Infrastructure made a net contribution of just over one percentage point to Ghana’s improved per capita growth performance in recent years, in spite of the fact that unreliable power supplies held growth back by 0.5 percentage points per capita. Raising the country’s infrastructure endowment to that of the region’s middle-income countries could boost annual growth by more than 2.7 percentage points. Today, Ghana stands out as having a very advanced infrastructure platform when compared with other low-income countries in Africa. But, by and large, Ghana’s infrastructure indicators still remain far below the levels found in Africa’s middle-income countries.
Ghana has made very significant progress in infrastructure in recent years. A number of patterns emerge consistently across sectors. Ghana has succeeded in developing broad reach national infrastructure backbones, and raising household access to services far beyond what is typical for the low income peer group. This is true whether one looks at mobile telephones (67 percent penetration versus 15 percent in the peer group), power (56 percent access versus 15 percent for the peer group), or utility water (40 percent coverage versus 26 percent for the peer group). Moreover, Ghana’s success in service coverage is not confined to urban areas. The country has demonstrated an impressive performance on both rural water and electricity coverage, and increasingly GSM signal extension. The country’s road sector is also well developed, with an impressive 95 of the paved and 81 of the unpaved networks in good or fair condition. Institutional reforms have been successfully adopted in the ICT, ports, roads and water supply sectors. Reforms of the water utility have substantially reduced the hidden costs of the sector.
Looking ahead, the country faces a number of important infrastructure challenges.
Probably Ghana’s most pressing challenge lies in the power sector, where rapid demand growth and periodic hydrological shocks leave the country increasingly exposed to high cost oil-based generation. Ghana’s power tariffs are based on the costs of baseload hydro-power costing only US$0.05 per kilowatt-hour. However, incremental demand is currently met through oil-based generation costing over US$0.20 per kilowatt-hour. Since there is no mechanism for automatically adjusting tariffs, this situation generates huge financial losses for VRA of the order of US$400 million per year or 3 percent of GDP. The solution is to diversify the generation portfolio towards gas-fired plant that can deliver back-up thermal power for around US$0.07 per kilowatt-hour; and this process is already underway.
Despite Ghana’s success with raising access to infrastructure services, the deficient quality of those services is another cross-cutting and increasingly pressing issue. Perhaps the most dramatic case is the water sector, where exceptionally high technical and non-technical losses divert more than 50 percent of water produced leaving little to reach the final customer, who is thus exposed to highly intermittent supplies. Until this issue is resolved, Ghana’s recent technical achievement of the Millennium Development Goal remains a somewhat hollow victory. Power supply is also increasingly subject to reliability problems that stem from neglect of ageing transmission and distribution assets. Even in mobile telephony the increasing rate of dropped calls has become a recent concern, though it is a relatively standard side effect of a rapidly expanding network. This overall pattern suggests that Ghana may benefit from a systematic framework for regulating quality of public services. Finally, the one public service to which Ghana does not seem to have paid so much attention is sanitation, where the lack of progress in reducing open defecation remains a concern.
With respect to regional integration, Ghana is doing well on maintaining international road corridors, but lacks power and ICT connectivity with its neighbors. The Port of Tema is increasingly becoming a transit gateway to the landlocked hinterland. However, the continuing success of the Ghana Gateway program depends on successfully tackling capacity constraints at the port.
Addressing Ghana’s infrastructure challenges will require sustained expenditure of almost US$2.3 billion per year over the next decade, split fairly evenly between investment and operations, and maintenance. More than half of the total relates to the power sector. At just over 20 percent of GDP, this level of effort would be comparable to what China has expended in recent years—a significant stretch for Ghana’s economy. Investment alone would absorb around 12 percent of GDP, not far from the 15 percent China invested in infrastructure during the mid-2000s.
Ghana already spends around US$1.2 billion per year on infrastructure, equivalent to about 7.5 percent of GDP. A further US$1.1 billion a year are being lost to inefficiencies of various kinds, the bulk of which are associated with the under-pricing of power. Relative to their African peers, Ghana’s power sector presents relatively high subsidy-related losses. Yet Ghana’s urban population is relatively well-off and cost recovering tariffs do not look to be unaffordable from an objective standpoint.
Comparing spending needs against existing spending and potential efficiency gains leaves an annual funding gap of US$0.4 billion per year, most of it associated with power and water. Following its recent oil discoveries, Ghana is well-placed to raise additional public funding for infrastructure from increased fiscal receipts of various kinds. Furthermore, despite its relatively strong economy and attractive investment climate, Ghana has not captured as much private finance for infrastructure as a percentage of GDP, as many of its neighbors have succeeded in capturing under less favorable circumstances.
Overall, then, Ghana’s infrastructure situation is quite hopeful relative to that of many African neighbors. There are several strong areas to build upon, and a solid economic base from which to fund incremental efforts. As Ghana reaches the middle income threshold, it will need to focus on upgrading its infrastructure indicators in line with this benchmark.