Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. P-4538-GH

MEMORANDUM AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

OF SDR 13.3 MILLION

TO GHANA

FOR THE

AGRICULTURAL SERVICES REHABILITATION PROJECT

April 29, 1987

'I

Tbis document has a restricted distribution and may be used by recipients only in the performance oftheir offiil duties. Its contents may not otherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

Currency Unit - Cedi ()*151 - US$1.00 1/

1/ A dual exchange rate system was established on September 19, 1986 whena foreign exchange auction was instituted for specified transactions.A 090 = 1 US$ rate applied to the first window (cocoa and residual oilexports, petroleum and essential drugs imports, and central governmentdebt service contracted before January 1, 1986); the rate on thesecond window was established at the weekly auction. The marginalrate at the auction was *151=US$1.00 in the week ending November 28,1986. The first and second windows were unified with eifect fromFebruary 20, 1987; all transactions are now valued at the rateemerging in the weekly auction.

FOR OMCIAL USE ONY

Princlpal Abbreviations and Acronyms

AfDB - African Development BankAHPD - Animal Health and Production Department of MOAARDAC - Agricultural Research Development and Advisory CommitteeAPCC - Agricultural Policy Coordination CommitteeCFDT - Compagnie Francaise pour le Developpement des Fibres

Textiles (French Company for Textile Development)CIDA - Canadian International Development AgencyCIDU - Crops Inputs Development UnitCOCOBOD - Ghana Cocoa Marketing BoardCRI - Crops Research InstituteCRIG - Cocoa Research Institute of GhanaCSIR - Council for Scientific and Industrial ResearchERP - Economic Recovery ProgramERPS - Economic Research and Planning ServicesFASCOM - Farmers' Service CompaniesGCC - Ghana Cotton CompanyGFDC - Ghana Food Distribution CorporationGGADP - Ghana German Agricultural Development ProjectGIDA - Ghana Irrigation Development AuthorityGOG - Government of GhanaGOPDC - Ghana Oil Palm Development CorporationGSC - Ghana Seed CompanyGTZ - Deutsche Gesellschaft fur Technische Zusamenarbeit (German

Agency for Technical Cooperation)KFW - Kreditanstalt fur Wiederaufbau (Credit Agency for

Reconstruction)MFEP - Ministry of Finance and Economic PlanningMIST - Ministry of Industry, Science and TechnologyMOA - Ministry of AgricultureMTD - Mechanization and Transport Department of MOANORRIP - Northern Region Rural Integrated ProgramPNDC - Provisional National Defence CouncilPPMED - Policy, Planning, Monitoring and Evaluation DepartmentSOE - State Owned EnterpriseURADEP - Upper Region Agricultural Development ProjectVORADEP - Volta Region Agricultural Development Project

This documnt has a euid dinibuonand my be u_d by mlplenonl d petdomaceof their offcial dutLo I contS may not otewis be diosed wihouI Wo Ba ku autohoa

GH{ANAAGRICULTURAL SERVICES REHABILITATION PROJECT

CREDIT AND PROJECT SUMMARY

Borrower: The Republic of Ghana

Beneficiary: Ministry of Agriculture

Amount: SDR 13.3 million (US$17.0 million equivalent)

On Lending Terms: Not applicable

Cofinancier: UNDP (US$1.5 million)

Financing Plan:Local Foreigl Total

-----US$ M ilion- -

IDA 2.9 14.1 17.0Government 1.3 - 1.3UNDP - 1.5 1.5KFW (parallel) - 8.5 8.5AfDB (parallel) - 25.0 25.0

Total 4.2 49.1 3.33

Economic Rate of Return: Not applicable

Staff Appraisal Report: 6645-GH

MEMORANDUM AND RECOMMENDATION OF THE PRESIDENTOF THE INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE EXECUTIVE DIRECTORSON A PROPOSED CREDIT TO GHANA

FOR THE AGRICULTURAL SERVICES REHABILITATION PROJECT

1. The following report on a proposed development credit to Ghanafor SDR 13.3 million (US$17 million equivalent) is submitted for approval.The proposed credit would be on standard IDA terms and help finance anagricultural services rehabilitation project.

2. Background. Agriculture in Ghana contributes about 53 percent ofGDP, absorbs nearly 60 per cent of the total labor force and supplies up to77 per cent of total merchandise exports. It is primarily rainfed, small-holder agriculture. The productivity of smallholder cultivation is low inboth food and industrial crops. The agronomic potential to significantlyraise productivity exists for most crops. To raise productivity, however,requires supportive incentive and institutional frameworks. The EconomicRecovery Program (ERP), launched in April 1983, is providing the supportiveincentive framework particularly through its substantial devaluations andsignificant increases in the prices of industrial crops. The institutionalframework for agriculture, largely provided by the Ministry of Agriculture(MOA) and the Ghana Cocoa Marketing Board (COCOBOD), is weak. MOA isresponsible for formulating and implementing policies and programs and fordelivering fertilizer and a range of services: tractor hire, extension,veterinary and irrigation. The MOA is also responsible for supervising theoperations of eighteen agricultural state owned enterprises (SOEs) whichare engaged mainly in production and marketing. Apart from COCOBOD, theother institutions serving agriculture are area based development projectsand research institutes. Except for those receiving donor support, allthese public sector agricultural institutions suffer, in varying degrees,from severe resource constraints. As a result, MOA has not been able tofulfill its policy role and its departments have not been able to provideeffective and timely delivery of services and inputs to agriculture.Within the context of the ERP, the Government is committed among otherthings to a far-reaching program of institutional reform: to improve thepay scales and staff structure for the civil service and the management ofstate owned enterprises. For agriculture, what is now required is aconcrete program for strengthening key functions of the major agriculturalinstitutions.

3. Project Obiectives. The basic objective of the proposed projectis to initiate a self-sustaining process of rehabilitation so that the MOAcan give more effective support to agriculture. Specifically, it has twointerrelated objectives: to strengthen the institutional framework for theformulation and implementation of agricultural policies and programs; andto improve the delivery of public sector services to agriculture.

4. Project Description. The project includes: (a) thereorganization and strengthening of MOA's work in policy formulation,planning, monitoring and evaluation; (b) the preparation of a national

- 2 -

master plan for research and funding of research on cotton and rice(irrigated and valley bottom); (c) the reorganization of MOA'e agriculturalextension services in 3 regions on a pilot basis, as a forerunner to anational extension project, related training and logistical support to themaize-cowpea program assisted by the Canadian International DevelopmentAgency (CIDA); (d) the strengthening of the Ghana Irrigation DevelopmentAuthority through a twinning arrangement, the introduction of improvedagronomic practices on existing schemes and investment in six small scalepilot irrigation schemes; (e) logistical support for veterinary services;and (f) studies of the agricultural credit system and of food security.The project includes a program for improving sector management with respectto the privatization of MOA's fertilizer handling operations and of itstractor hire services, divestiture of selected agricultural State OwnedEnterprises (SOEs), regular review of the investment program and improvedcost recovery from veterinary and irrigation services.

5. The project thus seeks to strengthen public sector capacity inareas where the Government has a long-term role to play and to put an endto public intervention in other areas. The project, to be carried out overfive years, provides for technical assistance, staff training, logisticalsupport, importation of agricultural inputs and incremental operatingfunds. The total cost of the project is estimated at US$53.3 million. Theforeign exchange component is US$49.1 million or 92 percent. Financingincludes contributions from UPDP of US$1.5 million and the Government ofGhana of US$1.3 million and parallel financing for agricultural inputs fromthe African Development Bank of US$25 million and from KFW (Germany) ofUS$8.5 million. The AfDB financing will support the elimination offertilizer subsidies and the privatization of fertilizer supply under theproposed project as well as meet demand for fertilizers and chemicals. TheKFW financing of veterinary vaccines and drugs will be complemented byIDA-financed logistical support to MOA. It will support increased costrecovery on these items and through a revolving fund to be establishedunder the project, ensure future supplies. A breakdown of costs and thefinancing plan are shown in schedule A. Amounts and methods of procurementand of disbursements, and the disbursement schedule are shown in ScheduleB. A timetable of key project processing events and the status of BankGroup operations in Ghana are given in schedules C and D respectively. Amap is also attached. The staff appraisal report, No. 6645-GH dated April22, 1987, is being distributed separately.

6. Rationale for IDA Involvement. The proposed project is anintegral part of the Bank's portfolio of current operations in support ofthe Government's ERP. It extends the institutional reforms initiated atthe macro-economic level down to the sectoral level. It translates theinstitutional objectives of the ERP, which is now being supported by aStructural Adjustment Program, into a concrete program of reform for keypublic sector agricultural institutions. Institutionally, the SAPcontains: (1) a timetable for staff redeployment throughout the civilservice; (2) a skill mobilization scheme to attract and retain competentsenior staff to implement the ERP; (3) a phased reform for SOEs withinitial focus on priority SOEs whose corporate plans must be reviewed andapproved by the Government and on initial divestitures; and (4) annualreviews of a rolling three-year public expenditure program to develop anexpenditure structure supportive of the priorities of the ERP. The

- 3 -

proposed project would enable the MOA to support item (3) and toparticipate in all the other major reform measures. Five agricultural SOEsare expected to be included in the first-phase SOE divestiture programagreed under the SAP, and divested with assistance under a recently-appraised Public Enterprise Project directly supporting that program;reform of the remaining thirteen would be assisted under the proposed project.In addition, the project would enable the MOA to respond to the Govern-ment's Action Program for agriculture which was also conceived as acomponent of the ERP. The program includes, among other things, theprivatization of fertilizer delivery and of tractor hire services and thestrengthening of a range of public sector services to improve technologyuptake in predominantly traditional agriculture.

7. Actions Agreed Upon. In addition to the usual covenants, thefollowing are key assurances obtained at negotiations: (i) dhe Governmentwould set interim and long term staffing levels for the PPMED by December31, 1987; (ii) the Government would submit to IDA at least three monthsprior to each fiscal year, the annual budgets and work programs of all MOAimplementing units relevant to the project; (iii) the MOA would implement aphased program to reduce fertilizer subsidies and to privatize fertilizerhandling, so that the subsidy is eliminated for the crop year 1990 byDecember 31, 1989, and the MOA's role in the import and distribution offertilizer is terminated in 1991; (iv) the MOA would discontinue itswheeled tractor hire services by the end of 1987, combine harvesterservices by February 28, 1989 and land clearing services by June 30, 1991;and (v) the MOA would complete and have reviewed by IDA and other donors anagricultural research study and master plan by June 30, 1988. Conditionsof Effectiveness would include: (i) the Government's signing and agreementwith UNDP to provide technical assistance and other support for PPMED; and(ii) the MOA's making satisfactory arrangements for implementing theagricultural state-owned enterprises reform program, includingestablishment of a unit to coordinate SOE program activities andappointment of key staff to the unit. As a condition of disbursement forthe irrigation component, the Ghana Irrigation Development Authority wouldenter into a twinning agreement with a suitable irrigation authority on abasis satisfactory to IDA.

8. Justification. The longer-term benefit is stronger public sectorsupport for agricultural development in three key areas: (1) formulatingpolicies to promote an efficient market- and export-oriented development inagriculture; (2) developing an investment program which can sustain theERP; and (3) revitalizing the delivery of public services with potential topromote the structural transformation of agriculture. The imediatebenefits are in training and developing a core of managerial and technicalstaff in the MOA and in shedding economic activities that can be undertakenmore efficiently by the private sector.

9. Risks. There are institutional risks of two kinds. The firstrisk is of delays in the public sector reform program undertaken at themacro level under the SAP. Since the project is in good part a sectoralextension of macro levt. initiatives, delays in the overall program couldadversely affect progress at the sectoral level. The second is -hat PPMEDwill not be able to retain the competent higher level staff whom theproject has trained and who will be required to carry through the program.

- 4 -

These risks are mitigated by the consensus that has been achieved withinthe Government, between senior officials of the Ministry of Finance andEconomic Planning and the MOA and between the Government and IDA.

10. Recommendation. I am satisfied that the proposed credit wouldcomply with the Articles of Agreement of the Association and recommend thatthe Executive Directors approve the proposed credit.

Barber B. ConablePresident

Attachments

Washington, D.C.April 29, 1987.

-5-

Schedule A

Estimated Project Costs:

Local Foreig Total--- US$ Million

1. PPMED 0.2 2.0 2.22. Agricultural Research 0.4 2.6 3.03. Agricultural Extension 0.7 1.5 2.24. Irrigation Services 1.0 4.2 5.25. Veterinary Services 0.4 1.2 1.66. SOE Reform 0.2 1.4 1.67. CIDU 0.1 0.3 0.48. PCU 0.5 0.7 1.29. Refinancing of Project

Preparation Advance 0.1 0.4 0.5

Base Costs 3.6 14.3 17.9Contingencies 0.6 1.3 1.9

4.2 15.6 19.8

10. Vaccines and Drugs (KFW) - 8.5 8.511. Fertilizers & Chemicals (AfDB) - 25.0 25.0

Total Project Cost 247g 49i 53.mm=m

Proposed Financing Plan

IDA 2.9 14.1 17.0Government 1.3 - 1.3UNDP - 1.5 1.5KFW (parallel) - 8.5 8.5AfDB (parallel) - 25.0 25.0

Total 4.2 49.1 53.3_ a_u

-6-

Schedule B

E. Procurement

Amounts and Methods of Procurement lt 2/(US$ million)

Procurement Component ICB LCB Others Total

1. Civil Works - 1.5 - 1.5(1.3) (1.3)

2. Vehicles, plant, equipment, 1.8 1.3 0.4 3.5materials and spare parts (1.8) (1.0) (0.3) (3.4)

3. Consultants' services, 10.1 10.1studies and training (8.6) (8.6)

4. Operating costs 4.2 4.2(3.2) (3.2)

5. Project PreparationAdvance 0.5 0.5

(0.5) (0.5)

1.8 2.8 15.2 19.8(1.8) (2.6) (12.6) (17.0)

1/ Contingencies are included in the amounts shown. AMouts withinparentheses indicate IDA portion.

2/ Methods of procurement for vaccines, drugs, fertilizers and chemicalswould be coasistent with the procurement policles of the agenciesfinanclag these Items.

-7-

Schedule BPage 2

Disbursements

Category Percent

Civil Works 1001 (of foreignexpenditures)

85Z (of localexpanditures)

Vehicles, plants, equipment 100l (of foreignexpenditures)materials and spare parts 90X (of localexpenditures)

Consultants' services, studies,and tralaing 100% (ofexpenditures)

Operating costs 801 (ofexpenditures)

Estinated Disbursements (US$ million)

FY88 FY89 PY90 FY91 FY92 FY93

Annual 1.5 1.1 5.7 4.6 3.2 0.9Cumulative 1.5 2.6 8.3 12.9 16.1 17.0

Schedule C

GHANA

AGRICULTURAL SERVICES REHABILITATION PROJECT

Timetable of Key Project Processlng Events

Time Taken to Prepare 14 months

Prepared by : IDA and FAO/CP

First IDA Mission February 1986

Appraisal Mission Departure : November 24, 1986

Negotiations : April 13-15, 1987

Planned Date of Effectiveness: December 1987

List of Relevant

PCRs Ashanti Region Cocoa Project(Loan 1181-GH) May 24, 1984

Upper Region Agriculture DevelopmentProject (URADEP) (Loan 1291 T-GH)November 18, 1985

PPAR : Eastern Region Cocoa Project(Credit 205-GH) June 24, 1981

Ghana Oil Palm Development(Credit 531-GH) June 25, 1984

-9-

Schedule DPage 1

THE STATUS OF BANR 6ROUP OPERATIONS IN GHANA

STATEMENT OF 8ANK LOANS ANM IDA CREDITS (As of March 31. 1987)

Loan or Amount (USSMillion) 1/Credit Fiscal Less CacellationNumber Year Borrower Purpos Bank IDA Undisbursed 2/

Ten loans and fifteen credits fully disbursed 189.7 166.221009-GH 1980 Republic of Ghana Volta Region Ag.Dev. 29.5 15.741029-GH 1980 Republic of Ghana Third Highway 25.0 0.101170-GH 1981 Republic of Ghana Railway 29.0 5.171327-GH 1983 Republic of Ghana Reconstruction CIHAO 9.3 11.061342-GH 1983 Republic of Ghana Water Supply 13.0 3.891373-GH 1983 Republic of Ghana EnerU Project 11.0 8.511435-GE 1984 Republic of Ghana Export Rehabilitation 40.1 13.68FOO9-GE 1984 Republic of Ghana Export Rehabilitation 35.9 19.561436-GH 1984 Republic of Ghana Export Rehabilitation

Technical Assistance 17.1 S.OO1446-GH '.984 Republic of Ghana Petroleum Refinery Rehab.

and Technical Assistance 6.9 4.441498-GH 1984 Republic of Ghana Second Oil Palm 25.0 22.681564-GH 1985 Republic of Ghana Accra District Rehab. 22.0 19.821573-GE 1985 Republic of Ghana Second Reconstruction

Imports (-redit 60.0 14.60A003-GH 1985 Republic of Ghana Second Reconstruction

Imports Credits 27.0 14.271601-GE 1985 Republic of Ghana Road Rehabilitation and

Maintenance 40.0 38.73A0O1-GE 1985 Republic of Ghana Road Rehabilitation and

Maintenance 10.0 10.411628-GE 1986 Republic of Ghana Power System

Rehabilitation 28.0 25.271653-GH 1986 Republic of Ghana Health and Education

Rehabilitation 15.0 14.251672-GH 1986 Republic of Ghana Industrial Sector

Adjustment Credit 28.5 19.27

1/ Prior to exchange adjustments.

2/ Calculated at the exchange rate applicable on September 30, 1986.

- 10 -

Schedule DPage 2

Loan or Amount (USSMillicn) 11Credit Fiscal Less CancellationNunber Year Borrower Purpo ank IDA Undisbursed 2/

A013-GH 1986 Republic of Ghana Industrial SectorAdjustment Credit 25.0 13.77

1674-GH 1986 Republic of Ghana Ports Rehabilitation *4.5 24.351774-GH 3/ 1987 Republic of Ghana Education Sector 34.5 36.64

Total 389.7 716.73 341.21of wbich has been paid 79.9 5.79Total now outstanding 109.8 716.73

mount sold .38of which has been repaid .38 0.0Total now held by Bankand IDA 109.8 716.73

Total undisbursed 0 341.21 341.21

1/ Prior to exchange adjustments.

2/ Calculated at the exchange rate applicable on September 30. 1986.

31 Not yet effective.

- 11 -

Schedule DPage 3

B. Statement of IFC Investments

As of January 31, 1987

Investment Type of Loan Equity TotalNo FY Oblipor Business US$ million

777-GH 85 Ashanti Gold Mining 27.5 - 27.5FieldCorporati n,Ghana Ltd.

914-GH 87 Keta Basin Oil Explora- - 4.5 4.5Oil tion _

Total Comitmaents 27.5 4.5 32.0

Total Undisbursed 20.0 4.5 24.5

IBRD 15116R3

BURKINA FASO GHANA-11 - | * ~~~t ~ -- ~.~~\, ,/ . G H A N A

UPPER ,aOtOnQO RAINFALL AND' / UPPER.' WEST j. E,AST < ECOLOGICAL ZONES

REGION . t HIGH R)REST ZONE

>| RE 61ON 2 \ . r Equntoaru Rain Fores

Wa : <> oNasia ( - - F5Moist Semi deciduous

) 1 oWo ^Ns SAVANNAH ZONE .s10 j , Gjineo Sovannoh

* g -. . . - WoodlondSudan Savannahi

* )_ \ _ -- Woodlond) - ~~Coastol Th:cket andN O R T H E R N R E G I O N -Goss!ond

Tomole0 ;M- o . {, 'k, Nlongroves

Rainfoll (mm)0 Domongo Rvers

9- <t * -- - -. \ _. _ Region Boundories

u @ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~Interna otional- J ~~~~~~~~~~~~~~~~~~~~Boundarnes

COTE 2 -Sologoz

D'IVOIRE B_o :V

Atebubu

BRONG AHAFO REGION-. T O G O

j , 50 Sunyant C \ r E1o 7 2 \ F. .

'> \ ! ~~~~~~~A S H A N T I \ . f ,,) '

- j OKunmosi

REvION E G I /EASTERN,

.: ., ,\, , -' 4-. o d ' 1

-6'-' N REG ION Kfrd

; 1 C E N T R A W .- ,I_ NIGER

CENTR < /> R I G j t N { ACCRA -f' FA_

, ~~~A trfl t ,~,• - 0 20 3C 0 ~a55 MlES TERs OFRi J" A7cro G>E

I~~~~~~~~~~~~~NGI

FtBRUARY I 87