Ghana - First and Second Reconstruction Import Credit and Export Rehabilitation Projects

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 9580 PROGRAM PERFORMANCE AUDIT REPORT GHANA RECONSTRUCTION IMPORTS CREDITS I & II (CREDITS 1393 AND 1573) EXPORT REHABILITATTON AND EXPORT REAABILITATION TECHNICAL ASSISTANCE PROJECTS (CREDITS 1435, SF-9 AND 1436) MAY 20, 1991 Operations Evaluation Department 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. ABBREVIATIONS BOG - lank of Ghana CA - Crown Agents CIDA - Canadian International Development Agency COCOBOD - Cocoa Board CPMU - Central Project Monitoring Unit ERP - Export Rehabilitation Project ERTAP - Export Rehabilitation Technical Assistance Project FPIB - Forestry Products Inspection Bureau GCMB - Ghana Cocoa Marketing Board GHA - Ghana Highways Authority GOG - Government of Ghana GPHA - Ghana Ports and Harbors Authority GRC - Ghana Railroad Corporation IDA - International Development Association MFEP - Ministry of Finance and Economic Planning MLNR - Ministry of Lands and Natural Resources NIB - National Investment Bank 0.M. - Office Memorandum ODA - Overseas Development Administration PNDC - Provisional National Defense Council RIC - Reconstruction Imports Credit SGMC - State Gold Mining Corporation TEDB - Timber Export Development Board THE WORLD BANK Wushngton, D.C. 20433 U.S.A. Ofce at OwcCewwral May 20, 1991 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Program Performance Audit Report on Ghana Reconstruction Import Credits I & II (Credits 1393 and 1573) Export Rehabilitation and Export Rehabilitation Technical Assistance Projects (Credits 1435, SF-9 and 1436) Attached for information is a copy of a report entitled *Program Performance Audit Report on Ghana Reconstruction Import Credits I & II (Credits 1393 and 1573), Export Rehabilitation and Export Rehabilitation Technical Assistance Projects (Credits 1435, SF-9 and 1436)w prepared by the Operations Evaluation Department. Attachment This document has a restricted distribution and may be Wud by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World BanK authorization. POR OFFICIAL USE ONLY PROGRAM PERFORMANCE AUDIT REPORT GRANA RECONSTRUCTION IMPORT CREDITS I & II (CREDITS 1393 AND 1573) EXPORT RZABILITATION AND EXPORT REABILITATION TECUOICAL ASSISTANCE PROJECTS CIEDITS 1435, SF-9 AND 1436) TABLE OF CONTENTS Pate No. PROJECT PERFORMANCE AUDIT Preface ......................................... I Basic Data Sheet.................... ............... 11 Evaluation Summary....... ... .................... ........... vi 1. BACKGROUND................................ ...... 1 The Decline after Independence. ........ ...... 1 The E-:onomic Recovery Program... ..... ............... 2 Recent Economic Performance. ................... . 2 II. THE FOUR CREDITS - RIC I & II, ERP & ERTAP................ 3 The Bank's Program of Support ...................... 3 The Credits and Their Objectives.......................... 3 Cofinancing ........................... 4 Design........ ....... .... 5 Implementation.................. . ...................... 9 III. IMPACT AND EFFECTIVENESS................................ 18 Introduction............ .................... 18 Impact ................................................ 18 Credit Effectiveness.................................... 21 Conclusions....... ................................... 27 IV. EVALUATION..... .......... .................... 28 Project Cycle Issues....................... ........ 28 Coordination with the Fund and Other Donors............... 32 Benefits................ ........... 33 Sustainability of Benefits. ....................... 34 overview..... ....... ........ .. 34 V. LESSONS AND RECOMMENDATIONS .................. .... 35 APPENDICES Appendix A - Technical Assistance - A Comparison of ERTAP Among Sectors.... .......... ....... .... 39 Appendix B - The Liquidity Issue in Ghana.......................... 55 This document has a restricted distribution and may be used by recipients only in the perrormance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. TABLE OF CONTENTS (continued) Page No. PROJECT COMPLETION REPORT 1. Introduction.................. ... ..... ... 69 II. The Setting .................... . . . . . . . . . ... .... 69 IIII. ThThe edtCredits................................................ 73 0 *0 0 0 6 00 a 7 IV. Implementation............................................. 78 V. Impact ..................................................... 96 VI. Conclusions and Lessons Learned............................ 105 ANNEXES A. Profiles and Basic Data of Credits............................. 112 B. Goods and Services Financed by RIC I and II, ERP and ERP TA.... 118 C. Program Matrices ............................................... 120 D. Key Economic Indicators........... . *. ...... ............ 0 ....... 133 E. Economic Recovery Program Loan Administration and Flow Chart... 138 F. Major Policy Measures in the RIC I, ERP, ERP TA and RIC II Credits ........................................... 139 PROGRAM PERFORMANCE AUDIT REPORT GHANA RECONSTRUCTION IMPORT CREDITS I & II (CREDITS 1393 AND 1573) EXPORT REHABILITATION AND EXPORT REHABILITATION TECHNICAL ASSISTANCE PROJECTS (CREDITS 1435, SF-9 AND 1436) PREFACE 1. This is a Program Performance Audit Report (PPAR) on the Reconstruction Imports, the Export Rehabilitation and Export Rehabilitation Technical Assistance Projects, involving four IDA Credits and one Special Fund Credit totalling SDR 212.7 million to the Government of Ghana, which comprised the Bank's program to wugort the Economic Recovery Program announced by the Government in April 1983. The first of these credits Reconstruction Import I (1393-GH) was approved June 28, 1983, became effective on August 18,1983 and was closed at the end of March 1986. The last of the group Reconstruction Import II (1573) was approved on March 28, 1985 and an associated Special Facility for Africa Credit (A-003-GH) was approved six months later, about the time the IDA Credit became effective. All credits excepting the first were closed at the end of December 1988. Cofinancing of over US$ 300 million was provided by Canada, France, Germany, Japan, Netherlands, Switzerland and the United Kingdom. 2. The PPAR consists of the Program Performance Audit prepared by the Operations Evaluation Department (OED) and the Project Completion Report prepared by the Africa Region. The PPAR is based on the attachimA PCR, the President's Report, the loan/credit documents, on a study of Bank files, and on discussions with Bank staff. A joint OEDIODA mission visited Ghana in February 1990, and discussed the effectiveness of the Bank's assistance with officials in the Central Government, the Bank of Ghana, the relevant statutary agencies, and with beneficiaries in the private sector. Their kind cooperation and valuable assistance in the preparation of this report is gratefully acknowledged. 3. The PCR provides a good account and assessment of the program experience, and discusses the performance of the Bank and the Borrower's executing agencies. The PPAR elaborates on particular aspects such as the design and implementation of the package, the factors affecting the effectiveness of the technical assistance component, and the liquidity issue. 4. The reactions of the Region and the comments of the Borrower have been taken into account. PROGRAM PERORMANCE AUDIT REPORT GBANA RECONSTRUCTION IMPORT CREDITS I (CREDIT 1393) BASIC DATA SHEET KEY fRl"cT £ATA Appraisel A~lai er Atual as I of st~ E ~ I« Currei Es4imate Amcelegl ste Cedt6 Amum (UU3 ailion) 40.0 9.2 9 MLATIVE ESTIoATp0 AND ACnUAL DImmegmBI TS FYN FYfYS y Apprøial £s61.ti (US8 million) 40.0 Actual (USn million) 19.8 19.7 "8.1 89.2 Actual os 6 of Apprisal (S) 49.6 74.8 92.8 96.0 Date of Final Dleburmsn: October 80, 19«8 P~t0MCT DATES Planned A~* i Appraisel Mare 198 Neg ations May 198 Board Approvel Jum le, 198 Signing (Crød14 Agremaal Dato) July 19, 198 Eff*4bveess 0.6. 18, 19s 8 Au. i, 198 CloiIng Dal. Dec. 8, 1964 Mar. 81, 19= Competion June 8, 198 0.6. 80, 1999 STAFF DPUT (sitf tseeke) fIE Ufl UE UR !E UE fIE Itai RIC I Lending 8.7 - - - - • • 38.7 Superviee - 19.4 8.1 0.9 .. 0.2 - 27.9 OTIER pROJÉCT DATA Follo-On Projet. Nas Ohana: S6ructural Adustme Program Credit Numbers: 1777-41 and A026-OH Ameem6 (UB13 a11lion): 9118 million Approval DaesF Aprl* 14, 19l7 PROGRAM PERPORMANCE AUDIT REPORT GHANA RECONSTRUCTION IMPORTS CREDIT II (CREDITS 1573-GH AND A003-GH) BASIC DATA SHEET KEY PROJECT DATA Appraisal Actual or Actual as X of L_t4 Expectation Current Estimate Appraisal Estimate Tota I Project Cost (USS mi I lon) 87.0 104.6 1205 Credit Amount (SOR alIon) 87.7 CUUATIVE ESTIMATED AND ACTUAL DISMtRSEMENTS Appraisal Estimate (US$ million) 85.0 70.0 07.0 - Actual (USS aIIIon) 49.4 89.7 98.S 104.0 Actual as X of Appraisal (N) 141.1 120.1 110.9 120.2 Date of Final Disbursement: June 80, 19 PROJECT DATES Planned Actual Identification May 1984 Appraisal Oct. 1984 Negotiations Feb. 1965 Board Approval March 28, 1965 Signing (Credit Agreement Date) April S, 1986 Effectiveness July 6, 1966 Aug. 2, 1985 Closing Date Dec. 81, 1987 Dec. 81, 1963 Completion June 80, 1066 June 80, 1989 STAFF 1Nurs (staff weeks) FY68 FY64 FY 6 FY66 FY69 Total RIC II Lending - 14.2 60.4 - * * * 94.0 Supervislen - - 5.9 16.8 7.4 1.7 0.4 81.7 PO DATA Fol low-On Projeats Nam Ghana: Structural Adjustment Program Credit Numbers: 1777-04 and A025-GH Amount (JUS mi I ion) 6 $115 mi ion Approval Dates April 14, 1987 - iv - PROGRAM PERFORHANCE AUDIT REPORT GHANA EXPORT REASILITATION PROJECT (CREDITS 1435 AND F009) BASIC DATA SHEET VEY PROJECT DATA Itea Planned Aatusl Appraisal Estimate Credit Amount (USS million) 76.0 64.3 100.95 CUMULATIVE ESTIMATED AND ACTUAL DISAURSEMENTS MIS FYU FY87 FYI6 FY9 Appraisal Estimate (USS atllion) 80.0 70.0 70.0 - - Actual (USS million) 7.2 82.6 59.7 76.4 64.8 Actual as X of Appraisal (3) 24.0 48.0 78.6 100.5 110.9 Date of Final Disbursements June 80, 1909 PROJECT DATES Planned Actual Appraisal August 1981 Reappraisal May 198 Negotiatione Nov. 108 Board Approval Jan. 8, 1964 Signing (Credit Agreement Date) Feb. 9, 1904 Effestivene** May 9, 1984 June 5, 1964 Closing Date June 80, 1998 Dec. 81, 1988 Completion Dec. 81, 16 June 80, 199 STAFF DIuMa (steft weeks) FY8 FY94 "IS FY66 FYI7 Y6O FY89 Total ERP Leanding 15.4* 68.1 - - - * * 206.5 Supervision - 88.6 so*s 41.6 15.8 12.2 4.1 183.8 * Includeo 50.5 stafffeeks in FY62. OTWE PROJ_ DATA Follow-On Prolectes Hamss ahanas Structural Adjustet Program Credit Numberes 1777-OH and A025-fH Amount (USS mlllion)S $115 mllion Approval Dates April 14, 107 * V * PROGRAN PERFORMANCE AUDIT REPORT GHANA EXPORT REHABILITATION TECHNICAL ASSISTANCE PROJECT (CREIT 1436) BASIC DATA SHEET KEY PROJIICT DATA Appraisal Actual or Actual as X of Item Expectatie Current Estimate Appraisal Estimate Total Project Costs (US1 million) 17.1 19.0 1113 Credit Amount (SO million) 16.2 Date Physical Components Completed 12/81/87 00/80/89 CUMULATIVE ESTIMATED AND ACTUAL DISUR8MENTS Y* FY FY0 FYI7 FYN8 FY9 Planned (USS mllion) 2.0 7.2 12.2 18.2 17.1 - Actual (USI million) 0.1 3.6 7.1 15.0 17.4 19.0 Actual as X of Appraisal (S) 5.0 60.0 08.9 98.7 101.6 111.1 Date of Final Disbursement: PROJECT DATES Planned Actual Appraisal June 1018 Negotiations Nov. 1983 Board Approval Jan. 8, 1984 Signing (Credit Agreement Doat) Feb. 9, 1964 Effectiveness May9, 1964 June 6, 1984 Closing Date June 80, 1907 Dec. 81, 1988 Completion De. 81. 1967 June 80, 1989 STAFF INPuTS (staff weeks) FYU FY94 FY95 FYW Fffi FY9E Tot X fI ERP TA Leading * 8.b - - - - - 8*8 Supervision * 2. 7.4 8.4 12.8 4.4 0.8 86.4 OTHER PROJCT DATA Fol low-On Projects Names Ghana: Structural Adjustment Program Credit Numberst 1777-0 nd A025-4H Amount (USS'Illion): $115 millIon Approval Dates April 14, 1967 - vi - PROGRAM PRFORMANCE AUDIT REPORT RECONSTRUCTION IMPORT CREDITS I & II (CREDITS 1393 AND 1573) EXPORT REHABILITATION AND EXPORT REHABILITATION TECHNICAL ASSISTANCE PROJECTS (CREDITS 1435, SF-9 AND 1436) EVALUATION SUMMARY 1. Faced with an economy in which the reforms undertaken by Ghana and per-capita income had been declining the external assistance provided. at about 3 percent per year for a decade, the Ghanaian Government which Objectives came to power in a militar, coup at the end of 1981 introduced an eco- 4. The Bank's package of support nomic recovery program in April 1983. for the Ghana economic recovery pro- The program aimed to reduce infla- gram included two credits (Recon- tion, strengthen the balance of pay- struction Imports Credits I and II - ments, resuscitate traditional ex- RICs) to provide quick disbursing ports, and restart the growth of the foreign exchange to finance urgently economy. neaded spare parts, tires and bat- teries to relieve the transport bot- 2. The economic recovery program tle neck, and to buy fe:tilizer and was widely supported by the interna- agro-chemicals to enlarge the produc- tional community. The Fund provided tion of cocoa and domestic food. over SDR 500 million. As a first These credits ware intended to com- phase of Bank Group support, IDA prc- plement balance of payment support vided four credits totalling US$250 provided under IMF's stand-by ar- million to finance urgent import re- rangements. Two other credit. (Ex- quirements and to rehabilitate tradi- port Rehabilitation and Export Reha- tional exports. Approximately US$30 bilitation Technical Assistance - million was offered by the African ERP/ERTAP) were to finance the capi- Development Fund for the same pur- tal and technical assistance require- poses. Bilateral donors provided ments for the rehabilitation of ex- assistance of over US$340 million. port sectors through physical invast- ment, policy reform and upgrading of 3. Since 1983 economic growth institutions in cocoa, gold mining. (GDP) has recovered to about 5 per- timber, and ports. cent per year, inflationary pressures have moderated, and the external pay- Desin -ents situation has improved - with arrear, declining and foreign ex- 5. Design of the first import sup- change reserves increasing. This port operation - RIC I was worked out improvement in economic performance in consultation with senior Ghanaian is attributable in large measure to officials. A list of priority im- - vii - ports ard the setting up of an imple- the case of the Cocoa Marketing Board menting unit in the Bank of Ghana to adequate in the case of the Ghana were agreed. The major issue in is- Ports Authority. There is no evi- sign was procurement. Bank staEf, dence to suggest that the National lacking confidence in GOG's procure- Investment Bank which was to be the ment agencies, insisted on the ap- main intermediary financial aSency p-aintment of an external procurement for the timber component, and commer- agent. This agent would provide the cial banks which were expected to Project Coordinator to head the unit provide counterpart local financing in BOG. Ghanaian offiials regarded for timber firms. were consulted at the use of an external procurement the design stage. Potential donors agency as an unneceoo*ry waste of and co-financiers were also not cor- scarce foreign exchange. This issue sulted at that stage. was resolved by agreement that the external agent would handle major Implementation purchases involving competitive bid- ding, while some straightforward pur- 8. Implementation of the RICs went chases would be left to the usual smoothly, although the utilization of Ghanaian agencies; but this last was the foreign exchange was slowed ii- not followed during implementation. tially by the unfamiliarity of com- RIC 11 benefitted from the same im- mercial banks with the form of guar- plementing arrangements, but differed antees required by importers for pre- from the first in that resources were sentation to the BOG. and by the provided mainly for the private sec- shortage ,f local financing. Dis- tor, and the positive list of elig- bursement by the Bank was slower than ible imports was replaced by a nega- anticipated because of limited capac- tive list of ineligible ones. ity of the BCG to process the addi- tional load of documentation gener- 6. In contrast to the RICs, the ated by the operation. The favorable ERP/ERTAP operations were designed as implementation experience was due in a grouping of four sector credits large measure ..o the efficiency of with separate allocations and imple- the external proctrament agency and menting agencies, and with subsidiary the staff assigned to the project project agreements between IDA and unit in BOG, aYd to the flexibility each agency. While Projects Depart- in addressing problems as they arose. ments were consulted on the identifi- cation and design of the components, 9. Implementation of RIC II bone- many regarded the operation as prema- fitted from more liberal design, a ture. The information base was de- small list of ineligible imports re- ficient, and stage of preparation of placing the small list of eligible the sector work programs was gener- o.tes under the first RIC. the reduc- ally not far advanced except in the tion in the size of the minimum or- case of ports. der, the setting up of a Project Mon- itoring Unit in the Ministry of Fi- 7. Involvement of the GOG in iden- nance, and eventually from the tification and design occurred at the channelling of the resources through level of central ministries respon- the foreign ex change auction as from sible for macro-economic management late 1986. However the preparation and at the level of sector minis- of the public investment program, an tries; but involvement of sector important condition for tranche re- agencies was uneven, varying from lease was delayed due to shortage of zero in the care of the State Gold skilled staff. Mining Corporation through scant in - viii - 10. The importation of rehabilita- 12. Implementation of condition- tion inputs provided under ERP vent ality generally vent forward expedi- smoothly in the ports and cocoa com- tiously. reflecting both the commit- ponents. However, the deployment of ment of the COG and the program man- some port equipment initially in non- agement arrangements agreed under the project uses postponed the beneficial ERP credit. However. required insti- impact of this component. Implemen- tutional changes took much longer tation of ERP in other sectors vas than anticipated due to heavy demands beset by delays, and was considerably on the time of senior administrators more difficult than that of the port and legal draftsmen. Changes in component. The delay in identifying pricing and distribution controls and rehabilitation needs in mining meant other changes needing only a decision that the resources could not be used by the political directorate were in that sector within the time allot- made promptly. ted. In timber the lack of financing for complementary inputs, due to Impact scarcity of credit and/or weak finan- cial position of firms, prevented 13. The credits financed essential many firms from putting to productive agro-chemicals, and mistblowere to use machinery financed under ERP. apply them. as well as inputs to im- prove collection and shipment of the 11. Except for the ports sector the cocoa crop. Higher producer prices implementation of the technical as- provided the incentive to take advan- sistance project-ERTAP left much to tags of the greater availability of be desired. In timber the timing of inputs and to increase the level of the deployment of advisors was out of production and export. Timber ex- phase with physical rehabilitation. ports. especially logs, increased In cocoa expertise could not be ef- significantly in response to better ficiently provided and effectively transportation and the rise in price utilized because of lack of prior associated with devaluation of the agreement at implementing agency cedi; although there is evidence of level regarding the technical assis- under utilization of equipment tance that was needed and the absence financed under the ERP. Gold produc- of clear understandings regarding tion by the State Gold Mining Cor- terms of reference and supervision of poration. the beneficiary of the re- foreign experts. The implementation habilitation financed under the mi- of recommendations in studies was ing component of ERP. increased by 20 uneven; Ghanaian officials not re- percent between 1983 and 1989; while garding agreement to study an issue the other mines benefitting from the as implying an automatic acceptance same price and foreign exchange ro- of its recommendations. The imple- tention incentives increased output mentation of the project in the min- by 50 percent. Production of other ing sector was essentially a disas- minerals, e.g. bauxite and manganese. ter, largely because the Bank in- responded very positively to the im- sisted on foreign managers taking proved transport made possible by the over the functions of national man- credits in this package. In road agers-an arrangement not favored by transport the availability of the the SGMC or by the technical assis- vehicle fleet doubled between 1983 tance contractor, and because of the and 1987; and turnaround time for inevitable conflict between the for- ships in Ghanaian ports was reduced eign managers and the board of direc- by a half. tors half of which was comprised of the displaced national managers. - ix - 14. Contribution to policy reform Ghana to take greater advantage of and institutional development varied their contributions. among and within sectors. In cocoa, price policy significantly raised 16. ERP/ERTAP must be rated as only producers' share of proceeds. While moderately successful. While the the reorganization of the Cocoa Board increase in inputs and the physical was started, divestiture of some ac- investments largely realized the out- tivities in plantations, transport, put objectives in the ports and cocoa and processing was slowed by Cocoa sectors, this was not the case in Board dissatisfaction with some of timber ane gold. Institutional im- the studies and disagreement with provements were delayed; and in any some recoimendations. In timber, the case. institutional weaknesses which Forestry Products Inspection Bureau the rehabilitation operations sought and the Timber Export Development to address could only be overcome Board were established, but the lat- gradually. The long lead time before ter remains understaffed. No worth- benefits from institutional change while institutional improvement in become apparent, the delay in under- gold mining is attributable to these taking the relatively small scale operations. However the increase in physical rehabilitation. and the pre- the retention of foreign exchange sence of important costs associated permitted exporters has been a useful with the dislocation of people as policy change. In the ports sector, agencies were abolished and staff the Ghana Ports and Harbors Authority retrenched, suggest that the rate of was created, and separate management return on rehabilitation components teams for Tema and Takoradi ports was probably low. Still, these oper- were established. ations made an important contribution in starting a process which the Banik Evaluation has supported through a number of sector operations which followed. 15. Overall, the package under re- view must be rated as only partly 17. The basic shortcoming of the successful. Although disbursement package derived from the inclusion of was slower than expected the objec- quick disbursing import support and tives of the RICs were largely project/sector adjustment type re- achieved. Simplicity of design, habilitation operations in one pack- close dialogue between the Bank and age, and treating the whole as quick relevant officials, correct identifi- disbursing. The process of designing cation and appropriate solution to the rehabilitation component was hur- the major constraints, good program red, and allowed little time for management arrangements, dedicated consultation with relevant Ghanaian monitoring and flexibility in adjust- interests, and for detailing institu- ing implementation to changing cir- tional and policy changes. As a re- cumstances all contributed to a gen- sult implementation of ERP/ERTAP suf- erally eatisfactory outcome. The fered in some sectors because of lack evaluation of the RICs, based on of cooperation by officials of rele- their likely contribution to the re- vant agencies that had not been con- surgence of growth in output and the sulted or had not participated in the recovery in export earnings and the identification and design of the op- absence of significant costs over and erations. It was also made difficult above the direct financial cost, is by the large number of conditions highly positive. However, earlier involving institutional and policy and more effective involvement of changes requiring large inputs of donors probably could have allowed - x - managerial and administrative skills, cies at the point where technical which were in short supply. assistance is to be inserted, since this appears to be a necessary condi- Lesson* tion for the acceptance and efficient utilization of such assistance. 18. The main lessons suggested by Agreement at the level of the cabinet this review of these operations are and central ministries is no substi- the following: tute for dialogue with the bene- ficiary agency especially where in- * Bringing project financing on stitutional changes are contemplated. stream to fit the urgent timing im- The Bank must pay greater attention posed by quick disbursing import sup- to the diplomacy of technical assis- port will be counter productive if tance, recognizing that if the re- the projects are not ready. Projects quest does not originate in the bene- divisions and technical divisions ficiary agency the offer of expertise should be the final judges of readi- may be seen as implicit criticism, ness of project components. and unless this is dealt with there may be resistance to and non-coopera- * Where thera are components in- tion with experts. volving onlending for sub-projects. these should be identified and de- Terms of reference for technical signed beforehand or appropriate pro- assistance experts should be deter- vision made for their appraisal by mined within the context of close the on-lending institution with mean- consultation between the Bank and ingful Bank involvement in reviewing relevant government officials in- them. The objective here is to en- cluding those of the beneficiary in- sure that other inputs required at stitutions. Terms of reference must sub-project level are provided and be clear and as far as possible list that their absence will not frustrate monitorable activitiis and identify the productivity of Bank provided reporting requirements to specified inputs. This is particularly neces- supervisors. Where experts are to he sary if access is extended to bene- deployed at managerial level, the ficiaries beyond those contemplated relationship to incumbents should be at original project design. clearly set out. As far as possible incumbents should not be asked to * Particular attention should be stand aside while experts undertake paid to the special issues which their functions; but if this is abso- arise in the case of foreign exchange lutely necessary sui%able provision denominated credit. Care should be should be made for training incumbent taken to assess the demand for the managers and for the handing over of foreign exchange, bearing in mind the control to them after the completion fact that this will be affected by of their training. the supply of local currency credit. In addition the costs and risks to Coordination and consistency of exporters when they borrow foreign Fund and Bank programs has been a currency and the effects on govern- matter of concern in Ghana. This ment institutions which may have to concern has been reflected in a de- bear part or all of these risks bate over whether or not tightness of should be considered in the design of liquidity impeded the prompt and ef- these operations. fective use of resources provided by the Bank and other donors to stimu- * Bank staff should always consult late exports. Ghanaian perception with officials of beneficiary agen- was that Bank/Fund coordination was - Xi - lacking and that there was inadequate this area. This could have been thought given to consistency between achieved by attachment of staff of the operations of these two institu- the two public sector procurement tions. The lesson is that irrespec- institutions to the procurement agent tive of which institution has final and or by having the agent provide responsibility for advising on dif- technical assistance to help those ferent parts of the economic recovery institutions undertake those pur- program frank discussion of technical chases envisaged in the initial con- issues between the Bank and Fund sultations between Bank staff and staff and between them and the client officials. is indispensable for the design of a viable program. This discussion Perhaps the most important les- should verify the applicability of son is that by providing support when standard policy measures in the cir- urgently needed by a government will- cumstances of the particular client, ing to take measures to stabilize and identify the adaptations to be made, adjust its economy, the Bank can pro- and examine the suitability of indi- vide the basis for a close dialogue cators to be used in gauging the ef- leading to constructive Bank involve- fects of policy. The discussion ment in the continuing process of should also address the issue of con- adjustment and the rehabilitation of sistency between stabilization and crucial sectors. growth strategies, and specifically the sequence and timing of components Conclusion of the strategies. 19. This audit concludes that while * Bank discussions with donors the IDA credits - RIC 1, RIC II, ERP should be started at the identifica- and ERTAP clearly contributed to the tion and design stage of the project improved performance by providing cycle, with a view to harmonizing additional resources and by requiring conditionality, and taking advantage adjustments in relative prices, de- of savings from joint implementation. tailed review of the identification, design and implementation of these * The setting up of a formal mech- credits individually and as a package anism, even if ad hoc, for coor- suggest that they were not as benefi- dinating the satisfaction of condi- cial as they could have been, and tionality can prove useful in ex- that there are important lessons to pediting multi-sector operations like be learned. the ERP. Such a mechanism can be even more useful if it monitors the conditions for efficient use, in the various sectors, of the resources provided under such operations. * The Bank should take advantage of opportunities to strengthen insti- tutions and upgrade skills, where this is possible with minimum addi- tional cost and without sacrificing the other objectives of an operation. Having diagnosed the weakness in pro- curement as a major bottleneck the Bank should have devoted some atten- tion to strengthening capacity in PROJECT PERFORMANCE AUDIT REPORT, GHANA RECONSTRUCTI6N IMPORT CREDITS I & I! (Credits 1393 & 1573) EXPORT REHABILITATION and EXPORT REHABILITATION TECHNICAL ASSISTANCE PROJECTS (Credits 1435, SF-9 & 1436) I. BACKGROUND The Decline after Independence 1.01 Ghana achieved Independence in 1957 with a buoyant economy based on imense natural resources, a large pool of educated people and well developed infrastructure. An economic strategy of state-led and controlled industrialization led to excessive growth in the public sector, inflation and serious price distortions. The strategy remained essentially unchanged through several changes in government. This strategy and the atmosphere of political instability due to frequent coups discouraged investment and undermined output performance. Meanwhile, the infrastructure built up before and immediately after Independence was allowed to deteriorate. Unfavorable international economic circumstances in the second half of the seventies further aggravated the situation. 1.02 Per capita income declined at 3.7 percent per annum during 1975-80 and at 2.8 percent per annum for the decade as a whole. Production of domestic food crops stagndted. Inflation intensified , the consumer price index increasing at 68 percent per year during 1975-80 compared with 40 percent per year for the decade of the seventies. Partly as a result of an overvalued exchange rate which failed to compensate for the high inflation exports of goods and services declined by 36 percent in real terms between 1975 and 1980, equivalent to an average annual fall of 8.5 percent; the decline ranging from 31 to 51 percent in the caae of minerals, 54 to 89 percent for logs, sawn timber and plywood, and over 20 percent in the case of cocoa. Imports fell by 14 percent during the same period, not enough to prevent a build-up of arrears in payments and a consequent decline in cred- itworthiness. With the sharp downturn in external inflows in the early eighties by 1983 imports stood at only 41 percent of the 1975 level, and Ghana exhibited all the attributes of an imports starved economy. Industry dependent on imported inputs and spares could barely continue to run while 70 percent of the transport fleet was idled. Agriculture could not get the the fertilizers, pesticides and tools it needed to reverse the downward trend in production. -2- The Economic Recovery Program 1.03 Faced with this situation the regime which came to power in a military coup on December 31, 1981 developed (with the collaboration of the IHF and the World Bank) an economic recovery program, which it announced in April 1983. The program included a stabilization package aimed at reducing inflation and at reducing the pressure on the balance of payments by cur- tailing aggregate demand in general and the demand for imports in partic- ular. The program also aimed to promote recovery of exports and economic growth by correcting price distortions and by rehabilitating the physical capacity of the economy. These aims were pursued through reforms in (a) exchange rate policy - significant devaluation of the Cedi and continued adjustment toward an equilibrium rate; (b) public finance - reduction of the public sector deficit; (c) monetary policy - curtail the growth of liquidity and reduce crowding out of the private sector from available credit; (d) price reform - reduce the distortionary effects of administered prices and improve incentives to produce and to export; (e) foreign ex- change - improve access by producers to foreign exchange for rehabilitating capital and purchasing inputs. 1.04 The IHF supported the Economic Recovery Program with three standby arrangements and with resources from its compensatory financing facility, totalling over SDR 500 million. The Bank resumed lending to Ghana with four credits amounting to nearly US$250 million in support of the Program; and followed with credits to water supply, energy, oil palm development, road rehabilitation and maintenance, power, ports , the industrial sector, and for structural adjustment. Substantial donor assistance equivalent to over US$340 million was mobilized in response to the measures taken under the Economic Recovery Program.1 Recent Economic Performance 1.05 Since 193 GDP growth has recovered to average 5 percent per year, and inflation has moderated to about 30 percent per annum although some upward pressure remains. Domestic food production has recovered strongly- -maize, rice, millet and starchy staples significantly exceeding the 1983 record lows to which they had fallen. Partly in response to better price incentives exports of cocoa, timber and gold have increased during 1983-87. External payments arrears have declined, while at the same time the country has been able to add a small amount to its foreign exchange reserves. 1.06 The general conclusion reached by knowledgeable observers is that the Ghanaian economy has responded positively to the reforms undertaken and the external assistance provided since 1983. Given the overlapping effects of a large number of operations of many multilateral and bilateral donors, and the large number of Bank operations it will be difficult to determine how much of the observed improvement in performance should be ascribed to any one or group of credits. The evaluation of any credit or credits must 1/ See the Project Completion Report for Ghana: RIC I and II, and ERP and ERTAP; Table 5 - Co-Financing for details of the donors and contributions. therefore largely focus on an examination of the conceptualization, design and implementation using criteria generally related to project success rather than on any measure of impact on other variables usually used as indicators of economic performance. II. THE FOUR CREDITS - RIC I AND II, ERP AND ERTAP The Bank's Program of Support 2.01 In early 1983 the Bank, being fully aware of the new Ghanaian Government's intention to introduce the Economic Recovery Program, started to give thought to what it could do to support it.2 What was proposed was a quick disbursing credit to finance urgent imports, the reactivation and reappraisal of an export rehabilitation credit (originally appraised in Aug. 1981 and considered by the Loan Committee in Nov. 1981), reactivation of the pipeline of regular projects, the review of the portfolio of ongoing projects to expedite disbursements, and the reconvening of the Ghana Con- sultative Group to help in mobilizing external support for the program. 2.02 Bank support was conditioned on Ghana reaching formal agreement with the IMF along the lines agreed in a memo of understanding of Feb 18, 1983, which outlined a proposed government policy package in support of its request for a one year standby and compensatory financing. The main fea- tures of the package were: (i) establishment of a two tier exchange rate (Cedi 23 - US$1 and Cedi 30 - US$1 ) to be unified at a realistic level during the period of the standby; (ii) the simplification of import tariffs; (iii) the increase in cocoa prices to producers; (iv) the continu- ation of a temporary subsidy on oil for 6 months; and (v) a 60 Z increase in civil service salaries. The Credits and Their Objectives 2.03 Bank support was comprised of the four operations covered by this audit. The basic objective of each of the four credits was to support the government's program by financing imported inputs to revive agriculture on an emergency basis, to remove bottlenecks to the recovery of traditional exports, and to begin the liberalization of controls on and access to re- sources by the private sector. 2.04 First, a Reconstruction Import Credit of SDR 37 million was ap- praised in March 1983 and approved by the Board on June 28, 1983. It was to finance the importation of essential inputs in the agriculture sector, e.g. fertilizers, pesticides, sprayers and handtools; and in the transport sector - spare parts, tires and batteries. 2/ 0.M. Jan. 18, 1983 and 0.M. Feb. 25, 1983 from Chief WA1DB to RVP, WAN t Ghana - Bank Response to Economic Recovery Program. - 4 - 2.05 Second, an Export Rehabilitation Credit(ERP) for SDR 71.8 million, of which SDR 33 million from the Special Fund, was reappraised in May 1983 and approved by the 'ard on Jan 3, 1984. It was to finance spare parts and other goods and services, address policy and institutional issues, and restore the supporting infrastructure in order to arrest and reverse the decline in the main export sectors- cocoa, timber and gold. 2.06 Third, an Export Rehabilitation Technical Assistance Credit of SDR 16.2 million was appraised in June 1983 and approved by the Board concur- rently with the preceding ERP. This credit was to finance the strengthen- ing of institutions, help the government to improve policies, do related sector studies, and train management and technical staff in the same export sectors. 2.07 Fourth, a Reconstruction Imports Credit II amounting to SDR 61.6 million was appraised in October/November 1984 and approved by the Board in March 1985. An additional SDR 26.1 million from the Special Facility for Africa was approved at the end of September 1985. These were to provide more broadly based support for the Economic Recovery Program by helping to finance the minimum foreign exchange requirements of the major export sec- tors to allow the liberalization of controls and to assist the private sector which had mainly been left out of earlier support. Cofinancing 2.08 One objective of the credits was to provide a focus for the mobil- ization of donor financial support for the Economic Recovery Program, par- ticularly but not exclusively in the context of the Ghana Consultative Group. Even before the first meeting of the Group after the Program was initiated the Bank contacted potential donors by letter and sent them copies of the President's report proposing RIC I to the Board. The meeting of the Group toward the end of 1983 provided opportunity for canvassing support for the Export Rehabilitation Project. Support for the associated technical assistance operation ERTAP was sought during the implementation phase from two donors whose nationals were the selected contractors. Board approval of RIC II in March 1985 was followed by considerable effort by the Bank to acquaint donors with the impressive policy initiatives taken by Ghana plus additional measures agreed under RIC II, and with the special problem created by the drought in 1983/84. The approval of the African Facility Credit six months later triggered yet another round of donor sup- port. 2.09 The arrangements for donor support had to be very flexible to accommodate the various and varying -preferences of individual donors. In some cases, e.g. Canadian and Dutch, IDA was asked to administer the assis- tance along with its own. Some donors dealt directly with Ghana. Some assistance was in the form of grants and others in form of loans; and some assistance was tied and the remainder untied. - 5 - 2.10 In all the equivalent of US$341.2 million of cofinancing was mobilized in conjunction with these credits. Of this amount just under one-quarter was associated with RIC I, nearly one-half with RIC II, and the remainder with ERPIERTAP. The smallest amount-US$5.5 million was raised for support of the technical assistance project. Design 2.11 Although all four credits shared the same basic objective, differ- ences in the emphasis of their specific objectives made for important dif- ferences in design. Design of RIC I 2.12 The design of RIC I reflected the urgency the Bank attached to the provision of assistance to address what the government regarded as an emer- gency in agriculture and to establish Bank credibility as a supporter of the shift toward sounder economic policies. Up-front conditionality was limited to the important-- prior agreement with the IMF on a stabilization package involving exchange rate adjustment, reduction in the public sector deficit and monetary restraint. In addition, cocoa prices to producers were to be reviewed annually and adjusted to maintain incentives; freight tariffs were to be reviewed semi-annually with the Bank and adjusted to maintain incentives to transport operators; and a program for removal of the fertilizer subsidy was to be reviewed with the Bank before October 31, 1983 with the intention of phasing it out gradually. Rapid disbursement was accorded highest priority. An internal directive to the appraisal mission stated that "to the extent possible the RIC project should not be encumbered with provisions which would adversely affect the quick-disburs- ing nature of the project".3 The same directive pointed out the need to devise appropriate implementation systems with emphasis on proc-rement, disbursement and monitoring responsibilities and mechanisms. 2.13 The operating design was worked out in meetings with senior Ghanaian officials. Based on lists of priority imports presented by an Agriculture Sector Task Force and a Transport Task Force a tentative allo- cation in terms of US dollars was agreed. These allocations distinctly favored the public sector. Also agreed was the implementation arrangement in which responsibility would rest with the Bank of Ghana. A Project Agreement between IDA and the BOG provided for the setting up in BOG of a RIC Project Unit headed by a Project Coordinator, and supervised by a Tech- nical Committee composed of representatives of the BOG, Ministry of Finance and the relevant sector ministries. Overall policy guidance and coordina- tion among ministries was provided by an Interministerial Committee. 2.14 The design of procurement was given special attention. The Bank's proposal, reflecting lack of confidence by Bank staff in the efficiency of the Ghana Procurement Agency and the Ghana Supply Commission to manage an import program of such magnitude, called for the appointment of an external 3J O.M. March 7, 1983. procurement agent. This was a source of difficulty in the negotiations; Ghanaian officials were concerned over the need to pay out scarce foreign exchange for services they thought they could provide themselves. On the understanding that some items would be purchased through these agencies in cases where their experience and links made for efficiency, it was agreed that an external procurement contractot would handle most purchases under Bank guidelines. Operationally, this meant the contractor made all RIC funded purchases for the public sector and purchased all items (in effect tires and batteries) which were subject to international competitive bid- ding both for the public and private sectors. International competitive bidding was required for all contracts over US$1 million and limited com- petitive bidding for contracts below that figure was required for the pub- lic sector. Proprietary items, e.g. agro-chemicals, spares for tractors and trucks, were to be ordered direct by accredited Ghana distributors from their normal suppliers. 2.15 The design also called for the procurement contractor to provide a staff member to serve as Project Coordinator in the Project Unit in BOG. The Unit would arrange with importers agreements for the importation of specified goods, invite and evaluate bids and refer these to the Technical Comittee and the Bank. 2.16 To expedite procurement a special revolving account was set up in a London correspondent bank of the BOG to ellow prompt payment of lower value orders; and a subsidiary account made these funds accessible to the procurement contractor. Direct purchase of items with value less than US$100,000 was allowed if urgency could be proved. 2.17 The design of the credit also provided for the distribution of the imports. Sector ministries were to allocate the goods to specified benefi- ciaries to whom importers had to distribute according to terms laid down in the import agreement. The selling prices of the goods were to be fixed by the Prices and Incomes Board. Fertilizer distribution was to be opened to the private sector and to cooperatives. 2.18 The credit was also designed to generate counterpart (cedi) funds, which arose as importers through their commercial banks paid the BOG for foreign exchange to liquidate obligations under letters of credit which financed the importation of the goods covered by the import agreements. In order to ensure that these pAyments were made the importer's application to open letters of credit had to be accompanied with a guarantee from the importer's banker enabling the BOG to debit the commercial bank's account for the full Cedi equivalent of the full landed cost of the importer's goods. These funds were to be used to finance part of the recurrent and capital costs of projects included in the economic recovery program, and a special account was set up in the BOG to receive them. -7- Design of RIC II 2.19 In designing RIC II advantage was taken of the experience under RIC I, the Bank specifically canvassing the comments of the procurement contractor, Bank staff, the Resident Missien, and Ghanaian officials. The main changes in design were: (i) the broadening of the range of items to be imported. This was to be accomplished by the replacement of the positive list of eligible imports with a short negative list of ineligible ones. Although upper limits for four beneficiary sectors - agricul- ture, mining, industry and transport - were agreed, in effect anything not on the negative list could benefit from the credit; (ii) the preparation of a comprehensive import program to ensure that the economy's priority import needs would be met; (iii) the reservation of a substantial share (702) to the private sector; wholly publicly owned manufacturing enterprises were excluded from access to the creditt (iv) a wide range of conditionality was attached to RIC II; some tending to foster liberalization of price and distribution controls, some dealing with the Development Budget and prepara- tion of a medium term investment program, and others concerned the review of foreign exchange allocation mechanisms, specific price increases to cocoa, cotton and tobacco, and concerning a new investment code for the industrial sector; (v) retroactive financing for about $10.7 million of imports eli- gible under RIC II rules was allowed. 2.20 At the time of designing RIC II it was decided not to tranche the credit since to do so probably would unduly slow disbursement. It was thought that the Special Facility for Sub-Saharan Africa might be utilized as oupplementary financing for RIC II and would serve as a second tranche.4 This African Facility Credit for $27 million was approved by the Board in September 1985. The conditions for effectiveness included: (i) submission by the Government of a rolling development program satisfactory to IDA; (ii) effectiveness of the German and U.K. Special Joint Financing agreements. The latter cross effectiveness condition was dropped and the AFC credit became effective in June 1986 after the receipt of a three year rolling plan which was deemed satisfactory.5 2.21 The initial design for procurement had much in common with that used for RIC Is the external procurement contractor was retained for public sector purchases and contracts subject to ICBg and the project unit contin- ued to operate within BOG. Increased provision for the private sector however, implied greater use of normal commercial channels. This acceler- ated following the establishment of Ghana's foreign exchange auction on 4/ Minutes of Loan Committee Meeting on RIC II, March 8, 1985. 51 Memo dated June 11, 1986. - 8 - September 12, 1986. Then the Bank accepted that with the auction and ac- companying trade liberalization measures importers could be relied on to procure their requirements from the most cost effective sources. In view of the changed situation the Bank decided to revise procurement and dis- bursement procedures to enable the balance of the credit, estimated to be about two-thirds, to be used to fund the auction system.6 2.22 With the wider conditionality involving public finance and sector- al policies, arrangements for coordination and monitoring compliance had to involve a unit closer to the center of power. While not specifically de- signed for this purpose the Central Project Monitoring Unit set up in the Ministry of Finance played this role. The Design of ERP/ERTAP 2.23 The design of ERP/ERTAP, which are more in the nature of four sector credits, stands in stark contrast to that of the RICs which were essentially program credits. Although the fact that all the sectors shared the objective of reversing the downward trend in exports justified their being grouped into one operation, the allocation of the credit to each sector was specified in the agreement and the four components were designed to be implemented independently of each other. There was a separate imple- mentation agency for each sector and there were subsidiary project agree- ments between IDA and each agency. Procurement of goods and services under these credits was to be undertaken by each agency. 2.24 ERP/ERTAP were designed as a first stage in a longer term sectoral adjustment and rehabilitation program to be worked out with BankIlDA. As such they placed greater emphasis on institutional restracturing and on studies to lay the basis for future developments than a normal quick-dis- bursing emergency support would have done. This emphasis was reflected in a long list of conditions regarding pricing, institutions and studies. Yet some conditionality related to macroeconomic performance and had to be met by the Government as a whole. There were specified actions which the GOG had to take before Board Presentation and before the release of the second tranche, e.g.review with IDA the Development and Foreign Exchange Budgets. The result was that the design was complicated; with macro and micro con- ditionality, sector adjustments in policies and institutions, and project type investments in a quick-disbursing framework. 2.25 Within the Bank the various components were drawn from the wozk programs of separate projects divisions; and the information base and stage of preparation were clearly uneven. Some Bank projects staff recall that the ERP was presented to them as a fait accompli, justified on country grounds and on the need to expand exports, and introduced rather suddenly without giving opportunity for updating the identification of the component or for discussing the design. The view in most sectors was that a fine- tuned rehabilitation strategy would be defined under the ERP to be imple- mented in later operations. 6/ Memo dated November 24, 1986. -9 - 2.26 Within the country identification and design required involvement of three levels of government--the central ministries resposible for macromanagement, e.g. the Ministry of Finance and the Prime $inisters Officei the sector ministries, e.g. Ministry of Lands and N&-nral Re- sources. Transport and Counications, and Agriculture; and sector agencies such a the Cocoa Board, State Gold Mining Corporation, National Investment Bank and the Ports Authority. In Ghana the degree of involvement of imple- menting agencies in the design of ERP varied directly with the recency and quality of the their dialogue with the Bank. The greatest involvement was by the Ports Authority, followed by the Cocoa Board, SGMC and the NID in declining order. 2.27 The design of the timber component had to be different from those of other sectors in that the success depended on actions by private timber processors and exporters. The public sector agencies in the sector have a regulatory or promotional function and not a marketing and extension ser- vice function as in the case of the cocoa sector. This made it difficult to provide incentives to timber firms. The component was to be designed to assist ttmber firms in making investment to expand their capacity to pro- duce especially for export; what was required was a ODFCO type of opera- tion. The.NIB was to be the agency through which foreign exchange for rehabilitation imports was to be made available to timber exporters. Thus timber companies would submit to NIB their applications for ERP foreign exchange with lists of goods to be imported along with detailed specifica- tions and expected c.i.f. prices. After review by the Technical Evaluation Coumittee the application would be considered by a Loan Review Panel, which was provided a consultant under ERTAP to advise on the viability of timber projects. After approval of the application by the panel NIB would con- clude an import agreement to provide the estimated foreign exchange for the specified goods, but before orders were. placed the applicant was to be required to get from a commercial bank a guarantee in favor of NIB covering the cedi equivalent of the landed duty paid value of the goods to be im- ported. Implementation 2.28 The implementation experience, though generally positive, dif- fered between the RICs and the ERP/ERTAP due to the differences in design and In procurement arrangements. However, there were some problems common to all. These were mainly associated with weak administrative capability and the shortage of Cedi funds to purchase the foreign exchange provided for imported inputs and to mobilize other resources for rehabilitation. 2.29 The main effect of these problems was to delay disbursement, the delay becoming shorter with each succeeding operation. RIC I should have been disbursed in one year but took four years. The next operation-ERP was disbursed over five years instead of the expected three years. The com- panion TA project-ERTAP took six years instead of five. RIC II the last in the series was disbursed in four years instead of three. - 10 - Aplementation of RIC I 2.30 The implementation of RIC I in many respects went smoothly due mainly to simplicity of design, the use of an efficient procurement agency, and a willingness on all aides to be flexible in finding solutions to prob- lems as they emerged. However, the rate of disbursement of funds was slow- er than anticipated. 2.31 Once the credit was approved there were few conditions for effec- tiveness except the agreement with the Fund and these could be satisfied by undertakings which the GOG gave promptly. The procurement contractor who had had experience in Ghana, appointed a capable project coordinator, set up a special unit in their UK head office to deal with purchases under the credit, and later established a field office in Ghana. In addition ODA provided a procurement specialist to assist the project coordinator. 2.32 There were initial misunderstandings but these were dealt with promptly, One arising from the overlapping of functions of the Project Unit and the Foreign OperatAons Department of the BOG was clarified by putting in the Department any function that involved committing the BOG financially, e.g. opening of letters of credit. Another was that it was thought at first that importers nominated by Ministries would submit appli- cations to the Project Unit for consideration by the Technical Committee, but this procedure ran the risk that an importer nominated by the Ministry may be turned down by the Committee. To avoid this possible confusion and to get the process underway quickly, Ministries drew lists of requirements and allocated them among potential importers. These allocations were gen- erally approved by the Technical Committee, and the importers were then invited to conclude import agreements with the BOG. In only two cases were the import agreements abrogated. 2.33 Slow disbursement of RIC I was due to slowness in placing orders, delays in supplying the orders and to limitations on transport and cargo handling capacity in the ports. Among the factors causing delay in the placement of orders was the fact that RIC I imports were mostly admini- stered by the public sector. Conperation with the Project Unit was al- ways promised but there was "excessive caution and reluctance to reach decisions to short-circuit existing procedures'.7 The decision process was also slowed by the paucity of officers and over-centralization of decision-making. Another factor was that importers were required to get their commercial banks to guarantee payment to BOG of the cedi counterpart. tankers were unfamiliar with the form of such a guarantee and were initial- ly slow in providing it. Only on receipt of the guarantee would the BOG authorize an order and open a letter of credit, hence the flow of guaran- tees adversely affected the pace of placement of orders. Special Accounts, with an initial deposit and then revolving, were to allow prompt payment for small value orders. A second Account for purchases by the Crown Agents initially presented some difficulty due to IDA disbursement rules. This 7/ Crown Agents: Final Report on Reconstruction Import Credit Project, 1983-88. - 11 - was soon solved by having an account in the name of the BOG on which the CA could draw. However, the initial deposit and ceiling of this account of $1 million was too small to allow orders to be placed freely, and at times orders had to be held back until the account was replenished. By the time the Bank recognized the problem and moved to increase the deposit in the Special Account some time had elapsed and the delay had already occurred. For orders not debited to the special account letters of credit were opened in the correspondent bank subject to the IDA's *qualified agreement to reimburse,, and since suppliers without exception had required a confirmed irrevocable letter of credit in their tenders, this qualification caused some delay. The BOG as a matter of policy did not request confirmation in order to avoid the cost. The matter was resolved by the BOG agreeing to request confirmation where unavoidable, and the correspondent bank agreed to issue confirmed letters of credit when IDA's agreement to reimburse was received. Direct ordering permitted in the case of some imports and impor- ters also suffered delay, but this was mainly due to the requirement that they get pro-forma invoices before completing the import agreement with the RIC Project .Unit. 2.34 The supplying of orders was at times delayed by the nature of the goods, which required long lead-times and/or had to meet peculiar specifi- cations. This was the case with railway signalling equipment and parts for older vehicles. One source of delay seems to have been the Ghanaian requirement that all imports including RIC I imports be subject to inspec- tion by the-Societe Generale de Sarveillance (SGS). While this may have prevented abuses by direct importers, the inspection and issue of the "Clean Report of Findings' caused pre-shipment delays. 2.35 Limitations on the avail&bility of ocean transport and on cargo handling in Ghanaian ports also caused delays in the arrival of imports under RIC I. This was aggravated Vy the priority that had to be given to large food imports necessary to offiet the drought-caused poor harvest of 1983-84. Similarly, the shortage o. inland transportation was made worse by the demand for moving foodstuff. 7pports of tires, batteries and spares became even more essential in reducing this bottleneck. 2.36 Problems in domestic distributin resulting mainly from the lack of purchasing power on the part of soma institutions and some beneficiaries delayed the deployment of some of the resources provided under RIC I. The distribution of hand tools by Regional Administrations was hampered by lack of cash and poor communications. Devaluation caused prices of some agri- cultural inputs to rise, and this slowed sales. Poor transportation inter- fered with the monitoring of these problems and delayed their solution. One approach decided by the GOG was to sell to the general public goods imported for beneficiaries if the latter did not collect them within a specified time after being notified of their arrival. 2.37 Other problems encountered in the implementation of the RIC I included the preclusion of many orders from financing where the orders were below the minimum. Also the fluctuation of the dollar against the SDR and the use of the former in allocations made full utilization of the credit - 12 - difficult to gauge nearing the end of disbursement. Thus when the dollar appreciated the contingency reserve was wiped out and IDA was unable to issue undertakings to reimburse alt%ough initial allocations were not then fully utilized. Shortly afterward the depreciating dollar resulted in surplus funds when the placement of orders had been sharply curtailed. 2.38 Cofinancing may have slowed the disbursement of the RIC I project in that tight time limits for the use of some of these funds made it neces- sary to delay commitment of IDA funds in order to speed commitment under some others,e.g. Dutch. In addition, where some cofinancing was tied the matching between goods and sources became more difficult. For example, some delay was encountered in using tied funds where goods from some tied sources were not known in the Ghanaian market. This was more a problem with RIC II with its much wider range of imports than under RIC I where the problem was mainly limited to tires. Implementation of RIC II 2.39 The implementation of RIC II benefitted from the fact that RIC I was closely monitored and the lessons to be learnt were carefully collected and fed back into the design process. Thus by the time RIC II came on stream the Disbursement Division in the Bank was already in favor of with- drawal using broader categories of goods in order to speed up disburse- ments, and of greater use of revolving funds to cover minor items. 2.40 The implementation of RIC II was favored by a more liberal design compared to RIC I, including the use of a short list of ineligible imports, wider sectoral allocation, the earmarking of 70 percent of the credit for the private sector, and the provision for retroactive financing. Implemen- tation was also helped by the reduction of the minimum order from $20,000 to $10,000, and the opening of Special Accounts in the London Branch of the Ghana Comercial Bank which was willing to confirm letters of credit on IDA's qualified agreement to reimburse. 2.41 The Central Project Monitoring Unit (CPMU) set up in the Ministry of Finance was particularly important in expediting the processing of docu- mentation for the drawdown of the retroactive financing during the first six months after the credit was approved. The Resident Representative had this to say of the Unit 1I must add that the staff of the newly created CPHU had to work hard on this and without their special effort RIC II dis- bursement would have been at a standstill'.8 2.42 One of the conditions of this credit was that the GOG review the foreign exchange allocation system. This review resulted in the introduc- tion of the foreign exchange auction in 1986 and profoundly affected the RIC II which the Bank recognized had to be modified to accommodate the new system. First, more foreign exchange was needed in the Special Accounts and at the request of the GOG these were increased from $10 million and $5 million to $15 million each for the IDA Credit and the African Facility 8/ Telex dated Nov. 8, 1985. - 13 - respectively. Second, the Bank agreed that all remaining balances under RIC II/AFC would be put into the auction; estimated to be about $80 million.9 Third, the role of the RIC Project Unit was modified in that its prescreening functions for the Technical Committee were removed and sector- al allocations were not maintained. RIC II now became primarily a source of funds to finance successful bids for goods in agriculture, mining, in- dustry and transport. No longer were funds tied up against slow-moving allocations. The Unit now examined all successful bids after each auction, and allocated the loan funds to those contracts that were eligible under the terms of the credit agreement. 2.43 The result of this move was a considerable improvement in the rate of commitment.10 Before the auction many of the nominated importers were suffering from cash flow problems. The auction simply eliminated these in favor of those with funds. By June 1987 some $99 million had been commit- ted plus $4 million had been earmarked for the public sector out of an overall credit value of $118 million; the weakness of the dollar against the SDR and other currencies having resulted in a large increase in the dollar value of the credits. 2.44 Notwithstanding the establishment of the Central Project Monitor- ing Unit there was less than prompt satisfaction of the conditionalities attached to this credit. It had been decided in Loan Committee not to tranche the credit since to do so probably would have unduly slowed dis- bursement. Instead'it had been thought that the Special Facility for Sub- Saharan Africa would provide supplementary financing and would serve as a second tranche. As it turned out the Facility agreement was signed in October 1985 but did not become effective until April 1986 as the GOG failed to meet the effectiveness conditions. One condition, the prepara- tion of a three-year development program for the public sector, could not be met on time and the GOG requested that it be waived as a condition for effectiveness of the African Facility Credit and be made a condition of appraisal of the ensuing Structural Adjustment Credit. This was not accep- ted by the Bank, but in order not to jeopardize co-financing tied to RIC II/AF by cross-effectiveness clauses, a bare-bones version of a public expenditure program was accepted by the Bank as meeting the condition for effectiveness. Delay in satisfying conditionalities obtained for all con- ditions requiring work of a technical nature. This reflected the shortage of skilled staff. Where conditionality had to be met by simple policy decision by GOG the requisite decisions were taken promptly, e.g. the re- duction in price and distribution controls. 9/ O.M. dated July 28, 1986; Ghana-Procurement & Disbursement Issues Related to the Foreign Exchange Auction. 10/ Supervision Report, June 1987. - 14 - Implementation of ERPIERTAP 2.45 The implementation experience under the ERP/ERTAP differed from that under the RICe because of the complexity of the operations-including a large component of institutional restructuring, policy adjustment, physical rehabilitation, and technical assistance for managerial improvement and training, and because of the larger number of implementing agencies. In general the implementation of the institutional components involved consid- erable delay as a result of the need to design the changes, amend existing and/or introduce new laws, elaborate new procedures and recruit and train personnel. Policy adjustment was slow in taking place when it was depen- dent on the conclusion of studies, especially when the recommendations were not in line with the policy preferences of relevant officials. Physical rehabilitation was implemented with moderate delay where the necessary work was identified promptly. However where studies had to be carried out, e.g. in mining, or where availability of cedi financing was a constraining fac- tor, e.g. timber and cocoa, there was delay in deploying ERP imports in effective rehabilitation projects. Implementation of technical assistance suffered the delays inherent in the usual lead times needed for the identi- fication , selection, and mobilization of consultants. 2.46 Implementation of the ERP/ERTAP was helped by the special arrange- ments made in the Bank and in the GOG. In the Bank an ERP Project Imple- mentation Committee was established to coordinate the operation. Appropri- ate projects divisions were represented on the committee which was chaired by the Programs Division. Each project division had supervision responsi- bility for the component falling within the sector under its jurisdiction. In Ghana an Interministerial Committee on Export Rehabilitation--a condi- tion of ERP--was set up, and met fortnightly during most of 1984, subse- quently reduced to every other month. It was served by an ERP Monitoring Unit established in 1984 in the Chief Secretary's (PNDC) Office. This unit helped to get the loan effective by preparing the documentation for the decision-making by the Interministerial Committee. It also helped to re- solve several bottlenecks after the credit became effective. Emphasis of monitoring by the Unit was on physical performance rather than financial reporting. 2.47 At sector level the Ports component was regarded as most urgent, given the constraint the ports posed for the entry of imports for the re- habilitation of other sectors and the impracticality of the alternative of using Ivory Coast ports due to the bottleneck presented by inland trans- port. The Ports component was small--$4.8 million under ERP to purchase emergency spare parts and some limited equipment and craft, and $0.9 mil- lion under ERTAP for essential technical assistance. Two studies--one to determine the appropriate institutional structure and another to determine the rehabilitation needs of existing. facilities and prepare feasibility studies on future improvements--were quickly undertaken. The Ghana Ports Authority, Ghana Cargo Handling Company and Takoradi Lighterage Company were re-organized to establish one organization - the Ghana Ports and - 15 - Harbours Authority, under one Board of Directors with adequate user repre- sentation. The two main ports Tems and Takoradi were made semi-autonomous, each with its own director reporting to the Director-General of GPRA. Based on the studies a port rehabilitation project was approved, but this was larger in scope than the emergency work envisaged under ERP and there is reason to think that emphasis on the larger project diverted attention from the implementation of the ERP.11 However, because the Port Rehabilita- tion Project came on stream so soon after BRP it is not clear that improve- ment of the ports suffered as a result of failure to treat the operations separately and to give more imnediate emphasis to ERP. 2.48 The implementation of the Forestry/Timber component of the ERP/ERTAP involved considerable delay and went less smoothly than that of the Ports. The establishing of two new institutions took almost two years. The Forest Products Inspection Bureau Law was promulgated in August 1985 and the Timber Export Development Board Law in October 1985; the PNDC Secretary of Mining and Natural Resources having made it clear to the Bank early in 1984 that he would not announce reutructuring unless he had the people to manage the new institutions. Part of the IDA credit to be onlent to timber exporters was to import timber equipment, woodworking machines and rehabilitating equipment and spares, while the AF credit provided for the imports of timber transport equipment, vehicle parts and raw materials. 2.49 Originally MLNR selected 30 timber companies as beneficiaries of these credits, but most could not meet the initial financing requirements thereby delaying the early implementation of this component. In response to this the project was opened to all timber companies which could obtain bank guarantees for their cedi obligations and could meet certain selection criteria, e.g. injection of the credit expected to yield a minimum of 30Z incremental export earnings over amount disbursed to the beneficiary. 2.50 In order to further expedite use of the timber credit by exporters financing arrangements for cedi counterpart funds were amended early in 1985. Beneficiaries were given three options for payment of the cedi coun- terpart funds. First, they had the option of outright payment of the cedi counterpart on receipt of the shipping document from their commercial bank. Only five (5) companies which finally benefitted from the project opted for this. Second option allowed repayment of the cedi counterpart to be spread over three years including one year moratorium, but there was an interest charge of 10Z and the beneficiary bore the foreign exchange risk. None opted for this arrangement. Third, was an option similar to the second except that the interest charge was 20Z and the exchange risk was borne by GOG -- the cedi liability being fixed at the exchange rate at the time of Ill Telex-of April 1986 from Res. Rep. to Bank: *There is an impression that the Bank has been encouraging GPA to utilize some of ERP Port Credit as if it were a PPF fund for the recently approved Port Rehabilitation Project, which is contrary to the purpose of the ERP Port Component....The most urgent problem at Takoradi Port is the constraint on log handling operation and GPA immediately requires two stackers. - 16 - disbursement. Fifty-five firms opted for this arrangement. However, none of these options provided a method of repayment which was consistent with the likely flow of returns from the investments which were financed. 2.51 Later, in 1986 procurement rules were also changed to expedite procurement. The threshold for ICB was raised from $300,000 to $1 million; and it was proposed to lower minimum eligible orders from $10,000 to $2,500 since financing of such small orders was feasible through the special ac- counts. 2.52 Sixty (60) firms benefitted from the component, including two (2) in the public sector and fifty-eight (58) in the private, accounting for 162 and 84Z of the disbursed funds respectively. At the end of 1989 a total of $ 31.65 million had been disbursed, leaving $ 2.5 million (due to change in the rate between the dollar and SDR) to be cancelled when the credit was closed. 2.53 The implementation of the physical rehabilitation under the Cocoa component of ERP went fairly smoothly. The Cocoa Board knew its require- ments for mistblowers, construction materials, motor vehicle spares, work- shop equipment, tires & tubes, tarpaulins and agro-chemicals, and orders were placed promptly. Based on the dates when letters of credit were es- tablished the total credit was almost fully committed by the end of 1986. Of the loan amount of SDR 18.1 million for both the IDA and Special Fund credits SDR 17.6 million was utilized, the difference resulting from under- commitment due to a fall in the value of the US dollar near the closing date of the credits. 2.54 There were some delays in completing contracts due to the Boards unfamiliarity with the Bank's procurement procedures. The main difficulty arose with the procurement of mistblowers, when one bidder cimplained with some justification that its bid had been unfairly disqualified on the basis of tests on an outdated model of its equipment. However the Bank did not declare a mis-procurement, which would have precluded the reimbursement of the cost to the Board. The finding of a review mission was that * the Cocobod acted in good faith, but its actions reflected poor mastery of Bank procurement procedures".12 The Bank regarded the incident as an understandable mistake, and because the order had already been filled the requirement that the contract be rebid would have been too late to rectify the situation. 2.55 The implementation of measures to improve the policy environment for cocoa production and to strengthen the institutional capacity of the Cocoa Board was uneven. While the arrangement for review of prices and the replacement of the Ghana Cocoa Marketing Board with a new institutional structure integrating marketing and extension services were put in train promptly, the retrenchment of workers and the undertaking of five studies were not. The Cocoa Producer Price Review Committee was established within 12/ 0.M. May 2, 1986; from Deputy Chief, WAPABt Ghana - ERP (1435) Procurement Problem. - 17 - a month after approval of the ERP and increases in producer price of cocoa were put into effect in compliance with the agreed timetable. Retrenchment of GCMB staff did not begin until near the end of 1985 after the work on restructuring was done and provision made for the fair treatment of those to become redundant. The studies had to await the hiring of consultants under ERTAP. 2.56 The implementation of the cocoa component of ERTAP encountered delays not unusual to technical assistance projects, but in this case in- tensified by the large number of expatriate experts that had to be as- sembled in Ghana--ERTAP staff arriving almost a year after the project was approved. ERTAP'provided SDR 4.5 million for 33 man-years of technical assistance to undertake six studies, advise top management, improve pro- curement, workshops, and extension services, and train staff--all without adequate prior discussion with and received with considerable skepticism by the GCMB. 2.57 Implementation of policy recommendations to be defined in studies sometimes did not occur because some conclusions reached and measures sug- gested were not acceptable to the Board. Some, such as divestiture of the Board's cocoa plantations and alternative marketing arrangements for cocoa, were left to be pursued under the later SAC I and the Cocoa Rehabilitation Project. 2.58 The implementation of the mining component of ERP was adversely affected by the fact that & rehabilitation project consistent with the provision for mining in the credit was not defined when the project was appraised. A mining consultancy firm - RTZ - had identified rehabilitation needs estimated at $80 million some time before, but with only $26 million available from ERP a priority listing had to be developed. The priority list of material requirements for rehabilitation of SGMC mines was left to be developed by the technical assistance provided under ERTAP. Major prob- lems in the implementation of the ERTAP mining component caused major de- lays in ERP procurement. This was *in spite of Bank efforts to expedite disbursement, for example by increasing the ceiling on non-ICB from $100,000 to $300,000 per order. The impact of the slow Implementation of the ERP in turn affected RIC II, in the context of which SDR 5 million of the SDR 17.5 originally allocated to the mining sector was transferred to other sectors, mainly timber. 2.59 The mining component of ERTAP included provision for about 60 man- years of technical assistance to the SGMC through a single management con- tract, a concept which the Bank had insisted upon during project negotia- tion. Annex 1 discusses in detail the problems which arose in the imple- mentation of this component. These included a) Ghanaian reluctance to - 18 - accept the the concept of external management of SGHC, b) delays in re- cruiting management contractors associated in part with problems of fi- nance, c) frictions between the SGMC and the chosen contractors, d) ongoing conflict between the three companies Ohich made up the management team, e) poor performance of individual members of the team, and f) lack of an ap- propriate development strategy, including a program for training Ghanaians. III. IMPACT AND EFFECTIVENESS Introduction 3.01 The extent of Ghana's economic adjustment since 1983 is not in doubt. The issue here is the particular role played by these four credits. This section starts by reviewing recent economic performance before attemp- ting to assess the contribution made by RIC I, RIC II, ERP and ERTAP. At the outset it should be recognized that it is not possible to precisely distinguish the impact of the Bank's initial adjustment credits in Ghana from, for example IMF operations or World Bank project and sector loans. It is possible however to make some judgements about the effectiveness of their contribution to the overall adjustment effort. Impact Macroeconomic Performance 3.02 The PCR discusses at some length Ghana's macro-economic perfor- mance in the period covered by the credits. The impressive growth rates of output and exports are highlighted although the relatively week control of inflation is not discussed. Table 1 below which compares income and export growth shows clearly how much better Ghana has fared than the whole of Sub- Saharan Africa. TABLE 1: ECONOMIC PERFORMANCE IN GHANA AND SUB-SAHARAN AFRICA 1984 1985 1986 1987 1988 Ghana Growth. GDP (Z) 8.6 5.1 5.2 4.8 6.2 Export Vol.(Z) 9.7 22.0 12.4 9.8 6.3 Sub-Saharan Africa Growth GDP (Z) -3.0 5.1 3.2 -1.3 3.1 Export Vol.(Z) 10.7 12.8 1.1 -3.3 N.A. - 19 - Sector Performance 3.03 The PCR also discusses performance in the main sectors which were targetted by the credits. The main points are highlighted, and, where appropriate, expanded upon here. (a) Cocoa 3.04 Table 2 illustrates cocoa output, exports and producer prices in the period 1982/83 - 1988/89 using data provided by Ghana's Cocoa Board. Output and the volume of exports have increased steadily during the imple- mentation of the recovery program with the exception of 1987/88 when poor rains dramatically reduced the crop. Improved production performance has been associated with substantial increases in real producer prices. Unfor- tunately the trend in world prices has not been so favorable and after peaking 4in 1985/86 export receipts have since fallen by 282. TABLE 2: COCOA OUTPUT, EXPORTS AND PRODUCER PRICES 1983/4 1984/5 1985/6 1986/7 1987/8 1988/9 Production 159.0 174.8 219.0 227.8 188.2 300.1 (000 tons) Export Volume 150.7 161.8 195.1 203.0 161.3 260.0* (000 tons) Export Value 352 376 470 436 385 337 (million $) Index of Real Producer Prices 44 59 90 97 126 112 (1962/3 = 100) * estimated. (b) Timber 3.05 Timber production and exports have also increased significantly. Table 3 shows that the total volume of exports increased form 119,000 cubic meters in 1983 to 536,000 cubic meters in 1988 before falling back to 376,000 cubic meters in 1989 as a result of the imposition of new logging and export restrictions. Export earnings from timber increased from $15.8 million in 1983 to $103.6 million in 1988 before falling back to $86.7 million in 1989. This increase is not wholly or necessarily attributable to the ERP. There was also foreign assistance from ECGD, ODA, and CIDA. - 20 - TABLE S TIMBER EXPORTS 1983 1984 1985 1986 1987 1988 1989 Export Volume 118.6 142.3 221.5 296.0 485.6 536.2 375.6 (000 cubic H) Export Value 15.8 18.7 29.2 51.9 83.2 103.6 86.7 (million $) Log exports and to a lesser extent lumber have contributed most to this improved performance. The contribution made by higher value added activi- ties such as furniture manufacture has been insignificant. (c) Mining 3.06 The production and export of gold has been a third area which has responded well to the recovery program. Table 4 shows that the total pro- duction of gold has increased from 288,021 ounces in 1984 to 424,000 ounces in 1989 and the value of gold exports increased from $103 million to $196 million in the same period. Most of this improvement has come from the private sector. Production of gold by SGMC increased to just 46,821 ounces in 1989 from 38,292 ounces in 1984 and throughout the period of the recov- ery program has shown no real trend improvement although a declining trend has been arrested. As a result of the contrasting fortunes of the public and private sectors, SGMC accounted for only 11Z of total production in 1989. TABLE 4s GOLD PRODUCTION AND EXPORTS 1984 1985 1986 1987 1988 1989 Total Production 288.0 299.6 287.1 328.0 N.A. 424.0 (000 ounces) SGMC Production 38.3 34.9 40.0 48.4 50.3 46.8 (000 ounces) Total Exports ($m)103 91 106 142 167 196 3.07 For small scale diamond mining RIC II provided funds for the pur- chase of three treatment plants costing just under US$2 million. Output of these mines doubled between 1983 and 1987. Rehabilitation of the railway, - 21 - to which the RICs contributed, had a significant positive impact on the output of bauxite and manganesel the former increasing by 1782 and the latter by 46? between 1983 and 1987. (d) Transport 3.08 In the transport sector it is more difficult to pinpoint indica- tors of output and productivity. In road transport however fuel consump- tion, which reflects traffic levels, after declining by 28? from 1981 to 1984 increased by 23? in 1985 and a further 42 in 1986. The availability of road transport vehicles increased from 30Z of the fleet in mid 1983 to an estimated 60Z in 1987. In Ghana Railways Corporation rehabilitation, in particular of the Western line, and increased demand has allowed an in- crease in total traffic from 373,000 tons in 1984 to 761,000 tons in 1989 or more impressively from 46,000 ton x kilometers in 1984 to 132,000 ton x kilometers in 1989. In the ports of Tema and Takoradi total traffic handled increased from about 2.2 million tons in 1983 to an estimated 4.7 million tons in 1989. The turnaround time of ships in port has been re- duced from an average of about 6 days in 1984 and 1985 to about 3 days in 1989. Credit Effectiveness 3.09 What contribution did RIC I, RIC II, ERP and ERTAP make to these achievements? How important were they and from the point of view of draw- ing lessons, how did the problems of design and implementation, which have been discussed, reduce their impact? Macroeconomic Role - 3.10 Alongside the Fund's standby arrangements, the credits established the framework for policy reform in the first stages of the recovery pro- gram. It is meaningless to attempt to separate out the influence of mea- sures promoted by either the Fund or the Bank. In terms of the overall policy agenda it is difficult to find fault with the initial focus on cor- recting the substantial over-valuation of the Cedi in conjunction with a progressive liberalisation of domestic prices and greater fiscal and mone- tary discipline. However in retrospect, it is now clear that an initial failure to address the weakness of Ghana's banking sector hindered monetary management, mob1lisation of savings and the response of manufacturers and other investors to improved incentives. In addition, as has been dis- cussed, while the Fund aimed to establish credit ceilings that were consis- tent with programmed adjustments in the balance of payments and the targets set for inflation and growth, these appeared at times to be too restrictive to achieve sectoral objectives. Another aspect of this problem was that no provision was made to channel the available credit to strategic sectors, other than cocoa, in a manner consistent with the objectives set for their performance. - 22 - 3.11 Two other aspects of the credits' macro-economic role require comment in the context of the discussion of their effectiveness; the con- tribution made to flows of external finance, and the consistency between credit design and the aims of the reform program. A major objective was to increase the flow of external finance both directly and through co-finan- cing, to exploit the benefits of policy reform and ensure that it could be sustained. In total the PCR estimater $274 million 13 was disbursed by the World Bank between 1984 and 1989 and the equivalent of $341.2 million 14 of associated funding was coumitted by other donors. Two factors however reduced the macro-economic impact of these funds. The first was the slow speed of disbursement which has already drawn comment. Table 5 illustrates the effect of this by showing actual and forecast World Bank disbursement for the four credits in aggregate between 1984 and 1989. The shortfall in expenditure occurred in 1984 and 1985. From 1986 onwards expenditure ex- ceeded forecasts as late disbursement of RIC I and ZRP money coincided with the more timely disbursement of RIC II funds. The failure of these credits to provide the resources anticipated in 1984 and 1985 contributed, albeit in a small way, to a general shortfall of net foreign capital inflows and counterpart domestic liquidity in comparison to the levels first thought necessary to sustain the output growth programed in the initial stages of the recovery program. In practice growth targets were still,achieved be- cause the growth in imports requittd to sustain output growth was less than estimated, and fiscal objectives were met because the government quickly cut back public spending. TABLE 5: ACTUAL AND FORECAST DISBURSEMENT OF IDA CREDITS 1984 1985 1986 1987 1988 1989 Forecast Disb.($M) 42.0 35.2 80.0 44.0 28.9 -- Actual Disb.($M) 19.9 20.6 82.4 80.7 25.9 17.5 Actual/Forecast-% 47 59 103 183 137 -- 3.12 The impact of the funds associated with the credits was also af- fected by the nature of the co-financing. In particular the funds of other donors, especially those linked to RIC I and RIC II, were associated with a variety of administrative rules and restrictions on their utilization, for 131 Including AFC funding for RIC II 14/ The auditors were not able to check this estimate in detail although it may have been exaggerated by including donor funds which did not strictly co-finance the four credit operations being analysed. - 23 - example, in relation to the type and source of eligible purchases. Collec- tively these created a significant administrative burden for the govern- ment, reduced the value for money that could be obtained from expenditures, and served to slow down expenditures to the point where it seems likely that some of the funds committed by other donors remained unutilized. 3.13 The issue of the relationship between credit design and the objec- tives of the reform program at the macro-economic level is raised princi- pally in the context of RIC I, where the decision was made to rely on ad- ministrative methods of allocating foreign exchange. Although this was at the expense of foreign exchange liberalization it is accepted that in the early stages of the recovery program the opportunity to liberalize Ghana's trade and payments system was constrained by the availability of foreign exchange. In these circumstances and in the light of the large over- valuation of the Cedi the decision to rely on administrative methods and direct procurement to secure efficient allocation and value for money was justified. As discussed above however, this contributed to slow disburse- ment, for example because of the difficulties of identifying recipients who could afford to pay. RIC II disbursement was substantially quicker because most of it was disbursed through the auction. Sectoral Role 3.14 Each of the sectors targeted by the Credits has also been the focus of a separate project or sector loan from the Bank in the period since the recovery program started. The output or productivity effects of RIC I, RIC II, ERP and ERTAP at the sector level cannot be distinguished in detail from the impact of these credits or indeed, the production effects of the overall improvement in the economic environment. It is possible however to make an assessment of the effectiveness of their contribution by looking in particular at: (a) the contribution made to policy and institutional reform; (b) the utilization of the inputs and investments which the cred- its supported, and their role in alleviating key sector con- straints. (i) Cocoa 3.15 The credits clearly played a key role in the recovery of the cocoa sector after 1982/83. The promotion of increases in producer prices by the ERP, as the PCR claims and Table 2 above illustrates, was effective and crucial in the achievement of increased output. The ERP also achieved success in some of the initial tasks in the process of reorganizing and restructuring the COCOBOD including the first staff retrenchment program, although initiated with some delay. The inputs provided by ERP and RIC I funds, principally insecticides and vehicles and vehicle spares, were util- ized quickly and effectively in promoting higher output, and in the case of crop transport do not seem to have inhibited the rationalization of - 24 - COCOBOD's role. Finding that fungicides and insecticides were effective cocoa farmers were induced to use these inputs on a more regular basis than they had done previously; although the high demand also reflected a subsidy of about 66Z which Cocobod continued to provide. 3.16 On the negative side, however, the contribution to policy reform was weakened by the poor quality of some of the consultants and of some of the studies which were produced. In particular COCOBOD have severely crit- icized the quality of the ERTAP studies carried out on divestiture, the role of private transport, and on storage and shipping. They also maintain that contrary to the perception of the PCR no separate study was ever un- dertaken on alternative marketing arrangements, although these were dis- cussed in the margins of the studies on transport and shipping. The effect has probably been not only to slow down change but to also reinforce doubts in the minds of COCOBOD's senior management about the merits of the case for some of the reforms for which the Bank has pressed. As a result, the promotion of these reforms which was taken up in the context of the first Structural Adjustment Credit and the Cocoa Rehabilitation Project was made more difficult. (ii) Timber 3.17 ERP and ERTAP made a significant contribution to policy and insti- tutional reform in the timber sector. The credits underpinned major im- provements in the framework and incentives for development includings the demise of the Ghana Timber Marketing Board; the establishment of the Forest Products Inspection Bureau (7PIB) and the Timber Export Development Board (TEDB); and the development of a system of foreign exchange retentions. The impact on the exploitation of forests has been to reduce malpractices, including the felling of trees other than those marked for cutting by the Forestry Department and cutting without permits. Better enforcement of permit requirements and improved monitoring of harvesting have also had a positive impact on government revenues. 3.18 There were nevertheless some sbirtcomings in aspects of the cred- it's promotion of institutional change. In particular: (a) although consultants employed under the ERTAP designed a plan for the organizational, managerial and staff development of FPIB and TEDB this has not been acted upon. Weaknesses in areas such as grading and the collection of accurate export price information probably encouraged under invoicing of exports which in 1989 became the subject of a large national investigation and resulted in the introduction of major ex- port restrictions; (b) the contribution of the consultants employed in the two pub- lic sector companies which received assistance under ERP and ERTAP (Takoradi Veneer and Lumber Company and Him Timber Company) was constrained by the fact thct their contracts had in both cases largely expired before the new equipment and - 25 - spare parts %hich was provided began to arrive. The consul- tants assumption of executive roles rather than advisory and training responsibilities may also have limited their long term effectiveness. 3.19 As mentioned earlier, sixty timber companies eventually took up the investment funds offered by ERP; the two public sector companies in this list accounted for 16? of expenditure. Information supplied by TEDB suggests that 54Z of resources were used to purchase logging equipment and spares, 34% of resources were used to purchase saw milling machinery and spares and the remainder was used for wood processing activities, princi- pally furniture manufacture. These investments made it easier for the companies which benefitted to take advantage of the improved policy envi- ronment in the timber sector. However there are two reasons why the con- tribution they have so far made to the observed improvements in production and exports may have been limitedt (a) because of implementation delays caused by problems associ- ated with recipient financing the equipment and parts funded by the ERP did not begin to arrive until the first half of 1987. At the end of 1987 the government introduced a ban on the logging of four timber species (Emire, Danta, Assafona and Ofram) which constrained the extent to which newly im- ported equipment could be utilized. Further logging restric- tions were imposed in 1989 as illegal activities in the timber sector came under close government scrutiny. (b) much of the equipment and parts which have been imported under the ERP has been under-utilized because of the finan- cial problems and an associated shortage of working capital in the companies which undertook the importation. Some of these financial problems have been directly related to the terms on which ERP loans had to be repaid to the NIB. NIB records indicate that only 14 of the companies provided with ERP funds have been able to make repayments on schedule with- out assistance of their guaranteeing bank. 3.20 Arrangements allowing timber firms to pay for foreign exchange over time and to avoid the exchange risk by paying a higher rate of interest have left BOG with large losses on the sale of ERP funds because the devaluation of the Cedi has vastly exceeded the 102 exchange premium. (iii) Mining 3.21 In the mining sector the credits, in this case principally ERP and ERTAP, focussed on SGMC. Although SGMC's production of gold has increased, this improvement has been modest and has contributed very little to the strong overall growth of gold production and exports. In the context of the effectiveness of the credits the main problems were: - 26 - (a) the management contractor was unable to have the anticipated impact on SGKC's institutional weaknesses in large part be- cause of problems of leadership, commitment, and communica- tion within the management team and the quality of some of its members. Training was very noticeably neglected; (b) the scale of the resources required to rehabilitate SGMC's three mines was substantially larger than those available in the ERP, which were barely adequate to purchase parts and small items of essential machinery just to keep the mines operating; mainly to improve winders, underground pumps and the mill, and to provide explosives, drills and chemicals. 3.22 There were nevertheless positive aspects to the support that was extended. Without the credits SGHC's mines would probably have closed. In this sense SGMC's full output in recent years rather that just any in- crease, should be counted as a benefit to the project. In addition keeping the mines open may have improved their attractiveness to private capital, whichN the government is now trying to persuade to invest in their develop- ment. The Bank financed Mining Sector Rehabilitation Project which became effective in 1988 is undertaking a more substantial rehabilitation of SGMC's mines which it is hoped will secure greater improvements in output than have so far been achieved and also strengthen the attractiveness of the mines to private capital. Transport 3.23 In the ports sector-the studies funded under the ERTAP laid the foundations for a major re-organization in the context of the Bank's Ports Rehabilitation Project which has been the foundation for improved output and efficiency. The most important institutional changes which the ERTAP study signposted have been: the creation of the Ghana Ports and Harbors Authority; the granting of managerial freedom to the Ports of Tema and Takoradi; the creation of competition between these ports; and the estab- lishment of a new container handling company with majority participation of the private sector and with private sector management. 3.24 The sall ERP allocation for the ports was used largely to procure spare parts for rehabilitation of equipment and infrastructure. In the the main these purchases seem to have effectively maintained operational capac- ity while the more substantial rehabilitation investments, which have been funded by the Port Rehabilitation Project, were planned and implemented. On the negative side, it must be stated that the ERP Port component imports were not properly documented, and while in general they were installed and used to the benefit of port operations, some generators were initially diverted to other uses and later had to be tracked down and returned to port use. - 27 - 3.25 In the railways RIC I funds were used to provide some locomotive spare parts but more importantly to close a gap in the financing of the Railways Rehabilitation Project, specifically funding the signalling compo- nent of the Western Line Rehabilitation. RIC II funds were used to procure a breakdown crane and further locomotive parts, including 24 complete trac- tion motors. In all cases ordering and delivery was protracted, for example the breakdown crane did not go into service until 1989. However although in this area RIC I and II did not achieve the immediate response aimed for, they did effectively expand the resources already available for the rehabilitation of Ghana's railway system, chiefly from the Bank's Railway Rehabilitation and Transport Rehabilitation Projects but also from other donors. Their impact is subsumed under the overall improvement in the output and efficiency of this system, and reflected in individual indi- cators of operational effectiveness. For example, locomotive availability has increased from 38Z in 1984 to 761 in 1987 and about 60Z in both 1988 and 1989, in part because of the spare parts provided by RIC I and II. The days lost because of system closure caused by accidents fell by 232 between 1988 and 1989 principally because of the availability of a new breakdown crane. 3.26 In the roads sector the resouices which RIC I and RIC II provided for tires, spare parts and new vehicles were only a very small proportion to total recurrent requirements. In general however it seems that the system of ordering and distribution ensured effective utilization of RIC I and RIC II imports for road transport. Procurement delays and problems of quality for example associated with some of the tires imported under RIC I probably did not substantially reduce the impact. The imports of bitumen under RIC I provided essential material for road maintenance. This had a positive impact on tire life and reduced vehicle operating costs. Conclusion 3.27 The credits contributed significantly to the success of the recov- ery program by financing essential imports, securing or preparing important policy and institutional reforms in key sectors, and encouraging financial support from other donors. 3.28 Their role however should bm viewed critically and the shortcom- ings identified here recognized. In a number of ways their effectiveness has been reduced. In particulars (a) slow disbursement, notably of RIC I and ERP contributed t the general shortfall of external financing in the initial years of the recovery program; (b) some of the associated financing from other donors was diffi- cult to use or administratively cumbersome; (c) the extent of policy and institutional reform in the cocoa sector was much less than hoped, and in some areas the cause of longer term change may hav been damaged; - 28 - (d) slow disbursement of funds together with a shortage of work- ing capital suggest significant under-utilization of the investments which have been financed in the timber sector. Institution building in this sector w&s left unfinished; (e) the target of supnort in the mining sector, SGMC, was unable to provide a quick production response to the assistance provided, partly because of the scale of its weaknesses, and partly because of shortcomings in the nature and quality of support. IV. EVALUATION 4.01 The evaluation of these operations which comprise the first s.age of Bank support for structural adjustment in Ghana proceeds along the fol- lowing lines. First, it examines the operations on the basis of specific issues in their identification, design, implementation, and coordination.15 Second, it attempts to indicate the economic benefits and costs to the country. Third, it looks at the factors likely to affect the sustainabil- ity of benefits. Project Cycle Issues Identification 4.02 The main issue concerns whether the process was conducive to the correct diagnosis and to the selection of the most effective solutions to the problems toward which the operations were directed. A correct diagno- sis and the selection of the most effective response to problems requires an adequate information base and an awareness of the feasible options for solving the problems and the ability to weigh and rank them, both of which require consultation with and participation of all relevant client and donor interests. Probably for reason of haste to prepare a package in response to Ghana's announcement of an economic recovery program in 1983, the requirements mentioned above were not fully met In respect of ERP/ERTAP operations. The COCOBOD, SGHC, and NIB did not have an opportunity to participate meaningfully in the identification of components related to their operations, and without a close dialogue with them befora then the result was that the Bank lacked information regarding the likely accepta- bility o Its proposals on technical and political grounds. This was not the case in the pnirt component, which benefitted from a close and continu- ing dialogue between pcojects and the Ports Authority. In relation to the RICs there was a clo,e dialogue between the Bank and Ghanaian officials 15/ See IBRDs Report on Adjustment Lendingi report to the Board of Executive Directors dated August 8, 1988- particularly Chapter 1. Introduction. - 29 - which helped to correctly identify the priority imports, and ensured that despite initial disagreement over the use of an external procurement agent a compromise acceptable to both sides was reached. 4.03 The identification process within the Bank was also marred by the fact that the Programs Division required Projects Divisions to contribute components to the ERP/ERTAP when, except for the port component, the infor- mation and analytical bases for project identification were eithet not ready or clearly not favorable to an operation. In 1981 a Bank mission to the mining sector had concluded that a project in gold mining could not be identified given the low grade of ore, high local cost, and lack of mainte- nance. Programs contemplated the mining component of ERP when it appeared that the local cost fraction would have been lowered as a result of the devaluation of the Cedi, but Projects still felt that the technology to exploit low grade ore being unknown in Ghana at the time and the lack of knowledge of how bad a shape the mines were in argued for a more cautious pace. The result was a faulty diagnosis of the problem in SGHC emphasizing management as the main weakness and giving a lower priority to physical rehabilitation. With regard to cocoa, Projects conceded its importance in fiscal and foreign exchange performance, but felt that in 1983 it had not yet done enough work to understand the Cocoa Board as an institution, and hence not ready to recommend on its reform. Design 4.04 Regarding design, the main issues concern the appropriateness, adequacy and consistency of the components of the package. The design of the Bank's response to Ghana's economic recovery program was generally appropriate in terms of orientation to the diagnosis of the economic prob- lems and their solution. Emphasis on the provision of foreign exchange to allow the main export sectors to increase output and the focus of condi- tionality on the exchange rate and producer pricing of cocoa, as well as the removal of the constraint inherent in a run-down transport system was clearly well placed. The decision to direct RIC I mainly toward the public sector was realistic given the sector's relative importance in the economy and particularly in exports and in transport; and the restriction of elig- ible imports to a small positive list developed in close discussion with the GOG made for appropriate targeting and efficiency in use of additional foreign exchange resources. Later, the direction of RIC II toward the private sector and the more liberal eligibility criteria inherent in a short negative list clearly signalled the move toward liberalization in the economy. 4.05 However, the inclusion in one package of quick disbursement import support and project /sector policy operations, with a timetable determined by rapid resource transfer considerations, was not appropriate. Priority in preparatory work was given to the import support aspects (RICs), and there was consultation with relevant client officials. The main problem - procurement - was correctly identified and solutions planned. On the other hand the rehabilitation components (ERP/ERTAP) were underidentified at the time of approval, with many areas left to be studied, and with action plans - 30 - in some cases not discussed with relevant client agencies. This was re- flected in the insufficient attention to details, specifically to the de- sign of subprojects, e. g. in timber, to ensure that provision was made for all inputs needed to give effect to the support to be provided under these operations. The packaging was also responsible for the emphasis on ensur- ing payment for foreign exchange provided rather than on designing appro- priate financing arrangements for the financially weak benekiciaries- gov. ernment agencies and private firms alike, and for the relative lack of attention to onlending terms--clearly too short for rehabilitation type investments. 4.06 The design process appears to have paid little attention to the adequacy of the package as a whole or of its individual components. The total amount of support initially was determined by the amount earmarked in the lending program planned before the improved economic policy orientation by the new Government of Ghana. The mining component of the ERP provided less than one-third of the estimated amount necessary for the rehabilita- tion of SGMC's gold mines. This evoked the criticism that no management firm could have improved the production of SGMC significantly in the ab- sence of more adequate provision for physical rehabilitation of the mines. At the same time the provision for cocoa s2ems to have been too large, the preparatory mission for the subsequent Cocoa Rehabilitation Project finding large inventories of un-needed spares had been financed under the ERP. Implementation 4.07 The main issue in implementation is the adequacy of arrangements for implementation and follow-up. A related issue concerns the flexibility to amend procedures in response to emerging experie.zce and changing circum- stances. 4.08 Despite slow disbursement, the experience with the procurement arrangement under RIC I and the initial stage of RIC II involving an exter- nal contractor turned out to be substantially positive. This was due main- ly to the contractor's experience both worldwide and in Ghana, contacts in supplier countries, reputation, and to the quality of the personnel as- signed to the project. Procurement was efficiently carried out and in accordance with the rules of the Bank. Unfortunately, however, no provi- sion was made for training or for technical assistance, nor were staff of either the Ghana Procurement Agency or of the Ghana Supply Commission as- signed to understudy the contractor. The result was that national capabil- ity in procurement was no better at the end of the project than before. 4.09 Notwithstanding the recognized weakness in procurement the ERP made no provision for centralized purchasing, the matter being left up to the individual implementing agencies. It seems to have been assumed that given the specialized needs there would be little risk of misprocurement under Bank rules. As it turned out some of the agencies were not fully aware of the nuances of the Bank's rules, which are designed not only to prevent fraud but also to ensure fair treatment of suppliers in member countries in the award of contracts. At least in one case, that of the - 31 - COCOBOD purchase of mistblowers, failure to follow the rules resulted in the unwarranted exclusion of a supplier's machine, thereby evoking a com- plaint from the supplier's country. Although the Bank stopped short of declaring a misprocurement in this case, the breach having been excused on the ground of ignorance, it is clear that weakness in this area delayed implementation and made for more tedious monitoring within the Bank. 4.10 Program management, including the arrangements for coordination both within the Bank and in Ghana, was a strong point in the implementation of this package. It facilitated the use of co-financing toth where the Bank was asked to administer the funds and also in other cases. For example the RIC Project Unit in the BOG was active in the importation of goods financed by the ADF Loan; two CIDA grants for fertilizers, tires and lubricants; two Dutch grants for fertilizers, agricultural equipment, and truck spares; a Caisse Centrale loan for capital goods, vehicles and spares of French origin; two Swiss Grants for inputs for industry, railway and truck spares, and pharmaceuticals and equipment for the health services; and ODA special joint financing. 4.11 The above-mentioned arrangements on both sides made for quick and flexible responses to problems and led to modifications in disbursement procedures and to reallocation of commitments among importers and among uses in order to ensure fullest utilization of the available financing. The Bank quickly agreed to allow reallocation of ERP resources from the mining to the timber sector, to allow RIC I surplus created by the decline in the dollar versus the SDR to be used for the railway, and to allow the uncommitted balance of RIC II to be allocated through the foreign exchange auction when that system was introduced. At the same time utilization may also have been slowed by the high eligibility threshold for the minimum size of transactions, which initially was not realistic in terms of the usual size orders placed by importers. This flaw was recognized during implementation and the minimum was reduced several times during the dis- bursement period of these operations. Meanwhile, less dramatic but impor- tant subtle changes were made by the RIC unit in the BOG in order to expe- dite commitment of resources. 4.12 Some delay in implementation and slowness in disbursement was attributable to limitations and weaknesses in institutions. The BOG, com- mercial banks, and beneficiaries were often unfamiliar with the documenta- tion requirements, and the workload involved in processing a large flow of additional paper was not foreseen and hence not planned for. Initially, commercial banks were not familiar with the form of guarantees which they had to provide to the BOG on behalf of their importer clients using RIC I funds. However, there was close monitoring and quick and flexible re- sponse to these problems, such that they may not have significantly delayed the benefits of the operation. * 32 - Conditionality 4.13 Conditionality attached to the RICs was generally consistent with the objective of rapid disbursement and with the ability of the government to quickly implement changes in policies and procedures. In contrast to the RICa, conditionality attached to ERP covered such a wide range of issues that it was neither consistent with the objective of rapid disburse- ment nor with the ability of the client to satisfy them promptly. Condi- tions covered producer price, foreign exchange retention procedures, pro- duction strategies, the restructuring of statutory bodies and the retrench- ment of staff, privatization, concessions policy, quality control and ex- port price regulation. In many cases the conditions were to be finally determined by studies to be undertaken; required institutional changes encountered significant delays, and some conditions were simply not met. In retrospect, it seems that there were simply too many conditions to be kept track of, and, given the institutional and manpower limitations, were lost in the overload. Supervision 4.14 Supervision of the operations benefitted from the assignment of the officer in Programs responsible for the design of the package to the post of Resident Representative to Ghana. The resident mission played an important role in monitoring allocation and disbursement of the RICs, and identified many potential bottlenecks and helped in designing modifications to deal with them, including the establishment of the central projects monitoring unit. 4.15 Supervision of the ERP/ERTAP--the responsibility of the Projects Divisions--was of uneven intensity and quality. In the case of cocoa the Bank supervision of physical aspects was limited, and there was little follow-up of the terms of reference of experts despite the predominance of Bank input in determining them. Supervision of the ports component was frequent and effective, probably because of the imminence of a follow-on project. In mining, regular Bank supervision resulted in Bank intervention to bring the contractor and SGMC together and finally in the return of management of the corporation to the Ghanaian incumbents. Supervision of the timber component of ERP appears to have focussed on the financial expo- sure of the intermediary with little attention to the requirements for viability of the sub-projects. Perhaps because ERP/ERTAP was seen as the start of rehabilitation efforts, the general emphasis of supervision was on identifying the follow-on projects. This may have led to a tendency to rostpone adjustments for inclusion in future operations, which had the Affect of delaying the benefits from ERP/ERTAP. Coordination with the Fund and Other Donors 4.16 The major issue in the coordination between the Bank and Fund programs was that of consistency between the Bank's program and the stabilization program of the Fund. The fiscal contraction, the curtailment of credit, and the redirection of credit from the public sector to the - 33 - private sector which were the essence of the Fund stabilization program in 1984 conflicted in its timing with RIC I, which was oriented toward the public sector. Although the Cedi proceeds from the sale of RIC funds were to be recycled for support. of the public sector investment program, some agencies found it difficult to mobilize the interim financing which very likely slowed down disbursement of RIC I. Later, the tightness of credit under the Fund program was perceived by some Ghanaians and some Bank supervision missions as inconsistent with the rehabilitation of some export sectors under the ERP. However, since stabilization programs typically involve the use of blunt policy tools, fine tuning at sectoral level to ensure the adequacy of financing to targetted sectors should be a concern of the Bank in designing its programs. The BRP did not benefit from such concern. The liquidity issue is discussed in detail in Appendix B. 4.17 Coordination with other donors efforts occurred in the implementa- tion phase as most of the import programs were handled by the procurement contractor for the RIC operation. But it seems fair to say that there had been no planned coordination. The Bank involved bilateral donors at a late stage in the project cycle, after identification and design; and the basis on which it involved donors was essentially ad hoc. In the case of import support donors were asked to assist without regard to their prior involve- ment in trade with Ghana with the result that in some cases import houses had no links with certain donors and the products of some donors were not well-known in Ghana, both of which had the effect of delaying the take up of credits. There was little attempt of reduce differences in procedures and negative lists by donors, and tying of assistance by donors was also not addressed. In the case of technical assistance, donors (Canada and Norway) were approached on the basis of the nationality of the contractor and asked to help cover the cost of services under ERTAP long after the contract was awarded; a practice that would substitute political pressure for project analysis in determining the allocation of donors resources. Benefits 4.18 The credits contributed significantly to the success of the recov- ery program by financing essential imports, securing or preparing important policy and institutional reforms in key sectors, and encouraging financial support from other donors. These benefits, however, should be viewed crit- ically in the context of the credits uneven effectiveness. In particular$ a) Slow disbursement notably of RIC I and ERP contributed to the general shortfall of external financing in the initial years of the recovery program. b) Some of the associated financing from other donors was diffi- cult to use or administratively cumbersome. c) The benefit of policy and institutional reforms associated with ERTAP in a number of respects has been diaappointing as a result of being out of phase with physical rehabilitation - 34 - (timber), implemented without full prior commitment of recip- ient agencies (gold, cocoa); and as a result of the poor quality of some experts (gold, cocoa). In some cases there is evidence that the cause of longer term change may have been damaged (cocoa). The Ghanaian perception was that the technical assistance was expensive and did not reflect value for money. d) The benefits from the physical rehabilitation were more quickly apparent in the port and cocoa sectors due to shorter lead times in supply of equipment and their effective deploy- ment. In the case of timber benefits have been delayed, partly by the longer lead time in equipment arrival and part- ly because much of it was not promptly installed in produc- tive use because of shortage of working capital. In gold the the resources available compared with the scale of the prob- lem were inadequate to provide major benefits. Also there were implementation delays. e) The dislocation of people as some agencies were abolished and staff retrenched in others was a significant though unquanti- fiable cost to these operations. Sustainability of Benefits 4.19 The sustainability of benefits from these operations depends on continued government commitment to the essential strategy they were to support. This commitment is reflected in the continuation of policies and institutional improvements and in the provision of adequate resources to maintain the physical capital. Stnce the operations represented but the first phase of a more comprehensive program the sustainability of benefits from this phase also depended on the continuation of Bank and donor sup- port. Sustainability of benefits has been favored by the continuing com- mitment by the GOG to the underlying strategy including the more profound rehabilitation of export sectors and the improvement in the policy environ- ment and macro-economic management. This commitment has evoked continuing large scale support by multilateral financial institutions and bilateral donor agencies.. Overview 4.20 Overall, the package under review must be rated as only partly successful. Although disbursement was slower than expected the reconstruc- tion import support components largely met the objectives. Simplicity of design, close dialogue between the Bank and relevant officials, correct identification and appropriate solution to the major constraints, good program management arrangements, dedicated monitoring and flexibility in adjusting implementation to changing circumstances all contributed to a generally satisfactory outcome. * 35 - 4.21 The performance of the export rehabilitation components was less satisfactory than the import support operations. This was mainly attribu- table to the approach to the design of the package of assistance, which was characterized by undue haste resulting in inadequate consultation with the agencies directly responsible for project implementation and in lack of a consensus at this level on the nature of and the appropriate solutions to sectoral problems. In addition, institutional weaknesses which the reha- bilitation operations sought to address could only be overcome gradually. However, these operations were a start of a process which the Bank has supported through a number of sector adjustment operations which followed. V. LESSONS AND RECOMM ENDATIONS 5.01 The main lesson to be learned from review of these operations concerns the packaging of the Bank's support in response to a crisis in a member country. In general the inclusion of project operations, where the emphasis is not on rapid transfer of resources, along with fast disbursing import support should be avoided since the urgency attached to the import support will tend to be carried over to the other components for which it is not appropriate. This is especially to be avoided if the project compo- nents are not at the same stage of preparation and are generally not ready for appraisal. 5.02 On the identification of projects there are two lessons from re- view of these operations. The first concerns scale; and is suggested by the mining component of ERP. If the solution of a problem requires an intervention of a certain scale it is likely to be inadequate or even coun- ter-productive to attempt an intervention of a much smaller scale except as a first phase which is selected on the basis of a strategic plan to solve the problem. The mining component of ERP was not conceived as a first phase in a strategic plan. The scale of the project was determined by Bank lending constraints and not by the* technical requirements of the first phase of a rehabilitation plan. This first phase should have been lefined, the financial requirements determined, and the difference between this requirement and what the Bank was willing to provide should have been cov- ered with identified cofinancing before the project was approved. This approach would have allowed a better balance between technical assistance and physical rehabilitation. 5.03 The second concerns the identification of sub-projects and is suggested by the timber component of the ERP. Unlike the ports, cocoa and mining components, the timber one involved the provision of foreign ex- change to private firms. It was erroneously assumed that firms would have been in a position to buy the foreign exchange and all the complementary inputs for effective utilization of the credit. The lesson is that provi- sion should be made for full identification of sub-projects in order to ensure that this assumption is warranted, and if not warranted the compo- nent should be postponed. The issue here is one of ensuring that effective absorptive capacity exists before approving an operation or will exist by - 36 - the time the phase of implementation is reached. The problem in this case derived in part from the focus on fast disbursement but the general lesson is applicable to all operations involving sub-lending through a financial intermediary. 5.04 In the design of conditionality attached to quick disbursing ope- rations due regard should be paid to administrative and skill constraints which will affect the ability to implement policy and institutional change. While the content of conditionality must be consistent with stabilization and adjustment objectives the priorities and sequencing of various measures must take into account the countries ability to undertake reform. Opera- tionally, this means that conditionality should be kept to a minimum until this ability is strengthened. 5.05 Within adjustment programs as liberalization progresses there should be a preference to do procurement through normal trading channels, with few restrictions on the goods to be imported. In the initial stages of adjustment, however, as in Ghana in the mid-1980s where normal procure- ment systems are weak, inefficient, and over regulated leading to wide- spread distortions there may be justification for retaining tight controls over procurement including the employment of a procurement agent. In this situation there should be simultaneous support to strengthen normal pro- curement systems. 5.06 The are some lessons on procedures which affect implementation which aeem obvious, but bear repetition since Bank staff do not automati- cally do the right thing. The first concerns the size of advances to re- volving accounts. Here the natural caution of staff is to provide for very small amounts as a precaution against abuse, but revolving accounts which are too small tend to frustrate the rapid placement of orders and slow the disbursement of funds. Second, the minimum size set for orders for imports should take into account the historical pattern for the country and indus- try. Minima should not be set so high that only large import houses can have access to the import support facility. 5.07 One lesson of relevance to cther structural adjustment operations is the need for consistency between the Fund's stabilization and the Bank's program objectives and measures. Clearly, while the primacy of the Fund in the macro-economic policy area is not under contention, discussion between Bank and Fund should ensure that the joint package is internally consistent and is most likely to help the client in achieving its objectives. This discussion should address the question of suitable indicators of the adequacy of liquidity and credit in the circumstances of the particular country.(See Appendix B). 5.08 Early involvement of other donors and greater access to the infor- mation available within the Bank can help to ensure that assistance is tailored more nearly to fit the peculiar circumstances and structure of trading relationships of the client, and can make for more efficient use of * 37 - cofinancing and bilateral assistance. It will provide greater scope for avoiding problems arising from restrictions on the timing of tho use of some donors' funds and from tieing and other practices. 5.09 Detailed analysis of technical assistance provided under ERTAP suggests a number of lessons. In fast disbursing operations designed as a quick response to emergencies it is necessary to recognize that the design, mobilization and deployment of technical assistance is normally time con- suming, and a strategy has to be developed to overcome this normal ten. dency. It is probably not always possible to develop and apply such a strategy. In face of this two approaches might be considered. The first, is not to make any but really emergency TA a part of a quick disbursing operation. The second, is to adopt a flexible approach which allows modi- fication of the TA component as the experience with it becomes available. Notwithstanding the above, opportunities for training to cover shortages of urgently needed skills should not be overlooked, even if training can only be started-under the rapid disbursement operation. 5.10 In general terms, the experience underscore& the need to think out a strategy for making technical assistance welcou in the client coun- trylagency and for encouraging full cooperation with it. The diplomacy of technical sesistance as applied in the identification and design was a crucial determinant of the re.sults of ERTAP. Where identification of TA needs and the design of the project were the result of a process of consul- tation between the Bank and the relevant ministry and/or parastatal entity or state corporation, implementation was accomplished with little or no friction and the outcome was satisfactory to all sides. Where the consul- tation was lacking and where the TA was essentially mandated by the Bank and perceived as a conditionality the implementation was fraught with fric- tion, which adversely affected the achievement of objectives. The overall experience shows that the Bank should especially not push a particular TA solution when it finds it is not acceptable to the client. 5.11 Where experts are to be deployed at managerial level, their terms of reference should clearly set out the desired relationship to incumbents, and identify the reporting requirements to specified supervisors. As far as possible incumbents should not be asked to stand aside while experts under- take theirfunctions; but if this is absolutely necessary suitable provi- sion should be made for training the incumbent managers and for returning control to them afterwards. 5.12 One strong point of these Bank operations was the attention to program management, specifically the recognition of the multi-level and multi-sector range of decisions and interests to be coordinated, both with- In the country and within the Bank. The lesson is that even where a gov- ernment is committed to the program, assistance of a group of officials dedicated to seeing that all conditionality is attended to and in marshal. ling the necessary documentation for decision is invaluable. In the imple- mentation stage such a group is indispensable in ensuring prompt and flex- ible response to problems that invariably arise. * 38 * 5.13 The staffing of missions should allow for an expanded role in monitoring, supervision and coordination at time when large, multi-sector operations are being supported by the Bank. The experience in Ghana has highlighted the role that a mission can play, for example in establishing and supporting a central project monitoring unit. In some respects this role was curtailed by liaitations on staffing, in particular in relation to RP/ERTAP. 5.14 Although the Bank responded quickly in 1983, it was not ready in some areas because work in project identification and preparation had not been kept up-to-date. The general lesson flowing from this experience is that the Bank ought to assume that its relationship to members is a long term one, and that during a hiatui when the Bank may not be lending or conducting a close dialogue because of political reasons or because of disagreement with the policy directions of the client, the Bank ought to be doing contingency planning so that it can be ready to respond appropriately and promptly when circumstances are more favorable. This means that coun- try economic and sector work would be continuous and would not be unduly affected by the prebability of lending. APPENDIX - A - 39 - TECHNICAL ASSISTANCE - A COMPARISON OF ERTAP AMONG SECTORS 1. The intersectoral comparison of the application of technical as- sistance in support of the rehabilitation of exports in Ghana provider an opportunity for studying how differences in approach and implementation affected the results in a situation where the influence of differences in politics, culture, economics, and time can be ignored. The Export Rehabil- itation Technical Assistance Credit of SDR 16 million (US$19 million) and associated cofinancing of US$5.5 million financed the provision of techni- cal assistance to cocoa, timber, mining and ports. As we shall see al- though they shared the overall objectives of strengthening institutions through measures identified in related sector studies and through training to build up local capacity, technical assistance to each sector was planned and executed independently of that to the others and the outcomes were different. The experience in each case will be reviewed and compared with that in the others to see what lessons can be learnt. Ports 2. ERTAP provided SDR 0.7 million which was to finance a ports reor- ganization study and provide 54 man-months of technical assistance. By 1983, the Bank and the Ministry of Transport and Communications (MTC) had had a long relationship during which there was one operation in telecommun- ications, several in highways and oue in the railway subsector. The inclu- sion of a port rehabilitation component in the Export Rehabilitation credit grew out of the recognition on both sides that the delapidated institution- al and physical capacity of the ports was an obstacle to the efficient movement of exports of cocoa, timber and minerals and of imports of inputs and food. Once discussions started the HTC and the Bank agreed to treat the port allocation as seed money for a more comprehensive Port Development Project. The records indicate that there were extensive discussions be- tween Bank staff, the HTC and the Ghana Ports Authority at which the urgent TA needs both to allow absorption of ERP resources and to facilitate longer term developments were identified. In response to the MTC's request that the Bank propose suitable candidates, the Bank provided a short list of candidates, draft contracts and terms of reference for consultants to be selected by the Ghanaians [Annexed to letter dated January 6, 1984 from Chief WAPTI to PNDG Secretary for MTC]. 3. The MTC/GPA selected the group to do the Ports Reorganization Study and engaged five consultants to assist in the implementation of the port component under the ERP credit. The Study was completed in 1984 and ia line with its principal recommendations the Ghana Ports Authority, Ghana Cargo Handling Company, and Takoradi Lighterage Company were merged to establish one organization--The Ghana Ports and Harbours Authority under one Board of Directors, and the two ports of Tema and Takoradi were made semi-autonomous with a Director for each port. ERTAP consultants prepared specifications and tender documents for materials and spares under ERP and to expedite the drawdown of Japanese support (Telex January 31, 1985]. Although this work took longer than expected due to unfamiliarity with Bank APPENDIX - A - 40 - procurement procedures and to shortage of staff and experienced management, by the beginning of 1987 the supervision mission reported that *spare parts, equipment and technical assistance have made a significant improve- ment in port efficiency*. The GPHA, in an interview with OED staff, re- ported that the hydrographer made a good impact, the master mechanic was good on cranes, and the civil engineer identified the right equipment which has been of use and continues in use until the present. Achievements in the area of training were disappointing. There was no early plan, later there were problems with counterparts, and management courses were probably of limited effectiveness. 4. During this period GPHA received funds from IDA - Project Prepara- tion Facility to hire a consulting firm to prepare proposals for a Port improvement Plan in support of which a Port Rehebilitation Credit with substantive cofinancing was provided. This Credit financed continued tech- nical assistance in management and traiking. Cocoa 5. ERTAP provided SDR 4.5 million (33 man-years) in technical assis- tance to undertake six studies, advise top management, improve procurement, workshops, and extension services, and train staff on the Cocoa Board. The background for this operation were the RICI and ERP credits both carrying policy conditionality some of which had to be met up front and the remaind- er within a fairly stringent timetable. Some of the studies, e. g., study of alternative marketing system by the Cocoa Board was conditionality for IDA lending. It is clear that the identification of the technical assis- tance did not grow out of a shared or agreed diagnosis of the problems of the industry and 1ti marketing arrangements. 6. Implementation got off to a bad start. Within a fortnight after the credit was signed the Chief Executive Officer of the Cocoa Board sug- gested that selection of consultants for studies should be by international competitive bidding and nominated three firms. Apparently, this was in response to a Bank report which assumed that the consultant firm on an earlier UNDP project would continue under ERTAP.1 The first supervision report mentions that the CEO was skeptical of the 14 man technical assis- tance proposal--too many people, too expensive. Eventually the same con- sultant firm, in joint venture with the remaining bidder after the third firm withdrew, was selected. 7. Bank staff's retrospective comments throw some light on some of the factors which influenced the implementation of this component. One view is that the Bank had not done enough to understand the Cocoa Board. At any rate Othe cocoa technical assistance was not all that important" in the total cocoa package, the impact on exports being expected more so from pricing policy, improved tran6portation, and better pest control. Still another view was that there were no measurable targets set for the techni- 11 Letter dated February 22, 1984. APPENDIX - A - 41 - cal assistance team, no follow-up of the terms of reference, and no clear idea as to whom the consultant team was accountable--the team arguing that it was accountable to the Bank and not the Board, the Bank correcting that it was accountable to the Board. A meeting held in May 1986 to appraise the performance of the team reached the decision that an agreement be drawn up specifying tasks to be performed by the consultants, level of authority to be exercised, and timetables for completion of work, clearly suggests inadequate definition and planning played a part in the implementation difficulties of the technical assistance to the Cocoa Board. 8. The outcome of the technical assistance can be gauged by the re- sponse to the studies and the assessment of performance of experts. At a tripartite review of the studies in November 1985 involving the Bank, the Board and the team, the following reactions were recorded regarding these studiess (a) Crop marketing, Evacuation, and Input Supply--regarded as prema- ture and optimistic about privatization and the recommendations were mostly not accepted. (b) Cocoa and Coffee Plantations, current and long-term viability- -most recommendations were accepted. (c) Abuakwa Formulation Plant--privatization agreed. (d) Corporate Planning and Management--Cocoa Board considered this study a waste of time, questioned the underlying assumption but considered some recommendations in line with its practices. (e) Cocoa Processing Factories--recommendations accepted. (f) Port Receiving/Shipment Procedures--some recommendations accepted, some rejected. Bank staff are of the opinion that Cocoa Board resisted the findings of these studies. An office memorandum2 records 'As one might expect Cocoa Board is already resisting the findings of the [consultants] studies and can be expected to put up a stiff fight when it gets the full drift of our intentions.,--a statement suggesting lack of frankness in communications in the identification of this operation. 9. Bank supervision reports and the retrospective view of the Cocoa Board is that the consultants' performance in respect of their advice and technical contributions were satisfactory overall although uneven. The 1985 Annual Report of the Cocoa Board said *As regards ERTAP, all the advi- sors have been in post and have carried out their duties fairly satisfac- torily; most of their time has been spent on the restructuring exercise. Their engagement has not really made the desired impact on the Board's 2/ O.M., January 15, 1986. APPENDIX - A - 42 - operations, and we do not therefore recommend any renewal of the consul- tancy services in their present forr." The report added that to date con- sultants have identified problems in the cocoa industry without finding concrete solutions to them; that most of the forms recommended for Corpor- ate Planning have served no useful purpose; and that to achieve results it is absolutely necessary for the consultants to focus more attention on training. Advice to the chief executive, to financial management, and to procurement was considered very useful. Training of purchasing clerks was also considered useful. The agronomy group was considered good. Training of workshop staff was deficient. Notwithstanding the general satisfaction the Cocoa Board expected more from the technical assistance, given what it was costing, and did not wish to extend the contract of the team. The consultants blamed lack of suitable counterparts and unrealistic expecta- tions on the part of the Cocoa Board, and complained that miracles were expected within a few months from consultants. 10. One must conclude that the potential benefit from ERTAP was some- what compromised by the atmosphere created by the manner it was identified and the lack of frankness by Bank staff. The fact is that even if the diagnosis of weak management were correct, if the management could not have been replaced entirely, the Bank still needed to gain that management's acceptance of the remedial measures. This could only have been forthcoming if through full and frank discussion there had been a shared understanding of the options and shared parenthood of the solution. This would have been especially necessary where associated conditionality called for drastic retrenchment of staff at all levels, threatening the jobs of the very people with whom the Bank had to deal. Based on this experience the Cocoa Board in approaching technical assistance under the Cocoa Rehabilitation Project decided against a block negotiation for technical assistance with a consultancy firm. Instead it has opted for the selection and hiring of consultants on an individual basis, which avoids conflicts about accounta- bility and supervision. Timber 11. Conditionality attached to the Export Rehabilitation Project called for the replacement of the Ghana Timber Marketing Board by a Timber Export Development Board to promote exports and a Forestry Products Inspec- tion Bureau to regulate and vigilate the extraction, quality and export of timber. The technical assistance requirements for the establishment of the new organizations identified by the Ministry of Lands and Natural Resources comprised a managing Director, a Registrar of Graders and a .Grader Training Supervisor for FPIB, and a Managing Director for the TEDB. These experts, plus a Timber Industry Advisor to be assigned to the National Investment Bank through which ERP resources would be passed to the industry, comprised the ERTAP financed technical assistance package for which three leading consultant firms specializing in the sector were invited to bid. ERTAP also provided for six experts for two state owned timber enterprises- -Takoradi Veneer and Lumber Company (TVLC) and HIH to be included in the APPENDIX - A -43- contract.3 Later the Bank proposed that the TA contract include two timber sector studies (a) strategy for the forestry sector and (b) a review of FPIB and TEDB specified in the project document as part of the overall TA package for which SDR 3 million was provided. 12. Although there was some delay in the establishment of the new institutions and consequently in the deployment of technical assistance personnel, by early 1986 a Bank aide memoire recorded that FPIB had made considerable progress, that technical assistance had had considerable im- pact on production at TVLC, that HIM management was very satisfied but finding itself unable to fully utilize the diesel expert proposed to trans- fer him to TVLC to train mechanics for logging operations. However, there was some criticism by TVLC of the TA. It was that the experts functioned at too high a level with not enough discussion below the level of Managing Director and with a tendency to assume an executive role at the expense of their advisory and training role. In retrospect this was seen as due part- ly to insufficient discussion of needs before technical assistance person- nel were assigned. Also TVLC staff feel that the terms of reference did not stress transfer of technology and local staff development, and so not much permanent improvement in local capacity resulted. The deployment of technical assistance and equipment delivery were out of phase, with experts leaving when equipment was arriving--a factor which made extension of con- tract necessary. It was decided that the TA contract should be extended for a year with IDA financing nine (9) months from RIC II funds and Sweden agreeing to finance the remaining three (3) months. A year later a super- vision report stated that FPIB, and TEDB were fully functional. Most of the technical assistance personnel had left at the end of the contract and had been replaced by locals. 13. This generally successful use of technical assistance did not include the experience in the National Investment Bank, where the deploy- ment of the advisor was perceived as having done more harm than good. He had been involved in appraisal of applications for ERP funds and had auth- ority but bore no responsibility for success of the project. He was a computer specialist who did not do adequate financial analysis of the ap- plicants and had no knowledge of the local situation. 14. The studies done under this component were regarded by the Bank as presenting much useful information on forestry development strategy. By contrast, the HLNR saw the recommendations as implying too much dependenco on free market forces considering the lack of adequate controls in the country. Regarding the FPIB/TEDB study it was accepted that they had laid the basis or further development of timber export institutions, but details of staffing requirements were not done. The study having been overtaken by the establishment of the institutions was never followed up and acted upon. Thus weaknesses persist in areas such as grading of lumber and the collec- tion of accurate export price information. 31 Telex dated March 27, 1984. APPENDIX * A - 44 - Gold 15. The State Gold Mining Corporation was set up by the Government of Ghana when it took over mines abandoned by the private sector due to high cost of mining the gold relative to its price. SGMC was not.given capital to explore and develop its reserves. In response to a GOG request in 1980 the Bank contemplated assistance but no project could be identified given the low grade of ore, high local cost and overvalued exchange rate, and the lack of maintenance over a period of years. A 1981 Bank mission did a detailed reconnaissance of the SGMC mines and estimated that rehabilitation would require an investment of about US$90 million for urgently needed spare parts, equipment, materials, supplies and TA. The same mission re- ported that 'Ghana's gold sector has the potential to become a major foreign exchange earner for the country,.4 The mission ascribed the decline in production over the last two decades to poor macro-economic management and poor mine management reflected in faulty mine planning and insufficient exploration activity, in turn reflecting the shortage of experienced indi- viduals to plan, implement and supervise. Significantly, on the matter of project execution the report stated OSGMC has the capability to act as the manager for the procurement, delivery and installation of the items pro- posed under the project.' The only technical assistance that would be needed from outside the company was to do shaft sinking, a feasibility study, installation supervision by supplier representatives, and review by a team of experts. Macro-economic policy change was seen as the main con- dition for viability of the rehabilitation of gold. 16. Shortly after the GOG introduced its Economic Recovery Program including a significant change in exchange rate policy the rehabilitation of the gold mining sector was made a component of ERP/ERTAP and the strengthening of the management of SGMC became a matter of high priority. An internal memorandum on the reappraisal of the Export Rehabilitation Project and the preparation of the Technical Assistance Project, listed as second among objectives for the mining sector the improvement of management and operations of SGMC, and also as second among issues--the management of SGMC.? 17. During negotiations the Bank insisted and GOG agreed to let an experienced mining management company take over the management of SGMC6 instead of engaging the company to assist local management in areas of deficiency as had been the Bank mission's view in 1981. This view was supported by mining consultants who were hired to assist in developing terms of reference for a management contractor. The consultants saw the Project Management Contractor (PMC) not as a contractor to provide general 4/ O.M. May 6, 1981, Bank to office report. 51 O.M. February 25, 1983 - Ghana. 6/ O.M. November 10, 1983 - Ghana. ERP/ERTAP changes during Negotiations, I I APPENDIX - A - 45 - management for SGNC but as a technical service contractor to help manage the rehabilitation project. At the time SGW had been under an Interim Management Committee (since change of government in 1981) which saw the PMC as having responsibility for technical operations but reporting to a local managing director with full management authority over SGMC. The Bank pushed the concept in which expatriate management was to replace the local management of a state commercial entity, ostensibly because this approach was expected to be more effective even though it would take longer and be more expensive to rehabilitate the company in this way. 18. The process of selection of a contractor and the drafting of a contract took over a year. after which the Bank realized that neither the SGNC nor the contractor wanted the management assistance concept being pushed by the Bank.7 The contractor (CGM) seemed content to play an advi- sory role with a 'cost plus* basis of payment for its services, while SGMC wanted to 'water down' the full project management role envisaged by the Bank. The Bank invited the Ghanaian negotiators to discussions in Washing- ton and indicated the changes it desired in the contract to make it clear that CGM was to act as an independent contractor and not as a servant or agent of SGMC, and that the Board of Directors would be only responsible for the overall policy direction of SGMC's operations. A follow up telex to SGMC emphasized... 'In section 3.8.4 there should be an express (sic) statement to clarify that the management contractor will have overall re- sponsibility for planning, managing and supervision of all SGMC's opera- tions". 19. In the ensuing negotiations the contractor insisted on a contract price which was far beyond the funds available and completely out of pro- portion to the expected revenues of SGMC after rehabilitation. In an in- ternal Bank memo it was conceded that 'the Ghanaians have initialled the contract presumably under perceived pressure from us to do so*. Alarmed at the high cost the Bank sent a telex informing SGMC that IDA financing for the contract could not be approved, and suggesting that SGMC consider in- viting new bids from all six pre-qualified bidders, based on a firm total budget ceiling. An internal Bank memo stated that it was 'essential that we again review the basic options available to SGMC and rethink the Bank's position...'8 The review concluded that the basic concept of a full manage- ment contract be retained, and if the price cannot be reduc 3 or the gap financed (CIDA identified as a possible source), the contract should be rebid within a fixed upper limit. This last was considered because altern- ative models had shown that acceptable rates of return were only likely for a contract cost up to US$15 million--a figure below that in the draft con- tract that had been initialled. 7/ 0.M. January 31, 1985, dealing with negotiations of the Project management Contract. 8/ Internal note May 3, 1985, and 0.M. May 31, 1985. APPENDIX - A -46- 20. Significantly, the proprie-.y of inviting a donor to help fund a project at a cost associated with unacceptable rates of return appears not to have been raised within the Bank. Similarly, the need to change the underlying management concept, for bids within a fixed upper limit or in light of Ghanaian and contractor preferences to the contrary, appears not to have been considered. As it turned out, CIDA financing of US$5 million was secured and pressure was put on CGM to reduce the price. 21. The final contract called for part of the payment to CGH to be based on incremental SGMC revenues related to specified incremental produc- tion targets. Still, the contractor substantially reduced the comitment of experts below the levels contemplated earlier. On its part, SGMC ap- pended a list of local managerial staff who could not be subject to control by the CGM group and indicated that the list was expandable by the SGHC Board on notice to CGM the project contractor. SGMC Board was reconsti. tuted. Membership was reduced from 9 to S. with 4 of the 8 having execu- tive respondibilities. Bank response was to ask SGHC for terms of refer- ence for the Board and a job description for each full time board member *in light of their substantially changed organisational role under the management control concept'. This request raises the important question of whether or not the Bank had thought through the changed role of incumbent local management and the Board in designing the *full management' concept it had inststed on. It would seem that assumptions about this aspect would also have been crucial in devising a viable strategy for ensuring accep- tance of the Bank's concept. 22. Implementation of the project did not go smoothly. The assumption of the-management contractor to full responsibility for operations was accompanied by a dispute with the :SGHC Board over rights to exploration areas--the Board having decided to allow third party exploration in areas where SGHC mines axe located. There was also a threat of escalation of an ongoing conflict among the partners comprising the CGM. Four months after CGM assumption of management the Bank in examining financial rates of re- turn projections submitted by SGMC concluded that 'the cost of the rehabil- itation program in its present form is excessive in relation to the earning capacity of the rehabilitated enterprise' and urged the strengthening of the management team in cost control and financial management.9 A supervi- sion mission three months later found that the contractor 'has made correct technical assessment of the problems involved in rehabilitating the mines and is beginning to improve results.' The same mission noted the need for improved cooperation between SGMC and CGM. 'In particular, efforts should be made to enhance communications at the management level...' 'This is a delicate area involving personalities, politics and personal pride..10 Bank staff were finally discovering the real world. 9/ Telex June 23, 1986. 10/ O.M. October 3, 1986. APPENDIX - A - 47 - 23. The records indicate that Bank staff gave serious thought to a strategy for reducing frictions between the SGMC and the management contractor.11 Staff hoped frictions could be reduced by (i) accelerating training, (i1) setting up a schedule for turning management *lots back to the Ghanaians and (iii) airing difficulties. Supervision reports in March and June 1987 registered the Bank's concern over the mediocre perfor- mance of CGM in unambiguous language--*Some of CGM higher level staff did not appear convincingly involved in the rehabilitation effort but seemed preoccupied in increasing their staff, keeping regular office hours, and with their personal comfort."...OFirstly, in several instances CGM has failed to confront certain critical activities of rehabilitating SGMC, with satisfactory depth of technical advicew...*Secondly, after over 17 months of services, with the exception of dredging at Dunkwa (about 5,000 .... in 1986) CGM is not meeting production targets"...'Thirdly. CGM is not using satisfactorily the procedural simplifications and exceptions granted for procurement by the Bank.* The Bank proposed a tripartite meeting to dis- cuss CGM's performance with the Bank, SGMC and CGM appropriately repre- sented. After the meeting the contractors performance improved, as did relations with SGMC. However a year later in July 1988 SGMC notified CGM of its decision not to extend the contract for the optional two years. 24. Both Bank staff and Ghanaian officials agree in retrospect that the rehabilitation was neither a complete failure nor a complete success. The rehabilitation project as a whole stopped the decline in output. The main benefits from CGM are seen to have been the help in identifying areas of rehabilitation need and the introduction of new mining techniques at Tarkwa which improved productivity. CGM did not rehabilitate management and strengthen the SGMC institution. Little training was accomplished; the result of minimum effort to train local stafl until near the end of the contract. When the contract was being negotiated the Bank had urged that a training plan be appended to it. but after that .little attention had been paid to training aspects. Both sides agree that the emphasis on increasing production in the short term rather than on development over the longer term, buttressed by the structure of payments to the contractor led to the under-achievement of the objectives of improving ore reserves and improving staff capability through training. 25. The Ghanaians feel strongly that the technical assistance compo- nent was will conceived, ill designed and ill implemented". They are con- vinced that no matter the contractor much could not have been achieved in the absence of an equity position by the contractors in SGMC, for the man- agement concept gave CGM significant authority but they had nothing at stake; and with a high minimum fee relative to production bonus the group cut back on interest, time and expertise when the contract cost was negoti- ated down. But from the Ghanaian point of view the key factor which com- promised the CGM's impact was that the project was based on a faulty diag- nosis of SGMC's problems and was wrongly designed, with too much technical 11/ Implamentation Summary 6 October 1986. APPENDIX - A * 48 - assistance and not enough emphasis on technology and equipment rehabilita- tion.12 26. From the Bank's point of view *contracting out management did not fit well with Ghanaian perceptions'. Bank staff concede that "nobody realized how bad a shape the mines were in', but early assessments had put rehabilitation costs at US$90 million of which technical assistance was only a small pavt. The design of the component must have been based on the assumption ths. it would have been followed soon after by a rehabilitation project that would have paid more attention to the physical aspects. The allocation under ERP/ERTAP was recognized as barely adequate to keep the company alive until a rehabilitation strategy could be developed. This, Bank staff say, has been achieved. 27. Based on this experience SGMC decided to hire technical assistance on an individual basis rather than contracting with a group, and has re- tained the services of selected members of the CGM team in Ghana. Greater emphasis on exploratioa has paid off in making the mines more attractive for privatization through outright sale or joint venture as evidenced by the offers that have been received. Comparison 28. These four experiences with technical assistance may be compared on the basis of project cycle issues--identification, design and admini- stration, implementation--and on the basis of the roles played by the bor- rower and the Bank. (a) Identification 29. In the Ports component the technical assistance requirements were identified in discussions between Ghanaian officials and Bank staff and were based on a shared perception of the immediate objectives which were seen agaipst the background of a comprehensive port development program, concerning which there had been earlier discussions during the Bank's long involvement in the transport/communications sector. 30. While there was no long standing relationship between the Bank and the Timber sector, the Bank and Ministry *of Lands and Natural REsources were agreed on the need to separate the regulatory and promotional func- tions of the GTMB, and the MLNR was left to identify the technical assis- tance required to establish the new institutions FPIB and TEDB; while the experts required for the state owned enterprises were identified by the enterprises and the Ministry. The need for a Timber Industry Advisor in NIB appears to have been identified by the HLNR apparently without much discussion with NIB. 12/ OED Mission interview with PNDC Secretary of MLNR, February 1990. APPENDIX - A -49- 31. In contrast to Ports and Timber the need for reorganization of the Ghana Cocoa Marketing Board and for technical assistance seems to have been identified mainly by the Bank, and was perceived by the Board as condition- ality and not as based on a shared diagnosis of the problems of cocoa mar- keting. However, at a higher level in the Government the need for improv- ing the efficiency of the marketing arrangements for the country's princip- al export had been accepted and agreed as part of its economic recovery program. 32. In the case of gold the technical assistance was not identified against a shared diagnosis of the problems. The Bank clearly changed its assessment of SGHC management. capability between 1981 and 1983 when the component was reappraised. While the 1981 mission categorically stated that SGHC had the capability to manage most aspects and specified the tech- nical assistance needed in others, the later mission focussed on mrnagement as one of the more important issues in rehabilitation. The Bank identified the need as well as the design and administrative arrangements, and insist- ed-during negotiations of the ERPIERTAP that an experienced mining manage- ment company take over the SGMC. (b) Design and Administration 33. The design of the TA project in the Ports Auth.,rity was approached in a pragmatic fashion.. It was agreed that two consultant firms would be hired; one to study the management of the ports of Tema and Takoradi and to make recommendations on the institutional reorganization of the subsector and the other to prepare a long term physical devilopment plan (financed partly from ERTAP and partly from a PPF) of which the emergency rehabilita- tion measure (financed by ERP/ERTAP) would be the initial stage. Aside from the experts in organization, port operations and port financing to do the management study, ERTAP provided a cargo handling equipment advisor, master mechanic/cargo handling workshop advisor, civil works maintenance special- ist, hydrographer, and marine engineer/floating craft specialist. TA was mainly advisory, but where experts were to perform executive functions arrangements were made for eventual handing over to Ghanaians and training was provided in preparation for this stage. It was also clear that the ERP/ERTAP would lead into a Ports Rehabilitation operation, and that over- all management of the ports and control of the technical assistance experts would reside with the Director of the Ports Authority. 34. In the Timber sector the design determined by the MLNR was that TA experts would be the executive heads of the new institutions FPIB and TEDB and would be responsible to the MLNR. Ghanaian counterparts were subse- quently selected to be trained to succeed the expatriate executives on a predetermined timetable. Other TA at the technical level had well defined terms of reference with their training responsibilities fairly well defined in the case of FPIB, although rather less so in the case of the TA to the state enterprises. While it was clear that the TA to NIB was to be advi- sory the manner in which the decision to insert this expertise was made tended to confer a modicum of executive authority on the expert which was resented in NIB, especially so because the qualifications of the candidate APPENDIX - A - so - selected did not fit NIB's view of the relevant requirements. Timber sec. tor studies seem to have been identified and designed by the Bank, but were acceptable to MLNR as laying the basis for possible future Bank support. All this TA was to be contracted from a single firm which had responsibil- ity for supervising its experts in the field. 35. A similar arrangement obtained in the Cocoa Board where a large team of experts provided by a single firm were deployed as advisors at- tached at all levels from the CEO down to workshop supervisor level. How- ever, the terms of reference were such that in many cases the advisor tend- ed to have executive functions although accountability remained with Ghana- ian incumbents, many of whom were long in their positions which were not much dirturbed by the reorganization. Training functions were not well defined in most cases. The studies were identified by the Bank but the design was left mainly to the TA contractor. 36. In'the case of Gold TA experts from a contractor were to take over the duties and executive functions of incumbent managers at all levels of SGMC including that of Managing Director. SGMC was not being reorganized into a new institution; and the four senior incumbent managers continued as directors on the Board. There was no provision for managers to be given special training during the interim when they were not performing the func- tions of their positions; and there was no timetable for the return of operational control of the company to them. Moreover, their functions.as directors on the Board were to be carefully circumscribed to minimize Board interference in the operation of the company under the management contrac- tor. Given the political. significance of appoirtments of the four senior managers in SGHC, this design was tantamount to a curtailment of the Gov- ernment's control over the company. Unsurprisingly, the arrangement was not preferred by the SGMC or by the management contractor. It was insisted by the Bank despite the absence of a thought out strategy for improvement over the longer term. (c) Implementation 37. Implementation of the technical assistance project went smoothly in the Port and Timber components in spite of slowness in recruitment of experts, the difficulty of phasing the arrival of. experts with that of machinery and spares, and unfamiliarity with Bank procurement procedures. Things started out badly in the case of Cocoa as the CEO resisted what appeared to be a Bank suggestion that a particular firm be contracted to provide the experts and conduct the studies by calling for international competitive bidding and nominating three firms to be invited to bid. The absence of measurable targets or follow-up of terms of reference and uncer- tainty as to whom the team of experts was accountable also impeded imple- mentation. The implementation at the SGMC was compromised by the lack of cooperation between the incumbent managers and the management contractor, as well as by the lack of commitment of the latter, by the inadequacy of provision for the physical rehabilitation of the mines, and by the lack of training of local counterparts. APPENDIX - A * 51 - (d) Results S. The results differed greatly among sectors. In Ports and Timber the technical assistance essentially achieved its objectives and the proj- ect was clearly successful although in the case of the latter more training and technology transfer would have made for a better outcome. In Cocoa the outcome was somewhat disappointing, and there.is reason.to question whether it was worth the investment. This is-especially questionable in the case of studies where many of the recommendationshave not been accepted and of those accepted many have not been implemented since no significant differ- ence from current practice was implied. Also, many procedures-and forms have proven to be nearly useless. The permanent impact on COCOBOD effi- eiency has been negligible because of the lack of transfer to counterparts, and because contractor institutions typically lack enough experience to allow them to develop the expertise in managing institutions like COCOBOD. The results in Gold were generally disappointing, although there were some benefits on the technical side as high priority physical rehabilitation needs were belatedly identified. There were no improvements of any signif- icance in the management of SGNC that may be ascribed to this technical assistance. The situation was helped by Bank intervention during implemen- tation to return effective management to the Ghanaian incumbents, but the delay involved loss of time and waste of financing. Involvement of other Donors 39. Canada and Sweden provided technical assistance under ERTAP to the gold and timber sectors respectively. Canada(CIDA) was approached by the Bank and by Ghana to help finance the management contract that was already being negotiated between SGMC and CGH, a consortium of Canadian minlig firms that had been selected from a short list of tenders. CIDA had n.4 participated in the identification or the design of this project, and it appears that decision to approach Canada was based on the fact that the successful bidder was Canadian. The issue of the expected rate of return appears not to have been raised in the communications between CIDA and the Bank, and the former seemed to have been unaware that alternative models within the Bank had showed that a contract cost in the range being dis- cussed was unlikely to be associated with acceptable economic rates of return. 40. Sweden was also not intimately involved in the identification of the technical assistance component for the forestry/timber sector. How- ever, they were approached to help to fill a gap in the financing of the continuation for a further year of what had been a successful TA project. The consultant fim was Swedish, and there is evidence that this firm had kept Sweden's aid agency informed of its assignment in Ghana. 41. The 1ssues which this experience raises concerning the collabora- tion of the Bank with other donors are primarily those of the stage at which donors are to be involved, the basis for involving particular donors, and the information to be provided to donors as a basis for their decision APPENDIX - - 52 - regarding their support. Judging by these two cases, the Bank tends to involve donors late in the process, after identification and design. The basis for approaching specific sources seems to have been the nationality of the selected contractor or consultant. Little or no information appears to have been provided by the Bank to the donor that would have facilitated appraisal of the merit of the assistance, although in one of the two cases the donor was probably aware of the record of success achieved by earlier TA. It seems fair to assume that donors acted out of faith in the Bank's analysis of need for assistance, and of the potential benefits from and the appropriate design of the project. In one of the two cases this faith may have been undeserved; and if such cases were to become frequent, Bank ef- fectiveness in mobilizing donor assistance could suffer. Other Comments 42. The comparison of the TA packagis. for the *arious sectors while tending to focus on differences should also consider some similarities. By and large the TA projects were loosely defined. This was due partly to the hiatue in Bank operations for over a year before the Economic Recovery Program was announced by Ghana in April 1983, and Bank knowledge and diag- nosis was not up to date.. The result was that terms of reference for sev- eral studies were imprecise, and the training components were especially poorly identified. These shortcomings were subject to criticism in the Bank at the time. Regarding the terms of reference-for studies, one office memorandum noted that I so much faith in flexibility could be dangerous".13 The same memo in reference to training said "Explicit focus is needed on 'training' if indigenous institutional capacity is to be developed". It continued that "This seems to be a major oversight in the presentation". But it may not have been an oversight. It may have been that the intended emphasis of the TA was to restructure institutions. Thus in all cases p%rt of TA was to be spent on a restructuring exercise while the remainder was mostly to facilitate emergency rehabilitation. Training apparently was not viewed within the Bank as an important part of the immediate reaction to a crisis, but in retrospect greater emphasis on training may have made the acceptance of TA easier and ' its permanent impact greater. Thus early in implementation of ERTAP it was observed by one important client in refer- ring to the advisors that *most of their time having been spent on the restructuring exercise... their engagement has not really made the desired impact... any future TA should be geared towards staff training to improve management capacity".14 The Ghanaian Minister's position on restructuring that "he will not, repeat not, announce restructuring unless he has people 13/ 0.M. September 13, 1983; Ghanas ERP and ERPTA 14/ Letter of January 31. 1986 from CEO, COCOBOD to PNDC Chairman - ERP/ERTAP; quoting Annual Report for 1985 APPENDIX - A - 53 - to manage the new institutions' should have alerted the Bank to the need for greater emphasis on training.15 151 Telex May 3, 1984; Res. Rep. to Senior Loan Officer - Re: Message on Effectiven&z .,nditions of ERP and ERTAP, May 1. - 54 - APPENDIX - B - 55 - THE LIQUIDITY ISSUE IN GHANA Introduction 1. Shortage of liquidity was cited by Ghanaian officials and entre- preneurs as well as by Bank staff as a factor impeding the rapid drawdown of foreign exchange provided under the RICs and ERP operations. Toward the end of 1984 the NIB blamed its non-utilization of IDA funds on the general [shortage of] liquidity and on the (un-Icreditworthiness of the timber companies.1 In recent interviews (Feb. 1990) with NIB staff and with timber firms this shortage was blamed for the failure of many firms to install and use to advantage equipment imported with ERP funding. In 1984 a Bank supervision mission reported being told by commercial banks that tisber firms were illiquid and the banks being near their statutory lending levels were unable to meet the increased demands.2 Subsequent supervision reports while mentioning the liquidity problem emphasized concern by commercial banks regarding over-exposure to timber companies largely due to their large local currency working capital requirements. A Bank internal memo- randum in late 1986 cited the Cedi shortage resulting from the credit squeeze under the IMF Standby among factors making necessary the extension of the disbursement period after the closing date of RIC I.3 2. These reactions by Ghanaian officials and entrepreneurs, and by Bank staff suggest three sets of questions which must be addressed in an evaluation of these credits. These aret a) 'What really was the liquidity situation in Ghana during 1983-1987? Is is possible to determine whether liquidity was too tight, and inconsistent with growth objectives? b) To what extent was the liquidity problem one of intersectoral distribution of credit? c) Was there a problem of inconsistency between Bank/Fund programs? Theoretical Background 3. In order to deal with (a) it is first necessary to present some theoretical background. It is generally accepted that the demand for li- quidity is related to the level of expenditures by domestic decision makers--consumers(C), investors(I) and the government(G); which together comprise domestic absorption(E). From the definition of GDP - 11 Letter of Dec. 24, 1984 from the CEO, NIB to WAPAB, World Bank. 2/ April 1984, ERP Supervision Mission Report. 3/ 0.M. Aug 15, 1986; Chief WA1DP to Director WA1 - Ghanat Credit 1393 RIC I - Extension of Disbursement Period after Closing Date. APPENDIX - B - 56 - Y - C + I + G + X - M .....................(1) where, M is the value of imports of goods and non-factor services, and X is the value of exports of the same; we can derive: E - Y + M - X .............................(2) If the derAand for liquidity(L) is a ratio /&(a liquidity coefficient) of E; then: L - p [ (M - X) + Y ] .........................(3) In a closed economy, or in an open economy with resource gap equal to zero the demand for liquidity for expenditures would depend only on Y. However, in an open economy a significant resource gap will affect the demand for liquidity. Ghana is an open economy with significant resource gap. In addition Ghana has experienced massive inflation, and has tried to restore external balance through exchange rate devaluation. Devaluation of the currency increases proportionally the resource gap in domestic currency terms and increases the demand for liquidity. Domestic inflation as re- flected in the GDP deflator will also increase the demand for liquidity. Thus for a given resources gap(in foreign currency terms) and for a given level of GDP(in real terms) a devaluation ef a percent and domestic cost inflation of 5 percent would raise demand for liquidity to a new level: L' - it (H - X)(1 + a) + Y(l + P) ].........(4) and 6L - p (M - X)a + YP ] ....................(5) 4. It would seem reasonable to suggest that for an open economy the monetary program should take into account the external resources gap, in addition to the traditionally accepted variables such as the level of do- mestic economic activity, and the target level of inflation. Assumptions regarding the liquidity coefficient, both as regards its value and its stability over time, are also crucial. Thus if it is assumed that the coefficient is highly stable then the programmed supply of liquidity should be equal to the demand projected on the basis of this coefficient, expected inflation in domestic costs, the resource gap, changes in exchange rate, and the total value of output. At the other extreme if the coefficient is infinitely flexible then supply of liquidity becomes irrevelant since the coefficient would adjust to whatever value was needed to equate demand and supply; in other words velocity would adjust to relieve any cu,tailment of liquidity. (a) Liquidity Situation in Ghana 1983-87 5. This simplified formulation serves to draw attention to the main factors which would have to be considered in the Ghana case in making a-y judgements regarding the tightness of liquidity. Of these factors, the resource gap, the percentage devaluation, the GDP and the GDP deflator are magnitudes which can be estimated and forecasted on the basis of available data. There is substantial agreement regarding what they mean and the only room for disagreement concerns the quality of the estimates or forecasts. APPENDIX - B - 57 - However, ) is not an observable magnitude that is the subject of ongoing, agreed estimation procedures. Judgements regarding the adequacy of li- quidity will depend on assumptions regarding p, specifically its value and the rapidity with which this value adjusts to supply. In the absence of agreement regarding p it is doubtful that the first issue can be resolved by estimating a gap between demand and supply. 6. An alternative approach attempts to develop an indicator of rela- tive tightness of liquidity. This approach essentially ignores the re- source gap and the impact on demand deriving from it and from massive de- valuation, which reduces the demand for liquidity to a function of GDP in money terms--the quantity theory. It focusses on movements in the velocity ratio--GDP/Honey supply, which can be used as an indicator of relative tightness if one assumes less than complete and immediate adjustment of p to supply. Higher velocities indicate greater relative tightness, but cannot be a basis for concluding whether or not liquidity tightness was inconsistent with growth targets. Table 1 below shows velocity ratios for 1975 to 1987. Based on these figures relative tightness was concentrated in 1983 and to a lesser extent in 1984 with liquidity in the years after- ward not much tighter than in the period immediately preceding the economic recovery program. Table 1: VELOCITY RATIOS YEAR GDP/Ml GDP/H2 1975 5.3 3.6 1980 7.0 5.0 1981 7.7 5.8 1982 7.7 5.4 1983 11.2 8.4 1984 9.9 7.8 1985 7.8 6.2 1986 7.8 6.0 1987 7.8 5.6 ------------------------------------------------------------- Source: Bank of Ghana. 7. Equation (5) above can be the basis for another approach. One can gauge consistency with growth by seeing whether the increase in liquidity compensates for increases in the GDP deflator and for devaluation of the cedi during the preceding year. The underlying assumption is that p--the liquidity ratio does not imedialy and completely adjust to supply, but may do so with a lag of over a year. The comparison is presented in Table 2 below. APPENDIX - B - 58 - TABLE 2s VALUES OF a, 0 and 6H1,6M2 (Unit - Percent) YEAR a M1* M2* 1983 221 123 61 54 1984 308 35 43 46 1985 51 64 44 48 1986 64 42 53 53 1987 72 40 45 46 Note: 5BM1 and d612 indicate change in --1 and M2 respectively during the year; and a and P are changes in nominal exchange rate and change in the average deflator from the preceding year. 8. From the data in Table 2 a major squeeze seems to have come in 1983 when the devaluation of over two hundred percent and an increase of over one hundred percent in GDP deflator must have vigorously pushed up the requirement for additional liquidity, while the supply of liquidity (M 1) was held to an increase of sixty percent. Thus the increase in supply did not compensate for the previous devaluation and for the increase in costs and clearly was not consistent with positive GDP growth (unless there had been an imediate and substantial decline in i which has been ruled out in in the underlying assumptions). Also, the year 1985 seems to have been one of relative tightness as the 44Z increase in liquidity fell behind the 51% devaluation and the 642 increase in the GDP deflator. In the years 1984, 1986 and 1987 the increase in liquidity exceeded the movement in the GDP deflator. The fact that liquidity fell behind the devaluation of the nomi- nal exchange rate would not seem to warrant a conclusion of tightness given the smaller weight (H-2) compared to the weight (GDP) which would be given to the GDP deflator. Thus for these years it is probable that the increase in liquidity may have been consistent with positive real growth targets. Factors Affecting the Supply of Liquidity 9. Among the many factors which seem to have affected the increase in supply of liquidity during this period, the manner of financing the re- source gap, the behavior of Ghana's International Reserves, GOG's net bor- rowings overseas, and the required minimum reserve ratios seem to have been important. 10. The manner in which the resource gap is closed can affect the supply of liquidity where there are transactions involving flows in the foreign account which automatically trigger an increment to domestic li- quidity in response to a devaluation of the domestic currency. Thus net transfers inward, net grants and loans tend to provide an offsetting injec- tion of liquidity. If these net flows are just sufficient to close tke resource gap then a devaluation unaccompanied by an increase in the prices of domestic factors would not result in increased tightness of liquidity. To the extent that these net flows exceed the gap and result in an increase APPENDIX - B - 59 - in foreign exchange reserves held by the monetary authorities there would be an injection of domestic liquidity over and above the increase in re- quirements and the liquidity situation would tend to be less tight. On the other hand if the inflows are inadequate to close the resource gap and a reduction in international reserves is required then liquidity will become more tight as a result. 11. The resource gap may be closed in part by IMF credits. Because Fund resources are made available under arrangements essentially allowing the client to use domestic currency to purchase foreign exchange from the Fund on the agreement to repurchase the domestic currency with foreign exchange at some specified future dates, the acquisition of this foreign exchange by the Central Bank does not result in the emission of liquidity into the domestic economy. If the foreign exchange so received is added to international reserves no impact on domestic liquidity occurs, but to the extent that it is sold to importers or the government will tend to reduce the level of liquidity in the system. Between mid 1983 and the end of 1985 Ghana's use of Fund Credit rose from SDR 16 million to SDR 597 million, and since this exceeded the build-up of SDR 317 million in Ghana's foreign exchange reserves it is reasonable to assume use of Fund Credit was partly responsible for the relative tightness of liquidity during 1983-85. 12. Overseas borrowing by GOG jumped between 1985 and 1987 but was repaid during 1987; and, coinciding as it did with a peak in BOG net credit to the government, was clearly a factor in the apparent easing of the li- quidity situation during 1986 and 1987. This condition was somewhat re- versed toward the end of 1987. 13. The minimum ratio required for deposits in primary banks was low- ered each year from 60? at the end of 1982 to 22.82 in 1986, and raised to 27.7Z in 1987. Simultaneously, the cash reserves component was moved from 35? to 7.8Z and back up to 212. For deposits in secondary banks the mini- mum ratio was reduced each year from 45? in 1984 to 23.6Z in 1986 then raised to 29.3% in 1987, while the cash reserves component was reduced from 20? in 1982 to 10? in 1983 and was further lowered to 8.6? in 1986 before being raised back up to 22.6? in 1987. Actual ratios returned for total reserves in both primary and secondary banks were well in excess of the required minima during 1983-87. This was generally true of cash reserves except that in 1983 an4 to a lesser extent in 1987 the actual barely sur- passed the minimum required. Bank's cash reserves in excess of the minimum ratio required rose from 2.9 percent of deposits in 1982 to 17.5 percent in 1986 in the case of primary banks and from 2.6 percent to 16.6 percent in the case of secondary banks. In effect banks in general were not experi- encing a shortage of liquidity. (b) The Distribution of Liquidity and Credit 14. From interviews with BOG officials the OED/ODA mission gathered that at the beginning of each calendar year the BOG prepares a Credit Policy Program. Based on assumptions regarding GDP growth and inflation targets, the required credit is estimated, after provision is made for the desired increase in net foreign assets. This credit is allocated to the APPENDIX - B - 60 - public sector, to cocoa and to the rest of the economy. BOG officials contend that given this approach and the fact that Fund agreements re- stricted the allocation to the first two, there was adequate credit to the private sector, or at least credit was consistent with the growth and in- flation objectives. The growth in the supply of liquidity being closely linked to the supply of credit, the management of liquidity boiled down to the determination and allocation of incremental credit; which in operation- al terms involved setting the level of net domestic assets in the central bank and deciding on the distribution of credit between the public and private sectors. 15. In 1983 the Ghanaian stabilization program provided for a greater share of credit to go to the private sector through a lowering of the re- serve requirement on commercial banks and through a reduction in BOG lend- ing to the public sector. The share of BOG's assets represented by claims on the Public Sector was reduced from 87 percent in 1982 to 24 percent in 1987, 16. Indicators show that while total credit in relation to GDP was reduced, not only did the private sector's share increase, but there was no tightening of credit to the sector in relation to its GDP. The ratio of total credit outstanding to GDP fell from 22 percent in 1982 to 12 percent in 1984, recovered to 20 percent in the following year, then fell again to 13 percent in 1987.See Table 3. Tablet3 Ratio of Credit Outstanding to GDP Year GDP(curr.) Credit Ratio (Million) (million) Z (cedis) (cedis) 1982 86451 19159 22 1983 184038 28973 16 1984 270561 33207 12 1985 343048 68005 20 1986 511373 91849 18 1987 746000 98522 13 Meanwhile, the ratio of credit to the private sector (not including cocoa) grew from 2 percent of GDP arising in the p-ivate sector (excluding cocoa) in 1982 to 9 percent in 1986, falling back to 8 percent in 1987. See Tables 4 and 5 below. APPENDIX - B - 61 - Tablet4 Credit to the Private Sector Year GDP private Credit Ratio (million C) (million C) (percent) 1982 81211 1557.4 0.02 1983 165140 5248.9 0.03 1984 249025 11086.4 0.04 1985 303028 19798.6 0.07 1986 428616 36459.9 0.09 1987 619419 47706.8 0.08 Ratio - credit outstanding to the private sector divided by the GDP arising in the sector. Table:5 Share of Credit to the Private Sector Year Private GDP Credit Incr. Credit Share Z Outstanding Share Z Share Z ------------------------------------------------------- 1982 93.9 8.1 --- 1983 87.9 18.1 37.6 1984 92.4 33.4 137.9 1985 88.3 29.1 25.0 1986 83.8 40.1 69.9 1987 83.0 48.4 168.5 ------------------------------------------------------- 17. The growth of credit outstanding to the private sector at the end of each year surpassed that of the implicit deflator for private sector GDP every year, implying rising real credit during the period, if behavior of the price of imports is ignored. See Table 6. However, the excess is considerably diminished when the growth of credit is compared with the wholesale price index, which may be a better indicator of the movement in total production cost than is the implicit deflator. In 1987 the growth of credit did not keep pace with the index. The data does not allow account to be taken of the effect on credit requirements at sector level arising from the rising cost of imports, but to the extent that credit grew faster than the implicit deflator there would have been at least partial offset of the rising requirement to mobilize imported inputs. The adequacy of this off- set in any sector or firm would have depended on the growth of credit to it and on the importance of imports in total costs. It thus seems that the tightness of credit may have been a distribution rather than a global phe- nomenon in the private sector, but the biases inherent in the indicator make it prudent to warn that the analysis while illustrative cannot prove conclusively that credit was not tight. APPENDIX - B - 62 - Tables6 Growth in Credit vs. Change in Costs Implicit Deflator Change Growth Change Private in in in Year Sector Deflator Credit WPI % x 100 I Z I B=1975 ---------------------------------------------- 1982 21.08 1983 45.26 115 237 119 1984 61.01 35 111 81 1985 71.23 17 79 56 1986 96.69 36 84 64 1987 133.18 38 31 41 18. Until 1987 the BOG tried to set sectoral ceilings. However these were difficult to enforce, and the practice was abandoned. Commercial banks allocated credit according to creditworthiness criteria to customers identified by name rather than sector and who are not necessarily sector specific in their activities. There was no guarantee that producers in high priority export sectors would get preferential access to the limited credit available. Thus credit ceilings set at macro level were not specif- ically consistent with requirements for growth of particular activities, and therefore in the absence of detailed guidance of distribution of the credit may not have achieved targets for t-se specified objectives. 19. At the same time some priority sectors may have experienced above average increase in the demand for liquidity. The Forestry and Logging sector with an average rate of increase of the sectoral GDP deflator of about 51% compared to the average of 34Z for the economy as a whole, would have found that its costs and its incremental liquidity requirements tended to grow faster than average, assuming that its import intensity was about average. Thus, in the absence of special efforts to favor this sector in the overall distribution of liquidity it was bound to experience greater relative tightness. The relatively faster growth of target output of the sector would also have made for a larger liquidity requirement. (c) Consistency of Bank/Fund Programs 20. As mentioned in the first paragraph of this appendix some internal Bank memoranda suggest that there could have been a measure oZ inconsis- tency between Bank and Fund operations in Ghana at the time. On review, the inconsistency between Bank and Fund operations seems to have arisen from the fact that the stabilization program appears to have envisaged an earlier shift toward a private sector emphasis than the export rehabilita- tion and growth program which had to start by working through the existing framework dominated by public sector entities. The contraction of credit to the public sector in 1984 coincided with the disbursement of RIC I which provided foreign exchange to BOG primarily for sale to the public sector. APPENDIX - B - 63 - Although the cedi proceeds of such sale were to be recycled for support of the public sector investment program, there was no equivalence between each public sector entity's purchases of RIC I foreign exchange and the receipt of recycled support of its investment program, and therefore some entities could have had, and in fact did have a problem financing these purchases. The tightness of credit to the public sector did therefore slow down dis- bursement of RIC I, and in turn may have slowed down the investment program planned on the basis of the recycling of the cedi proceeds from the sale of RIC I foreign exchange. This was very probably the basis of some of the complaints over liquidity by Ghanaian officials and Bank staff. The Suitability of the Indicators 21. The usual indicators of the liquidity situation are ratios of supply to proxies of demand for liquidity and credit, i.e. to variables related to the demand rather than to some measure of the demand itself. Usually a measure of total production and or total expenditure, for example GDP, is used as the proxy for demand for liquidity to which the supply of liquidity--typically some concept of money--is related. The appropriate- nesp of such indicators will depend on how closely the measure of produc- ti'.n reflects movements in the total cost of producing the output or in total domestic expenditure. 22. It is clear that a measure of production cost limited to the value added by domestic resources does not allow for changes in the cost of mo- bilizing external resources both directly and through intermediate inputs. Thus if these ratios are used to judge the adequacy of liquidity and credit during a period when the contribution of imported inputs to cost is rising rapidly due to devaluation of the domestic currency, and if this increase is not offset in increased export earnings such that the resource gap does not disappear, then there will be an upward bias - credit seeming more adequate than the behavior of total cost would warrant. In the particular case of Ghana, where the Cedi went from Cedi 2.75 to the U.S. dollar in 1983 to over Cedi 175 to the U.S. dollar by the end of 1987, the bias could only be ignored if the resource gaps in the external account were insignificant. They were not insignificant during 1983-87. 23. The indicator relating credit outstanding to the level of GDP is also subject to similar bias by dint of the exclusion of the resource gap from the denominator. Incidentally, the variant involving the comparison of the growth in credit with the change in the implicit price deflator for GDP, and used for making judgements regarding the behavior of real credit, suffers from a similar bias since the deflator is an index of the cost of those factors giving rise to GDP and not an index of the movement in total cost of all inputs including imports and adjusted for the offsetting effect of movement in export prices. 24. In the management of an open national economy it is des!rable to be able to judge whether liquidity and credit are consistent with target levels of output, desired improvement in external balances and sustainabil- ity of resource gaps, and target rates of inflation. This judgement calls APPENDIX - B - 64 - for indicators appropriate to an open economy, and to a situation charac- terized by significant and frequent devaluation and by inflation. The indicators typically in use in Ghana and most other countries are appropri- ate to economies that are either closed or have no resource gap or have stable nominal exchange rates. An immediate task for those concerned to make judgements about the adequacy of liquidity and credit is the re-exami- nation of the indicators. This re-examination suggests that the usual indicators are likely to be biased in the direction of overestimating ade- quacy. Conclusions 25. In many cases, as it was in Ghana, stabilization requires that liquidity ratios be brought down from the accustomed levels. How much and how rapidly they can be lowered is a matter of judgement, about which there can be differences of opinion. What can be agreed, however, is that there should be discussion between the the Fund and the Bank staff concerning the assumptions regarding velocity or the liquidity coefficient which underlie the stabilization program. Hopefully, such discussion would help to put Bank staff in a position to judge whether and to what extent the assump- tions and the associated monetary program are likely to be consistent with the objectives, design and timing of the Bank's pending initiatives, and to adjust them appropriately. 26. There should be careful monitoring at the sector level to deter- mine whether a problem is one of distribution or one of overall shortage of liquidity and credit. In the Ghana case banks claim that some firms were not creditworthy for additional borrowings on the strength of balance sheets in which assets were not revalued to reflect the changing exchange rates and rising cost of replacement. Coupled with the absence of any indication that commercial banks were short of liquidity, distribution of credit must have been part of the prob!em. 27. Finally, for the reasons cited immediately above, and because of the unsuitability of some of the usual indicators it is difficult to concur in the conclusion of the Bank's 1986 memo that there was a Cedi shortage resulting from the credit squeeze under the INF Standby, and which slowed the drawdown of ERP funds. Since banks were liquid, the shortage did not result from the standby (the use of IMF credits to finance the resource gap tending to reduce liquidity must have been more than offset by the lowering of reserve requirements; and the restriction on lending to the public sector would have tended to increase availability of credit to the private sector). Either banks did not wish to lend (as in the case where borrowers did not qualify for loans since from the point of view of commercial banks qualification depends on the present availability of collateral rather than on future net flows from v project, or banks did not wish to lend on the longer terms appropriate for rehabilitation investments) or customers did not wish to borrow. The second alternative could mean that producers had adjusted downward the liquidity requirements associated with a given level of target output - an understandable reaction to expected inflation and devaluation, or had targets not consistpnt with the macro targets anticipated in the design of the credits. In either event it would not be fair to blame the stabilization measures acting on supply of liquidity for APPENDIX - B - 65 - the inadequate sectoral response. The more culpable factor would seem to have been the failure of the Bank to take financing needs of producers into account when the program was being designed. 28. It is therefore to be recommended that the Bank and the Fund dis- cuss the suitability of present indicators of liquidity for open economies in the face of large devaluations. Agreement in this area could reduce the the differences of opinion over the effects of stabilizationladjustment packages and lead to more consistent advice to clients. 99 - - 67 - PROJECT COMPLETION REPORT GHANA RECONSTRUCTION IMPORT CREDITS I AND II (CREDITS 1393 AND 1573) EXPORT REHABILITATION AND EXPORT REHABILITATION TECHNICAL ASSISTANCE PROJECTS (CREDITS 1435, SF-9 AND 1436) Western Africa Department 'iuntry Operationw Division Africa Regional Office ! - 69 - PROJECT COMPLETION REPORT Reconstruction Im2ort Credits I and II (Credits 1393 and 1573) Export Rehabilit4tipn and Exnort Rehabilitation Technical Assistance Proects (Credits 1435. SF-9 and 1436) I. 1N*ODUGJTQ* 1.01 After a long and precipitous economic decline, Ghana in 1983 embarked upon an economic reform program which some observers count among the most successful in Africa. The four IDA credits (plus a supplementary credit from the Special Facility for Africa in 1986) discussed here were the World Bank's initial response to that program and have been a vital part of the Bank's support for it. Together, they accounted for more than 40 percent of the Bank Group's commitments to Ghana between 1983 and 1986. 1.02 The credits financed essential imports -- about 8 percent of Ghana's total imports during 1983-86 -- and technical assistance, and supported key policy measures in the government's program. The four credits discussed here are best seen as part of a continuum of support for the governments*.recovery and reform measures. They were orchestrated with the IMP stnd-by arrangements and other IDA project and sectoral assistance and helped lay the groundwork for subsequent large-scale support for Ghana's structural adjustment program. Because they are so closely related and must be seen together in the context of Ghana's economic recovery program, this report covers all four credits together. Bc. kESEounNG 2.01 When in 1957 the Gold Coast became Ghana, the first European colony in black Africa to achieve independence, expectations were high. Ghana had immense natural wealth - - timber, gold and other valuable minerals, ard was the world's largest cocoa exporter--with arguably one of the best developed infrastructures and most impressive pools of educated and talented people in the continent. At independence, Ghana produced 10 percent of the world's gold, had about US$ 1 billion in reserves and a per capita income roughly equal to that of Spain. 2.02 With independence, however, came misguided economic policies, mismanagesent, and spreading corruption. In consonance with the times, Ghana's first leader, Kwamse Nkrumah, and succeeding regimes believed fervently in industrialization and public sector-led development. The civil service swelled from 35,000 in 1972 to some 300,000 in 1982. The government became the majority or minority owner of 235 enterprises -- about one-half of the modern sector. - 70 - Table 1: Smumay of Credits Amount Date of Date of Date of Credit (US$ ail) (SDR .a . Approval Effectiveness Closing Reconstruction Import I 40.0 37.0 06/28/83 08/18/83 03/31/86 (1393-GH) Export Rehabilitation 76.0 1/ 71.8 3/ 01/03/84 06/05/84 12/31/88 (1435-49) Export Rehabilitation & 17.1 16.2 01/03/84 06/05/84. 12/31/88 Technical Assistance (1436-G9) Reconstruction Import II (1573-GH) 60.0 61.6 03/28/85 08/02/85 12/31/88 (A-003.GB) 2/ 27.0 26.1 09/30/85 12/31/88 / SDR 33.9 million (US$ 38.0 million equivalent) was from the Special Fund (F009-GH). 2/ An additional SDR, 26.1 million (US$ 27.0 million equivalent) wa made available on September 30, 1985 as a Special Facility fnr Africa Credit A*003-GH. Source: Project reports; files. 2.03 The economy faltered and the country fell into a relentless downward spiral of economic deterioration which became particularly acute in the 1970's. Serious price distortions, declining foreign aid, 1arge budget deficits to support the bloated public sector, coups and political unrest led to a steady drop in output and a 30 percent decline in per capita incomes between 1970 and 1982. Inflation averaged more than 40 percent yearly during the same period. 2.04 In the meanwhile, the economic and social infrastructure -- once the pride of VAst Africa -- had been allowed to deteriorate badly. This was especially true of the roads, railways and transport fleet, which wers critical to moving commodities for export and the imported goods needed for production. Railway freight traffic, for example, declined from 205 million ton-km in 1975 to a mere 61 million in 1983. Shortages of fuel. lubricants and spare parts had immobilized a large part of the trucking and road maintenance fleet. It was estimated, for instance, that some 70 percent of Ghan's road vehicle fleet was out of service in 1982. Road maintenance also had come to a virtual stand*still and tbi entire network was eroding quickly. - 71 - 2.05 Cocoa exports historically contributed about 70 to 80 percent of the country's export earnings, followed by gold and timber. Together, they usually accounted for more than 90 percent of export earnings. Production and exports of these commodities, however, declined sharply. Exports of cocoa, for example, dropped from 406,000 tons in 1972 to only 158,000 in 1983, gold from 737,000 to 278,000 ounces and logs and timber from 1 million ro 110,000 cubic meters during the same time (see Table 2 below). Table 2: Major Exnorts 1972-83 *---------------**-*.* --eeeee-- . 1972 1975 1980 1983 1983 as I of .1972 Cocoa (000 tons) 406 329 247 158 36 Gold (000 oz.) 737 513 346 278 38 Logs & Timber 1000 659 190 110 11 (000 cu. a.) Source: Quarterly Di est of Statistics: Various Years. 2.06 Despite the efforts of the new government in 1979, export earnings continued to slip downward -- from US$ 1.2 billion in 1980 to US$ 875 million in 1982. Imports that year, as a consequence, were some 35 percent below the 1980 level and came to less than US$ 60 per capita, about half the level of Senegal and one-fourth that of the Ivory Coast. Non-oil iports were, even in nominal terms, lower than in 1974. 2.07 ts export earnings dropped, capital inflows also dried up -- because of political uncertainties, large amounts of arrears, deteriorating creditworthiness, and the government's inaction on macro-economic polizy reforms. Two additional "shocks" in 1983-84 added to the country's economic woes: first, a prolonged and severe drought that, among other things, caused the most severe food shortages since independence (and put treendous strain on the ports and other transport facilities in moving emergency food shipments); and second, the sudden and unexpected return of some one million Ghanaians from Nigeria. MAe Economic Recove=y PrograM 2.08 The current regime came to power in a military coup on the last day of 1981. After reviewing Ghana's situation, the new government developed, in collaboration with the IMF and World Bank, an economic recovery program. The program, unveiled in April 1983, called for far-reaching reforms. The first phase, stabilization, aimed at realigning relative prices in favor of production and exports and reducing the government's budget deficit in order to reduce inflation and increase foreign exchange for the imports-starved economy. The succeeding phase was a comprehensive program for rehabilitating the country's roads, truck transport, ports and railways and expanding the supply of raw materials and imported goods to the productive sectors. - 72 - 2.09 The program was designed to begin the correction of structural imbalances and rehabilitation of the economy -- and thus pave the way for restoring economic growth. The program's major objectives were: (i) establishing a more realistic exchange rate, (ii) realigning relative prices in favor of production and export, (iii) restoring fiscal and monetary discipline, (iv) mobilizing domestic resources by restoring incentives and creating a favorable climate for savings and investment, and (iv) rehabilitating the country's productive base and economic and social infrastructure -- concentrating on sectors which could generate a quick suppl) response. 2.10 The key elements in the policy framework were the foreign exchange and trade regime, cocoa producer prices and marketing and restoration of the economy's capacity to respond -- in output and exports -- to the new incentives and in the context of appropriate fiscal and monetary policies. 2.11 Some of the most important measures the government undertook included: successive devaluation of Ghana's cedi by about 5000 percent -- from 2.75 per dollar in April 1983 to 150 in September 1986, introducing a foreign exchange auction in 1986, sharply raising producer prices for cocoa and other agricultural commodities, gradually removing price and distribution controls and undertaking rehabilitation programs for transport, energy, mining, timber, cocoa, health and education. The government also initiated a three-year, rolling public investment program beginning with 1986-88. 2.12 With the and of the economic recovery program in 1986, Ghana moved from emphasis on stabilization and rehabilitation to full adjustment and growth, "to lay a firm foundation for the development of a buoyant, self-reliant, and increasingly integrated economy". 1/ faternal SNM~ort 2.13 As Ghana's economic fortunes declined over the three decades following independence, external assistance increasingly dried up. Even the Bank Group, Ghana's largest creditor, curtailed its financing after lending substantial amounts, mainly for power, in the 1960s and early 1970s. Bank Group lending to Ghana between 1977 (when there were two loans for power) was limited to four IDA credits totaling US$ 102.5 million. Net transfers from the Bank Group to Ghana, which averaged US$ 25-30 million annually in the 1970's, had shrunk to less than US$ 10 million in 1982. 1/ World Bank, Report and Recommendations of the President of the International Development Association to the Executive Directors on a Proposed Development Credit of SDR 26.9 million and a Proposed African Facility Credit of SDR 64.0 million to the Republic of Ghana for a Structural Adjustment Program. (Report No. P-4403-GH), March 23, 1987, p.11. Cited hereafter as SAC I President's Report. - 73 - 2.14 With the advent of the government's economic recovery program in 1983, however, the IMF made the first of three stand-by arrangements in support of it. Ghana made the full purchase, SDR 500 million, allowed under the arrangements, plus SDR 179 million under the compensatory financing facility. In November 1987, the country obtained a three-year arrangement under the Extended Fund facility, totalling SDR 245.5 million, and a three-year arrangement under the structural adjustment facility, for SDR 129.9 million. 2.16 The Bank resumed lending with four credits in FY 1983 (including RIC I) totaling US$ 73.3 million. These were followed by a series of credits for reconstruction and rehabilitation, including ERP, ERP TA and RIC II, (all of which are reviewed in this completion report) and subsequently by three credits to assist structural adjustment (see Annex A). The Bank also reconvened, after a hiatus of 13 years, the Ghana Consultative Group in an effort to mobilize financing from bilateral and other multilateral sources to support the recovery program. III. THE CREDITS Qrisins 3.01 0An several occasions, beginning in 1979, the government requested Bank Group assistance for gold mining. With the progressive decline of the Ghanaian economy and the importance of gold mining -- both actual ard potential --to the economy as a major foreign exchange earner, the government expressed strong interest in the Bank's possible involvement. 3.02 In the course of 1981, the project evolved into a multi-sector export rehabilitation project covering cocoa, timber and road transport, in addition to mining. A nine-person mission went to Ghana for three weeks in aid-1981 "to prepare an export rehabilitation credit designed to support the economic policy initiatives government intends to take with quick disbursing foreign exchange resources required for rehabilitation of cocoa, timber, mining and road transport sectors." 3.03 A mission appraised the project in July 1981. The November decision meeting noted that "the primary purpose of the project was to encourage Government to adopt difficult macro-economic reform measures and help sustain the policy initiatives." In view of the judcrement that macro reform was essential to the success of the project it was decided that the government would need to reach agreement with the Fund on a stand-by arrangement before the Bank moved with the project. 3.04 Discussions with the government, however, produced no concrete results, due mainly to its failure to take these policy initiatives. And events, in any case, were overtaken by the military coup the last day of 1981 that brought the new Rawlings government to power and interrupted all Bank operations in Ghana. 3.05 The new government's Provisional National Defense Council's Secretary (Minister) for Finance and economic Planning in July 1982 - 74 - requested the Bank "to reactivate preparatory work on the Proposed Export Rehabilitation Project" since one of the main priorities for the government was to ensure the viability of the export sector. 3.06 During their February 1983 Washington visit, tha Ghanaian delegation which worked out an understanding with the IMF asked the Bank to reactivate its lending program and draw up an assistance program to underpin the stabilization measures and help rehabilitate the economy. The Bank responded by approving two credits (for water supply rehabilitation and energy), which had been held in abeyance waiting for progress on economic reform measures. 3.07 The Bank also agreed to explore the possibility of a quick-disbursing credit to help finance imports for agriculture and transport -- two areas critical to any prompt supply response to the recovery meassres. The West Africa Region in March proposed a US-0 30-40 million Reconstruction Import Credit that would be processed before the end of FY 1983, followed by the Export Rehabilitation Project later in the calendar year. 3.08 It "would be designed to support the Government's one-year crash agricultural program...and finance the importation of essential inputs in the agricultural sector (e.g., fertilizers, chemicals, sprayers, hand tools and agricultural machinery, and farm implements)... In addition, emphasis would be given to relieving the present transport constraint.. .by providing urgent imports of spare parts, tires, batteries, etc." 1/ 3.09 The pre-conditions to this credit were government's agreement with the Fund on a program -- which included a massive devaluation and substantial increases in cocoa and other producer prices -- and announcement of the recovery program as part of the 1983 budget statement. Other conditions for RIC I were kept to a minimum and included, a program to phase out fertilizer subsidies and yearly reviews of the cocoa price and road freight tariffs. The credit of US$ 40 million was appraised in early March, negotiated ii Accra in May 1.8-20 and approved by the Board on June 28. 3.10 Additionally, the Bank resumed work on the Export Rehabilitation Project (in the FT 1984 lending progr4ra) to finance spare parts and other goods and services to reverse declining output (and exports) in cocoa, mining and timber. Besides financing imported inputs for these sectors, the ERP was to address policy issues and institutional problems impeding output and assist rehabilitation of supporting infrastructure. The accompanying Export Rehabilitation Technical Assistance Project (ERP TA) grew out of the need to provide technical assistance to enable the government to better carry out the policy and institutional measures of the ERP, do related sector studies, and build local capacity through training. Since financing such assistance required a reasonable time, the project was JL/ See World Bank internal memorandum dated March .at, 1983 from Mr. Blsel Alsbah, Director, West African Program, to Mr. Ernest Stern, Senior Vice President, Operations. - 75 - to disburse over a five-year period. The various sectoral components in both projects were re-appraised separately between March and June 1983. 3.11 Again, satisfactory performance in the policy sphere was specified as necessary before the Bank would proceed with these two credits. In October 1983, the government announced an additional devaluation and substantially raised the prices of oil products and other consumer items, and an IMF mission reported favorably that Ghana was expected to meet all of the performance criteria for end-October 1983 as agreed under this stand-by arrangement. IDA management approved a US$ 300,000 advance from the Project Preparation Facility in June 1983 to finance consultants for start-up activities of the gold mining component. 3.12 As RIC I was being committed, it became obvious that Ghana's recovery program -- and its policy measures --needed additional, more broadly-based support. The US$ 60 aillion RIC II credit was prepared in the summer of 1984, appraised in October/November and negotiated in February 1985. By the time RIC II went to the Board in March 1985, RIC I had been fully disbursed except for the cofinancing. Collaboration with the IMF, which was continuing it.. assistance in a second stand-by arrangement, was close in order to ensure the respective programs supported by the two institutions were fully complementary (see para. below)., Objectivs 1.13 The basic objective of each of the four credits was to support the government's economic reform program -- through (i) financing essential imported goods and services for cocoa, gold mining, timber and transport to expand exports, (ii) providing for specific policy measures, and (iii) mobilizing additional external assistance. As the President's Report put it, RIC I [and the subsequent credits] "would act as a signal to the international donor community to provide assistance to Ghana in support of its economic recovery program" 1/ and, in conjunction with the IMF, strengthen the government's capacity to carry out further policy changes. In fact, this support, of macro-economic policy reforms in collaboration with the Fund, was one of the most important aspects of the credits. DiALn 3.14 Although all four of the credits shared essentially the same objectives, their designs differed in several important respects. RIC I. as the President's Report indicates was to "provide immediate assistance for urgent transport and agricultural needs to support the Government's economic recovery program". 2/ The idea was to get needed help to the J/ World Bank, Report and Recommendation of the President of the International Develonment Association to the Executive Director on a Proposed Credit of VIR 37.0 million to the Republic of Ghana for a Reconstruction Import Credit (Report No.P-3554-GH), June 8, 1983, p. 29. Cited hereafter on RIC I President's Report. 2/ Op. cit., p.24. - 76 - economy as quickly as possible -- virtually on an emergency basis. Disbursements were to be completed ,,.thin twelve months. Conditions for the credit, as noted earlier, were kept to the minimum and it requires no other policy or institutional measures as pre-requisites for implementation. 3.15 Administration of the credit, however, was fairly closely controlled -- a reflection, on the one hand, of the extent of government control over the economy and, on the other, of the caution with which the Bank approached this kind of assistance to a new relatively testel government such as Ghana's was. Procurement was, of necessity, mainly for government agencies. Less than 40 percent of the funds originally were allocated for private companies, and the amount actually procured by them came to even loss. The Bank of Ghana (BOG) was made responsible for administering the credit. To help ensure speed implementation, the RIC I required that external procurement agents be employed. The BOG authorized these agents to handle procurement for the public sector procurement as well as of all imported tires. Trading houses and private companies were to handle private sector procurement. 3.16 RIC I apecified (in a "positive" list) the items that would be financed, namely: (i) fertilizera, pesticides, herbicides, sprayers, tools and agricultural machinery spare parts and tires, (ii) tires, batteries and spare parts for trucks and buses, and (iii) a limited amount of consulting services and office equ.pment (for the Project Unit). 3.17 In contrast, the ERP and ERP TA credits were in effect four sector credits -- cocoa, gold, timber and transport (Takoradi and Tema ports) ** grouped into one. They financed imported spare parts, materials, equipment and technical assistance to rehabilitate and better utilize existing capacity in these sectors and addressed policy and institutional problems which impeded output and the ports' operations. While policy and institutional reforms in RIC I were kept to the minimum, the ERP and ERP TA credits contained a lengthy list of such measures some of which involved major undertakings (e.g., restructuring the Ghana Cocoa Marketing Board, creating a Cocoa Producer Price Review Committee, divesting the Cocoa Marketing Board's plantations and factories, reducing staff, etc.). 3.18 The disbursement of a second tranche of the ERP was to depend on the outcome of a mid-term review of the government's performance in carrying out the measures stipulated in the credit, looking in particular at: (i) size and composition of the FY 1985 development and foreign exchange budgets, (ii) adequacy of cocoa producer price, (iii) reduction of GCNB's staff, (iv) formulation of alternative strategies for the stste-owned timber companies, (v) SGNC performance, under its management contract, in terms of the managerial and financial targets set for it, and (vi) employment of personnel under the ERP TA project. 3.19 The ERP provided only partial financing *- disbursed in two tranches over 36 months *- for the import requirements of a two-year (1984-85) rehabilitation program. The balance of about US$ 66 million would, according to the President's Report, "need to be provided through - 77 - other external financing, (from) both official and private sources". ]/ The ERP TA, on the other hand, was designed to disburse over five fiscal years, FY 1984-88. A government agency would implement the project's provisions in each of the four sectors covered -- the Ghana Cocoa Marketing Board for (for Cocoa), National Investment Bank and Ministry of Lands and Natural Resources (for timber), the State Gold Mining Corporation for gold and the Ghana Port Authority (for ports). Both the ERP and the ERP TA credits were to be channelled to the implementing agencies in accordance with Subsidiary loan agreements between the Government and each implementing agency. Finally, each agency was made responsible for the procurement of goods and services specified in the credits for their individual components. 3.20 RIC II supported the final phase (1985-86) of the government's economic recovery program, together with the IMF's stand-by arrangement (August 1984 - December 1985). It was to finance the minimum foreign exchange requirements of the economy's major, export, sectors -- agriculture, mining, industry and transport. The credit was expected to cover about 5 percent of Ghana's non-oil merchandise imports during July 1985 - December 1986 and about 10 percent of the gross external capital requirements during the same period, based on detailed import and public investment programs which the Bank endorsed. In preparing the credit, the Bank reviewed the 1985 import program in detail to ensure that the economy's priority needs would be satisfied, including those of the private sector. 3.21 The credit's underlying thrust was toward freeing up the economy (goods subject to price and distribution controls were not eligible for financing except raw materials for drugs, textiles and matches) and assisting the private sector. Seventy-five percent of the allocations for agriculture, industry and transport (most of the credit) were expected to go to private end-users. The remaining funds would be utilized by major mining companies which were either fully or partially government-owned. The credit also obligated the government to submit programs for reftrming industrial policies and incentives and restructuring specific industrial sub-sectors. 3.22 In keeping with the spirit of liberalization, the Bank, for its part, abandoned the "positive" list of goods eligible for financing followed in the RIC I and ERP credits in favor of an allocation among the agricultural, mining, industrial and transport sectors, with an overall "negative" list of ineligible goods (the usual Bank list, e.g., precious metals and stones, nuclear reactors and uranium, etc., plus the controlled items mentionee earlier). An important feature of RIC II was targeting the private sector specifically by excluding manvfacturing enterprises, wholly publicly owned, froa utilizing the credit. 3/ World Bank, Report and Recommendation of the President of the International Development Association to the Executive Directors on a Proposed Credit of SDR 71.8 million to the Republic of Ghana for an Export Rehabilitation Project (Report No. P-3695-GH), December 12, 1983, p. 35. - 78 - Benefits and Risks 3.23 The RIC I and ERP President's Reports included quantified estimates of benefits. The first estimated that the proposed assistance would keep about 3250 trucks on the road for 8-12 months and about 500 buses for 4-6 months, enable farmers to increase cocoa output through spraying for capsid infestation and bring in an additional US$ 34 million in export earnings in 1984 and raise rice output (with this application of imported fertilizers) by about one-quarter. The ERP and ERP TA reports in addition foresaw: (i) a net increment of about US$ 42 million yearly in foreign exchange earnings from higher cocoa, gold and timber exports, producing an economic rate of return of approximately 20 percent, and (ii) stronger domestic institutions as a result of the two pr.zjsts (see Section V on the actual impact of the credits). 3.24 The RIC II President's Report counted the main benefits of the credit as: (i) immediate support of the economic recovery program, (ii) improved performance of the four targeted sectors, and (iii) greater contribution from the private sector to the recovery program. Most of the risks concerned the government's commitment to carrying out the recovery program and its ability to do so. None of the credits were designed to alleviate poverty directly. Co*inancing 3.25 From the first, one of the primary considerations was to utilize the credits to attract additional assistance in support of Ghana's reform program. In the case of the Export Rehabilitation Project, for example, the first decision meeting in November 1981 indicated the potential for obtaining co-financing resources, and was a crucial first step in the direction of reconvening the long-dormant Ghana Consultative Group -- something the government had requested repeatedly. IV. IMPLEMENTAION Overall Performance 4.01 Implementation overall -- in terms of supplying critically needed imports, supporting policy and institutional measures, and attraczing additional external assistance -- was satisfactory, although there were delays, slippage and, in the case of gold mining, major problems. None of the numerous supervision missions (there were separate missions for each of the sectors which usually covered the ERP, ERP TA, and RIC II credits simultaneously -- see below) reported major problems (a "3" rating), except in the mining component. 4.02 Nonetheless, at the beginning of RIC I (July 1983) in the Technical Committee the Bank of Ghana set up to administer the credit anticipated possible problems in: (i) limited shipping and cargo handling capacity, and (ii) the inability of importers to finance the cedi cost of their imports. The large emergency shipments of food -- in response to the - 79 - severe drought which struck Ghana in 1983-84 -- added greatly to the country's already over-strained transport facilities and delayed shipments of other goods such as those financed by RIC I and ERP. The Committee also correctly anticipated that delays would also result from the inability of many importers to arrange cedi cover. 4.03 Execution in the timber and transport sectors, according to supervision missions, went relatively well, despite delays in both disbursements and some policy measures. A January 1987 mission for the ERP and ERP TA timber component reported there had been "steady progress on the project since its beginning" and found no major problems. I/ Supervision missions for the transport component also found no major project problems -- other than extremely slow procurement, due mainly to understaffing and overwork at key management levels and the lack of experienced procurement personnel (and the severe strains on the ports from the drought-related emergency food shipments and the surge of logs for export which jammed Takoradi harbor). Missions supervising the cocoa component expressed concern about continuing weaknesses in the Ghana Cocoa Board (which replaced the GCMB) and the slow pace of restructuring it. 4.04 Nonetheless, between 1984 and 1989 the four credits financed the procurement of more thsn SDR 210 million of badly-needed goods and services for the industrial, agricultural (principally cocoa), timber, gold mining and transport sectors (see Table 3 below and Annex B). Table 3: Goods and Services Financed by IC I andA Il. ERP and EP 1W (SDR million) e*.****** -*-*-**** --* * ** * ** * * * - Indust. Agri. Cocoa Timber Mining Tgairt Road Rail Ports ------------------------------------------------------------------- RICI - - 17.5 - 13.1 5.8 - ERP - . 17.6 27.4 22.0 - - 4.6 RIC'1 43.7 12.2 - 12.4 19.0 / - ERFPTA . * 4.4 3.0 7.9 - - 0.7 To...a. . .....3 . . . . . .. .- -... . & . ..... j/ Allocated: to the transport sector. 1/ Mr. H. Hidberg-Hansen, Ghana Export Rehabilitation Project (Credit 1435 SF9-GH) and Export Rehabilitation Technical Assistance Project (Credit 1436-GH), Full Supervision Report, February 1987, p. 3. - 80 - 4.05 Carrying out the large number of reform measures in the credits also was a major undertaking (see Table 5 and Annex C). While there were sometimes delays, the government's performance, by and large, was impressive. Clearly, the government viewed the recovery program as its own and was committed to seeing it carried through, even though political considerations and administrative weaknesses sometimes delayed implementation or diluted the reforms. 4.06 Finally, the credits generated more than US$ 340 million in co-financing and contributed to the substantial rise in overall external aid to Ghana between 1983 and 1989 (see Table 6 below). DisburseMents 4.07 As noted earlier, all the credits, except ERP TA, were designed to provide immediate, quick-disbursing assistance. RIC I was expected to be disbursed in one year (July 1983 - June 1984), ERP in eighteen months (January 1984-June 1986) and RIC II over two years (FYs 1986 and 1987) for the original US$ 60 million, which were extended another two years when the US$ 26 million African Facility credit was made. The ERP TA credit, on the other hand, was supposed co disburse over five years (FY 1984-88). 4.08 Despite the attention the government and the Bank gave the subject, actual disbursements went far slower than estimated at the time of approval (see Table 4 below). In the initial year, for instance, only 24 percent of the ERP and a mere 5 percent of the projected estimates for technical assistance were actually disbursed. RIC I disbursements reached about half of the level anticipated by the end of this first year so that the credit had to be extended; full disbursement took more than three years. Similarly, the closing dates of the two ERP credits were extended from June 1986 to July 1989. 4.09 Fortunately, disbursements did pick up as the programs gained momentum and some problems were resolved. RIC II, in contrast, did better than expected and disbursed far more rapidly than the other credits. 4.10 The problem in the first three credits was a reflection of: (i) the widespread lack of administrative capacity in the government due to shortages of qualified people, on the one hand, and an excess of poorly managed, un-motivatAd, often unskilled civil servants on the other, and (LU) specific delays stemming from (a) the SGMC management contract, a condition for disbursing ERP money for the mining sector, (b) inadequate financing available to importers for them to meet required cedi cover, (b) inability of importers to arrange for bank guarantees in favor of the Bank of Ghana covering the CIF value of goods, plus import surcharges, (c) co-financing which was given priority in disbursing the credits and (d) limited shipping and cargo handling capacity that was greatly strained by the 1983-84 drought and emergency food shipments. Delays due to co-financing are discussed in the separate section on to-financing. - 01 - Table 4: EstimateuLad tual Cumulative Disbursements (US$ million) FY84 FY85 FY86 FY87 FY88 FY89 RIC I Estimated 40.0 -- -- -- Actual 19.8 29.7 33.1 39.2 (As 4 of est.) (50) (74) (83) (98) ERP Estimated -- 30.0 70.0 76.0 -- Actual.. 7.2 32.6 59.7 76.4* 84.3* (As % of est.) -- (24) (47) (79) (101) (111) ERP TA Estimated 2.0 7.2 12.2 15.2 17.1 Actual. 0.1 3.6 7.8 15.0 17.4* 19.0* (As a of est.) (5) (50) (64) (99) (102) (111) RIC II Estimated 35.0 70.0 87.0 -- -- -- Actual 49.4 89.7 96.5* 104.6*- * (As % of est.) (141) (128) (111) (120) -- ** * Dollar. actuals and shares vary from original. estimates. since SDRexchange rates differed from those that applied when the credits, (denominated in SDR), were approved. Government Administrative Canacity 4.11 There was concern from the first about Ghana's ability to carry out the numerous recovery measures and to handle procurement and disbursements quickly, especially in light of its unimpressive prior track record. For this reason, the government created a Policy Tmplementation and Monitoring Unit, ,nd the Bank insisted on the government's employing an external procurement agency (the Crown Agents) and making the Bank of Ghana (BOG) responsib1 overall for administering RIC I and II. Signing a subsidiary agreement between the government and BOG was a condition of effectiveness in both credits. BOG implemented RIC I and II through a technical committee and a project unit, and an inter-ministerial committee oversaw the programs on the government's behalf. 4.12 The Technical Committee was responsible for coordinating, monitoring and supervising all project activities. It was composed of a chairman, four members from the Bank of Ghana, and two each from the Ministries of Finance and Economic Planning, Transport, Agriculture, and Trade, the Ghana Commercial Bank, and the Project Coordinator. The Committee was enlarged to include members from the Ministries of Lands and Natural Resources and Industry for RIC II. 4.13 The Project Unit, located in the Bank of Ghana, was the executing body, responsible for assisting the Technical Committee in coordinating, monitoring and supervising the project. The Project - 82 - Coordinator, the Ghana representative of the Crown Agents and funded from UK technical assistance, headed the Unit. 4.14 The Inter-Ministerial Committee was made up of the PNDC Coordinating Secretary (Frime Minister), chairman, the PNDC Secretary for Finance and Economic Planning and the Governor of the Bank of Ghana. The PNDC Secretaries for Agriculture and Transport were "co-opted" members, and the chairman of the Technical Committee was secretary. The Committee was supposed to review the RIC II quarterly and to submit a report to IDA on the costs and benefits within six of project completion. 4.15 Arrangements for executing the ER- and ERP TA credits were more complex since the latter were, in effect, four sector credits grouped into one. Thus, different agencies were responsible for implementing the sector programs: (i) the Ghana Cocoa Marketing Board (GCMB) for cocoa, (ii) the National Investment Bank (NIB) in collaboration with the Ministry of Lands and Natural Resources for timber, (iii) the State Gold Mining Corporation (SGMC) for gold, and (iv) the Ghana Port Authority (GPA) for ports. 4.16 To introduce at least some semblance of central policy direction and coordination, an Inter-Ministerial Export Rehabilitation Committee was created, composed of the PNDC Coordinating Secretary (Prime Minister), as head; and the Secretaries (Ministers) for Finance and Economic Planning, Lands and Natural Resources, and Transportation and Communication; the Governor of the Bank of Ghana; Chief Executive of the GCHB; and the Chairman of the Policy Implementation and Monitoring Committee as members. Additionally, a project coordinating unit was established in the PNDC Coordinating Secretary's office. 4.17 The government-wide shortage of administrative capacity, which plagued Ghana's entire recovery program, was a matter of concern among all aid donors and became a major focus of the first Structural Adjustment Credit and associated Structural Adjustment Institutional Support Project in 1987. Virtually all presidents' reports until 1987 (including the four credits discussed here) noted that actual disbursements in Ghana lagged behind appraisal estimates because of delays in the implementation of a number of Bank Group projects. Annual gross disbursements averaged 20-25 percent of total outstanding loans and credits. To try to deal with the problem, according to each report, "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." 4.18 Unfortunately, there was little improvement until the government, encouraged and helped by the Bank's resident mission, established in October 1985 a Central Project Moritoring Unit (CPMU) within the Ministry of Finance and Economic Planning (MFEP), but physicAlly housed in the mission's offices. The unit -- eight persons seconded from various agencies -- worked first as trouble-shooters mainly for RIC II. 4.19 As a result of the attention the government and the Bank and other donors finally gave to the issue, however, disbursements of external assistance, as a percent of new commitments, rose significantly in 1987 and - 83 - 1988. Disbursement of the RIC and ERP credits also improved markedly, as Table 4 indicates. The CPMU in early 1987 was integrated into the MFEP's regular bureaucratic structure. Procurement Arrangements 4.20 Procurement financed by the RIC I and ERP credits was cloqely controlled, and largely followed the Bank's normal procedures for projects. Both the Government and the Bank favored tight controls because the foreign exchange allocation system existing at the time was potentially open to abuse. As noted previously, the Bank of Ghana was responsible for administering RIC I which funded imports for the GCMB, the railway, government-owned transport and road maintenance bodies and private transport companies. .21 The Ministry of Transport and the GCMB assembled detailed lists o- requirements which the BOG Technical Committee and Crown Agents, both in Accra and London, reviewed to ensure the correctness of the specifications and conformity with the credits' requirements. Trading houses dealing with vehicles submitted requests for spare parts for private trucks and placed orders directly with their principals. The BOG then entered into an agreement with the importer to whom the Ministry of Trade was supposed to automatically ("and expeditiously") issue the import license. 1/ 4.22 All individual supply contracts of US$ 1 million or more were to go to international competitive bidding. Public sector purchases below US$ 1 million required at least five price quotations, and those from the private sector went through normal commercial channels. 4.23 ERP arrangements, except for the forestry component, were similar except procurement was handled directly by the implementing agency concerned through regular government channels and did not go through the BOG. The GCMB already had lists of items to be purchased, based on a pre-feasibility study of a cocoa project and UNDP-funded technical assistance. An advance from the Bank's Project Preparation Facility paid for the Rio Tinto Zinc Consultants to draw up procurament lists, specifications and a procurement schedule for the SGMC, and Ghana Port Authority had its list of items already approved by IDA (although consultants were needed to refine the list, define specifications and prepare an implementation schedule). 4.24 Contracts of US$ 100,000 or more in the case of cocoa and ports and US$ 300,000 or more for gold mining were subject to international competitive bidding (ICB). Smaller amounts could be procured through negotiated purchases after getting price quotations, or where there were only a limited number of suppliers (i.e., in gold mining) by direct invitations to bid. 4.25 The arrangements for the timber sector were considerably more complicated. (In fact, they were so involved a flow chart was included in I/ World Bank, RIC I President's Report, p. 27. - 84 - the ERP President's Report to try to clarify them. See Annex E). Participating timber products exporters submitted applications for imported items to commercial banks who appraised their technical and financial aspects. These banks forwarded approved applications to the National Investment Bank and at the same time guaranteed the availability of working capital and payment for the imports to the National Investment Bank (NIB)-- which was responsible for administering and-monitoring the timber component. 4.26 A Technical Evaluation Committee reviewed the applications and sent them to a Loan Review Panel (consisting of the Principal Secretary of Ministry of Lands and Natural Resources, the NIB's managing director and the project's forestry adviser) for approval. The panel forwarded the approved applications to the Bank of Ghana (BOG) and notified the commercial banks which then oponed letters of credit after advice from the BOG. The National Investment Bank, which was responsible for monitoring the timber component, set up a Technical Evaluation Committee to review the applications. Equipment and vehicle costing US$ 500,000 (US$ 250,000 for spare parts) would be through ICB. 4.27 To ensure an early start-up of the ERP credit, the Ministry of Trade had already issued one-half of the licenses needed for the cocoa and timber seccor imports before the credit was approved. 4.28 RIC II, approved in early 1985, continued the same procurement arrangements of the first RIC, except that it lowered the ICB level for public sector purchases to US$ 300,000 (except mining). Private sector and mining orders over US$ 1 million were subject to international competitive bidding and lesser purchases through normal commercial channels. 4.29 At the urging of the Fund and the Bank, the government introduced a foreign exchange auction system along with trade liberalization r-sures in September 1986. In order to help supply the auctions, which were critical to the economic recovery and trade liberalization program, IDA agreed to transfer within RIC II SDR 15 million to the credit's Special Account category. State Gold Mining Col2oration 4.30 The ERP TA credit provided for about 60 person-years of management and technical assistance to the SGMC through a single management contract with an international mining firm. This was in addition to 25 person-months for feasibility studies on shaft-sinking and tailings and development of alluvial deposits. Although initially it was proposed that the firm would supply consulting services, it was decided at negotiations that it should take direct management responsibility. Even though "the new route would take twelve months longer and cost US$ 3 million more, (it) would be a more effective way to improve management and introduce a private - 85 - sector element." J/ With the increase, the estimated cost in the President's Report was US$ 8.3 million. Finalization of a suitable SGMC management structure and conclusion of the contract was made a condition for disbursing the funds allocated in the ERP credit to mining (except for US$ 5 million for urgently needed imported items). 4.31 The government, as a preparatory step, employed Rio Tinto Zinc Consultants (RTZ) with financing from a Project Preparation Facility advance to review SGMC's management and draw up management and performance targets, plus terms of reference for the management contra .t. The RTZ study was expected to be completed by February 1984 and the management contract signed in order for field work to begin in October 1984. 4.32 SGMC's management, however, was not enamored of the proposed arrangement partly because of the relatively high cost of this management contract but more importantly because it reduced their control. Even though the Ministry of Lands and Natural Resources, which was responsible for SGMC, supported the idea, the mining company's management apparently never fully accepted it. This resistance, undoubtedly, was an underlying factor in certain problems the ERP and ERP TA projects experienced with the gold mining component. 4.33 On the basis of technical proposals, the government chose a consortium of these firms and began negotiations in January 1985. The negotiations were expected to be finished in February, but dragged on, due in part to the proposal which involved "a total cost far beyond the credit funds available to finance the contract and completely out of proportion to the revenues of SGMC." 2/ Since it appeared unlikely that the proposal could be negotiated down to manageable proportions, the Bank's responsible projects division proposed that the Ghanaians be permitted to consider the proposal of the second evaluated consortium. 4.34 Instead, the Canadian International Development Agency (CIDA) agreed to provide US$ 5 million toward the cost of the contract. "After prolonged and difficult negotiations", a three-year management contract was finally negotiated in June 1985 at a cost of US$ 13.3 million, plus bonus payments when SGMC's gold output and profits exceeded agreed-upon yearly levels. The contract also included provisions for training and the transfer of technology. However, because of difficulties within the consortium, it was aid-August before the contract was finalized and October before the Bank decided that SGMC had satisfied the ERP credit's condition for disbursing funds for gold mining. 2/ World Bank internal memorandum dated November 16, 1983 from Mr. Bilsel Alisbah, Director West Africa Programs, to Mr. Ernest Stern, Senior Vice-President, Operations. 2/ World Bank internal memorandum dated April 19, 1985 from J. Goldberg, Chief, Industrial Projects Division, to other Bank staff involved with the project. - 86 - 4.35 The management contractor did not start mobilizing until October 1985, a year behind the October 1984 date in the President's Report by which field work would commence, ind was not completed until July 1986. Understandably, one of the initial mining supervision missions, which rated the two ERP projects as 13" (major problems), noted, "Close monitoring of [these projects] is essential to avoid any further substantial delays." 1/ There were continuing delays, nonetheless -- due to continuing conflicts within the consortium, nainor" frictions between board and the management contractor. Financing for Imoorters 4.36 The difficulty many importers faced in obtaining cedi cover financing and bank guarantees was a continuing problem. For RIC I, the Bank of Ghana apparently gave a blanket guarantee to all importers. The World Bank's resident representative in March 1984 reported that commercial banks didn't have enouLh loanable funds to cover the credit needs of ERP beneficiaries. The shortAe of local cover for timber sector importers was especially critical for pulic sector companies. Even though the finance ministry and Bank of Ghana were alerted, the problem persisted. 4.37 The November 1984 country economic memorandum 2/, for example, pointed out that the most important factor in the slow pace of disbursements was the lack of cedi cover. Public sector importers were confronted with the government's very tight budget, an important component of the IMF stabilization program. Commercial companies' finances were in a parlous state. Commercial banks were unwilling to provide bank guarantees to private importers to cover the landed cost of aid-financed goods because the value of imports had risen by over 1000 percent following devaluation and in some cases exceeded the total value of assets of the importer. Commercial banks also were reluctant to provide guarantees when the goods were subject to price and distribution controls. 4.38 The 1985 CEK 1/, while acknowledging some progress had been made, voiced similar sentiments: importers continued to find it difficult to raise the necessary cedi cover as banks were reluctant to give guarantees; despite some revaluation of assets, the weak financial state of most private firms and many public enterprises failed to satisfy commercial bank lending requirements. Bank guarantees for imports subject to distribution and price controls were still difficult to obtain, although reduction in the number of price-controlled goods had helped ease the problem. 1/ World Bank, IBRD and IDA Supervision Summary: Export Rehabilitation Project - Gold Mining Component, July 18, 1985. 2/ World.Bank, "Ghana: Managing the Transition , Report No. 5289-GH, November 7, 1984, pp.61. / World Bank, Ghana: Toards Structural Adjustment, Report No. 5854- GH, October 7, 1985, p. 87. - 87 - 4.39 Bank staff (and the government) continued to report disbursement difficulties stemming from the credit squeeze. A programs division memorandum of October 1986 noted that during the previous twelve months the cedi shortage had worsened as a result of credit program designed to restore macro balance and thereby reduce inflationary pressures. It was necessary, therefore, to extend the disbursement period for RIC I. 4.40 The constraint on credit in Ghana, while it adversely affected the disbursement of the IDA credits, was a key plank in the Fund-supported stabilization program. The IMF analysis underscored the importance of reducing inflation. Also, there was only a slowly emerging awareness of the extent to which severe internal financial problems in most of the commercial bankings were compounding the credit squeeze of the Fund program. These financial sector constraints were subsequently the subject of a detailed review, and eventually resulted in a sectoral adjustment lending operation. PoligX and Institutional Measures 4.41 The principal aim of the credits was to support policy and institutional reform that were described in some detail in the individual credit documents and negotiated with the Government. The matrix in Annex F outlines the most important of these measures. The Bank proceeded very cautiously, progressively testing the regime's commitment to reform by front-loading conditions on key issues before rubmitting the credits to the Bank's board. In addition, important policy measures were supported as part of the credit agreements and were monitored during regular supervision missions. 4.42 RIC I is a good example. The Bank and the Fund had been working closely with the new Rawlings government on the recovery program to which RIC I, appraised in March 1983, would be the Bank's initial response. However, the government in late April still had not announced its budget and accompanying recovery measures. Reflecting the pressures within the Bank to reallocate IDA funds as the fiscal year neared its end, the Bank sent a telex to the PNDC Secretary for Finance and Economic Planning confirming an April 14 telephone conversation to the effect that the funds for RIC and other operations would be reallocated unless the budget and recovery program were announced on or before April 22. 1/ 4.43 The EP and ERP TA credits offer further illustration of this "front-loadingr approach. The Bank also required that several important conditions be met before the ERP and ERP TA credits were presented to the Board. These conditions were discussed during negotiations November 7-14, 1983 and laid out in a letter from the head of the Ghanaian team to the RVP: (i) issue at least 50 percent of the necessary import licenses for cocoa and timber, (ii) the Cabinet pass a resolution on restructuring the .Ghana Cocoa Marketing Board into a commercial entity in a manner 1/ World Bank telex from Mr. Bilsel AlLsbah, Director, West Africa Country Programs Department, to Dr. Kwesi Botchwey, PNDC Secretary for Finance and Economic Planning, April 20, 1983. - 88 - "satisfactory to IDA", (iii) allow the Cocoa Board access to at least 10 percent of its fataign exchange earnings through streamlined procedures "as agreed during negotiations", (iv) take initial steps to privatize GCMB's cocoa plantations and cocoa trucking and divest its cocoa production factories, (v) abolish the Ghana Timber MarkeLing Board, (vi) abolish regulations on the minimum prices for timber exports, (vii) expedite procedures for exporting timber and reduce to barest minimum the time required to obtain timber export permits, (viii) allow timber exporters access to 20 percent of their foreign exchange earnings through the streamlined procedures agreed during negotiations, and (ix) increase State Gold Mining Company retention of foreign exchange from 20 to 35 percent and allow access to this amount through the streamlined procedures. 4.44 The PNDC Secretary for Finance and Economic Planning (MFEP) confirmed that the government had carried out the stipulated measures in a letter to IDA in December 1983. The PNDC Coordinating Secretary signed side letters in November 1983 in which the government agreed to reduce the GCKB staff by 5,500 annually, starting in 1984, and to implement, not later than September 1984, all measures required to ensure administrative and operational autonomy of SGMC necessary for it to carry out efficiently its gold mining operations satisfactory to IDA. 4.45 In addition, the ERP and ERP TA credits provided that the government hire a timber sector consultant for the National Investment Bank. 4.46 A major part of the four credits was allocated to the cocoa sector. Besides financing imports of badly-needed equipment, materials, spare parts and vehicles, the credits supported critical policy and institutional measures -- cocoa producer prices and improved marketing. RIC I, ERP and RIC II each had stipulations about cocoa producer prices (see Annex F). The ERP credit stipulated that, besides reviewing the producer price each year with IDA and announcing an agreed price before March 31, the government should set up an independent Cocoa Producer Price Review Committee. The committee, which would have both farmer and Ghana Cocoa Marketing Board (GCHB, subsequently changed to Ghana Cocoa Board -- COCOBOD) representation, would review and determine producer prices. 4.47 As Table 8 shows, producer prices have been raised, in consultation with the Bank, substantially each year. Nominal increases in the prices have ranged from 50 to 87 percent each year since 1983 (in accordance with the provisions in RIC II, for instance, the price was almost doubled in 1985) and have been a major factor in raising cocoa output and exports. 4.48 Improving cocoa marketing by reorganizing and restructuring GCMB, cutting its operating costs -- mainly through staff retrenchment and divesting its cocoa plantations, products factories and insecticide plant -- was the other prong in the program. The potential for adopting alternative marketing arrangements (such as privatization or multiple - 89 - buying) and expanding private truckers' haulage of cocoa also were to be explored. 4.49 The government readily embraced the need to raise producer prices and to cut GCMB's costs by reducing the number of its employees, and agreed in principle to some divestiture. (However, it did not accept, nor has it yet accepted, full privatization, particularly of internal marketing). Although it is agreed generally that the management consultants (Peat Marwick) employed under ERP TA were effective, reorganizing GCMB and reducing its staff went more slowly than anticipated. 4.50 A status report for the spring 1986 project implementation review note that tha COCOBOD's (formerly GCMB) management was still weak and that restructuring had been delayed for more that 3ne year. Nonetheless, as part of a five-year retrenchment program, some 16,000 staff were laid off in October-December 1985 (another 12,000 were dismissed in 1987). 4.51 Additionally, COCOBOD's consultants completed a number of studies which the ERP TA credit required. Bank staff, COCOBOD executives and Peat Marwick consultants jointly reviewed six of these studies in December 1985 -- on privatizing COCOBOD's plantations, cocoa products factories and insecticide formulation plant; increasing private truck haulage of cocoa; supply of inputs; shipping and storing cocoa; COCOBODIs corporate planniipg and management information system; and alternative marketing arrangements. 4.52 As indicated above, COCOBOD (and the government) did not endorse all of the recommendations on privatizing COCOBOD's operations. (Most were pursued further in the context of the first Structural Adjustment Credit and the Cocoa Rehabilitation Credit III). It is clear that several of the issues, most notably the privatization of cocoa marketing, are of fundamental importance to the government, who have not been persuaded that it is in Ghana's best interests to adopt the study's recommendations. While the government agreed to the studies (there are at least ten concerning cocoa) in the four credits, clearly it did not accept any accompanying commitment to carry out the recommendations which came out of the studies, whatever they might be. 4.53 Nonetheless, as Annex F amply demonstrates, the government, in connection with the two RIC and ERP credits, did undertake major reforms in the cocoa sector. Co-FinAncns 4.54 The October 1983 memorandum to the West Africa Regional Vice-President transmitting the ERP credit documents noted the export rehabilitation program needed US$ 63 million from other external financing, and "The Government and the Association have embarked on a major effort to secure additional financing from donors to support this project, - 90 - particularly in the context f the Ghana Consultative Group which is scheduled to meet on November 23 and 24, 1983." 1/ 4.55 Letters (some signed by the RVP or SVOP) announcing the CG meeting made specific reference to the ERP and first Reconstruction Import credits and suggested that the ERP "could provide a vehicle for channeling your aid quickly to Ghana ... We would welcome the possibility of your co- financing the project with us ...". 2/ In May 1983, copies of the RIC I green cover president's report also were sent to potential co-financiers. 4.56 These efforts to obtain co-financing apparently paid off (see Table 5 below), although, as noted below, sometimes at a cost of delaying disbursements of IDA credits. The Swiss government agreed to co-finance RIC I with a grant of SFR 12.7 million and the Netherlands with two grants of SDR 8 million equivalent and DFL 10 million for agriculture and transport. Canada also made two separate grants of $Cn 5 and 8 million for financing fertilizers and lubricants and tires, and KFW provided DM 10 million for spare parts, tires and batteries. The UK financed the services of the Crown Agents to assist in procurement with a 0.5 million grant, in addition to a b 3.3 million grant in 1984 for mining and timber. The African Development Fund, also in 1984, made a sector rehabilitation loan for agriculture, cocoa and transport. These figures do not include a & 25 million ECGD line of credit 4n 1984 for timber and transport. 4.57 In the case of RIC II, the Netherlands made a grant of DLF 18 million (SDR 3.8 million equivalent) which was administered by the Bank. Additionally, an African Facility Credit of SDR 26.1 million (US$ 27.0 million equivalent) was approved on September 13, 1985, and Germany and the UK subsequently extended associated Special Joint Financing of DK 16.5 million (US$ 6.0 million equivalent) and & 5 million (US$ 7 million equivalent). The Swiss government also made a SFR 20 million balance of payments grant and the Japanese government and the French Caisse Centrale extended loans of Yen 5.9 billion for ports rehabilitation and FFR 100 million for industry, transport and communications. The UK in 1985 made another grant of & 7 million for timber. 4.58 Under an umbrella agreement, IDA administered the Dutch and Canadian funds. The Dutch grants for RIC I were fully disbursed by early December 1984 in keeping with a government-imposed deadline. Canadian co-financing for RIC I were grants, the first for fertilizer and the second for tires and lubricants imported from Canada. IDA acted as administrator of the grant on behalf of the Canadian government. CIDA established June 30, 1985 as the target date for completing all disbursements. 1,/ World Bank internal memorandum, October 25, 1983 from Mr. Nicholas Gibbs, Chief West Africa Programs Division, to Mr. Hans Fuchs, Acting West Africa Regional Vice-President. 2/ World Bank, letters, October 19, 1983 from Mr. David Knox, West Africa Regional Vice-President to BADEA, Abu Dhabi Fund, African Development Bank, UNDP and other multilateral and bilateral aid agencies. - 91 - 4.59 Co-financing was critical for the ERP and ERP TA credits. In the first instance, as a result of intense cffort on the part of Bank staff, the World Food Program granted US$ 63.9 million to Ghana in June 1984 for the ERP, ports, forestry and railway, and the Japanese Overseas Economic Cooperation Fund extended a loan of US$ 24 equivalent in June 1985 for rehabilitating the ports and the World Food Program. The UK made a US$ 3.6 million grant to finance two persons to work with the Bank of Ghana on procurement and coordination. 4.60 For the timber sector, the Canadian International Developmant Agency (CIDA) furnished C$ 5 million as a tied grant for equipment and Sweden about US$ 0.5 million to extend the services of Silviconsult, a Swedish firm. CIDA in May 1986 also contributed an additional US$ 5 million (C$ 7 million) to cover the cost of Canadian personnel in the State Gold Mining Corporation's management contract with the Canada-Ghana Mining Group. As it was previously noted, the contract cost svibstantially more than the amount budgeted in the ERP credit; without the additional CIDA funding, the project could not have gone ahead. IDA administered the Canadian grants. - 92 - Table 5: o-.Einancing IDA Credit Date Co-Financier Amount US$ (mil) .......... . . ..-------------------------------------------------------* RIC 1 1984 Canada Cn$ 5 4.2 1985 Canada Cn$ 8 6.7 1983 Neth SDR 8 10.1 1984 Neth DFL 10 4.5 Swit SFR 12.7 7.2 1984 UK & 3.3 5.4 1983 UK k 0.5 0.8 1984 ADF UA 30.5 39.6 78.4 RIC II 1985 AFC SDR 26.1 27.0 1986 Neth DFL 28 10.1 1986 UK. T 5 8.1 1985 Germany DK 16.5 6.0 1985 France FER 100 57.0 1985 Swit SFR 20 11.4 1985 Japan V- 5,912 42.0 161.6 ERP 1984 WFF 63.9 1985 Japan 24.0 1984 UK 3.6 1985 Canada C$ 4.95 4.2 95.7 ERP TA 1986 Canada 5.0 1987 Sweden 0.5 5.5 4.61 The pattern of designing projects and programs flexilly so as to be able to attract and accommodate an indeterminate amount of co-financing has been successfully repeated in subsequent IDA credits to Ghana, notably those for Road Rehabilitation and Maintenance, Power System Rehabilitation, Health and Education Rehabilitation, Industrial Sector Adjustment, Ports Rehabilitation, Education Sector Adjustment, etc. Thus, donors have utilized co-financing of Bank operations, particularly the two structural adjustment credits, to channel much of their non-project support of Ghana's recovery and adjustment programs. - 93 - 4.62 Co-financing, however, was not without cost. The amount of Bank staff time and effort in soliciting and making arrangements for, and (especially in the case of CIDA and the Dutch funding) administering such assistance was very large. Co-financing also meant delaying disbursement of IDA funds in the RIC credits since co-financing was given priority. In a February 1983 memorandum zo the regional vice-president, the programs department director explained that the credit "would have been almost fully disbursed by December 31, 1984, had there not been an untied Dutch grant of US$ 8 million equivalent in October 1984 with the condition that it be fully disbursed by December 1..., a CIDA grant of C$ 8 million on the condition that the fands be fully committed and disbursed by the end of June 1985...,. 1/ Commitments (of IDA money) were diverted to enable these funds to be disbursed first. 4.63 A March 1986 supervision mission reported that in the case of Dutch and a German contribution (together totaling more than US$ 6 million equivalent of tied financing), none of the German an; only half of the Dutch had been disbursed. The reason given for the former were bureaucratic delays in both the Ghanaian and German governments. There were similar problems in disbursing RIC II co-financing moneys, particularly the Caisse Centrals loan. Nevertheless, the value of the co-financing involved, to the extent it represented additional assistance for Ghana. far offset any cost that delays in disbursing IDA funds might have entailed. 4.64 The rise in overall external assistance is discussed in Section V. Bank Management ad Sunervision 4.65 The then Programs Division for Ghana had the overall and lead responsibility for supervising RIC I and II, including preparing supervision reports, project completion reports, etc. A division loan officer was designated to be responsible -or supervision and the person with whom the government and Bank of Ghana would liaise. The programse division was to exercise its responsibilities "in close collaboration and consultation with the Projects Department... .Al technical and procurement matters would be referred to the Projects Department for appropriate decisions, comments or actions, as required." 2/ For its part, the Projects Department was supposed to designate an "anchorman" who would deal with implementation and liaise with the loan officer. Provision was to have been made in the FY 1984 work program for 15 weeks of the "anchorman's" time, 10 weeks of the loan officer's and 5 weeks each of j/ World Bank internal memorandum, February 15, 1983 from Mr. Bilsel Alisbah, Director West Africa Programs, to Mr. Wilfred Thalwitz, West africa legional Vice-President. 2/ World Bank, internal memorandum, May 2, 1983 from Mr. Nicholas Gibbs, Chief, West Africa Country Program division, to Mr. Bilsel Alisbah, Director, West Africa Country Programs Department. - 94 - staff from the transport and agricultural projects divisions to supervise the credit. 4.66 The arrangements for the ERP and ERP TA credits were somewhat different. Since the two were processed as regular projects or sector operations, "the appropriate Projects Division ... (had] supervision responsibility for each sector." 1/ A designated loan officer (the same one responsible for RIC 1) coordinated the work of the projects and was responsible for overall suptrvision. A Project Implementation Committee composed of the loan officer as coordinator and members from the appropriate agricultural,industrial and transportation projects divisions, plus the lawyer, disbursement officer and procurement adviser, as members w was set up and met frequently during March-July 1984, when the programs were getting underway. 4.67 Procurement matters were to be handled by the project officer concerned, with the procurement adviser (employed by the programs division) available as needed. It was agreed that the various persons responsible would try, as far as possible, to prepare their individual sector supervision reports at about the same time so that the loan officer could do a single overall report. The programs division would issue such a report, based on the most recent sector reports, about every four or five months, and would prepare the PCR with contributions from the various divisions involved. 4.68 The Bank's resident representative in Ghana was also called upon to help. The program department director telexed the Bark's resident representative in Ghana that implementing the ERP was "at the heart of our country strategy and our CG effort" and asked the representttive to play a major role in assisting the government and advising headquartes on supervision. 2/ 4.69 It was estimated that to supervise the two ERP credits in the three months remaining in FY 1984 six staff-waski each from the transport and industrial projects divisions and ten each from the agricultural projects and the country programs divisions would be needed. For FY 1985, the figures would rise to 12 each from industry and transport, 20 from agriculture and 18 from programs. 4.70 However, the proposed arrangements did not materialize. No project "anchorman" was ever designated for RIC I or II, and, out of a total of 18 staff-weeks recorded for supervising RIC I in FY 1984, 13 were attributed to the loan officer, and virtually the entire total of eight 1/ World Bank, internal memorandum, March 9, 1984 from Mr. David G. Reese, Chief, West Africa Country Programs Division, to members of the Project Implementation Committee. L/ World Bank, telex from Mr. Bilsel Alisbah to Mr. Werner Scholzig, February 29, 1984. - 95 - staff-weeks in FY 1985. ERP and ERP TA supervision in these two years was similar -- 34 out of 36 staff-weeks in FY 1984 and 61 out of 64 in FY 1985 were from the country programs division. As implementation picked up in the three succeeding years, staff inputs from the projects divisions became predominant in the ERP and RIC 11 credits. 4.71 This discrepancy in the early stages apparently was due, at least in part, to the reluctance of some managers to commit scarce staff resources to Ghana. Lingering skepticism in the minds of many about the government's commitment to the reform program -- which these credits supported -- presumably made it difficult for Ghana to compete for resources, at least initially. In addition, the Bank's resident representative unexpectedly left the Bank's employment in the first half of 1984. 4.72 The actual amount of staff time, the number of supervision missions, number of persons and time devoted to each of the four credits -- as well as could be ascertained from the information available -- are recorded in Annex A, Table 6. (A total of 600 staff-weeks have been used from FY 1982 until now, of which more than half -- 342 staff-weeks -- were utilized in the leneing phase of the credits. The remaining 259 staff-weeks were for supervision). 4.73 Missions normally supervised the two ERP credits, and in the case of mining, RIC II, at the same time. From the records, it appears that six to eight supervision missions each for cocoa, mining and transport visited Ghana during 1984-86 and up to mid-1987. There were somewhat fewer missions sipervising the timber component and RIC I and II, which disbursed more quickly. The Bank's resident mission in Ghana, after the assignment of a new representative at the beginning of 1985, also made invaluable contributions to the implementation and supervision of the credits. 4.74 The large number of conditions, particularly in the ERP credit, complicated supervision. Moreover, the wide variation in terms of their relative importance and their being spread among macro and several sectors made formal reviews difficult. The Bank's supervision, by and large, was accomplished informally in the context of a growing program of economic and sector work and preparation of new projects in many sectors -- characterized by a relatively high degree of flexibility. Thus, performance on many of the specific policy and institutional measures stipulated in the credits appears not to have been recorded formally. 4.75 The ERP second tranche review (see para 3.18) is illustrative. After the first tranche was finally disbursed, the Project Implementation Committee met in June 1986 to review progress on the six areas specified. Since there had been sufficient progress over time, with the exception of the SGMC managerial and financial targets, the Bank informed the government that the balance of the credit was available. However, there is no formal record of the review meeting, except the telex, cleared by the committee members. - 96 - V. IMT' 5.01 Since the initiation in 1983 of the government's reform program and the Bank Group's initial assistance for it -- in the form of the four credits reviewed here *- Ghana clearly has made impressive strides in its economic recovery. Unquestionably, these four credits made a major contribution to this recovery. However, measuring that impact with any precision is difficult -* if not impossible. It is possible, though, to gauge in a broad fashion their impact by looking at their roles in: (i) the country's overall economic performance, (ii) developments in the output and export of cocoa, gold and timber, (iii) rehabilitation of the roads, road transport and the ports, and (iv) attracting additional external assistance for Ghana. In this process there are two critically important elements, namely the impact of the credits in terms of policy measures and institutional improvements and their laying the groundwork for subsequent improvements and further assistance. None of the credits was designed to directly alleviate poverty, although they doubtless made indirect contributions through their support for growth-oriented economic reforms and their catalytic effect on additional external assistance that proved so critical in providing much-needed imports for key sectors in the economy. Overall Economic Performance 5.02 The response of the economy, after a slow start reflecting a serious drought in 1983, has been impressive. In contrast to a decade of declining output, real GDP climbed 8.7 percent in 1984, 5.1 percent in 1985 and 5.2 percent in 1986. 1/ Although growth fell slightly to 4.8 percent in 1987 with poor weather, GDP is estimated to have risen by more than 6 percent the following year. Production of cocoa, Ghana's largest export, grew from an all-time low of 158,000 tons in 1983/84 to 228,000 in 1986/87, but, with unfavorable weather, declined to 188,000 in 1987/88, while exports rose from 148,000 to 219,000 tons during the four years. Manufacturing output also expanded by 71 percent and mining by 27 percent between 1983 and 1987. Inflation was brought down from more than 120 percent in 1983 to about 10 percent in 1985, although it subsequently rose to 40 percent in 1987, owing to higher food prices rapid depreciation of the exchange rate, and accommodating increases in broad money arising from an inability of the Bank of Ghana to sterilize unanticipated increases in not foreign assets of the banking system. J/ These real GDP growth rates are based on 1975 prices. - 97 - Table 6: Key Economic Indicators (annual growth in percent) 1982 1983 1984 1985 1986 1987 1988. .. .. .. .. .. .. .. .. .. . *.. .... . .. ... 0 ... . .....*... .. . GDP -6.9 -4.6 8.7 5.1. 5.2 4.8 6.2 Income per *10.1 -7.5 8.1. 1.6. 3.6 1.9 2.7 capita Exports 15.2 -45.8 9.7 22.0 12".4 9.8 6.3 Imports -6.9 -4.6 5.2 8.9 16.6 18.4 2.5 ..ceec..................................... .............. Source: World Bank 5.03 Most observers conclude that Ghana since 1983 has implemented a broad range of structural and financial policies. 1/ Economic incentives, in particular, have been strengthened. On the external side, the government has kept to its flexible exchange policy with its auction market and continued liberalization of the exchange and trade regime. (In February 1987, official rates were unified and access to the foreign exchange auction widened). As far as prices were concerned, the producer price of cocoa has been raised, as well as retail prices of petroleum products (to reflect depreciation of the exchange rate). The government also has lifted all administrative controls on commercial bank deposit and lending rates and pursued effective fiscal, credit and external debt management policies. 5.04 In addition to the above macroeconomic reforms that formed lart of the general economic dialogue, the RIC I and 11 and ERP and ERP TA credits (along with subsequent IDA operations) supplemented the IMF stand-by arrangements by obtaining agreements on: (i) the size and composition of capital expenditures and imports, (ii) gradual removal of fertilizer subsidies, (iii) increased producer prices for key products, (iv) phased elimination of price and distribution controls, (v) elimination JL/ The World Bank's March 1989 report, Africa's Adjustment and Growth in the 1980s, as well as the Policy Framework Papers and the Committee of the Whole's discussions of the papers, commented favorably on the progress achieved under the economic recovery program. The Bank's study, Adjustment Lending: An Evaluation of Ten Years of Experience, December 1988, also noted the program's success, pointing out that a key "has been the government's commitment and will in designing and implementing a difficult adjustment program." (p. 78). - 98 - of policy constraints on exports, and (vi) rationalization of state-owned enterprises. In addition, they were instrumental in the development of a policy framework for subsequent structural adjustment and helped finance desperately-needed rehabilitation of key export sectors. 5.05 Policy reforms in the cocoa sector have centered on: (i) restoring producer prices to a sufficient level, consistent with world prices, to stimulate output, and (ii) reducing marketing costs by restructuring the Cocoa Marketing Board, increasing the efficiency nf its operations and divesting it of ancillary functions such as plantations and cocoa products manufacturing. As the Staff Appraisal Report of the 1987 Cocoa Rehabilitation Project points out, poor producer prices were the "root cause of the decline in cocoa output ... which brought in their train, neglect of farms, smuggling, shift to other crops, abandonment, fire, disease, migration of youth to occupations other than cocoa cultivation and slowing down of replanting." J/ 5.06 The Bank recognized the impact of prices on the cocoa industry and made them a central plank in its support of Ghana's economic recovery program. As the table below shows, nominal increases in producer prices have ranged from 50 to 87 percent each year since 1982/83, although real prices and the cocoa producer's share of the actual export sale price rose more slowly due to inflation and currency devaluations. Table 7: Cocoa Producer Prices 1982/83 1983/84 1984/85 1985/86 1986/87 1987/88 Price (000 cedi/ 12 20 30 S 85 140 ton) % Increase: - 67 50 87 52. 65 Real Producer:. Price Index * 49 39 43 62 93 105 wourrent World Price 28 32 27 28 29 41 --------------------------------------------------------------- * CPI adjusted, taking cocoa price of 1970 as.100. Source: World Bank, Staff Appraisal Report, Ghana Cocoa Rehabilitation Project, Report No. 6818-GH, October 19i 1987, p. 6. ],/ World Bank, Staff Appraisal Report, Ghana Cocoa Rehabilitation Project, Report No. 6818-GH, October 19, 1987, p. 4. - 99 - 5.07 Cocoa output, however, responded slowly -- due in large part to the drought which devastated the Ghanaian economy in 1982-83. Higher producer prices, combined with improvements in transport arrangements, reduced smuggling spurred output to 175,000 tons in the 1984/85 crop year. 219,000 tons in the succeeding year and 228,000 tons in the 1986/87 crop year. Erratic rainfall in 1987, however, significantly reduced the 1987/88 crop to 188,000 tons. I/ Table 8: Cocoa Production and Excorts. (000 tons.by crop year) 1982 1983 1984 1985 1986 1987 1988 Production: 225 178 158 175 219 228 188 Exports 201 160 148 165. 188 211. 219 ------------------------------......a....eeeeeeeeeee........ Source: World Bank, Ghana: Structural Adjustment for Growth, Report-No. 7515-GH, January 23, 1989, p. 160. 5.08 The role of the four credits in this remarkable recovery cannot be underestimated. Besides their direct contribution Li financing inputs for cocoa production areas improving the availability of transport, they laid the foundations for further improvement and external assistance. Thus, the two Structural Adjustment Credits of 1987 and 1989 and the 1988 Ghana Cocoa Rehabilitation Project were able to build on the "significant progress" already made "in motivating production by increasing returns to cocoa farmers, strengthening the marketing board's management capacity, and streamlining its services to cocoa producers...." 5.09 However, the magnitude of the task of restructuring COCOBOD -* and the time it would require -- was not fully appreciated by the Bank (nor the government). Much remained *- and still remains -- to be done. Thus, the first Structural Adjustment Credit and Cocoa Rehabilitation Project in 1987 continued to focus heavily on both pricing and restructuring COCOBOD. To further cut operating costs, COCOBOD reduced its staff by about 12,000 in 1987, ceased production on 52 of its 92 plantation, reduced its road haulage costs and divested its majority ownership of its insecticide plant. A three-year rolling corporate plan, agreed by the government and IDA, helps ensure further progress on COCOBOD shedding all activities except p?urchasing, marketing, extension and research and retrenching excess staff. In connection with the March 1989 IDA Credit for a second phase of the structural adjustment program, the government adopted a cocoa producer pricing mechanism based on an incentives study-completed in 1988, which will give the producer an appropriate share of the world market price. J/ In this context, it should be noted that production bounced back to almost 300,000 tons in the 1988/89 crop year -- far exceeding expectations. - 100 - COCOBOD also will complete feasibility studies for divesting its remaining 40 plantation and remove subsidies on agricultural production materials. Gold Mining 5.10 Cold mining also has gradually picked up since 1983. As Table 10 below notes, output climbed from 8,601 kg in 1983 to 9,311 kg in 1985 and 11,631 kg in 1988. Exports during the same time rose from 278,000 oz. in 1983 to 383,000 oz. in 1988. Table 9: Outant and Kxnorts of gold -----------------------------...... ---- -------------. 1982 1983 1984 1985 1986 1987 1988 .......0............. W...........*--.......... ............... Production (kg) 10,280 8,601 8,923 9,311 8,950 10.228 11,631 Exports (000) 300 278 286 285 292 324 383 Source: World Bank, Ghana: Structural Adjustment for Growth, Report No. 7515-GH, January 23, 1989, p. 162. 5.11 The ERP and ERP TA credits aided the State Gold Mining Corporation (SGMC) with both imports of essential items and substantial technical assistance. SGMC, 100 percent government-owned, is the second largest mining company in Ghana. Output at SGNC's three mines (Dunkwa, Prestea and Tarkwa) declined sharply in the late 1970's and early 1980's, The rehabilitation program funded by the ERP and ERP TA projects aimed at restoring SGMC's output from 72,000 oz. in 1983 to 165,000 oz. over a three-year period. 5.12 However, as noted earlier, the program did not get underway until the end of 1985 because of delays. Actual production, in the meanwhile, continued to go down, but bottomed out at 35,000 oz. in 1985. While the program managed to halt the decline, output reached only about 50,290 oz. in 1988. In any case, the funds provided by ERP and ERP TA were not intended to meet all of the rehabilitation requirements, estimated at about US$ 85 million program. (The ERP credit originally allotted only US$ 23.6 million of the amount required, and only US$ 23.4 [SDR 22 million were actually disbursed). Rather, the assistance, it was hoped, would halt the fall in production and, through providing technical assistance, develop a longer-term program for SGMC's rehabilitation and future development. 5.13 A US$ 40 million IDA credit for a Mining Sector Rehabilitation Project in 1988 continues "the ongoing rehabilitation of the SGMC mines ... started under prior credits...." The 1987 Project Brief (p. 9) noted that - 101 - "... the outlook for mining has improved during the last three years (1984-86) under the government's economic recovery program, and output is on an uptrend at most of the existing mines, as a result of the improved economic climate." However, while the contract team hired by SGKC and financed by ERP TA and CIDA, stopped the decline in SCGM's operations, it was unsuccessful in raising production as much as anticipated. SCGM's gold oVktput is thus significantly below target levels. 5.14 On balance, while the assistance furnished SGMC by the ERP and ERP TA projects did not achieve the full impact in terms of output envisaged, it did stabilize output and keep the mines operating, when they otherwise would have been closed down. The two projects also generated information essential for the subsequent mining rehabilitation project. Moreover, the outlook now is highly favorable for the private sector's participation in the SGMC mines, probably in surface exploitation. Outside investors have made offers for two of the mines (Dunkwa and Prestea) and expressed interest in the third (Tarkwa). 5.15 Widening the view to the whole sector, there apparently were major benefits from the Bank's assistance, most notably passage of the Minerals and Mining Law of 1986 -- which establishes for the first time in Ghana licensing procedures, rights and obligations of prospectors and miners, and the financial, ownership and foreign exchange retention framework governing new mines -- and creation of a Minerals Commission that works out specific agreements with firms under the law. Introducing this legal and regulatory framework was key to mining development. A measure of its impact lies in Ghana's rapidly rising gold output and exports. A new mine -- the first in 40 years -- is in production, three others are under construction and still others are in advanced planning stages. 5.16 In addition, a licensing system and legal sales channel for gold produced by the some 60,000 small-scale miners in Ghana has been --ened -- based on a study under RIC II and a condition of the Mining Sector Rehabilitation Project. As a result, gold and diamond smuggling has declined and production from these miners is expected to rise significantly. Tis 5.17 After declining precipitously in the 1970's, Ghana's forestry and forest industries revived vigorously with the recovery program's introduction in 1983. The output of logs and timber climbed steadily from 550,000 to more than 1.0 million cubic meters and the value of exports from US$ 15.3 million to approximately US$ 100 million between 1982 and 1987 (see Table 11 below). 5.18 Besides the effect of macro-economic measures in incentives to produce and export logs and timber, the government abolished the Ghana Timber Marketing Board, removed a number of controls on timber exports and allowed exporters to retain 20 percent (later 30 percent) of foreign exchange earnings. The ERP credit financed critically-needed equipment, materials and spare parts for both the forest and transport sectors and the - 102 - Table 10: Production and Exorts of OAs and Timber (1000 cubic meters) 1982 1983 1984 1985 1986 1987 Production 400 570 578 620 890 751 Exports 95 119 155 246 345 497 Source: World Bank, Ghana: Structural Adjustment for Growth, Report No. 7515. CH, January 23, 1989, p.160. ERP TA project helped carry out institutional reforms and rehabilitate forest industry enterprises. 5.19 Under the projects, the Forest Products Inspection Bureau (FPIB) and the Timber Export Development Board (TEDB) were both established in 1985 after the Timber Marketing Board was disbanded. Each has a managing director and separate boards of directors representing industry as well as government. The FFIB insures that exports meet standards and that invoice prices conform to product value. The TEDB promotes sales and exports of timber products and publishes trade information. 5.20 The two IDA credits clearly contributed importantly to the resurgence of Ghana's forest industry. Unfortunately, the resurgence ** fueled by the almost uncontrolled exploitation of the forest by loggers ** also had an adverse impact on Ghana's forest cover and the environment, one that neither the Bank nor the government apparently anticipated. The yearly rate of hign forest production rose by 20 percent, and by 1987 exceeded the estimated allowable cut (1.35 million cubic meters) by 20 percent. Adding the 50 to 100 percent wastage in logs, the actual cut was as much as 180 to 250 percent of the allowable level. 5.21 According to the 1988 President's Report for a Forest Resource Management Project, this accelerated exploitation was due largely to the government's inability to control and manage its forests. Combined with the encroachment by cocoa and food crop farmers, continued felling at this pace could result in the destruction of the resource itself. As the UK project memorandum put it, "urgent action is now required to sustain the forest resource and protect the environment." 1/ As a first step, an IDA credit of SDR 30.6 million (US$ 39.4 million), along with US$ 7.1 million from the UK Overseas Development Administration and US$ 8.3 million from the Danish International Development Agency, was approved in December 1988 to help strengthen Ghana's forest resource management. 1/ U.K. ODA, UK/Ghana Forest Iventory and Management Project Memorandum, December 1988, p. 7. - 103 - TrAnsgort 5.22 An earlier section pointed out that Ghana's transport network -- which is critical to moving both exports and imports -- was in a dismal state in 1983. To help restore the system, RIC I furnished SDR 7.4 million of imported truck tires and retreading material, SDR 4.4 million of truck spare parts, SDR 0.8 million in truck batteries and SDR 5.8 million of railway equipment and spares. RIC II financed an additional SDR 19 million of spare parts, tires, batteries and vehicles, plus imported items needed for road maintenance and the railways and ports. In addition, the ERP and ERP TA provided SDR 4.4 million to the ports for floating craft, equipment, spare parts and technical assistance. 5.23 In appraising the 1987 Transportation Rehabilitation Project (IDA credit of US$ 60 million), the mission reported: "Fuel and spare parts availability have improved recently and the percentage of vehicles actually on the road, estimated as low as 30 0 of the fleet in mid-1983 due to lack of tires and spare parts, may now be above 600." 1/ Fuel consumption which decreased 18 percent in 1983 and 35 percent the next year, rose 23 percent in 1985 and another 4 percent in 1986. While the amounts in the IDA credits represented only a portion of the needs (it was estimated that US$ 200 million was needed to rehabilitate Ghana's entire motor vehicle fleet in 1983), they undoubtedly contributed importantly to improvement. 5.24 RIC II stressed the importance of appropriate energy pricing to reflect user charges, encourage conservation and raise revenues. To this end, the government agreed to adjust petroleum product prices to keep in step with exchange rate movements and issued a policy statement that defines an appropriate price structure. The government and IDA also agree, on the 1985 public expenditures and imports for the transportation sector to ensure resources were channelled to priority uses. 5.25 The 1987 appraisal mission found that road user charges -- mainly in the form of fuel taxes -- rose from about 2 percent of ex-refinery prices to an average of 28 percent on gasoline and diesel between 1985 and 1987. This led to an increase in road user payments to govt from about US$ 2 million equivalent in 1985 to about US$ 35 million equivalent in 1987. The road maintenance budget rose from US$ 10 million equivalent in 1985 to some US$ 16 million in 1987. 2/ The subsequent 1985 Road Rehabilitation and Maintenance Project (US$ 40 million IDA credit and US$ 10 million African Facility credit) provided for the imposition of a fuel tax and creation of a separate fund to finance road maintenance. The road fund reportedly is working well. 5.26 The railway network, which virtually broke down in the early 1980's, has improved markedly. The first Railway Rehabilitation Project, supported by IDA, AfDB and other co-financiers, and, with much smaller amounts, the RIC I and ERP credits, helped restore the key western line by ],/ World Bank, Staff Appraisal Report, Republic of Ghana, Transport Rehabilitation Project, Report No. 6912-GH, November 10, 1987, p. 5. 2/ World Bank, Op. cit., p.3. - 104 - 1988. Traffic on this line, mainly minerals, cocoa and timber, doubled between 1983 and 1987. The 1988 Transport Rehabilitation II project will rehabilitate the central and eastern lines. 5.27 In the case of the two ports -- Tema and Takoradi -- the impact of the ERP and ERP TA projects was perhaps even more direct. Again, in appraising the follow-up Ports Rehabilitation Project (US$ 24.5 million IDA) in 1985, the mission noted: "Some recovery from the dismal situation of the ports in 1982-83 has already taken place with IDA assistance. The port agencies are effectively utilizing the allocation for spare parts and some limited equipment and crafts financed under the Export Rehabilitation Project(ERP)... which provide US$ 4.8 million... for port components." 1/ 5.28 Total port cargo throughput, which was about 5.5 miL±ion tons in 1970, declined to 2.2 million tons in 1983. Traffic rose to 2.4 million tons in 1984, and to an estimated 2.6 million tons in 1985. In accordance with an undertaking in the ERP TA, the government restructured the Tema and Takoradi ports organization based on a study financed by ERP TA. A new authority, the Ghana Ports and Harbour Authority (GPHA) was established in early 1986. The reorganization had a major impact on port operations. Cargo handling increased more than 50 percent between 1983 and 1986, and in contrast to earlier delays (one ship bringing foodgrains reportedly was delayed by more than three months), ship waiting time -- and expensive demurrage -- have been reduced sharply. External Assistance 5.29 An important objective of the four credits was to "act as a signal to the international donor community" in attracting assistance for Ghana's recovery program. While they were only a part of the Bank's support for that program, their impact undeniably has been large - both directly in terms of co-financing and indirectly,as a green-light for support to Ghana in general from other donors. An indication is che dramatic rise in aid commitments since 1983. Tible 1t.: ALa Cdmitments and D&Abursements to.Ghana 1983-1987 (USO aillion) 1983 1984 1985 1986 1987 Commitments 190 304 551 353 616 Disbursemmts 156 221 217 375 426 aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa...... e.*................. Source: Wrld Bank 1/ World Bank, Staff Appraisal Report, Republic of Ghana, Ports Rehabilitation Project, Report No. 5907-GH, March 3, 1986, p. 12. - 105 - VI. CONCLUSIONS AND LESSONS LEARNED 6.01 Ghana has made impressive gains in its economic recovery and reform program since it was initiated in 1983. 6.02 The basic objective of the two Reconstruction Import Credits and the credits for the Export Rehabilitation and Export Rehabilitation Technical Assistance Projects, which were the Bank's initial responses, was to support Ghana's reform program. In providing this support, the credits contributed significantly to the success of that program. In addition to the US$ 220 million in critically-needed goods and services the credits financed directly, they generated more than US$ 340 million in co-financing, supported major policy measures and laid the groundwork for Ghana's subsequent adjustment program and the large rise in external support for it. 6.03 This concluding section briefly highlights some of the lessons learned in the course of implementing these credits, in their design and in the Bank's management and supervision of them. Imeetation 6.04 As indicated earlier although implementation of the four IDA credits overall was satisfactory, there were delays in carrying out policy and institutional measures and in handling procurement and disbursements. These stammed mainly from: (i) the government's limited administrative capacity, and (ii) the inability of many importers to secure adequate financing. More serious problems arose in connection with the State Gold Mining Corporation (SGMC) component, which was beset by difficulties in negotiating a management contract with the Canada-Ghana Mining group. 6.05 In the cocoa sector, output and exports climbed with increased producer prices from all-time lows in 1984. The Ghana Cocoa Board (COCOBO- D, successor to the Ghana Cocoa Marketing Board) has reduced its marketing costs by retrenching excess staff and streamlining operations, although the Improvements have taken longer than envisaged. Nevertheless, COCOBOD's efficiency still falls short of expectations, and the Ghanaian cocoa farmer only receives some 45 percent of the world price. 6.06 The output and export of timber and timber products also have risen impressively, but, as noted earlier, at some cost in terms of over-exploitation of the forest resource *- which if continued, could have serious environmental consequences -- factors which neither the government nor the Bank fully anticipated. Major improvements were accomplished in the transport system, even though much yet remains to be done merely to restore the system to the levels of twenty-years ago. 6.07 While Ghana's gold output and exports overall have recovered dramatically (helped by the improved macro-economic framework and the new mining code), the assistance financed by the IDA credits was only sufficient to stabilize the State Gold Mining Corporation's (SGMC's) production and financial health. A rehabilitation of the mines was never possible with the level of resources provided under ERP and ERPMA. Though - 106 - the expectation of what could be accomplished through partial rehabilitations were higher than what was achieved. 6.08 Earlier sections pointed out that the mining component was troubled from the beginning; virtually every supervision mission (except the first one) reported the component ab having major problems stemming from serious cedi shortages, the management contract between SGMC and the management contractor and the latter's weak performance. From the very beginning, it was clear that SGMC's management strongly opposed such a contract, and, thus, were less than enthusiastic in cooperating with the management contractor. 6.09 The contract's high cost -- far beyond the amount allocated in the ERP TA credit -- also was a factor in the delays in negotiating it and doubtless colored the SGMC's attitudes toward it. Having to obtalln additional co-financing from CIDA to cover the shortfall in the IDA credit added further compl'.cations. The Ghanaians reportedly thought the contract excessively expensive. Furthermore, although the management contractor obviously was well-qualified technically, it apparently lacked overseas exposure to the kind of situation it faced in Ghana. Apparently, many of its staff found difficulty in adjusting to the environment, and the personal frictions normally expected in an undertaking of this nature were greatly exacerbated. 6.10 In addition, the contract ** in providing for incentive payments for increased production and profits ** encouraged the management contractor to neglect future development (including possible exploration of new ore bodies closer to the surface) in favor of straight operation of SGNC's existing mines. And, even then, the production and financial targets stipulated in the contract were never achieved. 6.11 In retrospect, it appears that more time and thought should have been given the SGNC managment contract -- despite the pressure to move quickly, to begin turning gold output and exports around and introducing private sector particiration in Ghana's mining. Having the contract in place was a condition for disbursing ERP funds to the mining sector. Unfortunately, it seems to have put as much pressure on the Bank to approve a contract as it did on the government and SGMC. Also, expectations were unreasonably high for what could be accomplished from a 30% rehabilitation of the mines. 6.12 Despite the concern from the first about Ghana's ability to carry out the numerous recovery measures and to handle procurement and disbursements expeditiously, implementation generally lagged behind schedules. The Bank's insisting upon Ghana's utilizing the Bank of Ghana and employing the Crown Agents to handle RIC I and II procurement was judicious. Otherwise, procurement and disbursements undoubtedly would have been subject to even greater delays. Unfortunately, the arrangements for executing the ERP and ERP TA credits -- where four different agencies were :asponsible -- were not as effective. - 107 - 6.13 In addition to the government's weak adainistration ability in general, there was not enough overall direction and coordination, which could keep tabs on the progress of the entire progra and se that corrective measures were taken, particularly on cross-sectoral issues (such as the provision of financing for importers) general administrative weakness. 6.14 Despite country implementation reviews, chronic donor complaints, exhortations and the like, it was only when the governent set up a "trouble shooting" Certral Projects Monitoring Unit that disbursements pickad up significantly. 6.15 The difficulty of importers being able to obtain financing for goods supplied under the RIC and ERP credits was identified early. However, the Bank (and Fund) were unable to come up with any agreed solution, or, for that matter, even with an agreed-upon analysis of the problem. While the availability of credit for importers was a matter of continuing concern, the extent of wider financial sectoral weaknesses was not known. The problem apparently did not figure in the IWf's thinking as a priority matter either. 6.16 According to the October 1985 country economic memorandum "the possible conflicts between the demands of stabilization and of stimulating production on monetary expansion has not been a serious issue because of the low level of economic activity.... But as the recovery gains momentum... [it] will become a matter of increasing importance to the pace of recovery." 1/ 6.17 The Bank began examining the financial system more closely and carried out a substantial sector study in 1986, from which a US$ 100 million (SDR 72.1 million) IDA credit for a Financial Sector Adjustment Credit was approved in May 1988 (after "the financial system appeared to be potentially a serious constraint to growth in the real sectors."). Unfortunately, the Bank and the Fund failed to fully anticipate the extent of the problem. In any event, restructuring the financial system was simply too large an undertaking for the government and the Bank, given the heavy demands already placed on their limited capacity, to embark on at that time. 6.18 From the preceding sections, it is clear that by and large the design of the RIC I and II and ERP and ERP TA credits proved successful in terms of their: (1) relationship to the Bank's assistance strategy and the IMf's operations in Ghana, (ii) priorities as far as sectors are concerned, (iii) role in the policy dialogue between the Bank and Ghana, and (iv) use to attract additional external assistance for Ghana. The vast array (as Table 5 attests) of policy and institutional measures the four credits encompass *- ranging from major initiatives to almost trivial 1/ World Bank, Ghana: Towards Structural Adiustment, g. gS, p. 40. - 108 - matters, without any (at least explicit) order of priority -- however, is questionable (see Bank Management and Supervision below). 6.19 The credits were an integral part of the Bank's assistance strategy in Ghana. They were designed to support the government's economic policy initiatives with quick-disbursing foreign exchange needed to rehabilitate Ghana's export sector. Beyond-that, though, RIC I and II ERP and ERP TA were designed to move gradually along with the country as it progressed from rehabilitation and reconstruction to structural adjustment and on to sustained growth. 6.20 As designed, the credits in conjunction with the IMF stand-by arrangements: (i) made & sufficiently large initial impact (in devaluation and increased cocoa prices) to get production and exports moving, (ii) met the most immediate needs of the transport network, and (iii) began the longer-term process of policy reforms and institution building needed to underpin longer-term structural adjustment. The two RIC and ERP credits laid the groundwork for the large number of credits which have been extended to Ghana for rehabilitation and adjustment since 1985. 6.21 The RIC I and II and ERP and ERP TA focused on reviving exports as the key to Ghana's initial recovery, and on cocoa, gold and timber -- tha country's largest exports -- at the outset for that revival. To stUulate output, the emphasis was on price incentives, particularly foreign exchange (devaluing the cedi) and cocoa (raising the producer price), coupled with an immediate increase in the supply of imported mutterials and equipment needed for production. To be able to move the goods produced for export and the imports needed for production, the design provided for importing those items most critical -- batteries, tires, spare parts for trucks and equipment and spares for the railway -- to reviving transportation quickly. As preceding sections have noted, the impact in these priority sectors mae by the four credits was a major factor in &etting Ghana's recovery nderway. 6.22 A more interesting feature is the role of these credits in the evolution of the Ghana-Bank dialogue. Given Ghana's low credibility initially concerning commitment to policy reform and its limited ad- ministrative capacity to carry messages through, the four credits were phased so as to progressively test that commitment and administrative capacity. This measured pace enabled the Bank for its part to demonstrate its willingness to give Ghana the maximum assistance warranted. Complementarity and flexibility among the credits also was important. 6.23 For example, the ERP and ERP TA projects reflected the Bank's caution at the outset by requiring action by the new government on a number of major reforms as a condition for submitting the projects to the board. In addition, the ERP credit -- the only one of the four -- was tranched, with six key areas subject to review. As this "courtship" progressed, the level of mutual trust between the government and the Bank increased, as did the Bank's flexibility in its handling of credit conditionalities. The working relationship built up between the two parties, and the experience they gained, in the course of the two RIC and - 109 - two ERP credits was invaluable and probably a key factor in the success of Ghana's structural adjustment program. 6.24 Such a process, however, probably can only succeed where the government is committed to a reform program that it considers is its own, and where there is a reasonable degree of continuity among the participants, particularly on the government's side. 6.25 Parallel to this evolution was the role of the four credits in expanding external assistance to Ghana. The climate in the international donor community in 1983-84 was far from favorable since Ghana had, in effect, been at the bottom of most donors' lists of aide recipients for some time. The RIC I, ERP, ERP TA and RIC II credits, coupled with vigorous follow-up by the Bank and the government, did much to restore Ghana's creditability and begin breaking down donors' reluctance to provide substantial assistance. The dramatic rise in Japanese aid, beginning in 1985, is especially noteworthy. Bank Ma"agement and Supervision 6.26 Managing and supervising the four credits placed heavy demands on the Bank's staff, especially those in the country programs division responsible. In the course of the credits' execution, a number of other projects and programs (sector adjustment and rehabilitation, structural adjustment, a large amount of economic and sector work, etc.) in Ghana got underway. In addition, there were major iritiatives to raise co-financing and other external assistance, improve ai4 coordination and to intensify collaboration with the IMF on Ghana. 6.27 The large number of policy and 'nstitutional measures in the credit added further burdens. As the preceding paragraphs note, though, the Bank became increasingly flexible in h.r4ling the conditionalities. Most of the measures stipulated in the credits were satisfactorily carried out -- sometimes even ahead of schedule. SwA of the measures were incorporated into other projects and programs e.g., the Industrial Sector Adjustment Credit, which, in effect, overtoo: the two RIC and ERP credits. Others were carried out, but not necessarily always recorded formally. 6.28 On balance, however, it appears that the key measures, such as cocoa producer prices, were usually kept high on the agenda, although not all were successfully implemented. In the course of supervision, Bank staff also were apparently able to spot most of the problems which affected the credits. Resolution in many cases, however, was more difficult. There was little improvement, for example, in stepping up disbursements -- even though the government's limited administrative capacity was a matter of primary concern from the beginning -- until the Bank made the issue top priority. The resident mission in Ghana, which was invaluable in helping manage and supervise all Bank operations, then took an active role in getting the Central Projects Monitoring Unit established and arranging for funding vehicles and equipment for project monitoring. 6.29 In hindsight, it could be argued that the organizational arrangements for supervising the credits, certainly the ERP and ERP TA, - 110 - should have provided for a stronger programs division management role and integrated missions, rather than individual sector operations. This probably would have produced better focus, for example, on cross-sectoral issues and provided better balance in the employment of staff resources. However, at the time the credits were made, the Bank's separate projects and programs organization made such arrangements difficult. The ERP Project Implementation Committee was the initial step in an effort to create an inter-departmental Ghana country team. - 111 - ANNEX A - 112 - Table I Credit Profiles Related IDA and African Facility Credits - - - -- - -- - -- -- -- -- - - - - Loan/Credlt Year of Title Purpose Approval Status 1170-GH Railway 1911 Closed Rehabilitation 1393-H Reconstruction 198 Closed Import Cr. I A001-GH Road Rehab. 1988 Disbursing Maintenance A00-04H Second Recone. 19 Closed Imports A013-04 Industrial Sector 1987 Diabursing Imports A25-0H Structural Adj. 18? Disbursing A0251-G4 Structural Adj. 1987 Dlsbursing F0094H Export Rehab. 1984 Closed 14815-4 Export Rehab. 1964 Closed 1436-4H Export Rehab. 1984 Closed Technical Assistance 1578-GH Second Reconst. 195 Closed Import 1601-0H Road Rehab. and 1985 Closed Maintenance 1672-OH Industrial Sector 1966 Disbursing Adjustment 1674-04 Portse Rehab. 19G6 Disbursing 1777-04 Structural Adj. 1987 Disbursing 1778-41 , Structural Adj. Inst. 1967 Olebureing Support I101 m- Agric. Services 1967 Disbursing Rehabilitation 1654-04 Cocoa Rehab. 1987 Disbursing 1858-04 Transport Rehab. 1967 Disbursing 192144 Mining Sector Rehab. 1963 Disbursing 1976-04 Forest Resource Mg.t. 1988 Disbursing 2006-0 Second Structural Ad). 1989 Disbursing :AINA - 113 - ANNIW A Table 2 GHANA RECONSTRUCTION IMPORTS CREDIT I (CREDIT 1898) PROJECT COMPLETION REPORT CREDIT DATA: (USS a) Credit Amount 44.8 (SDR 87.0 a) Disbursed 39.2 Cancelled 4.9 Repaid as of 11/81/89 0.0 Planned Actual Appraisal March 198 Negotiations May 1983 Board Approval June 2S, 198 Credit Agreement July 13, 198 Effectivenese Oct. 18, 1o8 Aug. 18, 1o8 Closing Dec. 8, 1984 Map. 81, 1083 Completion June 8, 18 Oct. go, 196 CUIMLATIVE CREDIT DISBURSEMENTS: FY64 FYSS FYN8 FYI? Planned, USSR 40.9 - * Actual, USIm 19.6 29.7 88.1 89.2 Actual, X of Planned 49.5 74.8 88.8 9.0 STAFF IIPUT: (staff weeks) Leading 85.7 Supervision 27.6 FOLLOW-ON ADJUSTMENT OPERATION: Ghanas Structural Adjustment Program, Credits 1777-OH and A11-0H, approved on April 14, 1967, in the total amount of SDR 96.9 (US211) million. - 114 - ANNE A Table S GHANA EXPORT REHABILITATION PROJECT (CREDITS 1436 AND PMS) PROJECT COMPLETION REPORT CREDIT DATA (USS m) Credit Amount 78.6 (SR 71.8 a) Disbursed 84.8 Cancel led 0.11 Repaid as of 11/30/89 6.9 Planned Actual Appraisal August 1961 Reappraisal May 198 Negotiatlons November 1918 Board Approval January 8, 1984 Credit Agreement February 9, 1984 Effectiveness May 9, 1984 June 6, 1954 Closing June 8, 1988 December 1, 1966 Completion December 81, 196 June s, 1969 CULATIVE CREDIT DISURSEMENTSs FY5 FYNe FY*7 FY36 FY89 Planned, USe 31.0 76.6 76.6 - Actual, USSm 7.2 8$2. 5.7 76.4 84.8 Actual, X of Planned 24.8 46.6 78.6 i.5 126.9 STAFF INPUTt (staff weeks) Lending 200.5 Supervision 168.6 FOLLOW-ON ADJUSTMENT OPERATION: Ghana: Structural Adjustment Program, Credits 1777-GH and ANS-0, approved on April 14, 1987, the total amount of SDR 96.9 (USSUS) mi llion. - 115 - ANMXt A Table 4 EWPO REABZIWTATIGH TA (CMIT 1436) PRJECT CowLtE7ON RUMT CMDIT DATA (US$U Crodi6 Afiek 17.1 (R 16.2 a) DIGhured 19.9 Caselled 6.69 Raid es at 11/36/89 6.9 PIn~e A~§mI AppraleS June 198 Negoilations Nvember 198 Be d Approvet Janury 8, 19t 4 Crodit Agro~. F~aebruery , 194 Effe~ivess May 6, 194 Jun s, 1964 CIelng June 3e, 197 Deember 81, 19 8 Copieblon Deeber a1, 197 Jane 30, 1m9 CUMATIVE CRE DUI Sl~ENT8: FY4 PYM PYN PY7 Y FY PaS9 Planed, l U8. 2.6 7.2 12.2 16.2 17.1 - Actual, ung8 6.1 8.6 7.9 16.6 17.4 19.6 Actua, % of Ped 5.9 6.6 6. 9.7 1M1.8 111.1 STAff Dl~U: (s~sff ~eeko) Leding 3.3 suporIGleon 36.4 PU.L-M ADAlENT OPERATION Ob t: s6rueberei Adjusma6 Program, Credita 1777-0 and AM~#.fi, approvMd en April 14, 197, the 1e1a1 asumi of UR 99.9 (U11G) elille. - 116 - ANMl A Table S GHANA RECONSTRUCTION IMPORTS CREDIT II (CREDITS 1578 AND AgMs) PROJECT COWLETION REPORT CREDIT DATA: (US$ e) Credit Amount 87.0 (MDR 67.7 M) Disbursed 164.6 Cancelled 6.40 Repaid as of 11/3/89 6.0 Planned Actual Identification Nay 1984 Appraleal Octeber 1964 Negotiatione February 1985 Board Approval mar" S, 1965 Credit Agreemeat April 5 1961 EffectIveness July 5, 198 August 2, 196 Closing December 81, 1987 December 81, 1966 Completion June s, 1986 June ag, 1989 CUMULATIVE CREDIT DISBURSEMENTS FYS6 FYS7 FYN8 FY89 Planned, USS& 35.6 76.8 67.6 - Actual, USSM 49.4 69.7 9S.5 164.6 Actual, 5 of Planned 141.1 126.1 119.9 126.3 STAFF INPUT: (staff weeks) Lending 94.0 Supervision 31.7 FOLLOW-ON ADJUSTMENT OPERATION: Chanes Structural Adjustrant Program, Credits 1777-H and A91SSSH, approved on - 117 - Annex A Total Staffeeks FY83 -FY84 FY85 FY86 FY87 FY88 FY89 TOTAL RIC I Lending 35.7 - - - * - - 35.7 Supervision - 18.4 8.1 0.9 - 0.2 - 27.6 RIC II Lending - 14.2 80.4 - - - - 94.6 Supervision - - 5.9 16.3 7.4 1.7 0.4 31.7 ERP Lending 155.4* 53.1 - - - - - 208.5 Supervision - 33.6 56.8 41.6 15.3 12.2 4.1 163.6 ERP TA Lending - 3.3 - - * - - 3.3 Supervision - 2.8 7.4 8.4 12.8 4.4 0.6 36.4 Total Lending 191.1* 70.6 80.4 - - - 342.1 Supervision . 54.8 78.2 7.2 35.5 18.5 5.1 259.3 191.1 125.4 158.6 67.2 35.5 18.5 a.1 601.4 * Includes 50.5 staffeeks in FY82. Sources MIS . . Annex a - 118- EL Goods and Services Financed by RIC I and II. ERP and ERPTA (SDR Million) RIC I Original Allocation Final Allocation Agriculture Insecticides 2.8 3.5 Sprayers 3.6 3.5 Fertilizers 4.8 5.1 Weedicides and pesticides 1.7 2.0 Tools and equipment 2.0 2.7 Tractor spare parts 0.9 0.8 Transport Truck tires 10.2 7.0 Retreading material 0.4 0.4 Truck spare parts 3.3 4.4 Truck batteries 0.7 0.8 Vehicles - 0.4 Railway equipment and spare parts - 5.8 Consulting services, office equipment and supplies 0.7 0.6 Special Account 4.6 - Unallocated 1.3 - Total 37.0 37.0 Original Allocation Final Allocation IDA AFC Total RIC II Agricultural sector 15.4 6.5 12.2 Kining sector 12.3 5.2 12.4 Industrial sector 18.4 7.9 43.7 Transport sector 15.4 6.5 19.0 Project Unit and Finance Ministry vehicles, equipment, etc. - - 0.1 Special Account - - 4.1 Netherlands grant 3.8 - 91.5 91.5 - 119 - Original Allocation Final Allocation IDA SF IDA SF Cocoa Insecticides 2.8 - 2.2 - Sprayers 3.5 - 2.9 - Vehicles - 3.5 0.6 5.7 Materials - 2.4 1.1 1.7 Spare parts 3.1 - 2.4 0.2 Equipment 1.0 2.5 0.9 - Gold Equipment, materials and spare parts 8.9 10.5 10.0 11.0 Vehicles - 0.9 0.9 - Special Account - - 0.1 - Timber Equipment and spare parts 10.7 - 15.9 - Vehicles and spare parts - 5.6 8.5 - Materials - 1.1 2.0 - Special Account - - 0.6 0.5 Ports Floating craft and equipment 1.0 1.0 0.8 1.2 Materials and spare parts 1.0 1.0 1.1 1.3 Special Account 1.7 1.1 0.1 0.1 Unallocated - 4.1 - - Total 37.9 33.9 37.9 33.9 (Figures do not add due to rounding.) ERP TA Consulting Services. Studies and Training Cocoa 4.2 4.4 Gold 7.8 7.8 Timber 2.3 3.0 Ports 0.9 0.7 PPF 0.3 0.1 Unallocated 0.9 0.1 Total 16.2 16.1 Reconstruction Imports Credit I Action to be Taken Pollet Meeug Action already Tpka Prooed ifgemdby si aterue Sector . Exchange mate Kulttple exchanga rate* tatto- Govermment will adopt a duced ta #prit 19g3 retagettag flentble system and "eva to- dovealuitten et 810% t tee . wrde a 99t4ied exchange rate. of Rocet curremcy on an verage bese. 2. Foreign echange Coverammnt will Intagrate A e*octo oport programmaN and foreign GschangD allocatton proceses. 3. Arreare Arrera vill be reduced ta a phaed manaar. public Finance 6. Revenut PoNcy Tag bases restored as a result Ten adataletretton va.& be of enchabg rate edjuatmeat. otrengthead. New tea easures tnc-de an [ncr*se la duty o god and a new ten om net weeth. A impliftetion and redaction ia trift rates og leportes aero for o.t, 2$t and 301. Subetautle icremaoe om wide range of fees and departmente l sals* of goodend services. 5. Zpenditure fotlcy fupeindlture controt syste* ha# The @h re of developeAt ependt- leen establishd. ture ta total e~peadIture uill be IacroGGed. 6. Budgetary Defte&i Budgettry deticit for 11g3 Credit to Goverfment from the targetted for reduettom from beaking systes ta 1983 vill be 432 of expemdit(re to 201 reserakend to £2.3 bM*io* or 132 of epeaditure. of expemditures. in Reconstruction Imports Credit I Action to be Teken oliy Iose Action Already Taken Iroposed INf Standby iC Cocos 1. Producer Prictg Cocos producer prices Frioes wil be reviewed Ieresed from 012,000/ton aesusty with IDA sad adjust- to 920.O00itoe. offectivo mat* me as Necessary to ay 1, 1983. astaeta Iaceatives. Infrastracture S. Road Trasport Freight ratee lacreased, on so Freight teriffe to be reviewed Frelght Tariff everage. by 16u5. s*t-anaully with IDA and Policy edjuated to meistals Itascisl lcestives for tteasport operatore. 9. Railway Tariff Preight tarifft iscressed 3802. Peesager tariffs tacreased 1003. IO. Power Tariff Blectrietty tariffs Iacresed by s 402 &a average. II. Water Supply Tariff Increased by 1503 an average. 12. Tolecomenatcetioa Tariffs iacrees*d by 325Z on sad postal Tariff doestsic and 127X on esternal service*; postal rates iecreased by 3653. Il. Petroleum Priciag Retail prices at petroleum Subsidy on petrolem product praducto Increased by 1045. petces will be phased et by Jee 1984. Agriculture 14. input Subsidies Subsidy * fertillser reduced Program to remove tertillser from 502 to 203. subsidy will be reviewed with IDA by October II. 1983 sad subady will be as4mtly phased on CA Reconstruction Imports Credit I metto ta bo Taken Pe2tev ienu action ltrea7d Tak** rOUGd 1 1adby al IS. Vartitteer *i.gribusten Fortt'ten dIstttutom uti be 4peed te petvete settr and cemperattve. Ueeneste tiee.et 86. geenmate Ihe Offce elo Coordihuttag toerdtesee gearetery, Emc. bas been esgbed ah. estrle rote et etensete eaditesteft. iaceese tetter ly. Pubtlc seer ige Civil servtce serie &neeressed. ulter m an övergesa. by 605 co reverae eregime of the pareheam per. ta. mat~ Wg miat~. dtity mage tmeaed ftoe eU3 te 22. at. ftestieet privata 60vere9 9 he ameuaed pelley leveseeat atad et facreustag foreiga privat* timvsmei prttetpettom a etag. Export Rehabilltation Prolect (Cocoa Sector) er lamP d s Jutifatic/Mwulf~etq Ti..me~ for A:ton huar PCicR Qn pm~ frit to be sa d FiNN~ iniv to ae fan~r Price increas pO0=l to IM anily ta consua with ikM ad increm d pse&cio. atunu by Jauary 31, 19M ad g~- a - pricm to be anum~d bfore ftvm=ns producin bu= mr en with IM by ftbuy 28, Nc a y ,uttIve with thmse fuff mige. 14. Gwermt IWImpmtatin of te aed ~prie by rc 31. 1986 ta a dImf t, mdisittm for the c~ esctor Cmit allocatlm. Sadlr coslalatita ad ra with IM fwr ueeu h uda.aU ~ocoa Prou=e C~mitte to be emtablishm by frim e~ Q~ttec to ha Jnuwry 31, 5gM. tblsh., with fa d Ga pusmativm, to auvier aq åAiw=im g-es prie. hr.ig ghag 43S ctinus to be alted to Inread u'ductIon th~i timly Smmlied t nad res to tilize raaln 1(a cf eport prods a~Iffiilty of mrta Inputa (e.g. de retentica fuxim retly intru- for ortatta f ecurrent ineticide) and imromd efficieny ~ erm~ by the rn will be ~npu auesnal aadu parts. ln halg. nitom by 1M. Pfoiction Stra~ a &m~ -tes stratg ad Sllla n .ug-rna wnonadc viabillty of de Prodcetm strategy, MD cntrol Suet Vitrm n0~lme (SMD) tsoi c ser, with tIm aa f cno- p~gr- ad afespe m pla to ga to be e 1tablishd, owen- UdatUg nma acre by Wif ad be p~rared by Jm~ 3), 1914 and tratn rebiltatien nare not em thm datisg pmm a~erg then to be carriM ta. ac~nlisg yut ksted; a agiulatin yeld. to a tuCtabe usatactory to IM. syatutegsm to enurag Setor Uaion w3d and =~cmla rvics of (S Ird operatidg ettency of lbtutursU as be~n Inäitatal; to bs tructed a a mmral (3; grtW finrcal dscipline; apltan of Ma5 rrganauteto.. aty. n-a•tIng G det to armaaMlity af mwnamnt ad tio a dtabxntmet anåittm for be sitdch to Gwenumat lag perfannn ntors. After tIem coc~ sctar Ctallt allcata. team los with a gra parted to inital perlod, ~owt Mnas to ena <3S to finns develon inrmas th a cWpatea= wqudtaau. ad 0»3 dividend. Export Rehabilitation Project (Onci~ tOco sultor) tor ee . Prp ustificatin/Uef Its T all~ for Action 'stafisg A fivar atrnmnt pegrm hrt opgrat R~ise et of 00~. Staff retrncu starth in to i bri=e~ d~i at a is ~d ore of o mene 1984 a aner e i adaw~r amituga m mS+ c for fa . to timea matisfactory to TM. amploye pr r~U mugmnt hdjuntmot aeistane pr ti malta= kr dai . m sa. be umtted to IM by March 3. 1984. •rivlatiaon (3BMs mmu planeattom to be Ham ~t perat ~s and mprovel Staaly of putenthal a pro ere privatieM by pumUlitg ut g ffclncy ty G; Uwe~-te rato- to be anspletad by Jume 30, 1984 prUMt wrk adlar =eUlig to allsatim af a ecter orgaiatiao. ad acion tma by Dr . 31 private Iutofr. 1964. 0 to dåvut It dhim o ditt Study of divtnt prnhres procs faetmrie a nsehtcides to be c~mpleted ad action taken plan-. by abe dates. 0S to prpr. a prgf= to ditto Prgr to be revie d with IM Inemme hu~ of nmu by by , 31u ), 3964, i pleme~ed priaT~ rudres, Uu~. -auy In a mmner m acardift to LIM- ftm depots to pomta. table stisfactory to IM. 0»B lo t peap a study armd ditto Study to be reen with aMtcn~w m= uw% IM by Ju 30. 1965. al Gale ;, ~ida m privat on action tk^ by nnD er 31, 1985. er m~. b~ipIipa. Export Rehabilitation Project Sctor lais Justificwan/&nftts Titable for ctain Sie rganistim GS a1.a ad to be r.y.d : frd ad Initiativ= I to be ahidd ty by m trå%..=~n 11ésr T~ ot fr 111MO a exporter to export; Apri 3u , 91.. Uwelpe ad (1=) usetim- imhs.erta in Gomn omtol *hwd strtaly a - iport ~- ad intr kt In ~port pruce- tin bod idth mpeftatim ft ~rns; imoed mart intelltgen prodcif §dus m =ll a Om't. ad poætton. Omtrol a In&try Nimu enport Frie eg lhlan treased LIdir exrta and stpIlI- Actlæ ompleted. Effective 8bnIdu~. ticat of export praæåies; iplementatim of sopllfked iproe tare nfidenc in QUIm pInnmåes to be mitored by UL. ~ta. Prior Goout approal of ditto ditto export atras dicmU~. (adim ad npctlon ræt Prø~ts huppnert Bema (ester rpmkeg W~&ar l.lty of Gh~n 1o be æteMi~hed by April 30, (wI) to be auwah~has a alf- produts; bdg~r foreigt esche 1fm~.a reah¥ rafma~ tody to earng d~ aotd~æ et aer- strethn grad~g maå amisctiæ inhat~; siplifcin.m at export ef .trt m~pa. pEM-Ø . am tider gradig nules to ditto 'a be ~gt.m. by Ma 31, 1M. In alapted &d~ FMs for atentiom Inread ga.in~ ad qpatim b~u&a l reety b~ et 2E at e~pot prad effihmy of alls § u u t~ly str~ie cmsderbly. Nather @tna~. .ata Iruty of reun iported staUlication to e etodad by inipt. March 31. 1M~ , 1Mad 5pan by .lun30, lim. State- am~ Altm~ tratgs a fr mm~- Img-r a raeinntmat sætar Stady to be anpleted by Ohp a e ng at ste-Maul andiagi ød rS vaillty Smp~r 30, 1%; altentive O w .n~= tø be o..h~a. and af de sta-ud ub-gactor. etratgm to be ~~a... by . o ~ ,ptd. hI~mia= the poslbility """er 31, 1gm. at privain ad ge cotacs Export Rehabilitation Project (Cotian Tibr Secter) Säcto 0. Justificati~nents TnhImw tor Actiffo mai Micy A genal g~ v of for& ~c- (ail umtliza~n ef foreet ge- &mim to be carried out by 'mt aJjcuetgn to be cmgri m aid incremae eqport poade- .bme 10. 195 and actlin t an «st ml foll~iep acti to e- tion. bynrh 31. 195. =1afloats e m snau*taa "ic priority to 1 n A m a. 1 qt 1! 無配黜騵庫卹雌坐蠱遜變里生旦互壟貍里U 顫騵L購刈園山匕劍騵h曲細”‘組口鰓‘由鰓他豳驢朋【勵國自刈加劉口細亂叫U亂取劉•自向瞌」目配二戰州頃戶 ，。憚轉暈口朧朧瞌」口口口瞬 .．黑州闖劇釁澗犀陳陣J馴鷗州口闕口 1．馳細豳Jl」匕口視縫唱．勵h戶彎，.＿巒豐’“•＿•闢＿1．勵審一＿d戲豐•于．巒‘．巒，．嘆．勵‘&,.,．變，甲”．巒，二＿1．奮矓．豐響開《n馭》“&t柑爭＿ ．一－－一－一0•鉤二個•I•‘奮個勵．個口，．個唱個，•奮啊•，0啊弓．••留自個．個口響•，一•tt自藝唱口O口，••個煙•．口口個，煙口口『0•O，妒•．口口唱口．口勵口口t．個•．邵•••O•．，•，煙日．唱，口辭口 I闢號跑視驕，t夕鰓外彎．巒胛中．雙酌＿但黠卹．奮一tt胛鯽…劇啄“闕口‘,.‘甲“觔‘&,，甩闢1.，一胛中二t二皂嗎l一，訕d&；•二tt- 口劇磚審觔電啊．．里•胛“鰓．&，一，.，門”驕．一ht．∥•．，胛胛胛妒胛r吃．•門，開n。＿。于．戶‘曾件．r．豐”．開•＿二口鉤妒＿ 留劇戶．口•e胛，．•一戶r’•巒雙•，•，.&，視禺“，胛•‘•t,‘…．,.:，曆戶•，■••••．．••，t．•．•．一門•豐＿戶，．巒，r.”。•自勵．一“唱．&& ..d口•••胛夠．口留唱他細e•．個•．電•。．,，可胛權•祠＿朋邵口哺自．辭•．I一，．••雩，彎開豐．•‘．劍“••，•．．•，,l口“磚甩輪。開可••馴開t胛t觔 C胛賽叮巒．1＿唱雙吋二•．，胞唱t.,．徑．•“.ttl胛鰓仲悶鰓r．勿．&l一！吋磚I,,t:t胛．鰓門胛，二t.”馳f甲“屹吧＿便二B.I邑．,&. －…，二劇唱0個付•口口個•．&&，開口…•．，開，.．巒壁馴開興．••胛．t…豐巒•■•網t開．同戶•‘一，叩r•，口口口“審一•．口屆，．一，可開，巒〕 .，••．，變豐“N馴胞中吋巒勵”唱馴”•f巒r叩•t．勵y•開．t．唱•一tl購t••口l•．1關，．唱館鈴J啊胛乎悶•細開雙甩開馴狎 州闕細e•．甲二•二華．•．,,，個•闕啊•口，啊，IJ••，豐柑豐．胛，二••••．綢，吵弱． t儲言t．•夢t,&I日I&．離••d寫‘珍為唱I騙．•”‘啄．作．亂豐．•尸日胞，廈‘胛“t響歸．＿絮勵• I個口跑。嘔•勵I叩•，t,’確二••藝一瞼．r,”•．•勵’t萬f…細r,&I吋，.1飽．，屆歸婦籐I居t.tl歸，，•I&t •細，,tt俗d••t．奮”•．.．一t．•｀儲．日也購纏”細，唱叫，，儲，，•．‘戶驢開t．勵．整“甲I.t．個t. &,I勵，電．審l鰓t“••••1.,rl.r纏’仲•l州。！開巒．,．他雙甲“中＿甲網“．甲呈伊細， 露t•t。煙•，啊常•唱戶•開I•to口名•，二屆”他唱”一，辟．亂昌唱，0勵•勵t口亂亂．唱• “•••．．•細∥．他胞仲1．鑰吵叩夕．竺細．•妒“，••，.’•。 劊騙開口闢I鰓•馴開••“個觔．日•亡：．號．中究“•胛巒夕吋j& 勵•留州闢磚•t••，．儲∥觔‘開•‘•〕開旦‘•巒中吧“，•，,“于纏•．1 •離•••歸勵。馴州州“嶼胛．”•彎，．■．‘•向•r 亂憫為自口口口劇馴彎．，•口•••，自口卜‘ 當：恕么業織．..，乏 I a·號耋豐曲如：:l：•為豐鐸認－糁．件尸•‘豐•：霎；：拱：靈豐碳：黑•， 一一－－一闢••付鰓巒“&.，究叩‘一號邢竺豐乞竺巒肥雙．－竺竺！界忠界“. •飼戶彎二，鰓•••••，t•巒••••一他『甲雙奮實：實亡•r么二觀＿．究【。． •磚飼•哺．•．＿•煙個．“•，．胛．神＿，巒甲豐甲＿巒巒豐豐豐，t巒•1豐咫＿三豐1.- 熙繳臘荊’→；：編•二馮一誡．”· 讖籵汙韉胛 門鰓巒中興t‘州州＿馳州徑鰓＿。＿ •••．登•••唱巒••豐，豐墾•••滷戶”．一， •C煙．d口•，．口口••屆網•‘，個口．t “口“閱•． ,．鹽對以必心製豐哉紹輩豐矓；豐歌柑告此六 ••“&，•．‘•胛••鰓•，，•．甲”口于”『吃•鬥鰓豐實甲甲豐＿__._.___‘。＿__ •．••，•神••，二•．&“••t,&．•，雙豐一竺號豐甩A竺乏仕豐．鹽j雙鰓雙‘,.l濺 巒巒．豐界吧．豐＿豐r變鬥于付：d方妒•一，彎•乙 口口甲•口個口唱舊個口口口『．,．乎甲．.0一l騖斗 自闢釁劍圈卹t勵哺吋歸屆，__rlr! 壁墾竺號妒‘枕•忠j亂妒1三．一居h 碳不編r織名．’必•騙不i薇．&,lh • 沁 •月 n 十唱 物唱 &―。 號日•兀 不IJ口 式I個 《留H ．啊磚’，飼購，．審•闢＿_.- ,.“開•r調•．叫”j細•．‘幼抑邵巒輩中•徑鰓甲甲巒＿賽里鰓徑雙 j州細J馴口網•。t’•細•一l.&,，鰓豐竺物聖1里j竺•雙肥竺 啊一，二觔騙•妒』．個O二口•閱•煙甲巒甲豐．甲髡＿甲目豐豐甲 一t”用，．一l，闕•”．騙細露．1網”二，門甲，．豐巒里巒巒豐甲→于：壁豐鰓豐豐 闢•細開關馭•．••州寫•．1辟•••甲唱吧＿州豐！甲界甦＿才仕豐竺豐 馳．月叩開•闢．•．馴奮唱開」．•磚妒珍＿甲•可界審鰓叩甲＿巒．_．吃．雙豐 ’•煙：．計‘-.&&，•■．&.’勿叩甲鰓巒叩 一言寫間p為•！，•由韶••“間勵月韶l豐”l開•．屆tt二州堅’唱．叩甲巒馴 闕．．唱．It•荊甲”唱”．••”I．•胛鰓豐胛日1吧＿颼豐豐＿竺吧豐壁！竺 .tt開叮響開a．甲口l卹口口•鰓個．,._，•州甲”．網．•．&．一•．一視＿豐甲變 ”••韋tl••口•‘•1．昌網•，•．1召••添騙”屆個••口．調間I-．胛奮中叩甲挪門胛豐莖，&,,,,, 戶“磚•．牧．論劇”勵t卜也！二t-．煙•1 .1•寧啊，•．•馴•．•網乎，屆屆一，．邵巒豐豐巒＿，巒巒，胛巒甲甲巒－啊，,，州唱唱嬰號，一 觔•調．•，‘甲“口1．勵颼l•參…•••”•a．•，一I，•網戶閱t.,&，月二，•••••．,,,.a一••馴唱－.．一，．一••，一〞•：. 個） e纏 H 藝 .&，•．J二，閑坤．J二，••寫••‘••． •••tt。二t t．闢•神．,．州 &t•．,，。…”•．,”神” ，。•，•．•細•，,’二，••，。。＿咨響，豐胛州豐巒巒＿豐艷州胛胞＿雙贊巒 ．馴．1卜•審”“鵝”唱，奮響露二胛煙＿甲豐尸甲巒巒豐豐豐甲豐－甲＿變至豐豐豐 ••，,．•憚磚二卹”．•”,．••．勵•”.．一q才”甲胛鰓＿于里巒•甲甲更 馴纏•‘．•”．。，，二•l•．闢•••．•••■••彎萬••莖•，中甲于＿雙雙甲 寫自中鉤l綢唱闕．系．1物t寫••••叩•啊口騙馴戶•－.．藝，寫•間戶• 啊寫l•啊”屆寥•細．•言州••哺．•‘&．中馴戶蘊q屆胞實＿觔“規一籐勵”勵••．併口讓”召胛一， ，•鳥：．斗•卜識業•l:：以：騙償‘，森犢斗、：弋胎勰轟實’習為常綴為之豐狀：森婪爾叮儡聳總二 ．•物•細l ，·蠅縱纖蠻羹 &&，••．.&-．•。‘一，•”•．-－一••巒•二胛•．‘黠徑啊胛甲甲甲豐！巒巒 .，口•個I，露•個日C．口•，••••．•自口•口口＿.．一•自劇開間一唱馴間同•審•口•，•．• 馳”胞為二•變“，曆，••”•，闕“．•”神奮‘開．．寫勵開”。••．1’••馳．1神••‘開，邵•勵網， ••j雜，，開•胞”…I＿二”•二戶0‘勵權•他•倘寫一叫二物馴閑．誠l開•．購•．••0口‘•，唱．劇口口•••馴開騙 一開•叫•”,“•戰．&J&I，•”“…•．綢柚叩，甦•開••，•••．,”•．&.，州哺•睡．••鉀＿辭計唱華 馴二I二鳥勰二彎綴‘驚器：亂，；斗勰讓蘿”講”、謐騙：’露為謀蠶編兀勰“&&q闔同，•叩司二 面國邢n師細田面，. n闕叩門目日口騙廠5口翻曰刁目勵·。 •m”開n間『頗間•”&r「馴『寧開•”職「哺閣間n口挪霸寫即寫，個頗『，•廈華啊•啊，州闖降寫下州開 兀1兩弱砭1痲而可1蘇滿召菲芯亂沼 ReconstnicrIon Trimports ProUarn IL wltn ard Peiler årøa 1. kam IMOML øfflt t før (8) w~out, a p*lst t«mc- heat&& §mi~ § (9) ~tor fralestem te 1,* u W=ope wp 0 ~ 04904« gut la fLoøé fm er mim v~ . ta IM. 161 ftwwøtt« og "i wittleg le Ifflotgaffi #fqgm fm t~ «ete r~ 1~ø« to rM-se ~ le pan om ~ ft~ twolt 4d the %*et 4* trosettoe 3. b~t "gat ftfflqtqD gi fure&#* 00 ~ Iffert a. at m~ to b~ 06 ooport 98%gaø #ff 1,11 #eir ah* t~ foe the ~re 0~ et 0«t«o fal~ , c~ , ii gi, irle*t"røl %*ror. the 0~ bøll t - l *«ters *bo ~ tft tro* nr *"t" a) tr«t&tia *1 $19 9111i4M fo«emtad to he outti#twa fot tala, 9«mw>, «4 the tog "See01tural #«tor i~ es Chr~ IMI. as 011 tete *881 kogg metor aha Me 11 t 15 peirea* trolott - Meo* 11 (Oleal <=toe, om ollto«§ rug .e:t fm the #rar~ ~tor oreatdød tw~ tor tutboir er I M4 u@ oM mer). ~lo~t *i ake* ~ gov tax:ørt« o~t*to. 1. Pollclog a~ hoe a *gral* c~ wage» W mur 4"I&QD et %kg t~ no &«* C*tes *Ørkesløs 94 80=t~ te aros etepoi lege«. ØwIce 141*o~ se beieø osir«91"" om eie le, @~ vi e~ sle 0 e - too te te@ euto ett«Wøø osuløff o~ ret v* *&0999p le 40 "cg"» le the Iwico ter »"W the Ur ~ 19 ake* ~ to~ el*B tir~ ($*b~ ræ eat« by ta rotuo vith a e hat affikt 180 6~ om telem cattýnle m# 8 NIL ~ -tk~ et Ohio trlou to ;;ý.m te 19% auglagt ~ teve **øm~ tut~ le sod110 fete*@* tøm. åer~ ~ ga 48661«1~k oslige, "Olrog ~ Uýø ramse og rifte 801d1 99~ 6t #fat* 16 etsø 0 gut 01 &folge, t«& orøp «A #tøtrtb"tm t*øs« * egi» ute up letemned *ortiul. w$ &tom~ *. Øknorofflote er@" "*ter Uktak egil 69 *møt~ -t ft~ t% 8~ boo "lovatod meg I0 g* tas og *a mer*U røview *i hoM A*atøket mé tue&$&~ to Kw at 410 elte. bløtte& C1661 80d 4161fibu*tm toefnø&ø tvete tenhor øepscore uo tawoostves u* t- tet ;toe tom. ctø* ter nefte og M. e~ 8«406 a - ----- 10 (4 mne« te the taboeff u~ the #VW~ le - a~ ti to«g9= jut "M ø Iffle*r øl the ~u re 40* om Pfl~ *u vet*. Cmten M«6 ::huff =o or* 0 offitt 2~ *# yter* MW t.- PI a ý< d Recon&t煎uct神，廈卹醒聖聖蠱號懸黑無 細藝憚譚喊上國腫L紅鯽卸卹•榦澗•．」觔叫山•川U勵目匕觔劉口觔滷劇匡」．觔劉口豔細L細峰澹圖團綱學 tt奮。細口國州U閑編個 ,．颼口••‘。I細．念農認辟論認倡鑼以。編綴州魷騙Ir’為鰍亂仕吧勰鑼驟，& l•騙目騙鰓闢l•鳥，購I騙飼自t館．鑰•l纏細I，體．常劇伯電細•••f醒一•••州ttd。．’已It物目畸網畸一tt 獸開騙唱劇自“個“j•織開”•＿寧邵自＿••＿驪夠一，•彎開•劇嗡自鉀，卹，，細•荊嘆膩洶•“口”叨開O 闕取叫陣自開曉闢．卹關婦個總闢吧蝨綢．徊二屆闢跑開唱儲•，鑰煙馴自，,．魚闢個由開他馴陽， 細網自自屆，，吃闕日儲個口口口申n•••，．自戲開開I•，．••t闢l•唱細＿ ．•一•j夢•••甲叩卹．彎I神巒口口，•亂卹甲神審馴戶U口調口擊取觔劉寧 勵口編個卹細勵騷＿雩．織•．口•騙口0•口儲．憫唱．開飾細付物鬍開朧唱 啊闢自．劉口，戲開綢口．儲歸煙•開，•寫劇闕崤•．騙O口開目••口口 屆網瞭畸馴口網系開勵•I論．自口自．口．•．自馴閱露•細夠，I攔．韶 口關系闕“開卹。t．寧“露f t.,d勵由tttt響t細•••口 細l開口唱輪••口馴闕險歸t•ttl儲． ,.－躉轟營繡腳．二誌·攔叩鳥、牌斗侃． 不不馳面•一瀾1訕州必兀一鰓聖豐竺鰓l雙遼豐j他豐登壟一臘屆 需鳥常綴騙二；寫r.．編謬論實翁．•不騙0 r•口開囀•“哈闢鳥號靈寧＿州竺飽乞嗷螂竺甲．二竺償• 纖邢繃妝斗·響妒繙義驟 ,.I總口山‘跑”“•韶鸚崙綴認綴‘六紹．：轟饗耑豐認r～寫久鱉豐豐轟謬計 吋響．目•開‘•”•劇時，•儲響•••。購喜＿開彎國開戶．，嘐吋磚－•！＿開”.‘•，•．．•馴”一，,.&& 聳然排黛轎萬祕臘 認編訪以斗氖雜州 吋l訐 寧I實 一I& 騙10 羹 ..&‘賺雜挪罵憲繃矣一．& 蟲鑼鏖囊。＿l.& •，•．州物，,.&”中巒豐＿胞 唱It．巒言購一”•口開習屆二•••鰓里甲 森物職撇·梁•二偽縱巡灘 7鱗蒙歟員灣離：購驀編一， 龍m審『網國『馴騙騙” ,＿麒礬雜馨→，, 勵細閑『開開他矚．tl他 細不頗實軍開，網開膩間叮n〕留奮開••悶，藝•彎〕矓編網開屬，••『，間寧開。牌，中h•雙屆騙 可不不抆不鄙靦間不筒濛補爺贏芯蘊 羹 〞 • e哺 e〕 口司 他 ．寫，開•j•”口•啊1.？•』．，••， 騙口，t•二，．自勵口•馴歸目•』顱婦口自•，二 一•口個•J．唱屆•口口•個騙t•唱牌呂•抑勵•劇馴間開矚•J口甲，•月•啊• 寫•••二，•．•J勵，牌網j，•．,，邊口個甲t，口么劇鬨闖口．個唱以劇馴開目婦一•．•馴鬨牌 ．•馴陣」．•畸露．．抽口•，.!a仰．口口．jo...‘騙l•．•．開O••口開I &”中，歸•••一爭I甲＇•，1.&_＿闕．’戶開開•購屆．馴開嗡， 口州唱婦細面i爛屆．,．閱”,.1&k露細祖二叩•州神戶．唱“•l州審 。＿．戶閱，馴哺，•顱開閑審．馴向開•。•••口．華．•啊．•1 1.）一l畸閑網口．a•自•，擊饅個唱•劇騙•口 •．&”細廈繭必Ii’馴膚”闢祈．•，馴細•爾病．,”•h馴，”一，騙痲鳥’一騙柚痲．1必網綢觔中•＿ 中”胞藝•，唱卜亂開開勵．‘神開向調啊戲開電．’口個•Ia．寫劇悶”婦觸•劉“•婦鉀•1.1閑阿馴．•••一－--－一邊醒L騙 ‘關妒細擘馳噸辭面向•．•嘔一唱•，，祐，•，•．•韋州”《•卜•，&．•。．•．奮．．編闢‘州細“•喝啊網陣寫瀆騙神啊勾’t 啊個調叮瀾口細〕州嗡．騙 ·”,&.,.d“•二州，”屆．•馴嗡鰓101騙二鈴I魚憫•馴p ’名•勻購•煙中神二抑仰飼•奮勵劇開，一•I跑調名他•I•卹t•言“開唱喝奮祠奮•個口自口••勵開馴甲開•個j• 神•”開•I加韋tll擘購j’』•勵，•口．個馳圖開總．jt•闢d口騙•奮馴開昀顱闢口留 ，甲”開．•”網開坤l&,.l胞U，一，袒開•劇”•．，闕勵‘.&‘馳t胛屆開J哺調畸，•馴嗡屆．1,”•婦豐月劇磚一 ，論奮•當口物馴騙闕口“馴U,．婦I•結開．調購騙．頗劇開，，口：.l網開騙•網口口’馴開，•，’∥••舀邵開磚點調開一一一里里里屋嬰 ••開，I’一•閑悶馴”開•”馴賜．’寫閱網•啊．一，•開．•■夠電n口妒哺騙，開釁購•網．劇網開••二馴唱．．個•啊，”寫•••．••．啊，& 開認作g勸由趙瀆硎園園田視噬．矗 &&&”磚下啊〕網關•”&r汗馴付不啊•語職「閑口關口爾馴悶”購藝，仰廳叮，•間甲q“啊頂叩同j•，”喲 n方不而二茲祕可不蘇寫市痲扇碗 - 133 - Toblø KEY EC~ZC DGICATORS 1971-76 1976-62 ion 1964 IN& 1946 1987 len im (Annua# porcontage efts"go) R"l CDP -0.2 -0.8 -4.7 8.6 6.1 6.t 4.9 6.2 6.0 Extørnal Tarm øf Trmle -1.6 -9.3 6*6 30.2 -9.0 1644 -1.9 -3.9 -21.2 Domootle Tor= øf Trøde 11 -1.2 -12.9 -10.6 49.2 SIL.O 7.1 n.s. n.&. ".a. coooomor PrIco Imbx 16.9 66.6 ln.l 39.6 10.4 24.6 59.8 31.9 26.0 (YO*r overage) monoy supply 31.9 40.4 39.1 72.0 40.7 64.6 63.9 43.0 28.9 (In pore« øf MP) Curront Account saleneo -0.4 -0.6 -0.3 -2.0 -4.2 -4.2 -4.8 -6.1 -7.0 w*rehandleø Expofte, f.o.h 17.2 3.4 0.6 8.0 10.7 16.6 19.7 10.8 18.3 morchandlom X~rtop f.o.b 14.8 4.9 0.9 10.9 18.6 20*1 26.1 24.2 27.0 Grøss Inv**tweent 11.6 6.1 9.8 6.9 9.8 9.7 10.* 12.3 14.1 Da ~ tie $*vinge 10.9 6.6 0.9 4.2 6.6 6.1 4.4 6.4 5.3 Du~ Doficit 2/ -10.1 -7.6 -2.7 -1.8 -2.2 0.1 0.6 0.4 0.8 Govorment, Rov*""* 8/ 16.4 6.0 6.6 8.9 11.8 14.4 14.9 14.6 16.0 Soureas Obsna statlotlemt offloo Bank øf W4~ Bank stoff ~timotoo i Ratio øf prieø øf tradeobl,ee to Røntr~ bløe. 2 laGludeo capit*1 ø~ turiøs f In~ by øxternet projoet &id. 31 Inalu~ non-projact, gren". - 134 - ANMlx 0 Table 2 DAN OF PAYsNTO Seleted gte~ U519 aMlåen 190 191 192 198 1904 196 196 19? Mrgheadis 132 -810 10 -100 -114 -98 -U -19 Experts (f..6.) 1104 711 641 489 i at1 749 827 uporle (e.l.f.) -972 -1021 -a1 -689 -a1 -729 -06 -1028 Current Aeu selene -66 -600 -158 -230 -214 -264 -204 -224 Nte: N6 Merchadlqq * Non-Facter Servic«. a Nft Faett,r Ince. Ne* Private Transferø. m Curre~i A~eount salane. Seeren: Sak of Ghma and Sank Staff Estmate. :bøp -135 - XM EXD Table 3 Imerte by Category (mililin USI) 1I2 1983 1904 19 M# 180 19*7 1M5 P..d, L.ive Animale 02.0 69.? 34.. 29.2 Ueverages, Tobae 2.7 13.3 7.0 11.1 Ccude osteria*s, Inedibio 4.0 13.3 14.7 12.9 mimerN. puole, Lubrisento 224.7 64.4 23.u 213.1 Animale, Vgea10 oli, FAte 2.0 6.1 4.3 4.7 rheiale 69.2 M.o 0.1 91.1 aCufe~tued oode 60.0 07.1 92.9 74.2 Weíimry, Trawrs £qui~pnl 131.1 176. 105.M 192.2 Uimeellenmse Mrnefaetured Article~ 30.4 34.0 1. 75.0 Cemdity Traneeien* Unciscifted 33.5 40.6 40.3 20.4 Total 631.0 539.0 041.0 729.0 M06I 1024.9 1110.3 C0P Grneth Rate by Sabsoctor 19.0-0 1900 191 1962 198 1964 b/l 1906 b/ 96b/ 1967 b/ 19U b/ AgricuIter. -0.8 2.2 -2.6 -8.7 -1.6 9.4 I 0.2 4.8 1.9 2.S Cee -4.7 9.6 -4.4 -6.0 -9.0 -2.0 I 13.2 11.2 0.0 *.0 F~rtry, Lgag a Fliblog 1.2 3.6 -9.1 4.7 6.6 2.9 I 0.2 0.7 6.0 10.0 Kadustry •1.9 -1.9 -14.6 -16.7 -2.7 3.6 16.1 6.4 13.9 12.6 U.alag -6 -8.1 -7.1 -0.4 -10.1 4.1 I 12.7 -1.1 19.0 $.9 Ueafacturlag -0.6 -1.4 -19.3 -20.6 1.7 6.0 I 19.0 7.0 14.0 14.0 C oc e -10.6 -7.4 -4.9 -9.3 1.1 1.0 | 6.0 7.0 11.0 11.0 Trasprti 0.6 -13.2 6.8 1.1 7.3 3.0 8.2 6.4 6.0 6.6 a I .et Square. "re,th Rate 6/ Estimsteo Nt*: Figure frem 1970-1964 gre at 1976 price. Figureo frem 186-198 are o6 1964 prices. Somre Comtrol sorem øf Staiette ad ~mak Staff EmIMLate. &øi! - 137 - ANOM 0 Table 5 Production and Export of Important Commodities 1962 1983 1984 1988 1986 1987 1988 Minerals Production Gold (Kg) 10280 8601 8923 9311 8950 10226 11631 Diamond ('000 carets) 684 339 346 688 559 442 218 Bauxite ('000 tons) 64 70 49 170 204 195 237 Manganese ('000 tons) 10 178 267 316 269 254 231 Minerals Experts Gold ('000 troy ounces) 300 278 266 265 292 324 348 Diamond ('000 carets) 666 606 421 640 6S 397 306 Bauxite ('000 tons) 36 62 45 124 226 226 300 Manganese ('000 tons) 97 127 248 263 246 235 282 Cocoa Beans ('000 tons)(crop year) Production 225 178 15 175 219 226 13n Exports 201 160 146 165 188 211 219 Other Agricultural Production ('000 tons) Maie 346 172 696 684 69 553 600 Rice 36 40 65 68 70 81 95 Millet 76 40 133 112 110 271 800 Cassava 2470 1728 6166 5193 2876 2943 3300 Ya 68 6 1178 97 1046 1001 1200 Production and Exports of Logs and Timber ('000 cubic meters) Production 400 870 578 620 690 961 Experts 95 119 155 246 345 497 650 -- e e e e e -e --- -- ---- -- --- c-- -- - 138 - DIAGRAM 12-1 ERP LOAN ADMINSTRATION AND FLOW CHART W0ORLD SAN11K Foreign Exch~ng Fund Rekmaes BANK OF CHANA ERP LOAN COOPDINA TING )1 Approved Lom ALTHOP!TY Applicaofns LOAN REVIEW PAfEL (i) ERP Lom Procedures Minister of Lords & Ouaterly Informrion to Selec-ed NaturaI Resources, Reports Forest Products Exportes M.D. Notionol Irev. SCnk (Lom Aoplications in Fmien =cc;4e Corrplic.ce with ERP Criteria Allocarions NATIONAL NVESTMENT SAN SERP 7EC!+MICAL 1 EVALUATON CONUTT-EE l ERP LOAN l (ii) 8 - A.&NR Economist ACCOUNTING Loon~~ MaNI Ecor~mst 5M RP- Lon Administration Officer REPORTINC frmion 1 (Tchn'ica A&istance PaEage) to Commercijt 0 - Other Stoff as reqd. 3oks. (IV) Commrciaf Bnk Cedi Fund Guff~nte~s ~an ~ or Licunc COMMIERCA. COMNECIAL CO-MMERC COMMERCIAL BANK SAMÄNMKSN Aplipto fonk FOREST PRODUC'T5 =EXPORTE.Rs - 139 - Annx F Page 1 of 6 Maior PolicX Measures in the RIC 1. ERP. ERF TA AND RIC II Credit" Policy Measure Action Taken Review and adjust cocca producer price Superseded by ERP. annually in consultation with IDA. (see below). Review with IDA by 10/31/83 measures to Measures reviewed. gradually eliminate fertilizer subsidies. Subsidies reduced, but due to impact of devaluation not elim- inated. (Agreed in SAC 11 to phase out fully by 1990). Review and adjust road transport tariffs Done. semi-annually in consultation with IDA. UZ Establish a Cocoa Producer Price Review Done on time. Committee by 1/31/84. Agree with IDA on producer price by Done on time. 2/28/84 and by end February for each subsequent year. Put agreed price into effect Done on time. not later than 3/31/84 and end of March each subsequent year. Carry out five-year retrenchment of GCB 16,000 laid off in staff. Oct-Dec 1985. Addition- al 12,000 in 1987. Furnish IDA for review an adjustment Done on time. assistance program for displaced GCMB staff by 3/31/84. Furnish IDA for review not later than Submitted 5/85 and 6/30/84 studies on the financial discussed 11/85. (Taken up viability and procedures for divestiture in Structural Adjust- of GMCB's cocoa plantations, ment Credit I (SAC I) cocoa products factories and and Cocoa Rehabilita- insecticides formulation plants. tion III Project (CRP)). - 140 - Annex F Page 2 of 6 Major Policy Measures in the RIC I. ERP. ERP TA AND RIC II Credits --------------------------------------------------.... o--- Policy Measure Action Taken Carry out divestitures by 12/31/84. Not accomplished. Taken up in SAC I and CRP. Furnish a program to increase private Study done. Discussed truck haulage of cocoa to IDA for review in 11/85. by 6/30/84. Carry out above program. Progressive reliance on private sector in SAC I and CRP. Furnish IDA for review by 7/31/8 a study Done. Discussed in on GCNB's corporate planning and 11/85. management information system. Carry out recomendations of study not Initiated in 1986/87 later than 2/28/85. crop year. (3-year rolling corporate plan was agreed under SAC I). Furnish a study on alternative cocoa Study done and review- marketing arrangements to IDA by 6/30/85. ed with GCHB who dis- agreed with recommen- dations. Carry out study's recommendations by Not done. (Although taken up 12/31/85. in SAC I, government still not convinced to introduce alternative marketing arrangements). Furnish IDA for review before 6/30/84 a Done. study on shipping and storing cocoa and cocoa products. Carry out by 12/31/84 study's Done. recommendations. Furnish IDA by 6/30/84 a long-term cocoaDone. production strategy and c':ollen shoot virus control program, and carry out both on agteed timetable. - 141 - Page 3 of 6 MaJor Policy Measures in the RIC I. ERP. ERP TA AND RIC II Credits Policy Measure Action Taken Timber Establish a Timber Export Development Done. Board (TEDB) by 4/30/84. Establish Established 8/85. Forest Products Inspection Bureau (FPIB) by 4/30/84. Adopt uniform timber-grading rules by Done. 3/31/85. Furnish to IDA for review a study on Study completed 4/86. alternative strategies for ownership and management of four state-owned timber companies before 9/30/84. By 12/31/84 carry out recommendations Not recorded. of study. Review with IDA forest concessions Not recorded. (Issue allocations not later than 6/30/85. of concessions allo- cations taken up in Forestry Resource Management Project). Carry out recommendations of review by bitto. 12/31/85. Maintain and review before 3/31/84 with Done. IDA the procedures for foreign excharng retention by timber companies. Carry out reviewe recommendations by Importers initially 6/30/84. allowed to retain 20%, raised to 35% in 1988. Furnish IDA for review a study on TEDB's Not recorded. and FPIB's organizational, managerial and staffing requirements not later than 10/31/84. Before 12/31/84 carry out study's Not recorded. recommendations. - 142 - Page 4 of 6 Major Policy M asures in the RIC I. ERP ERP TA AND RIC II Credits Policy Measure Action Taken ......................................................................... Review with IDA prior to the end of each Not recorded. year the progress of timber sector reforms. Gold Mininit State Gold Mining Corporation (SGNC) to Contract with Canada- employ international mining firm to manage Ghana Mining Group mines. August 1965. (Condition for disbursing funds for mining). By 12/31/84 carry out a plan (including Work incentive a work incentive scheme for improving scheme introduced the productivity of SGMC's mines. 10/84 and productivity ity bonus 1/1/85, but not carried out effec-t tively. Take steps by 6/30/84 necessary to Rescheduling accom- reschedule SGNC's long-term debt. plshed in 1988. SGMC retain 35 percent of its export Retention raised from earnings. 20 to 35 percent 11/15/84. Furnish IDA for review a feasibility Study submitted 1987. study on shaft sinking, tailing and Recommendations not alluvial deposits at three SGMC mines carried out on satis- by 12/31/84 and carry out the factory timetable. reconmendations on a satisfactory tiAttable. Review with IDA prior to the end of each Dons. year (a) SGMCWs performance and (b) progress on reforms in mining sector. Prior to 9/30/84 furnish IDA for review a Study completed November study of the management of the Toma and 1984.. Government restruc- Takoradi ports and carry out the tured ports based on study recomendations on a satisfactory time- Ghana Portz and Harbors table. Authority created in early 1986. - 143 - Annex_F Page 5 of 6 Major Poliev Measures in the RIC I. ERP. ERP TA AND RIC II Credits Policy Measure Action Taken RIC II Imorts and Develooment Ex2enditures Submit a quarterly report on the Bank reviewed 1985 imports status of the agreed 1985 import and program in detail and development expenditures programs for agreed on programs for IDA's review. agriculture, industry, mining and transport. Draw up a rolling 1986-88 development Made condition of program and submit to IDA for review effectiveness for African by 9/30/85. Facility Credit. Submit satisfactory import program (see below). for 1986 to IDA by 12/31/85. Submit rolling 1986-88 development program IDA accepted (6/11/86) satisfactory to IDA. key elements in lieu (Condition for effectiveness of Africa of full program. Facility Credit). Price and Distribution ControLs Reduce the number of items subject to Govt. notified IDA of price control from 17 to 8 and the num- reduction 7/14/85. ber subject to distribution control from 15 to 8. (Conditions for effectiveness). Cocoa Raise cocoa producer price to a level Price nearly doubled in. acceptable to IDA. may 1985. (Condition for effectiveness). Other Crops increase the producer prices for cotton Done in ay 1985. by 100 percent and for tobacco by 50 per- cent by 5/31/85. Energy Adjust petroleum product prices to keep Substantially done. in step with exchange rate movements. - 144 - Anex Page 6 of 6 Maior PolieX Measures in the RIC_L ERP. ERP TA AND RIC II Credits Policy Measure Action Taken Issue by 5/31/85 for IDA review a govern- Statement incorporated ment "Statement of Policy on Energy Prices". in 1985 budget state- ment. Industry Submit to IDA for review an action program Done as part of Industrial for revising industrial policies by 9/30/85. Sector Adjustment Credit Approve and publish statement of industrial Ditto. policy. Submit to IDA for review by 9/30/85 a plan Ditto. for restructuring specific subsectors of industry. Mining Submit to IDA for review by 9/30/85 a Study submitted in study of how to provide greater incen- 1987. Ghana Precious tives to exporters to market gold and Metals Marketing Cor- diamonds through eh channels. poration in 1989 buy- ing from small miners. diamonds through etablished channe...poration in 1989 buy-........