Ghana - Industrial Sector Adjustment Credit Project

Daon of The World Bank FOR OFFICIAL USE ONLY Report No. P-4217-GH REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED IDA CREDIT OF SDR 25.7 MILLION AND A PROPOSED AFRICAN FACILITY CREDIT OF SDR 22.5 MILLION TO THE REPUBLIC OF GHANA FOR AN INDUSTRIAL SECTOR ADJUSTMENT CREDIT March 5, 1986 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit Calendar 1984 December 1985 January 1986 US $ 1 0 35.9 0 60 0 90 Cedi (0) 1 US $ 0.028 US $ 0.017 Us $ 0.011 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS BOG - Bank of Ghana CBS - Central Bureau of Statistics DFD - Development Finance Department, Bank of Ghana ERP - Economic Recovery Program FRI - Food Research Institute GDP - Gross Domestic Product GSB - Ghana Standards Board ISAC - Industrial Sector Adjustment Credit MFEP - Ministry of Finance and Economic Planning MIST - Ministry of Industries, Science, and Technology PB - Participating Bank PIB - Prices and Incomes Board RIC - Reconstruction Import Credit RP - Rehabilitation Investment Project SIP - Government Statement of Industrial Policy SUL - Special Unnumbered Import Licenses UNDP - United Nations Development Program FOR OFFICIAL USE ONLY GHANA INDUSTRIAL SECTOR ADJUSTMENT CREDIT CREDIT SUMMARY Borrower: Government of Ghana Executing Agencies: Bank of Ghana (BOG) and Ministry of Industries, Science and Technology (MIST) Credit Amount: IDA: SDR 25.7 m (US$28.5 m equivalent) African Facility: SDR 22.5 m (US$25.0 m equivalent) Total: SDR 48.2 m (US$53.5 m equivalent) Terms: Standard IDA and African Facility terms Description and The proposed Credit would support the first phase Allocation of (1986-88) of the Government's medium-term adjustment Credit: program which includes important policy reforms designed to streamline Ghana's industrial capacity. It would provide (i) US$40 million equivalent to finance imports of industrial inputs and spare parts to increase production of locally manufactured goods, (ii) US$10 million equivalent to finance equipment for the rehabilitation of economically viable industrial enterprises, and (iii) US$3.5 million equivalent to finance technical assistance, training, and studies. Benefits and Risks: The main benefits of the proposed Credit are: (i) improved supply position of the economy through increased production of locally manufactured goods; (ii) increased efficiency in the industrial sector as a result of policy changes which the Credit supports; (iii) strengthening of key institutions which serve the industrial sector; and (iv) a rapid increase in industrial capacity utilization and production which would add momentum and credibility to the Government's policy reforms and facilitate further reforms. The main risks associated with the Credit are possible internal resistance to the timely implementation of critical policy reforms and potential difficulties for importers in arranging the necessary local financing to pay for the imports. These risks are limited by the Government's determination to go ahead with the policy reforms and establishment of a scheme to provide short-term funds to producers. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii - Estimated Disbursements: IDA Fiscal 87 88 89 90 (US $ million) Anrual 10 16 16 11.5 Cumulative 10 26 42 53.5 The industrial import component would be disbursed in two tranches (of US$25 million and US$15 million). The second tranche would be released following satisfactory implementation of the 1986 program of policy actions. Economic Rate of Return: Not applicable Appraisal Report: None INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON PROPOSED CREDITS TO THE REPUBLIC OF GHANA FOR AN INDUSTRIAL SECTOR ADJUSTMENT CREDIT 1. I submit the following report and recommendation on a proposed development credit for the equivalent of SDR 25.7 million (US$28.5 million equivalent) and an African Facility Credit for the equivalent of SDR 22.5 million (US$ 25.0 million equivalent) to the Republic of Ghana on standard IDA andAfrican Facility terms to help finance an Industrial Sector Adjust- ment Credit. PART I - THE ECONOMY 1/ 2. An economic report entitled "Ghana: Towards Structural Adjust- ment" was distributed to the Executive Directors in October 1985. A summary of the economic situation is presented in this section. Basic economic data and selected social indicators are summarized in Annex I. 3. Ghana once enjoyed a fairly high standard of living compared with most other West African nations. However, a declining gross national income bas combined with high population growth (estimated at about 3 percent a year) to cause a substantial erosion in real per capita income. The average per capita income in 1984 is estimated at US$350, which repre- sents a substantial decline over what it was a decade ago. The rate of unemployment is quite high and underemployment is widespread. Almost half the population of about 12 million is now estimated to live in absolute poverty. The country's basic needs indicators, once the best in Africa, are now no better than those of other Sub-Sahara African countries with comparable per capita incomes. Modern health services are available to only about a third of the people, and only 47 percent have access to safe water. Although the education system is well established and primary schooling has been free since 1962, 50 percent of adult men and 70 percent of adult women have had no formal education. Basic Structural Characteristics 4. Ghana is comparatively well endowed with natural and human resources. The country has valuable mineral deposits, particularly gold, but also diamonds, bauxite, manganese, and offshore oil. There is further potential for hydro power generation. Ghana has a relatively good supply 1/ This Part is the same as Part I of the President's Report for the Health and Education Rehabilitation Project which was approved by the Executive Directors on January 23, 1986. - 2 - of land suitable for growing tree crops, most importantly cocoa, but also oil palm, rubber, and coconut; cereals and starchy staples; and possesses considerable fishing and forestry resources. 5. Agriculture is the largest sector of the economy, accounting for about half of GDP. Approximately 11 percent of the land area is cultivat- ed. Previously, cocoa had covered about half of the cultivated land, but acreage has declined greatly in recent years. Nearly 70 percent of the population derive an income from agriculture or related activities. The staple foods are maize, rice, millet, yam, cassava, and plantain but, except for cassava, yields have stagnated in recent years. Per capita food production in 1983 was only 61 percent of that in 1975. Prolonged droughts in 1975-77 and 1982-83, inadequate support services, poor transport facili- ties, and lack of fertilizers and other inputs contributed to the decline. In recent years, Ghana has had to import 10 to 15 percent of its cereal consumption (mainly rice and maize). 6. Ghana's economy is highly dependent on primary products for exports. Cocoa (of which Ghana is the world's third largest producer) contributes about two-thirds of total export earnings, although production has been declining. Mining, primarily gold, is Ghana's second largest foreign exchange earner, contributing 20 percent of the total, although production has fallen over the past two decades. Timber is also an impor- tant export. Efforts to diversify the export base have not made much headway. 7. Industrial production and services currently account for 9 percent and 40 percent of GDP, respectively. Manufacturing--including textiles, steel, tires, oil refining and simple consumer goods-contributed 5 percent of GDP in 1984 down from 11 percent in 1970 and provided full- or part-time employment to just over one-tenth of the labor force. Manufac- turing in Ghana remains heavily dependent on imported inputs. 8. Ghana used to import all of its petroleum, mostly in the form of crude oil, which is refined domestically and used chiefly as fuel for transport. Recently some oil deposits have been discovered and commercial exploitation has commenced. Production of crude was about 600 barrels per day in 1984, satisfying only a minor share of the country's requirements, but declined to negligible levels in 1985. Hydropower generates most of Ghana's electricity, some of which is exported to neighboring countries. It was drastically affected by the drought during 1983-84, but production is now returning to more normal levels. Past Economic Developments - The Inheritance 9. Throughout the 1970s, Ghana's economy was poorly managed. Large budget deficits, necessitated partly to support a sprawling, inefficient public sector, led to a marked acceleration in domestic inflation. Given the reluctance to move the exchange rate, the fixed nominal rate became grossly overvalued, shifting relative incentives away from exports into import trade, and more specifically from cocoa, Ghana's main export, into - 3 - subsistence food production. The resulting deterioration in export perfor- mance, combined with a growing disenchantment on the part of aid donors with Ghana's performance, caused a perpetual foreign exchange crisis that pushed successive Governments into increasingly restrictive import regimes. What was once an economy with ample imports became one starved of the main fuel for its growth. The erosion of the tax base due to declining exports and imports, and the related drop in economic activity forced severe cutbacks in Government operations and maintenance and c.apital expenditures. There was a marked deterioration in what was once fairly well developed economic and social infrastructure. This, in turn, further reduced the country's productive capacity. 10. A tendency to respond to shortages with controls and rationing worsened the problem by eroding the incentives to produce and save, dimin- ishing the capacity of public sector entities to maintain the level and quality of services, and creating a vast parallel black market with its related corruption, smuggling and tax evasion. Declining real wages, political instability and reduced economic opportunities led talented and skilled Ghanaians to leave the country, depriving it of scarce managerial, administrative and technical resources. 11. To add to all its difficulties, Ghana was subjected in the early 1980s to three other problems. First, a prolonged and severe drought created the worst food shortages since Independence. Second, the external terms of trade sharply deteriorated following the increase in petroleum prices, and a softening in prices of Ghana's major exports (cocoa and gold). Third, the sudden return of over one million Ghanaians from Nigeria severely strained the food and employment situation. The cumulative effect of the downward economic spiral and these most recent "shocks" to the system can be seen in the trends in key economic indicators between 1970 and 1982: per capital real income declined by 30 percent; import volumes fell by a third; real export earnings fell 52 percent; domestic savings and investment declined from 12 and 14 percent of GDP, respectively, in 1970 to almost insignificant levels; inflation ran at 44 percent per annum over the period. A Program of Reforms 12. The Provisional National Defense Council (PNDC) came to power under the leadership of Flight Lieutenant Rawlings on December 31, 1981. An Economic Recovery Pzogram was developed by the Government in close coordination with the IMF and the World Bank. The program has been sup- ported by two IMF Standby Arrangements, totaling SDR 419 million, the latter extending through December 1985; SDR 179 million in purchases from the Compensatory Financing Facility (CFF) on account of both a shortfall in merchandise exports and an excess in the cost of cereal imports; and two IDA Export Rehabilitation and two Import Reconstruction Credits, in all totaling some SDR 187 million. Policy measures were aimed at a realignment of relative prices in favor of production (particularly cocoa, timber, and minerals), an improvement in the Government's financial position, and the encouragement of private investment. The most important measure taken was the movement towards a more realistic exchange rate. The cedi depreciated from 02.75 - US$1.00 in April 1983 to 060 - US$1.00 by October 1985. In January, 1986 the Government made significant progress towards reaching an equilibrium exchange rate by moving to 090 - US$1.00. Administered prices have been adjusted to reduce the distortions arising from the overvalued exchange rate, the most critical being a near doubling of the cocoa producer price announced in May 1985. Petroleum prices have been raised steadily in line with changes in the exchange rate. In addition, price controls are being dismantled. Only 8 items are now subject to controls administered by the Prices and Incomes Board compared to 23 in April 1983. In addition the prices of beer and cigarettes are determined in conjunction with the Government budget because of revenue implications. Interest rates have been adjusted in stages to the point that they are now positive in real terms. The rate on 12-month time deposits has doubled since October 1983 to the present level of 18 percent. The maximum lending rate is now 23 percent, up nine percentage points since October 1983. In the area of fiscal policy, the Government's efforts have concentrated on eliminating subsidies; resource mobilization through improved tax collection and selective increases in consumption taxes and charges; and more adequate provision for maintenance and capital expenditures. In addition public sector salaries and wages, and statutory minimum wages have been raised to offset partially the drastic erosion in real income. Even after the adjustments, real wages in the public sector are less than half their 1978 level. 13. Following the announcement of this program, the Bank, in consul- tation with the Government, decided to reactivate the Ghana Consultative Group which had lain dormant for 13 years. There has been a good response to this initiative. The Group met in Paris, first in November 1983, and then again in December 1984 and November 1985, and has broadly supported the Government's program. Given the new aid commitments of about US$478 million that materialized following the 1984 meeting and the existing pipeline, disbursements during 1985 are estimated to be about US$300 million, helping to finance the increase in imports, thereby stimulating domestic production and exports. Response of the Economy 14. The initial response of the economy to the policy reforms was temporarily crippled by the severe drought in 1983 and a lag in aid in- flows. Nevertheless, the Government continued and even broadened the reform program. After a real decline in output in 1983, economic perfor- mance sharply improved on several counts in 1984, benefitting to a large degree from the return to normal rainfall, but also from better policies. The economy grew by nearly 8 percent. Agriculture led growth because of a sharp expansion in food crops (3utput more than doubled for several crops), while cocoa production rose by only 8 percent from the historical low of the previous crop year. Wholesale and retail trade, and manufacturing output increased in line with overall growth, reflecting higher import levels and the restoration of power supplies. Preliminary estimates for 1985 indicate a growth in GDP of about 5 percent, spurred primarily by - 5 - higher output in forestry, mining, and manufacturing. Given the higher base, growth in agriculture is expected to be less, but cocoa output is likely to rise to 200,000 tons in the 1985/86 season, an increase of 16 percent over 1984/85. The Budget 15. The Government's fiscal position improved markedly in 1984. Revenues as a share of GDP rose from 5 percent in 1983 to 8 percent in 1984. The gain primarily reflected the impact of the depreciation of the exchange rate on the tax base and on the profits of export sectors. Although a lower than expected level of imports caused a shortfall in revenue in several categories, this was more than made up by higher bank profits (reflecting the deregulation of interest rates), major gains in income tax-collection, and a sharp increase in non-tax revenue. Recurrent expenditures rose modestly from 7 percent of GDP in 1983 to 8 percent in 1984. Development expenditures and net lending increased to 1.7% of GDP, somewhat less than planned. As a result of these trends the overall budget deficit narrowed to 1.7 percent of GDP and reliance on bank financing was halved to only 0.6 percent of GDP. Although the overall budget deficit is expected to increase to 2.3 percent of GDP in 1985, primarily because of a much needed expansion in development expenditures, it is expected that nearly two-thirds of it will be covered by foreign financing, enabling domestic bank financing to be contained below the 1984 level. Money and Credit 16. The massive exchange rate depreciation since April 1983, together with the credit ceilings which are part of the Government's program under the IMF Standby Arrangement, resulted in a severe liquidity squeeze in the banking system during 1984. While the demand for cedi credit to finance imports expanded sharply, broad money (M2) grew at about the same rate in 1984 as in 1983 (slightly under 40 percent). Domestic credit rose by 32 percent in 1984. compared to 41 percent in 1983. The slowdown primarily reflected lower growth in net credit to the Government. Although private sector credit more than doubled (from a very low base) in 1984, the increase was inadequate relative to the needs. Prices 17. Higher food supplies and the resulting sharp drop in prices was a major reason for the deceleration in inflation in 1984, from an annual average increase of 123 percent in 1983 to 40 percent in 1984. This trend continued during the first half of 1985. The June 1985 point to point rate was only 7 percent, despite an exchange rate depreciation of about 50 percent in this period. This confirms that prices already were reflecting scarcity values and the tightness of current fiscal and monetary policies. -6- Balance of Payments 18. The current amount of the balance of payments showed a deficit of 2.7 percent of GDP in 1984, close to the 1983 level. This outcome was considerably lower than had been expected, almost entirely due to a large import shortfall because of the continued tight foreign exchange situation during the first half of the year. Export earnings rose by about 30 percent, reflecting higher world prices for cocoa and an increase in electricity sales. On the capital account, in spite of some initial delays, aid disbursements rose sharply; net aid increased from 0.9 percent of GDP in 1983 to 3.4 percent in 1984. Allowing for other official and private capital movements, the overall deficit in 1984 amounted to US$121 million. This was financed by net IMF purchases of US$214 million. The balance of Fund resources was used to reduce arrears and to build up foreign exchange reserves. In 1985 both exportG and imports are expected to recover further and the current account deficit is projected to widen to 5.5 percent of GDP. Higher capital inflows are forecast, enabling the overall deficit to decline from the 1984 level. Expected IMF repurchases would be sufficient to cover the deficit and to clear more payment arrears. Development Program 19. In addition to achieving an appropriate incentive framework, public expenditure policy is an equally important component of the Govern- ment's development strategy. The neglected state of Ghana's economic and social infrastructure has become a critical bottleneck to the reform program's efforts to generate a strong supply response. Recognizing this weakness, the Government's Economic Recovery Program for 1984-86 initiated rehabilitation programs in key sectors-cocoa, timber, gold mining, and transport infrastructure. At the same time, the Government has begun to prepare a three-year rolling development program, beginning in 1986, based on a review of public expenditures conducted jointly with the Bank in the spring of 1985. The highest priorities in the area of recurrent expendi- tures are to restore the viability and efficiency of public administration and to expand significantly support to health and education. In addition, adequate allocations ne-Rd to be provided for operations and maintenance. To meet these needs, the annual average recurrent expenditures during 1986-88 would have to be about 20 percent higher in real terms than the levels budgeted in 1985. The initial work on the capital side indicates the substantial rehabilitation needs of the strategic economic sectors-- agriculture, mining, and economic infrastructure. Consequently, there is a large number of projects with high returns on incremental investments. The only significant area where new investments have been identified is oil exploration, which would be financed primarily by foreign investors. External Debt and Creditworthiness 20. Ghana's medium- and long-term external public debt outstanding and disbursed at end-1984 amounted to US$1.1 billion, about 20 percent of GDP. Bilateral creditors account for slightly less than half of the total, multilateral sources for about 40 percent (Bank loans and IDA credits - 7 - comprise 28 percent of total debt), and suppliers credits for only 10 percent. Despite the predominance of soft loans, Ghana's debt service burden in the coming years ir likely to be very heavy, for several reasons: first, amortization of previously rescheduled debt began in 1983; second, there is a relatively large amount of short-term debt, including US$230 million of payment arrears at end-1984 which are to be cleared by 1988; and third, the reported debt excludes the use of Fund credit under the recent Standby Arrangements. The debt service ratio doubled from 14 percent in 1982 to 29 percent in 1984. Including IMF charges and arrears payments, the share was 44 percenlt. In 1985-86 the debt service ratio is expected to be about 44 percent, 60 percent including IMF charges and arrears payments. 21. In spite of the considerable gains which have been made, Ghana's economic situation remains difficult. That consideration plus the coun- try's dependence on, and hence vulnerability to fluctuations in, cocoa earnings, make it desirable that future debt service obligations be kept as low as possible. In addition, Ghana's per capita income is relatively low (US$350). Consequently, Ghana will have to depend on IDA resources for Bank Group borrowing over the next few years. In order to help ensure an adequate flow of foreign exchange into Ghana and to supplement the coun- try's resource mobilization efforts, it also would be appropriate for donors to finance a significant portion of local project costs. PART II - BANK GROUP OPERATIONS IN GHANA 2/ Lending Strategy 22. The principal objectives which now guide the formulation of the Bank's assistance program to Ghana are: (a) to support the adoption of policies designed to adjust the structure and improve the efficiency of the economy and return it to a path of growth; (b) to help rehabilitate and improve capacity utilization of the country's existing productive assets; (c) to stimulate agricultural and industrial production, particularly for export promotion and efficient import substitution; and (d) to improve the country's essential infrastructure (transport, water, petroleum, power) and relieve major bottlenecks to increased production. The Bank group is undertaking a substantial program of economic and sector work to broaden and deepen understanding of the constraints which are likely to impede the ret:overy proczss and to provide direction to future lending and the design of project components. An economic memorandum (Report No. 5854-GH dated October 7, 1985) has been prepared and, in preparation for the Second Reconstruction Imports Credit, the Government budget and import program for 2/ This part is substantially the same as Part II of the President's Report for the Health and Education Rehabilitation Project which was approved by the Executive Directors on January 23, 1986. - 8 - 1985 were reviewed in detail. An industrial sector study, a public expen- diture review and an agricultural sector review have been completed. An energy assessment is currently being carried out. In both lending and economic sector work, attention will be given to ways of strengthening the institutions responsible for economic management and development spending. The Bank's dialogue has been most effective, and the Government continues to be both receptive and responsive to the Bank's advice. 23. In response to the Government's announcement of a major economic reform program in April 1983, the Bank Group reopened its lending to Ghana which had been put in abeyance for nearly two years due to economic uncer- tainties and lack of proper economic policies. The Executive Directors approved a US$40 million Reconstruction Import Credit (RIC) which aims to meet emergency import requirements for the agricultural and transport sectors and is now approaching successful completion. A second RIC for US$60 million covering the agriculture, transport, mining and manufacturing sectors was approved in March 1985. Two credits were also made for export rehabilitation and related technical assistance. To date, despite some expected initial problems, the performance on projects approved after April 1983 has been satisfactory. 24. In FY86, the Power System Rehabilitation Project with an IDA Credit of US$28.0 million and the Health and Education Rehabilitation Project with an IDA Credit of $15.0 million have already been approved. In the near future, IDA expects to support a port rehabilitation project and an agricultural rehabilitation project emphasizing cash crops. In brief, projects with major rehabilitation components are likely to absorb the bulk of IDA resources for the next few years as these are likely to show the highest benefits and quickest returns. IDA is also maintaining a dialogue with the Government for a possible structural adjustment credit in the near future. The extent to which the Bank Group can provide financial and technical assistance to support such a broad-based program will be conditioned upon the performance of the Government in carrying'through its economic recovery program. Past Operations 25. Since 1962, when the Bank Group financed its first operation in Ghana, the Bank has made 10 loans totalling US$189.7 million and 32 credits totalling US$595.2 million (including two African Facility Credits for US$37 million). In addition, Ghana is a beneficiary of a Bank-financed regional clinker project covering three countries (Togo, Ivory Coast and Ghana). An IFC investment of US$55 million in Ashanti Goldfields Corporation in Ghana was approved in June 1984. Annex II contains a summary statement of Bank loans and IDA credits as of December 31, 1985. 26. Energy has been a major focus of Bank Group lending to Ghana (23.5 percent of commitments). Projects financed in this sector include three hydro power generation projects and three power distribution pro- jects. A project aimed at strengthening Ghana's technical capacity to accelerate petroleum exploration was approved in May 1983. A second -9- project in the sector, approved in March 1984, provides technical assis- tance and financing of immediate requirements for rehabilitation of Ghana's sole refinery. The second most imp-rtant sector in the Bank Group's program in Ghana is transportation (18.2 percent of commitments) with four road projects and a a railway rehabilitation project. The two Reconstruction Import Credits and the Export Rehabilitation Project are also providing partial emergency assistance to the road transport and port subsectors. The Accra District Rehabilitation Project supports the transport subsector in the Accra area as well as the strengthening of the administrative and financial basis of the Accra City Council and the improvement of a poorer section of the city. In agriculture (17.4 percent of commitments), the main thrust of the Bank Group's operations has been to assist the country in achieving greater self-sufficiency in agricultural production, particu- larly food and raw materials for agro-industries, and rehabilitating the cocoa subsector. In the field of water supply, three projects (in 1969, 1974 and 1983) have helped increase and improve water supply in the Accra/- Tema metropolitan area and adjacent rural areas, with the most recent one helping to carry out emergency repairs and maintenance on main water pipelines. In the manufacturing sector, two credit projects (in 1975 and 1979) have financed investments in manufacturing and agro-industry under- taken by small and medium enterprises. Prcject Implementation Experience 27. The country's economic difficulties in recent years have adverse- ly affected a number of Bank Group-financed projects. Dwindling Government revenues have denied projects needed local financing, and the lack of foreign exchange has resulted in a severe shortage of imported materials and spare parts required for completed projects. The mass exodus of qualified Ghanaians to neighboring countries, and demoralization, absentee- ism and low productivity among the remaining work force have also adversely affected project performance. The unusually adverse conditions surrounding Bank Group-financed projects and their generally poor performance have been described in greater detail in the Project Performance Audit Reports. Overall, the main conclusion of the reports was that macroeconomic and sectoral policy constraints were the major factors responsible for poor performance of the audited projects. Because of delays experienced in the implementation of a number of Bank Group-financed projects in Ghana, disbursement performance is behind appraisal estimates. Annual gross disbursements over the four-year period FY81-84 have averaged about 20 percent of outstanding loan/credit commitments and as of September 30, 1985, US$365.6 million remained undisbursed. The Bank Group has held periodic implementation reviews with the Government to identify steps which could be taken by borrowers and the Bank Group to accelerate disbursement on ongoing loans and credits. IFC Operations 28. IFC approved an ipvestment of US$55 million in the mining sector (Ashanti Goldfields Corporations Ltd. (AGC)) in June 1984. This is IFC's - 10 - first operation in Ghana. The loan will help finance a US$158 million rehabilitation project designed to increase gold output from about 255,000 oz. in 1984 to 400,000 oz. in 1989-90, a level of production AGC last achieved in the early 1970s before the deterioration in Ghana's foreign exchange situation began to affect production at the mine. PART III - THE GOVERNMENT ADJUSTMENT PROGRAM IN INDUSTRY Introduction 29. In the context of its overall Economic Recovery Program (para 12) the Government requested the Bank's assistance to analyze the problems afflicting the industrial sector and develop a program for industrial adjustment. The adjustment program described in this section evolved from the Bank's sector work and dialogue with the Government. (A Sector Report entitled "Ghana - Industrial Policy, Performance and Recovery" was distrib- uted to the Executive Directors on October 30, 1985.) It is a multi-year program, with emphasis in initial years on increasing industrial production through increased utilization of existing capacity, while putting in place an appropriate policy framework depending on the efficient use of resources rather than excessive protection; and on strengthening the institutional framework to design and implement policies and programs for industrial growth. In this section a brief review of the industrial sector including its performance, weaknesses and potential is presented first and then the Government adjustment program in industry is described. Key statistics related to the industrial sector are presented in Annex V. The Industrial Sector: Performance and Potential 30. In the decade following independence (1957), manufacturing output grew by 13 percent per annum in real terms and its share in GDP rose from around 10 percent in 1960 to a peak of about 14 percent in the mid 1970s. Manufacturing output remained stagnant between 1970 and 1977 and then declined sharply between 1977 and 1983, foreign exchange availability for industrial inputs worsened during the 1970s, import costs rose and export earnings declined. Consequently the share of manufacturing in GDP declined from a peak of 14 percent in the mid 1970s to 5 percent currently. From having been a leading sector generating growth elsewhere in the economy, manufacturing became a lagging sector with increasingly underutilized capacity. 31. Although Ghana's industrial capacity is relatively large, diverse and long-established compared to most other African countries, it is largely underutilized for lack of sufficient domestic and imported raw materials. The average capacity utilization was in the range of 43-52 percent during the period 1970-77 but fell to 21 percent by 1982. A reversal of the decline occurred in 1984-85 as power supply was restored and increased amounts of import licenses were issued. The large under- utilized capacity offers the opportunity for significant increases in - 11 - manufacturing output in a short period, if the required raw materials, largely imported, are made available. In addition many industrial plants need replacement and modernization to improve productivity and meet market demand. 32. Ghana's deteriorating industrial performance in the last decade is attributable to three main weaknesses of past industrial policies, namely: (a) emphasis on import substitution through high levels of effec- tive protection; (b) reliance on administrative controls rather than market mechanisms to determine incentives and resource allocations; and (c) reli- ance on unmanageably large public sector investments as the leading edge of industrial development. All three policies are being reexamined by the Government in light of past experience and current realities. 31. An assessment of the overall efficiency of Ghana's industrial structure and its consistency with Ghana's comparative advantage was carried out as part of the Bank's recent industrial sector work (para :9). The analysis revealed five major structural weaknesses in the sector: (a) the imported input requirements of full capacity production greatly exceed the amount of foreign exchange that is likely to be available for this purpose in the foreseeable future; (b) full capacity production exceeds the domestic market in some subsectors; (c) processing capacity often exceeds the availability of local raw materials; (d) direct public sector aoldings exceed what the Government can manage effectively and profitably; and (e) a substantial share of capacity is unlikely to be able to produce competitively with imported goods. 34. The analysis also revealed that there was a wide divergence between actual and potential efficiency. Thus, although two-thirds of firms survey-d were operating inefficiently in 1983, most would be poten- tially efficent if they could operate close to full capacity. Some 40 percent of the potential full capacity production is in industries that are estimated to Oa consistent with Ghana's comparative advantage but for another 50 percent the comparative advantage is marginal, depending upon cost structure and productivity levels at the firm level. It was also found that wide variations in efficiency exist between industries and firm within a subse.: -r suggesting that overall efficiency of the sector can be significantly Improved under an appropriate incentives policy framework that encourages efficient production rather than a subsector or firm level restructuring approach. These results indicate that, while a restructuring of the industriil sector is needed, a substantial rortion of Ghana's industries is, or can become, viable and sustainable in a competitive environment. An analysis of the performance and potential of manufactured goods exports from Ghana indicates that in a reformed policy environment exports can recover to the levels achieved in mid 1970s when the exports accounted for about three percent of the manufacturing sector's output and may even show more substantial growth as the additional investment and structural changes expected as a result of the Economic Recovery Program have their impact. - 12 - Objectives and Strategy for Industrial Adjrstment 35. There is a widespread recognition among policymakers in Ghana of both the weaknesses and the potential of the industrial sector. It is recognized that the primary objective, in the short run, for government policy should no longer be to create new capacity but to reduce and ration- alize existing capacity so that resources are concentrated in the most ptoductive industries in which Ghana has a comparative advantage. It is agreed that the structural problems and deficiencies of the industrial sector have their roots in over two decades of inappropriate policies and that significant reforms would be needed to achieve restructuring objec- tives. It is also agreed that restructuring should primarily be achieved through reform of incentive policies rather than administrative solutions. 36. The Government has publicly issued a comprehensive Statement of Industrial Policy (Attachment to Annex VI) outlining its industrial devel- opment objectives and the broad strategy for achieving them. The basic objective for the future is to streamline Ghana's industrial capacity to concentrate on those activities that are the most viable and sustainable over time. The short-run objective is to promoce rapid industrial recovery through greater use of existing capacity. The medium-term objective is to break production bottlenecks in the most efficient industries and achieve significant cost reductions in others that are potentially viable, through selective and gradual rehabilitation. In the long term, the objective is to achieve an industrial structure that is more closely linked to domestic resources and is internationally competitive. 37. The adjustment strategy implied by these objectives would have the following main elements: (a) reform of exchange rate and trade poli- cies to eliminate excessive protection and to encourage efficient producers and exports of manufactured goods; (b) rationalization of industrial public enterprises; and (c) provision of additional resources to raise capacity utilization and to rehabilitate industries that are most likely to be sustainable in the long run. Policy Framework for Industrial Adjustment 38. As part of its Economic Recovery Program, launched in 1983, the Government has undertaken substantial policy reforms. The emphasis to date has been on exchange rate adjustment, monetary and fiscal responsibility, pricing policy reforms, and interest rate policies (para 12). Taken as a whole these measures have considerably improved the policy environment for industrial recovery. 39. Since 1983, the Government has taken steps to improve the busi- ness environment that was at best ambivalent to private enterprise. The Government has inducted private sector representatives into policymaking bodies such as the National Economic Comission and the tripartite commit- tee (which deals with pricing, wage and other issues involving Government, management and labor). In recently revising and reissuing the Investment Code, the Government has demonstrated its commitment to maintaining a - 13 - stable, open economy and to encouraging increased participation by both domestic and foreign private investors in Ghana's economic recovery. The promulgation of the revised Investment Code should have a positive impact on the confidence of new investors. The Statement of Industrial Policy, recently issued by the Government, spells out the industrial development strategy and goals of the Government and the respective roles the public and the private sectors are expected to play in the sector. The initial response of the private sector to both the Investment Code and the State- ment of Industrial Policy has been encouraging. However, substantial further policy reforms would be essential to translate this good will and to achieve the industrial adjustment objecLives discussed above. The policy reform program being supported through this proposed credit is discussed below. 40. (a) Protection Regime. Protection to domestic industry in the past, frequently at excessive levels, has been provided through low prices for imported inputs and high tariffs and quantitative restrictions on competing imports. The Government has taken policy actions which have reduced the protection accorded to local manufactures. The exchange rate has been depreciated by over 80 percent in real terms during the 1983-85 period. The tariff structure has been simplified and the applicable tariff rates for industrial inputs and outputs are 25-30 percent. Given the tight balance of payments position (para 18), quantitative restrictions still apply through an import licensing system which rations the foreign exchange provided by the Government. However, recognizing the constraints on its ability to supply sufficient foreign exchange to meet demand, the Govern- ment permits a special unnumbered import license (SUL) system to cover imports when the importer arranges his own foreign exchange. The SUL imports are a major market force (amounting to US$73 million during 1984 compared to non-oil imports of US$120 million financed by the Government) and in some instances compete against local manufactures, thereby limiting the effective protection. 41. While the above policy changes have reduced the protection accorded to local manufacturers, it is still high (mainly through the quantitative restrictions) and further reforms are needed to bring down protection to reasonable levels and expose inefficient production. Con- tinued progress towards a realistic exchange rate and phasing out of quantitative restrictions are keys to this task. The Government is commit- ted to achieving a realistic exchange rate. In January 1986 the Government further adjusted the exchange rate from 60 cedis to 90 cedis to the US$. This would effectively raise the nominal price of imported industrial inputs by 50 percent, encourage greater utilization of domestic inputs, help curb the excessive demand for imports thereby facilitating import liberalization, and improve the international competitiveness of the industrial sector. The Government has agreed to keep the exchange rate under review and make further adjustments (in consultation with the Inter- national Monetary Fund) as necessary to achieve policy goals. 42. Phasing out quantitative restrictions for industrial inputs and outputs (inherent in the import licensing system) would go a long way in - 14 - helping accomplish the industrial adjustment objectives. The Government is committed to a gradual liberalization of imports and it has already taken several significant steps. It has liberalized imports under SULs by shift- ing from a positive to a small negative list, thus permitting unrestricted import of consumer and producer goods, many of which compete with domestically manufactured goods. It has also agreed to make taxes and special charges on SUL imports of industrial inputs eligible for waivers and credits on the same basis as for ordinary imports of inputs. This would encourage efficient industrial producers to utilize the SUL system for import of raw materials and thus minimize the distortionary effects of the import licensing system. The Government has established a Working Group that is charged with the task of developing detailed alternative proposals for import liberalization. A preliminary study on import liber- alization options has already been carried out and will be useful to the Working Group which has been asked to submit its report by end June 1986. The Government has agreed to exchange views with the Association on the Group's report and has agreed to approve a phased program of import liberalization, satisfactory to the Association, prior to the release of the second tranche (para 73). The Government intends to begin implementation of the phased program of import liberalization at the beginning of 1987. 43. (b) Export Promotion. Substantial exchange rate adjustments and automatic retention of a portion of export earnings constitute the main elements of the export incentive package currently in place. The recent devaluation has further improved the profitability of exports and the Government is committed to an exchange rate policy designed to ensure high and stable profitability of the export sector. The Government has agreed to consider an increase in the percentage of earnings to be retained by exporters of non-traditional products from 20 percent to 25 percent and to increase flexibility in use of retentions for a wider variety of imports. It has also agreed to eliminate procedural impediments to exports. A number of other export promotion measures identified as part of sector work are under active consideration by the Government. The Government intends to decide on export promotion measures in April 1986 and implement them by the end of 1986 as a condition of the second tranche release (para 73). 44. The Government has agreed to strengthen the Ghana Export Promotion Council and give it the responsibility for monitoring the improvements in policy and administrative framework for exports and to formulate further export incentive measures. It has also initiated a review of tax and price incentives and a study of additional export promotion measures. These reviews would provide the basis for further export promotion measures which the Government intends to implement during the 1986-88 period. 45. (c) Price and Distribution Controls. The Government has taken significant steps to reduce the coverage of price controls. Previously comprehensive price controls under the Prices and Incomes Board are now limited to eight "essential commodities", of which six are manufactured locally (textiles, soaps and detergents, matches, matchets/cutlasses, drugs and cement). In addition, the prices of beer and cigarettes are determined - 15 - in conjunction with the Government budget because of their revenue implica- tions. The price controls are now administered more flexibly with a greater element of automaticity in passing on cost increases and speedier approval of requests to raise prices. The Government has also removed distribution controls on the items lifted from price controls and generally leaves buyers and suppliers free to negotiate even for items nominally under price controls. These measures, together with the increased avail- ability of resources to those industries still under control have reduced the disincentives to producers. Under the RIC II (Credit 1573-GH), the Government is obligated to reexamine the rationale for the remaining price controls with a view to phasing them out completely as supply conditions improve. 46. (d) State-owned Industrial Enterprises. At the Government's request a major study of the state-owned enterprise sector in Ghana was undertaken and completed in September 1985. The study was funded by UNDP with the Bank as the executing agency. Its findings and recommendations have been discussed with the Government. An action program for the rationalization (including privatization/divestiture) of state enterprises is being drawn up by a Task Force of the Government and two sub-committees of the cabinet are to pay particular attention to the issues of labor rede- ployment and layoffs. The action program would be ready by mid-1986, and is expected to deal with overall issues such as policy, criteria for divestiture/retention of public enterprises, institutional restructuring for monitoring of public enterprises, selective rehabilitation, and reducing the role of the state in selected state enterprises through encouraging joint ventures and divestiture. The action program would also establish priorities in the overall rationalization program and is proposed to be supported by a structural adjustment credit (para 54). 47. Rationalization of state-owned industrial enterprises would be a part of the overall action program. The Statement of Industrial Policy and the Letter of Industrial Goals and Policies (Annex VI) set out the Govern- ment's policy f&r state-owned industrial enterprises (SOIEs) which calls for: (a) operation of SOIEs on a commercial basis without recourse to Government financing, (b) no barriers to the entry of private firms in areas of operations of SOIEs, (c) direct state participation on an exceptional basis only, (d) turning several SOIEs into joint ventures, (e) rationalization of present SOIEs' structure to improve efficiency and reduce the size of the present SOIE subsector, (f) applying the Govern- ment's overall criteria (being developed as part of overall SOE reform program) for retention, joint ventures, divestiture, etc., to all SOIEs and taking appropriate actions, and (g) a ban on the creation of new SOIEs in the 1986-88 period. The Government has agreed to carry out the ratioaalization of SOIEs within 1986 in consultation with the Association. Funds would be provided under the proposed Credit to assist the Government in carrying out rationalization of selected SOIEs (para 64). 48. (e) Public Investment Program in Industry. Pending rationaliza- tion of industrial public enterprises the Government has agreed that during the 1986-88 period public investment in such enterprises should be limited - 16 - to most urgent rehabilitation which is evaluated to be financially and economically viable and for which the necessary foreign exchange working capital .o make full use of rehabilitated capacity is likely to be available within the constraints of the annual import Irogram for industry. A review of the public investment program for the period 1986-88 was jointly conducted by the Government and the Bank, and an overall program was developed. As part of this overall program a "core" public investment program for industry--not exceeding US$43 million (constant 1985 prices) during the 1986-88 period has been developed. The Government has agreed that this level will not be exceeded and that the rehabilitation projects proposed will be subjected to economic and financial evaluation. The Government has also agreed to exchange views with the Association on the specific industrial projects included in the public investment program during the 1986-88 period. 49. (f) Industrial Finance. A key constraint to industrial supply responsiveness is the ability of enterprises to raise sufficient working capital to provide the cedi cover which is required before the commercial banks establish letters of credit in respect of the import licenses. This is in part due to the creditworthiness problems facing many enterprises given the run-down condition of their equipment, and to the cumulative impact of the more than 3,000 percent devaluation of the cedi since 1983 on the debt/equity structure and liquidity position of many firms. These have resulted in a major imbalance in their financial structures and impaired their creditworthiness in the eyes of a conservative banking community. The Government is aware of the problem and has agreed to implement a deferred debit scheme for import financing (para 17, Annex VI) which would considerably ease the liquidity position of importing enterprises. The Government has also agreed to review the situation of import financing during 1986 and take additional measures if necessary. With a view to encouraging firms to revalue their assets, thereby improving their creditworthiness, the Government has agreed to exempt them from payment of stamp or other taxes on revaluations. 50. The Government is committed to a policy of maintaining real positive interest rates on-deposits and loans. The current interest rates of 18 percent on one-year time deposits and 23 percent on most loans are positive in real terms given the estimated inflation rate of 12 percent during 1985. Over the medium term, the availability of term loans will play an increasingly important role in the industrial adjustment and the overall economic recovery programs. The Government has therefore agreed to provide training and technical assistance to commercial banks to strengthen their capacity for term lending and establish an apex-lending arrangement under this Credit (para 68). Institutional Strengthening 51. A strengthening of the folloving institutions in the specified priority areas would be uecessary to successfully implement the industrial adjustment strategy: (a) Ministry of Industries, Science and Technology-- policy formulation, review and monitoring of public expenditures, compi- - 17 - lation and dissemination of industrial sector information, monitoring of sector performance and problems, import programming coordination and formulation/implementation of rationali7ation program for industrial public enterprises; (b) the Bank of Ghana and local banks--implementation capacity in the the Bank of Ghana for apex-lending arrangements, training of local banks staff in project appraisal and supervision techniques with a view to encourage medium-term lending by the banks, and training of banks and enterprises staff in financial restructuring techniques; (c) Central Bureau of Statistics--to conduct an industrial census, clear the backlog of indus- trial and foreign trade statistics and thereafter produce it in a timely manner; (d) Ministry of Finance and Economic Planning-formulation, implementation, and monitoring of tariff, trade, and related policies; (e) Export Promotion Agencies--such as Export Promotion Council, Ministry of Trade and the Bank of Ghana to identify export opportunities, assist exporters, formulate and implement export promotion measures; and (f) Technical Support Institutions-such as Ghana Standards Board and Food Research Institute which provide quality control and product testing services to manufacturers. 52. Technical assistance projects to assist some of the institutions listed above are in place, funded from bilateral and multilateral sources. However, these projects do not necessarily cover all the areas of institu- tional strengthening listed above. Under the proposed Credit technical assistance would be provided to fill the gaps as needed. The Government itself is giving a high priority to carrying out a substantial upgrading of managerial and administrative capability. Several committees of the Government are currently considering reforms to improve public sector management capabilities. Relationship of the Industrial Adjustment Program to the Economic Recovery Program (1986-88) 53. The industrial adjustment program discussed above is an integral part of the Government's Economic Recovery Program (ERP) for the 1986-88 period which was presented by the Government to the November 1985 meeting of the Ghana Consultative Group (para 13). The ERP, 1986-88, would address the following main issues: (a) macroeconomic policies and management to improve the structure of incentives; (b) increased emphasis on sectoral reforms to shift the leading edge of policy reform from macroeconomic to sectoral concerns in the key sectors of agriculture, energy, industry, education and health; (c) rehabilitation of human capital by stepping up expenditures for local training, health and education; (d) restructuring of the roles of the public and private sectors through reform of wages and employment policies, rationalization of the state enterprise sector, and encouragements to private sector; (e) financial and banking sector reforms to facilitate mobilization of additional resources and allocating them to the most critical and efficient uses; (f) shifting of external assistance and debt away from stabilization oriented external financing towards longer-term supply oriented program and project financing; and (g) in- creased focus in overall policies on measurev to alleviate rural poverty and encourage rural development. - 18 - 54. IDA and IMF Support for ERP, 1986-88 is expected to be substan- tial. This proposed Industrial Sector Adjustment Credit (ISAC) as well as other planned sectoral lending operations in agriculture (FY87), health and education (FY86), energy (FY86 and FY87) would support sectoral reforms under the ERP. A structural adjustment credit (FY87) is planned to support the reforms of macroeconomic policies, public sector management, finan- cial/banking policies. Rationalization of state-owned enterprises would be supported by the proposed structural adjustment credit (FY87) as well as a public enterprises project (FY88). The Government is discussing an Extended Fund Facility (EFF) with the IMF which would follow an eighteen-month standby program which came to an end in December 1985. The policy reform program to be supported by IDA and the IMF is being developed in close collaboration among the staff of the two institutions to ensure consistency of recommendations. Previous Bank Group Support for Industry 55. Previous Bank Group assistance to the industrial sector has been through two lines of credit to the National Investment Bank (NIB). The first line was an IBRD loan of US$10 million (Loan 1180-GB) approved in December 1975 and closed June 1984. The second line was an IDA Credit of US$19 million (Credit 901-GB), approved in May 1979 and closed in December 1985. Both lines of credit were committed and disbursed more slowly than expected due to the severely depressed state of the economy. The economic deterioration of the last 10 years led to financial difficulties for all businesses, including NIB's clients, which in turn has resulted in large loan portfolio arrears for NIB. The Association has assisted NIB in assessing the quality of its loan portfolio and formulating a financial restructuring program. The Government has allocated the resources required for financial restructuring, which is accompanied by actions agreed with the Association to remedy management weaknesses, in particular in the loan recovery area. PART IV - THE PROPOSED CREDIT Background and Rationale for IDA Involvement 56. In 1984, the Government opened discussions with the Association on an adjustment program for the industrial sector. The main elements of the adjustment program, summarized in Part III, were developed as part of extensive sector work during 1984 and early 1985 (para 29). The proposed Credit was preappraised in June 1985 and appraised in August 1985. A post- appraisal mission visited Ghana during December 1985. Negotiations were held in Washington in February 1986; the Ghanaian delegation was headed by Dr. Kwesi Botchwey, PNDC Secretary (Minister) for the Ministry of Finance and Economic Planning, and included representatives from the Ministry of Industries, Science and Technology, the Bank of Ghana, and the Ministry of Trade. Supplementary data on the Credit are presented in Annex III. - 19 - 57. With the Bank Group and IMF support (para 23) Ghana has embarked on an Economic Recovery Program which has stabilized the economy and set the stage for resumption of growth. Ongoing policy reforms and rehabilitation programs will need time before substantial gains result. In the interim Ghana must depend on larger net external inflows of resources to increase the supply of goods on the market to contain the inflationary pressures and sustain an economic environment conducive to policy reforms. At the same time Ghana needs to rebuild its institutions to support steady economic growth. The proposed Credit would provide quick disbursing assistance to raise production of manufactured goods while facilitating a medium-term restructuring of the industrial sector through incentive policy reforms and strengthening of key institutions. Credit Objectives 58. The proposed Credit's major objective would be to help the Government carry out the first phase (1986-88) of its medium-term indus- trial adjustment program, which aims at: (a) increasing production of locally manufactured goods through greater use of existing capacity; (b) streamlining Ghana's industrial capacity, through (i) appropriate incentive policies and (ii) proceeding cautiously with rehabilitation of economically viable industries; and (c) strengthening key institutions in the industrial sector to undertake policy analysis, credit delivery and investment analysis. 59. The specific actions supported by the proposed Credit are set out in the Government's Letter of Industrial Goals and Policies (Annex VI). The main features of these reforms are discussed in Part III above. The timing of implementation and a brief description of proposed reforms in each of the main policy areas addressed by the industrial adjustment program are presented below. - 20 - TIDO OF AMION IN THE MAIN IIUSIRTAL ADJUSM POLIC AREAS Actions 'lcken Betwen Actions to be Taken Actions Preeppraisal and Board First Year Progran Second Year Program Previously Taken Presentation of ISAC 1986 1987 Median-Tem I. BUSNESS CLIMAE Inclusim of business * A public Statement * Issue guidelines representatives on of Industrial Policy for approval under National Econcadd Issued. * New the Irvestant Code. Camissim aid Tri- Investment Code Simplify and reduce partite Canissim; issued. direct and indirect reductimn of arbitrazy taxes. Launch an decisions. inffomtion cazpaign on above incentive policy reforus by the Government. II. PulECrCN R1EGDE Depreciatim of real * Exchange Rate ad- * Approval on a * Begin implement- Achieve and maint- exchange rate by over justed in Januazy phased progran of ation of the agreed ain realistic real 80% during 198345 1986 raising the Import liberalization phased program for exchange rate; period. Harmizatim price of industrial ficludiNg temporary import liberali- complete imple- of customs tariffs at input Imports by 50%. financial charges if zatim. entatim of phased 25-30 for noet pro- * Regulatim of SUILs necessary to permit * Evaluate experience Import liberaliza- ducts. Eased regula- shifted fran a posi- import liberaliz- with measures intro- tion progran. tions and procedures tive list to a negs- ation. duced in previous for imports under tive list. years and aske ad- SULs. * Double taxation on justments. Review SUL imports of inputs exchange rate and by industrial produ- aske further adjust- cers ellminatEd. Ments. Note: Actions arked with * are proposed policy actions under the ISAC. Other actions listed are expected to take place as part of the Governent's on--going Econanic Recovery Program for hich the Goverrnent is seeking IA and BMF support (para 54). - 21 - Actions Taken Between Actions to be Taken Actions Preappraisal and Board First Year Program Second Year Program Previously Taken Presentation of ISAC 1986 1987 fediu-Term M. EUOR PO lN Successive exchaige * Currency devalued * Simplify exporting * Evaluate experience Study the need to rate adjustaents. 50 percent in Jan. procedures. with already implan- contirue retention Eport earnings reten- 1986. * Increase the flexi- ented export promo- accounc/bonus timn schm. Special bility in use of the tion measures and sdhme In light of import allocaticns for export retention. make adjustments. exchange rate first time exporters. * Institute a reserve * Implement further adjustments and Provision of credits list of exports export promotin respoNsiveness of to exporters. Instead of export measures on the basis exports. permit requirements. of studies done in * Increase amout of 1986. permitted retention. * Strengthen Chena EKport Pranotion Council. * Establish post-shipnent export credit schene. IV. PRICE AND DISEFRMrON cWMMS Previously copre- Review working of remainirg price and hensive price con- distribution controls with a view to trols now reduced to remove then. Study ways to maintain eight essential com- regular supply and distribution of modities under PIB. essential camdities important in Permission to raise controllirg inflation (conditim under prices to reflect RIC II). cost increases now freely given. Distri- bution controls lifted on the item not subject to price control. - 22 - Actions Taken Between Actions to be Taken Actions Preappraisal aml Board First Year Program Second Year Program Previously Taken Presentation of ISAC 1986 1987 Medium-Term V. STATE-0mD INXUSRIAL NTEPRTSES (SOIEs) A study of state- Task Force to develop * Carry out ration- * Continue implement- Complete the oned enterprises com- criteria for reten- alizatim of main ation of action rationalization of pleted and under tion and divestiture SDIEs. * Begin div- program for ration- SOIE enterprise review. High level of state-ownd enter- estiture of selected alizing SOIEs. sector. canittee established prises established. industrial public to prepare action * Policy guidelines enterprises. plan for restructur- for rationalization ing state enterprise of SDIEs agreed. sector. * SOIEs for seeking joint ventures selected. VI. PUBLIC EaPMDITURE PHROM IN IOUSIEY A core public invest- * Upper limit of the * Implement the public * Review the PIP for ment progran for the public investment investnent program industry to confizm period 1986-88 has expenditures for (PIP) in industry for relevance. been developed. industry agreed. 1986. VII. BlDUSTRA FINNC Interest rates on * Establish a deferr- * Review experience deposits and nost ed debit schieme for with the deferred loans close to real financing of imports debit sdieme and make positive levels. The by producers. changes if necessary. Government's clai on * Establish an apex- * Maintain real banks' credit reduced lending facility for positive interest to free up more financing Industrial rates. resources for private rehabilitation pro- sector. jects. *Provide training and tech- nical assistance to local banks. * Maintain real positive interest rates. * Periat revaluation of assets without payment of stamp duty for a lindted period. - 23 - Description of the Credit 60. The proposed IDA Credit of US$28.5 million and African Facility Credit of US$25.0 million would finance four components as listed below. Joint IDA/African Facility financing would be used for the industrial imports component while the IDA Credit would finance the remaining three components. Components of the IDA/African Facility Credit Expenditures to be Financed Amount US$ million Z (a) Industrial Imports. Importation of 40.00 100% of fo- industrial raw materials, spare parts, rcign expen- and other inputs; ditures (b) Rehabilitation. Equipment and services 10.00 100% of fo- for rehabilitation/restructuring of reign expen- selected enterprises; ditures (c) Institutional Strengthening. (i) Advisory and consultancy services 1.80 100% (ii) Equipment and vehicles 0.92 100% of foreign expenditures (d) Studies 0.50 100% (e) Refi-ancini of FPF Advance 0.28 Amount Due 53.50 61. (a) Industrial Imports Component. There is a significant amount of underutilized industrial capacity in Ghana and in the short run the main constraint to increased capacity utilization is the availability of foreign exchange to import the necessary raw materials and spare parts (para 31). Direct import requirements of potentially efficient industries, for full capacity production, are estimated to exceed US$250 million per year. However, during the last few years, only about 25 to 40 percent of the requirements could be provided. Due to the tight balance of payments position the Government allocates foreign exchange through an annual import program under which enterprise level allocations are made by the concerned Ministry. The funds provided under the proposed Credit for import of industrial inputs would finance a part of the Government's annual import program for industry which covers inputs and capital goods only; consumer - 24 - goods are included in the Ministry of Trade's import program. Analyses of production activities of industrial firms indicate that a majority of firms can make efficient use of imported inputs when capital costs are taken as sunk. Instead of proposing any administrative measures to identify efficient and inefficient firms and allocating funds only to efficient firms it is proposed to achieve both the short- and the long-run efficiency goals by adjusting the price of imported industrial inputs to an appropriate level and reforming the protection regime to eliminate excessive protection (paras 40-42). To ensure that the annual import program for industry will support the industrial production goals in the short run and be consistent with the broad objectives of the industrial adjustment program, the Government has agreed on principles to be applied in determining the size and c9mposition of the annual import program for industry (1986-88) (Annex VII). Submission of a 1986 import program for industry, consistent with the agreed principles, is a condition of effectiveness of the proposed Credit. Submission of a satisfactory 1987 import program for industry is a condition for the release of the second tranche of ISAC. 62. (b) Industrial Rehabilitation Component. As noted earlier (para 31), many enterprises require rehabilitation to improve productivity. A survey by the Ministry of Industries, Science and Technology of reha- bilitation requirements (1986-88) estimated the priority needs to exceed US$100 million. However, the Government agrees that rehabilitating industrial enterprises must proceed sl-wly since (i) indiscriminate reha- bilitation could worsen the structural weaknesses in the industrial sector; (ii) industrial production in most industries can be significantly increased without major investments and (iii) the foreign exchange con- straint will continue in the near future making it difficult to make available necessary foreign exchange to fully utilize the rehabilitated capacity. Therefore, under the proposed Credit, only a limited amount of funds would be made available to finance rehabilitation proposals from existing enterprises which are assessed to be economically viable over the long run. The eligibility criteria and the financial/economic evaluation criteria to be applied in approving the rehabilitation proposals under the proposed ISAC have been agreed (Annex VIII). Priority would be given to rehabilitate those industries which use domestic resources, produce basic consumer or exportable goods, and can make full use of rehabilitated capacity. This selective approach to rehabilitation will be reviewed periodically and relaxed as the reformed incentives framework t2kes hold. 63. (c) Institutional Strengthening Component. This component will finance technical assistance to the following institutions to support their organizational improvements and staff strengthening activities (para 51): (i) the Bank of Ghana (BOG), to train local bank, BOG, and other concerned Government staff in the areas of economic/financial analysis and restruc- turing. This training would go beyond the immediate needs of this Credit and would be designed to build project evaluation capability in local banks and ministries to improve the quality of investment analysis; (ii) the Ministry of Finance and Economic Planning (MFEP) to build staff capability in analyzing incentive policy issues, formulating appropriate policy - 25 - measures, and monitoring the impact of policy measures; (iii) the Ministry of Industries, Science and Technology (MIST), to strengthen capability for formulating and implementing industrial policy and industrial restructuring programs; (iv) the Central Bureau of Statistics (CBS), to carry out an industrial census (last done in 1962), timely compilation of industrial statistics, and updating and adoption of monthly processing of foreign trade statistics; and (v) the Ghana Standards Board (GSB) and the Food Research Institute (FRI) for the purchase of laboratory and office equip- ment to provide quality control, product testing and other services to manufacturers. The total cost (including contingencies) of these technical assistance and training activities is estimated to be about US$4.8 million of which the proposed Credit would finance US$3.0 million (63 percent), while the Government would provide US$0.4 million (8 percent), and UNDP would provide US$1.4 million (29 percent) (Annex IX). 64. (d) Studies Component. Studies to generate policy options, enterprise and subsector level restructuring programs and other measures for achieving the Government's medium-term industrial adjustment objectives will be undertaken as needed. The total budget for the studies program is estimated at US$1.0 million of which the proposed Credit would finance US$0.5 million. The balance would be financed by UNDP (US$0.05 million) and an already approved grant (US$0.45 million) from the Government of the United Kingdom (Annex X). Implementation Arrangements 65. The Government of Ghana will be the Borrower. The Government would retain those portions of the Credit which are earmarked for the MIST (US$0.30 million), MFEP (US$0.56 million), CBS (US$0.39 million), GSB (US$0.27 million) and FRI (US$0.43 million). The balance of the Credit amounting to US$51.55 million would be made available to the Bank of Ghana. The signing of an Administrative Agreement between the Government and the Bank of Ghana satisfactory to the Association is a condition of effectiveness. The Bank of Ghana would be the main implementing agency for the proposed Credit as set forth in the Project Agreement. Specific implementation arrangements under each component are discussed below. 66. The industrial imports component will be implemented by the MIST and the Bank of Ghana. The MIST would prepare the annual import program. The Bank of Ghana would sell the necessary foreign exchange to importers to facilitate imports under this component. Organizational arrangements required for implementing this component (which represents 75 percent of the proposed credit) are already in place. MIST has been making the annual import program for several years and its staff and procedures are consid- ered adequate. The Bank of Ghana has a system for releasing foreign exchange to local banks to finance imports under the Government's annual import program. This system operates satisfactorily and will be used for the disbursement ef the proposed Credit's proceeds. - 26 - 67. The industrial rehabilitation component will be implemented by the Development Finance Department (DFD) of the Bank of Ghana under an apex-lending arrangement involving seven commercial and development banks in Ghana who have expressed an interest in participating in the Credit. Appraisal of loan requests will be the responsibility of the concerned participating bank which would make the final decision on whether to approve a rehabilitation investment proposal. The Bank of Ghana has agreed to apply the eligibility and appraisal criteria and terms and conditions described in Annex VIII in approving sub-loans under this component. 68. The institutional strengthening component involves a number of Government agencies (BOG, MIST, MFEP, and CBS), each of which will be responsible for implementation of its own strengthening program (para 63). The proposed organizational improvements, incremental staffing require- ments, technical assistance requirements, and terms of reference for consultants have been agreed. All experts and consultants to be employed under this component of the Credit would be selected in accordance with the Bank guidelines. The Government has agreed to (a) exchange views with the Bank on its reorganization plans for the departments/units receiving technical assistance under the proposed Credit, and (b) cause the Central Bureau of Statistics to carry out the industrial census by December 31, 1987. 69. The studies component involves three implementing agencies-- MIST, MFEP, and the Bank of Ghana. The MIST will be responsible for subsector studies, the MFEP would be responsible for policy analysis studies, and BOG would be responsible for studies to design export incen- tives and to prepare enterprise (mainly public) restructuring plans. It has been agreed that (a) before beginning a study, the concerned agency will furnish to the Association for its review and comment the terms of reference, timetable, and a budget for each study; and (b) a copy of each completed study will be furnished to the Association as soon as available and that the Government will consult with the Association on the findings and recommendations of each study financed by the proposed ISAC. 70. Posting of additional staff in the Bank of Ghana and training of local banks staff in project appraisal techniques are critical to timely implementation of the rehabilitation component of the ISAC. The Bank of Ghana has agreed that (a) prior to commencement of disbursements under the rehabilitation component, the Bank of Ghana will assign six professional staff to the Development Finance Department and employ a firm of consultants to assist the BOG in carrying out the training program for staff of DFD and local banks; and (b) during 1986, it will assign adequate additional staff to its Development Finance and Foreign Exchange Operations Departments to strengthen their implementation capacities consistent with the increase in work load. - 27 - Status of Preparation 71. The organization and procedures to implement the industrial imports component (which represents 75 percent of the proposed Credit) are well established (para 66). MIST has prepared a draft 1986 annual import program for industry which conforms to the agreed principles. The final import program is expected to be approved by the Government soon. As regards the industrial rehabilitation component, several rehabilitation investment projects have been identified and loan requests are being prepared with the help of consultants. Request for proposals from suitable consultants to organize training of local bank staff have been issued and selection is expected in April 1986. Terms of reference for all technical assistance services for the year 1986 have been agreed. Procurement, Disbursement and Audit 72. Procurement of goods and services to be financed using the proceeds of the proposed Credit would be as follows: (a) all contracts valued over US$500,000 million would be subject to ICB and less than US$500,000 million through normal commercial practices through quotations from at least three suppliers; (b) goods under contracts estimated to cost less than US$100,000 may be purchased directly from suppliers; (c) procure- ment on behalf of the Government agencies and parastatals will be through procurement agency acceptable to the Association; and (d) consulting services would be procured according to IDA guidelines. Procurement for the African Facility Credit would follow the standard procedures. 73. The US$40 million allocated for industrial imports component is to be made available in two tranches and is expected to be fully disbursed over a three-year period, i.e. by June 30, 1990. The first tranche of US$25 million would be available upon effectiveness. The second tranche of US$15 million would be available about 12 months later (about April/May 1987). Disbursement of the second tranche would be conditional on: (a) agreement on the size and composition of the 1987 annual import program for industry; (b) the Government approving a phased program of import liberalization satisfactory to the Association (para 42); and (c) satisfactory implementation of agreed export promotion measures during 1986 (para 43). 74. Disbursements would be on the basis of 100 percent of expendi- tures for: (a) foreign exchange costs of imported raw materials and spare parts under the industrial imports component (US$40.0 million); (b) foreign exchange costs of imported goods or services for eligible subloans under the rehabilitation component (US$10.0 million); (c) expert advisory serv- ices, short-term consultancy services, and technical equipment and vehicles under the institutional strengthening component (US$2.72 million); (d) short-term consultancy services for studies (US$0.5 million) and (e) refinancing of the PPF advance (US$0.28 million). Excluded categories involve goods financed from other sources, consumer goods, goods intended for military or para military use, alcohol, tobacco, nuclear reactors and uranium and crude oil. An estimated schedule for disbursements is - 28 - presented at Annex XI. All disbursements would be fully documented with the exception of reimbursement applications related to contracts of less than US$200,000 equivalent under the industrial imports component and to contracts of less than US$50,000 equivalent for other components of the proposed credit which would be disbursed on the basis of statements of expenditure. Separate Special Accounts for the African Facility and the IDA Credits would be established by the Bank of Ghana in a commercial bank authorized to deal in foreign exchange transactions, in order to ensure speedy disbursements under the Credit. An initial deposit of US$5.0 million would be paid into each Special Account upon effectiveness of the Credit at the request of the Borrower. Retroactive financing of up to the equivalent of SDR 5 million (SDR 2.5 million each from African Facility and IDA Credit) would be provided to cover eligible expenditures made prior to the signing of the Credit but after October 1, 1015. 75. The Bank of Ghana, the main implementing agency, will maintain records and accounts in respect of all disbursements under the Credit, including the Special Accounts and separate accounts for amounts disbursed on the basis of the statement of expenditures. It would arrange an audit of these accounts each fiscal year by independent auditors acceptable to the Association. As regards the expenditures incurred under the institutional strengthening and studies component, by agencies other than the Bank of Ghana, the concerned agency would prepare and furnish the Association an annual Statement of Receipts and Expenditure which would be audited each year by independent auditors acceptable to the Association. Monitoring and Reporting 76. The Bank of Ghana, as the main implementing agency, will be responsible for monitoring the implementation of the Credit and would furnish quarterly progress reports to the Association. The MIST will submit to the Association an annual report (first such report to be submitted in June 1987) on the industrial sector's performance in terms of certain key performance indicators such as output and employment expansion, capacity utilization rates, and local value added. In addition it will submit a report at half-yearly intervals on the progress of (a) the annual import program for industry and (b) the assistance provided to Ghana Standards Board and the Food Research Institute. The Central Bureau of Statistics will submit a report at quarterly intervals on progress in implementation of its work program covering industrial census, industrial statistics, and foreign trade statistics. The consultants funded under the proposed Credit to assist the Ministry of Finance and Economic Planning will submit through MPEP to the Association a biannual report on progress of work done. Impact and Risks 77. The first and the foremost impact of the proposed Credit would be to raise production of locally manufactured goods in Ghana. This would be achieved through the transfer of resources to help finance the annual import program for industry thus helping to alleviate the main short-term - 29 - constraint to increasing industrial production. The annual import program should help the industrial sector achieve an annual growth rate of 8 percent over 1985-88, as opposed to the steady decline since 1977 (which reduced real output by nearly half). In the absence of the proposed Credit it is unlikely that an increase in funding for imported industrial inputs would be available. 78. Although the proposed Credit does not directly benefit the poor, it supports the Government's Economic Recovery Program (para 53) which has a high degree of complementarity with the objective of poverty alleviation. The proposed Credit would influence the product mix available on the domestic market in favor of mass-consumption items (rather than imported luxury goods) by allocating foreign exchange to their producers. It would also help increase capacity utili'zation in these industries from the present 20-30 percent to a target of 40-50 percent, thereby reducing unit costs reinforcing downward price pressures and benefitting employment. A recently completed study on price effects of exchange rate adjustments in Ghana shows that for a significant number of locally manufactured goods the price rises are dampened because scarcity rents rather than the prices absorb much of the cost increases due to the devaluation. In some cases the increased availability of locally produced goods should exert a downward pressure on prices, many of which at present include scarcity premia. 79. The policy reforms to be supported by the Credit would help achieve, over a medium term, restructuring of the industrial capacity in Ghana to increase its efficiency. The structure of industrial production would shift gradually as the protection regime is reformed through exchange rate adjustment, liberal import of competing goods under SULs, and phasing out of quantitative restrictions implicit in the import licensing system, yielding a more uniform pattern of effective protection as the present tariff structure takes hold (30 percent on most items). After the adjust- ment period, the activities that thrive are expected to be those with relatively high value added at world prices, greater use of domestic materials, and the best prospects for increasing export revenues. 80. The proposed institutional strengthening under the Credit would facilitate the adjustment process and would help rebuild institutional capacities which have deteriorated significantly in the last few years. The staff training would enable the concerned institutions to improve the quality of work and services performed and thereby contribute more effec- tively to economic growth. 81. The risk of the adjustment program relates to the uncertainty of assessing the length and the difficulty of the adjustment process and to the related possible internal pressures to slow down the pace of reform or even reverse it. Of particular concern would be the exchange rate and import protection policies. The risk is limited by the Government's declared commitment to pursue an exchange rate policy aimed at ensuring the relative profitability of export activities in comparison with other domestic activities and its willingness to take substantive actions in the - 30 - last two years and most recently in January 1986 to move the exchange rate in this direction. The proposed liberalization of SUL imports would provide an interim approximation to a liberal trade policy and limit the extent of effective protection to locally manufactured goods. Imple- mentation delays represent the other main risk. A continuation of past problems in obtaining import financing could seriously delay the disburse- ments. The Government's decision to establish a deferred debit scheme to provide import financing should minimize this risk (para 49). A close watch during the implementation of the proposed Credit would be kept on the situation regarding import financing. The Government's limited administra- tive capacity may also result in implementation delays, particularly of institutional strengthening activities. The design of the ISAC takes this into account by proposing that most of these activities would be imple- mented by expanding existing UNDP projects under cost-sharing arrangements. Once the proposed technical assistance is in place it would assist the Government staff in implementation activities. PART V - RECOMMENDATION 82. I am satisfied that the proposed IDA Credit would comply with the Articles of Agreement of the Association and the proposed Africa Facility Credit would comply with the provision of the African Facility Resolution and recommend that the Executive Directors approve the proposed Credits. Attachments Washington D.C. A.W. Clausen March 5, 1986 President -31- AMEX I , b__L Page 1 of 6 GHANA - SOCIAL INDICATORS DATA SHEKT GHANA åuncE cUPS (UIGHTED AnWvEsS> lm Mä'l (MST RCENT åTMATC> /b RECENT LOW 1N~r AFRICA KW0LZ InC~I 1960- 19701.& ET --aié ST (w hANARA AFRICA S. uF SAARA AS <TOUSAND EK. M> TOTAL 238.5 238.5 238.5 ACRICULTURAL 62.3 61.4 62.2 Cr PER CAPITA (08) .. .. 310.0 234.8 1063.8 ZNNEW COMEDEMTIDE 1,R CAPITA (KILOGRANS OF DIL F!UIVALENT) 71.0 180.0 160.0 62.3 581.5 uATIOm AND VITAL STATISTICS POPUATION.MID-YEa (THOUSANDS) 683L0 8620.0 12818.0 URBAN POPULATION (% OP TOTAL) 23.3 29.1 31.1 20.1 32.0 POPULATION PROJECTIONS POPLATION IN YEAR 2000 <MILL) 23.1 STATIONAvY POPULKTION <CILL) 64.0 POPULATION ~EilUM 2.0 POPULATION DENSITT PER SQ. et. 28.6 36.1 53.7 53.2 65.1 PER SQ. Km. ACK. LAND 109.7 140.3 197.5 112.8 124.5 POPULATION AE STRUCTURE (1) 0-14 T1S 44.5 45.7 47.9 46.0 45.6 13-44 TES 52.8 51.5 48.6 50.8 51.5 ea AND AoE 2.5 2.6 2.4 2.9 2.7 POPULaTWN GRON RATE (i) TOTAL 4.4 2.3 3.1 2.8 2.9 URSAN 9.2 4.6 5.0 6.4 5.1 CUDE BIR. RATE (PER TROUS) 50.2 50.2 49.3 47.2 47.0 CUDE DEATH MATE (PER TmOUS) 17.3 14.3 10.0 å7.8 15.0 CROSS REPRODCTON RATE 3.5 3.4 3.4 3.3 3.2 FAMILT PLANNING ACCEPTORS. ANNUAL (TROUS) .. 8.3 33.5 /c USERS (X CF HARWIED VDE) .. 1.5 10.0 d 3.3 6.4 000 D NURTIO. INDEX oF PO0D PROD. PER CAPITA (1969-71-100) 93.0 101.0 63.0 63.3 82.9 PER CAPITA SUPPLY av CALORIES (2 OF REQUIREMENTS) 97.0 97.0 69.0 N7.7 98.5 PROTEINS (GRANS PER DAY) 46.0 50.0 40.0 51.9 55.4 or InCK ANImAL AND PULSE 13.0 17.0 15.0 /C 18.7 l0.5 CHILD (AGES 1-4) DEATH RATE 28.6 21.4 12.0 23.1 16.6 LIFE EPECT. AT BIRTH (TEAM> 48.5 53.2 58.9 a7.8 32. INFART mORT. RATE (PER TOuS) 143.0 122.0 97.0 119.5 108.8 ACCESS TO SAVE IATEK (CPOP) TOTAL .. 15.0 47.0 /8 27.1 42.4 URBAN .. 86.0 72.0 16 63.5 67.5 RURAL .. 14.0 33.0 19.3 35.8 ACCESS TO ECRETA DISPOSAL (< OF POPULATION) TOTAL .. 55.0 27.0 le 26.5 28.9 URBAM .. 92.0 47.0o 65.4 57.7 RUAL .. 40.0 17.0 i 20.8 20.7 POPULATION PER PIYSICIAN 21690.0 12920.0 7160.0 27901.7 11791.7 POP. PER NURSING PERSON 5410.0 if 1070.0 770.0 /d 3308.4 2459.8 POP. ER SPITAL ED TOTAL 1290.0 760.0 580.0 1273.6 951.1 URBAN 290.0 /f 770.0 830.0 le 428.2 368.8 &URAL 47390.0 f 890.0 730.0 7c 3292.5 4371.9 ADMISSIONS PER HOSPITAL BED .. .. .. .. 27.2 IMORSIMC AVEROGE SIZE OF HOUSEOLD TOTAL .. 4.7 URBAN RUR .. AWERAGE HO. OF PERSONS/ROOn TOTAL .. URBAN .. URAL .. PERCENTAGE OF iMELLINCS MIT ELECT. TOTA .. URa ........ -32 - ANNEX I TAtLE 3A Page 2 of 6 GHANA - SOCIAL INDICATORS DATA SHEET GHANA REFERENCE SROUPS (WEIGHTED AVERAGES) la MST (MST RECENT ESTIMATE) Ab RECENT LO INCOME AFRICA MIDDLE INCOME 196 197 ESTmAT SOUTH OF SAHARA AFRICA S. OF SAHARA EuCarn ADJUSTED ENROLINENT RATIOS PRIMARY: TOTAL 38.0 64.0 76.0 67.6 95.7 MALE 52.0 73.0 85.0 77.6 100.0 FEMALE 25.0 54.0 66.0 54.9 83.2 SECONDARY: TOTAL 5.0 14.0 34.0 13.5 17.3 MALE 9.0 21.0 42.0 17.9 25.0 FEMALE 3.0 8.0 26.0 9.1 14.8 VOCATIONAL (Z OF SECONDARY) 3.3 23.3 1.9 13.2 5.9 PUPIL-TEACHER RATIO PRIKA9Y 31.0 30.0 31.0 44.9 41.1 SECONDARY 16.0 17.0 22.0 27.4 25.5 CONSlMPTINe PASSENGER CARSITHOUSAND POP 3.0 4.6 6.8 /c 3.8 2U.8 RADIO RECEIVERS/THOUSAND POP 42.8 81.6 170.9 55.8 107.8 TV RECEIVERS/TOUSAND POP 0.1 b I.9 5.9 2.6 20.8 NEWSPAPER ("DAILY CENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 29.9 58.0 30.9 Id 5.0 18.4 CINEMA ANNUAL ATTENDANCE/CAPITA 1.6 2.2 0.4 7d 0.5 0.4 LABDR FOICE TOTAL LABOR FORCE (THOuS) 2931.0 3424.0 4522.0 FEMALE (PERCENT) 42.6 42.1 41.3 34.2 36.2 AGRICULTURE (PERCENT) 64.0 58.0 53.0 le 77.5 54.5 INDUSTRY (PERCENT) 14.0 17.0 20.0 W 9.7 18.3 PARTICIPATION RATE (PERCENT) TOTAL 42.9 39.7 35.6 39.3 36.8 MALE 50.0 46.6 42.1 50.9 47.1 PEALE 36.0 33.0 29.4 20.1 27.2 ECONOMIC DEPENDENCY RATIO 1.1 1.2 1.4 1.3 1.3 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5% OF HOU5EOLDS HIGHEST 20 OF HOUSEHOLDS .. LOtEST 202 OF HOUSEHOLDS .. LOEST 40% OF HOUSEHOLDS .. POWERTY TAST GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 307.0 1i 165.5 590.7 RURAL .. .. 150.0 95.0 275.3 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 156.0 l 113.1 545.6 RURAL .. .. 130.0 67.6 201.1 ESTIMATED POP. BELW ABSOLUTE POVERTY INCOME LEVEL (M) URBAN .. .. .. 36.6 RURAL .. .. .. 61.8 NOT AVAILABLE NOr APPLICABLE NOTES /a The group averages for each indicator are mopulation-mighted arithmetic means. Obverage of countries asong the indicators depends on availability of data and is not uniform. lb Unless otherise noted, "Data for 1960" refer to any year between 1959 and 1961; "Data for 1970" between 1969 and 1971; and data for "Nost Recent Estimate" between 1981 and 1983. /c 1977; Id 1979; lA 1980; /f 1962; A Public education only; Ab 1964; /i 1978. JUNE, 1965 -33 - ANNEX I Page 3 of 6 DEFINIMONS OF SOCIAL INDICATORS Notesr Although the data arc drawn from sources generally judged the most authoritative and relabie, it should also be noted that they may not be internatsonally comparable because of the lack or standardized definitions and concepts used by different countrics in collecting the data. The data are, nonctheless. useful to describe orders of magnitude. indicate trends, and characterize certain major differences betwten countries. The reference groups are (3) the same country group of the subject country and (2) a country group with somewhat higher average income than the country group of the subject country (except for -High Income Oil Exporter group wher "Middle Income North Africa and Middle East' is chosen because of stronger socio-cultural affinities). In the reference group data the averages are population weighted arithmetic means for each indicator anJ shown only when majority of the countries in a group has data for that indicator. Since the coverage of countries among the indicators depends on the availability of data and is not uniform. caition must be esercised in relating avcrages of one indicator to another. These averages are only useful in comparng the value ofone indicator at a time among the country and reference groups. AREA (thousand sq.km.) Crude Brth Rate (per thouamnd)-Number of live births in the year Total-Total surface area comprising land area and inland waters; per thousand of mid-year population 1960. 1970. and 1983 data 1960. 1970 and 1983 data. Crude Death Rate (per rhousand)-Number of deaths in the year Agricukral-Estimate of agricultural area used temporarily or per thousand of mid-year population; 1960. 1970. and 1983 data. permanently for crops. pastures, market and kitchen gardens or to Gross Reproductis Rate-Average number of daughters a woman lie fallow. 1960. 1970 and 1982 data. will bear in her normal reproductive period if she experiences present age-specific fertility rates; usually five-year averages ending GNP PER CAPITA (USSF-GNP per capita estimates at current in 1960. 1970. and 1983. market prices. calculated by same conversion method as World Faml PIaing--Acceprors, Annual (thousandsu-Annual num- Bank Atlas (1" 1-83 basis); 1983 data. ber of acceptors of birth-control devices under auspices of national ENERGY CONSUMPTION PER CAPITA-Annual apparent family planning program. consumption of commercial primary energy (coal and lignite. Fasmily Paasil--sers (percent ofnsarried women) -The percen- petroleum. natural gas and hydro-. nuclear and geothermal elec- tage of married women of child-bearing age who are practscing or tricity) in kilograms of oil equivalent per capita; 1960. 1970. and whose husbands are practicing any form of contraception. Women 1982 data. of child-bearing age are generally women aged 15-49. although for some countries contraceptive usage is measured for other age POPULATION AND VITAL STATISTICS groups. Toa pateon, Mid-Year (thousands) -As ofJuly I; 1960.1970. FOOD AND NUTRIlON and 1983 data. Index offFood Prodction Per Capita (1969-71 = 10) - Index of per Urban hpuatin (percent of rotarf-Ratio of urban to total capita annual production of all food commodities. Production population; different definitions of urban areas may affect compar- excludes animal feed and seed for agriculture. Food commodities ability of data among countries; 1960. 1970. and 1983 data. include primary commodities (e.g. sugarcane instead of sugar) hpmaiou Projections which are edible and contain nutrients (c.g. coffee and tea are Popslation in year 2000-The projection of population for 2000. excluded) they comprise cereals. root crops. pulses, oil seeds. made for each economy separately. Starting with information on vegetables, fruits, nuts, sugarcane and sugar beets. livestock. and total population by age and sex, fertility rates, mortality rates, and livestock products. Agg.'egate production of each country is based international migration in the base year 1980. these parameters on national average prolucer price weights; 1961-65. 1970. and were projected at five-year intervals on the basis of generalized 1982 data. assumptions until the population bcame stationary. Per Capita Supply ofCalories (percear ofrequireseats--Comput- Srationary population-Is one in which age- and sex-specific mor- ed from caloric equivalent of net food supplies available in country tality rates have not changed over a long period, while age-specific per capita per day. Available supplies comprise domestic produc- fertility rates have simultaneously remained at replacement level tion. imports less exports. and changes in stock. Net supplies (net reproduction rate= 1). In such a population, the birth rate is exclude animal feed. seeds for use in agriculture. quantities used in constant and equal to the death rate, the age structure is also food processing. and losses in distribution. Requirements were constant, and the growth rate is zero. The stationary population estimated by FAO based on physiological needs for normal activity size was estimated on the basis of the projected characteristics of and health considering environmental temperature. body weights. the population in the year 2000. and the rate of decline of fertility age and sex distribution of population. and allowing 10 percent for rate to replacement level. waste at household level 1961. 1970 and 1982 data. Population Momentum-Is the tendency for population growth to Per Capita Supply of Protein (grams per day)-Protein content of continue beyond the time that replacement-level fertility has been per capita net supply of food per day. Net supply of food is defined achieved; that is. even after the net reproduction rate has reached as above. Requirements for all countries established by USDA unity. The momentum of a population in the year t is measured as provide for minimum allowances of 60 grams of total protein per a ratio of the ultimate stationary population to the population in day and 20 grams of animal and pulse protein. of which 10 grams the year t, given the assumption that fertility remains at replace- should be animal protein. These standards are lower than those of ment level from year t onward. 1985 data. 75 grams of total protein and 23 grams of animal protein as an Pbpuation Density average for the world. proposed by FAO in the Third World Food Per sqkn.-Mid-year population per square kilometer (100 hec- Supply; 1961. 1970 and 1982 data. tares) of total area; 1960. 1970. and 1983 data. Per Capita Protein Supply From Animal and Purlse- - Protein supply Per sq.km. agricultural land-Computed as above for agricultural of food derived from animals and pulses in grams per day: 1961-65. land only. 1960. 1970. and 1982 data. 1970 and 1977 data. Popdatioa Age Structurre (percent)-Children (0-14 years). work- Child (ages 1-4) Death Rate (per hastsad)- - Number ofdeaths of ing age (15-64 years). and retired (65 years and over) as percentage children aged 1-4 years per thousand children in the same age of mid-ycar population; 1960. 1970. and 1983 data. group in a given year. For most developing countries data derived Populatiow Growth Rate lpercrAt)--toL--AnnuaI growth rates of from life tables; 1960. 1970 and 1983 data. total mid-year population for 1950-60, 1960-70. and 1970-83. HEALTH Popstlion Growth Rate (percent)-rbaw--Annual growth rates Life Expectancy at Birth (years)-Number of years a newborn of urban population for 1950-60. 1960-70. and 1970-83 data. infant would live if prevailing patterns of mortality for all people - 34 - ANNEX I Page 4 of 6 at the time of of its birth were to stay the same throughout its life. Pwupi-teacher Ratio - primary. and secondary-Total students en- 1960, 1970 and 1983 data. rolled in primary and secondary levels divided by numbers of lufart Marseay Rate (per thossand)-Number of infants who die teachers in the corresponding levels. before reaching one year of age per thousand live births in a given year; 1960. 1970 and 1933 data. CONSUMPTION Access ta Sqdr Waer (perce"t of popaiema) , wim, and Paasseger Cars (per thomnd populato)-Passenger cars com- real--Number of people (total, urban, and rural) with reasonable prie motor cars seating less than eight persons; excludes ambul- access to safe water supply (includes treated surface waters or ances, hearses and military vehicles. untreated but uncontaminated water such as that from protected RadF* Receivers (pe thouraidpapadon)-All types of receivers borcholes, spigs and sanitary walls) as percentages of their aspc- for radio broadcasts to gepneral public per thousand of population. tive populations. In an urban area a public fountain or standpost excludes un-licensed receivers in countries and in years when located not more than 200 meters from a house may be considered registration of radio sets was in eKect; data for recent years may as being within reasonable access of that house. In rural arei not be comparabi since most countries abolished licensing. reasonable access would imply that the housewife or members of the houselhold do not have to spend a disproportionate part of the day TV Receivers (per thassandpoplatiom)-TV receivers for broadcast in fetching the family's water needs. to general public per thousand population. excludes unlicensed TV Access re Excrets Dispost (percer of receivers in countries and in years when registration of TV sets was Accssno xeet Dipoal(pecet f 'popubaion)--tal aran in effect. aE rewl-Number of pcople (total, urban, and rural) served by excreta disposal as percentages of their respective populations. Newspaper Creilatous (per thosandpopa omr)-Shows the aver- Excreta disposal may include the collection and disposal. with or age circulation of "daily general interest newspaper." defined as a without treatment, of human escreta and waste-water by water- periodical publication devoted primarily to recording general news. borne systems or the use of pit privies and similar installations. It is considered to be 'daily" if it appears at least four times a week. Pbpolain per Physicimn-Fpulation divided by number of prac- Ciarma Amal Attendance per Capita per Year-Based on the tising physicians qualified from a medical school at university level. number of tickets sold during the year, including adrussions to Popaadon per Nursin Persow-Plpulation divided by number of drive-in cinemas and mobile units. practicing male and female graduate nurses, assistant nurses, practical nurses and nursing auxiliaries. LABOR FORCE Popelideno per Hepital Bedro1, whom, ad raral--Plbpulation Total Labor Force (thousands)-Economically active persons, in- (total, urban, and rural) divided by their respective number of cluding armed forces and unemployed but excluding housewives. bospital beds available in public and private, general and specialized students, etc.. covering population of all ages. Definitions in hospitals and rehabilitation center Hospitals are establishments various countries are not comparable; 1960. 1970 and 1983 data. permanently staffed by at least one physician. Establishments prov- Fedrk (peren)-Female labor force as percentage of total labor iding principally custodial care are not included. Rural hospitals. force. however, include health and medical centers not permanently staffed Agricature (percent)-Labor force in farming, forestry. hunting by a physician (but by a medical assistant, nurse, midwife, etc.) and fishing as percentage of total labor force; 1960. 1970 and 1980 which offer in-patient accommodation and provide a limited range data. of medical facilities. Indastry (percent)-Labor force in mining, construction. manu- Adndssions per Hospital Bedl-Total number of admissions to or facturing and electricity. water and gas as percentage of total labor dischargcs from hospitals divided by the number of beds. force; 1960. 1970 and 1980 data. P*rtiaimion Rate (perooxrj-rorta. male, adfensle--Participation HOUSING or activity rates are computed as total, male. and female labor force Aeage Sie of Hesebold (persons per houseold-total, arban. as percentages of total, male and female population of all ages adr&ral-A household consists of a group of individuals who share respectively; 1960. 1970, and 1983 data. These are based on ILO's living quarters and their main meals. A boarder or lodger may or participation rates reflecting age-sex structure of the population. and may not be included in the household for statistical purposes. long time trend. A few estimates are from national sources. Aveage Number of Pers per Room-toet arban, and rural- Ecanomic Depedeacy Rati-Ratio of population under I5. and Average number of persons per room in all urban, and rural 65 and over, to the working age population (those aged 15-64). occupied conventional dwellings, respectively. Dwellings exclude non-permanent structures and unoccupied parts. INCOME DISTRIBUTION Pecewntage of Delfags with eericiry-ttal, arban, and ra- Pareage of Total Disposable Jacome (both in cash and kind)- Conventional dwellings with electricity in living quarters as percen- Accruing to percentile groups of households ranked by total house- tage of total. urban. and rural dwellings respectively. hold income. EDUCATION POVERTY TARGET GROUPS Adumed Emrene Rarios The following estimates are very approximate measures of poverty Primary school - toral maLe and femal-Gross total, male and levels. and should be interpreted with considerable caution. female enrollment of all ages at the primary level as percentages of Estimated Absolute Pbverty Income Level (US5 per capir)-rban respective primary school-age populations. While many countries and ravar-Absolute poverty income level is that income level consider primary school age to be 6-11 years. others do not. The below which a minimal nutritionally adequate diet plus essential differences in country practices in the ages and duration of school non-food requirements is not affordable. are reflected in the ratios given. For some countries with universal Estimated Relative Poverty Income Level (IS5 per capirts)--rban education, gross enrollment may exceed 100 percent since some and raral--Rural relative poverty income level is one-third of pupils are below or above the country7s standard primary-school average per capita personal income of the country. Urban level is age- derived from the rural level with adjustment for higher cost of Secandwy school - toral, male and female-Computed as above. living in urban areas. secondary education requires at least four years of approved pri- Etinmared Population Befow Absolure Poverty Income Level (per- mary instruction; provides general. vocational. or teacher training cen)-arbmn and rua- Percent of population (urban and rural instructions for pupils usually of 12 to 17 years of age. correspond- who are "absolute poor.- once courses are generally excluded. Vocational Enroilmen (percent of secondary)-Vocational institu- Comparative Analysis and Data Division tions include technical. industrial, or other programs which operate Economic Analysis and Projections Department independently or as departments of secondary institutions. June 1985 - 35 - ANNEX I Page 5 of 6 GE~ annac nonma OP P CAFITA IN 1984: US$350 1/ G S M L P£UI= IN 1984 1/ AmRAL RE G~ f ( Constant Prices) cdi Mll. _ 1979-64 GO at M~rket Prices 287,507 100.0 -2.0 Gross Domestic Invest~int 21.068 7.3 -5.9 Gross at~iml Savg 13,267 4.6 -14.7 Owrent Accomt Bhael 7,801 2.7 - Erport of Goods, 1MS 21,356 7.4 -10.4 Iport of Gods, NS 28,911 10.1 -8.7 W11Ur IA R tm C Output In 1984 Labor Force, 1983 Cedis MUl. 2Ma.. % Agricute 141,904 51.3 2.584 57.2 InrSrry 23,434 8.5 0.691 15.3 Services 111,150 40.2 1.242 27.5 GP at Factor Cost 276.488 100.0 4.517 100.0 nEIZ FDME 1983 1984 Cdis MiL Zof P 2/ CAis Mil Y ofGDP Total Revenie and Grats 10,241 5.3 22,641 7.9 Total E»pnr1iitre aid Net Lndrig 15,178 7.9 27,485 9.6 owrall Defide (-) -4,937 -2.6 -4,844 -1.7 IEY, CR AMD PRICE 3/ 1977 1978 1979 1980 1981 19982 1983 1984 Money and Qusi-winey 3,044 5,131 5,942 7,949 12,029 14,837 20,803 31,962 Bank Credit to Eublic Sector 3,203 5,636 6,537 8,480 14,043 17,140 29,392 41,747 Bank Credit to Private Sector 560 739 796 940 1,342 1,558 2.838 5,978 (Percentages or Inde~ Numbers) Mnyanduasi-nney as % of GP 27.3 24.4 21.1 19.4 15.7 16.7 9.8 11.1 Gea Pr~e T1 (1977-100) 100.0 173.1 267.3 401.2 868.6 1062.4 2367.4 3,307.3 1/ Staff FAtImtes. 2/ Ratüs are e"lael on a recently revis~d QP series. S rkm IFS - 36 - ANNEX I Page 6 of 6 æåNA BAIAN CF PAImEI ME A1MISE M (AVERA 1980-84) 1983 1984 1/ <[E$ mifla y US$ milmli Trade Bulme -100 -102 Cocoa Beans & Products 458.2 66.9 E~ports f.o.b. 439 566 Gold 134.0 19.6 Iaorts c.i.f. 539 668 Res~rual Oil 32.9 4.8 Ti~ber 24.3 3.5 Invisibles (Net) -130 -113 Electricity 13.0 1.9 Servics -147 -186 Manganese 7.2 1.0 Tranfers 17 73 Diamond 5.6 0.8 All Other Goods 10.1 1.5 Current Balance -230 -215 Total 685.3 100.0 Capital Acrmts Grants 72 141 Offical Capital (Net) 28 88 3MIENL DEI, DBEIBER 1984 Private Capital (Net) 14 -12 Capital ne.s. 21 -127 -123 US$ Mi. Overafl Bennce 2/ -243 -121 Ttal Ditstanding and Dibursed MSLT 1,122.4 Arrears Paymnte -34 -61 Gross nternatioal Reserves (End of Peri~d) 31 217 393 DEBT SERVICŒ _ATI KR 1984 4/ February 1973 - June 18, 1978 Total autstanding and US$1 - t1.15 Disbsed MLT 29.3 Total Qtstanding and Since Aug. 26, 1978, US$1 - C 2.75 Disbursed inc. payment arrears 39.3 Since April 21, 1983, US$1 - 924.69 Since Ort. 10, 1983, US$1 - C30.00 IBEDIDA LDIE (June 30, 1985) Since March 25. 1984, US$1 - 005.0 Since kugsst 25, 1984, US$1 - 38.50 _D Since D.r..her 3, 1984,US$1 - C50.00 Sine April 19. 1985, US$1 - C53.00 Outstandig & Disbursed 122.31 206.56 lnre August 12, 1985. US$1 - t57.00 Undisbursed 5.80 178.86 Since GOt. 7. 1985, US$1 - Ø60.00 outstanding, incl. S-nre Jan. 11, 1986 US$1 - t90.00 Undisbursed 128.11 385.42 il Prødsional estifnte subject to change. 2/ Trndr errors and cnfasr . 1 Tncidlng gDld at natioal valuatio. 4/ As Z of eCports of ~pods an n-fator services (ørrm~es short-term det). February 1986 - 37 - TDE STl OF BDK M P G ERATIiE n GENA 11 STA1MlN OF BMi AMS AVD ID CMES (As of ~eo e 31, 1985) Lown or Pxmut (UliC1)1 2 mdit FIgcal s Carl-ari Year BorrowEr Pupk IDA Undisburasd 31 Ten 1ana andm thirteen credi= fully di~bursed 189.7 107.4 901-Ml 1979 Repli of ~hn Second NIB 19.0 2.0 1009-E 1980 Republc of (~an Volta Rego Ag.Dev. 29.5 21.6 1029-GR 1980 Republic of Ghana 1ird ig ay 25.0 1.6 1170-GE 1981 Repulc of Chana Ruil~y 29.0 12.2 1327-M 1983 Republic of anva Reconstreo CDMW 9.3 9.5 1342-al 1983 Republc of Ghana Wter Supply 13.0 5.8 1373-I 1983 Republc of (~ana lbrEy Project 11.0 8.1 1393-Ml 1983 Repuic of (ana Raronernekx Import Cr. 40.0 6.9 1435-Ml 1984 R%e1Lk of ~auna liport Re tabtli nm 40.1 33.9 F009-QM 1984 Rpublic of (~ana Esport Rebbiliendx 35.9 32.0 1436-GI 1984 ep1uic of Ghana lport Rebbilitn~ Techdca] Assistace 17.1 11.6 1446-GI 1984 Republic of Pwia Betrol~m Refinery Rebeb. and Tecimie 1 Assistance 6.9 5.6 1498-GI 1984 Republic of fa Second Ol Palm 25.0 23.2 1564-GI 1985 Repn*Uc of a Acra District Rbab. 22.0 22.9 1573-2 1985 Repub1ic of Ghana sennr1 Reconstretim Iports Credit 60.0 45.5 A003-mH 1985 Republic of Gann Second Reconstructix Tfforts Credit 27.0 27.0 1601-GI 1985 Repu1bic of Ghana Road RebMbltatm and Måinteawe 40.0 41.4 Af01-GI 1965 Republic of Qana Road eb1billtatci and Nåintenance 4/ 10.0 10.0 1628-MI 1986 Republic of Qumua Bouer System Rebbilltationm 28.0 28.0 Total 189.7 595.2 348.8 of ~dch bas been paid 66.8 4.7 Total nov outstan~ng 122.9 590.5 AMMr sold 0.4 of ~dch has been repaid 0.4 0.0 0.0 Total ow beld by Bank & IL 122.9 590.5 Total undisbur d 0 348.8 348.8 11 TM staeus of the project listed in this part is inerher1 in a seperate report on all Bank/ Menane r projects in eutim, ~dch is ~pdMtd twic yearly and drclad to the lEcutive Dfrectors on April 30 and etcber 31. 2 Prior to edumg adjutme. 31 '.lrla el at the Oe~nE rate applienail ona Dw er 31, 1985. / Not y.t effective as at Decler 31, 1985. - 38 - ANNEX III GHANA INDUSTRIAL SECTOR ADJUSTMENT CREDIT SUPPLEMENTARY CREDIT DATA SHEET Section I: Timetable of Key Events (a) Time taken to prepare the project : Three months (b) Project prepared by : Ministry of Industries, Science and Technology and the Bank of Ghana (c) First presentation to the Bank : March 1985 (d) Departure of appraisal mission : August 1985 (e) Date of completion of negotiations: February 21, 1986 (f) Planned date of effectiveness : July 1986 Section II: Special Bank Implementation Action None Section III: Special Conditions (a) Conditions of Effectiveness - signing of a satisfactory Administration Agreement between the Government and the Bank of Ghana (para 65); (b) Conditions of Release of Second Tranche (para 73) (i) submission of a satisfactory 1987 annual import program for industry; (ii) approval of a phased program of import liberalization acceptable to IDA; and (iii) satisfactory implementation, during 1986, of agreed export promotion measures. (c) Other Conditions (i) Ministry of Industry to follow agreed principles while making its annual import program (para 61); (ii) Bank of Ghana to follow agreed eligibility and evaluation criteria for sub-loans under the industrial rehabilitation component (para 62). -39 - ANNEX IV GHANA INDUSTRIAL SECTOR ADJUSTMENT CREDIT DOCUMENTS IN THE PROJECT FILE Ref. No. Document Title 1. Ghana: Industrial Policy, Performance and Recovery Report No. 5716-GH, September 30, 1985. Document No. GH-Industry Sector-BR Volume I : Main Report Volume II: Appendices 2. Ghana: Priorities for Public Expenditures (1986-88) Report No. 5824-GH, August 13, 1985. Document No. GH-LEAP-BR 3. Republic of Ghana: Progress of the Economic Recovery Programme 1984-86 and Policy Framework, 1986-88. October 1985. (Report distributed by the Government to the Third Meeting of the Consultative Group for Ghana in November 1985.) Document No. 227.66i Working Papers (WP) 4. WP No. 1: Proposals for Strengthening of Ministry of Industries, Science and Technology. Document No. 228.402 5. WP No. 2: Proposals for strengthening of Policy Planning Capabilities in Ministry of Finance and Economic Planning. Document No. 228.403 6. WP No. 3: Role and Institutional Strengthening of the Bank of Ghana. Document No. 228.404 7. WP No. 4: Support to Central Bureau of Statistics. Document No. 228.405 8. WP No. 5: Support to Ghana Standards Board and Food Research Institute. Document No. 228.406 I� ���+е I� � �,� � � � � � � � � � � � � �� А � � ~ 1I � ��� �' � � . � � i �� Lв .� �� � � � �� а в gQ � ,�,�„ �� � �, .. � .. . � VQ, � � � j л .++ � � М м А F•a ■ 1О+1 � � о �. � .. R /� в � м � � � '�' R■ ■6рΡ■ �� �~ � "- � V у � /У � � �� � � � � � у ь � уΡо. 5 � � i' • У+ F+ М f^ F' � � �ь.�и�� � � ��а1� ��1� а�����в1� ����� ��t��1� и е. �`� � г- г�+ а �,,, w ч, а", � и N i v М v о� � О� А��� ��� р'i.� Р��� � � G fa` � гВ � ��� д� ��i� � & i� � V.. � �� � г� �д �ё � � .. oi� �� � ь. и иI� �+ � �� �' и��! д� �рΡ� Lц~�' ��рΡ gв �Т�" ~ Oa�i иw Ч �й�'��и �01йG�йМ�� � г� i� f1, �i � i8 � �Its 7F 6�� � � G � � � F {+ � (� �а G �i�I� й .� и а �� w � � � й �+ �+�"ь. bs й.L�.•°�� i� o�i�0!_ .. : '•: : '.' г- .. r и�F"+��i � �FCqati� i-L�toйi�i�� �'�� � х �Ф�� �1."6I� �������� ss»1�� ����w�� , ^' L'! л [�] � !r �� � � � � �и � � � � �� а • �"�' у � � � .• нu�.+r�+иwr, ои.�и� W о�а� � ��ё�.- L. в о � ►�� t��������� �"гз��. � �ь.иь� , х � г � �о • w � � ° � ' � � � � � � � ( ! � �r � ��� � � � � � � � � � w�i� 8� �в• й д ,F'�' � в� в� в� � � � � „ �, � . S Н ь � а �� 8 .. .. , 8� �' � „ ,. ь ь � � р � � i �' �ь и л � � � � � � ~ '� ' в ' � � д � ,r .. .. . � Н н �� � � � � � ь Н ,... .. � � . � � � _ � �� � �+ о i 5' $��q .. .. ^ 'GI� � G о G..'�sli'�м � � $ (� �'' +i ь� I�+1ьд i'м .� г� в+ О в� и�I� �р •�уΡ4p. }� �е _�рΡ �Ч Р А i�47 Irв1I� Й � i+ L` � О�� д� О�i�IO Р W 00 п.Ill�� i ► � У i� а �1�� �О М н ь. ь. W�i/I�IW � � г- ,"�' '+ �� ►>�al� IйIG � н�Q в+nё�1 ьr. �Lt �g ia !� " +, �й�tТΡ� ы�-Й R � � Oi ��"IY3 �GI� ■ Ы О, Р i� 5� b I�� й� V Й,О Ч iII.+I �� I�I� � й � С �j в+ •� r+ ы�рΡ� � I•уΡ•g� �� М ь• J�� $�� ISI� � � о� $ ��� ' � �1� � � � �,W, ч s° L{у� 1� �' r' с' 1 ., �� � 1 11 Iгй� .-иb���оиi.� - 41 - ANNE31 VI Page 1 of 15 REPUBLIC OF GHANA MINISTRY OF FINANCE AND ECONOMIC PLANNING P.O. BOX M.40 ACCRA February 21, 1986 Dear Mr. Clausen: Subject: Industrial Goals and Policies 1. 1 am writing in connection with the proposed Industrial Sector Adjustment Credit to inform the International Development Association about the industrial development goals being pursued and the policy reform actions which the Government has already taken or proposes to take to reform Ghana's industrial sector. The ultimate goal is to restructure the industrial sector so as to concentrate on those activities that are the most viable and sustainable over time, that are vell integrated with the domestic economy, and that can produce goods at competitive prices for both Ghanaian consumers and export markets. The Gove, ent's specific indus- trial development objectives and the broad strategy for achieving then are described in detail in a Statement of Industrial Policy which has been publicly issued; the Statement is attached to this letter for your informa- tiou. 2. As you know this government launched an Economic Recovery Pro- gramme (ERP) in 1983 to revive a deteriorating economy. The first phase of the ERP is now coming to a close and as a result of it the economy, and living standards of people, have begun to show improvements. In order to strengthen and build further upon the successes of the first phase (1983-85) of ERP the Government has formulated a second phase covering a three-year (1986-88) period. The issues to be dealt with under the second phase of ERP are similar to those addressed under the first phase, but the emphasis will be to shift tha leading edge of policy reform from macro- economic to sectoral concerns to lay the basis for renewed, vigorous and efficient growth in the key sectors of agriculture, energy* industryg education and health. Against this background, the Goverment is asking the International Development Association to grant a credit to support the recovery and the development of an efficient industrial sector. 3. The report presented by the Government to the Consultative Group, in November 1985, describes the main features of the second phase of the ERP covering the period 1986-88. In this letter, I will describe in more detail the Goverment's objectives and actions taken or planned in five major areas of policy reforms, critical to the restructuring of the indus- trial sector: promotion of non-traditional expGrts, the import regime, industrial public enterprises, public investment in the industrial sector, and industrial finance. Export Promotion 4. One of the fundamental objectives of the ERP is to increase exports from all sectors at an average rate of about 12Z per annum in - 42 - ANNEX VI Page 2 of 15 current dollars. The industrial sector will be expected to reorient itself toward foreign markets so as to ensure its sustained growth, contribute to increased exports and thus earn a larger share of its import requirements. Exchange rate adjustments and automatic retention of a portion of export earnings constitute the main elements of the export incentive package currently in place. The Government, on January 11, 1986, devalued from 0 60 - $1 to 0 90 - $1. This has improved the profitability of exports both in absolute terms and relative to domestic sales. The flexible exchange rate policy already in effect will continue with a view to ensur- ing the high and stable profitability of the export sector. 5. In order to overcome procedural impediments to exports, the Government is actively considering measures (as set out in the attached Statement of Industrial Policy) in close consultation with the Association. These include a system whereby exporters will no longer need to be ins- cribed on a list of registered exporters before beginning to export; and the scrapping of the current requirement of export permits for all exports, except for those few items temporarily placed on an export reserve list in light of a set of criteria. The documents required by Government for most exports (for customs clearance, foreign exchange administration and statis- tical purposes) will be simplified. 6. To provide further incentives to exporters of non-traditional products, the Government is also considering two ways of improving the foreign exchange retention scheme: first, by increasing the percentage of earnings to be retained by exporters of non-traditional products from 20% to 25Z; and secondly, by increasing the flexibility of utilization of retentions. Efforts will continue to administer the scheme efficiently and flexibly. The customs duty drawback scheme for imports for exporters will be reinstated on an automatic basis. A tempcrary duty-free admission of imports under tolling ariangements and other steps to promote tolling are under consideration. To assist exporters with credit needs between the time of shipment of goods and receipt of the foreign exchange proceeds, the Bank of Ghana is considering the introduction of a rediscounting facility. 7. Finally, the Ghana Export Promotion Council will be given appro- priate autonomy. standing, composition, staff, and budget. It would be responsible for monitoring the improvement of the policy and administrative framework for exports, bringing together the Government and exporters, carrying out needed studies of export potential and problems, and export promotion activities in Ghana and abroad. Decisions on measures listed in paras 5 to 7 are expected to be taken by some time in April 1986, and the Government intends to have them in place by the end of 1986. Import Regime 8. The Government's medium term objective is to provide adequate but not excessive protection to the domestic industry. This objective would be pursued through a combination of appropriate exchange rate, tariff, and trade policies. The tariff structure was simplified in 1983 so that most industry-related goods are subject to a 30% tariff and a few 25%. This - 43 - ANNEX VI Page 3 of 15 tariff structure provides a relatively uniform pattern of protection. However, the protection afforded by import quotas and the strict allocation of foreign exchange in many cases exceeds that of the tariff structure. The Government has taken substantial steps to adjust the exchange rate and as a result the real effective exchange rate has depreciated by over 80% during the 1983-85 period. In January 1986 the Government further adjusted the exchange rate from 0 60 - US$1.00 to 0 90 - US$1.00. This would effec- tively raise the nominal price of imported industrial inputs by 70 percent, encourage greater utilization of domestic inputs, help curb the excessive demand for imports thereby facilitating import liberalization, and improve the international competitiveness of the industrial sector. The Government intends to keep the exchange rate under review and make further adjustments as necessary to achieve policy goals. The Government is currently consult- ing with the International Monetary Fund on the pace and manner of further exchange rate adjustments. 9. The Government is aware of the limitations of the present system of import licensing which determines administratively the uses of foreign exchange and creates opportunities for rent-seeking activities. While a number of efforts have been made to streamline import licensing procedures and further measures are contemplated in this area, the Government has already taken two significant steps in the area of import liberalization. First, under the Special Unnumbered Licenses (SUL) system, which was reactivated under the recovery program, it is possible to import a wide range of goods when the importer arranges his own foreign exchange (from remittances and other sources). The SUL system is useful in three respects: (a) it eases the overall supply situation by making available a wide range of consumer goods for which, under a tight foreign exchange situation, it would not be possible to allocate foreign exchange from official sources; (b) it places a ceiling on the level of effective protec- tion afforded by quantitative restrictions to local producers by making available competing imports at the parallel market exchange rate plus SUL duties; (c) it provides an alternative means for efficient producers to procure additional inputs or spares beyond the amounts available through the import licensing regime. Full realization of these benefits was somewhat hampered by the requirement that only goods appearing on a list specified by the Ministry of Trade could be imported under SULs, and by the fact that special taxes on SULs made no distinction between imports of inputs and spares for domestic manufacture and imports of consumer goods. The Government has, therefore, recently further liberalized imports under SULs by shifting from a positive to a small negative list. Further, in order to encourage the use of SULs for imports of industrial raw materials and spares, the Government has agreed to make taxes and special charges on SUL imports of these inputs by registered industrial enterprises eligible for waivers and credits on the same basis as for ordinary imports of inputs. Second, it has introduced export retention scheme to enable exporters to meet their foreign exchange needs. Urgent consideration is now being given to increasing the percentage of earnings retained and further liberalization of the use of these retention accounts (see para. 6 above). - 44 - ANNEX VI Page 4 of 15 10. While these measures have already introduced a significant degree of import liberalization, the substantial progress already made towards a realistic exchange rate and the further progress planned will enable over time a gradual integration of these various foreign exchange markets. In the short term, however, it becomes important to further liberalize imports for the productive sectors of the economy. With this in view a Working Group has been established that is charged with the task of developing detailed alternative proposals for easing restrictions on inputs for industry and other key sectors in a phased manner, taking into account the progress already made in this direction and the continuing tevere foreign exchange constraints facing the country. The Group has been asked to submit its report by end June 1986. If the Group is to meet this deadline it may be necessary to ask the Association to provide some technical assistance to the work of the Group. The Working Group's report will be discussed with the Association, and subject to agreement with the Associa- tion, it is Government's intention to launch the first phase of an import liberalization program at the beginning of 1987. Industrial Public Enterprises 11. The Government is currently reviewing a report (prepared with UNDP and World Bank support) on reform and restructuring of state-owned enterprises (SOE). During the 1986-88 period the Government intends to restructure the SOE sector, through institutional restructuring, management reform, selective rehabilitation, and reducing the role of the state in selected SOEs through encouraging joint ventures and divestiture. An action plan is being drawn up by a Task Force of the Government and two sub-committees have been established to pay particular attention to the issues of labor deployment and redundancy and to the planning or the selected divestiture of state shareholdings. Given the large number of SOEs in the industrial sector, their restructuring would be a major compo- nent of the action plan. 12. The Statement of Industrial Policy sets out clearly the Govern- ment's objectives. In industry the overall strategy aims at limitiag the direct participation of the state to critical areas in which there is a gap in the availability of private investment or some other exceptional justi- fication ior direct public intervention. Industrial SOEs will be expected to operate on a commercial basis and not depend on Government financing. 13. The SOE task force has recommended far-reaching changes to Government which are in process of consideration and decision. The propos- als include the division of SOEs into three groups: for retention, joint ventures and full divestiture or liquidation. The Government has already decided that a number of SOEs are candidates for turning into joint ventures, such as Bonsa Tire, Tema Food Complex, State Construction Company and Ghana Sugar Estates among others. Since divestiture requires appropriate machinery and will take time even if successful, these arrangements are being set in motion, while transitional measures (including any necessary recapitalization) for joint venture candidates are - 45 - ANNEX VI Page 5 of 15 also being pursued. The Government has further requested in-depth studies of a number of industrial SOEs. 14. The Ministry of Industries, Science and Technology will as an input into the overall reform rationalize selected industrial SOEs by grouping all those in a single sector into one strengthened enterprise. There is and will be no barrier to the entry of private firms into these sectors. The rationalization will completely transform the present struc- ture of industrial SOE groupings (GIHOC, NIC, GEA and Ghamot) and result in an industrial SOE subsector significantly smaller than its present size. The Government will exchange views with the Association regarding rationalization programs and actions for these and other remain- ing SOEs. The rationalization will be completed within 1986. To carry out some of the subsector (and enterprise) studies needed to prepare the rationalization, we plan to use funds provided under the ISAC. 15. The sector enterprises will themselves be treated like all other SOEs in line with the Government's criteria, for retention, joint ventures, liquidation, etc. The industrial SOEs will be placed on one of the three lists referred to above. Apart from the regrouping mentioned above, the Government does not intend to create new industrial SOEs in the 1986-88 period. Public Investment Program in Industry 16. Pending a restructuring of the industrial public enterprises the Government has decided that during the 1986-88 period the public investment in such enterprises should be limited to the most urgent rehabilitation component which is financially and economically justified and for which the necessary foreign exchange to make the full use of rehabilitated capacity is likely to be available within the constraints of the annual import program for industry. The Government has recently completed a review of large new and on-going projects and formulated a core program of capital expenditures for priority consideration in the period 1986-88. It has been decided that the share of industrial public enterprises in this program would not exceed 2.57 billion cedis (in constant 1985 prices) during the period 1986-88. The Government will consult with the Association on the specific industrial projects included in the public investment program during the 1986-88 period. Furthermore, these projects will be expected to show a satisfactory economic as well as financial rate of return as a criterion for proceeding with rehabilitation. Industrial Finance 17. The Government is fully aware that liquidity and creditworthiness constraints have hampered production responses in the industrial as well as some other productive sectors of the economy. Therefore, the Government has decided to introduce a deferred debit scheme for import financing. Under this scheme the Bank of Ghana will, upon the request of a bank at the time of opening a letter of credit for import, defer the debit to the requesting bank's account as follows: 60 percent of the cedi equivalent of -46 - ANNEX VI Page 6 of 15 c.i.f. value of imports would be debited six months after release of documents and the balance 40 percent would be debited three months later (i.e. nine months after release of documents). The banks will in turn extend short-term loans to concerned importing enterprises. It is expected that this scheme will considerably ease the liquidity position of enterprises who at present are expected to pay 100 percent of the cedi equivalent before obtaining release of documents. The Government will continue to keep a close watch on the import financing situation and will take measures as needed to adjust this scheme and/or take additional measures. With a view to encouraging firms to revalue their assets, thereby improving their creditworthiness, the Government has decided to exempt then from payment of stamp or other taxes on revaluations. The exemptions would be allowed until the end of 1987. The Government intends to continue its policy of maintaining real positive interest rates on deposits and loans and to attempt to ensure an adequate flow of credit to the private sector. urs f t u ly, P SEC R FI - (DR.CKESI BOTHCHWEY) - 47 - ANNEX VI Attachment Page 7 of 15 REPUBLIC OF GHANA GOVERNMENT STATEMENT OF INDUSTRIAL POLICY INTRODUCTION 1. Ghana's potential for industrial development is clear; she has a rich mineral, forest and agricultural endowment; her manpower is compara- tively well trained; wages are low; and she has a long commercial and entrepreneurial tradition. The industrialization drive of the 1960s built up Ghana's industrial capacity to one of the largest in sub-Saharan Africa. After the mid-70s, however, industrial production was severely affected by the general economic decline resulting in foreign exchange shortage and import starvation. Revitalization of the industrial sector can now play an important role in the continuing progress of the Economic Recovery Pro- gramme (ERP) and in returning the economy to a path of dynamic growth and diversification. Expansion of industrial production will provide a logical complement to the ERP's emphasis to date on improving the incentives to agricultural producers, who are expected to provide an increasing chare both of inputs to industry and of demand for its output. 2. The principal objective for the future is to streamline Ghana's industrial capacity to concentrate on those activities that are the most viable and sustainable over time, that are well integrated with the domes- tic economy, and that can produce goods at competitive prices for both Ghanaian consumers and export markets. This objective will be pursued through policies which provide adequate incentives for efficient use of resources in processing, export and real competitive import-substitution industries and which enable the most productive firms to compete success- fully for scarce but increasing amounts of financial and foreign exchange resources. Manufacturing industries will be given adequate protection and investment incentives to promote their competitiveness and efficiency. A mixed economy approach will continue to be used, in which the State pro- vides necessary infrastructural services and favorable business climate and invests or participates in certain strategic industries, while looking to the private sector to play an increasingly dynamic role in expanding industrial output and utilizing Ghana's resource base. Foreign investors will have an important role to play in providing capital, managerial and technical know-how in partnership with Ghanaians. BACKGROUND 3. Industry has gone through two phases of growth and then decline. At independence, industrial production was relatively small and consisted mainly of extraction and processing for export plus a few consumer goods, and it was dominated by foreign ownership. A strategy of vigorous indus- trial promotion and public sector investment was successful in its objec- tives of rapidly increasing the capacity to produce at home what was previously imported and in diversifying the economy. In the 1960s, manu- facturing output tripled to reach 13Z of GDP, the sector's employment doubled, and production became increasingly diversified into intermediate - 48 - ANNEX VI Attachment Page 8 of 15 and capital goods. By the late 1970s, however, it became apparent that the phase of easy import-substitution and growth had ended and that the costs of domestic industrial production were high. Capacity utilization and production fell as foreign exchange for inputs became increasingly scarce under general economic decline. Exports and agricultural production neglected under past policies could no longer provide the resources needed to sustain industrial growth. High protection had led to excessive expan- sion of industrial capacity in activities that were highly dependent on imported inputs and that did not use scarce resources efficiently or generate additional export earnings. Not only did most state-owned enter- prises fail to generate profits for new investment, or even for working capital needs; many represented a drain on the Government budget or on those enterprises that were profitable. 4. The disappointing performance of industry has been due partly to the inconsistencies between objectives and the policy framework and partly to the lack of an integrated approach to link industrial development with the country's resources and broad consumption needs. The emphasis of the Economic Recovery Programme to date has been, and will continue to be, to correct the fundamental economic distortions and imbalances so that the incentives that guide industrial producers will be consistent with these objectives. In addition, sector-specific measures will be used to assist industries in adjusting to the changing environment, including credit and financial assistance schemes, services through technical and management support institutions, export promotion and special attention to small-scale industries. 5. Although industrial production today is relatively low, the situation is quite different from that at independence. Substantial capacity exists, some of it potentially efficient, but some of it unable to produce competitively or even to save foreign exchange. Foreign firms no longer dominate the sector, and there is a much greater number of capable and innovative Ghanaian industrialists with the ability to respond to favorable opportunities. This means that the primary objective for Govern- ment policy today is no longer capacity creation but restructuring and rationalizing existing capacity so that resources are concentrated in the most productive industries in which Ghana has a comparative advantage. This requires, on the one hand, re-examination of public industrial hold- ings and, on the other, establishment of incentives that favor relative expansion of the most efficient producer (whether public or private), especially in small-scale activities that process local raw materials and provide goods in rural areas. Another difference is that industry's full-capacity imported input requirements would absorb more foreign ex- change than is likely to be available in the foreseeable future, while it contributes little by way of exports or additional value added to the nation's exportable raw materials. This means that industry must be re-oriented to seek more local input supplies and foreign markets. - 49 - ANNEX VI Attachment Page 9 of 15 RECENT POLICY MEASURES 6. Major steps toward policy reform were taken initially in the context of the ERP, adopted in 1983. The emphasis to date has been on exchange rate adjustment, monetary and fiscal responsibility, and pricing policy reforms in order to bring the balance of payments, budget deficit and inflation under control and to improve incentives for producers, especially in agriculture. Although long overdue, many of these adjust- ments meant initial economic hardships and were difficult to take. The initial response of the economy was slow, but the Government persisted with its comprehensive program and with measures to improve the economy's supply responsiveness and to translate subsequent increases into higher incomes for workers and farmers. Special attention has been paid to transport in order to facilitate the supply response, which was particularly encouraging in 1984. Wage adjustments and agricultural price increases have provided a more adequate floor for the lowest-paid workers and helped to restore incentives for more productive work. Financial policy reforms have focussed on moving toward positive real interest rates through a combina- tion of gradually rising nominal rates and falling inflation (from 123% in 1983 to 40% in 1984 and 12% in 1985). The Government has also taken a number of steps to enhance its ability to manage and develop the overall policy reform process. The National Economic Commission brings together a range of view points to advise on overall policy direction and change, while the Tripartite Committee brings together labor, employers and the Government where wage and price issues are concerned. Foreign exchange budgeting and licensing are coordinated through a central committee, the Import Programming and Monitoring Committee. Reviews have been initiated of the entire public investment program, as a basis for the design of reform measures. Taken as a whole, these reform measures have gone a long way toward establishing a sound policy environment for industrial recovery and for integrating industrial strategy with the overall process of eco- nomic reform and recovery. OBJECTIVES AND STRATEGY 7. The main objectives of industrial policy during the second phase of the ERP are to: (a) increase industrial output through greater use of existin6 installed capacity; (b) improve supplies of essential goods e.g. food, textiles, mat- ches, cutlasses, etc.) to meet the integration demands of eco- nomic activities in the priority sectors of the economy; (c) remove production bottlenecks in the most efficient industries and achieve significant cost reductions in others that are potentially viable through selective rehabilitation; - 50 - ANNEX VI Attachment Page 10 of 15 (d) develop economically viable linkages among local industries and between key economic sectors (e.g. agriculture, construction, transport, health, education); (e) raise export earnings of non-traditional manufactured goods. 8. The Government's strategy is motivated by consideration of both efficiency and equity. The need to boost economic recovery by reviving industrial production and growth in the face of severe resource constraints demands that resources be used in the most efficient way possible to meet the needs of the Ghanaian public at competitive prices and to generate additional foreign exchange. Equity requires that this task be approached in a way that*gives producers an opportunity to adapt from the past - highly protective policy environment - to a regime where success depends on being efficient and productive. These considerations can best be accommodated through an approach that provides appropriate incentives and opportunities on a consistent basis across all industries. 9. In the short term the strategy is to make available additional resources to the more efficient priority industries which can make immedi- ate supply response. The medium-term strategy would be to rehabilitate the potentially viable and efficient industries and to develop the local raw material base for industries, taking account of the country's comparative advantage, in order to reduce their dependence on foreign inputs. 10. In the long term, the o' ective is to achieve an industrial structure that is more closely li,ued to domestic inputs and needs, that can provide a higher share of its own foreign exchange requirements, and that can sustain a rate of growth of output and employment above the economy-wide average but in balance with the rate of growth of resources and demand generated by agricultural development. This means phasing out unviable excess capacity that constitutes a drain on resources and cannot supply the Ghanaian market competitively, continuing the process of reha- bilitation in the most viable existing plants. and investing in new indus- tries that can realize Ghana's comparative advantage and export potential. These objectives will be supported by establishing a policy environment in which success depends on efficient use of scarce resources and in which incentives are balanced between sectors and between growth and employment objectives. ACTION PROGRAM 11. The industrial objectives and strategy described above will be pursued through the following major policy measures (discussed below): - phased reform of production incentives to promote more efficient, competitive, resource-based, labor-intensive and export-oriented industrial production, while giving firms an opportunity to adjust; - 51 - ANNEX VI Attachment Page 11 of 15 - greater access by efficient producers to imported industrial inputs and spare parts while progressively reducing administra- tive decisions and allocations; - export incentive and promotion efforts to provide a return to exports that is equivalent to that on domestic sales and to compensate for disadvantages and costs that would reduce export competitiveness; - a positive climate for industrial operation and investment, including reasonable protection and investment incentives that are relatively uniformly and automatically available across broad classes of priority activities and that provide adequately for small-scale and employment-oriented activities; - more limited direct public sector participation aimed at making the most effective use of scarce public, financial and managerial resources; - financial reforms to increase the ability of the financial sector to make credit available for industrial adjustment and rehabili- tation, and to provide incentives for more labor-intensive techniques. POLICY FRAMEWORK REVIEW OF TRADE AND EXCHANGE RATE POLICY 12. To enable the most productive, highest-priority industries to expand rapidly in response to improved incentives, the Government intends to give them greater access to imported inputs, not only materials but also spare parts, to repair broken-down equipment. The Government has already facilitated the ability of exporters to meet their individual import needs through foreign exchange retention, and will take further steps as neces- sary to ensure that export production is not impeded by lack of access to foreign exchange. It is investigating ways of giving other efficient producers greater access to foreign exchange without going through the licensing system and it is seaking additional external funding to support the process of easing quantitative restrictions. During the transitionaL period, such measures will be linked to the imposition of temporary finan- cial, charges to keep demand for additional industrial imports within manageable bounds. In order to give firms greater flexibility in breaking production bottlenecks by repairing and maintaining equipment, they will be permitted to use a larger portion of their import license allocations for spare parts and minor replacement equipment. 13. The Government is considering the need for introducing special measures during the transition period of exchange rate adjustment to maintain reasonable protection of local industries and to ensure efficient industrial operation. In order to simplify the importation of industrial - 52 - ANNEX VI Attachment Page 12 of 15 inputs and phasing out quantitative trade restriction, the Government has commissioned a study to examine the scope for the use of fiscal and other measures to eliminate the excess increase of imports that would otherwise result from pent-up demand and to provide more adequate incentives for non-traditional export industries. 14. A major plank of trade policy will be exchange rate policy itself with the overall objectives of ensuring: (a) increase in efficient production; (b) tapping economic rents; (c) directing remittances through official channels. Of particular concern is the need to ensure the high and stable profitabil- ity of export sector activity as well as evolving a gradual reduction in the dependence on quantitative restrictions over 1986-88. EXPORT PROMOTIO 15. Exchange rate adjustments over the last three years have dramati- cally improved prospects for exporters, and this process will be continued. Retention of a portion of export earnings will be maintained as long as needed to facilitate exporters' ability to meet their import requirements and respond to improved incentives. In order to accelerate the expansion of export earnings, which are critical to relieve constraints on the rest of the economy, additional measures are being taken, or considered, to ensure that exporters do not pay taxes on inputs into export production, to compensate for the extra costs of developing export markets, and to make export production more attractive relative to sales on the domestic market. Efforts are also being made to strengthen the activities of the Export Promotion Council and to increase the availability of financing for export- ers through the Bank of Ghana. 6. The policy framework for promoting exports will combine needed institutional reforms as well as adequate price incentiver. The institu- tional reforms include: (a) ensuring that the credit requirements of the export sector are adequately met; (b) building a marketing infrastructure for non-traditional exports; (c) simplifying procedures related to exports, and instituting a negative list of exports (such as logs for local processing, endangered species, etc.) in place of the current requirement of export permits for all potential exports; (d) streamlining and, as necesiary, increasing the flexibility of use of the export retention scheme. - 53 - ANNEX VI Attachment Page 13 of 15 INDIRECT TAX SYSTEM 17. The Government is also examining the indirect tax system as a basis for any necessary reforms to make it more consistent with the system of protection for local industries and with other transitional measures as well as with the objectives of simplicity and improved revenue collection. PRICING FOLICY 18. The ability of firms to cover changing costs of production and to compete freely on the market has already been facilitated by permitting producers of most products to set their prices subject to monitoring, rather than advance review and approval, by the Prices and Incomes Board. Currently, administered prices exist for only eleven (11) manufactured and imported products. INVESTMENT CLIMATE 19. In recently revising and re-issuing the Investment Code, the Government has demonstrated its commitment to maintaining a stable, open economy and to encouraging increased participation by both domestic and foreign private investors in Ghana's economic recovery. The Code has specified a wide range of activities in agriculture, industry, tourism and real estate development as priority areas. Guarantees are provided against expropriation and for repatriation of foreign capital and dividends. Provision is also made for arbitration in case of investment disputes. Fiscal incentives for priority industries (i.e. those that export, use local materials, or produce agricultural inputs) include exemption from payment of duties on imported essential plant, equipment and accessories; attractive investment and depreciation allowances; rebates on income tax and on Social Security Contributions on Ghanaian employees over the first one hundred; permission to maintain external accounts in which 25% of foreign exchange earnings may be retained for import of equipment and inputs and for payment of dividends and remittances abroad. 20. The Ghana Investments Centre is being strengthened to implement this process, and it will issue guidelines designed to facilitate applica- tion for benefits and to ensure that they are applied to investments that offer a high rate of return to the economy. In addition to the general policy reforms of the ERP, the Government will continue to take steps to enhanc. the business climate through consultation, improved worker- management relations, and encouragement of positive worker attitudes toward increasing productivity. PUBLIC SECTOR ROLE 21. The Government is currently undertaking a thorough review of both the state enterprises system and its investment program based on a recent World Bank financed study and other reports in order to carry out an appropriate reform, a phased rehabilitation of selected state enterprises, and institutional restructuring of the public sector including the possible - 54 - ANNEX VI Attachment Page 14 of 15 phasing out of non-viable enterprises, and improving the monitoring and evaluation mechanism. The overall strategy would aim at limiting the direct participation of the State in industry to critical areas in which there is a gap in the availability of private investment or some other exceptional justification for direct public intervention. Publicly-owned firms will be expected financially to stand on their own feet and operate as commercial entities and to contribute positively to public savings. MANPOWER DEVELOPMENT 22. In order to enhance their efficiency and competitiveness, indus- tries will be encouraged to strengthen and improve their technical and management capabilities by intensifying their training programs for employ- ees at all levels and where necessary seeking technical assistance and collaborative arrangements with appropriate foreign organizations. 23. The training institutions, especially the Management Development and Productivity Institute and the Ghana Institute of Management and Public Administration, and local consulting institutions will be strengthened and assisted to cope with the increased demand for their services. FINANCIAL SYSTEM LEVEL AND STRUCTURE OF INTEREST RATES 24. Interest rates have been steadily increased and by September 1985 the 12-month deposit rate was raised to 18% while the maximum lending rate rose to 23%. With inflation rate expected to be below 25% for 1985, the goal of achieving positive real interest rates on deposits have been achieved ahead of the target date. 25. However, in addition to maintaining positive real interest rates on savings deposits, a major reform of the financial system is planned, which, depending on the findings and recommendations of a joint Government of Ghana/World Bank/IMF review of the financial system, will seek to ensure that the critical national objective of generating productive activity is attained. In particular, the joint review will focus on a broad range of issues including: (a) the provision of adequate levels of credit for the productive sector; (b) creditworthiness; (c) credit allocation; (d) the development of a capital market; and (e) institutional reforms. - 55 - ANNEX VI Attachment Page 15 of 15 CONCLUSION 26. The Government's objectives for industrialization remain to make the most effective use of our resources for economic growth, to build up our body of knowledge, techniques and skills, to make us more self- sufficient, and to push toward our economic independence. A:hievement of these goals requires a partnership between the public and private sectors, domestic and foreign investors, workers and entrepreneurs, in which each party contributes in the way it can be most productive. The Government will take action where private activity cannot meet the objectives, but will also withdraw from direct intervention where it is not needed or is inefficient. Incentives are available to foreign as well as domestic investors, with the expectation that they will work with Ghanaians to transfer the benefits of their technology, know-how and experience. Increased production is being encouraged through incentives that enable entrepreneurs to gain profits and workers to earn higher wages as their productivity increases. The strategy for industrial recovery outlined in this is designed to result in an industrial structure that uses its capacity more fully, eliminates unviable excess capacity, makes greater use of local raw materials, earns a larger share of its foreign exchange requirements, stimulates the rest of the economy through relatively rapid output growth, supplies Ghanaian consumers' needs at competitive prices, and offers growing income and employment opportunities in villages as well as in the urban centers. - 56 - ANNEX VII GHANA INDUSTRIAL SECTOR ADJUSTMENT CREDIT INDUSTRIAL IMPORTS COMPONENT A. Objectives of Import Program 1. The main objectives of the annual import program for industry would be to (a) ensure that industrial activities most central to the Economic Recovery Program receiv-e a minimum level of foreign exchange resources quickly and with certainty; (b) gradually increase the size of the program to provide industrial inputs to raise utilization of existing efficient industrial production capacity; and (c) make available the foreign exchange needed for the most critical rehabilitation. B. Governing Principles for Size and Composition of Annual Program for Industry 2. Normally, the absolute size of the annual import program (industry) would allow for an increase, in real terms, over and above the funds provided for the preceding year's approved annual program for the industry. Further the funds provided under ISAC would be incremental to the funds normally provided to industry by the Government. To this end, the provision of funds from the Government's own resources would be at least equal to either the proportion or the average amount allocated in the preceding year's annual import program for industry. 3. Import allocations shall be made so as to enable the private sector to play an increasingly dynamic role in industrial recovery. 4. The annual import program for industry would continue to show overall sources of finance, it would distinguish between materials/spare parts and capital goods. Special provisions would continue to be made to accommodate the input requirements of non-traditional exporters. 5. Those enterprises which receive rehabilitation loans under the proposed ISAC or from other sources would be allocated foreign exchange, on a priority basis, for import of raw materials needed to use rehabilitated capacity. 6. Enterprises would be allowed to use a reasonable amount of annual import allocations for import of spare parts and minor replacement equip- ment. - 57 - ANNEX VIII Page 1 of 3 GHANA INDUSTRIAL SECTOR ADJUSTMENT CREDIT INDUSTRIAL REHABILITATION COMPONENT A. Objectives of Rehabilitation/Restructuring 1. The term Rehabilitation Investment Proposal (RP) refers to an investment which proposes rehabilitation and/or restructuring of an enter- prise with one or more of the following objectives: (a) remove bottlenecks that prevent the enterprise from increas- ing its production to make greater use of its installed capacity; (b) replace equipment ahich is on the verge of breakdown and if not replaced, would lead to decline in existing production levels; (c) increise productivity and alter the structure of costs to make the enterprise competitive at border prices; (d) change the product mix to meet export demand or specific domestic market needs; (e) make greater use of available domestic materials to replace imported inputs; (f) enable existing enterprises to adapt to changing incentives policy framework through (a) to (e) above; and (g) assist in financial, organizational and/or managerial restructuring, if necessary to achieve (a) to (f) above. B. Eligibility Criteria 2. The purpose of a RP should be one or more of the items listed in para. I above. 3. In determining eligibility for granting a sub-loan under this component the participating banks would give priority to the RPs that satisfy the following criteria: (a) the RP should remove a bottleneck that is constraining the enterprise's ability to increase production or otherwise reduce unit production costs at current levels of raw material availability; - 58 - ANNEX VIII Page 2 of 3 (b) the enterprise should have been in production for at least the preceding two years; (c) the enterpcise should be in a position to obtain adequate raw material inputs if its capacity is rehabilitated; (d) the enterprise should demonstrate that at least half of its inputs are based on domestic raw materials or that the rehabilitation project would enable this to be achieved or that it is a highly labor-intensive operation; (e) the product whose output will increase as a result of the RP should be one or more of the following: (i) a basic con- sumer good, especially one consumed in rural areas; (ii) an intermediate good used in the production or packaging process of other industries; (iii) a revenue earner subject to special excise or other taxes; or (iv) a product that the firm has exported within the past three years or that it could export as a result of the rehabilitation; and (f) only those RPs which are included in the approved public investment program, 1986-88, of the Government would be eligible. C. Financial Evaluation Criteria 4. All RP requests that meet one or more of the objectives and satisfy the preliminary eligibility criteria shall be evaluated in terms of their ability to generate sufficient cash flow to meet loan repayment and other debt obligations. For major requests of more than US$100,000, this shall be taken to require calculation of the financial rate of return which must exceed the cost of borrowing. D. Economic Evaluation Criteria 5. All RP requests of more than US$100,000 would be subject to a detailed economic evaluation. This evaluation should cover the economic life of the rehabilitation investment and should include the cost of additional replacement expenditures that may be required during this period. Long-run economic viability will be evaluated by the economic rate of return to the rehabilitated operation using border and shadow prices to measure benefits and costs. RPs will be approved only if they can demonstrate that the economic rate of return exceeds 15 percent. 6. Smaller RP requests (below US$100,000) should be evaluated by the measures described in the preceding paragraph if possible, but may satisfy the criteria in para 5 through alternative measures if data are insufficient to calculate rates of return. Economic viability may be shown by demonstrating that the unit cost of production with rehabilitation is below the c.i.f. price plus applicable import duties for the equivalent product. - 59 - ANNEX VIII Page 3 of 3 E. Onlending Terms and Conditions 7. The interest rate on loans by PBs to beneficiary enterprises will be the rate normally applicable (currently 20-23 percent) on such loans. These rates would be changed in case overall rates are changed. The Government has a policy of maintaiiing positive real interest rates. Given the inflation rate of about 12 percent in 1985 the current lending interest rates of 20-23 percent are positive in real terms. 8. The Bank of Ghana (BOG) would be allowed an administration fee equivalent to 2 percent of loan amount outstanding and the participating Bank (PB) would be allowed 5 percent interest spread to c-ver their admin- istrative costs and financial risk. After allowing for the above spreads the Bank of Ghana would pay to the Government the remaining spread on IDA funds used under the rehabilitation component. 9. A commitment fee of one percent per annum on the undisbursed balance of each loan (accruing 30 days from date of BOG's commitment), would be charged by BOG to the PBs, who in turn will pass this cost on to the beneficiary enterprises. Each commitment fee shall be shared on the following basis: 25 percent to the PB, 25 percent to the BOG, and 50 percent to the Government. 10. The beneficiary enterprises would assume the foreign exchange risk. In the alternative they may insure themselves against the risk by paying a one-time fee to the BOG. The amount of the fee would be established by the Bank of Ghana taking into account the extent of cedi overvaluation and likely exchange rate movements. 11. Loans to enterprises would be based upon projected cash flows and debt servicing capacity of the beneficiary enterprises, with maturities not exceeding 12 years (inclusive of grace periods of up to 5 years). 12. Repayment schedules from PBs to BOG would be on composite amorti- zation schedule basis reflecting the aggregate repayment schedule of the loans to enterprises. Reschedulings would be allowed only with the prior approval of BOG. 13. Maximum loan size using ISAC proceeds would be US$1.0 million. Larger projects would be expected to attract/solicit cofinancing on an individual project basis. 14. The first five RP proposals would be submitted to the Association for review prior to approval by Bank of Ghana and PB. Following review of the first five RP appraisal reports the Association will establish suitable free limits. In respect of free limit sub-loans the Bank of Ghana would decide whether the proposal should be refinanced using ISAC proceeds. - 60 - ANNEX IX Page 1 of 5 GHANA INDUSTRIAL SECTOR ADJUSTMENT CREDIT SUMMARY DESCRIPTION OF THE INSTITUTIONAL STRENGTHENING COMPONENT A. Introduction 1. The following institutions would participate and receive funds under the proposed institutional strengthening component: the Bank of Ghana, the Ministry of Finance and Economic Planning, the Ministry of Industries, Science and Technology, the Central Bureau of Statistics, the Ghana Standards Board, and the Food Research Institute. A brief descrip- tion of the respective role of these institutions and the activities to be undertaken to strengthen them, under the proposed ISAC, is given in this Annex together with the summary cost estimates and proposed financing plan. B. The Bank of Ghana (BOG) 2. BOG would be responsible for implementing the following tasks under the ISAC: (a) administration, including disbursements of ISAC funds for financing import of industrial inputs; (b) administration, including approval and disbursement of sub-loans for rehabilitation of industrial enterprises; (c) organization of training programs for staff of local institutions in project analysis and financial restructuring techniques; and (d) formulation of policy proposals covering export incentives and simplification of export procedures/regulations for the Government's consideration. 3. The above responsibilities would be carried out by the existing Development Finance Department (DFD) and Foreign Operations Department (FOD) in the Bank of Ghana. It has been agreed with the management of Bank of Ghana that the existing staff of these departments would be augmented, as needed, to handle the increased workload. It has also been agreed that at least six staff would be assigned before disbursements of ISAC funds allocated to the rehabilitation component begin. 4. The technical assistance and training activities to be financed under the Credit would include: (a) about 56 man-months of advisory/ consulting services to (i) organize and conduct four basic and four refresher training courses in project analysis, and two training courses in financial restructuring techniques; and (ii) assist local banks and Bank of Ghana staff to carry out economic, financial and technical appraisal of rehabilitation investment projects submitted for financing under the industrial rehabilitation component; and (b) about 12 man-months of short- term consultancy services to help formulate and implement appropriate export-promotion measures. All training would be conducted in Ghana during the 1986-88 period and participants would be drawn from local banks, - 61 - ANNEX IX Page 2 of 5 government ministries, local institutes, and businesses. Recruitment of consultants to conduct the training is underway and signing of contract is expected by end March 1986. C. Ministry of Finance and Economic Planning (MFEP) 5. MFEP is the main existing organ in the Government for formulation of economic policies. Within the Ministry's organizational structure the Planning and Research Division (PRD) has the responsibility for policy analysis and monitoring. However, PRD is poorly staffed and lacks neces- sary skills to carry out its expected role. Under the proposed ISAC technical assistance would be provided to PRD to strengthen it. 6. It is proposed that the PRD would be strengthened to carry out the following activities: (a) the regular monitoring of price and income impacts of exchange rate adjustments; (b) formulation, implementation, monitoring and adjustment of a phased program of import liberalization; (c) monitoring and adjustment of export promotion policy reforms; (d) adjustment and implementation of the Investment Code; (e) formulation and implementation of reform of direct and indirect taxes; and (f) collabor- ation with other ministries on policy matters. 7. The technical assistance and training activities propose to be financed under the proposed Credit to help accomplish the above work program would include: (a) one senior expatriate adviser on trade and industry planning and policies for 24 months; (b) financial provision for external courses or in-service postings to train MFEP staff in industrial incentives analysis and policies other policies affecting industrial development; (c) about 10 man-months of expatriate and 30 man-months of local short-term consultancy services to assist the conduct of special studies on policy issues affecting industry. D. Ministry of Industries, Science and Technology (MIST) 8. MIST has the responsibility for formulating and implementing the industrial adjustment program being supported by the proposed Credit. For this purpose it would liaise with the MFEP on trade and exchange rate policy matters, with the Bank of Ghana on industrial financing matters, with the proposed State Enterprises Commission on rationalization of industrial public enterprises, and other ministries, as needed, on matters affecting industrial development e.g. with the Ministry of Agriculture on production programs for the industrial crops. In the medium-term, MIST's focus of activities would shift from import licensing (which at present is one of its principal activities) to indicative planning and monitoring activities. Specifically, MIST's capabilities in the following areas would need to be strengthened: policy analysis, monitoring and evaluation, indicative planning, formulation of subsector development strategies, and dissemination of information. 9. As part of the overall efforts of the Government of Ghana to restructure the public administration system, the MIST intends to carry out - 62 - ANNEX IX Page 3 of 5 a reorganization of its structure and staff. A reorganization plan for the Ministry has been formulated by the MIST. The technical assistance requirements to support the reorganization plan have been identified. A reorganization of MIST would precede the start of technical assistance activities. MIST is currently benefitting from an UNDP project (UNIDO as the executing agency) foi industrial planning. The existing UNDP project would be completely revised to incorporate the agreed technical assistance activities for the 1986-88 period. The revised UNDP project would be funded mainly by UNDP. About US$300,000 from the proposed ISAC would be used to supplement the UNDP funds under a cost sharing arrangement. 10. The technical assistance and training activities to be financed with the UNDP and ISAC funds include: (a) senior advisor on industrial policy analysis and programming for 24 months to provide assistance in conducting trade and industry policy studies, policy formulation, monitor- ing policy impact, and providing training to MIST staff in the above areas; (b) a project appraisal and restructuring advisor for 18 months to assist the MIST in the formulation, implementation, and monitoring of restructur- ing plans for industrial public enterprises and selected subsectors; (c) an industrial statistics advisor for 18 months to assist MIST in establishing appropriate systems for compiling industrial statistics and producing periodic monitoring reports; (d) a small scale industries advisor for 12 months to assist the National Board for Small Scale Industries in formulating and implementing a suitable action plan and program of work; (e) about 18 man-months of expatriate and about 66 man-months of local short-term consultancy services to MIST to assist in carrying out the Ministry's work program; (f) about 40 man-months of fellowships to MIST staff for training in policy analysis and impact monitoring techniques; and (g) vehicles and equipment for MIST. E. Central Bureau of Statistics (CBS) 11. The proposed ISAC would include funding for CBS to help carry out the following aspects of its work program for the period 1986-88; (a) improve the publication of external trade data by (i) processing the 1983, 1984 in 1986 and 1985 data by June 30, 1987, (ii) establishing a monthly (rather than annual) processing cycle for data during 1986, and (iii) instituting additional formats to respond to the identification of specific output requirements of policy analysis agencies; (b) conduct a full census of industrial production during 1986-87; (c) improve the timeliness of quarterly and annual sample sur%ey for industry and presenta- tion of production indices derived from them; and (d) strengthen the staff technical capability of the Bureau through training, contract appointments, etc. To carry out the above work program funds would be provided under the ISAC for the following: (a) an advisor on industrial census for 12 months; (b) short-term expatriate consultants to assist in trade and industry statistics updating; and (c) vehicles and computing equipment. In addition about 38 man-months of local staff time would be provided to enable comple- tion of the above tasks. - 63 - ANNEX IX Page 4 of 5 F. Ghana Standards Board (GSB) 12. Ghana Standards Board is the main governmental body with respon- sibility for standardization, quality control, certification and metrology. The industrial sector relies heavily on the effectiveness of the Board to monitor and advise on the quality of manufactured products in order to improve production techniques and increase consumer acceptance of products. This role is especially important if export markets are to be developed. Most of the equipment needed for analytical work at the Board has broken down, some of it beyond repair. To be able to do any meaningful diagnosis, basic service equipment is needed. Spare parts are needed to rehabilitate the broken-down equipment. There is also an urgent need for chemicals of various types to enable staff to undertake analytical work. About US$276,000 would be made available to GSB out of the proposed ISAC to purchase necessary laboratory and transport equipment, spare parts, and essential chemicals. G. Food Research Institute (FRI) 13. Food Research Institute's major objective is to assist food industries to improve on and diversify their operations. It plays an important role in assisting domestic suppliers of food crops and industrial raw materials for processing. Work at the institute has been paralyzed by the lack of funds for research, supply of raw materials, spares and replace- ment equipment - most of the equipment, apparatus, chemicals, etc. are broken down or depleted. About US$430,000 would be provided from the proposed ISAC to enable the FRI to purchase the urgently needed equipment and spare parts to enable it to carry out its functions during the 1986-88 period. - 64 - ANNEX IX Page 5 of 5 GHANA INDUSTRIAL SECTOR ADJUSTMENT CREDIT COST ESTIMATES AND FINANCING PLAN FOR INSTITUTIONAL STRENGTHENING COMPONENT A. SUMMARY COST ESTIMATES FOR INSTITUTIONAL STRENGTHENING Institution Foreign Local Total USO$ 000 1. Bank of Ghana 816 816 2. Ministry of Finance and Economic 468 348 816 Planning 3. Ministry of Industries, Science 1,231 132 1,363 and Technology 4. Central Bureau of Statistics 347 77 424 5. Ghana Standards Board 230 - 230 6. Food Research Institute 359 - 359 3,451 557 4,008 Price Contingencies (20%) a/ 690 111 801 4,141 668 4,809 B. FINANCIN PIANM 1R 1T1UI0AL SERENGnIENIl Source of Finncing ($'000) b/ ISIC ISAC Institutim Consultants . PPF IMP Govt. Total Z Distribtimn. 1. Bank of ana 923.2 56 - - 979.2 20.4 2. Ministry of FInance and FA:onste Planning 445.6 36.0 80 - 417.6 979.2 20.4 3. Ministry of Inxustries, Science and Tednlogy 110.0 90.0 100 1,335.6 c/ - 1,635.6 34.0 4. Central Bureau of Statistics 328.2 111.0 48 21.6 c/ 508.8 10.5 5. Gbana Standards Board - 276.0 - - - 276.0 5.7 6. Food Researb Institute - 430.8 - - - 430.8 9.0 Total 1,807.0 943.8 284 1,357.2 417.6 4,809.6 100.0 Z Distributk 37.6 19.6 6.0 28.0 8.8 100.0 a/ Based C uAnual fnrlernatInol ratin of 7% per anm dur g the period 1986-89. b9/ Irils price owatigenris. cI It is proposed that the ecistirig 1NP projects to these institutions be expended/revlsed to inlde the actvities proposed inder the Isac. A cost-saring with the nUW project is envisaged. - 65 - ANNEX X Page 1 of 2 GHANA INDUSTRIAL SECTOR ADJUSTMENT CREDIT STUDIES COMPONENT A. Introduction 1. This component would include studies in the following areas: (a) policy analysis studies relating to export incentives and procedures, restructuring of import protection regime, indirect taxes, impact of adjustment policies on prices and income, and implementation guidelines for investment code; (b) enterprise level rehabilitation/restructuring plans; and (c) subsector level economic and marketing information to guide the rehabilitation restructuring program. B. Outline Terms of Reference 2. Study of Export Incentives and Procedures. The proposed study is expected to provide the basis for the formulation of proposals for reform- ing policies and procedures affecting exports. The study will address five factors that have a bearing on export performance: (a) exporters' access to imported inputs, as well as duty drawback arrangements; (b) compensation for the overvaluation of the exchange rate and for the higher protection afforded to import substitution activities; (c) aspects of export finance, credit guarantee and export insurance; (d) export controls and procedures; and (e) Government support in identifying export opportunities. 3. Study to Develop a Phased Program for Import Liberalization. The study will involve (a) a review of the present import licensing and foreign exchange allocation procedures; (b) the measurement of scarcity premia; (c) an examination of options to raise the cost of imports; (d) comparative evaluation of import liberalization options; (e) formulation of recommenda- tions for import liberalization. 4. Study of Price and Income Effects of Exchange Adjustments. The study on price and income effects of recent and potential adjustments in the cedi value of imports and exports has the primary purpose of providing the Government with an analysis of likely effects of exchange rate adjust- ments or other measures to raise the price-of industrial imports, on price of locally manufactured goods and their implications for incomes. 5. Study of Indirect Taxes. The purpose of this study is to provide the Government with the analytical basis for simplification and rational- ization of the indirect tax system. 6. Subsector Studies to (a) provide baseline subsector level data to be updated annually; (b) establish the overall policy framework for restruc- turing the major subsectors; and (c) generate subsector level economic, -66 - ANNEX X Page 2 of 2 technit.al, and marketing information to guide the rehabilitation/restruc- turing process. The role of small-scale enterprises in the restructuring process would be a particular focus of the studies. The MIST would make available relevant information from the studies to enterprises planning rehabilitation/ restructuring, to be used in feasibility studies. The information would also be made available to the participating banks to help them in appraising loan requests. The reports would be published and provided periodically to interested parties. 7. Enterprise Studies. Funds would be provided under the ISAC to carry out studies to prepare restructuring proposals for selected public industrial enterprises. Two main types of studies are envisaged. The first type pertains to those enterprises for which a determination has been made that it is unviable in its present form and should be divested. For this type of study the consultants would prepare a divestiture plan con- taining a specific action program for winding up the operation, liquidating the assets and settling the liabilities. The second type of studies would be for those industrial public enterprises whose viability is clear or uncertain. In the case of the former a rehabilitation plan, if necessary, may be drawn up focussing on corporate strategy, organization and manage- ment, physical rehabilitation needs, and financial restructuring needs. For the latter a diagnostic study would be done first to assess the viabil- ity (technical, economic, and financial) of the enterprise. If the enter- prise is deemed unviable a divestiture plan would be prepared. If it is deemed viable a rehabilitation plan would be prepared. C. Cost Estimates and Financing Plan 8. A total budget of US$1 million has been estimated for the studies program. It would be financed from three sources: US$0.5 million from the ISAC proceeds; US$0.45 million grant from the Government of United Kingdom and US$0.05 million from UNDP. For each study financed out of ISAC proceeds the Government would submit for IDA approval terms of reference, timetable and budget for each study. D. Implementation Schedule 9. Studies listed in paras 2 to 5 have been completed with the assistance of a grant from the Government of United Kingdom. Any follow-up work required in these areas would be financed using ISAC proceeds. A few enterprise studies commenced in January 1986 and would take about 3-4 months to complete. The schedule for subsector studies would be established in mid 1986. - 67 - ANNEX XI Page 1 of 2 GHANA INDUSTRIAL SECTOR ADJUSTMENT CREDIT DISBURSEMENT PROJECTIONS Credit IDA Fiscal Disbursements Disbursement Profile Year and End During the Cumulative Regional of Quarter Quarter Disburiement ISAC a/ SALs b/ RIC I (SDR million) (SDR million) <----- of total loan -- > FY 87 Sept. 86 1.0 1.0 2 - - Dec. 86 2.0 3.0 6 5 12 March 87 3.0 6.0 11 - - June 87 4.0 10.0 19 36 49 FY 88 Sept. 87 4.0 14.0 26 - - Dec. 87 4.0 18.0 34 61 73 March 88 4.0 22.0 41 - - June 88 4.0 26.0 49 80 76 FY 89 Sept. 88 4.0 30.0 56 - - Dec. 88 4.0 34.0 63 92 85 c/ March 89 4.0 38.0 71 - - June 89 4.0 42.0 78 98 100 c/ FY 90 Sept. 89 3.0 45.0 84 - Dec. 89 3.0 48.0 90 100 March 90 3.0 51.0 95 June 90 2.5 53.5 100 a/ ISAC disbursement profile is projected to be slower than the comparators due to the technical assistance and rehabilitation components. b/ Consecutive half-year intervals from the date of Board approval. c/ Projected. Assumed Date of Credit Effectiveness: July 1986 GHAO14/ANNEX XI - 68 - AtlNEX XI Page 2 of 2 GHANA INDUSTRIAL SECTOR ADJUSTMENT CREDIT DISBURSEMENT PROJECTION 10W 1- A /* :, IP 01 0f I* :*I * / * I *I :I 1 a/ ISA dibreetpoiei poetdtesoe than the comparators due to the technical assistance and rehabilitation components. b/Regional SALs disbursement profile.