Road construction and maintenance

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Road construction and maintenance

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Country

Ghana

Sector

Infrastructure

Sub Sector

Infrastructure

Indicative Return

> 25% (in IRR)

Investment Timeframe

Long Term (10+ years)

Market Size

> USD 1 billion

Direct Impact

Industry, Innovation and Infrastructure (SDG 9)

Sustainable Cities and Communities (SDG 11)

Indirect Impact

Business Model Description

Construct and maintain road transportation infrastructure, such as roads, pavements, tunnels and bridges.

Expected Impact

Enhance economic and social mobility and reduce risks of road accidents.

How is this information gathered?

Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.

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Country

Ghana

Region

Ghana: Ashanti
Ghana: Eastern
Ghana: North East
Ghana: Northern
Ghana: Savannah

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Sector

Infrastructure

Development need
SDG 6 - Clean Water and Sanitation and SDG 9 - Industry, Innovation and Infrastructure are reported to be major challenges and only moderately improving. Two out of five SDG 6 indicators and three out of six SDG 9 indicators are marked as major challenges.(II)

Policy priority
The government aims to increase the availability of water and sanitation. By 2021 Ghana wants basic water access to be over 80%, safely managed water access to be 36%, improved liquid waste management to be 30% and solid waste management to be 80%.(III) Roads are also a high priority with the target of 50% of good quality roads, 75,000 km of roads and over 67% of road maintained.(III) The government created the enabling environment for house construction, making the sector more attractive for investors.(IV) The Medium-Term Plan III forecasts the number of houses to reach 3.6 million in 2021.(III)

Investment opportunities
The country’s infrastructure sector recorded significant growth the past 20 years, which supported Ghana’s development. With a booming urban population (3.3% growth in 2019) (I), there are opportunities for the private sector to invest in housing, water and sanitation, roads and waste management.

Key bottlenecks
The main sector challenges include: liquidity problems for some ongoing projects, transmission problems, a lack of conservation, a weak regulatory environment, a lack of patient capital, difficult access to land, a lack of related services and the high cost of materials.

Sub Sector

Infrastructure

N/A

Industry

Engineering and Construction Services

Investment Opportunity Area

Road construction and maintenance

Business Model

Construct and maintain road transportation infrastructure, such as roads, pavements, tunnels and bridges.

Market Size and Environment

Market Size (USD)

> USD 1 billion

Critical IOA Unit

In 2019, 42,000 km of roads required routine maintenance

In 2019, 42,000 km of roads required routine maintenance.

In 2019, the Ministry planned to provide routine maintenance for over 42,000 km of roads. The 2020 budget for roads was USD 390 million.(5)

In Ghana, transport contributed USD 420 million to gross domestic product (GDP) in Q1 2020.(16) Further, the rising numbers of motorbikes (890,000 in 2015) (17) and cars (73 vehicles per 1,000 population in 2017) will increase demand for roads.(18)

Indicative Return

IRR

> 25%

Active stakeholders in Ghana's investment opportunity areas report an internal rate of return of around 24%.(10)

A study on road maintenance in Ghana reported internal rates of return ranging between 30% and 35%.(11)

Across Africa, the profitability of infrastructure investments suggests an internal rate of return of 32% for highway construction projects.(12)

Investment Timeframe

Timeframe

Long Term (10+ years)

A private sector stakeholder estimated contracts for road construction and maintenance are usually organized for around 10 years.(14)

According to appraisal reports from the African Development Bank, constructing a road takes 2-3 years and financial analysis extends over 20 years.(8),(9)

Market Risks & Scale Obstacles

Frequent delays in government payments for contractors and high level of political influence (3)

Business - Supply Chain Constraints

Poor procedures for awarding contracts and insufficient planning (3)

Market - Highly Regulated

Lack of tolling policy and regulations limits the toll based business model (14)

Business - delayed payments and political influence

Sustainable Development Need

In 2016, Ghana had less than 80,000 km of roads. Of these roads, only 41% were reported to be in a good condition, 33% were in fair condition and 26% were in bad condition. Urban roads accounted for the highest share of poor quality roads (46%).(2)

Road materials and the quality of infrastructure are generally poor. Only 5% of roads were rigid or asphalt, and only 26% had pavements (a factor that contributes to high number of accidents).(2)

Poor quality roads and connectivity challenges affect Ghana's population, as well as its competitiveness, attractiveness and potential growth.(22)

Gender & Marginalisation

Rural communities in remote locations in particular suffer from social and economic exclusion.

Expected Development Outcome

Reduced transportation time and cost, increased connectivity, reduced traffic accidents

Develop logistics companies and services, enhance business environment, connect farmers with markets

Increase access to education and healthcare

Gender & Marginalisation

Remote areas are expected to benefit from better connectivity with economic centers, which in turn facilitates access to income generation opportunities and allows for enhanced economic activity.

Primary SDGs addressed

3 - Good Health and Well-Being

3.6.1 Death rate due to road traffic injuries

Current Value

N/A

Target Value

N/A

9 - Industry, Innovation and Infrastructure

9.1.1 Proportion of the rural population who live within 2 km of an all-season road

9.1.2 Passenger and freight volumes, by mode of transport

Current Value

N/A

Target Value

N/A

11 - Sustainable Cities and Communities

11.2.1 Proportion of population that has convenient access to public transport, by sex, age and persons with disabilities

Current Value

N/A

Target Value

N/A

Secondary SDGs addressed

1 - No Poverty

8 - Decent Work and Economic Growth

10 - Reduced Inequalities

Directly impacted stakeholders

People

Commuters for economic and social activities

Gender inequality and/or marginalization

Rural communities benefiting from better access

Planet

Environment benefiting from more controlled transport streams and the use of more sustainable construction materials

Corporates

Micro, small and medium enterprises, logistics companies, traders, farmers, and agricultural growers and exporters

Indirectly impacted stakeholders

People

Tourists with easier access throughout the country

Corporates

Vehicle producers

Public sector

Healthcare systems due to fewer traffic accidents and better supply chains, public transportation

Outcome Risks

Soil degradation and habitat loss (13)

Increased amount of air pollution (13)

Increased noise (13)

Increased use of fossil fuels (13)

Impact Risks

N/A

Impact Classification

B—Benefit Stakeholders

What

Road construction and maintenance is likely to have a positive impact as it increases accessibility and connectivity, as well as reduces the number of accidents.

Risk

Although the model is market proven, there are some challenges such as high costs of construction materials, unstable legal environment and suboptimal road maintenance sector performance.

Impact Thesis

Enhance economic and social mobility and reduce risks of road accidents.

Policy Environment

Medium-Term National Development Policy Framework: An Agenda for Jobs: Creating Prosperity and Equal Opportunity for All (First Step) 2018-2021: This plan recognizes roads as critical for developing agriculture and industry. The government aims to construct the missing transport links, providing necessary road maintenance and incorporating safety measures in road construction such as pavements.(III)

The Annual Report of Ministry of Roads and Highways 2018: This report provides an of the sector, outlines the direction of road development and reports on the progress of modernizing existing roads. The total budget for road development was USD 345 million in 2018.(2)

Ghana National Transport Policy: This policy provides the overall vision for sector development. The new policy was approved in 2020 and is expected to be published in the near future.(4)

The Ministry of Finance announced year 2020 as the 'Year of Roads'. Around USD 390 million has been allocated for sector development. Over half of this amount will be devoted to road construction, with the rest going to maintenance and administration.(5)

Financial Environment

Financial incentives: Strategic projects above USD 50 million may be granted concessions on import duties and other development cost.(15) Ghana receives significant financial support for road development. For example, the Eastern Corridor Road Development Programme received USD 82 million from the African Development Bank.(19)

Fiscal incentives: The companies listed on the Ghana Stock Exchange are levied a 22% tax rate, instead of 25%. There is also a duty exemption on machinery, equipment and parts.(15)

Regulatory Environment

Ghana Road Fund established by Act of Parliament, Act 536 of 1997 and amended in 2016 by the Road Fund (Amendment) Act, Act 909: This Act aims to secure funding for road construction and maintenance.(2)

Road Traffic Act, 2004 (Act 683) and Road Traffic Regulations, 2012 (LI 2018): This legislation underscores the importance of road safety and regulates traffic-related matters. It is implemented in cooperation with the National Road Safety Commission.(6)

The Ministry of Roads and Highways formulates policies. The Department of Urban Roads (DUR) has a mandate develops, maintains and manages roads in and around cities. The Department of Feeder Roads (DFR) is responsible for mainly rural roads.(2)

The Ghana Highway Authority (GHA) supervises highways in Ghana.(2)

The Ghana Standards Authority sets Engineering Building and Basic Standards.(24)

Private Sector

Oswal Investments Limited, Berock Ventures Limited, David Walter Limited, Inocon group limited, Limerica Ghana Limited, Ghana Road Fund, Ghana Infrastructure Investment Fund (GIIF)

Government

Ministry of Roads and Highways, Ghana Highway Authority, Department of Feeder Roads, Department of Urban Roads, Driver and Vehicle Licensing Authority (DVLA)

Multilaterals

European Development Fund, African Development Bank, World Bank

Public-Private Partnership

Ghana Private Road Transport Union