Infrastructure development and public-private partnerships drive an increase in construction activity in Ghana

Ghana’s construction sector is growing, led by the development of affordable housing and critical infrastructure such as roads, railways, ports, hospitals and schools. It has also been bolstered by a steadily growing economy, which has since 2017 outperformed the global economy. Expansion is expected to continue, with a GDP growth rate of 6.8% for 2020. Improvements in land registration and permit systems, coupled with new regulatory support, reflect the authorities’ efforts to address structural challenges. At the same time, increased government and private sector investment reflects optimism for future expansion.

Oversight

The oversight of construction activities is divided between several government institutions. These include the Ministry of Roads and Highways (MoRH), the Ministry of Sanitation and Water Resources, the Ministry of Transport (MoT), and the Ministry of Works and Housing (MoWH), the latter of which supervises civil works. The Ministry of Health and the Ministry of Education oversee the construction of facilities such as hospitals and schools, respectively. The Ministry of Special Development (MoSD) was established in February 2017 and is tasked with facilitating improvements in basic infrastructure at the constituency level, especially in rural and underserved communities. It is leading the One Village, One Dam initiative that will see the construction of dams across communities in five northern regions in order to make water available year-round for farmers and residents.

Private Participation

The government has turned to the private sector as a critical partner in large-scale public infrastructure projects, with several following the public-private partnership (PPP) model for funding and execution. The use of PPPs allows the state to minimise costs, shift development risk and managerial responsibility, and attract investment.

The country has a long history with PPPs, with the first notable project being the Akosombo Dam constructed in the 1960s. In 2011 the Ministry of Finance introduced a framework that established the guidelines for collaboration and leveraged public assets and private resources to accelerate the development of infrastructure and services. PPPs have picked up steam in the years since 2016, and as of 2018 there were nine PPP projects under way with a combined value of around $3.4bn, according to the World Bank.

While the framework provided the government and private sector with a useful template for such projects, long-awaited PPP legislation has yet to be finalised. A PPP bill that sought to regulate local content and financing terms was first submitted to the Cabinet in 2014. It has since gone through a series of revisions, but as of January 2020 had not been finalised. Even so, the private sector has proved to be a willing partner in projects such as the expansion of the Takoradi Port Dry Bulk Terminal and the new Securities and Exchange building. “More PPPs are expected to come on-line in the long term, but for now there is not sufficient capacity on either side to conduct major infrastructure projects,” Kwasi Owusu, managing director of engineering firm ADK Consortium, told OBG. “A more developed PPP legal framework is necessary to bring in international investment.”

The Ghana Infrastructure Investment Fund (GIIF) is a critical player in managing PPPs. It was established in 2014 with a mandate to coordinate and provide financial resources for investment in a diversified portfolio of infrastructure projects, as well as generate returns for shareholders. The GIIF taps both public and private funding from investors at home and abroad to carry out its mandate.

Performance & Size

The positive performance of the construction sector has come on the back of considerable investment in critical infrastructure. Construction accounted for 7.1% of GDP in 2018, according to the Ghana Statistical Service (GSS). That year the sector contributed GHS19.7bn ($3.82bn) to GDP, up from GHS19.4bn ($3.76bn) in 2017 and nearly double the GHS10.6bn ($2.1bn) seen in 2010. This expansion is expected to continue into the future, with credit ratings agency Fitch citing strong fundamentals in its July 2019 projection that the industry would grow by 3.4% in 2019 and 5.8% in 2020, albeit down from the firm’s original forecast of 7.3% and 7.4%, respectively. The revision was largely attributed to difficulties disbursing government funding to contractors, which has resulted in project delays. Looking past 2020, Fitch expects the sector to expand by an average of 6.8% a year through to 2028 because of the country’s strong pipeline of transport, power, industrial and residential projects. Additionally, a widening of the tax base and an infusion of Chinese financing is expected to support accelerated building activity.

Construction offers substantial potential to propel economic growth and employment. According to the 2017 “Labour Force Report” from the GSS, construction employed over 316,000 people, constituting around 3% of the labour force. It also employed more than 4.4% of the country’s youth. The concentration of construction activity in transport and housing is expected to support industrialisation and create indirect employment opportunities in the manufacturing, mining and agriculture sectors.

Budget

The 2020 budget highlighted the acceleration of infrastructure development as a key area of focus. It earmarked GHS5.1bn ($987.9m), or 11% of the total budget for administration, economy, infrastructure, social services and public safety, to infrastructure development, up from the GHS4.6bn ($891m) allotted in 2019. Almost half of the 2020 infrastructure funding – or GHS2.3bn ($445.5m) – was granted to the MoRH, reflecting the government’s prioritisation of improving roads and highways. Indeed, the authorities have dubbed 2020 the “Year of the Roads”, and the 2020 allocation for the MoRH represents a 76% increase from 2019. Included was funding for the construction of 1866 km of regional roads, 50 km of trunk roads and 25 km of urban roads, as well as the maintenance and rehabilitation of 31,945 km of roads. In addition to the MoRH, the MoRD received GHS1.1bn ($213.1m), the Ministry of Railways Development received GHS435m ($84.3m), the Ministry of Aviation GHS189m ($36.6m), the MoT GHS403m ($78.1m) and others GHS766m ($148.4m).

Regulatory Support

Recent policy and regulatory measures could provide the impetus for further maturation of the sector and broader socio-economic development. In late 2018 the Ghana Standards Authority (GSA) launched a building code, setting building and material standards for the construction industry. The code promises to raise the quality and competitiveness of Ghana’s construction sector, in line with international norms. It covers the planning, management and practices in the construction of both residential and non-residential buildings.

The 1700-page document, the first of its kind in the country, covers topics such as occupancy classification and use, site development and land use, building height and areas, energy efficiency and sustainability. The building code was modelled after and benchmarked against the International Code Council’s International Building Code. It is widely seen as critical for ensuring quality, safety and structural efficiency. The GSA is responsible for providing conformity assessments and certification, although the country has yet to establish an authority or legal framework for ensuring enforcement and compliance.

In April 2019 the government announced it had introduced an automated permit process system that relies on software to reduce the time and costs associated with the processing and issuance of construction and building permits. An electronic database of the architectural and structural drawings mandated for permits was also implemented as part of the system.

Land Acquisition

The ownership and acquisition of land is a long-standing challenge for the country, although recent developments may alleviate the issue. A pluralistic system of property ownership divides property rights between customary and formal title, and recognises private land, family land, government land, stool land and vested land. The title deed system is applied primarily in the Greater Accra and Ashanti regions, while ownership records are not always accurate. Prospective purchasers are required to undergo an extensive process that requires several searches involving several official institutions. They must also seek permission to buy land from traditional councils or, in certain instances, from family heads.

To address inefficiencies in land registration, in March 2018 Vice-president Mahamudu Bawumia announced plans to digitise land records, making land searches and registration easier while also enabling the development of a mortgage market. Supporting these efforts, in April 2019 the MoWH inaugurated a National Housing Committee to improve the property system and implement a national mortgage and housing programme. The committee will identify and create a unified land bank to assist with land acquisition.

Building Materials

Imported materials, in addition to skilled and expatriate labour, are associated with the highest proportion of costs related to infrastructure development. Raw materials such as bitumen and construction equipment are often sourced from abroad, with prices indexed in US dollars due to the currency’s stability. As a result, costs are dependent on the strength of the cedi, leading to upswings in local currency expenses due to depreciation.

In July 2019 Ghana Oil Company announced it would build a $35m plant that will produce 8000 tonnes of bitumen a year. The facility, which is expected to be completed in 2021, will be the largest bitumen plant in West Africa and the first of its kind in Ghana. The state-owned company is partnering with Société Multinationale de Bitumes of Côte d’Ivoire to the plant. This could help reduce the bitumen import bill.

Ghana may also soon benefit from local bauxite and iron ore refining capabilities as part of a large-scale drive to add value to raw minerals for the production of aluminium and steel (see Mining chapter). The Ghana Integrated Bauxite and Aluminium Development Authority was established in 2018 with a mandate to develop and manage bauxite reserves, and as of December 2019 was accepting bids for Ghana’s vast bauxite reserves. Meanwhile, the government has partnered with the private sector to construct a $1.2bn bauxite refinery. Refined bauxite would be used both for export and to revive the country’s aluminium sector. A similar process is anticipated for the local production of steel, as a draft bill to set up the Ghana Iron and Steel Development Corporation was submitted to Parliament for review in 2019.

Cement

Cement prices rose throughout 2019 as a result of higher input costs due to the depreciation of the cedi, rising utility tariffs and the continued reliance on imports to meet growing local demand. In the first quarter of the year prices were increased twice, and in December the primary market player Ghacem announced a new – albeit unspecified – price hike.

Cement imports fell significantly in 2018. Ghana imported 5.1m tonnes of cement that year, down from 5.6m tonnes in 2017, although up from the 4.6m tonnes imported in 2016. Ghana’s local cement industry has a production capacity of 11.6m tonnes per year, with a combined utilisation rate of 45%, according to the Chamber of Cement Manufacturers Ghana. Cement exports followed a similar trend. Exports of the product were estimated to be 122,000 tonnes in 2018, down from 367,000 tonnes in 2017 but still up from the 68,000 tonnes exported in 2016. In order to reduce import dependence, the government is seeking investors for a cement factory to be built in the country’s north-east that will exploit a 20m-cu-metre deposit of limestone in the region.

Concrete

A number of railway projects use locally produced concrete sleepers. The Dawa Industrial Park – inaugurated in June 2019 – hosts local firm LMI Holdings, which established a sleeper manufacturing facility to supply an ongoing project that will eventually link Dawa to the Tema Industrial Park and the expanded Tema Port (see Transport chapter). The factory produces both standard- and dual-gauge sleepers, with a production capacity of 100 sleepers per day. Similarly, India’s Afcons Infrastructure set up a local facility to supply the Tema-Mpakadan Railway project. The company has produced over 40,000 of the 200,000 sleepers required for the development of the 97.3-km line and anticipates that production of all sleepers will be completed by March 2020. LMI Holdings estimates that local sleeper production could save Ghana up to $27m per year in foreign exchange.

Transport

A substantial portion of income from construction activities is expected to be generated from transport networks as the country works to address infrastructure gaps and improve the efficiency of the movement of people and goods. In November 2019 China released the first round of funding tied to Ghana’s $2bn bauxite agreement with Sinohydro. Under the first phase of the deal, 442 km of roads will be constructed for a total of $646m. Approved projects include the construction of interchanges in Tamale and Sekondi-Takoradi; inner-city roads in Accra, Kumasi, Mampong, Sunyani, Cape Coast, and the Berekum and Prestea Townships, covering a total distance of 255 km; a 66-km stretch of road between Hohoe-Jasikean-Dodo Pepesu on the Eastern Corridor; and 106 km of roadway which will be upgraded or rehabilitated in the Ashanti Region, Western North Region, and along the Akim Oda-Ofoase Road.

While the bulk of inland transport is carried out on the road, shifting logistics to rail could lower costs and improve efficiency. There is 1300 km of track across Ghana, yet with only 373 km in operation due to poor maintenance. The 2013 Ghana Railway Master Plan underpins projects to develop the segment, including the construction and rehabilitation of a 4000-km network at a cost of $23bn. The plan aims to link all regional capitals and drive development outside Accra, and is seen as vital for mining and manufacturing. Several projects were prioritised for completion by 2020, including the construction of a 339-km western line between Takoradi and Kumasi, 300-km eastern line between Accra and Kumasi, and 595-km central spine line between Kumasi and Paga.

“The government intends to revise the 2013 master plan to accommodate the new mineral discoveries in regions that were not initially included when it was introduced,” Richard Dombo, CEO of the Ghana Railway Development Authority, told OBG. “The total distance of railway originally announced has also increased following the establishment of several major free zones, particularly those in Shawa, Dawa and Tema.”

The ongoing expansion of the Tema and Takoradi ports is expected to support road and rail activity into 2020. Both the second part of phase one and the entirety of phase two of the Tema container port expansion are expected to be completed in the second half of 2020 and will include the construction of 700 metres of quay wall, two berths and a rail container platform. Five new berths will be built at Takoradi, together with 600 metres of quay wall along a basin dredged to 16 metres, with completion anticipated for the second half of 2021 (see Transport chapter).

Energy

Ghana has an installed capacity of 4780.5 MW of electricity, but actual production hovers around 2400 MW due to the poor condition of infrastructure, inadequate fuel supplies and hydrological conditions. The sector is dominated by state-owned companies and independent power producers (IPPs). Several energy projects are under way as the government pushes forward with a medium-term goal to attain a generation capacity of 5000 MW, although the authorities missed the original target deadline of 2016. These include the stalled Cenpower thermal IPP, which, once complete, will add 340 MW of generation capacity. In December 2019 Genser Energy Ghana received a $366m loan facility from a consortium of South African banks to extend its natural gas business.

Housing

The construction of affordable homes remains a priority as the country tackles a housing deficit of over 2m units. With the government aiming to reduce the housing deficit by at least 20,000 houses a year over 10 years (see analysis), the MoWH is looking to attract developers that have traditionally shied away from the lower- and lower-middle-income segments because of low margins and high costs of construction. In December 2019 the MoWH proposed the establishment of a National Housing Fund that would finance affordable housing options and help establish a sustainable and affordable housing supply.

Outlook

Construction is expected to continue its upwards trend as the government works to plug infrastructure gaps. What is more, the increased use of local content and value-added services is set to reduce costs and offer trickle-down opportunities throughout the economy. Meanwhile, initiatives to address long-standing structural issues in the property market, such as the land title system and acquisition processes, promise to unlock opportunities beyond infrastructure, ensuring long-term and diversified growth.