Ghana - Accra District Rehabilitation Project

Document of The Worid Bank FOR OMCIL USE ONLY Rqkt No. P-3896--( REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 22.5 MILLION TO THE REPUBLIC OF GHANA FOR A ACCRA DISTRICT REHABILITATION PROJECT February 27, 1985 This docu_et ba a rtited distribubid _d nmay be mad by recipieats only in tue perforance of their od duti. its contts am not odhewise be disosed without World Bnk uboriation.  CURRENCY EQUIVALENTS Currency Unit - Cedi (9) US$1.00 = 9 50.00 e 1.00 - US$0.02 SDR 1.00 - USSO.989983 FISCAL YEAR January 1 - December 31 XEASURES 1 kilometer (1cm) = 0.62 mile 1 meter (m) 3.28 feet 1 millimeter (mm) 0.039 inch I square kilometer (km2) 0.39 scuare mile i hectare (ha) = 2.47 acres 1 square meter (=2) = 10.76 square feet I metric ton (t) = 2.205 pounds (lb) 1 kilogram (kg) = 2.205 pounds (lb) ABBREVIAIIONS AND ACRONYXIS ACC Accra Citv Council ADRU = Acc-a District Roads Unit CIDA = Canaiian International Development Agency GRA = Ghana Highway Authority GIMPA Ghana Iitstitute of Management and Public Administration GTZ = Gesellschaft fur Technische Zusa-enarbeit (FRG) KfW Kreditanstalt fur Wiederaufbau (FRG) LGTS Local Goverrment Training School LVB Lands Valuation Board NLG = Ministry of Local Government MRH = Ministrv of Roads and Highways MD4WH Ministry of o7orks and Housing ODA Overseas Development Admir.ist-ration ROW Right of Way SCC Staffordshire County Council TSC Technical Services Center VIP Ventilated Improved Pit WFP World Food Program  FOR OFFCAL USE ONLY REPUBLIC OF GHANA ACCRA DISTRICT REHABILITATION PROJECT CREDIT AND PROJECr SUKMARY Borrower: Republic of Ghaua. Beneficiaries: Ministry of Works and Housing (MWH). Ministry of Local Government (1LG), Accra City Council (ACC), Accra District Roads Unit (ADRU). Amount: SDR 22.5 million (US$22.0 million equivalent). Terms: Standard. Project Description: The proposed project will remove transport bottlenecks in Accra, strengthen technically and financially the institutions responsible for infrastructure maintenance and urban services in Accra, and demonstrate cost-effective improvements to basic infrastructure in a small area of central Accra. To achieve these ends, the project vill finance: (a) toe completion or rehabilitation of three major roads; (b) technical assistance, train- ing, vehicles, equipment and materials for a six-year program of road maintenance in Accra District by ADRU; (c) technical assistance, vehi- cles, equipment and training to improve MLG's property valuation and local government staff training capability, ACC's revenue mobilization, financial management and service delivery capabil- ity, and MWH project management capability; and (d) the construction of basic roads, drainage, water supply, street lighting, sanitation and garbage disposal facilities in a centrally-located 30 ha area housing approximately 19,000 people. Project Benefits and Risks: The project will contribute to the economic recoverv of the country by removing infrastructure con- straints hindering the movement of imports and exports in the Accra area, a major bottleneck in the national road network. The development of a sound road maintenance program will avoid substantial future capital expenditures for road reconstruction. Revenue mobilization at the municipal level in Accra This document has a restricted distribution and may be used by recipients on;y in the performance of their official duties Its contents may not otherwise be disclosed without World Bank authorization.  and improved management procedures vill enhance ACC's ability to maintain infrastructure and provide urban services, thus reducing the burden on scarce central government resources. City residents wll. benefit from improved traffic flows and environ- mental provements resulting from the regular maintenance of the road and drainage network. The improvement of basic infrastructure in the East 1aamobi area will improve living conditions for its 19.000 residents while demonstrating a cost-effec- tive alternative to the Government's high cost programs of the recent past. The risks involved in the project are: (a) that ACC will not be able to sustain sufficient political backing to approve and collect the najor increases in rates required to continue funding improved road maintenance and refuse disposal; and (b) that project implementation viii suffer due to the difficulty of attracting and keeping qualified Ghanaian staff. The latter is a risk affecting virtually all undertakings in Ghana due to chronic national 'brain drain". As for the ACC rate increases, major increases for 1985 agreed a: appraisal have already become effective and an annua-l review process was agreed at negotiations to assure continuing sufficient increases. The reha- bilitation of roads with assistance from this project and the improvements in refuse collection through bilateral aid from GTZ/KfW (Federal Republic of Germany) wwill provide ACC with important political capital vith which to convince ratepayers that ACC can deliver higher levels of service. A sustained public enlightenment campaign, which is also receiving support through the project, has been designed to convey this message to city residents.  - iii - Sumnary Project Cost Estimate Estimated Costs: Local Foreign Total -US$ millions) - 1. Infrastructure Rehabilitation - Road and Drainage Rehabilitation and Maintenance 3.6 11.9 15.5 - Basic Infrastructure in East Naamobi 1.0 1.6 2.6 2. Resource Mobilization - Property Revaluation 0.4 1.4 1.8 - Hunicipal Revenue Mobilization 0.1 1.1 1.2 Total Base Cost 5.1 16.0 21.1 a/ Physical contingencies 0.5 1.3 1.8 Price contingencies 0.7 2.7 3.4 Total Project Cost 6.3 bI 20.0 26.3 Financing Plan: Percentage of Total Project Local Foreign Total Cost -~ (US$ millions) IDA 2.4 19.6 22.0 84 wFP 0.1 0.2 0.3 1 CIDA, ODA 0.1 0.2 0.3 1 Government 3.7 b/ - 3.7 14 Total 6.3 20.0 26.3 100 Estimated Disbursements (USS Thousands): FY86 FY87 FY88 FY89 FY90 FY91 FY91 _ -- - <(uS$ millons) - Annual 3.3 a/c/d/ 5.7 d/ 6.6 4.0 1.8 0.4 0.2 Cumulative 3.3 g 9.0 15.6 19.6 21.4 21.8 22.0 a/ Includes refinancing of Project Preparation Facility advances of US$1.0 million approved under the project. b/ Includes USS1.3 million in taxes. c/ Includes a deposit in a revolving fund of US$700,000. dI Includes US$2.0 million front-loaded IDA financing for local expenditures incurred in FY86 through the second quarter of FY87.  -iv- Economic Rats of Return: 71 percent for the road rebabilitation and simntenance elements representing 74 percent of project cost. Staff Appraisal Report: No. 5327-GH dated February 27. 1985 AM= I 18556: Accra District Rehabilitation Project. IBRD 18557: East Naamobi Upgrading Area.  INTEXNAIIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTEREATIONAL DEVELOPMENT ASSOCIAIMON TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF GHANA FOR THE ACCRA DISTRICT REHLABILITATION PROJECT 1. I submit the following report and racoumendation on a proposed Accra District Rehabilitation Project to the Republic of Ghana in an amount equivalent to SDR 22.5 million on standard IDA terms. PART I - THE ECONOMY 2. An economic report entitled "Ghana: Managing the Transition" was distributed to the Executive Directors in November 1984 (5289-GH). A smary of the economic situation is presented in this section. Basic economic data and selected social indicators are summarized in Annex I. 3. Ghana once enjoyed a fairly high standard of living compared with most other West African nations. However, a declining gross nation- al income has combined with high population growth (estimated at about 3 percent a year) to cause a substantial erosion in real per capita income. The average real income in 1983 is estimated at US$320, which represents a decline by about two-fifth from what it was a decade ago. The rate of unemployment is quite high and underemployment is widespread. Almost half the population of about 12 million is now estimated to live in absolute poverty. The country's basic needs indicators, once the best in Africa, are no longer much better than those of other Sub-S'ahara Africa countries with comparable per capita incomes. Modern health services are available to only about a third of the people and fewer in rural areas; only 35 percent have access to safe water. Although the education system is well established and elementary education has been free since 1962, 50 percent of adult men and 70 percent of adult women have had no formal education. Basic Structural Characteristics 4. Ghana is comparatively well endowed with natural and human resources. The country has valuable mineral deposits, particularly gold, but also diamonds, bauxite and manganese, and offshore oil. There is  -2- further potential for hydro power generation. Ghana has a relatively good supply of land suitable for growing cereals and starchy staples and possesses considerable fishing and forestry resources. 5. Agriculture is the largest sector of the economy, accounting for over half of GDP. Only 11 percent of the land area is cultivated, half of which is under cocoa. Nearly 70 percent of the population derive an income from agriculture or related activities. The basic staple foods are maize, rice, millet, yam, cassava, and plantain but, except for cassava, yields of these crops have stagnated in recent years. Food production in 1980 was only 88 percent of that in 1975. Prolonged droughts in 1975-77 and 1982-83, inadequate support services, poor transport facilities, and lack of fertilizers and other inputs contribut- ed to the decline. In recent years, Ghana has had to import 10 to 15 percent of its cereal consumption (mainly rice and maize). 6. Ghana's economy is highly dependent on primary products for exports. Cocoa (of which Ghana is the world's third largest producer) still contributes about two-thirds of total export earnings, although production has been declining. Timber is also an important expcrt item. Mining is still Ghana's second largest foreign exchange earner, contrib- uting 20 percent of the total, although production has been declining over the past two decades. Efforts to diversify the export base have not made much headway. 7. Industrial production and services currently account for 7 percent and 39 percent of GDP, respectively. Manufacturing-including textiles, steel, tires, oil refining and simple consumer goods-con- tributed 3.4 percent of GDP in 1983 declining from 11.4 percent in 1970 and provided full- or part-time employment to just over one-tenth of the labor force. However, manufacturing in Ghana remains heavily dependent on imported inputs. 8. Ghana used to import all of its petroleum, mostly in the form of crude oil, which is refined domestically and used chiefly as a source of fuel for the transport sector. Recently, some oil deposits have been discovered and commercial exploitation has commenced. Production of crude is now about 1,200 barrels per day, equivalent to 7 percent of the country's requirements. Hydroelectric power meets most of Ghana's non-transport commercial energy needs, although it has been drastically affected by the drought in recent years (see para. 15). Past Economic Developments - The Inheritance 9. Throughout the 1970s, Ghana's economy was subject to gross mismanagement. Large budgetarv deficits, necessitated partly by the need to support a sprawling, inefficient public sector, led to a marked acceleration in domestic inflation. Given the reluctance to move the exchange rate, the fixed nominal rate became grossly overvalued, shifting relative incentives away from exports into import trade, and more specif- ically from cocoa, Ghana's main export, into subsistence food production. The resulting deterioration in export performance, combined with a growing disenchantment on the part of aid donors with Ghana's policy performance, caused a perpetual foreign exchange crisis that pushed  -3- successive Governments into ir,creasingly restrictive import regimes. Thus, what was once an economy with ample imports became starved of the main fuel for its growth. The erosion of the tax base due to declining exports and imports, and the related decline in economic activity forced severe cutbacks izm G-tvernment operations and maintenance and capital expenditures. Thus, foreign exchange shortages and declining public expenditures contributed to the marked deterioration in what was once a fairly well developed economic and social infrastructure. This in turn further reduced the country's productive capacity. 10. A tendency to respond to shortages with controls and rationing worsened the problem; extensive price controls and widespread resort to administrative price setting eroded the incentives to produce and save, diminished the capacity of public sector entities to maintain the level and quality of services, and created a vast parallel black market with its related evils of corruption, smuggling and tax evasion. Declining real wages, political instability and reduced economic opportunities led talented and skilled Ghanaians to leave the country, depriving the country of scarce managerial, administrative and technical skills. 11. To add to all its difficulties, Ghana was subjected in the early years of the present decade to three additional problems. First, a prolonged and severe drought that created the worst food shortages since Independence. Second, a sharp deterioration in external terms of trade following the increase in petroleum import prices, and a softening in prices of Ghana's major exports (cocoa, gold and manganese). Third, the sudden and unexpected return of over one million Ghanaians from Nigeria, placing a severe strain on the food and unemployment situation. The cumulative effect of this downward economic spiral and these most recent "shocks" to the system can be seen in the trends in key economic indica- tors between 1970 and 1982: per capita real income declined by 30 per- cent; import volumes fell by a third; real export earnings fell 52 per- cent; domestic savings and investment declined from 12 and 14 percent of GDP .espectively in 1970 to almost insignificant levels; inflation averaged 44 percent per annum over the period. A Program of Reforms 12. The Provisional National Defence Council (PNDC) which came to power under the leadership of Flt. Lt. Rawlings on December 31, 1981, established a National Economic Review Committee early in 1982 to review the country's economic difficulties and to develop an adjustment program that would check this downward economic spiral and pave the way for national economic recovery. An Economic Recovery Program was developed by the Government in close coordination with the IMF and the World Bank. The program was supported in the period April 1983 to August 1984 through a (First) Standby Arrangement for SDR 238.5 million and through IDA financed operations including a Reconstruction Import Credit (US$40 million) and two Export Rehabilitation Projects (US$93 million). Support for the period August 1984 to December 1985 is being extended through a (Second) Standby Arrangement for SDR 180 million and a Second Reconstruc- tion Imports Credit (US$60 million). Since its inception, the Economic Recovery Program has focussed on:  -4- (a) establishing a more realistic exchange rate, which has resulted in an exchange rate movement from