Infrastructure moves to the front burner

Infrastructure moves to the front burner

The beginning of the major rainy season, which lasts from April to June, is the beginning of rising anger and expense

for Ghanaian motorists. Heavy rains cause already poor roads to further deteriorate, exposing deep potholes that slow down traffic and increase motoring risk—not to speak of causing damage to vehicles. Rural roads are especially parlous, and non-existent in some places, limiting movement and economic opportunity for millions of people. This has stirred up resentment among citizens, with growing incidents of violent protests against poor road conditions.

The paucity of good roads is the most striking indication of Ghana’s infrastructure woes. Although the country’s infrastructure has been built up steadily from the ruins of the 1970s-80s, infrastructure provision, from roads to ports, schools, hospitals, and utility systems, has persistently lagged demand, creating a huge and constantly accumulating deficit. Compounding the insufficiency of investment is poor maintenance of existing infrastructure, which reduces its reliability, lifespan, and benefits to the economy. The cost of the infrastructure deficit is felt in reduced productivity, decreased economic growth, and a lower quality of life.

In the last few years, government capital investment, already low by historical standards, has been cut due to austerity. From 3.9% of GDP in 2013, central government capital spending declined to 3.6% of GDP in 2016, and dropped further to 1.6% of GDP in 2018. In addition to this expenditure, a number of statutory funds, including an education trust fund and a road fund, receive resources from the government for infrastructure investment. These resources have also been curtailed with the purpose of curbing the budget deficit.  

The government’s 2019 fiscal policy aims to reverse the trend of budget cuts by increasing central government capital investment to 2.5% of GDP, as well as allocating more resources to the infrastructure-dedicated education and road funds. This is not all: in April, the administration launched a US$2 billion package of infrastructure investment, which will be funded by China through an infrastructure-for-bauxite agreement. The deal requires Sinohydro, a Chinese state-owned construction company, to build US$2 billion worth of infrastructure for Ghana, which will be paid back by ferrying an equivalent amount of the country’s bauxite to China.

Three quarters of the Sinohydro investment is going into roads, reflecting the dire state of affairs in that area. Out of the country’s 72,381-kilometer road network, only 39% is classified as good, with 32% in fair condition and the remaining 29% in poor condition. The proportion of roads that is asphalted is a measly 23%. Sinohydro will construct new roads and interchanges, including the first ever interchanges in the north and west of the country, and rehabilitate crumbling roads. The non-road infrastructure that it will develop includes hospitals, housing, court buildings, and industrial parks.

Revived attention is being paid to rail transport, too, although the plans proposed are so grand as to seem incredible at times. It is no exaggeration to state that the existing rail network is obsolete and anachronistic, with most of it in disuse, as a result of which rail travel accounts for a miniscule share (less than 2% versus 97% for road) of the transport market. The Ministry of Railways Development, created by the government in 2017, proposes to rehabilitate the entire network, which is concentrated in the south, and to extend it to the north, with linkages to Ghana’s northern neighbors. A portion of the state’s petroleum revenues is being invested to revamp key sections of the network, while public-private partnerships are being considered for large-scale investments.

To expand education infrastructure, the government has secured US$500 million, by collateralizing 40% of the education trust fund, to fund new classrooms, dormitories, dining halls, and teachers’ housing in senior high schools, which have experienced an explosion in their populations since the coming into effect of the free senior high school policy two years ago. A further US$1 billion is to be raised in a similar way to boost infrastructure in basic and tertiary schools.

The increase in infrastructure investment will generate multiple economic benefits. In the short term, construction activity will provide jobs and incomes, and drive economic growth. Successful delivery of projects will enable beneficiary communities to enjoy new and improved roads, schools, hospitals, and other amenities. This in turn will support enhanced livelihoods while widening economic opportunities.

For these benefits to multiply to the point where the productive capacity of the economy is permanently strengthened, the country needs to sustain high levels of infrastructure investment for a long period of time. And it must do this without borrowing excessively, since the public debt burden is already large—58% of GDP in 2018—and expensive to service. This means the government must focus its efforts on growing domestic revenue, which is presently low (15.6% of GDP), to provide resources for increased capital investment.

It is vital also to improve the efficiency of public investment by reforming the way it is planned and executed. Due to poor planning, many infrastructure projects that are started suffer long delays before completion or may not be completed at all. As a result, the investments do not yield their full benefits. One study has found that one-third of capital projects begun by local governments do not get completed. Essentially, officials are more inclined to initiate new projects than finish ongoing ones. This practice represents an expensive waste of resources and needs to be checked.

Poor infrastructure is one of the characteristics of poor countries. As Ghana has ambitions to become an industrialized, prosperous nation which does not depend on aid, it cannot afford to spend meagerly on infrastructure, which is needed to drive the economy’s transformation. On top of ensuring that every citizen eventually obtains reliable electricity, clean water, a decent education, efficient transport services, first-class healthcare, and the like, raising capital investment in an efficient way will spur higher productivity in the economy, bolster competitiveness, and catalyze industrialization. The government would do well therefore to keep the infrastructure issue on the policy front burner.

Fondly called “The Asempa Budget” but with the goal of “sowing the seeds for growth and jobs”, Ghana’s 2017