An upward trajectory: Plans are under way to expand and integrate the transport network

Punching above its weight for several years, Ghana’s transport network compares well with regional counterparts in a similar income bracket. Nonetheless, as the population expands and the government looks to gas production to fuel further industrialisation, the current network will come under increasing pressure. Whilst this will create significant challenges to bolstering production, it should also present substantial opportunities for the private sector to get involved in both infrastructure development and service provision.

BY THE NUMBERS: The demand drivers for the sector look positive. Transport and storage accounted for 10.1% of GDP in 2011. While this represented a slight drop in the share from 2010 (10.6%), the sector still grew by 3.3% in 2011, according to the Ghana Statistical Service. This has undoubtedly been helped by a large jump in imports and exports in 2011. The former grew in value by 46.2% to $15.97bn, while the latter went up by 60.6% to $12.79bn. As the country’s population continues to rise (at a rate of 2.5% between 2000 and 2010), and oil and gas production pushes the country towards middle-income status, demand for transport services is only going to move in one direction.

SHIPPING: This growth is certainly evident at Ghana’s two seaports, Tema, 29 km east of Accra, and Takoradi, in the west, which have been witnessing a renewed increase in business following the global economic downturn. Cargo traffic at Tema Port grew by 26.4% in 2011 to 11m tonnes, while container traffic increased by 28.3% to 756,899 20-foot equivalent units (TEUs), according to the Ghana Ports and Harbours Authority (GPHA). Takoradi, the new home of Ghana’s infant oil and gas industry, showed a similarly impressive trend. Total port traffic was up by 23.2% to 4.94m tonnes, while container traffic also grew by 6.7% to 56,595 TEUs.

Although these impressive growth figures come on the back of subdued volumes in 2009, they represent an increase over 2007-08 levels, during much of which global trade was thriving. Indeed, the country’s figures look to be on a longer-term upward curve. Godfred Yaw Ofosu, the country sales manager of Maersk Line, forecasts Ghana’s containerised traffic to grow by 18% in 2012, and as of the end of June it had already expanded 16% compared to the same period the previous year. “Most of the growth in 2012 is coming from Europe, the Far East and North America, and also a little from the Middle East. According to Ofosu, year-on-year growth from Europe in 2012 is 41% from North America 39%, while it is relatively low from Asia, at about 13%.” Despite this short-term geographical trend, Ofosu maintains that Asia will continue to be the major trading partner, having a 52% share of the total imports into Ghana, and will provide much of the growth in the longer term.

The rise in port traffic can be attributed to several factors. First, Ghana’s strong GDP growth and concomitant demand for imports to fuel this growth is leading to greater traffic at ports. This is evident at Takoradi Port, where the rise in oil services has stimulated an increase in traffic. “Oil has had an impact on Takoradi. There is increased activity and people from different countries, which generally translates into increased demand for imported goods,” Ofosu said.

Second, Tema Port in particular, has made great strides to improve port efficiency in the past decade. In 2000 the GPHA embarked on a new strategy to separate port regulation and management from operations – an ongoing policy that has seen increasing private sector participation in port handling activities. The overarching ambition is to change the GPHA from a service port to a landlord port, a process that has already included the complete privatisation of shore handling operations for bulk cargo between 2001 and 2003. This was followed in 2004 by the establishment of Meridian Port Services (MPS), a public-private partnership (PPP) between the GPHA (30%) and Meridian Port Holding Company, a consortium of Denmark’s APM Terminals and France’s SDV and Bolloré.

MPS has two of Tema’s 12 berths in a dedicated container terminal built through the PPP agreement. The introduction of this private operator has been well received. Indeed, MPS, with its modern equipment and efficiency drive, has had a noticeable impact on the speed of handling at the port. The GPHA estimates that MPS handled approximately 80% of the container traffic at Tema in 2011, and according to the port authority’s statistics, berth occupancy at the container terminal increased from 55% in 2003 to 78% in 2011, while container handling moves per ship hour more than doubled from 10 in 2005 to 22 in 2011.

ROOM FOR IMPROVEMENT: GPHA data show that container vessel time at berth fell from 44.6 hours in 2005 to 32.55 hours in 2011, though 2011’s performance represented a backslide on 2010, at 23.7 hours. While the privatisation of port operations has ameliorated performance and handling efficiencies, there is still plenty of scope for further improvements.

Ghana ranked eighth in Africa on the UN Conference on Trade and Development’s Liner Shipping Connectivity Index 2010, which measures how well a country is connected to global shipping networks. While in 2011 it improved to 18 (against a 2004 base of 100), pushing it above Côte d’Ivoire (17.4), a country that suffered due to political instability, Ghana remains below one of its main regional competitors, Nigeria (19.9).

One of the biggest impediments for Ghana is the physical constraints on capacity. “It remains to be seen whether we have enough capacity in our existing ports and terminals to support current growth. The ports are getting increasingly congested, ships need to wait before berthing. This obviously puts an additional burden on the economy and increases the cost of doing business,” Naved Zafar, the managing director of Maersk Line in Ghana, told OBG. With a draught capacity of 11.5 metres and a vessel length of up to 250 metres, a company such as Maersk Line, which services West Africa with its 4500-TEU Wafmax (West African Maximum) vessel, it has to lighten up by offloading at other regional before servicing Tema. Takoradi Port is in a similar situation. With a maximum draught of 10 metres, the port is ill equipped to absorb excess demand from Tema. “There is much congestion at Tema, so ideally it would be a good idea to divert traffic to Takoradi, but it can still not take the traffic,” said Ofosu.

FURTHER PLANS: While GPHA has already made some minor improvements, increasing the maximum vessel length from 230 metres to 250 metres at Tema in 2011, it will have to embrace further expansions if the port is to compete with others in the region such as Apapa in Nigeria, Lome in Togo and Abidjan in Côte d’Ivoire, which are all contemplating, or have completed, dredging operations to boost draught capacities. The GPHA is certainly moving in this direction with a plan to raise the draught to 16m, allowing for vessels of 8000-10,000 TEUs, as well as building seven new terminals, including a new container and ro-ro terminal, at a cost of $1.5bn. The GPHA is also planning to garner investments of $800m to build new bulk terminals at Takoradi to serve the nascent oil and gas industry, as well as the western region’s agricultural and mineral output.

LOOKING AHEAD: A definitive timeframe for these plans has yet to be announced, as the government looks for private sector partners to enter into PPPs for these developments. Nonetheless, plans seem to be moving forward with a potential Chinese investor, Cosco Pacific, which surveyed Tema Port in May 2012. Once private partners are found and these plans come to fruition, Ghana will be well placed to capture a larger share of regional shipping. “If we had a deeper draught, we would be calling Tema first from Asia, which would be a key advantage to our customers. With the new plan, it could become the premier port in West Africa if it is implemented as soon as possible,” said Ofosu. The Tema expansion could allow the country to attain a bigger share of trans-shipment and transit traffic, the latter standing at just over 600,000 tonnes in 2011, down from 863,000 tonnes in 2008, according to the GPHA.

However, in the shorter term, congestion remains a problem. According to Morten Gade, the managing director of Ghacem, which operates a 1.3m-tonne cement plant at Tema, “There are not sufficient berths to handle the traffic. It is just a congestion issue, which is having an impact on the effectiveness of operations and the cost of production.” Gade claims that as a result of this bottleneck, the company is saddled with high demurrage charges. Ofosu, on the other hand, thinks the impact of congestion on demurrage is overplayed, and does concede that port capacity and efficiency need to be improved in the short term: “I believe that with the current infrastructure we could improve efficiency. If we improve the draught of the current berths at terminal one and the place shore cranes, it would ease congestion in the mid-term.” Whilst capacity issues may persist until the construction of a new port, MPS’s plans to erect two more gantry cranes and four rubber-tyre gantry cranes by the first quarter of 2013 should ease congestion to some degree, with Ofosu estimating it will have an appreciable impact on efficiency.

ON THE ROAD AGAIN: For both the shorter-term ambition of easing congestion and the longer-term aim of capturing regional transit traffic, the government must look beyond simple port capacity and efficiencies to the general land transport network. “The strategic plan is great, but we have a gap in the infrastructure,” said Ofosu. “There are a lot of potential changes at the ports, but first we need to know what sort of road network and rail network we are going to have. We could increase capacity, but if you don’t have the road and rail infrastructure, you would just choke the port.”

With Ghana’s road network currently handling 98% of freight traffic and 95% of passenger traffic, according to the Ghana Investment Promotion Centre, it will play an integral part in the government’s transport strategy. The country’s record in-road network provision is considered relatively strong. Ghana scores well above low-income countries on several indicators, from paved road density to paved and unpaved road conditions, according to a 2010 Africa Infrastructure Country Diagnostic (AICD) study. Furthermore, the country’s average spend on the road sector, which equated to 1.5% of GDP in 2009, is one of the highest ratios in West Africa, according to a 2009 World Bank policy research working paper, “Ghana’s Infrastructure: A Continental Perspective”. The extent of the network has also been increasing, expanding by 0.2% in 2009 to 67,450 km.

However, the country still has some way to go to meet middle-income standards in road provision. According to the 2009 World Bank paper, only 24% of Ghana’s rural population lives within 2 km of an all-season road, compared to some 60% in Africa’s middle-income countries. To raise this ratio to 100% would require a 200% increase in the classified road network. Furthermore, while 75% of Ghana’s paved roads are in good or fair condition, this still lags behind the middle-income rate of 79%, according to the AICD.

RAMPING UP: The government is looking to bolster these numbers. According to Lawrence Kumi, the director of road transport services at the Ministry of Transport, “The first priority is maintenance, and we have a dedicated fund for this. Then, I think the policy is interconnectivity, region to region, then district to district and from rural area to district.” The major issue in terms of both maintenance and expansion of the road network is funding. The government relies on three sources to finance the road upgrades: the Ghana Road Fund, used for maintenance; the Consolidated Fund, used for development works, rehabilitation and upgrading; and donor funds, used for maintenance and development works. The road fund, which is fed by government charges, including a fuel levy, road tolls and vehicle registration fees, stood at $97m in 2009, a 10% fall on 2008, according to statistics from the Ministry of Roads and Highways. In the same year, funding from donor partners increased by 22% to $123m.

While the road fund garners most of its revenue (93% in 2009) from the fuel levy, the political nature of this tariff leaves the government little room for manoeuvre. Nonetheless, a 2010 report by the Institute for Infrastructure Development, a Ghanaian non-profit organisation, suggests that the government could significantly increase revenues by revising its road toll policy. According to the report, even following a 10-fold increase in toll rates in 2009, Ghana’s toll rate to per capita income is $0.01 per km, compared to $0.03 per km in India, $0.07 per km in Brazil and $0.10 per km in South Africa. The report concludes that the Ghana Road Fund currently only meets 50% of the country’s maintenance needs and in 2010 was GHS120m ($71.15m) in arrears to contractors.

RAISING FUNDS: There are a number of plans to boost the availability of capital for a broad range of road projects. “I think we’ll be working to introduce more tolled roads as it has worked for the government in the past. We’re also looking at the PPP arrangement, but so far we have not been successful because of the long-term investment required,” said Kumi. The World Bank has also noted the problem of private sector financing, including the inability of local banks to offer long-term debt financing in locally denominated currency.

While oil production will certainly help, bringing an estimated GHS1.24bn ($735.2m) in revenues in 2012, according to the budget, the government is likely to remain highly dependent on donor funding and foreign financing for the expansion of its road network in the near future. As such, the ability to secure a $3bn loan from the China Development Bank (CDB) in 2011 will go a long way to supporting the combined GHS1.26bn ($747.05m) allocation to the Ministry of Roads and Highways, and the Ministry of Transport in 2012. The CDB facility, which was undoubtedly easier to secure as a result of Ghana’s oil and gas revenue, is earmarked to support a number of road projects, including the Western Corridor Oil Enclave Toll Road Project and the Eastern Corridor Multi-Modal Transportation Project. The latter will see the country develop a $1.8bn road network linking Togo in the west with Burkina Faso in the north. While the project has been stalling to some extent, an EU decision in June 2012 to provide €25.9m for the construction of a new 46.6-km single carriageway between Dodo Pepesu-Nkwanta on the Eastern Corridor has rejuvenated the project.

RAIL: The CDB facility will not only be used for the road sector, but also the rails. The Ghana Railways Development Authority (GRDA) will receive $500m from the CDB for the reconstruction of the country’s Western line said Emmanuel Opoku, the chief executive of the railway authority. The project, which will rehabilitate the line that runs from the port city of Takoradi to the second city of Kumasi, is expected to begin later in 2012, taking three years to complete and increasing speeds on the line from 56 km per hour to 120 km per hour.

The project is seen as a high priority given the importance of the western region for mineral extraction, particularly gold and bauxite, and agricultural production, particularly cocoa. The GRDA is hoping to engage a contractor by the close of 2012 and has already completed a feasibility study for the line, which will run both freight and passenger services. These moves are timely, considering the rapid deterioration of the country’s network. In 2003 the rail network carried 1.87m tonnes of freight traffic, but by 2009 this had declined to a paltry 154,740 tonnes. In the latter year, no cocoa was carried by rail and only 88,410 tonnes of bauxite was transported. Passenger traffic has shown a similar decline, falling from 2.56m passengers in 2004 to 1.12m in 2009. According to the GRDA, passenger numbers reached around 8m in the 1960s.

As such, the plans for the rehabilitation of the western line are expected to breathe new life into the sector. With the infrastructure funding in place and the plans ready, the GRDA is turning its attention to operations. “We’re looking at private operators and service providers. We want PPP agreements. We have the money for infrastructure development and we have some expressions of interest in operations. GE has shown interest in providing and operating rolling stock, but we have not made a decision yet,” Opoku told OBG. There are few precise details on how pricing and revenues will work for the new operations; however, according to Opoku, “It would be in the form of a concession agreement. The pricing structure will depend on the service. If it is for passengers, the government might have to come in because of the social service aspect. The authority has to approve rates.”

OTHER UPGRADES: Beyond this, the government will be looking at new investments in the rehabilitation of the eastern and central lines, but according to Opoku, this will require further funding. “The expansion depends on availability of capital. The government is concerned about the capital investment, which is huge, so we’re still keen on private investors for infrastructure.” In May 2012 local press reported that the government will source $990m from the Industrial and Commercial Bank of China for rehabilitation works on the eastern line from Nsawam to Accra and Achimota to Tema. It also reported that a further $1.95bn is being sought from the Exim-Import Bank of China for rehabilitation work on the central line between Nsawam and Kumasi.

The GRDA is now working on a railway master plan, which includes linking the network into plans for an inland port, 30 km from Kumasi. While plans for this project have been in the offing since 1996, the minister of transport, Alhaji Collins Dauda, told local press in 2011 that the upgrade of the rail network would make the inland port a viable project for investors once more. “There is a lot of container traffic going up north, and transit traffic going up to Burkina Faso and Mali. It would reduce congestion here and we would become a port of choice,” according to Ofosu, OUTLOOK: The challenge now for Ghana is to create a more integrated transport network. As a lower-middle-income country, the government has done well at network provision, but as the country moves into middle-income status, the aim is to push those indicators further upwards. The main impediment to this will continue to be access to funds. Nonetheless, with oil and gas revenues beginning to stream into government coffers, it may become easier to access foreign financing in the medium term. Furthermore, with the government focusing on infrastructure provision, and demand for services on the increase, the opportunities for private operators to offer a range of transport services should grow rapidly. As such, Ghana could emerge as a leading point of access to the sub-region, a situation likely to be embraced by transporters and clients alike.