The Ghana transport sector is poised with grow help of private investors

Economic development continues to drive Ghana’s need for expansion and renovation of transport infrastructure. While forecasts for economic growth have been reduced, the IMF still expected its economy to grow at a rate of 4.5% in 2016, compared to 3.9% in 2015. With ongoing offshore activities and an increasing number of construction projects across the country, the Ghanaian government recognises the need for reliable transport services. The domestic construction sector, largely driven by transport projects, made up 14.8% of GDP in 2015, growing by over 30%, while the transport and storage sub-sector contributed 11.6% to GDP that year, a decrease of 6.3% from 2014. There are promising plans in place for continued expansion and modernisation of Ghana’s transport infrastructure, but questions of funding and private sector investment remain to be answered.

Funding

Former President John Dramani Mahama has repeatedly stated his goal of establishing Ghana as a trade and aviation hub in West Africa. However, the 2016 budget allocation for transport does not reflect that prioritisation. The Ministry of Transport (MoT) submitted a 2016 budget of almost GHS689m ($177.8m), but was ultimately allocated roughly GHS126m ($32.5m) – 65% less than what was approved in 2015. This drastic reduction means many of Ghana’s transport projects will likely miss key benchmarks and deadlines, and certain new initiatives, like the Road Transport Authority (RTA), will face a difficult time getting off the ground. The government will be hoping the tightening of purse strings encourages improved fiscal responsibility. In December 2015 the minister of transport was forced to resign after it was revealed that the ministry spent $947,000 on the rebranding of 116 imported buses. Lawrence Kumi, the MoT’s director of research, told OBG, “The 65% cut has been a big challenge. We also are having to use the generators because of energy shortages, which is increasing prices even more.”

The drop in state funding has been matched by a fall in foreign contributions. In 2015 donors partners supplied GHS255m ($65.8m) for transport projects, while in 2016 donor countries are expected to provide only GHS50m ($12.9m). The financing requirement, however, remains high. In 2011 a World Bank research paper reported that Ghana’s infrastructure deficit would require $1.5bn of investment per year over the next decade to resolve. With the country aiming to reduce its fiscal deficit to 5.3% of GDP by the end of 2016 and donor countries pulling back, the government is turning to public-private partnerships (PPPs) to fill the funding gap. In 2014 the Ministry of Finance and Economic Planning (MoFEP) provided updates on priority PPP projects across the sector, including ports, rail, roads and aviation (see analysis).

Maritime

According to the Ghana Ports and Harbours Authority (GPHA), combined throughput at the country’s ports exceeds 17m tonnes per annum (tpa) and transit cargo has reached over 800,000 tpa, an increase of over 40% since 2010. The country’s primary ports, Tema and Takoradi, now handle over 900,000 twenty-foot equivalent units (TEUs) every year. In order to keep pace with these volumes and situate itself as a trade hub for the region and a transit point for landlocked countries like Burkina Faso and Niger, Ghana has taken on a number of port expansions and improvements amounting to approximately $3bn in investment over the next 10 years.

In the face of these plans, early 2015 was a tough time for Ghanaian shipping as the consequences of the 2014 foreign exchange policy and power crisis had a direct impact on volumes. As an import-dependent country, the increased cost of foreign goods meant a reduction in imports. However, the economy began to recover in August and September 2015 as the exchange rate became more stable. Many in the shipping industry now project trade will bounce back following elections in December 2016 and into 2017.

Tema Expansion

Tema, Ghana’s largest port, handles more than 12m tpa of cargo and receives 95% of the country’s imports each year. It is also responsible for the bulk of transit trade, of which Burkina Faso makes up two-thirds of the market. Tema has a 750,000-TEU container terminal operated by the GPHA, which has a 30% stake, and Meridian Port Services (MPS), a joint venture between APM Terminals and Bolloré Group, each with a 35% stake. Tema also hosts a number of deepwater berths and the largest dry dock in West Africa. “To facilitate growth in Ghana, you cannot avoid expanding Tema. When the Tema Port expansion is complete, Ghana will play a much larger role in regional trade,” Amy Bonsu, a trade officer for shipping firm Maersk, told OBG.

According to the GPHA, approximately $2.5bn has been allocated for upgrades and expansions at Tema. Recently completed projects include a 420-metre bulk handling cargo jetty, improved security and surveillance, a new data processing centre, installation of new rubber-tired gantry cranes and a 130-bed referral hospital. Additionally, in July 2016 then-President Mahama inaugurated a new $20m reefer terminal intended to receive all refrigerated imports at the port. The Ghana News Agency reported in July 2016 that the updated reefer terminal has a capacity of 840 containers, a 30% increase from its previous 630-container capacity. This expansion will enhance Ghana’s ability to store meat, fish, dairy and other perishable goods (see analysis).

Takoradi Expansion

Takoradi is Ghana’s oldest and second-largest port, located about 322 km west of Accra. According to the GPHA, it handles 5m tpa, including 16% of seaborne imports and 68% of exports in 2015. A total of $450m has been allocated to modernising Takoradi to increase capacity and reduce congestion at the port, with the project being rolled out in three phases. The first phase was completed in May 2016 by Belgian company Jan De Nul and included the extension of the breakwater by 1.08 km to the north, construction of a bulk jetty and dredging of the port access channel to 16 metres. These projects will allow the port to handle larger dry and liquid bulk vessels and cargo. Phase two is currently under way and includes construction of an oil services terminal and reclamation of 53,000 ha of land. This phase is expected to be complete by 2018. Finally, the third phase of the project will focus on developing the main entry and exit routes to the port, with construction of a 300,000-TEU container terminal. According to the GPHA, the goal for the Takoradi expansion is to situate the port as a regional hub, handling larger cargo for industry.

Railway

Railway networks provide an efficient and durable way to move heavy cargo over land, making them key to supporting economic growth. Ghana’s railway network comprises 947 km of track forming a triangle connecting Accra-Tema, Kumasi and Takoradi. As of 2016, rail accommodated less than 10% of freight and passenger traffic each year. According to the MoT, only one-third of the network is operational, pushing some firms, like the Ghana Bauxite Company, to use road transport instead. Poor rail infrastructure creates challenges for sectors like mining, agriculture, and gas and oil. “Ghana is seeing a decline in exports of cashews, cotton and sesame seeds coming from inland countries like Burkina Faso because they are shifting their transit cargo to Abidjan, where the rail network has recently been expanded and is now better positioned to move cargo,” Bonsu told OBG.

The government frequently announces plans for improving its railways, but funding and capacity have prevented implementation. According to the Ghana Investment Promotion Centre, the government hopes to privatise the currently state-owned Ghana Railway Company and is targeting 60% of solid and liquid bulk cargo to be transported by rail between ports and the interior and to neighbouring landlocked countries. In 2015 Ghana released its Ghana Rail Master Plan, outlining a number of rehabilitation projects to improve its rail system and keep pace with neighbouring countries such as Côte d’Ivoire.

Ghana’s Western Line serves as the main corridor for transporting manganese, bauxite and other minerals from the hinterland to Takoradi Port. It is also the main line for exports like cocoa, flour and some petrol products. Construction work began in 2012 to improve the entire Western Line as operations have almost completely come to a halt. Front-end engineering and design on the line has been completed and plans are in place to increase load capacity from 16 tonnes to 21 tonnes per axle. Additionally, the laying of 30 km of new government-funded track between Takoradi and Sekondi was 80% complete as of summer 2016 and due to be finished by the end of the year. The government is also hoping to rebuild and renovate all stations along the track.

These upgrades would have a substantial impact on mining firms that currently transport most of their cargo between Kumasi and Takoradi’s port by road. The wider economy would also stand to benefit as the area is one of the wealthiest in the country and contains key metropolitan areas. However, Dzifa Attivor, former minister of transport, stated in her 2016 budget submission to parliament that the project most affected by the 65% cut to the transport budget is “development of the railway network, for which works are ongoing for the Takoradi to Sekondi commuter rail line. The provision of GHS10m [$2.6m] from the Annual Budget Funding Amount ... cannot meet the completion cost for the project”, which was scheduled to be finished in 2016.

The rehabilitation of the Eastern Line connecting Tema and Kumasi, along with construction of the Boankra Inland Port, has been another much anticipated development. Boankra would encourage transit trade through Ghana and help decongest Tema and Takoradi by bringing import and export services closer to Ghanaians in the north and landlocked countries like Mali, Burkina Faso and Niger (see analysis).

Roads

Currently, roads are the primary method of transport in Ghana, carrying over 95% of passengers and freight in the country. With the addition of a 17.5% value-added tax (VAT) to domestic flights, even more Ghanaians are choosing to travel the country by road. According to the Ministry of Roads and Highways (MRH), there were 71,063 km of roads across the country in 2014, of which 30% were paved. Trunk roads and urban roads each make up about 20% of the network, while feeder roads comprise 60%.

Policy formulation, coordination, oversight and evaluation of Ghana’s roads system is the responsibility of the MRH, while a number of agencies operate underneath the ministry, including the Ghana Highway Authority; Department of Feeder Roads; Department of Urban Roads; Koforidua Training Centre, which provides road transport training; and Road Fund Secretariat, which is in charge of road financing.

While the MRH and its associated agencies oversee the road network, road transport continues to be the one area without an overarching regulatory body. This gap has led to issues of safety, standardisation and strategic planning. The National Road Safety Commission reported that a total of 10,852 road accidents were recorded in 2015, leading to 1634 casualties. According to Kumi, the establishment of the RTA to regulate road transport would serve as a very important regulatory advancement. As of April 2016 the MoT had drafted regulations and framework to create the RTA and said it would be placed before Parliament for final review by the end of 2016.

Broader Road Construction

In 2014 the MRH published its Sector Medium-Term Development Plan (SMTDP) outlining a number of priority projects. As laid out in this plan, the ministry wants to, in accordance with the MoF’s policy on PPPs, continue to use the model to finance major road projects and improve trade opportunities within the region by developing international road corridors. Construction is currently ongoing for improvements to the Central, Eastern and Coastal corridors, and plans for rehabilitation of the Western corridor will be developed over the next four years. In addition to new road construction, the SMTDP prioritises human resources development through annual training programmes, more efficient information-management systems and the maintenance of existing road networks.

Heavy vehicles on the roads have been identified as a safety hazard and one of the main causes of road deterioration. To address this, Ghana signed the ECOWAS axle weight limit agreement, which reduced allowable axle weight from 13.5 tonnes to 11.5 tonnes. The MRH has established 17 permanent weigh stations and is deploying eight mobile vans for monitoring vehicle weight on the roads.

Road conditions and the cost of private vehicle maintenance and operation has driven growth in the leasing market. “Over the last five years, it is apparent that large companies will pay a premium for fleet services, and are less sensitive to price changes,” Kalu O Kalu, general manager of Leasafric Ghana, told OBG. “The leasing market is growing and there is the tendency to be more open to leasing opportunities rather than ownership.” However, most leasing companies are small and not regulated by the Bank of Ghana. “This can sometimes pose a problem for those in the sector that are regulated, in that it makes it more difficult to compete price-wise,” he said.

Beyond plans outlined in the SMTDP, some 200 km of trunk roads and 40 km of urban roads are currently under construction. Roads in cocoa-producing regions are also being upgraded. In June 2015 then-President Mahama launched the Cocoa Roads Rehabilitation Programme, intended to improve access to buying centres and ports for cocoa-farming regions. A total of 628.7 km are planned for construction in the east of the country during the project’s first phase. The five-year programme will cost $150m a year and is wholly funded by the government-controlled Ghana Cocoa Board (see Agriculture chapter).

Airlines

West Africa is a lucrative aviation route for many carriers and yet the region lacks a primary airline or airport hub. In recent years, Ghana has seen an increase in international travellers and transit passengers, and a number of expansion projects suggest that the country’s objective of establishing itself as an air transit hub for West Africa is alive and well. However, high fuel prices and a shrinking budget may make it difficult for that vision to come to fruition. Ghana has seen a steady increase in tourism over the past five years, receiving just over 1m tourists in 2014, up 25% from around 800,000 in 2009. International arrivals rose by nearly 11% year-on-year, from 754,553 between January and June of 2015 to 837,019 in the first half of 2016. International arrivals and departures have increased 20% since 2010. Domestic travel has not experienced the same growth. According to the Ghana Airports Company Limited (GACL), domestic travel fell over 30% from 778,466 arrivals and departures in 2013 to 525,440 in 2015.

Ghana’s aviation industry is operated and overseen by three primary entities. In 2006 the Ghana Civil Aviation Authority (GCAA) and the GACL were established as two separate bodies. The former was to serve as the regulator and the latter as airport operator and service provider. In 2015 the GCAA was further stratified by creation of the Air Navigation Authority Provider. This division allows the GCAA to focus on its responsibilities as the air transport regulator.

Upgrades & Expansions

The GACL is responsible for managing and operating Ghana’s commercial airports, including Kotoka International Airport (KIA) in Accra, Tamale International Airport (TIA) in the north, Kumasi Airport in the Ashanti Region and Sunyani Airport in the west. The GACL has led a number of airport expansion and renovation projects, as for the past few years KIA has been operating over capacity. In order to accommodate a growing number of international travellers and to service additional airline carriers, construction of a new international terminal, Terminal 3, is now under way. This $250m project is being led by Turkish company MAPA Gunal Construction. Started in 2016, the project is set to be completed by the first quarter of 2018. The new terminal is designed to accommodate 5m passengers per year. Additionally, the GACL expanded and modernised KIA’s arrival hall, refurbished the existing runway and installed an airfield lighting system.

TIA is used as the primary airport for Ghanaian Muslims travelling to Mecca for the Hajj, and it is also undergoing an expansion. Phase one is now complete, which included projects to extend the runway from 2480 metres to about 3940 metres and install a lighting system to enable larger aircraft to land.

A New International Airport

Even with its expansion, the government believes congestion at KIA will continue. Kumi told OBG that plans are under way to construct a new international airport at Prampram in the Greater Accra region to address this issue. According to Kumi, the construction of this airport would replace KIA as the primary international gateway in the country, allowing KIA to operate primarily as a domestic airport. This project was initially discussed in 2013, but land acquisition disputes have delayed its progress. Kumi added that this issue has now been resolved and that private partners are being invited to express interest.

National Airline

Re-establishing a national airline has been another stated transport priority for the government since the collapse of Ghana Airways and its successor, 70% government-held Ghana International Airlines. The two carriers were disbanded due to mismanagement and large debts in 2004 and 2010, respectively. Serious efforts to re-establish a national airline have been ongoing since 2014. The government is currently accepting expressions of interest from private investors (see analysis).

Flying Costs

While former President Mahama has stated his objective of positioning Ghana as a regional aviation leader, the cost of operating an airline in Ghana remains one of the highest in West Africa. At a July 2016 aviation stakeholders meeting in Accra, Gloria Yirenkyi, country manager for South African Airways, said, “I won’t be the one saying this for the first time. There have been concerns that the cost of doing business in the country’s aviation sector is high.” Some of these higher costs have come from the 2014 and 2015 depreciation of the cedi; however, recent taxes and price build-ups have also contributed and have had a particularly damaging impact on domestic travel. According to Kumi, deregulation and liberalisation in 2012 and 2013 led to an increase in airlines operating domestically in Ghana. However, following rises in fuel pricing, patronage has decreased significantly, pushing a number of carriers out of business. Only two airlines now operate domestic flights: Africa World Airlines and Starbow.

In July 2015 a 17.5% VAT was tacked on to all domestic flights. This cost was pushed on to passengers through ticket sales. According to the MoT, there were 195,447 domestic air passengers between January and June of 2016, down over 45% from 288,968 during the same period in 2015.

Furthermore, due to a number of taxes, refuelling in Ghana is the most expensive in West Africa, costing airlines around $3.14 per gallon, compared to $2.30 in Nigeria and Benin and $1.94 in Cameroon. Then-President Mahama announced in August 2016 that the National Petroleum Authority would reduce the price of jet fuel by 20%. Despite this, jet fuel prices in Ghana remain well above those elsewhere. The GCAA also imposes a safety charge of $10 per passenger and $20 per tonne of cargo on all international tickets.

Outlook

As Ghana works to situate itself as a key gateway to West Africa and with an economy set to grow more quickly than the global average, its transport infrastructure will continue to require expansion and modernisation. Plans are in place for making promising improvements over the next decade and the government is eagerly pursuing private partners to help, creating opportunities for qualified investors.

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The Report: Ghana 2017

Transport chapter from The Report: Ghana 2017