Accra, Ghana//-As a developing nation, Ghana’s focus on infrastructure growth is aimed at driving socioeconomic development and enabling greater productivity within the various sectors of the economy.
The annual infrastructure funding gap is estimated at US$1.5 billion for the next decade and government and private sector participants are developing innovative ways to bridge this gap. This has increased the reliance on project financing for the development of both privately funded infrastructure and public-private partnerships (PPPs).
The World Bank’s Private Participation in Infrastructure database indicates that of the 30 projects that reached financial close between 1990 and 2019, only five have either been cancelled or are under duress.
Multilateral agencies and development financial institutions, such as the World Bank Group and the African Development Bank, are playing a key role in this process through the provision of funding and other credit enhancement facilities, such as partial risk guarantees to private investors and lenders. Their contributions have had a significant impact on the success of many project financings in Ghana.
The year in review
Over the past year, several new pieces of legislation that could impact the development and financing of projects have been enacted. These include the Borrowers and Lenders Act, 2020 (Act 1052), the Land Act, 2020 (Act 1036), the Corporate Insolvency and Restructuring Act, 2020 (Act 1015), the Development Finance Institutions Act, 2020 (Act 1032) and the Public Private Partnership Act, 2020 (Act 1039). The enactment of these laws is expected to bolster the legal framework for contracting and implementing project finance transactions.
The government’s plans to focus on the development and rehabilitation of transport infrastructure during the year did not pan out as expected due to the outbreak of the covid-19 pandemic. The pandemic resulted in a shift of focus to healthcare infrastructure and increased spending on covid-19 related social and business alleviation programmes.
The imposition of pandemic containment measures such as social distancing also adversely affected productivity in various sectors of the economy, with significant impact on existing and new projects. Delays in supply chains, and disbursement of funds and funding approval decisions, also affected the sector.
On 30 March 2020, Ghana’s Finance Minister submitted a covid-19 economic impact assessment to the Parliament of Ghana, in which he outlined the possible economic impact of the covid-19 pandemic on the Ghanaian economy, highlighting projected shortfalls in revenue and trade as well as increased spending, and outlined various measures required to close the fiscal gap of 11.4 billion cedis (2.9 per cent of revised GDP).
In this regard, the Bank of Ghana and the Ministry of Finance engaged local commercial banks to provide financial support to the private sector to mitigate the impact of the covid-19 pandemic.
The support included a syndication facility of 3 billion cedis to support industry, especially in the pharmaceutical, hospitality, services and manufacturing sectors; granting of a six-month moratorium on principal repayments for selected businesses; and a reduction of interest rates priced off the Ghana Reference Rate by 200 basis points (2 per cent per annum).
Outlook and conclusions
Despite the rise in the use of project finance for the development of public infrastructure, access to long-term funding for capital intensive projects in Ghana continues to be a challenge.
To address this issue, in 2014 the government established the Ghana Infrastructure Investment Fund with the core mandate of mobilising, managing, coordinating and providing financial resources for investment in a diversified portfolio of infrastructure projects in Ghana.
The current government has declared its commitment to partnering with private parties in the delivery of priority projects, particularly in the transport sector. Additionally, recent banking reforms involving a revamping of the capitalisation and liquidity requirements resulted in the improved capacity of local banks to participate in medium to large-scale project finance transactions.
A significant development is the promulgation of the PPP Act. The PPP Act establishes a comprehensive legal framework for the evaluation, development, implementation and regulation of PPP arrangements and projects between public institutions and agencies and private entities for the provision of public infrastructure and services.
It makes provision for several types of PPP arrangements and establishes the Public Private Partnerships Office to take up the responsibility of promoting the efficiency and effectiveness in the development and implementation of PPP arrangements.
However, the impact of the covid-19 pandemic could erode the modest gains made by the government and the private sector in addressing financing issues for infrastructure projects in Ghana.
The pandemic has led to tighter financing conditions in both the domestic and international finance markets, and the slowdown in economic activity is likely to result in debt service difficulties, especially in the aviation and hospitality sectors.
The effective implementation of covid-19 containment measures such as vaccinations, and the various initiatives introduced by the government such as tax rebates for businesses operating in specified sectors and the 100 billion cedis budgeted Ghana covid-19 alleviation and revitalisation of enterprises support programme, would aid in addressing these concerns and getting the economy back on track.
N Dowuona & Company – Akosua Achiaa Akobour Debrah and NanaAma Botchway
