What will drive construction activity in Ghana?

Ghana’s construction sector contributed an average of 7.5% to annual GDP between 2013 and 2020, and following the economic slowdown resulting from the Covid-19 pandemic, the sector looks set to undergo sustained growth in the coming years. Infrastructure development has been an ongoing priority for Ghana’s government, whose approach to advancing the economy has seen it funnel hydrocarbons revenue into infrastructure projects. The leadership’s ability to do this could be impaired in the short term due to the pandemic’s negative impacts on already declining global commodity prices, which affects Ghana’s financial reserves and international trade receipts.

However, the government’s swift response to the outbreak of the virus and multi-pronged efforts to establish a favourable legislative environment for private investment, as well as the country’s political stability, make construction projects in Ghana an attractive proposition for investors. In addition, the activation of the African Continental Free Trade Area (AfCFTA) represents a major boon for all signatories, as one of the agreement’s key mandates is to reinvigorate Africa’s industrialisation drive by facilitating cross-border trade and travel. The AfCFTA is expected to herald the construction of new mega-cities across the continent, and Ghanaian officials are urging the formulation of policies that will allow the country’s construction industry to capitalise on such sizeable opportunities and take a leading role.

Structure & Oversight

Ghana’s construction works are overseen at the national level by multiple ministries: the Ministry of Roads and Highways (MRH); the Ministry of Transport (MoT); the Ministry of Sanitation and Water Resources (MSWR); the Ministry of Education; the Ministry of Energy (MoE); the Ministry of Special Development Initiatives – which is responsible for overseeing infrastructure upgrades at the constituency level – the Ministry of Works and Housing; and the Ministry of Health. Under the banner of the last of these, the government launched Agenda 111, which aims to build 111 hospitals in response to its shortage of health care facilities exposed by the Covid-19 pandemic (see analysis).

The economic strain induced by the pandemic injected fresh urgency into a number of pre-existing national initiatives, one of which is the Ghana Beyond Aid programme. Through this the government plans to overhaul the tax system and diversify the country’s manufacturing capabilities in order to make Ghana more self-sufficient. It would also create a more favourable business environment that should kick-start a slew of new construction projects.

Performance & Size

Valued at some $9bn, Ghana’s construction sector was ranked the seventh largest in sub-Saharan Africa by Fitch Solutions in August 2021. The research firm noted that the sector expanded by 14.2% in the first quarter of that year, when over $42bn worth of active projects were on the docket and at least one-third had broken ground. According to the 2022 budget statement released in November 2021, the construction sector expanded by 8.2% year-on-year in the first six months of 2021.

In 2020 construction activities contributed 6.3% to GDP, generally in line with the 6.2% of 2019. However, this represented growth of 2.9% and marked a strong recovery from the 4.4% contraction experienced in 2019, which was caused in large part by declining global oil prices. Indeed, while the sector grew at a rate of 9.5% in 2015, the figure had declined to 1.1% in 2018. Growth figures can nevertheless be misleading, given that Ghana’s economy as a whole is expanding rapidly. Construction revenue, based on current market prices, rose from just over GHS15bn ($2.55bn) in 2015 to GHS22.75bn ($3.87bn) in 2020.

That said, the Ghanaian government aims to revitalise the construction sector, which employs around 420,000 workers spread across 2500 active firms and contractors. Traditionally, responsibility for the provision of vital infrastructure and amenities has been shouldered by the government, but a decline in available public funds – accelerated by the drop-off in global oil trade during the first six months of the Covid-19 pandemic – has prompted the government to be more proactive in terms of attracting private investment to construction projects.

Investment

Land ownership and acquisition in Ghana is complex, and foreign investors are only able to secure land via leasehold agreements with a maximum single term of 50 years and the option to renew (see Real Estate overview). Ghana’s Public-Private Partnership (PPP) Act of 2020 came into force in the final month of the year, representing the culmination of nearly a decade’s worth of work on the ratification of a comprehensive policy framework to govern PPPs. PPPs are complex in nature, and while challenges remain in seeing such projects through to completion, the passage of the act is a positive step. It presents the government with a viable means to achieve its investment goals – particularly those relating to transport infrastructure (see Transport chapter) – and also allows opportunities to enhance domestic human capital.

Infrastructure development was allocated GHS7.2bn ($1.2bn) in the 2022 national budget, a significant increase from the GHS5bn ($855m) and GHS5.1bn ($872.1m) allocated for 2021 and 2020, respectively. The ministerial breakdown for 2022 is GHS4bn ($684m) to the MRH; GHS922m ($157.7m) to the MoT; GHS801m ($137m) to the MSWR; GHS576m ($98.5m) to the Ministry of Railways Development; GHS507m ($86.7m) to the Ministry of Communications; and GHS430m ($73.5m) to the Ministry of Works and Housing. While the 2020 budget contained an allocation to the Ministry of Aviation, the ministry was later absorbed into the MoT.

Beyond the national budget, the Ghana Infrastructure Investment Fund is instrumental in securing finance for infrastructure works. October 2021 saw the African Development Bank (AfDB) approve a $75m commercial loan to the fund, enabling it to leverage equity capital to access additional debt financing for transport, renewable energy and housing projects. The AfDB’s involvement is expected to encourage further private investment in Ghanaian infrastructure and stimulate employment opportunities.

In February 2021 Deutsche Bank unveiled plans for two infrastructure works in Ghana with a combined value of €150m. The first is the Keta Water Supply Rehabilitation and Expansion Project in the Southern Volta Region, which involves the rehabilitation of the Keta Water Treatment Plant and the construction of a new water treatment facility. With a combined capacity of 42,200 cu metres, the plants will provide water for 400,000 people in Ketu, Angola and Tongu. The works will be undertaken by Lesico Infrastructures, the Italian subsidiary of Israeli construction firm Lesico Group. The second project is the redevelopment of Takoradi Market, which covers 1 sq km and is a major source of trade in the area. The multipurpose facility will include numerous public services and amenities, and ease congestion caused by the existing market. Construction will be carried out by Contracta Costruzioni Italia. These projects are the latest in a string of deals between Ghana, Deutsche Bank and Italian export credit agency SACE, which has included the €45m regeneration of four hospitals in Ghana’s Eastern Region and the €45.6m construction of the University of Environmental and Sustainable Development, which has campuses in Somanya and Donkorkrom in the Eastern Region.

Major Projects & Demand Drivers

More efficient movement of goods and people is a key part of the government’s broader economic expansion plans, with transport infrastructure developments accounting for 42% of the value of Ghana’s active construction projects in early 2021 (see Transport chapter). The ongoing One District, One Factory initiative launched by the Ministry of Trade and Industry (MoTI) continues to drive construction activity as well (see analysis).

Large-scale developments either planned or under way include the $2bn redevelopment of the Ghana International Trade Fair Centre in Accra. The site will be reinvented as a multipurpose trade, leisure and retail facility that will house a 12,000-seat convention centre, several hotels, and an array of shops and restaurants. From the planning phase through to the centre’s post-production activities, the development is expected to create 10,000 direct and indirect jobs, and generate substantial tax revenue from local and international investors and tourism receipts. Announced in the second half of 2021, the centre is expected to take three to five years to complete.

“There are a number of projects in the early design phase now. This suggests a good level of growth will continue in the construction sector over the shortto-medium term,” Jose Fernandes, regional manager for West Africa at engineering firm SMEC, told OBG. Infrastructure development is a key tenant of the UN Sustainable Development Goals (SDGs) and can aid Ghana in meeting the majority of the 169 SDG targets. With this in mind, in 2021 the UN released a report aimed at attracting investment into a number of early-stage projects in Ghana.

Energy

The Ghana Nuclear Power Plant project is highlighted in the UN report, and is slated to break ground in 2024 at an estimated capital expenditure of $5.5bn. The plant will diversify Ghana’s energy mix, stabilise power delivery and offer energy security, thereby facilitating national and regional economic growth. A petroleum facility in the Western Region, at an estimated cost of $6bn, is also planned. Comprising three refineries with a combined capacity of 900,000 barrels per stream day, crude storage facilities, five petrochemical plants and port infrastructure, the project is expected to boost GDP, expand domestic research and development, and contribute significantly to government revenue. Both projects were at the pre-feasibility stages as of late 2021 and are being overseen by the MoE and the Petroleum Hub Development Corporation, respectively.

Housing

The provision of affordable housing is another key component of the UN SDGs and a major issue in Ghana (see Real Estate overview). The 2021 UN report details a multi-region affordable housing project that will see the construction of 130,000 units (78,000 two-bedroom and 52,000 three-bedroom homes) in the Eastern, Western and Savannah regions. With an estimated capital expenditure of $4.6bn, construction work is set to commence in 2022.

Building Materials

On April 12, 2021 Nana Akufo-Addo, the president of Ghana, inaugurated the initial phase of the new $80m B5 Plus Steel Plant in Lartopleka in the Greater Accra Region. The plant’s installed annual capacity of 250,000 tonnes makes it the largest of its kind in West Africa and the third largest on the continent. Expected to create 2000 direct and indirect jobs, the facility also comprises a training school. Phase two of the project will cost $70m and allow the facility to produce up to 300,000 tonnes of mixed steel products each year.

Ghana has recently leveraged its abundant bauxite reserves to fund infrastructure development, with state-owned Chinese company Sino-Hydro Corporation pledging investment of $2bn in exchange for raw bauxite, a vital ingredient in the production of aluminium. In September 2021 Ghana Integrated Aluminium Development Corporation selected local company Rocksure International to develop a $1.2bn bauxite mine and refinery in the Ashanti Region, which is expected to be operational within two years. The refinery, which will convert raw bauxite into aluminium products, represents a significant step forwards in Ghana’s plans to better capitalise on its mineral reserves through value-added activities.

Cement

The Ashanti Region is also set to see a new $100m cement grinding plant in Kumasi, which was announced in July 2021 by Ghacem, Ghana’s leading cement manufacturer. With a capacity of 1.5m tonnes per year, the facility will serve the Central and Northern regions, and construction is slated for completion in 2023. Meanwhile, in 2021 and 2022 the Ghanaian subsidiary of Germany-based HeidelbergCement is working to upgrade operations at its grinding plants in Tema and Takoradi.

Ghana’s eight cement manufacturers have a combined capacity of some 13m tonnes per year, but output is only roughly half that. Annual cement consumption in the country stands at about 6.5m tonnes, yet the domestic market has long suffered from oversupply due to excessive imports. To remedy this, in January 2020 the MoTI announced a moratorium on the licensing of new cement facilities and banned imported cement. The ministry did, however, state that it would only continue to enforce the new laws if Ghana’s cement producers stopped arbitrary price increases, which are implicit in local construction companies’ willingness to import cement. Price increases can now only be made following consultation with the MoTI. Cement prices stabilised throughout 2020 but rose during 2021 due to the higher cost of clinker, a key raw material in cement production that is not available locally in the required quantities and must therefore be imported. Congestion at local ports has exacerbated the issue, with local cement producers facing demurrage charges on imported clinker.

Outlook

Given its interconnectedness with wider economic progress and being the primary facilitator to bridging the country’s infrastructure gaps, the construction sector has the potential to drive Ghana’s GDP growth for years to come. For this to be the case, however, the government’s forward-thinking approach to attracting investment in building must be maintained, and further legislative action is needed to allow local building material manufacturers to better profit from sector activity. All this would likely lead to more employment opportunities, enhanced domestic human capital capabilities and higher foreign exchange inflows. The PPP Act of 2020 and the activation of the AfCFTA represent major developments to support robust, sustained growth in the construction industry moving forwards.