Ghana -Trade and Investment Gateway Project (GHATIG)

Document of The World Bank Report No: 17736 - GH PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 37.6 MILLION (US$ 50.5 MILLION EQUIVALENT) TO THE REPUBLIC OF GHANA FOR GHANA TRADE AND INVESTMENT GATEWAY PROJECT (GHATIG) June 5, 1998 Private Sector and Finance AFRICA REGION  CURRENCY EQUIVALENTS (Exchange Rate Effective March, 1998) Currency Unit = Cedis 2260.0 LC = US$1 FISCAL YEAR January 1 to December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CEPS Customs, Excise and Preventive Services DDI Direct Developer Identification EIA Environmental Impact Assessment EMP Environmental Management Plan EPA Environmental Protection Agency EPZ Export Processing Zone ERSO Economic Reform Support Operation ESAF Enhanced Structural Adjustment Facility FIAS Foreign Investment Advisory Services FTZ Free Trade Zone GCAA Ghana Civil Aviation Authority GEPC Ghana Export Promotion Council GFZB Ghana Free Zones Board GIPC Ghana Investment Promotion Center GIS Ghana Immigration Services GOG Government of Ghana GPHA Ghana Ports & Harbor Authority GPN General Procurement Notice ICB International Competitive Bidding ICR Implementation Completion Report ISO International Standards Organization LRMC Long-run marginal Cost NCB National Competitive Bidding NIRP National Institutional Renewal Program PIU Project Implementation Unit PPI Private Participation in Infrastructure PSAC Private Sector Adjustment Credit PSAG Private Sector Advisory Group PSD Private Sector Development PSR Private Sector Roundtable QCBS Quality and Cost-based Selection SOE Statement of Expenditures TA Technical Assistance TIP Trade and Investment Project Vice President Jean Louis Sarbib Country Director Peter Harrold Sector Manager Thomas W. Allen Task Manager Demba Ba  REPUBLIC OF GHANA TRADE AND INVESTMENT GATEWAY PROJECT CONTENTS A. PROJECT DEVELOPMENT OBJECTIVE 2 (i) Background, Project Development Objectives and Key Performance Indicators 2 B. STRATEGIC CONTEXT 3 (i) CAS Objectives Supported by the Project: 3 (ii) Main Sector Issues and Government Strategy 3 (iii) Sector Issues to be Addressed by the Project and Strategic Choices 4 C. PROJECT DESCRIPTION SUMMARY 8 (i) Project Components (see Annexes II and III for detailed description and cost breakdowns) 8 (ii) Key Policy and Institutional Reforms Supported by the Project 11 (iii) Benefits and Target Population 11 (iv) Institutional and Implementation Arrangements 11 D. PROJECT RATIONALE 14 (i) Project Alternatives Considered and Reasons for Rejection 14 (ii) Other Related Projects Financed by the Bank and/or Other Development Agencies 15 (iii) Lessons Learned and Reflected in Proposed Project Design 16 (iv) Indications of Borrower Commitment and Ownership 17 (v) Value Added of Bank Support: Rationale for Bank-Group Involvement 17 E. SUMMARY PROJECT ANALYSES 18 (i) Economic Assessment 18 (ii) Financial Assessment 18 (iii) Technical Assessment 19 (iv) Institutional Assessment 19 (v) Social Assessment 19 (vi) Environmental Assessment 20 (vii) Participatory Approach 20 F. SUSTAINABILITY AND RISKS 20 (i) Sustainability 20 (ii) Critical Risks (see fourth column of Annex I) 22 (iii) Possible Controversial Aspects 23 G. MAIN LOAN CONDITIONS 23 (i) Conditions of Negotiations 23 (ii) Conditions of Board 23 (iii) Conditions of Effectiveness 23 (iv) Other Conditions: During Project Implementation 23 H. READINESS FOR IMPLEMENTATION 24 I. COMPLIANCE WITH BANK POLICIES 24  ANNEXES Annex 1. Project Design Summary Annex 2. Detailed Project Description Annex 3. Estimated Project Costs Annex 4. Cost-Benefit Analysis Summary Annex 5. Financial Summary Annex 6. Procurement and Disbursement Arrangements Table A. Project Costs by Procurement Arrangements Table Al. Consultant Selection Arrangements Table B. Thresholds for Procurement Methods and Prior Review Table C. Allocation of Loan Proceeds Annex 7. Project Processing Budget and Schedule Annex 8. Documents in Project File Annex 9. Statement of Loans and Credits Annex 10. Country at a Glance Annex 11. Letter of Sector Development Policy Annex 12. Environmental Assessment, Social and Environmental Analyses MAP: IBRD 23606  Republic of Ghana Ghana Trade and Investment Gateway Project Project Appraisal Document Africa Region Private Sector and Finance Date: June 3, 1998 Task Team Leader/Task Manager: Demba Ba Country Director: Peter Harrold Sector Manager: Thomas W. Allen Project ID: GH-PA-970 Sector: Multi Sector Program Objective Category: Private Sector Development Lending Instrument: Specific Investment Loan Program of Targeted Intervention: [ Yes] Project Financing Data D Loan X Credit D Guarantee a Other [Specify] For LoanslCreditslOthers: Amount]: US$ 50.5m/SDR 37.6m Proposed Terms: D Multi-currency Q Single currency Grace period [years]: 10 Q Standard Variable [] Fixed a LIBOR-based Years to maturity: 40 Commitment fee: 0.50 % Service charge: 0.75 % Financing plan [US$m] Source Local Foreign Total Govemment: 2.3 .9 3.2 Cofinanciers IDA : 50.5 50.5 Local Private Telecom 2.1 2.1 Other (unallocated) .2 .2 Other (specify) Other (specify) (specify) 2.3 53.5 56.0 Borrower: Guarantor Responsible agencyries]: Oversight Committee with individual beneficiary agencies responsible for implementation Estimated disbursements (Bank FY/US$m) 1999 2000 2001 2002 2003 2004 2005 Annual 4.9 4.1 13.3 12.3 10.8 4.4 .7 Cumulative 4.9 9.0 22.3 34.6 45.4 49.8 50.5 For Guarantees: N.A. Q Partial Q Partial risk Credit Proposed coverage: Project sponsor. Nature of underlying financing: Terms of financing: N.A. Principal amount [US$m] Final maturity Amortization profile Financing available without guarantee: N.A. j Yes C No If yes, estimated cost or maturity: Estimated financing cost or maturity with guarantee:  -2- A. Project Development Objective (i) Background, Project Development Objectives and Key Performance Indicators (See Annex I for Performance Indicators) 1. The Project development objective is to attract a critical mass of export-oriented investors to Ghana to accelerate export-led growth as well as facilitate trade. 2. After almost fifteen years of sustained economic reform, Ghana's business environment today is one of the best in Africa for private sector development. Benchmark studies commissioned for the Gateway Project (see para. 9 below) confirmed that Ghana compares favorably to Togo and Kenya (potential competitors) -- and has advantages which make it attractive even in relation to Mauritius and Dubai (considered best practice). Yet foreign investors in Asia, Europe and the Americas are largely unaware of the country's business potential -- both as a platform for production for world markets, and more broadly, as a gateway to the West African sub-region. 3. International experience suggests that a well-functioning, privately-developed and managed Export Processing Zone (EPZ) can be a powerful way to break through the wall of ignorance of a country's potential -- and "kickstart" a country's visibility in the global business arena. Ghana already has taken some initial steps towards establishing an EPZ. It has provided the appropriate enabling legal and regulatory environment by enacting the Investment Promotion Center Act of 1994 and the Free Zone Act of 1995 (para. 8 below). And it has acquired industrial sites in a high potential business area (in the environs of the capital, and near to port and other transport facilities) to make available to a private EPZ developer. But three further measures are needed to translate these promising initial moves into a successful, privately-developed and managed EPZ, which the Gateway Project aims to support. 4. First, the prospects for success will be greatly enhanced if the EPZ is developed and operated by a private operator with the reputation -- and networks -- in the international marketplace capable of attracting export-oriented manufacturing tenants into (what for them is) a new and uncertain environment. Preliminary indications are that such an EPZ operator can indeed be attracted into Ghana -- but only if the operator is provided with a credible assurance that some key off-site infrastructure and institutional issues are addressed first (see paras. 11-12). Support by IDA for the Gateway Project would provide the requisite assurance. 5. Second, although the private operator would have full responsibility for all on-site infrastructure investments, a series of complementary physical investments are needed immediately off-site -- power, water, waste-treatment and telecommunications hook-ups; and a short road from the EPZ to Ghana's existing transport infrastructure. In the ordinary course of events, it could take many years (even with Ghana's recent commitment to move rapidly towards the private delivery of infrastructure services) before these services would be made available by Ghana's infrastructure providers. The Gateway Project accelerates this process by providing targeted resources to cover the costs of investment in the off-site infrastructure needed for the success of the EPZ.  - 3 - 6. Third, in order for an EPZ to be a successful platform for attracting export- oriented manufacturing investors, a variety of complementary trade facilitation services need to work effectively (e.g. port and transport, customs and immigration). Wfhile institutional reforms are underway in public agencies, it will take many years before their service standards, country-wide, meet international standards. In the interim, to ensure that trade facilitation for the EPZ works smoothly, the Ghanaian authorities have developed very precise performance benchmarks which the Gateway Secretariat will require from the country's customs, immigration and investment promotion agencies -- and have established clear mechanisms for holding these agencies accountable for performance. Meeting the benchmarks will require substantial efforts on the part of each of these agencies and thus, the Project will provide the financial support needed to underpin these efforts. B. Strategic Context (i) CAS Objectives Supported by the Project: CAS document number: Report No. 17002-GH Date of latest discussion: August 13, 1997 "Accelerated economic growth for a sustainable attack on poverty" 7. The proposed Project is fully consistent with IDA's Country Assistance Strategy (CAS) for Ghana, which defines poverty reduction as its central goal. The CAS recognizes that one of the key requirements for sustainable poverty reduction is higher rates of economic growth by restoring sustainable fiscal balance and promoting private investment for exports. Moreover, given a population growth rate of about 3 percent per annum, an average annual GDP growth rate of less than 5 percent during the last decade has not been sufficient to significantly reduce poverty levels. It is estimated that an annual GDP growth rate of 8-10 percent would be required for significant poverty reduction. In order to achieve the level of investment required to obtain the targeted growth rate, Ghana must consciously develop and consolidate its "competitive advantages" and cater to export markets. The proposed Project is designed to help remove the constraints to the development of trade and exports, and to attract direct investments for industrial and infrastructure development. The Project is an integral part of the Ghana Gateway Program, designed to make Ghana a middle-income country by the year-2020, i.e., Ghana's "Vision 2020". (ii) Main Sector Issues and Government Strategy 8. The enactment of the Ghana Investment Promotion Center Act of 1994 and the Free Zone Act of 1995 were the first crucial actions taken under the strategy. The Acts constitute an adequate framework, providing favorable investment and export incentives to enterprises, especially free zone companies, while setting out the rules and regulations governing private sector participation in the development of free zones. The incentives include extensive tax holidays, accelerated depreciation, and sales of up to 30 percent of the value of free zone products in the domestic market. 9. The Government has acquired sites in Tema, Takoradi, and Kumasi which have been reserved for private development as free zones. To further assess the viability of the concept, the Government of Ghana (GOG) commissioned a survey of foreign investors  - 4 - to compare Ghana's investment climate to those of Mauritius and Dubai (considered best practices) and Togo and Kenya (potential competitors). The survey evaluated Ghana's competitiveness and positioning as a candidate for increased foreign direct investment relative to the comparators in several areas that influence site-location decisions. These include: political risk, international trade agreements, investment regime, export promotion incentives, foreign exchange regime, labor regime, transport, infrastructure and the financial sector. The main finding of the survey was that Ghana has favorable investment and export incentives. Its foreign exchange regime is at par with that of the comparators. Its labor regime is satisfactory, and an available supply of adequately skilled and trainable labor represents a major competitive advantage. In general, the transportation system is at par with that of its comparators and the costs of air and sea freight are competitive. However, Ghana's basic infrastructure, particularly its electricity, is slightly below that of the comparators. While both telephone and electricity rates are competitive, this advantage is undermined by the quality of the lines and frequent power outages. Potential investors could be deterred by these deficiencies, as they not only interrupt production, but also could damage both the machinery and its output. In summary, by drawing upon the experiences of its competitors and the best practices in this area, Ghana was shown to have the required environment which, combined with an EPZ to address the infrastructure shortcomings, can enable it to attract a critical mass of exporters and accelerate the growth of exports. In the final analysis, it is the quality of infrastructure and business services which will attract investors and not the incentive code and thus great attention has been paid to assessing needed upgrades to infrastructure. 10. A thorough assessment of the infrastructure requirements for the EPZ and a demand forecast for space in the Tema zone suggests that in the base-case, over forty thousand square meters of under-roof space will be required over the first four years of operation primarily from industries (e.g. agro-processing, wood processing, textiles, garments, horticulture, fish processing, apparel manufacturing, etc.) and services (e.g. teleport and tourism). (iii) Sector Issues to be Addressed by the Project and Strategic Choices 11. The Project will address two critical constraints to the increased inflows of foreign direct investment for the acceleration of exports: (a) the provision of limited off-site infrastructure around the Tema EPZ, to attract a private developer who would provide potential investors with required on-site infrastructure in the Tema EPZ; and (b) the removal of important, but narrow, institutional capacity constraints to increased foreign investment. 12. The GOG recognizes that, over the medium-term, the success of institutional development or efficiency improvements at the level of individual agencies or enterprises is predicated by a well-functioning public administration/civil service system. Hence, its commitment, under the National Institutional Renewal Program (NIRP), is to tackle public sector efficiency issues. A key feature of public sector reform is the importance of ensuring that the agencies and enterprises are held accountable for service delivery. This Project deviates from traditional technical assistance projects in that it establishes accountability relationships between the service delivery agencies (who are beneficiaries  - 5 - under the Project) and the policy making/executive bodies, with feedback provided on a regular basis from recipients of the services. Provision of Off-site Infrastructure for the Tema EPZ 13. The investment component of the Project will facilitate the development of a privately-financed and owned EPZ with physical on-site infrastructure of international standards. To achieve this, GOG has allotted 1,200 acres of land near Tema for development as the first EPZ in Ghana. The goal of this Project is to lease a first lot of this land to a suitable private investor/developer using a combination of international competitive bidding and direct marketing. The GOG has developed a two-pronged strategy for identifying and securing a qualified developer to begin development of the area. Although the GOG has already identified a potential developer, until that deal is confirmed, it intends to aggressively market free zone development opportunities to other qualified developers. This approach underscores the need by the GOG to secure itself against withdrawals of proposals by current prospects. 14. Under this component, the Project will finance: (a) a well-targeted international marketing plan for attracting experienced developers/investors of international repute to develop and manage the Tema EPZ; and (b) off-site infrastructure links with the proposed EPZ including: (i) water connection; (ii) sewage and solid waste treatment for the EPZ; (iii) electricity link; (iv) access roads to the site; and (v) an environmental assessment and mitigation plan. The off-site communication links to the EPZ will be built and operated by one of the local private telephone companies on the basis of terms defined under their licensing agreement. For the railways link between the EPZ and the Tema Port, the Project will finance a detailed feasibility and economic analysis to determine the viability of such an investment. An OECF study (February 1998) identified a number of bottlenecks in the existing port operations and some of these activities are being addressed by the Ghana Ports and Harbor Authority (GPHA). The proposed Project will complement these internal efforts of GPHA with support for minor, but high impact, physical improvements which will enhance operations such as break bulk and cargo handling. Support will also be provided to relocate the devanning area outside of the port area. 15. GOG and IDA agreed during negotiations to prepare a Memorandum of Understanding defining performance indicators to ensure that infrastructure provided under the Project is efficiently managed and operated after it is handed over to the utilities. The GOG and IDA have also agreed that the disbursement of the first tranche for off-site development will be contingent upon the effectiveness of the lease agreement between the developer and the Ghana Free Zone Board (GFZB). At such time, tender for pre-qualification and contractual arrangements for civil work design will commence. GOG and IDA have agreed in a side letter to a time-bound process for finding a suitable developer. Trade Facilitation 16. The reform of customs and port administrative processes is essential to Ghana's objective of becoming an important trade and investment center. The Project will define and implement reforms in quality control and the methods, processes and procedures used by Customs Service, Ports and Harbors, Civil Aviation and Immigration in their  -6 dealings with investors, exporters and others, eg., tourists. The Project would aim to lower the cost of doing business in Ghana, inter alia, by reducing the time between cargo arrival and release to levels reflecting "world class best practice" and by reducing, to "lowest world class" levels, the user costs associated with processing documentation and complying with mandated procedures. Isolated processes within separate government agencies would be connected with processes carried out by commercial users of the system, in order to create additional transparency in rules and regulations, improve information flows and coordinate document processing. Ghanaian customs and ports processing standards would conform to those issued by the International Chamber of Commerce and the International Standards Organization (ISO) and would comply with ISO 9000. The achievement of the kind of "breakthrough service improvements" implied by ISO 9000 certification should serve as further indication to multinational corporations of Ghana's serious and effective commitment to make its country investor and commercial trader "friendly." The proposed Project will help tackle (part of) this agenda with specific and targeted interventions in the following front line agencies. 17. Ghana Free Zones Board (GFZB): Attracting a developer capable of bringing anchor-tenants, who will constitute the critical mass of export-oriented firms, is key to the success of the Gateway Project. This is the raison d'etre of the GFZB. Hence, it is essential for it to have a focused strategy to clearly define activities which will propel it into a proactive implementing organ for the Ghana Free Zones Program. GFZB's strategy is to implement a well-targeted marketing plan for attracting free zone developers and enterprises as detailed in the recently completed FDI Demand Study. This marketing plan will be complemented by: (a) the design of information systems which will provide the GFZB with the appropriate technological support to undertake all aspects of promotion and facilitation (e.g. investor tracking and investor/enterprises management functions); and (b) a comprehensive capacity building program aiimed at improving service delivery within GFZB staff, both in terms of proactive promotion as well as investor hospitality and related facilitation functions. 18. Targeted Investment Promotion (GIPC): The improvement in Ghana's investment climate increases the challenge for the Ghana Investment Promotion Center (GIPC) to ensure a demonstrable improvement in investment performance, while offering its services efficiently with value for money. The proposed Project will: (a) support the development and implementation of a 2nd Five-Year Corporate Plan to enhance GIPC's ability to undertake aggressive and targeted investment promotion; (b) enable it to train staff to enhance the institution's strategic perspective in areas such as information gathering, environmental scanning and industry analysis; and (c) create an enhanced tracking system to measure the efficiency of incentives offered, as well as the results of specific investment promotion activities. 19. Simplification of Immigration Procedures for Investors: The absence of written procedures impedes the ability of the Ghana Immigration Service (GIS) to respond pro- actively to new initiatives such as the Gateway Project. The GIS intends to implement measures to improve the quality of its services, including the reduction of formalities and procedures and creating a fast track lane for investors at major ports of entry, and the granting of a temporary visa of 30 days to all foreign visitors upon arrival. The organizational audit carried out in April 1998, noted also that GIS is committed to carrying out its mandate, but is hampered by a lack of resources, a strategic vision and a formal training program. While a comprehensive overhaul of GIS is beyond the scope of  -7- this Project, the Project will support: (a) selective re-training of staff to help create a culture of facilitation and service provision, and to help immigration officers project an appealing image to visitors; and (b) process and technology improvements. The revised organizational structure of GIS would include internal and external mechanisms to provide feedback on GIS performance. These mechanisms would include private sector participation and would be consistent with the GOG's trade and investment promotion objective. 20. Ghana Ports and Harbor Authority (GPHA): Under the Gateway Project, the operations of the ports will be improved by reducing the cost of operations and shortening the turn-around time for ships and clearance time for cargo. Increased private sector participation in the management and operation of the ports is the strategic choice made by the GOG to achieve these objectives. Under the proposed Project, GPHA will be converted into a Landlord Port Authority, while the operations will be outsourced to the private sector, i.e., container operations, dockyards, sites maintenance and services, etc., before the year-2000. 21. Customs Excise and Preventive Services (CEPS): Customs does not currently have the tools, methodology or corporate culture to be an effective institution for delivering customs services in a manner which is consistent with the Gateway objectives. In particular, importers and exporters, as well as potential investors, have identified that: (a) the current regulations are too complex to comply with; (b) valuation procedures are not consistent with international norms; (c) trade is impeded by long delays in entries and exits being presented to customs and high error rates on import entries; and (d) the perception of CEPS as a para-military organization hinders its ability as a trade facilitator. There is an implicit high cost imposed on Ghana's industry due to these procedures, in terms of foregone employment and export earnings. These issues were confirmed and are presented in detail in the CEPS Organizational and Institutional Audit (March 1998) and Trade Facilitations and Effective Customs Control Report (March 1998). Under the proposed Project, CEPS will re-engineer customs clearance processes to: (i) develop cargo clearance procedures and customs/shipper information interfaces which are simple, which minimize redundant data entry and which comply with international best practice; and (ii) simplify customs' tariffs and valuation procedures and reduce the number of commodity descriptions and detailed schedule applications. This will reduce the need for refined determinations of cargo value and will minimize, correspondingly, the interpretive latitude left to customs officials. 22. Ghana Civil Aviation Authority (GCAA): Aviation plays a key role in supporting a high-growth, outwardly-oriented development strategy. The primary objective is to develop a strategic framework for the development of Ghana's Civil Aviation Sector which is supportive of the goals of the Gateway Project. This includes the development of Ghana's economy into a major regional hub for the physical distribution of goods and the collateral development of gateway services including transport, transshipment, financial, insurance, third party logistics, information and other services related to regional distribution, transshipment and transit. GOG has already enacted a policy of "liberalized skies" which implies, inter alia, an institutional reform of the GCAA. The reformed GCAA should have full charge of safety regulations; pilot, carrier and facility licensing; and air navigation and air traffic control. Airport operations and development should be under the control of an independent airport authority. Under the proposed Project and in tandem with the Public Enterprise and Privatization Technical Assistance Project  - 8 - (PEPTA), the GOG will prepare and implement a coherent, comprehensive and integrated strategy for the Civil Aviation Sector, which can serve as a guide and road map for all subsequent reforms, initiatives and privatization activities. This roadmap would be adopted by end- 1999. C. Project Description Summary (i) Project Components (see Annexes II and III for detailed description and cost breakdowns) 1.0 Infrastructure Investments 11 Off-site Infrastructure Investment for *Civilworks 33.40 59.66 29.98 59.37 the Tema EPZ, including: * Goods * Services . Access road, side drainage and 6.08 - 10.86 5.79 11.47 associated civil works. * Water supply systems, wastewater 19.86 35.46 18.93 37.49 disposable systems and off-site drainage systems. * Supply and installation of 2.36 4.21 2.26 4.48 electricalpower and transformers. a Telecom Infrastructure (local 2.10 3.75 0 0 private) * Feasibility studyfor railway 1.50 2.68 1.50. 2.97 corridor * Contracting to Oversee Civil 1.50 2.68 1.50 2.97 works 1.2 Construction of Container devanning *Civil works 3.50 6.25 3.15 6.24 area outside of the port, and * Goods improvement of port container and * Services airport cargo facilities 1.3 Implementation of the Environmental *Institutional building 2.00 3.57 1.80 3.56 Management Plan (EMP) and support *Equipment to the EPA. Total Investment Component 38.90 69.46 34.93 69.17  Category Indicative % of , DA 11 % f Compoenet Cost Tot F Totaol 2.0 Investment promotion and Removal of administrative bottlenecks 2.1 CEPS: The Project would finance the *Institutional building, 2.25 4.02 1.92 3.80 implementation of CEPS strategic * Physical/Equipment, business plan covering changes in * Behavioral change/ operational procedures and human communication resources and ISO 9000 compliance. 2.2 GPHA: Expertise, equipment, *Regulation, 1.75 3.13 1.72 3.41 training, operational support to re- + Institutional building engineer GPHA into a Landlord + Transaction Authority. Feasibility study for *Equipment extension and dredging of quay 2, development of Electronic Data Interchange (EDI) at Tema port. Private Sector Participation in port activities 2.3 GCAA: The Project would finance Regulation, 1.00 1.79 .96 1.90 the conversion of GCAA into a +Institutional building regulatory agency and the * Transaction operationalization of the "liberalized skies policy" with emphasis on policy reform and institutional redesign, increased private participation in provision of infrastructure and obtaining private participation in management and development of KIA. 2.4 GIS: The Project would finance (i) *Institutional building 1.18 2.11 1.00 1.98 assistance in preparing operating * Physical/Equipment procedures, benchmarking GIS *Behavioral change processing of immigration functions as they relate to trade facilitation; (ii) technology infrastructure and ; (iii) retraining of staff in trade facilitation.  - 10 - 2.5 GIPC. Country and Investment *Investment 2.75 4.91 2.34 4.63 l Promotion: Preparation and promotionl implementation of well targeted *Capacity building investment and country promotion *Increase awareness activities; staff training and private * Stakeholders sector surveys; preparation and involvement implementation of a strategy to develop backward linkages between foreign investors and local suppliers; and support for a program to build consensus amongst domestic stakeholders in favor of reforms. 2.6 GFZB: The Project will finance * Marketing 2.40 4.29 2.32 4.59 implementation of the Developer & * Institutional Tenants marketing plans, improvement of building service delivery of staff in promotion and facilitation, development of oversight capabilities. 2.7 Gateway Project Coordination and *Program & Project 2.87 5.13 2.56 5.07 Project Management: The Project would Management help finance recurrent expenditures and develop the institutional capacity to manage and coordinate the Gateway Project and infrastructure unit. 2.8 Setting the Stage for Gateway II The * Policy 0.50 .89 .50 .99 Project would support work aimed at * Institutional developing further policies, instruments building and implementation strategies for example in project finance; vocation skills development, and tourism development. Total: Capacity Building in Trade 14.70 26.25 13.37 26.38 Facilitation Components PPF-Telecom 2.00 3.57 2.00 3.96 Unallocated .40 .71 .25 .50 Total Project Costs 56.00 100% 50.50 100%  - 11 - (ii) Key Policy and Institutional Reforms Supported by the Project 23. The Project will address some important but narrow institutional capacity constraints of front line agencies which deal with investors and exporters. Instruments to facilitate increased private sector participation such as project finance, franchising and concessions, will also be supported. The approach used in the Technical Assistance (TA) component departs from traditional technical assistance projects in that it establishes accountability relationships between the service-delivering agency (which are beneficiaries under the Project) and the policy making/executive bodies, who will use feed-back from recipients to assess compliance. (iii) Benefits and Target Population 24. In keeping with Ghana's objective of sustainable poverty reduction through job creation and increased levels of economic growth, the Gateway Project is designed to facilitate the higher levels of private foreign and domestic investment necessary to achieve this growth. The Project would benefit three broad target groups: (a) the local population; (b) private investors; and (c) the GOG. For the local population, the Project will lead to a reduction in unemployment through the creation of more job opportunities and through improvements in the skills and mobility within the labor force. For the GOG, the Project is expected to attract a flow of foreign direct investment that will have a positive effect on the balance of payments. It will also help increase the capacity of government agencies dealing with the private sector. In addition, the fiscal impact has been estimated at US$ 75 million for the 15-year period, mostly from personal income taxes of new employees and service businesses operating around the EPZ and estimated leasing fees from the developer of the EPZ. For private foreign and domestic investors, benefits will come from reduced uncertainties and transaction costs associated with doing business in Ghana, as well as the availability of ready sites for export processing industries and the simplification of trade procedures. (iv) Institutional and Implementation Arrangements Implementation period : Seven years, 1999 to 2005 Executing Agencies : Individual beneficiaries Project Coordination : Oversight Committee/Gateway Secretariat Institutional Arrangements 25. In view of the multi-sectoral implications of this program, the Cabinet of GOG has formed an inter-ministerial Oversight Committee to coordinate the design and implementation of the Gateway Project and inter-agency policy issues. The Oversight Committee is supported by a Secretariat which will act as a Project Implementation Unit (PIU) to monitor and coordinate all reporting for the institutional development components, as well as the on-site and off-site infrastructure component, while each beneficiary will be fully responsible for implementing the components within the framework of the Gateway Project. The Gateway Secretariat will be established and financed under the purview of the Oversight Committee. The Secretariat will be staffed with a project coordinator, an accountant, procurement specialist and office support staff.  - 12 - 26. While each implementing agency would have primary responsibility for the implementation of its own components, the Secretariat will be the vehicle for coordination, monitoring, contact, follow-up and reporting between IDA, the implementing agencies and the Oversight Committee. A performance contract will be signed between the Oversight Committee and each beneficiary agency which will be held accountable for the delivery of project outputs. This performance contract will include measurable indicators and the means of verification as defined in the Project's Logical Framework. The signing of these contracts will be a prior action for credit effectiveness. 27. During negotiations GOG agreed to include a private sector representative on the Oversight Committee. In view of the amount of infrastructure work under the Project, an Infrastructure Coordinator will also be appointed to the Gateway Secretariat with responsibility for the implementation of the off-site development and infrastructure reforms. 28. The Environmental Mitigation Plan, and the Monitoring and Risk contingency plans must be translated into a concrete environmental action-oriented instrument (i.e. Environmental Management Plan (EMP)) and its implementation would coincide with the Project's start. The EMP shall be updated every two years and quarterly environmental reports on the implementation of the EMP and other enhancement measures will be prepared for the Oversight Committee and IDA. 29. The GOG would open and maintain a Project Account in Ghanaian Cedi in a commercial bank on terms and conditions satisfactory to IDA. It will make an initial deposit into the account in an amount equivalent to US$1 million to finance its contribution to the Project. Furthermore, it will deposit into the Project Account by April 15 of each year, until the completion of the Project, any amounts which will be required to timely replenish the Project Account back to the amount of the initial deposit. 30. The Gateway Secretariat would require accounting and financial management services to oversee the Project's financial aspects, which would be provided by an independent accounting firm or qualified individual. All Project accounts, the Special Account, the Statement of Expenditures (SOE) and the financial statements of the Project beneficiaries would be audited at the end of each fiscal year by an independent auditor acceptable to IDA. In view of the complex and varied procurement content of the Project, the PIU will employ a full time procurement specialist, who would provide support to implementing agencies in carrying out their responsibility for procurement related to their components. The procurement specialist and each implementing agency would update procurement schedules and provide reports on related activities to ensure compliance with IDA requirements. Agreement has been reached with the borrower on the standard processing procedures for procurement of civil works, goods and consultants services. 31. Semi-annual Project reviews would be conducted jointly by IDA and GOG, with each implementing agency to review the implementation of all components, including the status of procurement and disbursement. A joint IDA-GOG mid-term review would monitor the overall Project execution, key project activities, project implementation schedule, and supervision plans. They will also identify implementation issues and develop solutions. Following Project completion, scheduled for December 2005, an Implementation Completion Report (ICR) would be prepared jointly by IDA and GOG.  - 13 - Consultants, contractors and suppliers would be selected in accordance with Bank guidelines, on the basis of proven experience. In line with the Bank's Africa Regional guidelines, wherever possible, local consultants will be used. Where foreign consultants are used for lack of requisite local skills, special efforts will be made to promote and strengthen local capacity through the transfer of skills to the domestic industry using local counterpart teams. Consultant and advisor contracts would include provisions for training and transfer of skills to local counterparts to carry-on with the program independently. Each beneficiary would, therefore, appoint counterparts who would work closely with the advisor and would also make adequate preparations before the arrival of the advisor in order to ensure the effective utilization of his/her services. Accounting, Financial Reporting and Auditing Arrangements 32. A local private accounting firm (or individual accountant), acceptable to IDA, will be responsible for project financial management using an accounting system and financial management satisfactory to IDA (an accounting/financial management manual will be produced which will include the organizational structure, chart of accounts and accounting and financial procedures which will be followed throughout the duration of the Project). 33. The signature of a two-year audit contract with a qualified audit firm acceptable to IDA will be a condition of credit effectiveness. During negotiation, agreement was reached on the following points: * the Project's accounts and supporting documents will be audited by an independent auditor accepted by IDA, pursuant to international audit principles; * to provide IDA with an audit report for the fiscal year in question, certified by the auditor, no later than six months after the end of each fiscal year; - to provide IDA with any other information regarding the Project's accounts and audit it may request from time to time; and * the accounting records of the Special Account, the Project Account and the SOEs will be audited : (i) every month during the first eighteen months counting from the effective date; and (ii) every six months during the remaining periods, and these audits will be sent to IDA no later than two months following the end of the audited period. Monitoring and Evaluation Arrangements 34. Semi-annual progress reports, prepared on the basis of the Project implementation plan and the logical framework would be provided by the beneficiaries to IDA through the Gateway Secretariat. IDA will carry-out regular supervision missions and a mid-term review. Finally, The GOG will transmit a completion report to IDA within six (6) months of the Project closing date. 35. In order to ensure continuous monitoring of project impacts (which are long-term in nature), it is proposed that funding should be made available to the executing agency of the EMP, through the provision of a clause in the leasing agreement stating the commitment to allocate a specific amount of resources to the EPA.  - 14 - D. Project Rationale (i) Project Alternatives Considered and Reasons for Rejection (a) Single operation covering priority aspects (Front line agencies and Off-site infrastructure) of the Gateway Project : It has been decided to process these two components as one project despite the fact that implementation of the off-site investment component will be contingent upon the GOG finding a private investor/manager to finance the on-site investment in the EPZ. This way of structuring the Project provides for the need to send a positive signal to maximize leveraging of private investment and meets the pre-requisite of the private developer while ensuring that public investments are not made. IDA and GOG have nonetheless agreed on an exit clause, should a developer not be found within a specific time-frame. (b) Include various components under different ongoing technical assistance (TA) projects: Another alternative was to include different aspects of the TA component in various on-going projects. However, this was eliminated because it would have significantly increased the complexity of the on-going projects and adversely affected their implementation. (c) Government-financed Export Processing Zone: Another option was to assist GOG in financing and developing the EPZ with IDA or other donor resources. This option was rejected due to the failure of numerous Government-financed EPZs elsewhere in Africa. We have not rejected the possibility of credit-enhancement instruments (such as using, for example, the partial risk IDA guarantees instrument if it is made available at some point) to strengthen the Project finance structure if considered necessary. (d) Free-standing large infrastructure project : This option was rejected because large on-site infrastructure investments are expected to and should come from the private sector and Government involvement in the provision of on-site infrastructure was not considered a necessary part of the Project.  - 15 - (ii) Other Related Projects Financed by the Bank andl/or Other Development Agencies Sector Issue Project Latest Form 590 Ratings IP DO Bank-financed Vocational training and technical skills development Education/ Vocational Skills Project (FY95) S S Telecommunications Sector Telecom Project (FY89 S S Financial Sector Non-Bank Financial Institutions (FY96) U U Private Enterprise & Export Development (FY94) U U Financial Sector Adjustment Credit (FY92) S S SME/Finance Project (FY89) S U PSD Project (FY95) U U Private Sector Development Mining Sector Development Project (FY96) S S PEPTA Project (FY96) S S Agriculture Diversification (FY91) S S Public Sector Reform Public Financial Management TA (FY97) S S UJtilities Water Sector Rehabilitation (FY90) S U National Electrification (FY93) S U Thermal Power Project (FY95) U U Roads sector Highway Sector Investment program (FY97) S S Other development agencies - ($80 million pledged) USAID Trade & Investment Project (1995) (iii) Lessons Learned and Reflected in Proposed Project Design 36. Institution and capacity building operations are widely used and remain relevant to the Bank's commitment to develop local capacities. The record of implementation of institution and capacity building operations in Ghana has been improving in the recent years due to a more participatory approach in the preparation of projects derived from greater commitment and ownership of the borrower. Nevertheless, as shown in the table above, a significant number of related operations in Ghana are rated unsatisfactory. Reasons for the unsatisfactory ratings range from long elapsed time between Board and effectiveness leading to high disbursement lags, unfavorable macroeconomic conditions, below par public finance management, and uneconomic tariffs. However, conditions are now more favorable and should contribute to improving the portfolio. For example: (a) the GOG is now engaged in an IMF-supported program that is expected to lead to improved macroeconomic conditions including better public finance management and lower inflation; (b) the setting of utility tariffs have been de-politicized to allow utilities to charge rates that allow them to meet basic financial requirements; (c) all projects at risk are being restructured; (d) there is now more flexibility as a result of a better panoply of instruments available to the Bank; (e) the Country Director is now located in the field; and (f) there has been concerted efforts to reduce the size of the portfolio, which should enable us to concentrate our efforts on a more manageable portfolio. Effectiveness delays would be reduced to the barest minimum as a result of the participation of GOG officials in detailed project design. Discussions also took place during project preparation with potential investors and private sector representative groups. Concerns raised by these  - 16 - groups have been addressed in the design of the Project. During implementation, periodic assessments would be made of the impact of the program on all stakeholder groups, and remedial action would be taken to mitigate negative effects. However, there are still issues that need continued focus and strengthening, including: (i) development of the borrower's capacity to implement and manage the TA components, including closer supervision efforts by the GOG; (ii) consultants' abilities to transfer skills to local counterparts; (iii) development of local consultant capacity; (iv) counterpart staffing; and (v) greater attention to monitoring indicators. 37. The Gateway Project incorporates recommendations from Economic Sector Work (ESW), completed on the sector (3 FIAS reports, MIGA reports), reports prepared by other donors (USAID, CIDA) and most importantly the work done by GIPC and GFZB. The preparation of the Project has been participatory. The GOG initiated a self- assessment of needs by all key agencies contributing to the high cost of doing business in Ghana which resulted in an action plan for each agency in coordination with the Ministry of Finance and the Gateway Secretariat. These action plans also identify monitorable performance indicators. To develop the borrower's implementation capacity, support would be provided to the PIU, GFZB and other agencies. 38. The experience with Export Processing Zones (EPZs)/Free Trade Zones (FTZs) in Africa, while mixed, was also carefully reviewed. Numerous Government financed EPZs, in countries like Senegal, Liberia, Zaire, Botswana and Cameroon, failed due to problems such as political instability and an unsafe business environment, cumbersome regulatory procedures and inefficient institutional structures, high cost of doing business especially due to poor infrastructure, labor market rigidities, high minimum requirements for investment, employment or infrastructure services (electricity, etc.), or poor site selection. However, there are a few African EPZIFPZ success stories and a number of lessons emerge from their experiences, as well as experiences elsewhere in the world. The more notable ones are: (a) private sector EPZ development and management must be encouraged; (b) if industrial estates are to remain in Government hands, it is essential that they be operated on a commercial basis (leases set out at commercial rates, managers paid competitive salaries, sound accounting practices, etc.); (c) private sector provision of infrastructure services should be encouraged; (d) true public/private sector cooperation should be developed and regulatory processes should be streamlined; and (e) programs should have more competitive incentive packages without crippling provisions such as minimum investment requirements, etc. 39. Bank projects have confirmed the difficulty in identifying, agreeing and implementing project components which cut horizontally across multiple, "stove pipe" government agencies and across the "exclusive territorial" domains of specific functional agencies. The experience requires not only a strong initial commitment from top level government decision makers but also the creation of a transitional platform -- e.g., special committee, task force, etc. -- which is empowered to maintain continuous pressure for fundamental change and, importantly, which is also empowered to resolve inter- jurisdictional issues. With this caveat, experience also confirms that the benefits resulting from supply chain development projects -- projects which typically transcend traditional organizational boundaries and which actively engage the private sector, i.e. beneficial owners of cargoes, shippers and consignees-- are very great. This can lead to a chain reaction of continuous process improvement in the delivery of logistics services which improve the competitiveness of manufacturers, distributors, exporters and  - 17 - importers with resulting trickle down benefits for the entire economy. Supply chain development is a relatively new thematic focus within the Bank but offers the most effective way to lower transaction costs, bring buyers and sellers closer together in time and cost and provide competitive access for emerging economies to the global market place. 40. The Ghana Free Zones Act clearly recognizes the importance of most of the lessons learned. It lays out an attractive incentive package for private investors in the free zone. The proposed EPZ at Tema will also be entirely privately-financed, owned and managed, which will be one of the first in Africa. GOG plans to lease the land to private investors for a period of 50 years. In terms of provision of infrastructure services to the EPZ site, except the telecom sector which has been fully liberalized, GOG will have the responsibility of providing off-site infrastructure services due to lack of private sector providers. GOG currently requires additional support on investment promotion and facilitation activities. The institution and capacity building component is addressing this need at GIPC and at GFZB. 41. In order to ensure the efficient implementation of the EMP, the GOG is fully committed to provide and transfer the component cost to the plan's executing agency, the EPA. The GOG is also committed to the creation of the Gateway Environmental Management Unit and to ensure that the requisite human and institutional capacities are put in place. Strengthening the capacity building component prior to project implementation is a means of assuring the efficient and effective management of the environmental management plan. (iv) Indications of Borrower Conmuitment and Ownership 42. GOG has expressed strong commitment to the Gateway Project by creating the Gateway Oversight Committee, which is chaired by the Vice President of Ghana, and the Gateway Secretariat at an early stage of the Project. GOG' s commitment to improve the business environment in Ghana is also evident from the passing of the Free Zones Law (1995), as well as the Ghana Investment Promotion Center Act (1994). It has undertaken measures to liberalize banking laws, divest companies, including those in the mining, banking, insurance and telecommunications sectors, to maintain stringent macroeconomic management. The Bank's challenge would be to build on the positive steps being taken in Ghana to realize the objectives of the Gateway Project. (v) Value Added of Bank Support: Rationale for Bank-Group Involvement 43. The Bank, IFC (including FIAS) and MIGA have been evaluating various alternatives for the GOG to improve the business environment in Ghana. The Gateway Project provides the Bank Group the opportunity to adopt an integrated approach to Private Sector Development (PSD), involving adjustment lending (to influence policy reforms and political-will issues), technical assistance initiatives for the associated needs for institution and capacity building, and investment lending to leverage strategic private sector financing. Since the scope for larger amounts of external assistance is limited, Ghana will need to attract considerable new inflows of foreign private investment to generate a stronger supply response to macroeconomic reforms. In support of this  - 18 - strategy, the Gateway Project seeks to remove state involvement and intervention in areas of economic activity that can be handled more efficiently by the private sector. The Bank Group, through the wide range of lending and investment instruments available to it, is ideally suited to assist the GOG with the implementation of the strategy. 44. IFC and MIGA have been closely associated with the appraisal of this Project. IFC has been approached by the GOG and by one of the potential developers, and has indicated its readiness to participate in the on-site infrastructure development in the form of equity and investment. MIGA has also been involved in project preparation and is willing to provide guarantees at the request of the developer. Moreover, during appraisal, the IDA Guarantee staff made a presentation of their facilities and the GOG will call on them as and when needed. These potential contributions relate to the on-site infrastructure component, rather than to the components of the proposed credit. E. Summary Project Analyses (i) Economic Assessment 45. The results of the economic analysis (Annex IV) shows that the overall project can be strongly justified in NPV and ERR terms. The cash flow was developed for the whole project and not per component. This was mainly because it is difficult to quantify the indirect benefits deriving from the capacity building component. The project has an ERR of about 43.4 percent in the base case, with the NPV of US$143.5 million, which compares favorable with the rates of return for successful EPZs elsewhere'. Sensitivity analysis was carried out assuming: (a) a reduction of 40 percent per annum of number of firms entering the EPZ (low case); and (b) an increase of 35 percent of annual number of firms entering the EPZ (high case). The effects of each of these on the project's ERR is shown in Table 2 of the Annex IV, and illustrates that the ERR for the EPZ would be 30.8 percent in the low case scenario and 56.2 percent in the high case scenario. An assumption was made that all firms will sell 30 percent of their production to the domestic market, the results showed an ERR of 33.6 percent and an NPV of US$ 81.5 million. 46. The development of the EPZ is projected to create 53,900 jobs within the zone, and 16,200 jobs outside the zone firms. Calculations of net foreign exchange earnings have been measured by using the firm's value of export sales minus imported inputs. This has resulted in a value added of exports from the EPZ firms of 10 -15 percent. (ii) Financial Assessment 47. Private participation in the on-site financing is a prerequisite for IDA participation in financing the off-site infrastructure. The lease rental paid by the investor could be used to finance the GOG share of the off-site investment, thus reducing the financial impact of the Project on the GOG budget. In addition, investment in off-site facilities would generate direct user charges from water, power, telecommunications, sewage treatment etc. which would provide a return on the investment. The lease rental lThe [RR on Penang EPZ firms (Malaysia) is 28%, 26% in Indonesia, 23% in Shenzhen (China)15% in Korea and -3% in the Philippines. The ERR of the Kenya EPZ was 18%. Source: World Bank.  - 19 - to be paid by the investor/developer to GFZB would be decided during the international procurement process. On the TA side, customs tariffs and port charges need to be rationalized to make the ports competitive and the customs procedures more transparent and simpler. (iii) Technical Assessment 48. In the TA component, the specific forms of assistance to each beneficiary have been defined based on an operational and organization diagnostic carried out for each agency to clearly articulate its mission in terms of dealing with foreign investors, the constraints it faces and the action plan being recommended to address those constraints. More importantly, each beneficiary agency would clearly define an oversight mechanism which is independent from public sector intervention and which will monitor the quality of service delivered. 49. For the off-site infrastructure component, a feasibility study carried out during project preparation provided the technical and engineering specifications as well as a reasonable cost estimate. Detailed technical and engineering specifications for the off-site infrastructure will be defined in collaboration with the private developer of the Export Processing Zone during project implementation. (iv) Institutional Assessment 50. The Project is being developed by the agencies in a very participatory manner with all stakeholders. Each agency, therefore, is expected to have strong ownership for its component. To ensure that lack of project management capacities does not hamper implementation, the Project will address institutional shortcomings through a decentralized and contractual implementation arrangement and extensive institutional and capacity building support for the beneficiaries and coordinating agencies. (v) Social Assessment 51. There are no maior social issues faced by this Project. The Gateway Project will instead strengthen community development in the Tema municipality through the creation of new job opportunities as well as development of the infrastructure which will benefit the entire population in the Tema area. The cash wages to be paid to temporary labor during construction, and the cash generated by the free zone during operations, will also have significant social impact in the surrounding communities. At the same time, the improvement of the social infrastructure (improved drainage, and improved solid waste management) will improve the quality of life of the communities and reduce the incidence of water related diseases. The compensation issues outlined in the Environmental Impact Assessment (EIA) study will be adequately addressed and those herdsmen losing their grazing areas, as well as the vegetable gardeners, will be properly compensated. There is no involuntary resettlement issue in the area except for some illegal squatters in an old Ghana Broadcasting Corporation Building. This matter has been highlighted in the EIA study and will be addressed by the Gateway Authorities.  - 20 - (vi) Environmental Assessment 52. The Ghana Gateway Project is classified as Category A due to the fact that it comprises both off-site and on-site infrastructure development that include: (a) water connection; (b) sewage and solid waste treatment for the EPZ; (c) electricity link; (d) telecommunication link; and (e) access roads to the Project site. According to the environmental study carried out by a team of consultants, and reviewed by the Environment Group of the Africa Region, there are no major negative environmental problems. The anticipated environmental problems from construction works (dust, noise from heavy machinery) and other problems expected during project operation, were adequately addressed in the study. Project preparation, bidding and implementation therefore incorporate specific measures to avoid negative impacts, and to improve currently inadequate environmental conditions in the Project area such as: (i) environmentally safe construction methods and techniques; (ii) environmental and social criteria to avoid environmental degradation of the Project site; and (iii) improvement of solid waste management in the final waste disposal sites in the Tema municipality. The EIA includes costed mitigation and monitoring plans and an industrial risk contingency plan, all of which clearly identify the institutional arrangements for the execution of the respective plans. (vii) Participatory Approach 53. The Gateway Project has been prepared in a participatory manner, in that various sectors of the economy have been closely involved. Private sector views were solicited on the proposed activities and various government institutions, directly and indirectly involved in the Project participate in different forms. Line ministries of frontline agencies and regulatory agencies will be closely consulted throughout the Project to ensure effective internalization. Financing institutions and other donors supporting the Gateway will continue to be consulted. In addition, GOG has included private sector representation in the GFZB. Participatory Approach Preparation Implementation Operation Beneficiaries/community groups IS, CON IS, CON & COL Intennediary NGOs IS, CON, COL IS, CON Academic institutions IS, CON, COL IS, CON & COL Local government IS, CON & COL IS, CON & COL Other donors IS, CON & COL IS, CON & COL Other Note: information sharing [IS]; consultation [CON]; and collaboration [COLJ. F. Sustainability and Risks (i) Sustainability 54. The Project is expected to have a lasting impact on Ghana's economic development by reducing the high cost of doing business and increasing Ghana's competitiveness in global markets through: (a) the reform of the legislative, regulatory and incentive  - 21 - systems in "front-line" areas; (b) institutional strengthening and capacity building including skills development in key areas; (c) development of new instruments to increase availability of know-how and financing, such as franchising and private sector participation in infrastructure (PPI); and (d) country promotion and consensus building. It will address the issue of quality of infrastructure in a limited manner in the immediate term by supporting the development of geographically-sited EPZ. The EPZ could be built successfully and the capacity building objectives could be achieved, while a number of other problems that are beyond the scope of the Project could stymie the EPZ from attaining commercial success or the port from being privatized. Hence its is important to view this Project as one that removes constraints and its success should be evaluated on that basis. 55. Appropriate guidelines will be developed to facilitate the integration of the individual Gateway Project components into the overall EMP of the EPZ. Individual plant contingency plans will be developed to fit into the EMP framework as well. This will constitute the basis for self monitoring and regular environmental auditing as well as provide input for quality assurance. 56. The Project will be sustainable if- * The GOG remains committed to reforming the civil service and relying on external checks and balances as an oversight mechanism for public agencies delivering services to the private sector; - There is a clear commitment and strong political will on the part of GOG to address the ports and customs issues and the issues related to private participation in infrastructure services; - For the investment component, a suitably-qualified private investor/developer commits to make the on-site investment in the development of the EPZ; and * The institutionalization of a healthy public-private sector dialogue leads to mutual cooperation and partnership.  - 22 - (ii) Critical Risks ( see fourth column of Annex I) Risk Risk Rating Risk Minimization Measure * Any laxity in fiscal and monetary ! Moderate * The GOG, has recently tightened its fiscal policies on GOG's part could lead to and monetary policies. Macroeconomic further currency depreciation and performance is being monitored by the increased inflationary pressure which Bank and the Fund. could adversely affect investor confidence. . _, * The implementation capacity of various Moderate * Provide necessary technical assistance to ministries and agencies may constrain ensure implementation the quality of implementation. *_,_l * Unavailability of counterpart funds may Substantial * Budget process will include adequate funds affect implementation. which will be placed, in advance, in the Project Account. Proactive management of *._________________ _ .__ this risk during supervision * Finding a developer; and on-site . Moderate No financing to EPZ will be approved until investments by developers and off-site an on-site developer is found and has investments by GOG are completed. agreed to make infrastructure investments. Provide expertise in developer search. Use *__ _of IFC and MIGA to enhance the deal. * Supply chain development initiatives Substantial . * Involving agency heads in the gateway designed to make inter agency interfaces secretariat alid making it accountable for porous and administrative processes coherent policy implementation. Contract- transparent to users are resisted by like arrangements for delivery of quality entrenched agencies which resist all service between agencies and gateway pressures for change and which continue secretariat. to protect exclusive "territorial rights" within stove pipe organizational units * _. * A number of other problems that are Moderate * The effective empowerment of an inter- beyond the scope of the Project could ministerial "gateway task force" to drive still stymie the EPZ from attaining the change process with the high level commercial success or the port from support and commitment. Early in the becoming privatized (those problems process, a high level private sector users could be related to the state of the world group will be nominated and engaged to economy, perceptions of Ghana as a serve as an advisory panel and additional place that is friendly to private driver for fundamental reform of supply developers, particulars of the chain support processes like customs commercial arrangements, the clearance and port administration of fees government's negotiating style, or the and cargo release. legal and regulatory framework). * ._l * Unavailability of human and Substantial * Budget process will include adequate funds institutional resources, compliance and to be placed in a Special Account managed enforcement mechanism for efficient by the EPA. GFZB and EPA will agree on a implementation may impede on quality mechanism for full funding of EMP. performance. Overall Risk Medium  - 23 - (iii) Possible Controversial Aspects 1. Adverse labor reaction to proposals for private participation in infrastructure, particularly in ports and customs, 2. The GOG enhancements for the on-site investor and the unbundling of commercial risks from sovereign risks could be an issue. 3. Transparency in the selection of private participants in the provision of services and infrastructure. G. Main Loan Conditions ( Conditions of Negotiation l * Formalize Project institutional and coordination arrangements; * Appoint staff of the respective implementing agencies; * Appoint an environment specialist from EPA to the GFZB; * Launch the selection of a project accountant; * Draft a Statement of Gateway Development Policy; and * Complete Environmental Management Plan (EMP). (ii) Conditions orBoard . Appoint a private sector representative to the Oversight Committee and in the Gateway Secretariat; and * Adopt the Project Implementation Manual; and * Adopt the Letter of Sector Development Policy (iii) Conditions of Effectiveness * Appoint an accountant and auditor, and install an accounting and financial management system, satisfactory to IDA; . Appoint a Procurement Specialist in the Gateway Secretariat and an Infrastructure Coordinator in the PIU; * Sign the Performance Contracts between the Oversight Committee and Beneficiary agencies for related components (GIPC, CEPS, GHPA, GCAA, GIS, Infrastructure Unit); * The GOG will make available the first tranche of counterpart funds (equivalent to US$ 1.0 million); and * Other standard legal conditions of effectiveness. (iv) Other Conditions: During Project Implementation * Implementation of investments to relocate devanning area and EMP will be executed immediately following credit effectiveness, but disbursement of EPZ off-site investments will be subject to effectiveness of Memorandum of Understanding with a private developer.  - 24 - H. Readiness for Implementation 57. The procurement documents for the first year's activities are being prepared and will be ready prior to effectiveness, to facilitate a prompt start to Project implementation. I. Compliance with Bank Policies 58. This Project complies with all applicable Bank policies. Country Director: Peter Harrold Task Manager: Demba BA (AFTP1) Technical Manager: Thomas W. Allen (AFTP1)  - 25 - ANNEX I Page 1 of 4 GHANA Trade and Investment Gateway Project Project Design Summary -NX-;-.~~~ia ' My fisv 47i .W m nt og;s Narrative Suiq~1CrAssuption I. CAS Objectives: _ l Increased private investment and * Achieve private investment of Macro-economic reports. exports. at least 10% of GDP by year- 2000. Trade statistics. * Growth rate of non-traditional exports to average at least 20% per year by year-2000. * 2,000 jobs created in year three; 2,500 in year four; and 3,000 in the fifth year following completion of EPZ. * Manufacturing growth to be at least 8% per year by year-2000. II. Project Development Objectives: A critical mass of export industries * 10 firms have been established GFZB reports Macro-economic stability are operating from a privately and are operating in second year Sustained political commitment to developed Export Processing Zone, after completion of civil works; Developer annual reports PSD in strict compliance with 20 by end-third year; and 30 by environmental guidelines. end-fourth year. Trade statistics * Net export revenues are increased by 25% in second year; by 30% in third year; and by 40% in fourth year after _______________________________ _completion of the civil works. III. Project Outputs 3.1. 1. A private developer with * Signed contract with developer. Signed lease agreements Promoters succeed in securing anchor tenants are found for the * On-site infrastructure. new industries Tema EPZ. Development plan. Effectiveness document * Tenants occupancy plan. Promotion remains focused and 3.1.2. Off-site Infrastructure for * Completion report. Firms annual reports. well targeted. Tema EPZ is completed. Investor perception surveys. Commitments translate into actual 3.1.3. Effective marketing of Ghana * 587 targeted workshops investments as a Foreign Direct Investment (FDI) between 1998-2002, with yield Supervis:on reports destination. of at least 8% site visits and a Utilities are restructured as part of yield of $900 million of Annual report a well-defined privatization investment firmly committed by strategy and are capable of end-2002. Investor perception meeting EPZ demand and quality surveys of service requirements  - 26 - ANNEX I Page 2 of 4 III. Project Outputs (Continued) 3.2.1. Cost of doing business * Organizational restructuring of GPHA is is reduced and front line completed agencies are trade facilitators. * Private sector participation in port Signed Lease, Suitable private operator is operations, who will assume investments in agreement(s) with found both rehabilitation and expansion. private operator(s) * New Ports Act which transforms the GPHA Private operator can into a "landlord" structure, and grants Legislation establishing mobilize resources in a greater autonomy to the ports submitted to GPHA in its new role timely fashion parliament no later than end-1999. * The devanning area is relocated outside the Supervision reports Efficiency gains are port no later than end-1999. realized by customers and * A privately developed and financed Ports and Airport annual operator (s) Electronic Data Interchange is in place. statistics. * Costs of loading import containers are reduced from US$168 in 1998 to US$80 by Annual ISO, ICC end-1999 and to international standards by certification. end-2000. * Speed of unloading containers increases from gross 12 boxes per ship hour to 20 boxes per ship hour by end-1999 and 24 boxes by year-2000. * Average dwell time for imported containers drops from 25 days in 1998 to 15 days by end-1999 and less than 7 days by year-2000. Customs procedures are streamlined and Commitment of CEPS efficiency is improved (CEPS) in ensuring that reforms * Number of examinations at point of entry, of Ghana institute of are sustained. cargo and documents, are reduced to one. Freight Forwarders * Cargo examination is reduced from 100% to 10% for statutory free goods, and 20% for (GIFF) reports. all dutiable goods. * Appropriate customs regulation is in place to ISO, ICC annual allow direct delivery of containers between certification the port of Tema and the free zone enclave no later than end-1999. * A valuation system acceptable to all stakeholders is established. * Number of overland customs check points on road are reduced to I to Togo; 2 for RCI; and 2 to Burkina Faso. * EPZ customs unit is operational in line with EPZ regulations.  - 27 - ANNEX I Page 3 of 4 Narritive Summary Monitorable Indicators . -Means of Verification .sks & Assumptionsg III. Project Outputs (Continued) 3.2.1 Cost ofdoing Immigration procedures for investors and business is reduced and tourists are streamlined front line agencies are * Business and tourist visas issued on * Annual survey There are incentives for frontline trade facilitators. arrival upon payment of reasonable fees * GIS annual reports and agencies to sustain commitment by end-1999. statistics to the spirit of service provider * Business/ Tourist visas are delivered * Airport statistics and trade facilitator. within 48 hours at all Ghana consular missions abroad, by year-2000. Autonomy of agency is upheld * Services at entry points consolidated by GOG into one (Immigration, Health and BNI) ensuring rapid clearance. * 100 Immigration officers/ consuls trained in the Gateway concept by year- 2000. Agency establishes and maintains Civil Aviation Sector high standards of professionalism * A future development scenario for the Air traffic data and credibility civil aviation sector, reflecting GOG Flight permissions gateway priorities is adopted by end- Legislation 1999. Signed concession * Regulation operationalizing liberalized agreements Privatization of Ghana Airways is skies policy is adopted by end-2000. done outside the scope of this * KIA, management and development Project -- by Divestiture concession is signed with private Implementation operator by end-2000. Committee * Ghana Airways is privatized by end- 1999. Adequate regulatory framework in place and a regulatory agency is operational * Legislation and criteria governing Legislation private sector participation in infrastructure is adopted. * Regulatory agency is adequately Regulatory agency reports staffed with qualified personnel, and and proceedings operational policies and guidelines in place.  - 28 - ANNEX I Page 4 of 4 IV. P ctoiponents Khpuf. 7:, . K . yerWca .-. Risks &i 1.0 Infrastructure and Development of Geographically-sited EPZ 1.1 Implementation of EMP. US$2.00 million Contracts No unforeseen environmental or resettlement issues 1.2 Construction of the off-site US$ 33.41 million Completion reports Investment for on-site infrastructure for the Tema EPZ. infrastructure comes from private sources 1.3 Construction of devanning area US$ 3.50 million Detailed engineering design No design problems, cost outside port and improvement of port and bidding documents. overruns or geological container facilities. problems 2.0 Trade Facilitation Capacity of Front-line Institutions 2.1 CEPS- Conforming CEPS processing US$2.25 million Consultant report (roadmap) Timely availability of standards to ICC and ISO 9000. Counterpart funds 2.2 GPHA Concessioning of ports US$ 1.75 million Gateway Secretariat and activities to the private sector and Oversight Committee may not building capacity to regulate PPI; prove sufficiently powerful to feasibility study for the extension and carry out all of the basic dredging of quay 2, landlord port. institutional reforms in the Project. 2.3 Converting GCAA into a regulatory US$ 1.00 million agency, operationalization of open skies. 2.4 Modernization of Immigration Legal US$ 1.18 million Consultant report Beneficiary Agencies comply Framework, regulations and standard with terms of contract with operating procedures. Oversight Committee. 2.5 Country and Investment Promotion US$ 2.75 million Annual Surveys support to GIPC. 2.6 Search for developer and oversight US$ 2.40 million capacity of GFZB. 2.7 Project Management & Program US$ 2.87 million Gateway Project progress Coordination. reports Project audit reports 2.8 Preparation of Gateway 11 US$ 0.5 million Project implementation progress reports  - 29 - ANNEX II Page 1 of 5 GHANA Trade and Investment Gateway Project Detailed Project Description Project Development Objectives 1. The Project development objective is to attract a critical mass of export-oriented firms in Ghana to kick-start export-led growth as well as facilitate trade. This would be achieved by creating an enabling environment to facilitate increased levels of private investment in Ghana, reducing the cost of doing business and providing the necessary infrastructure services. More specifically, the Project will (a) modernize the front-line institutions/agencies that deal with investors by re-engineering them into trade facilitators; and (b) provide off-site infrastructure for the privately-developed and owned EPZ. Project Component 1 - Development of Geographically-sited EPZ 2. The Project would provide financing for the feasibility study of a railway corridor and marshalling yard, as well as feasibility studies, detailed engineering, construction and supervision of the off-site infrastructure for the Tema EPZ, including: * Construction of access road, side drainage and associated works; * Construction of water supply systems, wastewater disposable systems and off- site drainage systems; and * Supply and installation of electrical power and transformers. 3. During project preparation an environmental impact assessment was carried out and has provided the GOG with an in-depth assessment of the Project impact as well as an environmental mitigation plan. The EIA concluded that there are no major negative environmental problems resulting from the Project and that anticipated environmental problems from construction works namely: dust, noise from heavy machinery, and other nuisance, as well as the problems expected during project operation, were adequately addressed in the study. Project preparation, bidding and implementation, therefore, incorporate specific measures to avoid negative impact, and to improve currently inadequate environmental conditions in the Project area. These measures include: (a) environmentally safe construction methods and techniques; (b) environmental and social criteria to avoid environmental degradation of the Project site; and (c) improvement of solid waste management in the final waste disposal sites in the Tema municipality. The Project will finance mitigation and monitoring plans and an industrial risk contingency plan, all of which clearly identify the institutional arrangements for the execution of the respective plans. This EMP is estimated to cost US$ 2.0 million.  - 30 - ANNEX II Page 2 of 5 4. Under this component the Project will provide support for the construction of a container devanning area outside of the port and for the general improvement of seaport and airport operations. 5. Upon completion of this component, the infrastructure will be transferred to the respective utilities. Off-site telecommunications will be provided by one of the private telecommunication companies at a cost which will be negotiated with the GOG. Project Component 2 - Capacity Building in Trade Facilitation 6. Customs, Excise and Prevention Services (CEPS). Under the proposed Project, CEPS will develop and implement a far reaching program of re-engineering its corporate structure and culture to become a trade facilitator. CEPS will implement a strategic business plan covering all required changes in regulations, operational procedures and human resources. A work program designed to achieve ISO 9000 certification of Ghana's Customs and Port Cargo Clearance Processes is expected to be put in place. Specific trade related processes and procedures will be re-engineered to bring the quality of custom services up to international standards. Special attention will be directed to: (a) streamlining of processing and reduction of clearance time for both export and import cargo; (b) re-equipment and development of adequate information technology infrastructure; and (c) training on special procedures designed specifically for free zone enterprises in line with free zone regulation. The proposed Project would finance the modernization of customs administration and the implementation of CEPS's strategic business plan covering changes in the regulatory, operational procedures and human resources. 7. Ghana Ports and Harbor Authority (GPHA). Government has approved a policy to further improve the operation of the ports which will reduce the cost of operations and shorten the turn-around time of ships. The policy entails increased private sector participation in the management of the ports. GPHA will be converted into a "Landlord" Port Authority while the private sector will participate in port operations particularly container handling operations, dockyards, sites maintenance and services. The Project will provide technical expertise to build capacity in the GPHA to assume the role of a landlord structure with responsibility to regulate the participation of private sector in infrastructure investments and in operations of the ports. To enhance the capacity of the ports to take modern generation vessels, the Project will also finance the feasibility study for the dredging of Quay No. 2, as well as technical expertise for privately developed and managed Electronic Data Interface for the major port users.  - 31 - ANNEX II Page 3 of 5 8. Ghana Civil Aviation Authority (GCAA). Aviation plays a key role in supporting a high-growth, outwardly-oriented development strategy. One of the key objectives of GOG's Gateway Project is to develop a strategy of "liberalized skies policies" which implies, inter alia, an institutional reform of the GCAA. The reformed GCAA should have full charge of safety regulations; pilot, carrier and facility licensing; and air navigation and air traffic control. Airport operations and development would be under the control of an independent airport authority. 9. Under the proposed Project, and in tandem with the Public Enterprise and Privatization Technical Assistance Project (PEPTA), scenarios for the development of air transport that would achieve private participation in developing the airport facilities into a regional hub for passenger, cargo and express delivery services will be developed. In addition, the Project will provide support to develop a comprehensive and holistic aviation sector strategy which will operationalize the liberalized skies policy adopted by the GOG. 10. Country and Investment Promotion. Based on the GIPC five-year Corporate Plan, the "aggressive investment promotion" strategy pursued by the Center within the last three years has been showing remarkable results, particularly in the year ending December 1997, with 237 foreign projects brought into the country compared with 187 in 1996 (27 percent increase). The GIPC, since it became operational in 1994, has registered in excess of 600 foreign projects primarily in the manufacturing and service sectors, with a potential total investment of US$1.1 billion. Despite the encouraging performance, this investment level will need to be significantly increased if Ghana is to achieve the growth targets established under the Vision 2020 program. 11. The Project would help transform GIPC's promotional strategy from a general approach to a specifically targeted promotional program. It will finance several campaigns of well-targeted promotions directed to the firms and sectors pre-identified in the FDI Demand Study. Promotional efforts will be facilitated through improvements in, in-ter alia, the definition of service standards and progress monitoring indicators, staff training, private sector survey tools and other promotion activities for GIPC and GFZB. The Project would also finance the preparation and implementation of a strategy to develop backward linkages between foreign investors and local suppliers. 12. Trade facilitation by Ghana Immigration Services. The organizational audit carried out in April 1998, noted that the GIS is committed to carrying out its mandate, but is hampered by a lack of resources, a strategic vision and formal training program. The Project would, therefore, provide limited support to (a) prepare Standard Operating Procedures; (b) put in place technology infrastructure; and (c) benchmark GIS processing of immigration functions.  - 32 - ANNEX II Page 4 of 5 13. Ghana Free Zones Board (GFZB). The GFZB, which was established under the Free Zones Act of 1995 represents the principal catalyst for export-oriented industrial development in Ghana. The Board is charged with implementing the Ghana Free Zones Program, which combines both the enclave and single factory enterprise concept design that aims to promote the processing and manufacturing of goods through the establishment of Export Processing Zones (EPZs) and to encourage the development of commercial and service activities at its air and sea port areas. 14. The Project will finance the activities necessary to propel the Board into a proactive implementing organ for the Ghana Free Zones Program. These would include: (a) a well-targeted marketing plan (to complement GIPC's promotional efforts) for attracting the free zone developers and enterprises as detailed in the recently completed FDI Demand Study; (b) design of the information systems architecture to provide the Board with an appropriate technological backbone to undertake all aspects of promotion and facilitation (e.g. investor tracking and investor/enterprises management functions; and (c) a comprehensive capacity building program aimed at improving service delivery within Board staff, both in terms of proactive promotion as well as investor hospitality and related facilitation functions. 15. The marketing plan for developer identification will be carried out with professional support. It will involve a two-prong process. The first prong will assist the current potential developer in addressing project financing issues that may hamper the investment implementation process. The second prong will operate in tandem with the first and will take the form of an aggressive campaign to locate qualified developers using a combination of an International Competitive Bidding (ICB) process with a Direct Developer Identification (DDI) process. As part of its preparation, the GFZB will develop an "offer" document, which will fully disclose site features and advantages as well as delineate the criteria for the qualification of the developer. The GFZB expects to combine the invitation to tender with targeted marketing to overseas companies. The short list of companies from the universe of qualified developers will subsequently be invited to negotiate. The DDI process will be repeated a few times if previous efforts are unable to lead to the identification of qualified or interested prospects. The GOG and IDA have agreed during appraisal on an exit clause should a developer not be found at the end of a 24-month period following effectiveness of the Project. The preferred developer is expected to bring anchor tenants, develop a minimum of 8,000 square meters of factory space within the first development phase or within a period of no longer than one year from ground-breaking.  - 33 - ANNEX II Page 5 of 5 16. Project management and Program Coordination. The Project would help develop the institutional capacity to better implement and coordinate the Gateway Project. A Gateway Oversight Committee presided over by the Vice-President of Ghana and including representative Ministers from relevant Ministries including those from Trade and Industry; Roads and Transport; Finance; and Interior, will be responsible for the management of the Gateway Program. Other members of the Committee will include the Ghana Investment Promotion Center, the Private Enterprise Foundation and other relevant agencies. The Gateway Oversight Committee has created a Gateway Secretariat under the auspices of the Ministry of Trade and Industry which is responsible for the day to day management and coordination of the Gateway Program. The Secretariat reports to the Oversight Committee and is responsible for coordinating the respective sub- components of the project to be executed by the relevant beneficiary agencies as well as the daily monitoring of the performance contracts between the Oversight Committee and the beneficiary agencies. 17. The Gateway Secretariat has so far been an effective vehicle for bringing together all agencies whose work impact on trade and foreign direct investment. However, now that the program is moving into full operation, the Gateway Secretariat will be effectively reorganized to meet the increasingly challenging objectives of the Gateway Program. The Secretariat will also employ a full time Procurement Specialist, an Infrastructure Coordinator, a Legal Advisor and an Administrative Secretary to oversee the implementation of the project. 18. Setting the Stage for Gateway II. The Project would support work aimed at developing new policies, instruments and implementation strategies in project finance and franchising; vocation skills development, tourism development and the construction of a railway corridor and marshalling yard to improve transportation access for patrons of the EPZ.  - 34 - ANNEX III GHANA Trade and Investment Gateway Project Estimated Project Costs (US $'000) a. Off-site Infrastructure 1,997.90 36,909.10 38,907.00 1.1 Consultant to oversee civil works - 1,500.00 1,500.00 1.2 Construction contractors for Tema EPZ * access road 303.90 5,773.20 6,077.00 * water system & sewage 993.25 18,871.75 19,865.00 * power connection 118.30 2,246.80 2,365.00 * telecommunications 420.00 1,680.00 2,100.00 * feasibility study for railway - 1,500.00 1,500.00 corridor link from port to EPZ 1.3 Relocation of Devanning area & 162.50 3,337.50 3,500.00 improvement of port container terminal 1.4 Implementation of the EMP - 2,000.00 2,000.00 b. Trade Facilitation 11,830.00 11,830.00 1.0 Ghana Free Zone Board (GFZB) - 2,400.00 2,400.00 2.0 Business Environment * CEPS - 2,250.00 2,250.00 * GIS - 1,180.00 1,180.00 * GIPC - 2,750.00 2,750.00 * GCAA - 1,000.00 1,000.00 * GPHA - 1,750.00 1,750.00 3.0 Setting Stage for Gateway II - 500.00 500.00 c. Project Management (Investment and 280.00 2,516.4 2,796.4 recurrent) Total Baseline Cost 2,277.90 51,255.50 53,533.4 PPF-Telecom 2,000.00 2,000,00 Contingencies (Unallocated) 0 466.60 466.60 Total Project Costs 2,277.90 53,722.10 56,000.00  - 35 - ANNEX IV Page 1 of 8 GHANA Trade and Investment Gateway Project Costs and Benefits of Ghana Export Processing Zone 1. The foreign firms and the offshore nature of the zone's impact on the domestic economy can be analyzed using "enclave approach" following Corden (1974 and 1985) below. The figure below shows: (a) the flows of goods and services and financial flows between the EPZ and the rest of the world, and (b) the flows between the EPZ and the host country. The essence of the enclave approach is that the flows in (b) are relevant for evaluation of welfare impact of the zone, but not those in (a). Economic conditions in an EPZ are generally less distorted than those elsewhere in the domestic economy. This does not however, suggest that the net outcome of the real and financial flows in Figure 1 necessarily raises welfare in the host country. However, the existence of EPZs in Ghana is expected to raise the welfare of Ghanaians primarily through externalities. Figure 1: Enclave ApDroach Framework by Corden ~=Labor Intermediate goods=. _=Raw material Processed goods. _capital go&s Capital goods=>' Processed goods=> Rest of the _-Remitted profits EPZ TaxesEm Domestic World Economy Management=> <-Subsidies Technical Knowledge=r =Utilities External effects=> (manage ent skills, technical kno, ;>dge. technology --ansfer, etc.) Source: Peter Warr. 1987. Major Assumptions 2. Simplifying assumptions have been necessary in conducting the economic analysis and efforts have been made not to be biased towards social profitability of the EPZ. Other assumptions include:  - 36 - ANNEX IV Page 2 of 8 (a) The Government of Ghana's firm commitment towards the Project and continued improvement of the macroeconomic environment; especially in the reduction of the inflation and domestic interest rates; (b) The firms that entered the EPZ would have delayed their entry for three years without the zone; (c) The identified basket of industries will materialize; (d) A developer will be in place during the second year of the project; (e) The value added for export is between 10 -15 percent of total value of export sales; (f) There will be some "catalytic effects" from the existence of the EPZ. These will be in activities like service businesses and other industries which will be suppliers of raw materials and other services, and thus creating a backward linkage to the EPZ. There will also be some employment creation in these industries and creation of new ones; (g) The minimum wage rate for the EPZ will be equal to that of existing manufacturing firms; i.e. US$ 50.00 per month; (h) It is assumed that the EPZ firms will export up to 100 percent of their production; and (i) The number of firms in the zone has been based on the three year estimate from the Foreign Direct Investment Demand Study of March 1988. Components of Cost- Benefit Analysis of EPZ 3. Six main benefits and two types of costs have been identified. These are as follows: Employment Generation. Based on the information provided by the Foreign Direct Investment Demand Study of March 1998, about 10,500 jobs will be created from 36 firms within 3 years.2 In 15 years it is estimated that more than 53,900 jobs will be created in the EPZ. From the basket of industries, apparel creates more jobs than the other industries at a lower ratio of dollar invested per job US$ 2,000 per job because it is labor intensive. The average ratio of dollar invested per job for the whole basket of industries is $16,700 per job. This ratio depends on the mix of industries as some of the industries are highly capital intensive e.g. seafood processing. This ratio will be 2 This assumption is highly optimistic and have been used in the high case scenario.  - 37 - ANNEX IV Page 3 of 8 relatively high in high-tech industries operating in mostly Asian countries. However, Ghana compares favorably with its competitors in terms of labor costs. A firm in Ghana engaged in manufacturing will incur 300 percent less in labor costs compared to Dubai and Mauritius; and 30 percent and 20 percent less than in Kenya and Togo respectively. A secondary effect is expected in employment creation which will create additional jobs from activities from the peripheral of the EPZ. These jobs have been estimated at 30 percent of the total jobs created in the EPZ. Thus within 3 years, 3,210 additional jobs will be created and by year 15 a total of 16,200 will be created. The concern of most governments is to create jobs through the EPZ reflecting the belief that the social benefits of creating additional jobs outweigh the costs. Thus, implying that the wage received by a worker exceeds the opportunity cost of employment in the zone. It is difficult to measure relevant opportunity cost because wages in the zone tend to be higher than those outside the zone. F Foreign Exchange Earnings. Public discussions of EPZs places considerable emphasis on foreign exchange earnings derived from the zones, reflecting the presumption that these earnings have direct welfare relevance for the host country. In fact, the foreign exchange earnings of foreign-owned EPZ firms merely constitute transactions between these firms and firms abroad. They, therefore, have marginal direct effects on economic welfare of domestic nationals, except for the money that is converted into domestic currency to be spent on wages and purchases from local economy. The importance of this effect creates a net benefit to the host country from these purchases. This economic analysis has quantified these benefits to represent foreign exchange earnings by using value added of exports. * Technology Transfer. EPZ normally involves labor-intensive production and thus promote technology in the host country. This constitutes the most important externality that comes with the presence of the EPZ. In the long-run, the learning by doing mechanism will come into play through the "catalytic effect" that will result in gains in managerial practices and notions of quality control transferred to local middle managers employed by the EPZ firms. This is expected to increase productivity and efficiency in domestic firms which would have otherwise not have improved without the influence of the EPZ. This benefit is difficult to measure and has thus not been included in the cost-benefit analysis.  - 38 - ANNEX IV Page 4 of 8 * Domestic Sales. EPZ firms will be permitted to sell up a to maximum of 30 percent of their output in any year on the domestic market. Such sales are treated as imports, and duty is paid at normal rate. The net value to the host country of the goods consumed is the value of c.i.f. prices of the imports, which is also the net price actually paid by EPZ firms. Thus, domestic sales have no net welfare effect and have been ignored by the cost-benefit analysis. * Electricity. EPZ firms are heavy users of electricity. Thus, the cost-benefit analysis must compare the tariff rates paid with estimates of the long-run marginal cost (LRMC) of supplying the extra power. If the average tariff exceed the LRMC, the electricity used by EPZ would entail net tax, or, in the reverse case, a net subsidy. There will be no special tariffs for the EPZ. However, the current utilities tariffs in Ghana are extremely low, and thus suggests a net subsidy to the EPZ firms. However, these rates are currently being revised upwards to reflect cost-recovery market rates. It is therefore assumed that there are no net welfare effects to the economy, and thus, have been ignored by the cost-benefit analysis. - Taxes. Although taxes raised from EPZ firm are small, they represent a clear source of benefit for the domestic economy. They would not have been received if the EPZ firms were not present although firms which transfer to the zone from elsewhere in the country are an exception. Taxes will, therefore, be expected from wages of both EPZ employees, EPZ firms (after the expiration of the income tax-holiday) and other taxes from domestic firms that will provide raw materials to the EPZ firms as they provide a backward linkage to the rest of the economy. * Infrastructure Costs. Public expenditures required to set up the zone represents a clear economic cost. Therefore, the off-site infrastructure investment costs will be included as the major costs for the EPZ project. * Administrative Costs. The establishment of the zone site, its maintenance, and administration all represent economic costs and in principle should be evaluated at shadow prices. In the absence of data the financial costs will be used.  - 39 - ANNEX IV Page 5 of 8 Economic Evaluation: Results 4. Experience in other countries suggests that the main quantifiable benefits from EPZ are: (i) foreign exchange earnings from value added of exports; and (ii) creation of additional direct and indirect employment3. However, this economic analysis uses value added of exports from the EPZ to quantify the foreign exchange earnings. To measure this benefit a set of figures generated by the FDI Demand Study of March 1988 for a manufacturing firm in the EPZ were used. The value of export sales minus imported inputs which equals to value added. The value added forms a mere 10-15 percent of the export values. 5. Since the Project supports the acceleration of a process that leads to an outcome -- increases in exports -- the methodology adopted assumed that the Project will accelerate the increase in exports by three years. This increase in exports would not have been achieved without the Project. Figure 2 below shows graphically the effects in net increases in exports' value added by the support provided under the Project. Investments on the off- site and on-site infrastructure will take place during the first three years of the Project. Therefore, the benefits stream will start in year four of the Project. Figure 2: Sunmary of Proiect Economnic Effects 800,000 , 0 .0' 0 0 -- - - - - - - - - - - - - - - - - - - - - - - - - - - --- - -- - - - - - - --- - --- ---- - ------- 600,000 . . * , / / 'i Witout Project 000,000 |rTot. 9With | .j400,000-. .. . . /. . *,/ .....qoProject I I 300,000 i/; ---- -----Net EHec 2 0 0 ,0-0 0 . .. . . .. . . . . . . .. . ,: . n . tOO,OO --------- - -- ----------- ----- -------- - ;.\ i- t 2 3 4 5 8 7 8 9 10 11 12 13 14 1 i Year 3Kenya: Export Development Project. 1990. Report # P-54 1 7-KE  - 40 - ANNEX IV Page 6 of 8 6. As indicated in Table 1 below, the final economic results are represented by the net present value calculations of the difference between the first scenario of increases in exports resulting from the Project and the same scenario, three years prior to the period. The results show that the overall project can be strongly justified in NPV and ERR. The cash flow was developed for the whole project and not per component. This was mainly because it is difficult to quantify the indirect benefits that would have been derived from the capacity building component. However, in Table 1: Cash Flow and Output Determinants of Economic Results Detail of Project Net Increase in Exports Owing to Project (US$ million)4 Project Costs Components US$ million Year Year Year Year 4 Year Year Year Year Year Year Year Year Year Year 1 2 3 5 6 7 8 9 10 11 12 13 15 (1) off-site Infrastructure for the GTZ; and (2) Building in Trade Facilitation and Capacity Totai 53.0 0.0 0.0 0.9 2.5 5.6 10.0 17.2 28.8 48.5 78.7 109.3 136.7 128.4 83.1 order to take account of significant resources that are expected to be diverted from other economic activities into the EPZ, the benefits have been reduced by two thirds. This reflects the social opportunity costs of these resources. The discount rate used in this analysis is 12 percent. These figures are however, extremely conservative since other benefits have not been quantified. 7. All project benefits and costs have been considered over a period of 15 years. In the base case, an EPZ firm is estimated to invest a total of US$ 4.0 million and employ an average of 280 workers. The growth of EPZ firms is estimated to be high during the first three years, but the number of firms is small. Based on successful promotional campaigns to foreign investors it is expected that the number of firms will grow at a high rate of 220 percent during the second year, 80 percent during the third year and 60 percent per annum up to year 10. Thereafter, the growth will stabilize at 10 percent. The value added of exports per firm is expected to grow at a rate of 5 percent per annum. Employment in off-zone firms induced by EPZ development is estimated to match the growth of unskilled employment within the zone. As a result, the EPZ is projected to 4 Reduced by 2/3.  - 41 - ANNEX IV Page 7 of 8 create 53,900 jobs within the zone, and 16,200 jobs outside the zone firms. Calculations of net foreign exchange earnings have been measured by using the firm's value of export sales minus imported inputs. This has resulted in a value added of exports from the EPZ firms of 10 -15 percent. 8. Based on the assumptions, the Project has an ERR of about 43.4 percent in the base case, with the NPV of US$ 143.5 million, which compares favorable with the rates of return for successful EPZs elsewhere5. Sensitivity analysis was carried out assuming: (a) a reduction of 40 percent per annum of number of firms entering the EPZ (low case); and (b) an increase of 35 percent of annual number of firms entering the EPZ (high case). The effects of each of these on the project's ERR is shown in Table 2. (below), and illustrates the ERR for the EPZ would be 30.8 percent in the low case scenario and 56.2 percent in the high case scenario. An assumption was made that all firms will sell 30 percent of their production to the domestic market, the results showed an ERR of 33.6 percent and a NPV of US$ 81.5 million. These sensitivity analysis have demonstrated that the Project produces solid results. The payback period is 8.5 years. The NPV is below zero when the ERR is below 13 percent. Table 2: Economic Analysis Summary Present Net Present Economic Value Value (NPV) Rate of (US$million) (US$million) Return (ERR) % 1. Base Case 233.0 143.5 43.4 2. Sensitivity Analysis (a) A reduction of 40% on the number of EPZ firms 135.7 65.9 30.8 (b) An increase of 35% on the number of EPZ firms 361.9 246.2 56.2 (d) All EPZ firms sale 30% of their products in the domestic market 155.4 81.5 33.6 5The IRR on Penang EPZ firns (Malaysia) is 28 percent, 26 percent in Indonesia, 23 percent in Shenzhen (China) 15 percent in Korea and -3 percent in Philippines. The ERR of Kenya EPZ was 18 percent. Source: World Bank.  - 42 - ANNEX IV Page 8 of 8 Main Beneficiaries 9. The main beneficiaries of the Project would include three broad target groups: . Local population - the Project will lead to a reduction in unemployment through creation of job opportunities and through improvements in the skills and mobility within the labor force. * Private investors - private foreign and domestic investors will benefit through reduced uncertainties and transaction costs associated with doing business in Ghana; and availability of ready sites for export processing industries and simplification of trade procedures. * Government of Ghana - the Project is expected to attract a flow of foreign direct investment that will have positive effects on the balance of payments. It will also help increase the capacity of government agencies dealing with the private sector. In addition the fiscal impact has been estimated at US$ 87.3 million for the 15-year period, mostly from personal income taxes of new employees, EPZ firms after the expiration of the tax holidays and estimated leasing fees from the developer of the EPZ. Conclusion 10. The general experience in other African countries with EPZs has not been encouraging. This is mainly due to: (i) frequent political instabilities (Togo), (ii) unstable macroeconomic environments, (iii) the presence of strong labor unions in the zones that distorts the labor costs (Senegal), (d) public sector management of the EPZ (Kenya) and cumbersome customs procedures (Senegal). However, Ghana has a high probability of success because of its political stability, reasonably stable macroeconomic environment, availability of a cheap and large labor force with both skilled and semi-skilled workers, and a private developer to manage the EPZ. The private developer is expected to bring along with it a critical mass of firms to operate in the EPZ. The challenge for the GOG is to promote the zone and increase awareness among foreign investors. The Project includes funds for these activities.  - 43 - ANNEX V GHANA Trade and Investment Gateway Project Financial Summary (US$ '000) .-- . .. ... ... - . . . - 1 i A; Project Costs Investment 4,996.8 4,319.8 14,757.9 13,570.9 11,950.9 4,646.5 590.8 54,833.6 Costs Recurrent 100.0 100.0 100.0 100.0 100.0 100.0 100.0 700.0 Costs Total* 5,096.8 4,419.8 14,857.9 13,670.9 12,050.9 4,746.5 690.80 55,533.6 Financing sources IDA 4,852.9 4,077.9 13,315.0 12,251.2 10,800.8 4,280.4 635.7 50,213.7 Government 243.9 341.9 913.4 800.2 630.6 237.9 55.1 3,222.9 Local Private 629.5 619.5 619.5 228.2 0 2,097.0 Unallocated 466.4 466.4 TOTAL 5,096.8 4,419.8 14,857.9 13,670.9 12,050.9 4,746.5 1,157.2 56,000.0 * contingency costs of US$ 1.3 million included under investment costs  - 44 - ANNEX VI Page 1 of 7 GHANA Trade and Investment Gateway Project Table A: Procurement and Disbursement Arrangements (US$ 000) Procurement Method ICB NCB Other N.B.F Total A. Civil Works 31,557.0 2,100* 33,657.0 (29,979.2) (0) (29,979.2) B. Consultants - 9,749.4 - 9,749.4 (9,749.4) (9,749.4) C. Promotion - 3,285.0 3,285.0 (2,628.0) - (2,628.0) D. Training - 2,165.0 - 2,165.0 (2,165.0) (2,165.0) E. Equipment 1,679.50 817.50 1,200.0 3,697.0l (1,343.6) (654.00) (960.0) - (2,957.6) F. Operating Costs 1,050.0 - 1.050.0 (805.0) (805.0) G. PPF-Telecom 2,000.0 2,000.0 !___________ (2,000.0) (2,000.0) H. Unallocated 396.60 606.6 l_____________ ____________ (215.80) (47.2) Total 33,236.50 817.5 19,846.00 2,100 56,000.0 l___________________ (31,322.80) (654.00) (18,523.20) (0) (50,500.0) Figures in parenthesis are the respective amounts to be financed by IDA. * Private Sector Investment in Telecom N.B.F. = Not Bank financed  - 45 - ANNEX VI Page 2 of 7 Procurement 1. All goods and services financed under the IDA credit would be procured in accordance with IDA guidelines for goods, works and services (Guidelines: Procurement under IBRD Loans and IDA Credits, January 1995 and as revised in January and August 1996 (Procurement Guidelines) and Guidelines: Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency, January 1997 (Consultant Guidelines). The management of the procurement of goods and equipment, civil works and services under the Project would be the responsibility of the Project Implementing Unit (PIUT). Procurement Capacity of the Project Implementing Unit (PIU) 2. Each project component would be implemented by a specifically designated agency who would be primarily responsible for the execution of project activities and timely delivery of outputs as defined and agreed under the Project Implementation Plan. The PIU would provide procurement support to each of the Implementing Agencies. Given the volume of works and the number of consultant's contracts envisaged under the Project, particularly in the first year of implementation, the core staff at the PIU would include a procurement specialist. The procurement specialist should be familiar with World Bank's procurement procedures and would work with each of the implementing agencies under the Project to ensure efficient and timely project execution through compliance with the procurement schedule agreed with the Bank. The procurement specialist would (a) prepare and update the procurement plan for the Project; (b) monitor the progress of procurement; and (c) assist the implementing agencies in: (i) the preparation of bidding documents and advertisements for goods and works contracts and requests for proposals for consulting assignments; and (ii) bid opening and evaluation. The procurement specialist would also advise the Implementing Agencies on procedural matters. Procurement Plan 3. A draft General Procurement Notice (GPN) has been prepared for the Project and will be finalized and published in Development Business after Board approval. The GPN would be updated yearly and would show all outstanding ICB for works and goods contracts; and international consulting assignments. A procurement plan has been prepared by the Borrower and includes relevant information on all goods, works and services contracts under the Project as well as the timing of each milestone in the procurement process. The procurement schedule would be updated every six months and submitted to IDA. The procurement specialist would monitor the progress of procurement and implementation of each contract under the Project and would ensure effective and timely project execution.  - 46 - ANNEX VI Page 3 of 7 Civil Works 4. The Project provides $33.6m for civil works. Contractors would be pre-qualified and would bid for the works under International Competitive Bidding (ICB) procedures. The Bank's Standard Pre-qualification document and Standard Bidding Document -- Procurement of Works would be used for the contracts. Goods & Equipment 5. To the extent possible and practicable, goods and equipment to be purchased under the Project would be combined into packages estimated to cost the equivalent of US$100,000 or more and would be procured under ICB procedures using IDA Standard Bidding Documents. Contracts for goods available locally for an aggregate amount of US$700,000, with contracts between US$50,000 and US$100,000 each would be procured through National Competitive Bidding (NCB) using procedures acceptable to IDA. IDA review of the draft of the first bidding documents for NCB is expected to become the standard for future contracts. 6. Procurement for readily available off-the shelf goods that cannot be grouped or standard specifications for individual contracts less than US$ 50,000 not exceeding an aggregate amount of US$ 0.1 million for the life of the Project, would be procured on the basis of comparison of quotations from at least three eligible national suppliers. If these goods are not available in the country, international shopping procedures would be followed. IAPSO procurement may be used for purchase of small number of vehicles or equipment needed at the start of the Project for an aggregate amount $0.3m. Consultant Services 7. Selection and appointment of consultants for studies, technical assistance, and support of project execution would be carried out in accordance with the Guidelines: Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency, January 1997 (Consultant Guidelines). As a rule, consultant services would be procured through Quality and Cost Based Selection (QCBS) methodology. All consultancy assignments estimated to cost the equivalent of US$ 200,000 or more would be advertised in a national newspaper and in Development Business. In addition, the contracts may be advertised in an international newspaper or a technical magazine seeking "expressions of interest". All consulting assignments in the range of US$ 100,000 to US$ 200,000 would be procured through QCBS. In the case of assignments estimated at US$ 100,000 or less the assignment may be advertised nationally and the shortlist may be made up entirely of national consultants provided that at least three qualified national firms are available in the country and foreign  - 47 - ANNEX VI Page 4 of 7 consultants who wish to participate are not excluded from consideration. Consultant services estimated to cost less than the equivalent of US$ 50,000 may be contracted by comparing the qualifications of consultants who have expressed an interest in the job or who have been identified. Auditors would be selected using Least-Cost Selection procedures. Annex 6, Table Al: Consultant Selection Arrangements (US$ 000) Consultant Services Selection Method Total Cost Expenditure category . (including ~~~~~~~~~~~ contingencie.s). . ~~~~ ~~~~~~~~~ CBS *BS.I T FB.''''LCS.V''-'CQ'' SS ''''''''''''' 1. Servies for 550 Environmental Management Plan 4 2 Construction Suervisin . i t. . . - . t - 3. Feasibility g dies 2 250 .for vanmng area 4. Feasibility Study for Railway 1'500'' ,50' Corridor 5Exernal Managementa, ....... 350 350 Planning Advisor CEPS Review legislation ......................... 72 CEPS of Sysem 200| 8. mplemen StrategicPlan 178 1 8,247 178 9. Evaluation"of Embassy ...50. .. Investor Servicing, . i GIPC . ,,,,,,,,,G,,I,PC,,,,,,,,,,,,,,,,,,,,,,,,,,,..,,,,,,,,,,,,,,,,,,,,,,,,..............................,.,,,,,,,,,,,,,..,,,,,,,,,,,,,,,i,,,,,,,,,,,,,,,,.,,,,,,,,,,,,,,,,.........................i.i 10. Review Investment Act j 43 i ,43 & Investor road map, GIPC 1: User Fees to Upate i7 -j . - - . 7g 2.Ma.riet profile & Co 225 225 identificationii j j ;tra icPian & SOP 80| 14. GCAA conversion into 1500 R5 Develop Scenario fiv 350 350. 350 Aviation and Concessioning i i .. Se"tt"in"gS9t-a-ge for 500 0 Gateway II. i7 Converting GP into 150 j7- . landlorcl 18. Social Plan 300. 30 19. Concessioning of Port 1.....t i i t50 '20Feasibility Study for . 45 50 extending and dredging of , ' 21h.Opej~rainiestructuring , 300 .30 .:gAy42 ao 2 2 22GTZSecai. dSe...........''''''qgo'e'''''' t -y---- .........R .............. ..... 0 Procurement Specialist. . vc336 s i. 3 ''Project Acountant.' t i - t i t 210f . t t 750 ~~~~~~~~~~~~~~.......................................... ............... . ............................................ ,W ................. ::............................................... . Adiocurminit Siecra 501 ..i... .....e.A ...t .2......................3 . a . I . 4 . I~~~~~~~~~~~~~~~~~~~~~~~~~~........... .....4. I.....-....................  - 48 - ANNEX VI Page 5 of 7 QCBS = Quality and Cost Based Selection QBS = Quality Based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications SS Single Source Selection Promotion 8. The Project provides US$ 3.3m for investment promotional activities. The Borrower has prepared a program of promotional activities to be carried out under the Project. The program would indicate the nature of the promotional activity, the location, the timing, the method of procurement and the estimated cost. The program would be submitted to IDA for review and clearance every six months. Training 9. Training within the country and abroad, including twinning arrangements would be carried out on the basis of IDA approved programs which would identify the nature of training, personnel to be trained, the duration of training, institutions where the training would be conducted, estimated cost of training etc. Such programs would be submitted to IDA for review and clearance every six months. Review by the Bank 10. All goods and works contracts estimated to cost US$100,000 or more would be subject to IDA review of bidding documents including draft contracts and technical specifications prior to inviting bids and IDA review of bid evaluation prior to contract award. Pre-qualification of contractors for civil works must be cleared with the Bank (including IDA review of invitation to pre-qualify and requirements for qualification). 11. The TOR for all consulting assignments irrespective of value would be subject to IDA prior review. For consultancy contracts with firms an estimated value of US$ 100,000 or more, and US$ 50,000 or more in the case of individuals, the draft Request for Proposals (RFP) and the shortlist of consultants must be cleared by IDA prior to inviting proposals from consultants. In addition, the evaluation of technical proposals must be cleared with IDA before financial proposals of the qualifying firms are opened. 12. With respect to each contract for the employment of consulting firms estimated to cost the equivalent of US$ 50,000 or more but less than the equivalent of US$ 100,000, the procedures set forth in paragraphs 1,2 (other than the second subparagraph of paragraph 2(a)) and 5 of Appendix I to the Consultant Guidelines shall apply.  - 49 - ANNEX VI Page 6 of 7 13. With respect to each contract for the employment of the consulting firms estimated to cost the equivalent of US$ 100,000 or more and each contract for the employment of individual consultants estimated to cost the equivalent of US$ 50,000 or more, the procedures set forth in paragraphs 1, 2 (other than the third subparagraph of paragraph of paragraph 2(a)) and 5 of Appendix I to the Consultants Guidelines shall apply. 14. Contracts which are not subject to prior review would be selectively reviewed by the Bank during project implementation and would be governed by the procedures set forth in paragraph 4 of Appendix I to the Guidelines. Annex 6, Table B: Thresholds for Procurement Methods and Prior Review Contracts Subject to Prior Expenditure Contract value Procurement Review / Estimated Total Category (Threshold) Method Value Subject to Prior Review US $ thousands Works 200,000 or more ICB All 200,000 or more QCBS (International All Consultants Advert) >100,000 - 200,000 QCBS (International All Shortlist) 50,000 - 100,000 QCBS (National All contracts with individuals. Advert) <50,000 CQ Promotion/ Training / Promotion program Training Goods 1 00,000 or more ICB All 50 - 100,000 NCB $ 0.7m <50,000 IS/NS $0.1m CQ - Selection Based on Consultant's Qualifications Note: All sole source assignments would be subject to prior review. All TORs for consulting assignments would be subject to prior review  - 50 - ANNEX VI Page 7 of 7 Use of Statement of Expenditures (SOEs) 15. Disbursements for all expenditures would be against full documentation except for contracts below the equivalent of US$ 100,000 equivalent each for works , goods and consulting firms and US$ 50,000 for consultant services (individuals), training and incremental operating costs for which disbursements would be based on Statements of Expenditures (SOEs). Supporting documentation for SOEs would be retained by the borrower for review by IDA missions and external auditors. All expenditures above the threshold indicated above will be eligible for direct payment. Special Accounts 16. To facilitate disbursements, a Special Account would be established and operated at a commercial bank under terms and conditions satisfactory to IDA. Upon credit effectiveness, a sum of US$ 1,000,000 to cover about four months' expenditures would be deposited by IDA into this account. Further deposits by IDA would be made into this account against withdrawal applications supported by appropriate documents . The borrower will be required to replenish the special account on a monthly basis or more often when the total disbursed amounts to one third of the initial deposit, whichever is soonest. Disbursement categories and the percentage financed are shown in Table C below. Table C-1: Allocation of Credit Proceeds 1. Civil Works 29,250 100% foreign expenditures la. Off-site Infrastructure (26,000) lb. Devanning (3,250) 2. Equipment 2,900 80% of expenditures 3. Consultants and Training 9,950 100% of expenditures 4. Operating Costs 800 75% of expenditures 5. Investment Promotion 2,650 80% of expenditures 6. PPF 3,000 100% of expenditures 7. Unallocated 1,950 Total 50,500 17. Operating costs include incremental operating costs incurred on account of project implementation, management and supervision, including office supplies, communication costs, travel allowance of project staff but excluding salaries of the Borrower's civil service. The annual audit will also be financed under the Project.  - 51 - ANNEX VII GHANA Trade and Investment Gateway Project Project Processing Budget and Schedule ACTUAL FY PHASE SWS $'000 TRIPS TRAVEL $ CONS. FEES SOF 95 LENP 2.9 8.3 9.1 BB 96 LENP 1.1 3.4 BB 23.4 60.3 8.8 TF 97 LENP 4.7 11.3 17.4 BB 2.0 2.0 TF 98 LENP 23.9 38.4 20.1 BB LENP 18.4 45.8 11.6 TF LENA 4.1 5.3 3.9 BB Source of funds - Bank administrative budget, trust funds, project preparation facility, other  - 52 - ANNEX VIII GHANA Trade and Investment Gateway Project Documents in Project File Feasibility Studies * Provision of Off-Site Infrastructure for Export Processing Zone - TEMA -- Preliminary Cost Estimate, March 1998 * Provision of Off-Site Infrastructure for Export Processing - TEMA -- Draft Engineering Design and Report, March 1998 * Corporate Plan (1998-2001) -- Ghana Free Zones Board, March 1998 * Foreign Direct Investment Demand Study -- Final Report from the Services Group, March 1998 * CEPS Organizational and Institutional Audit (March 1998) and * Trade Facilitations and Effective Customs' Control Report (March 1998). * Organizational Assessment for the Ghana Immigration Service (April 1998) * OECF Port Study * Civil Aviation Study * Economic Analysis of Gateway Trade and Investment Project * The Environmental and Social Assessment  -53- ANNEX IX Page 1 of 2 GHANA Statement of Loans/Credits as of February 28, 1998 (in Million of US Dollars) Credits 73 Credit(s) closed 1,960.53 20390 1989 Water Sector Rehab 25 5.35 6/30/98 21090 1990 Vra/Sixth Power 20 14.73 6/30/98 21570 1990 Urban Ii(Sec Cities) 70 13.38 6/30/98 21800 1991 Agric Divers (Tree C 16.5 9.39 12/31/98 22240 1991 Econ Mgt Support 15 0.66 6/30/98 22470 1991 Agric Research 22 7.43 3/31/99 23190 1992 Feeder Roads 55 5.55 6/30/98 23460 1992 Agric Extension 30.4 10.21 11/1/99 24260 1993 Environment 18.1 4.67 12/31/98 25080 1993 Primary School Devel 65.1 15.83 12/31/98 24280 1993 Tertiary Education 45 1.47 9/30/98 24410 1993 Livestock 22.45 3.9 12/31/98 24670 1993 Nat'l Electrificatio 80 24.54 9/30/98 25020 1993 Enterprise Devt 41 23.95 3/31/98 24980 1993 Urban Transport 76.2 38.79 12/31/98 25550 1994 Agric Sector Invest 21.5 11.41 11/30/99 25680 1994 Local Govt Dev. 38.5 22.55 12/31/01 26040 1994 Community Water & Sa 21.96 12.76 12/31/99 26650 1995 Priv Sector Dev 13 10.46 6/30/00 27180 1995 Priv. SctrAdj 70 22.56 3/31/98 26820 1995 Thermal (P-Vii) 175.6 92.94 6/30/01 27430 1995 Mining Sec. Dev & Env 12.3 9 12/31/00 27130 1995 Fisheries 9 6.56 6/30/01 26950 1995 Educ/Voc.Trng 9.6 6.67 6/30/01 27920 1996 Non-Bank Fin Ins Ast 23.9 20.53 6/30/00 28360 1996 Urban Env. Sanitation 71 59.72 12/31/02 28580 1996 Hwy Sect Inv. Prog 100 83.56 6/30/01 28770 1996 Public Enterprise/Pr 26.45 22.45 12/31/01 28850 1996 Basic Education 50 44.77 6/30/01 29250 1997 Pub. Fin. Mgmt. Tap 20.9 17.29 12/31/01 N0200 1997 Village Infrastructure 30 27.5 12/31/03 29940 1998 Health Sctr Support 35 33.9 6/30/02 27183 1998 Priv. SctrAdj 2.4 2.3 3/31/98 Total Number of Credits = 33 1,332.86 686.77 Loans 10 Loans(s) closed 189.72 0 Total Number of Loans = 0 0 0 Total** 189.72 3,293.39 of which repaid 166.78 58.74 Total held by Bank & IDA 22.94 3,234.66 Amount 0.38 of which repaid 0.38 Total Undisbursed 691.92  -54- ANNEX IX Page 2 of 2 GHANA Statement of Loans/Credits as of February 28, 1998 Number of Loans/Credits Pool Non-Pool B-Loans SCL SCP IBRD IDA Total Disbursing 0 0 0 0 0 0 33 33 Total 0 10 0 0 0 10 106 116 Loans/Credits Summary in USD (000) IBRD IDA TOTAL Original Principal: 190,500 3,323,546 3,514,046 Cancellations: 780 30,152 30,932 Disbursed: 189,719 2,696,059 2,885,779 Undisbursed: 0 691,916 691,916 Repaid: 166,396 58,738 225,135 Due: 22,943 2,634,031 2,656,974 Exchange Adjustment: 6,169 0 6,169 Borrower's Obligation: 29,112 2,634,031 2,663,144 Sold 3rd Party: 380 0 380 Repaid 3rd Party: 380 0 380 Due 3rd Party: 0 0 0  -55- ANNEX X Page I of 2 Ghana at a glance Sub- POVERTY and SOCIAL Saharan Low- Ghana Africa Income Development diamond' Population mid-1996 (milions) 17.5 600 3,229 GNP per capita 1996 (USs) 360 490 500 Life expetancy GNP 1996 (billons US$) 6.3 294 1,601 Average annual growth, 1990-96 T Population (r) 2.7 2.7 1.7 GNP / Gross Labor force (%) 2.7 2.6 1.7 per primary Most recent estimate (latest year available since l989) capita \'W' enrolment Poverty: headcount index (% of population) 31 I Urban population (% of total population) 36 31 29 Life expectancy at birth (years) 59 52 63 Infant mortality (per 1,000 fie bfths) 73 92 69 Access to safe water Child malnutrition (% of chldken under 5) 27 Access to safe water (% of populaton) 56 47 53 Illiteracy (% of populaton age 15+) 40 43 34 Ghana Gross primary enrollment (% of school-age populbon) 76 72 105 Low4noome grup Male 83 78 112 Lwicm ru Female 70 65 98 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1976 1986 1995 1996 Economic ratios* GDP (billions USS) 2.8 4.5 6.2 6.3 Gross domestic investment/GDP 12.7 9.6 18.6 18.7 Openness of economy Exports of goods and services/GDP 19.4 9.7 25.6 27.2 Gross domestic savings/GDP 13.7 5.7 9.9 8.2 Gross national savings/GDP 13.8 4.5 12.1 10.3 Current account balance/GDP 0.6 -5.8 -6.5 -8.4 Interest payments/GDP 0.7 1.7 2.1 2.3 Savings Investment Total deWbGDP 25.6 50.1 92.3 93.3 Total debt service/exports 6.4 23.7 35.4 27.1 Present value of debt/GDP .. .. 68.7 67.0 Present value of debt/exports .. .. 276.0 246.0 Indebtedness 197464 1986-96 1995 1996 1997-05 (average annual growth) Ghana GDP -0.4 4.6 4.5 5.2 5.9 - Low-4ncome group GNP per capita -2.9 1.6 1.8 2.4 3.0 Exports of goods and services -8.9 7.7 3.4 19.8 6.1 1 STRUCTURE of the ECONOMY 1975 1986 1995 1996 Growth rates of output and Investment (%) (% of GDP) Agriculture 47.7 44.9 45.0 44.4 40 T Industry 21.0 16.7 16.8 16.6 20 Manufacturing 13.9 11.5 9.6 94 Services 31.3 38.4 38.2 38.9 0 t 92 3 4 9s5 96 Private consumption 73.3 84.9 77.4 79.5 -40 General govemment consumption 13.0 9.4 12.7 12.3 GDI IGDP Imports of goods and services 18.4 13.6 34.2 37.8 197545 1986-96 1996 1996 (average annual growth) Growth rates of exports and Imports Agriculture 1.1 2.2 4.2 4.0 20 Industry -7.0 5.1 3.3 4.2 Manufacturing -7.7 3.2 1.8 3.0 10 Services 0.8 7.0 5.0 6.3 Private consumption -0.6 3.6 3.4 5.0 0 General govemment consumption 5.0 6.1 -6.0 2.2 91 92 93 90 56 Gross domestic investment -8.3 6.7 33.1 1.1 -10I Imports of goods and services -9.6 5.7 1.2 12.6 -Exports Imports Gross national product -0.5 4.6 4.5 5.1 . Note: 1996 data are preliminary estimates. The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.  -56- ANNEX X Page 2 of 2 Ghana PRICES and GOVERNMENT FINANCE 1976 1986 1995 1996 1 Ilo- Domestic prices Inflation (% change) o0T Consumer prices 29.8 10.3 59.5 45.6 40 Implicit GDP deflator 29.5 20.6 43.4 33.1 20 tI- Govemment finance (% of GDP) o$- - Currentrevenue .. 11.3 21.4 19.2 91 92 93 94 95 906 Current budget balance ,, 0.1 4.2 1.3 - G3P def. -+CPI Overall surplus/deficit ,, 4.1 -10.4 -13.3 TRADE 1975 1985 1995 1996 (millions US$) Export and import levels (mill. US$) Total exports (fob) ., 633 1,431 1,571 2,500 T Cocoa 412 390 552 Timber ,. 28 191 147 ''0,0 Manufactures ,. .. 1.500t Total imports (cif) .. 729 1,841 2,125 1o000 Food .. 40 56 64 Fuel and energy .. 199 197 267 s0n n Capital goods 187 398 490 o Export price index (1987=100) .. 92 91 85 90 91 92 93 94 95 96 Importprice index (1987=100) ,. 105 124 125 | Expors * mports Terms of trade (1987=100) .. 88 73 68 E BALANCE of PAYMENTS 1975 1985 1996 1996 I (millions US$) Current account balance to GDP ratio (%) Exports of goods and services 891 672 1,582 1,728 0 Imports of goods and services 882 857 2,117 2,3975 Resource balance 9 -185 -535 -66 Net income -36 -111 -130 -141 _0- Net current transfers 45 33 263 276 Current account balance, -10 before official capital transfers 18 -263 -402 -532 1 Financing items (net) -20 148 686 513 Changes in net reserves 3 116 -284 19 -15 Memo: I Reserves including gold (mill. US$) 147 552 710 599 Conversion rate (locaWJS$) 1.9 76.2 1,200.4 1,637.0 EXTERNAL DEBT and RESOURCE FLOWS _ ______ 1976 1986 1996 1996 (millions US$) Compositionoftotaldebt,1996(mill.US$) Total debt outstanding and disbursed 721 2,257 5,709 5,918 IBRD 40 118 59 44 G A IDA 44 259 2,375 2,530 640 44 Total debt service 57 159 567 476 IBRD 5 18 21 13 IDA ~~~~~~~~~~~~~~~~~~~~~~~~~~~~FB IDA 0 3 25 28 1171 t000 2530 Composition of net resource flows Official grants 8 75 260 206 Official creditors 13 93 171 358 Private creditors -17 35 149 -171 E Foreign direct investment 71 6 35 20 1078 D C Portfolio equity 0 0 72 100 -54 509 World Bank program Commitments 89 191 299 275 A - IBRD E - Bilateral Disbursements 10 70 242 244 I g- DA D-Other rnutilateral F - Private Principal repayments 2 10 23 20 C- MF G - Short-terrn Net flows 8 60 219 224 1 _ Interest payments 3 11 23 21 Net transfers 5 49 196 203 Development Economics 8/28197  -57- ANNE XIa Page 1 of 5 .% j rupiy aks MINiSTRY OF FINANCE $' b . *tei. P.O. BOX M 40 ACCRA SEC/P/0336 Ya *4. Nw....3rd June 98 ftEPUtaC or GM"" .-...................... ..... GHANA TRADE AND IEST1IENT GATEWAY PROJEC LETTER OF DEV