Ghana's renewed commitment to transport infrastructure provides opportunity for the private sector

A range of game-changing infrastructure projects are set to reshape Ghana’s transport sector over the next half-decade, and 2019 should be a year of redoubled investment by the government. The country’s two main ports continue to expand, the budget for road development has increased by nearly 150%, the long-awaited transformation of the railway network is progressing and a new national airline is scheduled to join Accra’s new airport terminal. Public-private partnerships (PPPs) are central to this expansion, and local firms are joining a growing list of partners from Asia and Europe.

Economic Backbone

The transport and storage sector contributed GHS24.6bn ($5.3bn) to the economy in 2017, according to the Ghana Statistical Service. It accounted for 12.8% of GDP, in line with the 12.5% share averaged over the period 2006-16. The sector grew just 0.4% in 2017, following expansion of 2.2% in 2016 and 3% in 2015. Macroeconomic headwinds, a slowdown in investment around the December 2016 elections and the new government’s fiscal consolidation programme were all identified as factors that dampened growth.

While fiscal tightening may have acted as a shortterm drag on the economy, the reforms were designed to improve the health of Ghana’s strained exchequer and boost investor confidence in the long term, and they have been fairly successful in this regard. Indeed, Ghana’s improved budgetary position has allowed for a significant increase in public investment in 2019 to the benefit of the transport industry.

The size of the sector’s GDP contribution is indicative of its importance in the country’s ongoing economic development. Sound investment in transport infrastructure and equipment can create a virtuous circle by supporting broader economic growth. Successive governments have seen these enhancements – to roads, railways, ports and airports, as well as to the operating environment for logistics businesses – as central to improving the competitiveness of Ghanaian producers and accelerating growth and economic diversification.

Budget Boost

In his November 2018 address to the Parliament, the minister of finance, Ken Ofori-Atta, stated that the 2019 budget foresees “an unprecedented push in infrastructural expansion”. Following a period of fiscal consolidation, the government is pushing forward strongly with investments in transport networks deemed essential for long-term development.

The various ministries responsible for managing the transport sector will receive substantial funding increases as a result. In 2019 the budget for the Ministry of Roads and Highways (MRH) increased by 142% to GHS1.3bn ($281m); the Ministry of Railways Development was allocated GHS636m ($137m), up 16.9%; the Ministry of Aviation will have GHS318m ($68.7m) at its disposal, up 60.3%; the Ministry of Transport received GHS294m ($63.7m), a 280% increase; and the newly founded Ministry for Special Development Initiatives, which is responsible for constituency-level development, was granted GHS1.3bn ($285m), some of which will support local transport infrastructure.

“Projects such as the Tema port expansion and rail development indicate that there is will in the public and private spheres for Ghana to become a transit link to the hinterland countries, such as Burkina Faso, and also a preferred hub to serve other nations in West Africa,” Frank Tony Eshun, former managing director of logistics company Damco, told OBG. “Additionally, government-tendered projects are on the rise, which implies that the economy is returning to confidence.”

Down the Highway

As a department that has seen its funding increase by more than double, the MRH has a long list of plans for 2019 that should provide opportunities in the sector for several years. Beyond road construction, the investments should enhance the environment for the development of logistics, international freight traffic and privately operated segments like shipping. Major initiatives include the construction of approximately 1150 km of new main roads; the routine maintenance of around 42,500 km of trunk, feeder and urban roads; and the rehabilitation of 515 km of roads, up 12% from 2018.

The ministry also expects considerable work to be undertaken through a $2bn agreement with China’s Sinohydro that was approved by the Parliament in December 2018. Under the deal, Sinohydro will build critical infrastructure in exchange for revenue from a bauxite-refining project that is currently under development. However, the deal has not been without controversy: political and civil society groups have opposed the project’s location in an environmentally sensitive area, and questions remain regarding the government’s responsibility for covering leftover infrastructure costs should collected bauxite revenues be lower than expected. Nonetheless, the deal could leverage the experience of Chinese contractors in delivering much-needed roads, bridges and interchanges.

The private sector and foreign investors are also likely to be involved in PPPs to develop motorways connecting Accra with Tema, a port city east of the capital; and Takoradi, the Western Region’s growing seaside capital and the new centre of the oil industry. The existing 19-km Accra-Tema Motorway has long been strained by traffic bottlenecks, particularly around the main exit for Tema. The government is committed to expanding the highway to six lanes, and in 2018 it prequalified four companies – two French, one Portuguese and one Chinese – for a build-operate-transfer concession of the $200m-300m project. The road forms part of the main route linking the Ivorian border to the west with the Togolese frontier to the east, and has become integral to a planned corridor connecting the coastal regions of the ECOWAS member states.

Rail

The redevelopment of Ghana’s atrophied railway network has been awaited for many years, not least by freighters who face difficulties moving goods along the patchy inland system. Successive governments have committed to developing the transit network, both by rehabilitating existing lines and expanding the system, particularly towards the north. Doing so should enhance Ghana’s position as a regional logistics hub, as rail transit tends to be cheaper and faster than road transport. The MRD’s masterplan foresees rehabilitating, expanding and building 4675 km of lines at a cost of around $21.5bn. Of this sum, 1394 km of lines were designated priority projects and scheduled for completion before 2020 at a cost of $7.8bn (see analysis).

Ports

Port Tema and Port Takoradi, 30 km east and 220 km west of Accra, respectively, are Ghana’s two main ports. Tema has a large and growing container capacity, while Takoradi Port is focused on bulk cargo, especially commodity exports, though it has received significant investment in container capacity and developed as a regional oil and gas nexus.

In 2017 Tema handled 956,374 twenty-foot equivalent units (TEUs) of container cargo, up from 893,841 TEUs in 2016 and 782,502 TEUs in 2015, per the Ghana Ports and Harbours Authority (GPHA). Container traffic has grown by nearly 75% in the past decade, from 555,009 TEUs in 2008. Total cargo traffic has also expanded significantly: Volume reached 14m tonnes in 2017, up from 13.4m in 2016 and 12.1m in 2015, with the 2017 figure representing a 60% increase over the 8.7m tonnes handled in 2008. Traffic is heavily slanted towards imports, which accounted for 11.3m tonnes of cargo traffic in 2017, with 1.7m tonnes of exports, 1m tonnes in transit and 28,261 tonnes in trans-shipment.

In 2017 Burkina Faso was the biggest market for cargo goods passing through Tema by a large margin, receiving 824,877 tonnes of transited goods. Mali and Niger were second and third, receiving 89,942 tonnes and 18,195 tonnes, respectively, while other countries accounted for the remaining 110,757 tonnes. The ports are also undergoing a process of digitisation and automation to help drive this growth and compound efficiency gains. “The digitisation of the ports system in Ghana represents a major milestone in achieving a facilitated trade environment”, Mark Addo, CEO of West Blue Consulting told OBG.

Expansion Projects

As Ghana’s main container port and maritime outlet for international transit, Tema has been a recent and ongoing target of substantial investment in capacity and technology. In 2004 Meridian Port Services (MPS) took over its operations in one of the most significant PPPs in Ghana’s history. GPHA retains a 30% stake in the joint venture, while Bolloré and APM Terminals, based respectively in France and the Netherlands, each own 35% stakes. By 2008 the facility had progressed through its second development phase and had already reached its 2010 target of 500,000 TEUs of traffic, prompting a new wave of investment. The MPS takeover involved the transfer of some major port services, such as stevedoring and shore handling, to private partners. More recent changes include a capacity expansion from 14 to 16 berths, construction of a new reefer terminal, a revenue centre for one-stop payment processing, and the integration of automation and IT systems. “Tema Port is ground-breaking on the African continent,” Mohamed Samara, CEO of MPS, told OBG. “The Navis N4 terminal operating system positions the port as the most efficient dock in West Africa. Indeed, this digitisation helps take human error out of the equation. Once you scale to a certain level, the use of a manual system becomes unfeasible.” Peter Mensah, CEO of Wella Investments, a marketing and trading firm for industrial chemicals, also commented on the ports’ increased efficiency. “The speed of processing at the port is greatly improved. What takes three days now would have taken a week two years ago. That said, the charges are higher than before, but ultimately it is worth paying a little extra for the better service,” he told OBG. MPS expects to complete a $1.5bn investment in capacity and technology in June 2019 that is intended to make Tema one of the most competitive ports in the region. The project’s contractors, which include US engineering firm AECOM and China Harbour Engineering Company, will expand the terminal’s capacity from around 1m to 3.5m TEUs, dredge a 19-metre-deep access channel, construct a new 1.4-km-long quay with four container berths and a 16-metre draft, and erect a 4-km breakwater. Taken together with investment in inland infrastructure, the development will strengthen the country’s position as a regional shipping centre. “We will soon be able to accommodate the newest heavy generation of ships, to Neopanamax standards,” Samara said. “This will create a reduction in trade cost of 25-32% by the ports full completion. Including the port’s broader benefits, such as increased local property prices, the project will generate over $1bn of local value. However, central to this is the development of the inland trans-shipment routes.”

Takoradi

Takoradi Port handled 8m tonnes of cargo in 2017, up from 6m in 2016 and 4m tonnes in 2008, making it one of the fastest-growing ports in the world in terms of processed volumes. Its major export commodities include manganese, cocoa, rubber, timber, bauxite, coconuts and palm kernel shells. In contrast to the trade balance at Tema, exports regularly exceed imports at Takoradi. In 2017 the port handled 4.8m tonnes of exports and 3.2m tonnes of imports. It also handled 205,565 tonnes of inbound transit cargo, more than twice the 81,705 tonnes that passed through in 2016. Transit volumes have grown strongly over the past few years on the strength of growing demand and improved capacity. The port’s container business is more modest: it handled 53,381 TEUs in 2017, up from 48,622 TEUs in 2016, though this figure was still lower than that registered in 2014, when the port reached a decade-long high of 61,355 TEUs.

Enhanced Role

Waves of investment in the last three decades have transformed a once-moribund harbour into a busy, modern port capable of serving Ghanaian exporters and the burgeoning oil sector. Indeed, the 2007 discovery of deepwater oil prompted the redrafting of the port’s 2002 masterplan to ensure that the facility could support offshore operations, leading to the development of a breakwater extension and a bulk jetty. In June 2018 the administration launched the port’s latest development phase, a multi-purpose, 510,000-sq-metre terminal with a 790-metre quay wall and a dredged depth of 16 metres. The terminal will serve as a transit point for goods moving to and from the landlocked countries to the north.

In December 2018 GPHA signed a contract for the terminal’s development with local engineering firm Ibistek. The deal followed the signing of a project management agreement with the Netherlands’ Royal Haskoning for technical support supervision. The joint venture between Ibistek and GPHA will entail the construction of a new container terminal with a 1m-TEU capacity and is scheduled for completion by June 2019.

Meanwhile, the engineering, procurement and construction contract was awarded to Jan de Nul, a Dutch firm that has been engaged in Takoradi’s development since 2012. Some $78m has already been invested in a 10.1-ha site on the Sekondi road for container activities. “Takoradi Port performs a valuable role as an inland transit centre and benefits from its proximity to Ghana’s vast resource wealth,” Joseph Kojo Biney, CEO of Baj Freight and Logistics, a Ghanaian freight forwarder, told OBG. “The current development plan brings the port up to Neopanamax standards, and allows the largest and most technologically advanced ships to dock with ease.”

In the Air

Accra’s Kotoka International Airport handled 1.81m passengers in 2017, up from 1.75m in 2016 and 1.67m in 2015. The steady increase of arrivals is due in part to Ghanaian tourism, which has been one of the most robust parts of the economy over the past decade. Economic growth has also increased both the number of Ghanaians travelling by air and the number of business visitors to the country. Meanwhile, the airport’s freight traffic rose from 47,700 tonnes in 2016 to 50,400 tonnes in 2017.

The traffic increase has necessitated investment in expansion, and a long-awaited third terminal opened in September 2018, following a $250m investment. The five-level, 48,000-sq-metre terminal can process 1250 passengers per hour, equivalent to 5m passengers per year. “The completion of the new terminal at Kotoka increases its through-traffic capacity,” Solomon Asamoah, CEO of Ghana Infrastructure Investment Fund, told OBG. “More than simply making an excellent first impression the new terminal, if managed well, will aid Ghana’s case in becoming a regional air travel hub.”

New Airline

Ghana has not had a national airline since 2010, when Ghana International Airlines (GIA) ceased operations five years after its founding. GIA itself followed Ghana Airways, which went out of business in 2004 after four decades of operation; both were majority state-owned. Successive governments have aspired to launch a successor to GIA. The plan’s supporters say that it would strengthen Ghana’s local and global connectivity and provide competition on key routes, while critics claim that the private sector is already doing a decent job of satisfying market demand.

The Ministry of Aviation’s Medium-Term Expenditure Framework 2017-19 included a positive feasibility study and foresaw the launch of a national carrier through a PPP in 2019. In December 2018 Ethiopian Airlines signed a contract to provide funding, equity, aircraft and management services for the carrier, in exchange for a minority state in the venture. Joseph Adda, the minister of aviation, announced the following month that the new airline would be launched by the end of the second quarter of 2019. The Ghanaian government will own 10% of the venture, while the remainder will be split among Ghanaian investors, with the public pension fund and the insurer Glico reportedly interested in stakes.

Outlook

A period of fiscal consolidation helped the put the government in a position to raise spending in 2019 and allocate more money to develop transport infrastructure across rail, aviation, maritime and road systems. Stalled projects are likely to resume and accelerate, while long-awaited schemes, such as north-south railway links and a national airline, are set to get under way. The efforts of successive administrations to harness the expertise, technology and capital of domestic and foreign companies continue to bear fruit, and a commitment to improving transit systems as a key to unlocking broader economic growth should create further opportunities for private partners in 2019.