at ocusehod for tstaistical perpo..eS.77 ye-re. The parent.re for fertility rate also have three leveI Averse cater of persona per roo - total urban, end rura - Ac'ag ,anhrasounlo decline Is fertility accodIng to incom- leve ad past of persona per roce in sli oha, and rura occupied -- vetons.ldee1iiigs,family -ianig performnc. Eack ontry is then assigned one of these reapsoti-el, ma,lings e_clde obb-pe-eoeet struture and unoccupied pens-sins ociaia fmraIyadfetlt rnsfrpoeto Access cc Rieotri-ty ~peret of dwellings) - ttl,uban .sd rurl - Co-purposes.-i-I r~iy- etiiyt-.frp..t. 'vent iona dse.lings sith Ieletricity in livin qcaoer ac pereetage of

Staticsypmlto nasainc oslto then is no growth total, urban, end rural deelngs res pecticeiy-sinc th birh rte ho equal to the death rate, and also theag

otructure -nics o-otant. This io ahievd only fter fertility rates HDUATTICSciecibor tc the replaemet kneel of unit cot reprduotioc rate, oboe Adlted ELrilmeot Hatios

cetgencratiot of roe repiec itself scatly. The stationary pop- frtay occol totl, mle ad fenae-Gos ca, oeed 'si et-'l-isin o ca"simatd oo the haul of the projected oharae Itri-oo eto l cnotepiaylvla pc-entagro 'f ---etetoarc-inr

of the pocu-looo io tie yescr 20. ao ti e rate of decline of fertility cobo-a.ge ocotol-nioc; normaly includes oholre aged t-kY-a' ur-ct epncnt leel-ojut fc- different laogths of primar y edu-ni-o rootosut

Year otatiot.. y oopclutioo is resobed - y1 ear "hen stationay population unvrsl -coti-o ec.-Lnet say e..eed kid p.cen or. to -cm oupilodcc tso here reached. Ore inito or cl~~~~ove t,he official school age.

Popultion ~ lesty 3-ooiav ocicel total sae n female- Competed as above; oecooa-,Per no. on. - Mid-yea rop.Istion per oun- nilomet-e (li0 ctre) f iualnreqca at. leas fuyerof ap-r-coonr cocu 1

total sees proocies general vocational, o~~r teochr training lo-truti-o for PupoloRa se. en. agicultural lane - Competed no atov for arcutra -ed uesly 'ofi2

t.o 11 yours vf age; o--ap-ndene oc--s -r generlly

cely. enoluded.Poumuio s ito -ua sr t)-Cide 0i year), sor-in-age Voatioal enrollmet ~percent of secondary)- Scai -a Int ituoc c

1i5-hi4 year), end retiree '5 year sd ovr) as percentage of mid-year technoa, industrial, or other program obich operate lodepeodoolOrapoultin ibs 1075 and 1977 data. leparats of secodary ioti tticas.

Poe=ato Arneh Pate pvet oa A- Ana esoth rates of total mid- Popil-teaher ratio - primay end secesed - Total student enrol~le oyear ponsacicos for 15-60, i%-t,ad 1970-77. peian-y sad oaoocdsvy lea ivie , bbyone-s o.-t-ene-s it the cc-c-c

Poocition Growth Pt yre~-rco-Annua geet rates of ura pond-eg Ino.l..

Crude RitthR Once opcr toceood)" Anneal lice birti per tlusano of sod- a etectag of total adut pvpu.latlc aged 15 years -e ove.yerppsinun pd i970, an 977 ato..

Crude Death Pete 'per thousand) - Annua loathe per ticosad of nlya CSi5DTSIfIMpopuaton 9bOS. 1975. ace i977 data. Pacoenner Casper thousan popltico Pseae cro ~coprise actor car

RrssHpr.ceoti-c Rate-Ices-ge oubie of daugoters a na ill bear ennn less he sight pers..cs; e-lades ab-aos,hare and rilit-ryisher -cr reproducive period if nbeopracspesn-g-vhicles

opecfi fertility rates; ucully-r-ya _erge endig is ib0, 'Radio ec.o.'..ooc .ad P.omlation) - All ty-pes of' ve-i-es foe c-suPROS, ned 1975. ~~~~~~~~~~broadonots to general pubLic pee th-essad ofpouti;ecuesnlese

Lamel PIanco Accepors onal"housnds - OceAl comber If reevesincutries and Isyear nnrgi ot-tioc of radio cetansiucceptors of tirti-coot -oi ne op4-e of national fanly cffect; Inns for recent pear may not be comparele so- most countriecPiseig rcra. hoihed lIcensing.

PamilyPianeno - Seers'corono ofmarc-ed ocns? -Percentage of mar-nd CPsecar artounp coplaIon -TV eevr foe rcaca t general

coeIf child-beaig- a,Sl.yss A one li-.l tocoel devices po _opr gtosn potoaio; cluesuliene 71p receboe in conrIesno all1 maried n-e ic smage grop. and in years ohe. reitato If OV sets san ieffect.

Dome oT rood 1969-71-lid) ~~~~~~- Indec of oner caIt de-ted permaril to racerdiag general ces.It iscnid-rd so be "dily'annua prod-ctin of aLl fond o-ditie- Production enludes seed adi tapase en ortm ekfeed and is cc calendar year basis. Cmosditisa cone primar goode .aAna tedneorCpt c at-Bsdi i uiro ikt

e.g. ou -an instead of suga) shick are edible ane scntaio outretent sod lrn h er oldn dlaoat rv-nonms dmbl~ ofe an tenar eacldd). Aggregate production of enobco-noy units..is based on national overag producer priceisihsPer apI -sucly of calries ~pmrent of eoleet)-Compted from LApc FRHCT

oneagy equ-lva t of beet fond suppllee a-ilable in ocuatry per capita To.tallabor Porba $thc-ad) - Econmically acive pesos,cluding armdper day. Aenliabi supplies comprise domestic peodstion, im,ports lass Tocsad unemployed tot encledlg hueivs tudents, eac. Gfcob

eprte,sad chage in tock.ilec supplie aloda anima.l feed, -seds, Isc-nu ounroes are notcoprbequanitie usd in fed prcesig, sad lese o disoriution. Reaire- Peale Denset) - Peals labor forc as pmeretage of Itota labor fre

ote were estimated bly FAO hesd onpyscagcl eds for eml. AgbLitoo- eec-tent) - Lnhr forc is frsing, foretry, binning acdancivity and health considering evrestltemperar, Ohy seights, f~isog as percetage of total iaher force.agetand sr diotributltos of oplatoon, and s11oeIng 10 percet for Industry pere-eat) - Lahor force in -itn,eoaoticn, enfet-rng and

cat ct hoscod -evl eletricity, enter sod gas a percetage of total labor forc.7Per oeit. supply of protein cars cer e ' Protein content of per Prio tc Sate (percent, - total, male sad fnale - Particbipation r

.. pita set o-pply of feod per lay. Net supply of Toad is d.fied as" s tit c-noe are ompsted as total, sml, and fonle laker' foc no e-love.RHquivesets for .l -tunrnas estnklisbed by UPM proide for a -etages of teoul, ale and female poplation of all ages respectively;

ednima ainne of 60 gram cf total1 protein per day sad SO gram of 1960, 1970, and 1975 data. These ar DIs participation -noes reflectinganial end pulse protein, of hciot ii gram siculd be sodmal pgtlne-se s-trutr of the population, and long ntne trend. A -e-rtnate-These tandard ar loser than thoseof 75 grem of tonal protein end ore from ctotlealsorcs23 gras of anmlprotein as an overge for tie enrd, proposed by PAO tHemic Depaday Ratio - Hatl.otf population under 15 and 65 end over 0.0

nheThI. reclA Food Sure. ti ao .freo age group of 15-64 year.Per cait prti 5 pply fr.. animal sd plse - Petnin supply of food

derived fro anml an use ngrm a Say. MOM DDBTNINJTItChild (gs1 otlt dae)Artosn) -.Anua deaths per th.osand P`e`etage of PrivaeI c eki ahadcld eesd0 ihs

inag groop 1-4 year, nolde bctis age g-etp; for most dm1I- 5 persat, richest 10 psta, poorest S0 parcent, and poorest nO peocentopnng v-tr-e data dc-ic-ed fc-s life tablls. of hb-usslds.

HFAITH POVEThY 7APRGT 550070lif hipecenr atdioh yers -: -vrae uae of Years of life Eimtlatd Absointe Poverty inom level USdB -c oni)-uhe dn c-ti-L

c-e.oLogt birch 1 17,Ie 17. data. Aisl.eportinmelvl" iokt icm ee eotsinaa.osInfat bMortlity Hauc 'or tto-an' - nnul deths of ifants under _, n trotiocaly sdecpsto die o ples easeno.1 not-food requic-e t ;s cot

yerof age per thousan lire tibrc. affrdanle.toes o af ine peco fc eate .otluban, and rura - isolated Relative Povrery ic ee LPS prpcaDts - -I-e end .uu

Sombr of Peni oa,ura,adrrl1

c esnble _ tc . ara.I reltive poery laces leeI i aetir f -vrge par capJosafe ester suppl ncue traed surface saters or marate.d Hon permona incm= f ton -ounry. 'Ib-ha leve is SArni-d fro ttsa -tera leceM.-noss-nted enter such us than fro protestec corehees, spring, sickth uemetfor higher -st of l1ivig :0 urbanaes

and o_ntar7 eals) as -cetagas of theoc respetive populatoons. In EtmtdPcioc ar bouePoet noelvl4ret ra aen urban area a public fountain or susps lanatd met mer then 200rsa.-Presofpplto uonad ua;cnaeaslt poor.meter fro a h-.s my be voasidrcd as miag ithiaresnbeassof tbto h-u.. in rura ara -asbahe accds masud imply that thehoauseefe or Sers of the housallo us an have so spen a diwaer.-mic and Social atin Divisiontlcnte part of the day on P etbla abs aSp'sy- rais aede. Meoseic Anaysis and Pooletons Department

-27 - ANNEX IPage 4 of 5 pages

GHANA: ECONOMIC DATAGNP PER CAPITA IN 1978: US$390

ANNUAL RATE OF GROWTHGROSS NATIONAL PRODUCT IN 1976 (Z, cons.,It prices) 1/

Cedis Mln. % 1970-76

GNP at market prices 6575 100.0 0.3Gross domestic investment 641 9.7 0.8Gross national saving 484 7.4Current account balance -39 0.6Export of goods, NFS 896 13.6 -6.6Import of goods, NFS 794 12.1 -2.8

OUTPUT AND LABOUR FORCE

Output in 1976 Labour Force, 1970Cedis Mln. _ Mln. %

Agriculture 3300 50.3 1.787 57.2Industry 1254 19.1 .485 15.3Services 2003 30.6 .861 27.5

Total 6557 100.0 3.133 100.0

GOVERNMENT FINANCE

------------Central Government…------------Cedis Mln. % of GDP Cedis Mln. % of GDP

1976/77 1977/78

Total revenue and grants 1106.3 10.4 1382. 7.0Total expenditure and net lending 2228.0 1.0 3538.6 17.8Overall deficit (-) -1121.7 10.6 -2155.7 10.8

MONEY, CREDIT AND PRICES

1972 1973 1974 1975 1976 1977 1978(Million Cedis Outstanding End Period)

Money and quasi money 563 686 853 1138 1582 2286 4910Bank credit to public sector 555 515 670 1245 2006 3227 5659Bank credit to private sector 186 178 222 312 395 572 751

(Percentages or Index Numbers)

Money and quasi money as % of GDP 20 20 18.3 19.7 16.9 13.9 19.6General price index (1977 = 100) 16.4 19.3 22.8 29.6 46.2 100.0 171.5

I/ 1976 is the last year for which constant price data are available

- 28- ANNEX IPage 5 of 5 pages

BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1974-78)

1976 1977 1978(Million US$) US$Mln. %

Current balance -34.3 -79.8 -53.9 Cocoa beans 498.8 61.7Trade balance 88.8 29.4 112.7 Cocoa products 77.2 9.5Exports 799.0 889.6 894.6 Timber logs 47.2 5.8Imports -690.2 -860.2 -781.9 Timber sawn 23.1 2.9

Timber products 4.4 0.6Invisibles (net) -123.1 -109.2 -166.6 Gold 69.6 8.6Services -149.8 -167.8 -221.1 Diamonds 11.1 1.4Transfers 26.7 58.6 54.5 Manganese 14.0 1.7

All other goods 63.3 7.8Capital accounts -84.5 83.7 -18.3Official, long-term 7.6 64.3 52.6 Total 808.7 100.0Private, long-term 9.9 33.4 5.5Private, short-term 1/ -102.0 -14.0 -76.4 EXTERNAL DEBT, DECEMBER 31, 1978 (EST.)

Overall balance -118.8 3.9 -72.2 US$Mln.Public debt, incl.

Gross international guaranteedreserves (end of period) 103.5 89.3 153.3 Total outstarding

and disbursfd M&LT 877.0

RATE OF EXCHANGE DEBT SERVICE RATIO FOR 1978

February 1973 - June 18, 1978US$ - 01.15 Public debt, incl.

guaranteedSince August 26, 1978 Total outstanding

US$ - t2.75 and disbursed 3.4

IBRD/IDA LENDING,(Dec.31, 1979)(US$N1.)

IBRD IDA

Outstanding & Disbursed 92.8 90.6Undisbursed 74.1 31.9Outstanding incl.Undisbursed 166.9 122.5

I/ Includes errors and omissions but not current payments arrears.

-29 - ANNEX IIPage 1 of 6 pages

THE STATUS OF BANK GROUP OPERATIONS IN GHANIA

A. STATEMENT OF BAIIK LOANS AND IDA CREDITS (As of March 31, 1980)

Loan or US$ million: Amount (lessCredit Fiscal cancellation)l/Number Year Borrower Purpose Bank IDA Undisbursed

Three loans and seven credits fully disbursed 56.5 42.2205-GH 1970 Republic of Ghana Cocoa Rehabilitation 8.5 * 4/354-Gil 1972 Republic of Ghana Sugar Rehabilitation 15.6 1.1438-GiH 1973 Republic of Ghana First Highway 13.0 0.2499-GH 1974 Republic of Ghana Second Water Supply 10.4 0.5500-GH 1974 Republic of Ghana Livestock Development 2.0 0.7531-GH 1975 Republic of Ghana Oil Palm 13.6 9.3901-GH3/ 1979 Republic of Ghana Second NIB 19.0 19.01122-GH 1975 Post & Telecom- Telecommunications 23.0 16.0

munications1180-GH 1975 Republic of Ghana National Investment

Bank 10.0 1.81181-GH 1975 Republic of Ghana Ashanti Cocoa 14.0 7.01182-GH 1975 Republic of Ghana Second Highway 18.0 6.21291T-GH2/ 1976 Republic of Ghana Agricultural Devel-

opment 21.0 12.41380-GH 1977 Volta River Kpong Hydroelectric

Authority 39.0 23.41381-GH 1977 Electricity Cor- Third Power

poration of Ghana 9.0 2.0

Total 190.5 124.3 99.6of which has been repaid 24.8 1.8

Total now outstanding 165.7 122.5

Amount sold 0.4of which has been repaid 0.2 0.2

Total now held by Bank& IDA 165.5 122.5

Total undisbursed 68.8 30.8 99.6

1/ Prior to exchange adjustments. A US$29.5 million IDA credit was approved onApril 22, 1980 for the Volta Region Agricultural Development Project.

2/ Interest subsidy fund (Third Window).3/ Not yet effective.*4/ US$36,279 remain undisbursed.

- 30 - ANNEX IIPage 2 of 6 pages

B. PROJECTS IN EXECUTION 1/

Credit No. 500 Livestock Development Project: US$2.0 millionCredit of July 26, 1974; Effective Date:flay 4, 1975; Closing Date: June 30, 1981

Because of unanticipated difficulties in acquiring necessary landand cost overruns resulting from high local inflation, the Executive Directorsapproved a revised project description in August 1976. The project nowincludes: (i) development of two commercial ranches for 4,000 head of cattle,(ii) credit for 20 private livestock producers, (iii) the preparation of afollow-up project and training for ranch managers. Revised project foreignexchange costs are estimated at US$2.3 million. Improvements in managementperformance and some physical development were noted until early 1979.Uncertainties during the last year however have delayed action on completionof much needed water supplies and GLC has purchased unsuitable cattle forone of its ranches. Mlanagement is again a problem. Together these factorsare affecting the viability of GLC and these issues are being discussed withGLC to find a satisfactory solution.

Credit No. 499 Second Water Supply (Accra/Tema) Project; US$10.4 million:Credit of July 26, 1974; Effective Date: January 7, 1975;Closing Date: June 30, 1980

This Project is being cofinanced with CIDA and ADB. Althoughexecution of the Bank-financed component is substantially complete, overallimplementation is expected in end-1981, about three years later than origi-nally envisaged, because the civil works on the treatment plant and thepipeline is experiencing delay due to the country-wide shortage of buildingmaterials and the problems of the contractor. While foreign cost component iswithin original esti-mates, the local cost component has more than doubled. Dueto prevailing high inflation, the effect of the 100% tariff increase of July1977 has been eroded and further tariff increase and other local funds areneeded to complete the project and maintain the financial viability of theproject entity.

1/ These notes are designed to inform, the Executive Directors regardingthe progress of projects in enecution, and in particular to reportany problems which are being encountered, and the action being takento remedy them. They should be read in this sense, and with the under-standing that they do not purport to present a balanced evaluationof strengths and weaknesses in project execution.

- 31 - AIINEX IIPage 3 of 6 pages

Credit No. 531 Oil Palm Project: US$13.6 million Credit of MIarch 5, 1975;Effective Date: June 30, 1976; Closing Date: December 31,1983

Planting program was behind schedule in December 1979 by about600 ha (from 2,000 targeted) due to considerable downtime of land clearingequipment because of late arrival of spare parts and delays in delivery ofnew equipment. However, the situation has since improved and managementis confident it can catch up within the next six months. The smallholderprogram is proving to be quite successful; however, the outgrower programis not as encouraging because of the logistic problem of providing extensionservices. All appraisal targets are expected to be met (subject to nofurther problems emerging in funding) by project completion date. Tenders formill have been evaluated and the contract awarded.

Loan No. 1122 Telecommunications Project: US$23 million Loan ofJune 10, 1975; Effective Date: January 23, 1976;Closing Date: December 31, 1982

The project has experienced a slippage of about three years due todelays in preparation of tender documents and retendering of the telephoneswitching equipment; project execution is still in procurement stage. Thereis an increase of about US$6.5 million in the foreign cost of the projectwhich has resulted from a change in the type of switching equipment, thedepreciation of the US dollar and increased physical quantities. After havingunsuccessfully attempttd to obtain financing of this cost overrun from otherdonors, the Government has now decided to make foreign exchange available fromits own resources. This should expedite progress of various procurementcontracts and the project is now expected to be completed in 1982.

Loan No. 1180 National Investment Bank Project: US$10 millionLoan of December 23, 1975; Effective Date: March 2, 1976;Closing Date: December 31, 1981

The project provides for a US$10 million loan to the NationalInvestment Bank to help finance industrial, tourism and agro-industrialdevelopment projects and to support small and medium scale private enter-prises. The loan has progressed satisfactorily with less than US$0.1 millionremaining uncommitted and approximately US$8.2 million disbursed. The institu-tional and procedural improvements introduced under the project have withstoodstrenuous tests over the past two years and NIB's operational performancehas been noteworthy given continued economic difficulties in the country.Partially due to low production levels resulting from insufficient foreignexchange for spare parts and raw materials, arrears have built-up. However,this has been controlled through a more intensive follow-up actions andcollection efforts, although rescheduling of subloans has been required insome cases.

- 32 - ANNEX IIPage 4 of 6 pages

Loan No. 1181 Ashanti Region Cocoa Project: US$14 million Loan ofDecember 23, 1975; Effective Date: February 23, 1976;Closing Date: December 31, 1980

Project consists of replanting and maintaining 42,500 acres ofhybrid cocoa in the Ashanti Region. As of September 30, 1979, close to the endof the planting season, cumulative planting was 29,425 acres (excluding aban-doned farms), leaving about 13,000 acres to be replanted out of the combinedBank and BADEA appraisal target of 42,500 acres. The major difficulty met bythe project's efficient management is insufficient farmer response due to anunattractive producer price for cocoa. The project's planting program wasalso severely affected by the 1977 drought which caused heavy losses innewly replanted areas, and made a second replanting in 1978 necessary. Toallow the achievement of physical targets, the loan closing date wasextended by two years to December 31, 1980. However, the project is havingdifficulty in obtaining polythene bags for raising seedlings. Moreover, therequirements for maintenance of replanted farms are growing steadily. It is,therefore, considered unlikely that the project would achieve its targets byend 1980 and the loan closing date may have to be extended to December 31,1981.

Loan No. 1291-T Upper Region Agricultural Development Project:US$21 million Loan of June 28, 1976;Effective Date: April 11, 1977; ClosingDate: December 31, 1982

The project, the first Bank operation for integrated smallholderagricultural development in Ghana, would provide most of the 125,000 farmfamilies living in the Upper Region with improved support services, farminput and physical infrastructure. The project is being cofinanced bythe ODMI. Two principal objectives are to increase farm incomes via increasein agricultural production and to establish permanent farm support services.The loan became effective on April 11, 1977, and most key staff have beenappointed. Ministry of Agriculture personnel have been integrated satisfac-torily. Suitability of some senior staff has been questioned and replacementsare being sought. Cost overruns are envisaged due to high rates of inflation.Whilst some project components are being implemented satisfactorily (e.g.extension and commercial services, training, broadcasting), overall progressis being hindered by management and funding problems. Steps are being takento improve the management structure of the project and the recent appointmentof a Chief of Field Operations should improve field performance.

- 33 - ANNEX IIPage 5 of 6 pages

Loan No. 1380-GH Kpong Hydroelectric Project: US$39 millionLoan of March 24, 1977; Effective Date:August 24, 1977; Closing Date: December 31, 1981

All major contracts have been awarded including civil works,generating equipment, spillway and power-house gates and the transformersat Kpong. Construction is progressing satisfactorily for the main civilworks. Under the present schedule, the Kpong hydroplant is expected to becommissioned in July 1981. Heavy local cost overruns are being experienced asa result of high inflation. The Government has recently approved a tariffincrease which should substantially improve VRA's finances although probablynot sufficient to achieve the agreed rate of return objectives. VRA has alsorecently raised about ¢80 million through public bond issues.

Loan No. 1381-GH Third Power Project, US$9 million Loan andCredit No. 689-GH US$9 million Credit, of March 24, 1977;

Effective Date: June 10, 1977;Closing Date: December 31, 1980

Slippage has been experienced during the past year because ofdelays in civil works design and execution. Due to these delays and highinflation, local cost overruns are rapidly building up; staffing of thepower company (ECG) and system maintenance have also suffered from the poorfinancial situation. A tariff increase of 30% for domestic consumers and 80%for commercial consumers was introduced with effect from April 1, 1979.Consultants are presently studying improvements required in staffing andmaintenance.

Credit No. 438-GH First Highway Project: US$13.0 millionCredit of November 2, 1973;Effective Date: January 28, 1974;Closing Date: December 31, 1980

See Annex IV.

34 ANNEX IIPage 6 of 6 pages

Loan No. 1182-GH Second Highway Project: US$18 million LoanCredit No. 594-GH and US$10 million Credit, both of

December 23, 1975;Effective Date: March 30, 1976;Closing Date: December 31, 1980

See Annex IV.

Credit No. 901 Second National Investment Bank Project: US$19million Credit of October 26, 1979; Not Effective;Closing Date: December 31, 1982

The project, which is a second line of credit to the NationalInvestment Bank, would provide foreign exchange to support high prioritymanufacturing and agro-industrial enterprises. The project includes a workingcapital component (spare parts, raw materials, etc.) to help increase capacityutilization of existing industries.

- 35 - ANNEX IIIPage 1 of 1 page

GRANA

THIRD HIGHWAY (EMERGENCY MAINTENANCE) PROJECT

Supplementary Project Data Sheet

Section I: Timetable of Key Events

(a) Time taken to prepare the project: five months (October 1979to February 1980).

(b) The agency which prepared the project: GHA/BHCassisted by Bank staff.

(c) Date of departure of Identification/Appraisal Mission:November 29, 1979

(d) Date of Completion of Negotiations: April 18, 1980

(e) Planned Date of Effectiveness: August 31, 1980

Section II: Special Bank Implementation Action:

Retroactive financing of up to US$50,000 for procurement specialistto speed up project implementation.

Section III: Special Conditions

(i) Government to review with IDA adequacy of its road maintenancebudgets for FY82 and FY83 (para 46);

(ii) Govecnment to make available to GHA funds for road maintenanceexpenditures in advance on a quarterly basis (para 46);

(iii) BHC to prepare, by December 31, 1980, a program satisfactory to IDAto reduce its arrears and implement the program to reduce itsexposure rate to below 30 percent (para 54).

(iv) Conclusion of a subsidiary loan agreement between Government andBHC (a special condition of disbursement with respect to thesub-loan component, para. 52).

- 36 - ANNEX IV

Page 1 of 3

GHANA

THIRD HIGHWAY (EMERGENCY MAINTENANCE) PROJECT

ON-GOING HIGHWAY PROEJCTS IN GHANA

First Highway Project (Credit 438-GH)

1. As appraised, the project (US$13 million Credit of November 2,

1973) included a three-year program of rehabilitating and improving about 345

miles of paved trunk roads; preinvestment studies for further trunk roadimprovement projects; preparation of a road maintenance program; and provision

of equipment for traffic control and pavement surveys. The total project costwas estimated at US$19.5 million with an estimated foreign exchange component

of about US$11 million. The Credit Agreement was amended twice, in 1975 and

again in 1977, the net effect of which was to reduce the road rehabilitationcomponent from the original 345 miles to 155 miles. The reduction was neces-

sitated by higher rehabilitation costs caused mainly by increased design

standards due to an unexpected growth in heavy traffic coupled with delay inproject execution and rapid price escalation.

2. As revised, the road rehabilitation work under the project consisted

of: (i) Takoradi-Yamoransa-Mankesim road (73 miles); (ii) Anyinam-Pra River

road (31 miles); and (iii) Pra River-Kumasi road (51 miles). The IDA credit

financed the foreign cost of the Takoradi-Yamoransa-Mankesim road, whilethe construction of the latter two roads have been carried out by local

contractors with financing provided by Government except for about US$1.7

million worth of equipment financed by IDA.

3. The preinvestment studies and preparation of a road maintenance

program have been satisfactorily completed. However, the progress on the

rehabilitation contracts has been slow, and works disrupted, due to the

country-wide shortage of materials (mainly bitumen, cement and stone chippings),

an acute shortage of foreign exchange for spare parts and lubricants, and a

fuel shortage during mid-1979. The Anyinam-Pra River road is now 95 percent

complete and the Pra River-Kumasi road, about 45 percent. While the inflationhas greatly increased the cost of these two contracts, Government has promptly

covered all local cost overruns. However, works on these two roads have cometo a standstill due to lack of bitumen and other materials which must be

imported.

4. The Takoradi-Yamoransa-Mankesim contract has experienced significant

excess quantities in earthworks and drainage works due to inaccuracies in

the engineering work, amendments to standards, additional excavations of

unsuitable materials and the effect of depreciation of the US dollar. In

addition, the contractor (Carl Ploetner, Germany) declared bankruptcy in

January 1979. At present, 31 miles of the Takoradi-Yamoransa-Mankesim roadare complete, 12 miles are partly complete, while works have not started on

the remaining 30 miles. With only about US$0.2 million remaining undisbursedin the credit, the project is facing a substantial cost overrun. Even assuming

- 37 - ANNEX IVPage 2 of 3

deletion of 30 miles of the Takoradi-Yamoransa-Mankesim road where works havenot begun, the cost overrun on this contract is estimated at US$4 million inforeign exchange.

5. Government has recently decided to complete, with its own funds,the 12-mile section of the Takoradi-Yamoransa-Mankesim road which is onlypartly completed; works were restarted in February 1980. Completion of theremaining 30 miles of this road will have to be considered in the context ofa future investment project in the highway sector. As regards other remainingrehabilitation works under the Project, Government intends to assist thelocal contractor executing the Pra River-Kumasi contract with the provisionof foreign exchange (about U$500,000) for spare parts, which will be financedby BHC under the Second Highway Project. Also, the work on the Pra River-Anyinam contract is expected to resume shortly with the recent arrival of astock of bitumen in the country and be completed within the next six months.

Second Highway Project (Loan 1182/Credit 594)

6. The Second Highway Project (US$18 million Loan and US$10 millionCredit of December 23, 1975) comprised: (a) establishment within CHA of anadministrative and management system for implementing road maintenance;(b) execution of the first four-year phase of an eight-year (1975-83) roadmaintenance program by applying routine maintenance to about 12,100 km of mainroads and about 9,700 km of feeder roads; and periodic maintenance to about8,100 km of main roads and selected feeder roads; (c) training of GHA mainte-nance personnel and contractors' staff; (d) term loans through BHC to domesticcontactors for procurement of road maintenance equipment and spare parts andto quarry operators for equipment and spare parts; (e) reconstruction of theAchimota-Nsawam road (16 miles); and (f) studies, and technical assistance toGHA and BHC.

7. Under the project GHA has developed an effective administrativeframework and management system for implementing road maintenance. GRAhas successfully carried out a training program for its maintenance personnelincluding technical officers, foremen and mechanics. GHA purchased US$12.1million worth of road maintenance equipment, workshop equipment and toolsincluding a two year supply of related spare parts. However, the executionof the road maintenance program by GHA force account and by contract has beenfar from satisfactory. Due to country-wide shortages of spare parts, roadbuilding materials and lubricants, only 5-30 percent of the programmedequipment-intensive routine and periodic maintenance was carried out by GHAand contractors in 1979.

8. All equipment for domestic contactors (US$6.5 million) has beenprocured through BHC and delivered, with the exception of a few items, to 26contractors participating in GHA's road maintenance program. All contrac-tors have started work during 1979, but due to shortages of spare parts andoperating supplies, progress has been slow and only about 15 percent of allwork awarded has been executed. Whereas the project provided an appropriatepercentage of spares for the new equipment, no provision was made to supplythe contactors with spares for their existing equipment. Procurement ofequipment and spares for quarry operators (US$1.0 million) is about 50percent complete.

- 38 - ANNEX IVPage 3 of 3

9. The rehabilitation of Achimota-Nsawam road (16 miles) is beingcAirrie7 out by a domestic contractor (SWEDRU). With 85 percent of thecontract period elapsed, only about 45 percent of permanent works have beencompleted, as the contractor's work has been hampered by difficulties inimporting spare parts for the machinery, as well as a shortage of spare partsand fuel. The contractor was recently provided with an additional plantadvance under the project and the implementatLon of this contract is expectedto improve.

10. At present about US$6.2 million remains undisbursed under this pro-ject. However, except for about US$0.5 million the undisbursed amount is fullycommitted to various project components including the rehabilitation of theAchimota-Nsawam road.

- 39 - ANNEX V

Page 1 of 6

GHANA

THIRD HIGHWAY (EMERGENCY lAINTENANCE) PROJECT

BANK FOR HOUSING AND CONSTRUCTION

1. The BHC, established in November 1972, is one of three public owneddevelopment banks in Ghana; it has primary responsibility for promoting andfinancing the building materials industries, private domestic constructioncompanies, public and private housing schemes, commercial buildings, utilityand settlement programs. The Second Highway Project included foreign exchangefor a line of credit through BHC to private civil works contractors (US$6.5million) and quarry firms (US$1.0 million) for the purchase of capital equip-ment and related spare parts. Although initially delayed this line ofcredit is now operating satisfactorily, having disbursed US$6.5 million as ofDecember 31, 1979.

2. BHC's overall performance since inception has been uneven. Opera-tional and technical improvements were introduced between late 1977 and1979 with Bank assistance and recruitment of competent staff to manage BHC'sactivities. The Bank provided US$150,000 in June 1978 under the SecondHighway Project for -onsultants 1/ to propose measures to deal with inadequatecontrol over banking, accounting and lending procedures; the high level ofarrears and the lack of organizational integration. Recommendations thus farput forward are sound and well-documented, and the Bank has urged BHC toaccept the consultants' proposals. However, BHC will require further techni-cal assistance if it is to successfully introduce these and other reforms asdiscussed below.

Capital Structure

3. BEC has an authorized share capital of 020 million. The currentpaid-in share capital stands at ¢18 million, with the Government owning55.5 percent, Central Bank 11 percent, and other parastatal institutions 33.5percent. The Central Bank of Ghana and the Social Security and NationalInsurance Trust have each agreed to pay in ¢1 million by mid-1980, thuscompleting subscriptions to the authorized limit. BHC's By-Laws stipulatethat the bank and its subsidiaries shall maintain a debt equity rationot exceeding 3:1 which, in its calculation, shall exclude short-termdeposits and 80 percent of the total outstanding principal amount of termdebt for mortgage loans. Given recent accelerated disbursements on theexternal loans, as well as the proposed credit, consideration will need tobe given to expanding BHC's capital base by the final quarter of calendaryear 1980 when it is expected that the debt equity ratio will be pressingthe 3:1 statutory limit. The Bank Group has suggested to Government,several interim measures such as conversion of a portion of existing Govern-ment loans to quasi-equity or subordinated debt to temporarily allow continua-tion of disbursements, until improved financial performance can justify apermanent change in capital structure.

1/ Berenschot-Moret-Bosboom (BMB) of Tilburg, Netherlands.

- 40 - ANNEX VPage 2 of 6

Management and Organization

4. BHC's Board currently consists of nine meer,ners, including the ActingManaging Director. Other members include senior officials of the NationalInvestment Bank, Ghana Commercial Bank, the Ministrv of Finance and otherparastatal financial institutions. The Deputy Governor of the Central Bar`.currently acts as Chairman. BHC's Board has been ai actit-v and competelitand has been instrumental to introducing a nurmber of coistructi<Te proceduralreforms including the presentation of periodic progress reports on each loanand a requirement that BIC's uianagement produce policy papers on (a) commer-cial banking, (b) local and foreign resource position, (c) equity participa-tion (and diverstitures) and (d) staff expansion. The Board, meeting once amonth, approves all loans and ilnvestments above 0250,000.

5. BHC is presently organized into three tm.ii departments. The Opera-tional Department which handles projects (pror>tiori, evaluation, supervision,engineering, statistics and internal auditinf) is the part of the bank whiclhas sLade the mrst -progress since inception. The Finance Department includesaccounting, cs: raercial banking-, planning and mortgages, and is perhaps theweakest area, lacking a suitable range of qualified professional staff andappropriate operating procediures. The Secretary's Department, responsible forlegal services, administration and Board business, appears to be the unitwhich fulfills its functions most effectively. BHC has three branch offices(Kumasi and two other outlets in Accra). While decentralization is bothnecessary and desirable if BHC is to ultimately meet its objectives, con-solidation of headquarters and design of a more dynamic and better coordinatedorganization must first take place. The proposed technical assistance wouldprovide advice on organization and administration.

6. BHC has a total staff of 532, of which 116 are at the professionallevel. A competent professional engineer who was previously head of BUIC'sProject Development Unit was appointed Acting Managing Director in February1979. To deal with staff constraints, particularly in financial management,the proposed technical assistance would provide training in accounting andfinancial reporting and other areas. While project evaluation and supervisioncapabilities have improved in recent years, a technical assistance expertwould introduce a more rigorous project evaluation system and methodology forboth contractor and industrial lending. Recruitment would be undertaken toupgrade professional levels in those areas of BHC where operations cannot beimproved through training.

7. In addition to its debt equity ratio of 3:1, financial policiesinclude: (a) total exposure on any single project shall not exceed 90 percentof total project costs, or not more than 25 percent of BHC's net worth,(b) mortgage and estate loans shall not exceed 80 percent of total investmentcosts, (c) foreign investors will be required to contribute at least 20 percentof the total cost of a joint venture with BHC, (d) BHC's term funds will not beused for equity capital. Since September 1978, when the Central Bank raisedthe interest ceiling from 12.5 percent, the BHC has been charginig the maximum

- 41 -ANNEX V

Page 3 of 6

allowable interest rate of 18.5 percent on all loans, except mortgage loanswhich by law are limited to 15 percent. In addition, BHC charges a 1 percentcommitment fee on undrawn balances and a small fixed investment tee. Balancesand reserve requirements held by a Bank of Ghana, representing about 40percent of BHC's deposits and current liabilities, earn between 2-13 percentp.a. BHC pays interest ranging from 12-13 percent p.a. on savings and fixedterm deposits. Overall, BHC earns about an average 4 percent spread on itslocal resources which should improve as a higher percentage of its loanportfolio is lent at the increased interest rates introduced in late 1978, andan arrears recovery program gets underway (para. 13).

Operations

8. As of June 30, 1979, total cumulative term loan approvals amountedto 052.6 million (representing 744 loans) of which 53 percent of the volumehas been for 116 industrial loans, 30 percent constituted 42 equipment loansto contractors and 272 vehicle loan to truckers through hire-purchase arrange-ments, with the 17 percent balance of the funds being directed to a varietyof mortgage lending (314 loans). Outstanding term loans as of June 1979amounted to 042 million. Commercial banking, originally established toprovide working capital and other facilities of BHC's term loan clients, hascome to represent an important aspect of BHC's activities, amounting to0156 million in short-term loans outstanding at the end of FY1979, or 79percent of BHC's total loan portfolio. BHC's guarantees and other contingentliabilities including short-term indemnities amount to 015.6 million.

9. As of June 30, 1979, BHC had extended industrial term loans of over01 million each to three companies, representing 08.4 million or 38percent of loan portfolio. The remaining industrial loans had an average loansize of 0121,000, involving concrete production, wood industries, buildingconstruction, brick, tiles and ceramics. Most of BHC's investments have beento the private sector, except when BHC itself has taken controlling interestin a company or has joined with a regional development corporation to promoteor rehabilitate a high priority scheme for which private investors could notbe found. In terms of geographical distribution, 70 of BHC's industrial loanswent to projects in the Greater Accra Region, 22 for the Ashanti Region and 22evenly distributed throughout the southern two-thirds of the country, with theremaining two in the Upper Region.

Equity and Subsidiaries

10. BHC's approved equity investments amounted to 06.3 million in17 projects as of June 30, 1979, of which 05.3 million had been subscribed.Majority positions have been taken in five companies (a plant leasing com-pany, a real estate development company, a quarry, a warehouse facility anda concrete company). Equity participations have constituted BEC's primarypromotional thrust. Although most positions have been associated with highpriority schemes, only one company is thus far operating successfully, andin their aggregate, equities have resulted in a serious drain on BHC's

- 42 - ANNEX VPage 4 of 6

management and staff resources. The successful venture, Plant Pool Ltd. (PP),is a leasing company which has worked and will continue to work closely withBHC on its hire purchase program. Well-managed and staffed, PP employs almost300 workers, including 40 technicians, mechanics, engineers and managers.Leasing and owning about 260 pieces of equipment, PP has become the largestcompany of its type in Ghana and is expected to play a central role in theproposed project.

Financial Position

11. As of June 30, 1979, BHC's total assets had reached 0277 millionrepresenting more than a four-fold increase since 1975. Total loan portfoliooutstanding amounted to ¢198 million. The most dramatic growth occurred inBHC's short-term lending, which increased 150 percent between FY1977 andFY1979, particularly in the form of overdrafts and inventory financing. Thepattern toward short-term financing was not planned, but was rather a reflec-tion of deteriorating economic conditions, a scarcity of foreign exchange tosupport longer term productive investments and a consequential overall declinein the availability of term resources since 1977. Average annual growth interm lending during the same period was around 24 percent, which by FY1979 hadfallen to 12 percent. Despite BHC's relatively high interest margin (interestcoverage ratio of 2.8) net profit has fluctuated between 9 and 12 percent ofaverage net worth since 1976, which is not satisfactory under the prevailinginflation. The problem of late loan recoveries could, if allowed to persist,continue to erode BHC's profits, preventing coverage of increased costsarising from inflationary pressures. Loan income, as a percentage of averageloan portfolio, particularly term loan income (16.3 percent in FY79) has thusfar shown an upward trend and a higher proportional increase than either termloan expenses as a percentage of term portfolio or administrative expenses asa percentage of total assets. In order to maintain this trend, it will benecessary to increase BHC's longer term local as well as foreign exchangeresources. Furthermore, it will be necessary to reduce arrears in order toderive full financial benefits from increased activities. Finally, whileBHC's gross income was 11.4 percent of average total assets in FY1979, netprofit, after appropriations for provisions and reserves has remained below 1percent since 1976. BHC's accounts are audited by qualified auditors (Tettey,Ussher and Partners). While the accounting has been performed satisfactorily,audits have been in recent years submitted in short form. BHC requires thediscipline and scrutiny of an exercise leading to a "long form" audit and theBank is satisfied that, with the help of the proposed external financialexperts, the accountants responsible for BHC audit will receive sufficientinformation for that purpose. Table 1 (page 6 of this Annex) sets out BHC'scurrent resource position.

12. Provisions. Despite the negative impact of reserve allocations onBHC's profitability, the Bank Group fully supports the decision of BHC's Boardto appropriate the unusually high proportion of annual profits to loan lossreserves until such reserves constitute, and are maintained at, 15 percent oftotal portfolio outstanding. This policy is considered reasonable and prudent

- 43 -

ANNEX VPage 5 of 6

until BHC's financial management, particularly arrears recovery, has beenimproved. At present, provision is 5.3 percent of total loan and equityportfolio outstanding, and 22.6 percent of term loan and equity portfolio.

13. Arrears. Mainly as a result of weak financial management and,until recently, poor project evaluation procedures, arrears have posed a majorproblem for BHC. BHC's own calculations showed an exposure rate of 40 percenton term loans, largely due to late payments of seven large industrial clients.Arrears on hire-purchase and short-term prefinancing are more pervasive andchronic. However, it appears that loan loss provisions and reservese, 010.7as of the most recent audit (June 30, 1979), are currently adequate to coverthe absolute amounts in arrears of 03.2 million under the industrial termloan portfolio and 84 percent of the absolute amounts in arrears under thehire-purchase contracts. In any case, the nature of hire-purchase agreementsallow BHC more than adequate collateral against possible losses.

14. Measures have been taken by BHC to strengthen project evaluation andsupervision procedures with view to controlling arrears more effectively. Thetechnical assistance program to be launched under this project, beginning withthe advance consultant, will concentrate a great deal of attention on resolvingproblems arising from both the internal institutional conditions and externaloperational factors which combined, have led to the high level of arrears.

Role of BHC

15. BHC has a major role to play in the economy of Ghana, particularlyin promotion of the construction and building materials industries. There arepresently 3,000 construction firms, of which 600 are active in civil works.The Ghanaian Contractors' Association and GRA estimate private contractorscould, if prices and spare parts availability permitted, carry out over 80percent of Government civil works and maintenance activities while maintainingprivate sector commitments. The operational experts proposed to be providedunder the project would review BHC's five-year development strategy, andpropose quantitative targets as well as sources of financing. BHC's currentproject pipeline would also be evaluated with a view to broadening its cov-erage and increasing its geographical diversification.

ANNEX V- 44 - Table 1

Page 6 of 6

BHC's Resources Position (as at June 30, 1979)

Local ForeignCurrency Currency Total

Sources of FundsPaid-up Share Capital 15,000 - 15,000Reserve Fund 1,954 - 1,954

Sub-Total 16,954 16,954

First Bond Issue (6%) 10,000 - 10,000Second Bond Issue (8-1/2%) 20,000 - 20,000Bank of Ghana Loan 1,000 - 1,000Government Loan 11,000 - 11,0001st World Bank Loan - 20,625 20,625

Sub-Total 42,000 20,625 62,625

Total Resources 58,954 20,625 79,579

Application of FundsOutstanding LoansHire-Purchase 12,301 6,580 1/ 18,881Industrial Loans 22,419 - 22,419Mortgage Loans 7,235 - 7,235

Sub-Total 41,955 6,580 48,535

Equity Investment 5,344 - 5,344Fixed Assets 1,995 - 1,995

Total Application 49,294 6,580 55,874

Funds Avalable for Disbursements 9,660 14,045 23,705Approved but not yet Disbursed 8,590 1,365 9,955

Funds Available for New Approvals 1,070 12,680 13,750

Other ResourcesSale of Government Stocks andTreasuryBills 8,290 - 8,290

Potential Resources (FY1980)Called Share Capital 5,000 2/ - 5,000Banco do Brazil Loan - 41,300 41,300KfW Loan - 21,200 21,200

Funds Available for New Approvals 14,360 75,180 89,540

1/ Represents US$2,393,000 in contractor equipment which had been formallytransferred before the fiscal year but the breakdown of which, becauseof slow accounting procedures, was not reflected in BHC accountsprovided to the auditors.

2/ ¢2 million had already been paid-up in November 1979; 02 million wereexpected to be paid-up by January/February 1980.

Source: WAPID

- 45 - ANNEX VI

GHANA

THIRD HIGHWAY (EMERGENCY MAINTENANCE) PROJECT

Estimated Schedule of Disbursements

IDA Fiscal -----------US$ thousand--------Year Quarter During Quarter Cumulative

1981 2 1,000 1,000

3 4,000 5,000

4 4,000 9,000

1982 1 4,000 13,000

2 4,000 17,000

3 4,000 21,000

4 2,500 23,500

1983 1 1,000 24,500

2 500 25,000

- 46 -ANNEX VII

GHANA

THIRD HIGHWAY (EMERGENCY MAINTENANCE) PROJECT

Capital and Recurrent Expenditures on Roads, FY1976-79

(Cedis millions)Trunk Feeder

Sub-Total Road Road

Fiscal ---GHA Administration-- Periodic Current Constant Construc- Construc-Year Routine Other Maintenance Prices Prices 1/ tion tion

Maintenance

1976 4.5 12.7 8.6 25.8 236 27.9

1977 6.1 15.6 11.6 33.3 195 45.0 -

1978 13.4 31.7 14.6 59.7 162 53.3 63.9

1979 19.0 29.9 12.7 61.6 96 52.4 61.4

1/ Adjusted according to the Ghana consumer price index.

Source: Ghana Highway Authority

fi ~ ~ ~ ~ ~ ~ ~ ~ -

-~~ ~~~ N*/ 5 . - - 1 -[1 5

: o I V O R Y C O A S T jf~V

V.10 L1 1 2~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I