GHANA CONSTRAINTS ANALYSIS ( PARTNERSHIP FOR GROW TH) FINAL REPORT AUGUST 2011 Prepared by Joint USG-GoG technical team Table of Contents Table of Contents ______________________________________________________________ i List of Tables __________________________________________________________________ i List of Figures ________________________________________________________________ ii Acronyms and Abbreviations ____________________________________________________ iv Executive Summary ___________________________________________________________ v 1. Introduction _____________________________________________________________ 1 2. Methodology ____________________________________________________________ 1 3. An Overview of Post-Independence Economic Trends ____________________________ 6 3.1. Ghana’s Performance over the Last 50 Years _____________________________________ 6 4. Is Private Investment in Ghana Too Low? _____________________________________ 16 5. Is the Cost of Finance Too High? ____________________________________________ 18 5.1. International Finance _______________________________________________________ 18 5.2. Bad Local Finance __________________________________________________________ 19 6. Is the Rate of Return to Investment in Ghana Low? _____________________________ 26 6.1. Social Returns _____________________________________________________________ 26 6.2. Infrastructure _____________________________________________________________ 32 6.3. Is Low Appropriability Reducing the Return to Investment in Ghana? ________________ 74 6.3.1. Policy Failures ____________________________________________________________________ 74 7. Conclusions _____________________________________________________________ 90 References _________________________________________________________________ 96 APPENDICES _______________________________________________________________ 102 Annex A: Natural Resource Issues Affecting Growth in Ghana _______________________ 102 Annex B – SUMMARY OF COMMENTS AND ISSUES RAISED DURING PUBLIC CONSULTATIONS ON CONSTRAINTS ANALYSIS REPORT ___________________________________________ 119 Annex C – List of attendees at the Public consultations _____________________________ 123 List of Tables Table 3-1 Sources of Growth in Ghana, 1970 - 2005 _______________________________________________ 8 Table 5-1 Perception of Access to Credit as a Constraint, by Size of Firm (2006) ________________________ 18 Table 5-2 Gross Domestic Savings as a Percent of GDP, 2000-2009 __________________________________ 20 Table 5-3 Indicators of the Credit Sector in Ghana, 2003-2010______________________________________ 21 i Table 6-1 Gross Enrolment Rates in Ghana and Comparator Countries, 1975-2007 _____________________ 27 Table 6-2 Educational Level among Managers in Ghana, by Firm Size (Percent) ________________________ 27 Table 6-3 Profile of Wage Earners in Ghana, 1998 - 2006 __________________________________________ 28 Table 6-4 Mincerian Wage Regressions, Ghana _________________________________________________ 30 Table 6-5 Emigration rate of tertiary educated population, 2000 ___________________________________ 31 Table 6-6 Ghana’s Road Indicators Benchmarked against Africa’s Low- and Middle-income Countries ______ 34 Table 6-7 Trends in Road Condition mix for Ghana, 2002 – 2007 ____________________________________ 35 Table 6-8 Firms’ Assessment of Road Infrastructure for Ghana and Comparator Countries _______________ 36 Table 6-9 Provider-Based Improved Water Coverage _____________________________________________ 51 Table 6-10 Access to Improved Water Source by Comparator Countries _______________________________ 53 Table 6-11 Benchmarking Water and Sanitation Indicators _________________________________________ 54 Table 6-12 Evolution of Hidden Costs Associated with Ghana Water Company __________________________ 55 Table 6-13 Hidden Costs of Water Utilities ______________________________________________________ 55 Table 6-14 Average Price for Water Service in 15 Largest Cities, by Type of Provider _____________________ 57 Table 6-15 Electricity – Gross Production, Public & Self-Producers (kWh per Capita) _____________________ 59 Table 6-16 Average Duration of Power Outages __________________________________________________ 59 Table 6-17 Average Number of Power Outages in a Typical Month ___________________________________ 60 Table 6-18 Value Lost Due to Power Outages (Percent of Sales) _____________________________________ 60 Table 6-19 Availability - Duration of Supply Hours Lost Per Connected Customer, 2010 ___________________ 61 Table 6-20 Fixed Broadband Internet Subscribers (Per 100 People) ___________________________________ 64 Table 6-21 Secure Internet Servers (Per 1 Million People) ___________________________________________ 64 Table 6-22 ICT Expenditure (Percent of GDP) _____________________________________________________ 65 Table 6-23 ICT Goods Exports (Percent of Total Exports)____________________________________________ 65 Table 6-24 ICT Service Exports (Percent of Service Exports, BoP) _____________________________________ 66 Table 6-25 Sensitivity of Irrigation Potential to Thresholds for Economic Return ________________________ 74 Table 6-26 Indices of Perceived Corruption, 2001-2010 (1 = high corruption, 10 = low corruption) __________ 79 Table 6-27 Indices of Perceived Corruption in Ghana and Comparator Countries ________________________ 79 Table 6-28 Proportion of GDP due to Tourism ____________________________________________________ 82 Table 6-29 Average Tourist Expenditures, 2003-2008 ______________________________________________ 82 Table 6-30 Tourist Expenditures by Component, 2003-2008 _________________________________________ 82 Table 6-31 Number of Hotels, Rooms, and Beds 1998-2009 _________________________________________ 82 Table 6-32 Number of Tourist Arrivals to Ghana (in Thousands), 2006 – 2008 __________________________ 83 Table 7-1 A summary of the Constraints Analysis Results __________________________________________ 94 List of Figures Figure 2-1 Growth Diagnostics Framework _______________________________________________________ 1 Figure 3-1 Real per Capita GDP Growth by Decade, Ghana vs. Comparator Groups_______________________ 7 Figure 3-2 Gross Capital Formation, Averages 2006-2009 ___________________________________________ 9 Figure 3-3 Gross Domestic Savings as a Share of GDP, Averages 2006-2009 ____________________________ 9 Figure 3-4 Ghana’s Current Account 2006–2009 _________________________________________________ 10 Figure 3-5 Investment, Savings, and Current Account Balance, 2006-2010 _____________________________ 11 ii Figure 3-6 Public Revenues, Spending and Deficits 2006-2010 ______________________________________ 13 Figure 3-7 Budget Surplus/Deficit for Ghana and Comparators ______________________________________ 13 Figure 3-8 Inflation in Ghana, 1990-2010 (Consumer Price Index) ____________________________________ 14 Figure 3-9 Taxes as a Percentage of GDP (Average 2006-2009) _____________________________________ 14 Figure 4-1 Private Fixed Investment as a Share of GDP, Averages 2006-2009 __________________________ 16 Figure 5-1 Comparison of Foreign Direct Investment in Ghana and Its Comparators _____________________ 19 Figure 5-2 Ghana: Real Interest Rates on Deposits, Monthly 2000-2010 ______________________________ 20 Figure 5-3 Ghana: Nominal Interest Rates on Deposits and Lending, Monthly 2000-2010 ________________ 21 Figure 5-4 Nonperforming Loan Rate in Ghana, 2000-2010 _________________________________________ 23 Figure 5-5 Financial Depth in Ghana and Comparator Countries, 2006 ________________________________ 23 Figure 5-6 Real Interest Rates for Ghana and Comparator Countries, 2006 ____________________________ 24 Figure 5-7 Firms’ Access to Credit in Ghana _____________________________________________________ 25 Figure 6-1 Network Traffic Density (2001-5 Average) ______________________________________________ 40 Figure 6-2 Composition of Wagon Loads in GRC Compared with Other Rail Lines _______________________ 42 Figure 6-3 Minerals Transported by Road in Ghana _______________________________________________ 42 Figure 6-4 Labour Productivity on African Railways (1995-2005 Average and Current, Typically 2007) ______ 43 Figure 6-5 Firms’ Assessment of Air Transport for Ghana and Comparator Countries ____________________ 47 Figure 6-6 Top 60 International Routes within Sub-Saharan Africa, 2007 ______________________________ 48 Figure 6-7 Improved Water Coverage in Ghana, 1993-2008 ________________________________________ 50 Figure 6-8 Improved Water Coverage in Ghana, by Region _________________________________________ 52 Figure 6-9 Distribution of Water, Sanitation and Hygiene Risk Factors in Africa _________________________ 69 Figure 6-10 Distribution of Environmental Burden of Disease per Year in Africa __________________________ 69 Figure 6-11 Redundancy Costs in Low Income Countries ____________________________________________ 80 Figure 6-12 Unit Labour Cost in Manufacturing Sectors, Ghana and Comparator Countries ________________ 81 Figure 6-13 Survey of Factors Affecting Industry Decisions __________________________________________ 84 Figure 6-14 Correlation between Growth and Inflation, Annual Data 1990-2009 _________________________ 86 iii Acronyms and Abbreviations AfDB African Development Bank AICD Africa Infrastructure Country Diagnostic CPIA Country Policy and Institutional Assessment CWSA Community Water and Sanitation Agency ECG Electricity