Ghana - Agricultural Services Rehabilitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4538-GH MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 13.3 MILLION TO GHANA FOR THE AGRICULTURAL SERVICES REHABILITATION PROJECT April 29, 1987 'I Tbis document has a restricted distribution and may be used by recipients only in the performance of their offiil duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Cedi () *151 - US$1.00 1/ 1/ A dual exchange rate system was established on September 19, 1986 when a foreign exchange auction was instituted for specified transactions. A 090 = 1 US$ rate applied to the first window (cocoa and residual oil exports, petroleum and essential drugs imports, and central government debt service contracted before January 1, 1986); the rate on the second window was established at the weekly auction. The marginal rate at the auction was *151=US$1.00 in the week ending November 28, 1986. The first and second windows were unified with eifect from February 20, 1987; all transactions are now valued at the rate emerging in the weekly auction.  FOR OMCIAL USE ONY Princlpal Abbreviations and Acronyms AfDB - African Development Bank AHPD - Animal Health and Production Department of MOA ARDAC - Agricultural Research Development and Advisory Committee APCC - Agricultural Policy Coordination Committee CFDT - Compagnie Francaise pour le Developpement des Fibres Textiles (French Company for Textile Development) CIDA - Canadian International Development Agency CIDU - Crops Inputs Development Unit COCOBOD - Ghana Cocoa Marketing Board CRI - Crops Research Institute CRIG - Cocoa Research Institute of Ghana CSIR - Council for Scientific and Industrial Research ERP - Economic Recovery Program ERPS - Economic Research and Planning Services FASCOM - Farmers' Service Companies GCC - Ghana Cotton Company GFDC - Ghana Food Distribution Corporation GGADP - Ghana German Agricultural Development Project GIDA - Ghana Irrigation Development Authority GOG - Government of Ghana GOPDC - Ghana Oil Palm Development Corporation GSC - Ghana Seed Company GTZ - Deutsche Gesellschaft fur Technische Zusamenarbeit (German Agency for Technical Cooperation) KFW - Kreditanstalt fur Wiederaufbau (Credit Agency for Reconstruction) MFEP - Ministry of Finance and Economic Planning MIST - Ministry of Industry, Science and Technology MOA - Ministry of Agriculture MTD - Mechanization and Transport Department of MOA NORRIP - Northern Region Rural Integrated Program PNDC - Provisional National Defence Council PPMED - Policy, Planning, Monitoring and Evaluation Department SOE - State Owned Enterprise URADEP - Upper Region Agricultural Development Project VORADEP - Volta Region Agricultural Development Project This documnt has a euid dinibuonand my be u_d by mlplenonl d petdomace of their offcial dutLo I contS may not otewis be diosed wihouI Wo Ba ku autohoa  GH{ANA AGRICULTURAL SERVICES REHABILITATION PROJECT CREDIT AND PROJECT SUMMARY Borrower: The Republic of Ghana Beneficiary: Ministry of Agriculture Amount: SDR 13.3 million (US$17.0 million equivalent) On Lending Terms: Not applicable Cofinancier: UNDP (US$1.5 million) Financing Plan: Local Foreigl Total -----US$ M ilion- - IDA 2.9 14.1 17.0 Government 1.3 - 1.3 UNDP - 1.5 1.5 KFW (parallel) - 8.5 8.5 AfDB (parallel) - 25.0 25.0 Total 4.2 49.1 3.33 Economic Rate of Return: Not applicable Staff Appraisal Report: 6645-GH  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO GHANA FOR THE AGRICULTURAL SERVICES REHABILITATION PROJECT 1. The following report on a proposed development credit to Ghana for SDR 13.3 million (US$17 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms and help finance an agricultural services rehabilitation project. 2. Background. Agriculture in Ghana contributes about 53 percent of GDP, absorbs nearly 60 per cent of the total labor force and supplies up to 77 per cent of total merchandise exports. It is primarily rainfed, small- holder agriculture. The productivity of smallholder cultivation is low in both food and industrial crops. The agronomic potential to significantly raise productivity exists for most crops. To raise productivity, however, requires supportive incentive and institutional frameworks. The Economic Recovery Program (ERP), launched in April 1983, is providing the supportive incentive framework particularly through its substantial devaluations and significant increases in the prices of industrial crops. The institutional framework for agriculture, largely provided by the Ministry of Agriculture (MOA) and the Ghana Cocoa Marketing Board (COCOBOD), is weak. MOA is responsible for formulating and implementing policies and programs and for delivering fertilizer and a range of services: tractor hire, extension, veterinary and irrigation. The MOA is also responsible for supervising the operations of eighteen agricultural state owned enterprises (SOEs) which are engaged mainly in production and marketing. Apart from COCOBOD, the other institutions serving agriculture are area based development projects and research institutes. Except for those receiving donor support, all these public sector agricultural institutions suffer, in varying degrees, from severe resource constraints. As a result, MOA has not been able to fulfill its policy role and its departments have not been able to provide effective and timely delivery of services and inputs to agriculture. Within the context of the ERP, the Government is committed among other things to a far-reaching program of institutional reform: to improve the pay scales and staff structure for the civil service and the management of state owned enterprises. For agriculture, what is now required is a concrete program for strengthening key functions of the major agricultural institutions. 3. Project Obiectives. The basic objective of the proposed project is to initiate a self-sustaining process of rehabilitation so that the MOA can give more effective support to agriculture. Specifically, it has two interrelated objectives: to strengthen the institutional framework for the formulation and implementation of agricultural policies and programs; and to improve the delivery of public sector services to agriculture. 4. Project Description. The project includes: (a) the reorganization and strengthening of MOA's work in policy formulation, planning, monitoring and evaluation; (b) the preparation of a national  - 2 - master plan for research and funding of research on cotton and rice (irrigated and valley bottom); (c) the reorganization of MOA'e agricultural extension services in 3 regions on a pilot basis, as a forerunner to a national extension project, related training and logistical support to the maize-cowpea program assisted by the Canadian International Development Agency (CIDA); (d) the strengthening of the Ghana Irrigation Development Authority through a twinning arrangement, the introduction of improved agronomic practices on existing schemes and investment in six small scale pilot irrigation schemes; (e) logistical support for veterinary services; and (f) studies of the agricultural credit system and of food security. The project includes a program for improving sector management with respect to the privatization of MOA's fertilizer handling operations and of its tractor hire services, divestiture of selected agricultural State Owned Enterprises (SOEs), regular review of the investment program and improved cost recovery from veterinary and irrigation services. 5. The project thus seeks to strengthen public sector capacity in areas where the Government has a long-term role to play and to put an end to public intervention in other areas. The project, to be carried out over five years, provides for technical assistance, staff training, logistical support, importation of agricultural inputs and incremental operating funds. The total cost of the project is estimated at US$53.3 million. The foreign exchange component is US$49.1 million or 92 percent. Financing includes contributions from UPDP of US$1.5 million and the Government of Ghana of US$1.3 million and parallel financing for agricultural inputs from the African Development Bank of US$25 million and from KFW (Germany) of US$8.5 million. The AfDB financing will support the elimination of fertilizer subsidies and the privatization of fertilizer supply under the proposed project as well as meet demand for fertilizers and chemicals. The KFW financing of veterinary vaccines and drugs will be complemented by IDA-financed logistical support to MOA. It will support increased cost recovery on these items and through a revolving fund to be established under the project, ensure future supplies. A breakdown of costs and the financing plan are shown in schedule A. Amounts and methods of procurement and of disbursements, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Ghana are given in schedules C and D respectively. A map is also attached. The staff appraisal report, No. 6645-GH dated April 22, 1987, is being distributed separately. 6. Rationale for IDA Involvement. The proposed project is an integral part of the Bank's portfolio of current operations in support of the Government's ERP. It extends the institutional reforms initiated at the macro-economic level down to the sectoral level. It translates the institutional objectives of the ERP, which is now being supported by a Structural Adjustment Program, into a concrete program of reform for key public sector agricultural institutions. Institutionally, the SAP contains: (1) a timetable for staff redeployment throughout the civil service; (2) a skill mobilization scheme to attract and retain competent senior staff to implement the ERP; (3) a phased reform for SOEs with initial focus on priority SOEs whose corporate plans must be reviewed and approved by the Government and on initial divestitures; and (4) annual reviews of a rolling three-year public expenditure program to develop an expenditure structure supportive of the priorities of the ERP. The  - 3 - proposed project would enable the MOA to support item (3) and to participate in all the other major reform measures. Five agricultural SOEs are expected to be included in the first-phase SOE divestiture program agreed under the SAP, and divested with assistance under a recently- appraised Public Enterprise Project directly supporting that program; reform of the remaining thirteen would be assisted under the proposed project. In addition, the project would enable the MOA to respond to the Govern- ment's Action Program for agriculture which was also conceived as a component of the ERP. The program includes, among other things, the privatization of fertilizer delivery and of tractor hire services and the strengthening of a range of public sector services to improve technology uptake in predominantly traditional agriculture. 7. Actions Agreed Upon. In addition to the usual covenants, the following are key assurances obtained at negotiations: (i) dhe Government would set interim and long term staffing levels for the PPMED by December 31, 1987; (ii) the Government would submit to IDA at least three months prior to each fiscal year, the annual budgets and work programs of all MOA implementing units relevant to the project; (iii) the MOA would implement a phased program to reduce fertilizer subsidies and to privatize fertilizer handling, so that the subsidy is eliminated for the crop year 1990 by December 31, 1989, and the MOA's role in the import and distribution of fertilizer is terminated in 1991; (iv) the MOA would discontinue its wheeled tractor hire services by the end of 1987, combine harvester services by February 28, 1989 and land clearing services by June 30, 1991; and (v) the MOA would complete and have reviewed by IDA and other donors an agricultural research study and master plan by June 30, 1988. Conditions of Effectiveness would include: (i) the Government's signing and agreement with UNDP to provide technical assistance and other support for PPMED; and (ii) the MOA's making satisfactory arrangements for implementing the agricultural state-owned enterprises reform program, including establishment of a unit to coordinate SOE program activities and appointment of key staff to the unit. As a condition of disbursement for the irrigation component, the Ghana Irrigation Development Authority would enter into a twinning agreement with a suitable irrigation authority on a basis satisfactory to IDA. 8. Justification. The longer-term benefit is stronger public sector support for agricultural development in three key areas: (1) formulating policies to promote an efficient market- and export-oriented development in agriculture; (2) developing an investment program which can sustain the ERP; and (3) revitalizing the delivery of public services with potential to promote the structural transformation of agriculture. The imediate benefits are in training and developing a core of managerial and technical staff in the MOA and in shedding economic activities that can be undertaken more efficiently by the private sector. 9. Risks. There are institutional risks of two kinds. The first risk is of delays in the public sector reform program undertaken at the macro level under the SAP. Since the project is in good part a sectoral extension of macro levt. initiatives, delays in the overall program could adversely affect progress at the sectoral level. The second is -hat PPMED will not be able to retain the competent higher level staff whom the project has trained and who will be required to carry through the program.  - 4 - These risks are mitigated by the consensus that has been achieved within the Government, between senior officials of the Ministry of Finance and Economic Planning and the MOA and between the Government and IDA. 10. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President Attachments Washington, D.C. April 29, 1987.  -5- Schedule A Estimated Project Costs: Local Foreig Total ---US$ Million 1. PPMED 0.2 2.0 2.2 2. Agricultural Research 0.4 2.6 3.0 3. Agricultural Extension 0.7 1.5 2.2 4. Irrigation Services 1.0 4.2 5.2 5. Veterinary Services 0.4 1.2 1.6 6. SOE Reform 0.2 1.4 1.6 7. CIDU 0.1 0.3 0.4 8. PCU 0.5 0.7 1.2 9. Refinancing of Project Preparation Advance 0.1 0.4 0.5 Base Costs 3.6 14.3 17.9 Contingencies 0.6 1.3 1.9 4.2 15.6 19.8 10. Vaccines and Drugs (KFW) - 8.5 8.5 11. Fertilizers & Chemicals (AfDB) - 25.0 25.0 Total Project Cost 247g 49i 53. mm=m Proposed Financing Plan IDA 2.9 14.1 17.0 Government 1.3 - 1.3 UNDP - 1.5 1.5 KFW (parallel) - 8.5 8.5 AfDB (parallel) - 25.0 25.0 Total 4.2 49.1 53.3 _ a_u  -6- Schedule B E. Procurement Amounts and Methods of Procurement lt 2/ (US$ million) Procurement Component ICB LCB Others Total 1. Civil Works - 1.5 - 1.5 (1.3) (1.3) 2. Vehicles, plant, equipment, 1.8 1.3 0.4 3.5 materials and spare parts (1.8) (1.0) (0.3) (3.4) 3. Consultants' services, 10.1 10.1 studies and training (8.6) (8.6) 4. Operating costs 4.2 4.2 (3.2) (3.2) 5. Project Preparation Advance 0.5 0.5 (0.5) (0.5) 1.8 2.8 15.2 19.8 (1.8) (2.6) (12.6) (17.0) 1/ Contingencies are included in the amounts shown. AMouts within parentheses indicate IDA portion. 2/ Methods of procurement for vaccines, drugs, fertilizers and chemicals would be coasistent with the procurement policles of the agencies financlag these Items.  -7- Schedule B Page 2 Disbursements Category Percent Civil Works 1001 (of foreign expenditures) 85Z (of local expanditures) Vehicles, plants, equipment 100l (of foreign expenditures) materials and spare parts 90X (of local expenditures) Consultants' services, studies, and tralaing 100% (of expenditures) Operating costs 801 (of expenditures) Estinated Disbursements (US$ million) FY88 FY89 PY90 FY91 FY92 FY93 Annual 1.5 1.1 5.7 4.6 3.2 0.9 Cumulative 1.5 2.6 8.3 12.9 16.1 17.0  Schedule C GHANA AGRICULTURAL SERVICES REHABILITATION PROJECT Timetable of Key Project Processlng Events Time Taken to Prepare 14 months Prepared by : IDA and FAO/CP First IDA Mission February 1986 Appraisal Mission Departure : November 24, 1986 Negotiations : April 13-15, 1987 Planned Date of Effectiveness: December 1987 List of Relevant PCRs Ashanti Region Cocoa Project (Loan 1181-GH) May 24, 1984 Upper Region Agriculture Development Project (URADEP) (Loan 1291 T-GH) November 18, 1985 PPAR : Eastern Region Cocoa Project (Credit 205-GH) June 24, 1981 Ghana Oil Palm Development (Credit 531-GH) June 25, 1984  -9- Schedule D Page 1 THE STATUS OF BANR 6ROUP OPERATIONS IN GHANA STATEMENT OF 8ANK LOANS ANM IDA CREDITS (As of March 31. 1987) Loan or Amount (USSMillion) 1/ Credit Fiscal Less Cacellation Number Year Borrower Purpos Bank IDA Undisbursed 2/ Ten loans and fifteen credits fully disbursed 189.7 166.22 1009-GH 1980 Republic of Ghana Volta Region Ag.Dev. 29.5 15.74 1029-GH 1980 Republic of Ghana Third Highway 25.0 0.10 1170-GH 1981 Republic of Ghana Railway 29.0 5.17 1327-GH 1983 Republic of Ghana Reconstruction CIHAO 9.3 11.06 1342-GH 1983 Republic of Ghana Water Supply 13.0 3.89 1373-GH 1983 Republic of Ghana EnerU Project 11.0 8.51 1435-GE 1984 Republic of Ghana Export Rehabilitation 40.1 13.68 FOO9-GE 1984 Republic of Ghana Export Rehabilitation 35.9 19.56 1436-GH 1984 Republic of Ghana Export Rehabilitation Technical Assistance 17.1 S.OO 1446-GH '.984 Republic of Ghana Petroleum Refinery Rehab. and Technical Assistance 6.9 4.44 1498-GH 1984 Republic of Ghana Second Oil Palm 25.0 22.68 1564-GH 1985 Republic of Ghana Accra District Rehab. 22.0 19.82 1573-GE 1985 Republic of Ghana Second Reconstruction Imports (-redit 60.0 14.60 A003-GH 1985 Republic of Ghana Second Reconstruction Imports Credits 27.0 14.27 1601-GE 1985 Republic of Ghana Road Rehabilitation and Maintenance 40.0 38.73 A0O1-GE 1985 Republic of Ghana Road Rehabilitation and Maintenance 10.0 10.41 1628-GE 1986 Republic of Ghana Power System Rehabilitation 28.0 25.27 1653-GH 1986 Republic of Ghana Health and Education Rehabilitation 15.0 14.25 1672-GH 1986 Republic of Ghana Industrial Sector Adjustment Credit 28.5 19.27 1/ Prior to exchange adjustments. 2/ Calculated at the exchange rate applicable on September 30, 1986.  - 10 - Schedule D Page 2 Loan or Amount (USSMillicn) 11 Credit Fiscal Less Cancellation Nunber Year Borrower Purpo ank IDA Undisbursed 2/ A013-GH 1986 Republic of Ghana Industrial Sector Adjustment Credit 25.0 13.77 1674-GH 1986 Republic of Ghana Ports Rehabilitation *4.5 24.35 1774-GH 3/ 1987 Republic of Ghana Education Sector 34.5 36.64 Total 389.7 716.73 341.21 of wbich has been paid 79.9 5.79 Total now outstanding 109.8 716.73 mount sold .38 of which has been repaid .38 0.0 Total now held by Bank and IDA 109.8 716.73 Total undisbursed 0 341.21 341.21 1/ Prior to exchange adjustments. 2/ Calculated at the exchange rate applicable on September 30. 1986. 31 Not yet effective.  - 11 - Schedule D Page 3 B. Statement of IFC Investments As of January 31, 1987 Investment Type of Loan Equity Total No FY Oblipor Business US$ million 777-GH 85 Ashanti Gold Mining 27.5 - 27.5 Field Corporati n, Ghana Ltd. 914-GH 87 Keta Basin Oil Explora- - 4.5 4.5 Oil tion _ Total Comitmaents 27.5 4.5 32.0 Total Undisbursed 20.0 4.5 24.5  IBRD 15116R3 BURKINA FASO GHANA -11 - | * ~~~t ~ --~.~~\, ,/ . G H A N A UPPER ,aOtOnQO RAINFALL AND ' / UPPER.' WEST j. 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