Ghana - Livestock Development Project

DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P-1390-GH REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF GHANA FOR A LIVESTOCK DEVELOPMENT PROJECT June 6,1974 This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank' Group does not accept responsibility for the accuracy or completeness of the report.  CURRENCY EQUIVALENT Currency Unit = Cedi (,) , 1.00 = 100 Peseia US$ 1.00 = % 1.1538 US$ 1 million = , 1.,1509,000 , 1.00 US$ 0.8667 % 1 million = Us$ 866,670 FISCAL YEAR July 1 - June 30 ABBREVIATIONS GLC - Ghana Livestook Company, Ltd.  INTERNATIONAL DEVELOPME ASSOCIATION REPORT AND RECOMMDATION OF THE PRESIDENT TO THE ElECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF GHANA FOR A LIVESTOCK DEViLOPENT PROJECT 1. I submit the following report and recommendation on a proposed development credit to Ghana for the equivalent of US$2.0 million on standard IDA terms to help finance a livestock development project. About US$1.9 million of the proceeds of the credit would be relent to the Ghana Livestock Company Limited for 16 years, including 6 years of grace, with interest.at not less than 8 percent per annum. PART I - THE ECONOMY General 2. The last economic report on Ghana (R72-223) was distributed to the Executive Directors on October 3, 1972, and drew attention to the structural problems of the economy. An industrial sector mission visited Ghana during November 1973; its report is expected to be issued shortly. An economic mission was in Ghana recently and its report should be available in early fall. Country data sheets are attached as Annex I. 3. Gross domestic product in real terms in Ghana increased by about 2.5 percent a year between 1969 and 1972, whlle the population grew at rates ranging from 2.6 percent to 3 percent. Ghana seemed to have been caught in the downward economic spiral of declining per capita income and. consumption affecting the capacity of the nation to save and invest. The Govermnent is engaged in trying to break this cycle and is preparing a long-term development strategy for growth with stability. 41. On external account, Ghana's problem has been excessive dependence on cocoa exports -- cocoa still accounts for about 70 percent of merchandise exportg . Accordingly, wh widely fluctuating cocoa price8 and Ghana's declining share of worldwide production, the long-term balance of paymnts- situation remains somewhat uncertain. 5. On public finances, there has Deen a tendency for current budget expenditures to rise at a rapid rate and to outstrip revenues which are overly dependent on cocoa export duties and import taxes. In addition to the imbalance in the government budget per se, there are a number of public agencies and entexprises whose activities have not been subjected to adequate economic tests, and which are dependent on budget support or bank borrowings. 6. In describing these basic problems, the last economic report concluded that, even with vigorous and determined policies on the part of the Governmeent, the necessary structural adjustments cauld only be effected gradually. Ghana's structural problems and slow growth should not obscure, however, the strong points of its economy. Besides being the world's largest cocoa producing and  exporting country, Ghana has a variety of mineral resources as well as sub- stantial timber reserves. There is a reasonably advanced infrastructure. Cocoa production is broad-based and benefits many small farmers. The education system is well established; elementary education has been free and universal since 1962. Favorable external developments and government policy action over the past two years have laid the basis for more secure and sustained development. Ghana has achieved a reasonable degree of monetary stability, made a start in putting its state industries on a sounder economic footing and exercised caution in its public investment decisions. 7. During 1972 and 1973 the balance of payments position improved dramatically. Compared to a trade deficit of about $40 million in 1971, trade surpluses of about $160 million in 1972 and $100 million in 1973 were achieved. In 1972 this was in part due to the very substantial retrenchment in imports following the reimposition of an import licensing system. While imports in 1973 were expanded to meet the production needs of the economy and to replenish stocks, continuing high world prices for cocoa, gold and timber maintained a trade surplus. In contrast with the practice in previous years, the surplus has been used to repay some $40 million of Ghana's short-term debts and to bu.ild up reserves which stood at about $200 million at the end of 1973, compared to about $20 million at the end of 1971. 8. While prospects for continued high world prices for cocoa and gold seem good, the recent increasesi in petroleum prices are estimated to increase Ghanals import bill by about $100 million and eliminate the anticipated balance of payments surplus for 1974. Pe.troleum imports, which accounted for less than one-tenth of total imports in 1970-72, would account for about 30 percent of imported goods in 15974. With the need to meet substantial payments obligations and to maintain an adequate level of short-term debt repayment, the overall balance of payments position is likely to become difficult once again. Therefore, Ghana will need new aid commitments to supplement the ueagre aid pipeline, and it is appropriate that a substantial part of;these ccmnitments should be on concessionary terms. 9. An agreement for a long-term rescheduling of Ghana's medium-term external. debt was reached at a meeting in Rome March 11-13, 1974. Under this agreement, which was announced by the Government of Ghana last April, all payments due after February 1, 1972 in respect of pre-1966 debt obligations will be paid over a period of 28 years, including a grace period of 10 years, with an interest rate of 2 1/2 percent per annum. This concludes more than two years of negotia- tions between Ghana and the creditor countries, in which the good offices of the Bank were provided. The rescheduling agreement is expected to go into effect this summer provided the creditors are satisfied that the results of Ghana's review of the contracts underlying the medium-tenm debts do not put in question the basis of the debt settlement. The review is to be completed by June 30, 197h. The exact impact which the Rome agreement will have on Ghana's future debt service obligations will of course depend on the outcome of this review. It will be affected as well by the extent of the implementation of the agreement and its application to creditor countries not represented at the Rome meeting. These cannot be ascertained now but, given the size of Ghana's debt obligations, the relief obtained should prove to be substantial.  -3- 10. In December 1972 the Government announced a new investment policy redefining the ground rules for foreign private investnent in Ghana with a view to encouraging more indigenous participation in those sectors which exert a major influence on the economy. The Government is currently engaged in negotiating compensation arrangements with the affected parties; some settle- ments have already been reached. 11. On the basis of the understandings reached at the Rome meeting, and on the assumption that a substantial part of Ghana's external borrowing require- ments will be covered by aid on concessional terms, it is estimated that Ghana's external debt service ratio will average about 5-6 percent in 1974-76 and rise to some 10-12 percent during the remainder of this decade. The Bank Group's share of Ghana's total external debt is currently about 12 percent and is expected to rise but still remain small (14 percent) in relation to other lenders over the next several years. Similarly, the Bank Group's proportion of Ghana's future debt service is estimated to average 9-11 percent in the near future. Bank Group lending to Ghana since 1969 has been exclusively on IDA tenms because of the large overhang of external debt service inherited from the early 1960s. The agreement to reschedule service of most of the medium-tenr suppliers' credits should open up possibilities for Ghana to borrow abroad on conventional tenms, and it is planned to resume Bank lending to Ghana in the near future. PART II - BANK GROUP OPERATIONS IN GHANA 12 The Bank Group has lent Ghana $113.3 million, of which $47 million was a Bank loan for the Volta Dam and associated infrastructure in 1962. The remainder has been lent since 1968 for agriculture, power, water supply and sewerage and roads projects. Annex II contains a summary statement of loans and credits as of April 30, 1974 and notes on the execution of ongoing projects. There are now no major problems in project implementation. 13. Ghana is currently engaged in a major task of restructuring its economy, particularly to achieve greater self-sufficiency in agricultural products. Future Bank Group lending will support this objective, as reflected in the proposed livestock project as well as an oil palm project which was negotiated recently. A cotton project and a rice project have been appraised and are expected to be presented for consideration by the Executive Directors in FY 1975. Follow-up projects in cocoa and fisheries are planned thereafter, Apart from agriculture, the findings of the industrial sector mission have indicated favorable prospects for possible lending for small-scale industry. In addition, while proportionately less future Bank Group assistance than in the past is planned for infrastructural improvements, some additional lending is contemplated in this field to support key institutions. The Bank is assisting Ghana in preparing telecommunications, power generation and distribution, highway maintenance and feeder road projects.  - 4 - PART III - LIVESTOCK IN GHANA 14. Agriculture accounts for 40 percent of Ghana's gross domestic product and 70 percent of foreign exchange earnings, employs 60 percent of its labor force and provides 80 percent of the raw materials consumed by its manufacturing industry. Animal husbandry contributes a little less than 5 percent of agricultural output. 15. An immediate and overriding objective of the Ghana Government is to encourage increased production and efficient marketing of basic foodstuffs, and the two recent national budgets reflect this emphasis. One major aspect of this effort concerns the supply of livestock products. Although Ghana has the potential for substantial domestic production, imports from other West African countries have accounted for over half of Gbanals meat consumption. Foreign exchange difficulties have markedly affected the imports of meat, and future supplies from the Sahelian countries are threatened by the effects of recent droughts. 16. Ghana's livestock population is roughly estimated at 700,000 cattle, 800,000 sheep, 750,000 goats and 115,000 pigs. The country's natural pasture areas could support three to four times more animals than the present numbers. Almost 70 percent of the country consists of thinly populated savannah which is more suitable for cattle grazing than most of the rangeland found in the countries that traditionally supply Ghana with meat. 17. There bave been several obstacles to the development of a cmonmercial livestock industry in Ghana. The productivity of the national herd is low and farmers lack both the technical knowledge and the access to credit for improving it. The offtake from the national herd is less than one-third of the offtake in developed countries and lower than in the Sahelian countries. Perhaps the most important long-term restraint on beef production in Ghana is the tsetse- fly which, in varying degrees, infests most of the country. Presently, acute trypanosomiasis is rare because most of the cattle are trypano-tolerant and graze only in areas with little or no tsetse challenge. Over the long-term, the disease could pose a serlous threat to any large-scale expansion of the cattle industry until tsetse-flies are eradicated or a more effective prophy- lactic drug or vaccine is found. Meanwhile, breeding enterprises in tsetse areas will have to rely on trypano-tolerant cattle, although fattening of other types of cattle during a limited period would be practicable, provided grazing areas are suitably located and prophylactic or curative drugs are used. 18. The national veterinary service covers the entire country and has brought the principal epidemic diseases under control, and some experimental data are available on improving local cattle through selection and cross- breeding. The Government's State Farms Corporation and Ministry of Agriculture have built up improved herds on a small scale. In these circumstances, the Bank oif Gaina and the Agricultural Development Bank plan to undertake livestock pro'iects; the commercial baiks, cattle dealers and livestock owners are interested in expanding commercial production. The Government is anxious to provide a sound basis for the growth of the industry. The proposed project would help the  Government to: (a) create the beginning of a modern livestock industry in Ghana; (b) tap the resources of the commercial banks for livestock development; and (c) establish improved methods of livestock production on private farms. PART IV - THE PROJECT 19. A report entitled "Appraisal of Livestock Development Project - Ghana" (Report No. 277-GH, dated May 28, 1974) is being distributed separately. A credit and project sumioary is provided in Annex III. 20. The proposed project would be the Bank Group's first for livestock development in Ghana. It was identified by the Ministry of Agriculture; a feasibility study for the project, financed by France, was carried out by French consultants (SEDES). The project was appraised by an IDA Mission in February/March 1973 and discussed with the Government by an updating mission which visited Ghana in December 1973. 21. The project signifies an attempt to create a modern livestock industry and to develop the country's potential for grassland beef production by encouraging investments leading to the adaptation and dissemination of livestock production techniques proven successful under similar ecological conditions elsewhere in the world. It is a pilot project fostering production both in commercial ranches and in small and medium farms. Project Description 22. The project would produce improved breeding stock and slaughter cattle, and would comprise: (a) the rehabilitation and expansion of two existing ranches and one maize farm to be taken over from the Government. This part of the project would absorb the bulk of th4 proposed credit. The main developments would include land clearing, fencing, watering facilities, improved pasture and the purohase of breeding cattle; (b) the improvement of some 50 privately-owned herds of about 10-400 head each in the areas surrounding the ranches. The owners would be provided with technical advice and finance for such items as improved breeding stock, fencing materials, land clearing and pasture improvement; (c) the training of Ghanaian ranch managers; and (d) the identification of further ranch sites and the prepara- tion of a second stage project.  23. A newly formed enterprise, the Ghana Livestock Company Ltd. (GLC), would carry out the project. The Ghana Commercial Bank, Barclays Bank of Ghana and Standard Bank, Ghana, are expected to subscribe for shares and debentures in GLC, and provide overdraft facilities, and the Agricultural Development Bank is expected to subscribe for shares and debentures. Govern- ment would be issued shares and debentures in exchange for the assets transferred from the State Farms Corporation and the Ministry of Agriculture. Although the banks would hold a majority (60 percent) of the shares, Government would have a controlling interest through its own shareholding and its ownership of the Agricultural Development Bank and the Ghana Commercial Bank. 24. The senior management of GW would include a Managing Director, three Ranch Managers and a Chief Ao.untant. The Rnnch Managers would be responsible for dealings with surrounding farmers. Staff for these posts would be inter- nationally recruited. Every attempt would be made to locate suitable Ghanaians, but it is likely that some expatriates would be required. Cost Estimate and Financial Arrangements 25. The total project cost is estimated at US$4.5 million, with a foreign exchange component of US$2.0 million. The financing is expected to be provided as follows: US$ million IIDA 2.0 Government 0.6 Participating Banks 0.9 GIL's retained income 0.9 Farmers' contribution 0.1 Total 4.5 The IDA credit of US$2.0 million would finance the foreign exchange costs which amount to approximately 44 percent of total project cost net of taxes. The Government contribution represents existing assets to be taken over by GLC. 26. The Government would onlend about US$1.9 million of the proceeds of the IDA credit to GLC at not less than 8 percent for a term of 16 years, including six years of grace. The proceeds of the credit will also finance the cost of preparation of a second livestock project (US$73,000) and training of Ghanaians overseas (US$18,000). The banks would provide finance by way of equity con- tributions, US$130,000 each, and the purchase of 8 percent debentures, US$43,000 each. The commercial banks would provide overdraft facilities at the interest rate ruling from time to time. GLC would relend approximately $260,000 of the credit to private farmers to finance 80 percent of investment costs, the farmers contributing the other 20 percent. These loans would be at not less than 2 percent above the Bank of Ghana's ruling rediscount rate (currently 6 percent) and would be for periods of up to 10 years, including up to 6 years of grace.  -7- Disbursement 27. The proposed credit is expected to be disbursed during FYs 1975-79 (Annex III for details). As a condition of disbursement of the portion of the credit to be onlent to GLC, 75 percent of the authorized share capital of GLO will have to be issued and fully paid (See Section 2.02 of the draft Development Credit Agreement). Procurement 28. International competitive bidding, in accordance with IDA guidelines, would be used for aLl procurement contracts over US$50,000, which would include the following goods and services: fencing materials, motor vehicles and other mechanical and electrical equipment (about US$500,000) and contractors' services for works such as land clearing, buildings, firebreaks and watering facilities (about US$700,000). Local bidding procedures would be used for contracts of less than US$50,Oo0 subject to a maxizum aggregate amount of US$350,000 (see the Schedule ts the Project Agreement). There is adequate representation of foreign suppliers in Accra to provide sufficient competition. Domestically manufactured goods would be allowed up to a 15 percent preference. The services of expatriate personnel and consultants, as well as overseas training, would be arranged according to procedures acceptable to the Association. 29. Competitive bidding would not be practicable for the procurement of cattle for GLC and participating farmers (US$1.0 million), as the breeds suit- able for CThanaian conditions can only be obtained locally thrcugh the traditional trading system or through negotiated Government-to-Goveroment contracts, from other West African countries. Competitive bidding for other goods to be procured by participating farmers (US$186,000) is also not envisaged since most of the items will be too small for such procurement (see Schedule to draft Project Agreement). Economic Evaluation 30. At full development the annual output of the ranches and the surrounding private herds is estimated at 950 breeding heifers, 600 male year-p lings, 1,000 tons of carcass,meat and, from the Branamu ranch, 2,000 tons of maize. The value of this output would be of the order of US$1.4 million, of which US$0.9 mil-lion would represent foreign exchange savings. 31. The project would provide valuable experience in pasture improvement, cross-breeding, feeding and the integration of livestock produotion with maize growing; it would help local farmers to raise their standards of management and improve the quality of their cattle. Means of reaching larger numbers of small cattle owners would be developed for a second stage project. 32. The experience that would be gained in using imiproved techniques, coupled with the training of Ghanaian ranch managers, muld help Ghana in developing further commercial cattle production. By demonstrating the profita- bility of good management practices, the project would stimDulate the interest of cattle owners, private investors, and the commercial banks in such comercial operations.  33. The project's economic rate of return is estimated at 12 percent. The financial rates of return for the new company and for the participating livestock farmers are estimated at 14 percent and 17 percent respectively. PART V - LEGAL INSTRUMETS AND AUTHORITY 34. A draft Credit Agreement between the Republic of Ghana and the Association, a draft Project Agreement between the Association and the Ghana Livestock Company Limited, the recomendation of the Comaittee provided for in Article V, Section 1 (d), of t:e Articles of Agreements of the Associa- tion, and the text of a resolution approving the proposed development credit are being distributed separately to the Executive Directors. 36. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association. PART VI - RECa4MXNDATION 37. I recommend that the Executive Directors approve the proposed development credit. Robert S. McNamara President Attachments Annexes I, II & III Maps (2) June 6, 1974  Page I of 3 Pages OOUNThy DATA - GHAM AREA POPULATION DEN3ITY 238,537 lOnZ -8-.-9---zwTllion (mid-1971 ~~~~~37 Pe zn 1 238537 InnS 1T~~~~~!~l11ion (mid-1971 .. ~~~~Per ksslof arable land SOCIAL INDICAT'ORS Reference Countries GhanaU! Tanzania, Peru 1 9_ 97 1~970 1970 1910 GNP PER GAPITA US$ (ATLAS RASIS) ~ .250 /a 2,270 100 150 DE03RAPHIC Tr.-e!-th rate (per thousand) *. 7 'lb i 6.6 47 42 Crude death rate (per thousand) . 18 11.8 21 1? Infant mortality rate (per thousand live births) 156 /b . 18.6 165 /c 75 Life expectancy at birth (years) 4. 6 72.1 13 58 Gross reproduction rate * 3.2 1.3 3.2 7.9 Population growth rate I. 2.6 ). 6 2.7 3.1 Population growth rate - urban . 5 /d 0..8 7 Age etructura (percent) 0-11 15 16 24.1 411 15 15-61 52 52 63.1 53 52 65 and over 3 9? 19.8 3 3 Denondency ratio /4 1.2/e 0,.9/f 0.6 1./ 1 .6 Urban population as percent of total 93 /d 39 /d 78 6 'c 52 Family planning: No. of acceptors cumulative (thous.). 11- No. of users (% of married women) . 2A/ F)IPWONENT Total abor force (thousands) 2,730 3,400 25,240 5,78:) 1,100 Percentage employed in agriculture 62 58A/ 3 91 15 Percentage unemployed ... 1. 6 INCOMER DISTRIBUTION Percent of national incoee received by highest 5% . .19 / 314 /c 31 /k Per cent of national income received by highest 20% . .39 3 6r 7W 6i0 T, Percent of national income received by lowest 20% ...6 /3 5 7 2 7k Percent of national income received by lowest 10% .. 19 11.7 777k DISTRIBUTIION OF LAND OhBERSHIP % owned by top 105 of owner-s... % owned by smallest 10% of owners . .. HEALTH AND I4ITITION Population per physician 21,360 12,390) /1 860 23,17' /i 2, 2070 Population per nursing person .. 1,530 7-1 790 2,980 7 760 / Population per hospital bed ..790 110 7 7 7T' .140 Per capita calorie supply as % of requirements / .85 /n 1 00 69 91 Per capita protein supply, total (grams per d.ay76 ..3 7o7 88 .,3 58 Of which, animal and pulse .107! 58 93 18 Death rate 1-1 years /7 ....Qo 9Q lo EDUCATION Adjusted /8 primary school enrollment ratio 38 56 ~q1137 101 Adjusted E secondary school enrollment ratio 9 /2 72 9 38 Years of schooling provided, first and second level 15 15 13 13 11 Vocational e-rollmnt as % of eec, school enrollment 13 /r 15 / ~ 5 6 16 Adult literacy rats % .. HOUSING Average No. of persons per roos (urban) M/..O s . 2.0/u, Percent of occupied units without piped water .. 7 77' 20 /i 7 - Access to electricity (as % of total populati on). 17 3. Percent of ,'ura1 population connected to electricity .. CONSUNPYIGH L-do recivrsper 1000 population 17 78 321 11 131, Passenger cars per 1000 population 3 1 215 2 /1 17 Electric power consumption (kwh p.c.) 56 /u 321 1,291 27 77 122 Newsprint consumption p.c. kg per year 0.6- 0.1 27.7 0.1 3.5 Notes: Figures refer either to theo lateat periods or to account of envirornmental temperature, body weights, and the latest years. Latest periods refer lm principle to distribution by age and sex of national populations. the years 1956-60 or 1966-7p; the latest yva~re in prim- L/6 Protein standards (requi-rments) for all countries as estab- ciple to 1960 and 1970. Only sigeificantly different lished by 1ISDA Economic Research Service provide for a mininm- periods or years aure footnoted separately. allowance of 60 grama of total protein per day, and 20 grams of (1 The Per Capite MP estimates for years other than 1960 animal and pulse protein, of which 10 grams should be animal is at market prices, calculated by the same conversion protein. These standazrds are somewhat lower than those of 75 toohniq.e as the 1972 Wocrld Sank Atlas. grams of tote), protein and 23 grams of animal protein as an /2 Average number of daughters per woman or reproductive average for the world, proposed by FAO in the Third World Food age. Survey. 13. Population growth ratee &re fOr the. deoades ending in /7 Some studies have suggested that crude death rates of children 1960 and 1970. ages 1 through 4 ma be used as a first approximation index of A Ratio of under 15 and 65 and over age brackets to malnutrition. those in labor force bracket of ages 15 through 64. /8 Per-centage enrolled of cor~responding population of school age L.FAG refernene standards represent physiological re- as defined for each country. quirenents for normal activity anad health, taking a Bamad on a U.N. estismte of the CRIP lower than the Official estimate: /b U.N. estimate, /c 1967: /d Towns uith a population of 5,000 and over: /e Ratio of population under 15 and 65 and ovm~ tmtotal labor force7/f Rai fppltioudr1 n 65 nd verto csp