Report of the mission to the Gold Coast (Ghana)

 FILE COpy f""":' ..... ror f-' ~ ··,~ .•w~;.<' - ·R e,p.o,.JA~,_ -,~:~:,~ ~ o. E.A. 68 t?o p yo. 28 This report is available to those members of the staff to whose work it rei ates. INTE-RNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT OF THE MISSION TO THE GOLD COAST (GHANA) February 4, 1957 • Department of Operations Europe, Africa and Australasia  CURRENCY EQUIVALENTS Unit: Vi est African £ 1 West African £ = £ 1 sterling = U .8. $ 2.80 •  lABLE OF CONTEI\lT~ Page No. BASIC STATISTICS • • • • • • • • • • • • • • • • • • • • • i PART I - THE COUN1~Y AIID ITS PEOPLE ........... 1 PART II - THE POLITICAL SETTING • .......... 3 Political and Constitutional Changes Since the War •• 3 The Present Government • • •• • • • • • • • • 5 The Administration •• • • • • • • • • • • • • • • • 6 PART III - THE ECONOEIC SETTING 7 Income and Employment • 0 • • • 7 The Pattern of the Economy 7 Infrastructure • • • • • •. • • • • 8 The Rise in Government E~~enditure • • • • • • • 9 The Outlook for Goverr®ent Finance 11 The Outlook for Increased Production • • • • 12 Economic Advice ............ 14 PART IV - THE VOLTA RIVER PROJECT 15 History of the Project • 15 The Discussions in April 1956 • 16 The Capital Required • • 17 The Return on the Project • • • 19 Effect on the Economy during Construction 22 Effect on the Economy during Operation • 22 Surn..mary • • • • • • • • • • • • • • • • • 23  - i - Basic St~tistics ~: 91,800 square miles Population (1956 estimate): 4,700,000 Of \.Jhich: Colony 2,600,000 Ashanti 1,000,000 Northern Territories 1,100,000 Non-African population 11,000 1955 National Pr0ouct: £235 million 1955 Per Capita Income: About £50 (~~140 equivalent) 19S5 External Trade (£ million): Commodity Area ~xports Imports Exports Imports Cocoa 66 Durable producer Sterling area Gold 9 goods 23 (minus gold) 35 47 Timber 8 Textiles 20 Gold 9 Diamonds 6 Food) drirlk and Dollar area 18 5 Manganese t:; ./ tobacco 14 Non-sterling OEEC 30 22 Other 2 Fuel & lubricants 5 Other 4 14 Other 26 96 88 96 88 Qentra1 Government Finance (£ million): 19.2.2.L2§ 1-9.:26/57 (Est.) Revenues 52 47 --rar;hich cocoa duties) (21) (11) Expenditures 59 72 (current account) (34) (44) (capital account) (25) (28) Surplus (+) or Deficit (-) -7 -25 Cocoa Price (£ per ton f.o.b. 1955/56 1956/51 (Est.) Gold Coast, average during • fiscal year) 382 185  - ii - Sterling Assets (£ million): 1955 1956 (Dec. 31) Government 84 76 (June) Cocoa Marketing Board 63 63 (September) Other Official Institutions 12 n.a. Banks (net) 14 16 (June) Currency Reserves 42 30 (June) 215 Public Debt, Less Sinking Funds: (£ million) - June 1956 Internal 19 Of which, debt to Cocoa Narketing Board (13) 20  PART I THE COUHTRY AND ITS PEOPLE 1. The Gold Coast (soon to be renamed Ghana) is a country of 4-3/4 million people, almost all of them Africans, in the tropical zone of vlest Africa. Historically it has been diviGed into three main areas: the Gold Coast Colony along the coast; Ashanti in the center; and the Northern Ter- ritories in the north. At present the Colony is divided again into four Regions: the vJestern Region, the Eastern Region, the Accra Region (3. small area around the capital), and, to the east again, Transvolta/Togo- land. British Togoland, which at the time of \·Jri ting is still a trustee- ship territory, but is destined for amalgamation with the Gold Coast, has always been administered as part of the Colony in the south, and of the Nortbern Territories in the north. 2. The Colony, which has over half the population, has a long history of contact with European traders and missionaries. There is a small group of families on the coast who have been educated for several generations back and \.-Tho have come to form a professional cadre. }~any of them have European names, European blood, or both. The first fl.frican was appointed to the Legislative Council, one of the principal organs of British Colonial Government, as far back as 1888. During the 20th century, representation on the Legislative and Executive Councils by local chiefs and educated Africans in the Colony was gradually extended. 3. The process of "detribalization'l has gone far in the Colony. vIi th one exception the native states are small and the only joint organization of chiefs, the Joint Provincial Council, was superimposed from above by the Colonial Government. L,8acership of the people was constantly disputed between the chiefs and the professional classes. The decline in the author- ity of the chiefs first took place in the main towns, where municipal authori ties were set up. }':ore recently the process has gone further with the introduction throughout the country of local authorities on the British model to replace the old Na'ti ve Authorities. The chiefs i:lere, thereby, shorn of most of their administrative functions. The authority that a chief now has is an intangible and often a personal thing~ The Colony, today, is politically sophisticated and the chiefs' position is much reduced. 4. Although the tribe and the native state retain little of their forrner significance in the Colony, the family is still an important unito As in many other parts of Africa, the idea of a family is a very extensive one and the family imposes widespread obligations on its members. This 11 extended" family system has certain advantages. It provides a rudimen- • tary kind of social security. Corrmon effort may be exerted at consider- able sacrifice, for example, to give higher education to a promising boy. But, at the Same time, the tradition that the richer members should always help the poorer is a drag on personal enterprise for both richer and poorer. The system can, also, readily lead to conflict between obliga- tions to a man's family and those to his employer. Even among the most Westernized families in the Colony, the system still exerts its influence.  - 2 - 5. In contrast to the Colony, Ashanti has always had a closely-knit tribal organization. The chiefs of the various divisions of the Ashanti tribe acknowledge a supreme chief, the Asantehene, who has a traditional advisory body, the AsanteDlan Council. Although the same detribalizing influences are at work in Ashanti as in the Colony, the Asantehene still has great authority and tribal loyalty, though by no means universal, is still strong. 6. The tribal feeling in Ashanti is bound up with a warlike tradition. The Ashantis used to be an efficient and an expanding military power. During the 19th ~entury, the Ashantis had a succession of wars against the coastal peoples and whatever British administration there vIas in the area. These culminated in 1896 in the deportation of the Asantehene and, in 1901, the annexation of Ashanti. It was not until the 1930's that the title of Asantehene was revived and only in 1946 was a new constitution adopted extending the jurisdiction of the Legislative Council to Ashanti. Until then it was administered directly by the Governor. 7. Despite their differences, Ashanti and the Colony are climatically, racially and economically similar. Most of the area is a warm and humid forest zone, where cocoa, the principal source of wealth in the Gold Coast, thri ves. Virtually all the other valuable exports - tim;)er and minerals - come from this area, too. The general standard of development is much the same. 8. Both the people and the country in the Eorthern 'Territories are quite distinct from those in Ashanti and the Colony. Except as a source of slaves for Ashanti middlemen, the NOl,jhern Territories had little con- tact with the outside world until they became a British protectorate around the turn of the century. They were administered directly by the Governor until the first African Government was formed in 1951. 9. In northern Ashanti the forest zone gives way to an empty tlmiddle bel tll of savannah. Most of the Northern Territories people live in the extreme north, whicb is hot, dry, primitive, overcrowded and remote. They are simple people living on the edge of sUbsistence and their principal outlet has been to travel south periodically as manual laborers on the mines and cOCoa farms or in the army and police. The proportion of lit- erates (above the age of 14) cannot be much above 1% and may be less, compared with about 20% in the rest of the country. 10. As might be expected in the more primit.ive society of the north, the chiefs retain more of their tl'adi tional authority tban in the south. There is, however, no chief in the Northern Territories in a comparable position to that of the Asanteheneo The situation is, moreover, compli- cated by the fact that the more important chiefs belong to small tribes, which in the past invaded the country from the north and subj ected the indigenous peoples to their rule.  - J - PART II THE POLITICAL SETTING Political and Constitutional Changes Since the War 11. The new constitution of 1946 extended the jurisdiction of the Legislative Council to Ashanti and for the first time anywhere in j British Africa the Legislative Council included an African majority. The 1946 constit~tion, however, had a short life. As a result of serious riots in Accra in 1948, an all-African Committee (the Coussey Committee) waS formed to make recorr~endations for a new constitution. Although the Cornmi ttee I s recommendations, which 'vere broadly accepted by the British Government, went still further along the road to African self·-government, the COD1IP..i ttee was attacked for going slow by a newly formed party, tee Convention Peoples Party (CPP), under the leadership of Nkrumah, the present Prime IvIinister. 12. Nkrumah had been recalled from England, where he is said to have been active in leftist circles, to act as secretary of the United Gold Coast Convention (DGCC), the party which had inspired the 1948 riots and which Was sponsored by a radical wing of the professional class. He attacked the Coussey Committee, which was drawn mainly from the professional class (including some of the UGCC) and the chiefs, as the creatures of the British Government. He promised independence quickly and posed as the friend of the common man. 13. In Janua.ry 1950, the CPP declared tlPositive Action", a surprisingly successful general strike which lasted for two months. Nkrumah and others were imprisoned but Gbedemah, the present Minister of Finance, got out in time to organize the party for the forthcoming elections. In these elec- tions which took place in February 1951 the CPP won 34 out of the 38 seats contested on a party basis. Nkrumah was released from jail to become "Leader of Government Business"; a year later he became Prime Minister. From then on, to be a "Prison Graduate" was a mark of distinction. 14. Two subsequent elections have been held; in 1954, when the consti- tution vias revised again to provide among other things for full adult franchise and direct elections throughout the country, and in 1956, in anticipation of independence. In both, the CFF won over two-thirds of the seats. After the 1954 election, the principal organized opposition came from the northern party, the Northern Peoples Party (NPP); most of the remainder were independents. Subsequently, however, the CPP provoked the Ashantis in various ways and a new party, the National Liberation Movement (NLM) was formed with its principal source of strength in Ashanti. It is supported by the Asanteman Council. In the 1956 elections the Nil~ scored considerable gains in Ashanti where they had a majority. In the Northern Territories, the NPP also had a majority. There was also a small opposition gro~~ in Transvolta/Togoland. This region is dominated by the Ewe tribe which extends into French Togoland; many Ewes support an all-Ewe  - 4 - state separate from the Gold Coast. The CFF, h01.Jever, made a clean sweep in the rest of the Colony. 15. Throughout the prolix negotiations leading up to t~e British announce- ment in September 1956 that the Gold Coast would become independent on March 6, 1957, the opposition parties presented a pretty solid front and until recently boycotted all discussions on the form of constitution to be put into f6rce on independence. The bond between them appears, however, to be essentially a negative one, mainly distrust and dislike of the people in the south and especially of the present government. 16. After the British Government announced a firm date for independence, the opposition par-ties finally agreed to sit down with the govermnent to try to come to some agreement on a form of constitution. The opposition demanded a form of a more federal character and with more checks and balances at the center than the government was prepared to grant. No agreement was therefore reached and subsequently the Ashantis - or at least the I{[M and the Asanteman Council - stated their intention to secede. The Northern Peoples Party followed suit. The British Govern- ment has stated that it ""ould not consider secession. 17. What this threat to secede means, probably nobody knows. The Northern Territories have been promised more money for development and social services by the Ashantis than was forthcoming from Accra, but it is doubtful whether there is much of a bond between the Northern Territories and the Ashantis. To a large extent politics in the north depend on the leanings of the local chief and his decision may be guided by whichever band-wagon looks the more promQs1ng. In some cases the over-riding consideration may be the highest bid, iur the NPP is popularly supposed to be in the pay of the NIlvr.. Only one chief, the chief of the 1<:amprussi, the dominant tribe in the north-east, seems to have a traditional lip..k vIi th the Ashantis but there are more or less subject peoples in his area who might not be unwilling to turn on him if the occasion arose. 18. The Ashantis themselves are divided, especially in the west, where there is a traditionally dissident tribe called the Brongs. It is extremely doubtf'LU whether the Ashantis have any real conception of what secession means and there is even more doubt as to whether they have made any prepa- ration for it •. There is, however, always the possibility that they ".Jill start some kind of trouble once independence comes but no one can say whether it will be a question of sporadic riots, as has happened already, •• or full-scale civil war. Already CFP ministers are afraid to visit K'L1masi, the Ashanti capital. 19. If the country becomes inClependent without too much bloodshed or disorder, there may still be some sort of political struggle within the CPP itself~ Indeed some people consider this the most likely source of a genuine opposition. For example, although the Trades Union Congress is still closely connected with the CPP, individual trade unions seem to be losing their love for the government. T4e government is much the largest employer and, if it has to follow a line of retrenchment and  - 5- resistance to wage increases, it may force the unions into opposition. This could well lead to some sort of opportunist action within the party. The ruling triumvirate at the moment consists of Nkrumah, with Botsio, the Minister of Trade and Labor, as his closest lieutenant on the one hand, and Gbedemah, who is an able and ambitious man, on the other. Botsio is reported to have been wooing tbe unions and his rivalry with Gbedemah is not far below the surface. The Present Government 20. The succe.3S of the Convention Peoples Party is an example of a co~~on phenonemon, that in the course of revolution the most extreme and iconoclastic party tends to come out on top. The CPP has.naturally attracted those who have most to gain from the destruction of traditional values. Few of its more prominent members held responsible positions in the past and one or two of them are of dubious reputation. 21. It is not surprising that the CPP and the government should be accused, especially by the opposition, of corruption, of irresponsibility and of putting party before country. There is some substance in these charges. Instances of corruption have been exposed I, The practice that is popularly described as 11 Jobs for the Boysl1 has led to a number of un- suitable appointments and still does. 22~ A case in point is that of the Cocoa Purchasing Company (CPC). This company was formed in 1952 as a subsidiary of the Cocoa Marketing Board (Q1B), the government agency which markets all cocoa in the Gold Coast. The ostensible object of the company vlas to act as a buying agent of the Board in competition with the existing agents, which in- cluded foreign trading companies and the well-run Co-operative Marketing Association. It "las subsequently given the job of making loans to farme~s to relieve indebtedness. In fa·ct, there is strong evidence to support tie view that it was primarily a vote-buying agency of the CPP. 23. From the start the acti vi ties of the company appear to have been riddled with irregularity and corruption from top to bottom. The Chair- man, himself a CPP member, drew attention to shortcorrangs in 1953, par- ticularly attacking the fitness of the Fanaging Director, 1-'!r. Djin, for his job. The opposition also asked question& on the conduct of the company in the Legisla ti ve llssembly. No serious remedial step '..[8.8 takel until Hay 1956, when a Commission of Enquiry "Tas set up. The Commissiol found that most of the allegations made against the company were true. They had this to say a.bout the relationship between the Prime :tv!inister and Mr. Djin, who had been a party member from the early days: "It has been suggested that he (i.e. the Prime Minister) failed to see that l~r. Djin was properly dealt with as he deserved because he \..ras indebted to Nr. Djin. This is denied, but he failed to erase from our mind the impres- sion that he had unfortunately placed himself in such an embarrassing position in relation to Mr. Djin that he could not take or cause to be taken steps which might displease or be unpleasant to l"~r. Djin. "  - 6 - 24. vJhen the Commission reported, the company was handling assets of over £5 million. At least a quarter of this must be considered irrevoc- ably lost. One cannot assume that the opp has lost much public support as a result of exposures of this kind. Politicians are as apt to be ... admired for their success as to be condemmed for their methods • 25. It would be unfair not to give the other side of the picture, too. There have been occasions when the government has h~d the courage to take unpopular action. It reversed itself on two measures, which it had opposed during the first31ection campaign in 1951, namely the cutting out of diseased cocoa trees and overseas allowances for eA~atriate officers. It also takes credit for keeping the price of cocoa to the farmer stable, while the vlOrld price i,.Jas booming. Nevertheless, there must be at least a doubt whether party interests would not be put above those of the country unless the latter were quite plainly and immediately paramount. 26. In this context, the question might reasonably be asked what politi- cal philosophy the government holds. The political struggle so far has been so concentrated on the fight for independence that no di\Qsion of the parties along the familiar Western lines of economic interest has emerged. The Prime Minister has described himself as a Socialist and, without putting too fine a definition on it, the term may well typify the outlook of most cf the CPP. Communism does not appear to be a strong influence in the country. A few members of the CPF have been expelled for Communist leanings. P~though the government has shown no indication of an attraction for international Communism - it probably looks more toward India as an example - one cannot be certain that it ".-loule. rej ect help from any quarter, if hard-pressed. The Administration 27. One important aspect of the political situation will be its effect on the civil service. The government has offered the British employees in the permanent. service generous separation terms, but, in the case of men in their late thirties or over, the compensation terms act as an in- centive to leave by 1959. If the permanent employees take full advantage of the terms offered, few of them would be left by 1963. There has already been a considerable exodus of British officers from the public service. They are being replaced by Africans and by expatriates on contract terms, when they can be f01h~d. 28. The exodus may well be aggravated by the provisions for the public service put in the government's constitutional proposalsc The latter have opened the door to political interference by Ministers in the civil service. It is always possible that the British Government will insist on them being changed before independence, as they' did in a siw~lar case in Ceylon, but the British Government obviously has no control over what happens after March 6th and, in the opinion of sorle, the damage is already done. 29. What is perhaps most disturbing about this particular development is that it has upset the non-political Africans in senior pOSitions who are known to be out of sympathy with the CFP. A fevl are already seeking other jobs. If this continues on any scale the outlook must be for a serious deterioration in the administration.  - ? - PART III THE ECl·AOEIC SETTING Income and Employment 30. At present cocoa prices, annual product in the Gold Coast probably runs between £40 and £50 a head and personal disposable income a.bout £40 a head. Since th'Jre are large part.1 of the Northern Territories where an income of abou~ £50 a year has tG serve a "compound" which may often contain as many as 8 people, personal income in Ashanti and the Colony is considerably higher than the average. In this area, it must exceed that of sevPY-::tl countries in the Western Hemisphere and a great number in Af~ica and Asia. 3.1. Of It million men over the age of 15, only 250,000 are in recorded employment; more than half of these are employed by the government. Only a rough guess can be made at the kind of occupation followed by the others: Male Employment = 1956 Recorded emploYL1ent 250,000 Self-employed and assistants 250,000 Cocoa-farmers 200,000 Others 800,000 1,500,000 The self-employed include traders, handicraft workers such as tailors and lorry-drivers. The "others" are mostly farme:s, but include unemployed and students; the figure is understated to the extent that the first two groups include workers from French territory. J2. Of those in recorded employment half had a basic "lage in 1954 of ~ess than £80 a year which may ~ow mean actual earnings of about £100. 1. skilled workman can earn as much as £500 a year, but very few get this 8nount. Fi~es of this kind, however, give no real guide to economic Etatus owing to the extended family system and to the great importance :in the economic life of the people of o:petty trading by women (who are 0 known as market 'mammies'). In Kumasi, for example, half the women over 15 are engaged in trade.* The supplementary income may be an important element in a household's income. Moreover, the higher its income, the lar~er a household is likely to gr~w. The Pattern of the Economy 33. From early in this century, the t\"O main exports of the Gold Coast have been cocoa and gold. By the end of the first world war, cocoa had far outstripped gold. Cocoa prices suffered a relapse during the depres- sion of the 30's when gold production was stimulated. But at the worst j the value of cocoa exports has been more than half the total; at times * --------. One of them is reliably reported to have an annual turnover of £500,000.  • - 8 - the proportion has been over 80%. Manganese and diamonds have been impor- tant exports since the first world war. Since the second world war timber exports have rapidly increased and now hold third place. The Gold Coast has always been one of the big dollar-earners in the sterling area. 34. Since the war, the price of cocoa has risen dramatically. Already in 1948 the average price of cocoa exported from the Gold Coast was £200 a ton compared with £30 in 1938. From 1950 onwards it: continUed to . rise, reaching an average in 1954 of £400. The London price at one point during that year touched £560 a ton. Since then, it has fallen again, the present pric? being below £200 a ton. 35. Cocoa is marketed through the Cocoa Karketing Board, a statutory body, which sets a fixed price to the farmer and sells the crop on the world market. Since 1951 the price to the farmer has been fairly steady and the Board has accumulated large reserves. Its assets in September 1956 were about £90 million (i.e. the value of two crops of cocoa at its present price), but they are now beginning to fall. 36. Governm.6:1t revenue, and therefore government expenditure, depends almost entirely on the export-import business. It 5ets its income on the export side from eA~ort duties on cocoa and income tax on the mining and timber companies, and on the import side from customs duties and income tax on the large European trading companies. 37. People's expenditure in the Gold Coast tends to run at about the same level as their income. Consequently the balance of payments to a large extent is determined by the actions of the government and the Cocoa ~arketing Board. When their expenditure exceeds their revenue, the balance of payments is usually in deficit by about the same amount (with suitable adjustments for the effect of investment by foreign companies). 38. Apart from the production and distribution of locally-produced food, the Gold Coast economy remains very much an export-import economy. In 1955 the value of production for export exceeded that of local food; together they made up about three-quarters of the national product. The bulk of the remainder was accounted for by the production of goods and services for the government and the distribution of imports. There is little manufacturing for domestic consumption except for handicrafts on a very small scale. Infrastructure 39. Public utilities have also been oirected toward the export-import trade. The Gold Coast has only one deepwater pOTt, Takoradi, in the western part of the Colony, which has been used to capacity for most of the time since the war. It 1.·las first extended and now a second port is being built at Tema near Accra, the capital, in the east. The railways are concentrated on the triangle, Takoradi-Accra-Kumasi; Kumasi is the center of the cocoa industry and the capital of Ashantio The railways carry the heaV)~ ores and most of the timber and cocoa for export. But they have been steadily lOSing the traffic in higher-rated imports to the roads and have run at a loss recently.  - 9 - ... 40. The main road system has been greatly improved in recent years and construction is still going on. Besides serving the same basic triangle as the railways, it extends into outlying parts of the country. The new main road north from Kumasi is the first good transportation link "\-lith the Northern Territories. 41. The total installed electric generating capacity in the Gold Coast was only about 80,000 kw at the end of 1955. Of this 60,000 kw belonged to the mines. The remaining ~O, 000 1m was principally used for commercial and domestic purposes in the main towns. Demand is thus still on a small scale, although rising and creating local shortages, e.g. in Kumasi. 42. Certain aspects of the operation of these utilities leave something to be desired, e.g. maintenance on the rail\lays and rate policy for electric power. But, by and large, the country's infrastructure, existing or under c0nstruction, seems quite adequate and, in some respects, more than adequate to its present stage of development. The Rise in Government Exnenditure 43. As soon as it came into pOl,.,rer in 1951, the African G01lernment em- barked on an ambitious program of expenditure, both capital and current. Althou.gh current expenditure rose steadily, revenue far outstripped it at the height of the cocoa boom. Up to and including 1954/55 the capital expenditure could be paid for out of the current surplus. In the current fiscal year current expenditure has nearly caught up with revenue, and capital expenditure must be met from reserves. Government expenditure in 1956/57 must be about 30% of gross national product. Government Accounts (£ millions) 1920 Lsl 1954/55 19.56[57 (est. ) Current Revenue* 25 78 45 Current Expenditure 12 lQ 44 Current Surplus 13 48 1 Capital Expenditure 10 17 20-25 * Excluding development grants from the U.K. 44t~ The rise in current expenditure is partly attributable to two wage increases, one in 1952 and one in 1956, but more to a general reorganiza- tion and expansion of the government machine. New recurrent costs have followed inexorably on the capital expenditure in the Develo?ment Plan and in this and the fol1o\.Jing fiscal years ne,.] recurrent costs will amount to an additional £3 million each year.  - 10 - 45. The Development Plan started in 1951. Originally conceived as a plan for spending £75 million in 10 years, the term was soon changed to 5 years. The period and the amount having been decided on, a l1shopping listl1 of projects was prepared to give flesh and blood to the skeleton. The mission could find little evidence that the plan amounted to much more. No consideration seems to have been given to the consequences of the plan for national income, foreign trade or government revenue. In spite of repeated warnings from the government's economic adviser, the consequences for subs~quent recurrent expenditures were ignored. There is at least some evidence that projects put forward by different depart- ments, which needed coordination, received none and that projects were sometimes embarked on without adequate preparation. 46. This is not to say that priorities were not assigned. They were, but they were changed from time to time; and they appear to have been often of a rather general character, for example, roads, '\-1ater and educa- tion, without adequate reference to the priority of individual projects. Sometimes they were simply pet projects, for example, the road from Kumasi to the north, which seems to have been a good project, and the new University, which has now plenty of staff and buildings and not enough students. Even the road to the north had to be cut short when it appeared that money 1,.1aS starting to run out; it will be an expensive proposition to bring a con- tractor's organization back to finish the extension. 47. The fact is that until late in 1956 the new government never had to worry about money. It could spend where it vlantec to and to 1,.Jhatever standard it pleased. The principal constraint has bt: .~;n a physical one rather than a financial. The total e).."Pendi ture duril~g the five years 1951/52-1955/56 on the Development Plan and certain other major projects outside it (primarily Tema harbor and town) has, in the event, been about £70 million. As planned expenditure on the Development Plan alone is now £90 million, its term has been extended. 48. The money spent on development has not, of course, by any means been thrown away. The Gold Coast has on the whole a good road system and will in several years time have a second good harbor. Many more children are now in primary schools. But it is also left 1,.1i th several white elephants and a burden of recurrent expenditure which now equals its income and leaves nothing over for investment. This has been aggra- vated by the tendency, which perhaps owes something to the paternalism of the Colonial administration, to provide economic services such as electricity, housing and water on a subsidized basis and social services such as education with very little contribution from local authorities. It may be possible to check this tendency but it will be very hard to reverse it.  - 11 - The Outlook for Government Finance 49. The government is already concerned about its current budget. Al- though some expenses (for example, for independence celebrations) will not recur next year, other new ones (for example, for diplomatic representation) will have to be borne. In order to pay for the additional recurrent costs, economies are contemplated in the governffient machine and certain tax rates are to be raised. Even so there will be little, if anything, left over for development and, in the present sha~J condition of the cocoa market, the~e is always the threat of still further reduced revenue from that source. 50. The government still has large reserves in hand. At the end of the current fiscal year, that is, on June 30, 1957, it is estirr~ted that there will be approximately £38 million in various reserve funds held in London. In addition, the government could borrow from various funds and institutions which now hold their assets in sterling, for ex&~le, the Post Office Savings Bank. The government also considers that it might be able to borr01.J a further £5 million from the Cocoa Marketing Board, which has already lent it substan- tial sums. In all, the available capital (exclusive of certain "second-line reserves tl discussed below) might amount to £46 million. Obviously the present rate of expenditure on development of £20-25 million a year would only last for two years. In fact, the rate of expenditure will be reduced and the re- serves thus spread out over a longer period. 51. In addition to the reserves described above, which we IP.ight designate as the "first-line reserves ll , there are certain "second-line reserves. 1I In the first place, even after lending a further £5 million to the government, the Cocoa Marketing Board would still have available sterling assets of around £50 million. Of this, £5 million must be kept liquid for various p1h})oses. About £18 million is at present used for marketing the cocoa crop; there is no over-riding reason why these funds should not be used for capital investment locally and the crop marketed by seasonal borrowing. The remainder, about £27 million, would be available as a genuine stabili- zation reserve with assets in sterling. There is considerable variance of opinion on how much of a stabilization reserve is necessary for maintaining prices to the farmer; to a large extent this is a political question and a serious one. At the most, an additional £5 million could be spared for loans to the government, making £23 million in all. 52. Another second-line reserve could come from government borro"Ting from the bank of issue, "lhich tbe Gold Coast is due to have wi thin a year or so. The bank of issuets foreign exchange reserves would initially be required to cover only ·the currency. Defici ts on thp. balance of payments caused by the drawing do\vn of' the Cocoa J.v:arketing BOETd I s Stabilization Reserve and the GovernITent's Reserve Funds would be covered by an equiva- lent drawing down of their assets held in London as the counterpart of these funds. Banking is still carried on mainly by British banks; defi- cits on the balance of payments caused by spending of bank deposits would cause a comparable reduction in balances held at the bank's head offices in London.  - 12 - 53. Currency circulation at its seasonal 10\.] is now about £30 million. From the backing to this, £7 million could well be spared, bringing the total of "second-line reserves" to £30 million. The mobilization of .. these reserves would, hO"..vever, entail a change in the present thinking of the Cocoa Marketing Board and the Government. The Board prefers to use its own funds for trading; the Nir..istry of Finance opposes a fiduciary issue at present. The Outlook for Increased Production 54. The output of cocoa in the Gold Coast has suffered a long decline from the 1930's, when it reached a peak of over 300,000 tons. In the last five years the average crop has been 225,000 tons. To a large extent this decline has been due to a virus disease lcnown as swollen-shoot which has pretty well devastated the oldest area north of Accra with a loss in pro- duction of over 50,000 tons a year. There is as yet no economic cure for the disease, but it appears to be under control. 55. In recent years more attention has been paid to the depredation of an insect known as capsid which kills the young twigs of the trees. This can be checked by spraying and a good deal of spraying is already going on. Spraying has a particularly beneficial effect on young trees of which there are large numbers in areas newly planted in Western Ashanti. It might well be that production would rise to an average level of 250,000 tons by 1960* and on the most favorable assumptions, to as much as 300,000 tons by 1965. 56. Output of cocoa in the Gold Coast has been running between 25 and 30 percent of the worldts total. The prospective increase in its output and in that of other areas means that consumption, which is currently less than production, is unlikely to catch it up at a price much above £180 a ton f.o.b. Takoradi. As the consumers' stock position is now very strong, there is a real danger that a much lower price would prevail for one or tvlO seasons. 57. The outlook for the second export, gold, is not encouraging. Present production from 9 mines ~mo1L~ts to 700,000 ounces. But only two of these mines, which now produce les~3 than half of the total, are at all certain to go on producing for any length of time. The position of the others is quite uncertain, in view of the fixed price and rising costs. Tvl0 are already subsidized. 58. Production of timber has increased rapidly since the war but not as rapidly as trees are being felled. Much timber is wasted by farmers start- ing new cocoa farms in the west. If felling continues at the present rate J the forest area outside the government reserves could be exhausted in ten to fifteen years. Output from the reserves, if they were on a sustained yield baSis, might only be one-half present production and exports possibly * This year's crop, which may be unusually large, is over 250,000 tons.  - 13 - no more than a third. Even the reserves, which guard the headwaters of rivers and preserve the humidity of the forest zone where cocoa is grown, are in danger. The government appears to be taking an unduly lenient attitude towards farmers who illegally start new farms in the reserves. 59. Manganese is produced from a single open cast mine. The top layer of the ore-bearing stratum has been removed and mining "Jill now involve progressively more expensive removal of over-burden. There is unlikely to be any increased production of manganese ore, rather the contrary. 60. Diamonds are mined mechanically by a foreign company and by thous- ands of independent African diggers (the majority of whom are Nigerian). Digging methods are wasteful and the Africans are now beginning to invade illegally the concessions of the company. For a time there may be a race between the two which will mean temporarily higher output, but in the long run the country will be left with half-worked diamond fields which are not worth further exploitation. 61. By and large, one might expect the increase in cocoa production over the next 10 years to offset losses in the other main exports. Probably, if the present price is maintained, new receipts would more than offset losses. But the Gold Coast would be more dependent on cocoa than ever. 62~ The question remains whether there are any other lines of production which might help materially to raise the standard of living of the Gold Coast and, possibly, relieve the strain on government finance. The most spectacular of these is the Volta River Project, which is discussed at length in Part IV. The other possibilities are, by comparison, quite small. 63. The first is the production of agricultural products for export, for example, rubber, bananas, palm oil and kernels and coffee (robusta). There is already some peasa~t planting of coffee. The local Agricultural Development Corporation also has embryonic schemes for production of all these co~~odities on plantation lines, but they depend on attracting foreign companies as managing agents. Even if all the schemes go forward and are successful, the combined new output would not amount to much in the next five to ten years. 64. A number of industrial projects are also under consideration which would be owned wholly or partly by foreign companies. A cigarette factory has already been started. Other possibilities are soap, automobile assembly, cement and flour, all of which "JOuld depend on imported materials and some at least would initially depend on a measure of protection. Again~ the com- bined output would not be large. 65. Both these groups depend on foreign investors. Although the gover~ ment has repeatedly expressed its desire to attract foreign investment, it remains to be seen whether its attitude is as favorable as it appears. Companies like Ululever that are already heavily committed in West Africa may be expected to continue to invest, but others may be more hesitant.  -14- 66. Agricultural production and processing for domestic consumption are progressing in a variety of directions with the aid and initiative of the government, a thriving cooperative movement and, in some instances, private enterprise. Products include rice, tobacco, vegetables ann groundnuts. Small silos are being built for maize storage and small poyer boats for fishermen's cooperatives. In the north, there is a valiant attempt to revolutionize the very primitive methods of farming. In some cases, further research is necessary, for example, in plant-breeding. This is true of maize cultivation, which has an important bearing on meat produc- tion. Huch meat is now imported and local development of meat may be of considerable importance to the Gold Coast. At present, hoyever, there is little understanding of the economics of meat production. 67. It is not possible to give any quantitative assessment of these lines of development. None of them is likely to require large amounts of capital, but equally it would be wrong to expect any rapid and sub- stantial returns. Most projects are in their infancy and a shortage of staff is often a limiting factor. 68. In general, the Gold Coast will probably have to be content with a much slower rate of advance than hitherto. There is, in fact, nothing too surprising about this. From 1920 to 1938 the volume of exports, which have been the main stimulus in the economy, rose by 150%. In the last 18 years, from 1938 to 1956, the increase has been barely 10%. The Gold Coast has in recent years been living off the extremely favorable turn in its terms of trade. And it cannot rely on this any more. Economic Advice 69. From Yhat has already been said it must be obvious that the Gold Coast Government needs assistance in planning its economic development. Whether it wants it and would genuinely be prepared to use it is another matter. It has already turned to international organizations on a number of occasions for help, but only on an ad hoc basis and not always with a well-defined purpose. The Gold Coast had an Economic Adviser, who has now resigned, partly because his advice V·Jas ignored. 70. There is certainly a need for advice on the broadest aspects of economic development, advice, for example, on the proper pace of invest- ment to be aimed at and the general directions in which V'arious economic activities should be guided. But there is especially a need for a source from which day-to-day guidance Can be obtained on the multifarious problems which are always cropping up, problems which individually may not appear significant, but which demand decisions in accordance vIi th a consistent and sound general economic philosophy. Last but not least, they need advice on when to call for advice from outside.  - 15 - PART IV THE VOLTA RIVER PR~ Historv of the Project 71. The existence of large bauxite deposits at Yenahin in Western Ashanti has been known for many years and the Gold Coast Government considered the possibility of aluminum production as long ago as 1924. Serious commercial interest in the scheme led to the publication in 1952 of a United Kingdom White Paper (Cmd. 8702), which gave an outline of a scheme for aluminum production in the Gold Coast. 72. The Volta River Project is a scheme for damming the Volta River at Ajena, about 75 ITQles from its mouth in the eastern part of the Colony, thus creating a lake 200 miles long. Over 600,000 kw of electric gener- a ting capacity 'I,-Jould be installed at the dam site; all but 50,000 kvl \vould be used for producing 210,000 tons of aluminum a year. This would require the opening of a mine at the bauxite deposits at Yenahin, an alumina plant, a smelter and a to\.lnship at Kpong near tre dam site, tvJO new railway lines (about 70 miles in all) connecting the mines and smelter with an existing line that runs part of the l.Jay behveen them, and a 35-mile railway line from the smelter to a ne\<l port at Ter.1a. It has since been decided to build the new port and township at Tema, irrespective of the Volta River Project, although not on so large a scale, and construction is already under way. 73. Under the 1952 scheme, there wculd be a smelter company owning and operating the mines and aluminum plant, fi:.-lanced partly by equity and partly by loan capital. The principal stockholders were to be Aluminium Ltd. of lviontreal, Canada and the British Aluminium Company; the Gold Coast Government v!ould also have a 10% share of the equity. The British Govern- ment \.Jould supply the loan capital. The dam and power 'plant 1;Jere to be financed by loan capital from the two governments (mainly the British) and were to be operated by an independent authority. * The nevI railvJays and harbors would come under the existing Gold Coast administration. These, together with other ancillary works such as roads, the nevI tm.Jns and compensation for flooding were to be financed by the Gold Coast Government. 7/.;.. The four parties to the proposed scheme, the two governments and the two aluminum companies, agreed that a Preparatory Commission should be set up to follow up the work already done and to examine the problems in greater detail. The COlnmission under the chairmanship of Sir Robert Jackson published its report in July 1956. The new estimate of the cost of the project was £231 million compared with the 1952 estimate of £144 million. Moreover, the Commission warned that these costs might, during the construction of the project, be inflated and that it would be wise to reckon with a total need for capital of £309 million. The report was already available to the various parties when they met in London in April 1956. * As now envisaged!i the Volta River Authority would have a chairman and six board members; the British Government and the smelter company would appoint one member each.  - 16 - The Discussions in April 1956 75. The higher cost and the irr~inent independence of the Gold Coast caused a certain revision of attitude on the part of both the British Government and Aluminium Ltd.* At the April meeting, Aluminium Ltd. pointed out that the return, on the uninflated costs, would be only half the expected return in 19521 that schemes elsewhere would be com- petitive with the Volta Project and involve smaller risks. 76. Aluminium Ltd. put forward a new proposal for carrying out the pro- ject. Instead of producing aluminum from the start and working up by stages from 80,000 tons to 210,000 tons a year, they now propose a first stage during which alumina would be imported and production of aluminum would be at 120,000 tons. This would save the cost of opening the mines and of building the alumina plant and most of the rail\.Jays. They foresaw an interval of 5-10 years after construction of the first stage (which would take 7 years) before advancing to full production, although they would give no commitment on this point. H01.rlever, as the financial return during this interval "Iould be very small, there \Iould be a strong incentive to complete the project. The total time involved would thus be a minimum of 12 years (7 plus 5). 77. Secondly, Aluminium Ltd. proposed a fixed price of 0.25 }Jenee (2.9 mills) per kwh instead of a price based on actual costs. :Chis would give a return exceeding 5% on the estima~ed cos~ of the power plant without the inflationary addition but less than 4% with it. 78. The other main point made by Alumim.um Ltd. ylaS that the proportion of equity in the smelter company should be 50~ instead of 65%. 79. Aluminium Ltd. has since intimated to the mission (but not to the Gold Coast Government) that, while still interested in the project, they consider it wise to put it off for the time being until the political position in the Gold Coast becomes clearer. 80. The British Government, on its part, stated at the April meeting that its ability to provide capital was circumscribed and that it could not undertake to provide it on an 80-year baSis, as previously envisaged. They would "rant to provide a finite sum at going rates of interest, which at that time would have meant 5-5t%. 81. The Gold Coast Government were unable to agree to the principle of a fixed price for power before construction. Hhile there were other unre- solved points, such as the freight-rate for bauxite and the tax regime for the smelter company, two principal matters were left unsolved: how the capi tal was to be provided and "Iho should carry the contingent risk of providing additional capital, if necessary; and how the returns on the project should be apportioned. --------------------------- The British Aluminium Company appears to have taken a passive role in April and since.  - 17 - The Capital Required 82. The Commission's estimate l,·las made in September 1955. By September 1956 costs had risen by 7%, bringing the estimate for the whole project up to £248 million. To this must be added an additional £11 million for ·Hork- ing capital and certain ancillary projects not included by the Commission, bringing the uninflated estimate to £259 million. 83. The Commission's warning that an additional allowance should be made was not a prediction of the likely increase in costs due to inflation, either in the Gold Coast or in world prices, or to unforeseen engineering hazards. It was a statement, taking into account these contingencies, of the allowance a prudent investor should make in calculating the amount of money he wight have to provide to finish the project. The factor they used in the report was 45%; they intimated to the mission that they considered 30%* a rock-bottom minimum. Applying this 30% factor to the latest esti- mate (except for parts already under construction), the amount of capital that should be in sight would be £325 million (over *~900 million). 84. It is not easy to see at this point where the necessary capital could be found. Aluminium Ltd. have intimated their willingness to find £63 million (in part as loan capital from outside sources at the second stage). The British Government has so far given no indication as to the kind of contribution it would be willing to put up, but the mission had the impression that it would not be less at this stage than the proposed contribution at the 120,000 ton stage under the original scheme, i.e. £52 million. By throwing in both first and second-line reserves in addition to money already spent or earmarked, the Gold Coast might be able to put up £80 million.**This leaves a gap of £130 million (see Table I). 85. The prospects are not much more hopeful for the first stage alone. Assuming that the Gold Coast 1,-rould not put in its second-line reserves at this stage, the contributions of Aluminium Ltd., the British Government and the Gold Coast Government might be £22, £52 a~d £50 millions respec- tively. This would still leave a gap of £95 millionll 86. While it is possible that the British Government would be 1,-rilling to make a higher contribution than £52 million, in present circumstunGes it is hardly reasonable to expect very much. It is conceivable that Aluminium Ltd. might be vlilling to increase its contribution to the smelter company proportionately if costs go up, but this \. . ould make a difference over the whole project of less than £20 million. There are also possibili- ties for reducing the standard of housing and certain other 'frills' and for postponing certain expenses like fishery development. Against this, there is the possibility of a higher increase than 30%. * As an i·llustra tion thi s might be composed of a lor~ allowance for .engineering hazards and 20% for inflation (or about 3% per annum for 12 years). ** After taking into acco\h~t certain other commitments for capital expenditure. ~  - 18 - Table I VOLTA RIVER PROJECT A. Costs (~million at September 1956 prices) ~'Jhole Project First Stage Dam and power 72 66 Smelter and mines 98 54 Railways 19 2 Other 70 .J& Total 1/ 259 178 Total with 30% increase g/ 325 219 Total with 45% increase gl 358 240 B. Possible Finance United Kingdom 52 52 Aluminium companies (equity) 41 22 Aluminium companies (debt) 22 Gold Coast (already spent or earmarked) 30 30 Gold Coast (first-line reserves) 20 20 Gold Coast (second~line reserves) 30 195 124 Gap (in round figures) .I 'J• 130-165 95-115 11 InCluding certain costs not taken into account by the Preparator.y Conwission. ?J IncreasE;; is not applied to i40 million, cost of which may be considered given for one reason or another. ~/ On the assumption of 30% and 45% rise respectively~  - 19 - The Ret~ on the ~roiect 87. At September 1956 prices the value of the aluminum produced at full capacity would be about £39 million per year f.o.b. Tema. If we consider the smelter company, the power plant, the railways and the port (to the extent they would be used for handling aluminum and materials) as an inte- grated operating project, their costs, excluding interest, but including depreciation, would be roughly one-half of the value of the output, say, £19 to £20 million. The return on the capital in these operating parts of the project 'l,AJould, thus, be also £19 to £20 million. 88. The capital employed in the operating part of the project would be about £190 million and in the whole project £229 million, excluding the £30 million already spent or set aside for Tema harbor and town. The difference, nearly £40 million, would be spent for a variety of purposes, roads, hospitals, telephones, housing, compensation and so forth. If we assume a notional ~eturn of £1 million on these expenditures, the total return would be £20 to £21 million on an investment of £229 million or about 9%. 89. If construction costs were 30% higher, depreciation charges would be comparably higher and the return about £2 million less. As the capital cost would also be higher, the return in percentage terms would be reduced to about 6%. If, in addition, the price of aluminum and of raw materials and labor used in the project were to increase, but by 15% only, the return would be increased by about £4 million. In percentage terms it would be a b out 7'.M 2,0. 90. Table II shmvs how this return might be divided up amongst the various investors under these various conditions. (The figures are rounded off to the nearest ~ million to avoid a spurious impression of accuracy.) For loan capital tt.Jo interest rates are assumed: 6%, which is near the current cost of capital; and 4%, to Shovl what might happen in an easier capital market. 91. The return to the aluminum companies' equity participation is assumed to be 15% in line 1; the aluminum companies would be unlikely to enter with the prospect of less. However, if construction prices were to rise, the return to the aluminum companies would be correspond- ingly reduced* (line 2) and, if aluminum and other prices were to rise, correspondingly increased (line 3). It is assumed that the increased interest and depreciation charges on the smelter company's and railway's assets would reduce the smelter company's profits before taxes. This reduction in return 1tlOuld be borne about fifty-fifty by the aluminum companies and the Geld Coast Government. On the other hand, a fixed price for power is assumed, which means that any increase in power costs would be borne wholly by the Gold Coast Government.  -f")- TJ),BLE :rr VOLTA RIVER PROJECT INVESTMENT AND RETURN ON CAPITAL INVESTED* (MILLIONS OF POUNDS) RETURN ON CAPITAL INVESTMENT 1 - - - - - - . - - - - - , - - - - - - - - - - ; COSTS AT 6% INTEREST AT 4"10 INTEREST ON LOAN CAPITAL ON LOAN CAPITAL CD AT SEPTEMBER 1956 PRICES LOAN CAPITAL 138 8.1. 5.1. 2 2 ALUMINUM COMPANIES (EQUITY) 41 6 6 GOLD COAST GOVERNMENT 50 6 9 TOTAL 229 201. 20.L 2 2 CD WITH CONSTRUCTION PRICES 30% HIGHER LOAN CAPITAL 204 12-'- 2 8 ALUMINUM COMPANIES (EQUITY) 41 4 41. 2 GOLD COAST GOVERNMENT 50 2 6 TOTAL 295 18-'- 18.!. 2 2 CD WITH CONSTRUCTION PRICES 30% HIGHER AND ALUMINUM AND RAW MATERIAL PRICES 15% HIGHER LOAN CAPITAL 204 12.L 8 2 ALUMINUM COMPANIES (EQUITY) 41 6 GOLD COAST GOVERNMENT 50 4 TOTAL 295 22t *Excluding 30 million pounds already earmarked for Tema 18RD- Economic Staff 1244  - 21 - 92. The return to the Gald Coast Government would be the residual. Statistically, this means that the figures, based, as they are, partly on guesswork, are subject to a wide margin of error and can therefore only be illustrative. The main point of the exercise is to show the wide range of variation under various circumstances. 93. For convenience, the various rates of return to the Gold Coast Government in tbe six cases have been extracted from the table and set out below: R.eturn to the Gold Coast Government Assuming 6% Assuming 4% Interest on Interest on Loan Ca12i tal Loan Capi tal 1. At September 1956 Prices 12% 18% 2. With Construction Prices 30% Higher 4% 12% 3. With Construction Prices 30% Higher and Aluminum and Raw Material Prices 15% Higher 8% 16% 94. This table shows that, in the worst circumstances envisaged, the return to the Gold Coast Government would be very low; given the margins of error, it could be nil. Furthermore, its cash position might be some- what worse, if, under the terms of the loans,a~ortization exceeded avail- able deprecia+.ion allowances. This might well be the case for the dam and power plant.* 95. The project is thus, from the Gold Coast Goverl1ffient's point of view, highly geared, with a vlide range of possible returns depending on the terms of whatever agreement might be reached, on the future trend of prices and on the interest rate on loan capital. In the first 12 years or more, during construction and the first stage, there would be little or no return. > 96. The figures given represent the return in the first year or so of operation. Subsequently, the returns to the Gold Coast would tend to in- crease. First, loans wculd be amortized and interest charges thereby decreased. Secondly, interest 'ra tea would be fixed, while one might expect aluminum prices to rise. * The Preparatory Co!~lII1ission alloi,.Js for depreciation and renewals on the dam and power plant on a sinking-fund basiS; the allowance only comes to about £i million a year. If a straight-line basis were used, costs would, of course, be higher - by about £1 million a year with inflated construction prices.  - 22 - 97. The Volta River Project is a large project by any standards; in relation to the Gold Coast's population or national income it is perhaps twice as large as the Assuan dam is for Egypt. Nevertheless, it would not necessarily impose too great a physical strain on the country's resources. 98. Expendi ture during the peak year would be about £20 million, which would probably be less than the total government capital expenditure during the present fiscal year (1956/57). Moreover, the proportion of local eJ~e~ di ture would be lower - about a third compared 'I,-li th a half for present government expenditure. 99 • At the end of 1955 there were some ~.O, 000 men engaged on construction or maintenance work for the government. As the government's development expenditure falls off, men will have to be dismissed. There should be no difficulty in finding the 15,000 men required for the project during the peak year. 100. No particular difficulty is expected in handling the materials required for the project, provided the ports, railways and roads are operated efficiently. The completion of the first berth at Tema would clearly help by greatly shortening the haul. This might take place by 1959 or 1960. 101. The principal difficulty for the Gold Coast would be a financial one. Obviously this depends on the capital contribution it ,,,,ould have to make. If the Gold Coast put in the £80 million that it now has in reserve, it might well be that there would be very little left over for other kinds of developments. Indeed, in a bad year for cocoa, there might be difficulty in balancing the current budget, unless greater efforts are made to cut current expenditure and increase current revenue. How far the government can do this remains to be seen. Effect on the Economy during Gperation 102. The principal benefit to the Gold Coast would be the addition to government revenue. This is certainly not to be under-estimated. The country will have to look to the gOiJ\3rnment for some time to come as a source of capital. And public demand for bette:" health and education services is strong. In a country where there is a long tradition of resistance to t~xation, a painless source of government revenue is of considerable importance. The project would not, however, realize much revenue in the initial stage of operation; it would be at least 12 years before the returns would be substantial. 103. Many of the raw materials, like chemicals and fuel, for the alumina plant, the smelter and the railways have to be imported. The value added locally would, therefore, largely consist of the government's share of the return to capital and the wages and salaries of employees. As the project is highly capital intenSive, the labor force required to run it  - 23 - is comparatively small. About 16,000 people would be employed in the smelter company's operations and in the public l~tilities (power, rail, and port). The wage income of African employees would probably fall between £3 and £4 million. But this would not all be a net addition to income, since they could not necessarily be assumed to be completely unemployed previously. 104~ There would also be certain other direct benefits such as improved fishing in the lake and the availability of cheap electricity from the power plant for domestic use - about 50,000 kw would be so reserved. These benefits might come to £It million but they would be rather long- range. 105. The principal direct additions to national income other than government revenue would therefore be only of the order of £5 million per annum. 106. Although the returns to the Gold Coast economy are not impressive in size, they become more significant for long-run growth as the produc- tion of other exports tends to decline. The bauxite deposits and the energy potential of the Volta appear to be the main known untapped physi- cal resources of the country. The metal they would produce, which is likely to be in grow.ing demand from industrial countries, would bring a healthy diversification to an economy otherwise destined to be increas- ingly dependent upon coCOa. Since the project would directly generate exports it would offer self-liquidating features for the service of its foreign capital. 107. An economic drawback of the project, as presently conceived, would of course be its long period of gestation before returns are available to the economy. In fact, during its readjustment phase to lower cocoa prices, the Gold Coast economy would rather need short-maturity projects to expand output and income. The mission, hm~ever, found no prima facie evidence for opportunities of substantial projects of this kind. One possibility of a rapid expansion of production vlould be by rephasing the Volta project i t- self to produce bauxite or alumina in the first instance. No dam \-lould be necessary, so that less initial capital would be needed and quicker returns would be obtained. With an early mining of baUXite, the project might also be more saleable to the Ashantis. However, only preliminary commercial interest has been shmvn in an enterprise of this kind and there is no indication whether it would, in fact, be commercially attractive. Summary 108. vJe may sum up the position of the various parties as follows: (i) Aluminium Ltd. regards the political risks at present as high. The terms on which it has stated it would be prepared to enter the project presumab}y allow for these risks. Although there is no doubt some leeway for bar- gaining in Aluminium Ltd.' s terms, it is unlikely to  .... 24- modify them much so long as the risks themselve.s remain, at least while financially comparable opportunities exist. (ii) The British Government is anxious to obtain an addi- tional source of aluminum in the sterling area. It also feels it has a moral commitment to the Gold Coast and wishes to ensure that such an important political experiment in Afr-ica is a success. At the same time, it 1,.,ishes to limit the capital contribu- tion of the sterling area (i.e. the U.K. plus the Gold Coast*) and wishes the Ur~ted Kingdom's stake to be a finite one. There seems to be a wide range of opinion on the timing of the project. (iii) The Gold Coast Government is anxious to go ahead with the project. One reason is tre consequent diversifi- cation of the economy, although present practice in respect of timber is hardly on all fours with this objective. Equally important, no doubt, is the ques- tion of prestige. Although the government has asserted its willingness to cut down other development in order to make the pro j ect a success , it is doubtful ,{hether it truly appreciates either the consequences of this assertion or the long-range nature of the ultimate benefits. 109. Altogether it appears doubtful whether, given present interest rates and present risks, there is a sufficiently large prospective "pie" in the shape of returns to the project to satisfy all the claimants to it. The project might '.Jell not go ahead, whatever the attitude of the Bank. 110. The mission does not feel that the project would bring outstanding benefits to the Gold Coast, especially under present circumstances. It, nevertheless, may offer as much hope for the future development of the country as any other '.Jay open to the government of spending an equivalent amount of capital from its own resources. Huch depends on how much capital the Gold Coast has to put up and how far it strains the countryts resources. Ill. In any case, there are serious drawbacks to undertaking so large a project at this time. The Gold Coast economy will have to pass through a period of readjustment. It remains to be seen how the government, which is inexperienced in general but especially in economic matters, will fare now that the cocoa boom is over. The transition to more normal economic cir- cumstances will occur when the administrative machine (including public utility services) is also passing through a critical stage and is in a * In discussions with the mission in November, representatives of the British Government indicated itG willingness to make a sizeable release of 18% capital for the project, but it \oJould r..ot consider this A.S an additional 1:~urr1en on the ster2..:"ng area.  - 25 - constant state of flux. It does not appear wise to saddle the government with so large a responsibility as the Volta River Project at this juncture nor to run the risk that it will become a scapegoat for any of the troubles that may "beset the economy and the government from no\-! on. 112. Certainly, postponement would come as a blow to the government leaders, although it is not certain that this would be true of the people at large. As mentioned in paragraph 107 above, there is a less spectacular alternative, namely, the production of bauxite or alumina, which would be a useful face-saving device. If this becomes a serious proposition, a problem of some delicacy would arise, because the bauxite concessions are now held by Aluminium Ltd. and interest in the alternative scheme has been expressed by another company. An unduly rigid adherence to its rights by Alumini'um Ltd. or a rash disregard for them by the Gold Coast Government could obviously affect future relacions between the Gold Coast and foreign investors.  2° 0° Railways 1111'"1"1 u p p E R v Proposed railways 'I't +t ++ ++ ... p' ........ ---. ___ First closs roods \ f ~I Proposed reservoir Forest zone «~ &% ,~, • • / Bauxite .~·~·;~W§if~::f. \... Cocoa .......... Diamonds ~ .\. Gold MonQonese t::f!' - Boundaries International-Colonial Administrative .__.__ . --- ................. . 10° T E R R " I- :( :!l (() ( \. z ...._.( .J <t: o 0 ',.\. :z: c z <.) \ \ 0 (~ "' -; ,,; -' 8° >- ) :!l 8° c 0:: .t( ! (J) 0 I -I SENE I N o ( 11.",,\". ''' ') .-----. ........................... ... N E A G GOLD CQI,AST o 10 20 30 40 50 o [ I I I I I MILES G' u L F JANUARY 1957 2° 0° IBRD-303