Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 16502

IMPLEMENTATION COMPLETION REP'ORZT

RE'PUBLIC OF GHANA

AGRICULTURAL SECTOR ADJUSTMENT CREI)IT(Credit 2345-GH)

May 2, 1997

County Department 10Africa Region

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld 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

Annual 1991 1992 1993 1994 1995 1996Averages (Jan-June)CedilUS$ 368 | 437 649 957 1200 1567

WEIGHTS AND MEASURES

Metric System

FISCAL YEAR OF BORROWER

January 1 - December 31

ABBREVIATIONS AND ACRONYMS

ADB Agricultural Development BankAgSAC Agricultural Sector Adjustment CreditAgSAP Agricultural Sector Adjustment ProgramAPCC Agricultural Policy Coordinating CommitteeCMC Cocoa Marketing Company (COCOBOD subsidiary)COCOBOD Ghana Cocoa BoardDFR Department of Feeder RoadsEPA Environmental Protection AgencyEPC Environmental Protection CouncilFASCOM Farmers Services CompanyGCC Ghana Cotton CompanyGDP Gross Domestic ProductGNAFF Ghana National Association of Farmers and FishermenGOG Government of GhanaGFDC Ghana Food Distribution CorporationIDA International Development AssociationKfW Kreditanstalt fir WiederaufbauLBCs Local Buying Companies (for cocoa beans)MFEP Ministry of Finance and Economic PlanningMLF Ministry of Lands and ForestsMOFA Ministry of Food and AgricultureMTADS Medium-Term Agricultural Development StrategyNCCSGA National Cocoa, Coffee and Sheanut Growers AssociationPBC Produce Buying Company (COCOBOD subsidiary)SAC Structural Adjustment Credit

VICE PRESIDENT - JEAN LOUIS SARBIBCOUNTRY DIRECTOR - SERGE MICHAILOF

TECHNICAL MANAGER - JEAN PAUL CHAUSSETASK TEAM LEADER - GOTZ SCHREIBER

FOR OFFICIAL USE ONLY

Table of ContentsPage

Preface ........ ................................................................. iii

Evaluation Summary ......................................................................... v

Part I: PROGRAM IMPLEMENTATION ASSESSMENT .............................................................. 1

A. STATEMENT/EVALUATION OF OBJECTIVES ..................................................................... 1

B. ACHIEVEMENT OF OBJECTIVES .............................. ............................................ 3Overall Achievements .......................................................................... 3First Tranche Release .......................................................................... 4Second Tranche Release .......................................................................... 4Third Tranche Release .......................................................................... 6Other Monitorable Actions .......................................................................... 7

C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT ..... 7Implementation Record .......................................................................... 7Major Factors Affecting Program Implementatioi .................................................................. 7

D. PROJECT SUSTAINABILITY .......................................................................... 8

E. BANK PERFORMANCE ......................................................................... 8

F. BORROWER PERFORMANCE ......................................................................... 9

G. ASSESSMENT OF OUTCOME .......................................................................... 9

H. FUTURE OPERATIONS .......................................................................... 10

I. LESSONS LEARNED ......................................................................... 10

Part II: STATISTICAL INFORMATION1. Summary of Assessments2. Related Bank Loans/IDA Credits3. Project Timetable4. Loan/Credit Disbursements: Cumulative Estimated and Actual5. Key Indicators for Project Implementation6. Key Indicators for Project Operation7. Studies Included in Project8A. Project Costs8B. Project Financing9. Economic Costs and Benefits10. Status of Legal Covenants11. Compliance with Operational Manual Statements12. Bank Resources: Staff Inputs13. Bank Resources: Missions

Appendices 1. ICR Mission's Aide Memoire2. Map

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

REPUBLIC OF GHANA

AGRICULTURAL SECTOR ADJUSTMENT CREDIT(Credit 2345-GH)

Preface

This is the Implernentation Completion Report (ICR) for the Agricultural Sector Adjustment Credit inGhana for which Credit 2345-GH in the amount of SDR 57 million equivalent was approved on March 26, 1992and became effective on June 3, 1992.

The Credit was closed on December 31, 1995, with a delay of one year. The first tranche, released uponeffectiveness, was fully disbursed by May 28, 1993. Subsequent tranches were released on April 12, 1994, andSepternber 7, 1995, respectively, and the Credit was fully disbursed by January 23, 1996. Two SupplementalCredits (Cr. 2345-1, effective April 11, 1994, and Cr. 2345-2, effective January 12, 1995), for SDR 4.13 millionand SDR 3.6 million, respectively, were made available from IDA reflow resources. Grant cofinancing wasprovided by the Government of the Netherlands with a total arnount of DFI 30 million. The German Governmentprovided parallel financing through a KtW credit of DM 25.7 million, bringing the total assistance package toabout US$127.0 million as disbursed.

The ICR was prepared by an FAO/World Bank Cooperative Program (FAO/CP) mission,' and wasreviewed by G. Schreiber (Acting TM, AFTA3) and J. Chevallier (TM, AFTS3). The borrower and cofinancierswere provided with a draft of this document on January 29 and 31, 1997, respectively. To date, no fomialconunents have been received from the Borrower, while the cofinanciers have indicated that they have nocomments.

H. Trupke (mission leader) and G. Bodeker (economist/financial analyst).

IMPLEMENTATION COMPLETION REPORT

REPUBLIC OF GHANA

AGRICULTURAL SECTOR ADJUSTMENT CREDIT(Credit 2345-GH)

Evaluation Summary

Introduction

1. Based on the positive experience gained under two IDA-financed Structural Adjustmnent Credits(Cr. 1777-GH, 1987, and Cr. 2005-GH, 1989), the Government of Ghana (GOG) developed, withsubstantial support from the Bank in 1988-89, a Medium-Term Agricultural Development Strategy(MTADS) which defined a program of policy and institutional reforms and a complementary set ofinvestments needed to enhance agricultural growth. The strategy which emerged from this processformed the basis of the Agricultural Sector Adjustment Program (AgSAP). The implementation of anumber of the policy and institutional reforms identified in this program was subsequently supported bythe Agricultural Sector Adjustment Credit (AgSAC), the implementation experience of which isreviewed below.

Project Objectives

2. The Credit was to support a program of liberalization of agricultural pricing, marketing and inputsupply, and the strengthening of agricultural sector coordination and management. The main objectivesof the AgSAC were to eliminate the public sector role in input and produce price determination (exceptfor cocoa), allow competitive trading for all agricultural inputs and outputs, remove external traderestrictions for all agricultural commodities except cocoa, and thereby create conditions for increasedprivate investment in storage, input and output marketing, and processing. It was also to provide for amore efficient allocation of public resources and increase the focus of the public sector on povertyalleviation and natural resources management. The program objectives were clear, realistic and highlyrelevant to the country and the sector.

Implementation Experience and Results

3. Overall, the AgSAC was successful in supporting actions to attain the broad objectives of thesectoral adjustment program, but private sector response to liberalization measures fell somewhat shortof expectations. In respect of the liberalization of produce pricing and marketing, the focus was onfoodgrains, cotton, palm oil and cocoa. By the time of Board presentation, GOG had already met theconditions regarding cotton lint and palm oil pricing and export liberalization and had partially fulfilledthe requirements for public sector withdrawal from grain marketing, milling, and price fixing. Thedivestiture of five parastatal-owned rice mills was a condition to be fulfilled prior to the release of thesecond tranche. This, however, caused some problems as no buyers could be found. After protractednegotiations, the Bank accepted the sales advertisement as fulfillment in the spirit of the covenant. Bynow, two of these mills have been sold as scrap and the remaining ones have been closed down.

-vi-

4. Conditionalities concerning the cocoa subsector, such as ceasing input distribution to cocoagrowers, divestiture of cocoa processing facilities and plantations as well as staff retrenchment and theabolishing of subsidies on inputs, were met prior to the release of the first tranche. The conditions forthe second and third tranche release, including the opening up of the internal cocoa trade to the privatesector, were also successfully met. However, against an appraisal forecast of 40 percent, at present onlyabout 25 percent of internal cocoa marketing are in the hands of the private trade; the remaining 75percent are still marketed by the Produce Buying Company (PBC), a COCOBOD subsidiary. The slowerthan expected growth of private sector participation can be explained by initial delays in screening andlicensing of applicants, the substantial start-up capital requirements involved (trucks, warehouses, scales,bags, field staff, etc.), cumbersome procedures for obtaining credit for working capital, operatingmargins that proved inadequate in the face of rapid inflation, and long delays in obtaining payment forcocoa deliveries to the Cocoa Marketing Company (CMC), COCOBOD's marketing subsidiary.

5. Prior to Board presentation, GOG had already ceased to fix producer prices for cotton and hadeliminated restraints on cotton lint exports. To further advance the liberalization process, theGovernment was to offer for sale all of its shares of the Ghana Cotton Company (GCC) to interestedinvestors including cotton producers. An accounting firm was commissioned to manage the sale of36,000 ordinary shares representing GOG's 30 percent shareholding in the company. After a first,unsuccessful, offer to the existing private GCC shareholders, the subsequent public offer (at higherprices) resulted in an over-subscription in which the Agricultural Development Bank (ADB) bought 50percent of the shares offered. ADB being a parastatal agency, it became a point of discussion within theBank whether this part of the sale satisfied the privatization objective. Finally, agreement was reachedthat the conditionality had been fulfilled as ADB's total share holding in GCC amounted to only 15percent, considerably less than the 21 percent of the largest private shareholder (Juapong Textiles), andprivate shareholders now held 85 percent of GCC; moreover, ADB itself was already on the list ofparastatals targeted for divestiture and is about to be privatized. The lengthy process, however,contributed to the delay in the release of the second tranche by almost half a year.

6. In the Upper and Volta Regions, marketing of agricultural inputs was dominated by the twoparastatal Farmer Services Companies (FASCOMs), crowding out private sector commercial activitiesand contributing to price distortions. In adhering to conditionalities, GOG had already privatized seedproduction, decontrolled fertilizer prices and had issued invitations to consulting firms to prepareFASCOM divestiture prior to Board presentation. The divestiture process, however, proved to bedifficult, mainly because the FASCOMs were highly indebted and inefficient. Even after GOG hadagreed to write off all their debts to Government, no suitable buyers could be found to take them over intoto, as potential private input wholesalers/retailers either did not have sufficient capital to take overstocks and facilities or were not prepared to take the high business risk associated with prevailing banklending rates of 30 percent and more and the seasonality of the, trade. Finally both FASCOMs weretransferred to the non-governmental Ghana National Association of Farmers and Fishermen (GNAFF) onJuly 1, 1995. These rather difficult and politically sensitive procedures resulted in delays of complyingwith the conditionalities for the second and third tranche release.

7. Progress towards strengthening agricultural sector coordination and management has beensatisfactory, particularly in streamlining the budget formulation and review process for the agriculturalsector as a whole. The Agricultural Policy Coordinating Committee (APCC), serviced by a full-timetechnical secretariat in the Ministry of Finance and Economic Planning, has been empowered tocoordinate sector-wide policies and to review and approve the budgets of all agricultural sector agencies.Budget allocations for all major public sector agencies operating in the agriculture sector (Ministry ofFood and Agriculture, Ministry of Lands and Forestry, COCOBOD, Department of Feeder Roads, and

-vii-

the Agricultural Research Institutes) are now reviewed together so as to rationalize sector-wideallocations~ of public financial resources and, in particular, to ensure appropriate balances in theallocation of resources across sub-sectors and agencies and between staff emoluments and otherexpenditures within agencies.

8. The budget's focus on poverty reducing programs has increased. The importance ofenvironmental issues is highlighted in the new system of land resources management and theestablishment of the Environmental Protection Agency with far-reaching authority. In addition, and incompliance with conditions for the third tranche release, Parliament is about to ratify an Act on the useof agro-chemicals.

9. Generally, both the Bank and the Borrower performed satisfactorily throughout the programcycle. Although second and third tranche releases were delayed, requiring an extension of the closingdate (twice, by six months each time) to December 1995, the program outcome has to be rated assatisfactory as all major objectives have been achieved.

10. The Credit, in an original amount of SDR 57 million, became effective on June 3, 1992, and wasto be disbursed in three tranches. Two supplemental IDA Credits of SDR 4.13 million and SDR 3.6million, respectively, were made available from IDA reflow resources in FY94 and FY95, respectively,bringing total IDA funds to SDR 64.7 million (approx. US$93.9 million). The government of theNetherlands provided cofinancing grants totaling DFI 30 million (approx. US$17.1 million) which wereadministered by the Bank, and the German government provided parallel credit financing through theKreditanstalt fur Wiederaufbau amounting to DM 25.7 million (approx. US$16 million), bringing thetotal assistance package to about US$127.0 million as disbursed.

11. The proceeds of the Credit were to be used to finance the foreign exchange cost of eligibleimports through the foreign exchange auctions of the Bank of Ghana. Except for military equipment,luxury goods and environmentally hazardous products, any imports were eligible for financing. Theserather broad definitions gave rise, on a number of occasions, to differing interpretations between GOGand the Bank as to what constituted luxury goods or environmentally hazardous products. Frequently,time consuming negotiations and exchange of documentation were required, delaying the disbursementprocess. Nevertheless, the Credit was fully disbursed by January 23, 1996.

Summary of Findings, Future Operations, and Key Lessons Learned

12. The most important finding is that intensive Bank-Borrower collaboration in the development ofa sectoral development strategy leads to agreements not only on sectoral investments but also on policyand institutional reforms needed, and such reforms tend to be implemented effectively and with a highdegree of commitment. A second important finding is that programs which promote divestiture andliberalization in order to provide the enabling environment for more efficient agricultural production andmarketing through increased competition should be accompanied from the beginning by measures tofacilitate private sector entry. The response by the private sector to the opportunities created bygovernment's withdrawal from farm input marketing and the abolition of the parastatal monopsony indomestic cocoa marketing has not been as vigorous as was anticipated at appraisal -- for several reasons:lack of capital, facilities and training/experience; marketing margins for private cocoa traders in theinitial years of the program which proved to be inadequate in the face of high inflation; undue delaysexperienced by the LBCs in having their cocoa deliveries accepted and paid for by CMC; andremaining regulatory constraints on fertilizer imports and marketing. As a result, there is the risk

-viii-

that government might come under pressure to step back in and satisfy unmet demand for marketingservices. Finally, as the experience with GCC and the FASCOMs demonstrated, where major parastatalsare to be privatized, it is highly advisable to explore well in advance whctlher there are likely privatebuyers and what might be the most appropriate modalities for divestiture.

13. From discussions with GOG it is evident that there is strong coinniitment to continue theliberalization process. COCOBOD is endeavoring to increase tlhe share of Licensed Buying Companies(LBCs) in internal cocoa marketing by improving payment procedures (which havc been an importantfactor in reducing the financial viability of existing LBCs). GCC is cxperimenting with new approachesto input distribution and sales to eventually pave the way for supply through the private input trade. Thenew directives on quality and environmenital standards for agricultural chemicals are now applicable toall importers and distributors and are, inter alia, expected to enhance services provided to farmers and toenhance environmental quality and public health. The process of strengthening inter-sectoralcoordination and sectoral budget formulation is by now well integrated in the overall procedures, but willneed further refinement in future.

14. The major lessons to be drawn from program implementation experiences are that: (a) theintensive Borrower-Bank collaboration in formulating a sectoral development strategy resulted in a highdegree of consensus on policy and institutional reforms needed and was instrumental in ensuring that theagreed reforms were implemented effectively and with a high degree of conmmitment; (b) matching thedivestiture of parastatals and market liberalization with measures in support of private sector entry wouldhave accelerated the private sector's response to the imnproved enabling environment; (c) for the sale ofGovernment assets to the private sector, clear guidelines have to be established and options defined andagrred upon in case no private buyer can be found; (d) lack of precision in project documents can lead todisagreements between the Bank and the Borrower concerning the interpretation of terms ofconditionalities and to delays in implementation and tranche releases; (e) if eligible imports are definedthrough a "negative list," items not eligible for financing have to be clearly defined to avoid disputesover eligibility of claims resulting in time-consuming exclhanges of documnentation between the Borrowerand the Bank.

IMPLEMENTATION COMPLETION REPORT

REPUBLIC OF GHANA

AGRICULTURAL SECTOR ADJUSTMENT CREDIT(Credit 2345-GH)

PART I: PROGRAM IMPLEMENTATION ASSESSMENT

A. STATEMENT/EVALUATION OF OBJECTIVES

1. The Bank has been closely involved for a number of years in supporting the development ofGhana's agricultural sector. Already under two Structural Adjustment Credits (Cr. 1777-GH, 1987, andCr. 2005-GH, 1989), the Government of Ghana (GOG) had initiated important measures to improve theefficiency of the cocoa subsector by abolishing subsidies on cocoa production inputs and phasing out themarketing of inputs by the Ghana Cocoa Board (COCOBOD), adjusting producer prices upwards andestablishing a methodology for future producer price setting, and reducing the operating cost of theGhana Cocoa Board (COCOBOD) through a drastic reduction in staffing. Furthermore, COCOBOD haddivested about half of its plantations, rationalized its cocoa processing and insecticide formulation plants,and withdrawn entirely from coffee and sheanut marketing.

2. In 1988-89, the Bank provided extensive support to GOG as it developed its Medium-TermAgricultural Development Strategy (MTADS), which was the first coherent statement of objectives,policy and investment programs for the sector as a whole. Following the completion and discussion ofthat work, GOG requested the Bank to support the policy reforms contained in the MTADS through anAgricultural Sector Adjustment Credit (AgSAC). This was agreed to by the Bank, and preparatory workstarted in April '990.

3. At appraisal the goals of the AgSAC Program were listed as: (a) liberalization of agriculturalpricing, produce marketing and input supply; and (b) strengthening of agricultural sector coordinationand management, including poverty alleviation and environment. The means to achieve the first of theseobjectives included eliminating the public sector's role in price determination, allowing competitivetrading for all agricultural inputs and outputs (except cocoa), and removing external trade restrictions forall agricultural commodities except cocoa so as to create favorable conditions for increased privateinvestment in storage, input supply and processing. The second objective was to be pursued bystrengthening agricultural sector coordination and management, so as to ensure a more efficientallocation of public resources, reduce waste, and improve the focus of the public sector on povertyalleviation and environrnental concerns. The program was designed to address policy and regulatoryimpediments in the sector so overall growth could be enhanced.

4. To achieve these goals, AgSAC supported a program of actions to:

(a) rationalize the operations and reduce the operating costs of COCOBOD;

(b) abolish the monopsony of the Produce Buying Company (PBC), a COCOBODsubsidiary, in the purchase of cocoa from farmers and implement a program for privatesector entry into domestic cocoa marketing;

-2-

(c) improve the transparency of the determination of prices, fees and taxes applicable in thecocoa sector, and gradually increase the share of the export price received by cocoagrowers;

(d) restructure the Ghana Cotton Company (GCC) and divest the government's holdings inGCC;

(e) streamline the activities of the Ghana Food Distribution Corporation (GFDC) bydivesting its processing and cold storage facilities, eliminating its price supportfunctions, and freezing its storage capacity at the then prevailing level;

(f) establish a coordinating mechanism for managing emergency food imports to avoiddisruption to the private marketing system;

(g) withdraw from producer price determination for all crops (except cocoa), and liftrestrictions on exports of cotton lint and palm oil;

(h) eliminate government control of fertilizer marketing margins, phase out public sectorcommercial participation in farm input marketing, and divest the two Farmers ServicesCompanies (FASCOMs);

(i) establish and enforce quality and environmental standards for agro-chemicals;

(j) empower the Agricultural Policy Coordinating Committee (APCC) to review budgetproposals for the Ministry of Food and Agriculture, the Ministry of Lands and Forests,COCOBOD, the Department of Feeder Roads, and the agricultural research institutes,and to advise the Government on sector-wide priorities; and

(k) improve internal mechanisms for program and budget formulation for the agriculturesector.

5. The Credit, for an original amount of SDR 57 million (US$80 million equivalent at the time ofappraisal) became effective on June 3, 1992, and was to be released for disbursement in three tranches:US$30 million equivalent upon effectiveness, US$30 million equivalent in June 1993, and US$20million equivalent in June 1994. Release of the second and third tranches was to be conditional onperformance reviews to be held before June 1993 and June 1994, respectively. Two supplemental IDACredits of SDR 4.13 million and SDR 3.6 million, respectively, were subsequently made available fromIDA reflow resources, bringing total IDA funds in support of the program to SDR 64.7 million (approx.US$93.9 million).

6. The government of the Netherlands provided grant cofinancing, initially DFI 20 million,augmented in December 1994 to DFI 30 million (approx. US$17.1 million), which was administered bythe Bank. The German government provided parallel credit financing through the Kreditanstalt furWiederaufbau amounting to DM 25.7 million (approx. US$16 million), bringing the total assistancepackage to about US$127.0 million. The Dutch contributions were to be released along with the first andsecond tranches of the IDA Credit; the KfW credit was to be released in three tranches in parallel withthe IDA Credit.

-3.-

7. The program objectives were clear, realistic and highly relevant to the country and sector. Itwould have been advantageous, however, to have in place arrangements in support of private sector entryinto the market once the divestiture program came on stream (see paras. 33-34).' The AgSACconditionality requiring the withdrawal of the public sector from the marketing of inputs for cocoaproduction represented somewhat of a reversal of the Bank's previous approach to supportingCOCOBOD under the then still ongoing Cocoa Rehabilitation Project (Cr. 1854-GH, FY88) and led tosome confusion and difficulties for the Borrower.2

B. ACHIEVEMENT OF OBJECTIVES

Overall Achievement

8. Liberalization of Agricultural Pricing, Marketing and Input Supply. This objective waslargely achieved with government withdrawal from price deterrnination and price support operations inthe agriculture sector (except in the case of cocoa), removal of restrictions on exports of all crops, GFDCceasing to. expand its storage capacity for price support purchases and food distribution, GCC and bothFASCOMs being divested, and COCOBOD relinquishing its role in the marketing of production inputs.In the cocoa subsector, the COCOBOD monopsony for internal cocoa bean purchases from producerswas eliminated, and about 25 percent of the annual crop is now handled by private buyers registered withCOCOBOD. The appraisal target of 40 percent of the crop being handled by private buyers has not yetbeen achieved, and few of the private buyers have been able to operate profitably so far, because theyoccurred high start-up costs and because the margin between the minimum producer price and the pricewhich CMC, the COCOBOD subsidiary and monopoly exporter, paid to the domestic buyers was notadequate in the first few years in the face of rapid inflation. The anticipated growth in private inputmarketing has not yet fully materialized -- due to lack of capital and facilities, some remaining regulatoryconstraints on fertilizer marketing, slow growth of effective demand, and poor rural transport infrastructurein most parts of the country. The objective of increasing efficiency in marketing through increasedcompetition has, thus, not yet been fully achieved.

9. Strengthening of Agricultural Sector Coordination and Management. This objective wassubstantially achieved with the empowerment of APCC to coordinate policy for the sector as a whole andto review and approve the budgets for all key ministries and agencies in the agriculture sector, therebyminimizing imbalances in resource allocations, rationalizing programs and expenditures, andemphasizing poverty alleviation and environmental concerns in sectoral development. The 1994 and1995 budgets were characterized by significantly reduced subventions for parastatals and increasedfunding for developmental activities. Budget provisions for the Environmental Protection Council(EPC), restructured and reconstituted at the end of 1994 into the Environmental Protection Agency(EPA), were increased very substantially,3 and legislation on quality and environmental safety standardsfor agricultural chemicals are awaiting parliamentary approval.

I The Bank addressed this lacuna with several operations that vere approved in FY93 and thereafter (EnterpriseDevelopment, Cr. 2502-GH, FY93; Private Sector Development, Cr. 2665-GH, FY95; Private SectorAdjustment, Cr. 2718-GH, FY95).

2 The withdrawal of COCOBOD from marketing of farm production inputs was specified to take effect onceCOCOBOD had sold all inputs procured under ongoing donor-supported projects.

3 From Cedi 53 million in 1993 to Cedi 750 million in 1995 and Cedi 2,300 million in 1996.

-4-

First Tranche Release

10. The conditions for credit effectiveness included downscaling the role and functions of theCOCOBOD, measures to lower COCOBOD's operating cost, issuing regulations governing the entry ofprivate firms into domestic cocoa marketing, and modifications in cocoa producer price determination.GOG was to cease fixing guaranteed minimum prices for maize and rice, and the Ghana FoodDistribution Corporation (GFDC) was to close down its uneconomic rice mills, sell or lease its coldstorage facilities and withdraw from retail trading and non-grain operations. GOG was to withdraw fromfixing of producer prices for cotton, eliminate restraints on cotton lint exports, and liberalize palm oilpricing and export marketing. A start was also to be made to reduce Government's role in agriculturalinput marketing by privatizing seed production and decontrolling fertilizer prices as well as by invitinglocal accounting firms to submit bids to prepare the divestiture of the FASCOMs.

11. With regard to sector coordination and management, GOG was to revise the terms-of-referencefor the APCC to upgrade representation and to give it authority to review the sector-wide budget. TheMinistry of Food and Agriculture (MOFA) was to establish a permanent high-level internal budgetcommittee to evaluate projects in the agricultural public investment program. All actions to be taken byGovemrnent were closely monitored by the Bank during the two-year gestation period. Since GOG hadfulfilled all these conditions, the first tranche of the Credit, amounting to SDR 21.4 million, was releasedwith effectiveness, on June 3, 1992, together with the original Dutch grant of DFI 20 million. At thesame time, KfW released the first tranche of DM 10 million of its credit.

Second Tranche Release

12. Release of the second tranche was originally planned to take place in June 1993, one year afterthe release of the first tranche, conditional on a performance review to be carried out prior to that date.With regard to produce pricing and marketing, the monitorable actions to be undertaken by Governmentprior to tranche release included the opening of domestic cocoa marketing to the private trade and thecompletion of satisfactory cocoa producer and take-over price negotiations for the 1993 cocoa marketingseason, divestiture of the GFDC rice mills at Tamale, Yendi and Bolgatanga, and the offer for sale orlease of the GFDC rice mills at Afife and Astuare, as well as the finalization of adequate arrangementsfor restructuring GCC. The process of liberalizing the marketing of agricultural inputs was to be furtheradvanced by launching the divestiture of FASCOMs and by selling all remaining public sector stocks offertilizers, fishing gear and cocoa production inputs. In addition, a directive concerning quality andenvironmental standards for agro-chemicals to guide all importers was to be prepared. Regarding sectorcoordination and management, GOG was to reach agreement with the Bank on the agricultural sectorbudget for 1993 and to design and implement a sectoral monitoring system.

13. During the one-year period following Credit effectiveness, GOG made a considerable effort tomeet most of the conditions. It abolished the monopsony of COCOBOD and established a secretariatwhich prepared selection and performance criteria and regulations for firms wishing to enter domesticcocoa marketing (Licensed Buying Companies, LBCs). Cocoa producer prices were raised by 19.4percent, increasing the growers' share of the fob price to about 40 percent, and the combined share of theexport tax and COCOBOD's non-marketing costs was reduced from 44 to 30 percent of the projected fobprice. A mechanism was put in place to compensate cocoa growers at the end of each crop year forsignificant changes in key parameters such as production costs, exchange rate and export prices, and

-5-

farmers have benefited from this arrangement.4 The divestiture of the rice mills was virtually completed(one was sold as scrap, three were closed down, and a local farmers' association negotiated to lease themill at Afife). All remaining stocks of fertilizers, fishing gear and cocoa inputs were sold. COCOBOD,however, continued to import some inputs for cocoa producers which had been contracted for underother aid-funded projects. To avoid conflicts across Bank-aided projects, funding provided for inputsunder the Cocoa Rehabilitation Project was used to finance the purchase of marketing (rather thanproduction) inputs such as jute bags and weighing scales which were then sold to the private LBCs.GOG also established guidelines for the quality and environmental standards of agricultural chemicals.

14. With regard to agricultural sector management and coordination, implementation of the agreedprogram was timely and satisfactory. For the first time, all the budgets of public sector agencies in theagricultural sector (MOFA, MLF, COCOBOD, DFR, and the agricultural research institutes) werereviewed as one whole by the APCC. This provided an opportunity to rationalize sector-wide allocationsof resources and to help redress the imbalances in the allocation of resources among sub-sectors and inthe emoluments versus other allocations within subsectors. This review function by the APCC providedand still provides a powerful instrument to Government for sector-wide coordination.

15. In July 1993, IDA considered that generally good progress had been made and that in particularthe implementation of the cocoa sector reforms, though slower than had been expected, was advancingsteadily. However, to trigger release of the second tranche, GOG still needed to take additional actionsregarding GCC, the FASCOMs and the remaining GFDC rice mill: (i) GOG was to provide a signedframework agreement between the Government and GCC confirming the 30:70 split in the company'sownership between GOG and the other shareholders; (ii) in view of the failure of private interests to takeover the FASCOMs, the Bank agreed to GOG's proposal to liquidate both, and GOG was to confirm theappointment of a liquidator and a timetable of steps the liquidator proposed to follow in the liquidation;and (iii) GOG was to confirm the offer for lease or purchase by the private sector of the GFDC rice millat Afife. Furthermore, release of the second tranche was to depend upon satisfactory macro-economicperformance, to be assessed in consultation with the IMF.

16. Confirmation of the sale of the rice mill at Afife was a mere formality, but the agreed actionsconcerning GCC and the FA.;COMs proved difficult to implement Following further discussionsbetween GOG and the Bank, it was agreed to restructure GCC, with the offer of GOG's shares in GCCfor sale to the public remaining a condition for release of the third tranche. An auditor was to beappointed to value the assets of the company, but this process took more than half a year to accomplish.Similarly, the process leading to the agreement to liquidate the FASCOMs and appoint liquidators waslong drawn out, causing a delay in the release of the second tranche until April 15, 1994. The release ofthe second tranche of the IDA credit of SDR 21.3 million was accompanied by the release of the FirstSupplemental Credit of SDR 4.13 million from IDA reflow sources. KfW had released the DM 10million second tranche of DM 10 million of its parallel credit on December 17, 1993, after consultationwith the Bank. As disbursed, total funding for the second tranche from all sources amounted to US$35.8million.

4 For 1994/95, this compensation was provided in the form of shares to the National Cocoa, Coffee and SheanutGrowers Association (NCCSGA) in the privatised Ashanti Goldfields Company and funding to NCCSGA for theprocurement of agrochemicals; for 1995/96, farmers received additional cash payments for their cocoa.

-6-

Third Tranche Release

17. The main conditions for release of the third tranche concerned the final divestiture of the twoFASCOMs and of GOG's holdings in GCC. In addition, GOG was to further advance the program ofliberalizing domestic cocoa marketing, adjust cocoa producer prices, and complete its withdrawal frommarketing of cocoa production inputs. GOG was also to provide adequate budgetary allocations andfunding for the agricultural sector in 1994 and provide satisfactory evidence concerning the enforcementof quality and environmental guidelines for agro-chemicals.

18. Most of these conditions were fulfilled by the Borrower in a timely manner. To provide betterincentives for growers and private traders, cocoa producer prices were raised to 51 percent of theanticipated fob price, and trade margins for the LBCs were increased from 5.4 percent to 8.5 percent ofthe expected fob price. Environmental concerns were given further emphasis by creating theEnvironmental Protection Agency (EPA) with far-reaching responsibilities and by redrafting thedirective for quality and environmental standards as state laws tightening the rules and increasingpenalties.5 The budgeting process and budgetary provisions for the agriculture sector were satisfactory.

19. Difficulties were encountered, however, with respect to the final divestiture of the FASCOMsand GCC, and these caused a considerable delay in the release of the third tranche. Responding todemands from farmer representatives, GOG had decided against liquidating the FASCOMs and, havingobtained the Bank's agreement to revert to the initial course of action of divestiture, contracted privateauditors to prepare the modalities for and manage the process of their divestiture. This process, however,proved to be very difficult, mainly because the FASCOMs were highly indebted and inefficient. Evenafter GOG agreed to write off all their debts owed to GOG, it was difficult to find buyers willing andcapable to acquire them in toto (see para. 34), while piecemeal disposal of individual assets was notconsidered to be an acceptable solution by some stakeholders in Ghana. Finally, the FASCOMs weretransferred for a nominal purchase price to the Ghana National Association of Farmers and Fishermen(GNAFF) on July 1, 1995, a move which was accepted by the Bank as fulfillment of the condition.

20. In order to complete the restructuring of GCC, GOG was to offer for sale all its remaining sharesin the company (see para. 17). An accounting firm was commissioned to manage the sale of 36,000ordinary shares, representing GOG's 30 percent shareholding in the company. After a first, unsuccessfuloffer to the existing private shareholders of GCC, the subsequent public offer (at higher prices) resultedin an over-subscription in which the Agricultural Development Bank (ADB) bought half of the sharesoffered. ADB being a parastatal agency, it became a point of discussion within the Bank whether thispart of the sale satisfied the privatization objective. Finally, agreement was reached that the conditionalityhad been fulfilled, as ADB's holdings in GCC amounted to only 15 percent, considerably less than the 21percent of the largest private shareholder (Juapong Textiles), and private shareholders now held 85 percentof GCC; moreover, ADB itself was already on the list of parastatals targeted for divestiture and is about tobe privatized.

21. The last IDA tranche release of SDR 14.3 million, originally planned for June 1994, took place onSeptember 7, 1995 (i.e., 17 months after the second tranche, instead of twelve months as anticipated atappraisal), together with SDR 3.6 million of the second supplemental IDA credit, and KfW at that timereleased its final tranche of DM 5.7 million. As disbursed, total funds released under the third trancheamounted to US$43.6 million, and overall disbursement for AgSAC from IDA, the Netherlands and KfW

5 The draft Act is expected to be approved by parliament during its next session in early 1997.

-7-

totaled US$127.0 million (see Table 8). The Credit, including both supplemental Credits, was fullydisbursed on January 23, 1996.

Other Monitorable Actions

22. Monitorable actions not linked to tranche releases included the need for GOG to identify andfund poverty reducing programs in its 1992 and 1993 budgets and to carry out a study on poverty in therural sector and on the impact of agricultural policy on poverty as well as to complete an action programfor Land Resource Management (LRM). In compliance with this action program, GOG started in 1992to increase the focus of public sector spending on poverty alleviation. In 1994, GOG initiated, incollaboration with the Bank and other funding partners, a detailed study into the spatial distribution ofpoverty, and it is at present formulating a poverty reduction strategy. An outcome of that work is a seriesof studies profiling the incidence of poverty in the rural sector. GOG is currently formulating a strategicframework for the revitalization of the agricultural sector's contribution to economic growth. Withassistance from FAO and other technical assistance and/or funding agencies, a number of LRM issueshave been addressed, and work, especially on the prevention of further land degradation, is now inprogress.

C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THIE PROJECT

Implementation Record

23. Project preparation started in April 1990, and appraisal commenced in February 1991. TheCredit was approved by the Board in March 1992 and was signed in April 1992. The process waslengthy, as the Borrower had to fulfill a number of conditions prior to negotiations. Additionalconditions had to be satisfied prior to Credit effectiveness (June 1992), which was to lead directly to therelease of the first tranche for disbursement. (see paras. 10 and 11).

24. The proceeds of the Credit were to be used to finance the foreign exchange cost of eligibleimports through the foreign exchange auction of the Bank of Ghana. Except for military equipment,luxury goods and environmentally hazardous products, any imports were eligible for financing.However, these definitions were rather broad and some items which were considered by GOG not to fallin the categories of luxury goods (such as television sets) or environmentally hazardous products wererejected by the Bank. Frequently, time consuming negotiations and exchange of documentation wasrequired, delaying the disbursement process.

Major Factors Affecting Program Implementation

25. Factors Subject to Government Control. Responsibility for implementation of this sectoradjustment operation lay primarily with GOG. The Government adhered to all conditions of theDevelopment Credit Agreement and its amendments as well as those of the cofinanciers. GOG wasslow, however, in initiating actions required to facilitate the restructuring and divestiture of GCC and thedivestiture of the two FASCOMs -- and this, combined with some difficulties in reaching agreement onthe interpretation of legal terms between the Borrower and the Bank, led to delays in satisfying therespective conditions for the release of the second and third tranches.

26. Factors Generally Subject to Implementing Agency Control. While overall responsibility forprogram implementation lay with GOG, the restructuring and divestiture process affected severalparastatal agencies and in particular the two FASCOMs, GFDC and the partly government-owned GCC.

-8-

Generally, these agencies were cooperative in advancing the process of public sector withdrawal fromcommercial activities. COCOBOD and the other agencies represented on the Producer Price ReviewCommittee (which determines cocoa producer prices and the price domestic traders receive for cocoadelivered to CMC could have been more supportive of the private LBCs by allowing them higher trademargins when the domestic cocoa trade was first opened to private operators, and CMC could and shouldhave been more supportive of the policy to promote private cocoa marketing by expediting the unloadingof LBC trucks and payment to LBCs for cocoa deliveries. COCOBOD also took an inordinately longtime to license private traders to market its remaining stock of cocoa production inputs.

D. PROJECT SUSTAINABILITY

27. As indicated, the project has achieved its objectives. The program of public sector withdrawalfrom commercial activities has progressed to the expected stage, and agricultural sector coordination andmanagement have considerably improved. However, the opportunities created by the liberalization ofcocoa marketing and public sector withdrawal from input marketing have not yet been taken up by theprivate sector to the full extent envisaged at appraisal (see paras. 18 and 33-34) -- partly due to lack ofcapital, facilities, logistics and training/experience, partly due to remaining regulatory constraints,6 andpartly due to slow growth of effective demand and poor rural transport infrastructure in most parts of thecountry. Unless supporting programs and measures are taken to facilitate and support private sectorentry, there is the risk that the government might come under pressure to step back in and satisfy unmetdemand for marketing services. To a certain degree this problem is being addressed through a number ofprivate sector support operations which were subsequently launched with Bank-assistance (see para. 7,footnote 2) but have not, so far, have had any significant impact on input trade. With regard to cocoamarketing, the risk appears smaller; during the most recent season at least three of the ten active LBCsmanaged to break even, and the situation can be expected to improve further as permissible trademargins have been enhanced. Therefore, the objective of increasing efficiency in marketing throughincreased competition has not yet been fully achieved.

E. BANK PERFORMANCE

28. Four missions visited Ghana to prepare and appraise the Credit and advance it towardseffectiveness. Between effectiveness and credit closing, the Bank fielded three full supervision missionsfrom Washington (see Table 13), mostly between effectiveness (i.e., first tranche release) and the releaseof the second tranche. Thereafter, supervisory work was carried out primarily by staff from the ResidentMission in Accra which followed program implementation very closely throughout.

29. Bank performance can be rated between highly satisfactory and satisfactory (see Table 1). In thedesign of the program some minor inconsistencies between the objectives of AgSAC and the thenalready effective Cocoa Rehabilitation Project regarding the financing of facilities and inputs (see paras.7 and 13) can be observed; more attention might also have been given to the restrictive implications ofexisting lists of agronomically "approved" fertilizers which have hampered the growth of privateinvolvement in the import and marketing of fertilizers and other agro-inputs. The Borrower felt that insome cases the Bank was too rigid in its interpretation of covenants and sometimes slow in responding toGovernment's requests. The Borrower furthermore indicated that repeated changes of management and

6 The major imnpediment concerns regulations on "approved fertilizers" that can be imported and marketed inGhana; this has constrained the development of private fertilizer importing and marketing and (since fertilizer isthe most important and profitable agricultural input) the development of a private network of agricultural inputproviders. This issue has been reviewed and is now being addressed by Government.

-9-

staff both at Bank Headquarters and the Resident Mission had at times affected understanding, especiallyon issues which were subject to interpretation (see para. 24). Overall, however, it is felt by the Borrowerthat the Credit was well administered by the Bank. The fact that eligible imports were defined through anegative list facilitated the use of the Credit, but left some room for interpretation and occasionaldisagreement over the nature of goods imported, leading to delays in disbursements.

F. BORROWER PERFORMANCE

30. The performance of the Borrower was generally good throughout implementation. Althoughsome conditions for the second and third tranche releases were not met in a timely manner (see paras. 16and 19-20), GOG's efforts to resolve the issues involved have to be recognized. Overall, the Borrowerdemonstrated adherence to conditionalities and the political will to meet the letter and the spirit of theCredit Agreement.

G. ASSESSMENT OF OUTCOME

31. The major expected outcomes/benefits of the program supported by the Credit were to be arevitalization of the agricultural sector through the removal of regulatory restrictions on production andmarketing and greater efficiency of public sector resource allocation and utilization. These results wereto be achieved mainly by deregulating the pricing and marketing of foodgrains, palm oil, cotton, cocoaand agricultural inputs and by improving agricultural sector coordination and management. In addition,the program was to have a positive impact on poverty reduction, especially in rural areas, and on theenviromnent, mainly on land resource management and environmental standards for agriculturalchemicals.

32. Considerable progress has been made in achieving pricing and marketing liberalization forproduce and inputs. More efficient sector coordination and management mechanisms are now in place,streamlining the budget formulation and review process and rationalizing sector-wide allocations ofpublic financial resources, including action programs for poverty reduction. Furthermore, GOG hasestablished the Environmental Protection Agency (EPA) with far-ranging authority, and an Act ofParliament on the use of agro-chemicals is about to be ratified.

33. It was, however, also an expected outcome of the program that the private sector wouldvigorously respond to the substantially improved enabling environment, taking over those functionswhich had previously been carried out by Government and parastatal enterprises. In the cases ofdomestic cocoa marketing and farm input marketing, the outcome to date has fallen somewhat short ofexpectations. By the time of credit closing, about 40 percent of internal cocoa marketing was expectedto be handled by the private sector, but so far only about 25 percent of the cocoa crop is purchased byLBCs, while 75 percent are still marketed by the Produce Buying Company (PBC), a COCOBODsubsidiary. This unexpectedly slow growth in private cocoa marketing is explained partly by the fairlysignificant up-front investments required to enter into this business and the still limited capacity andfacilities of most LBCs (trained staff, trucks, storage facilities, scales, bags) and the high cost of capitaland cumbersome credit procedures, partly by the very tight marketing margins allowed for LBCs in theinitial years following the abolition of PBC's cocoa purchasing monopsony which proved to beinadequate in the face of high inflation, and partly by undue delays experienced by the LBCs in havingtheir cocoa deliveries unloaded and paid for by CMC.

34. It was also expected that once the input trade was liberalized and the undue advantages of theFASCOMs and COCOBOD eliminated, the private trade would eagerly take up the opportunity to

-10-

engage in input wholesaling and retailing. This, however, did not take place. In fact, the Governmentfaced considerable difficulties in its attempt to dispose of the FASCOMs, even after writing off all theirdebts to Government. From the analysis undertaken, it appears that potentially interested traders lackedthe capital to take over FASCOM stocks and facilities and were not prepared to take the high businessrisks associated with prevailing bank lending rates of about 30-40 percent and the pronouncedseasonality of the trade. Furthermore, existing trade houses were and still are reluctant to invest in theestablishment of distribution networks out of concern that international aid projects might again providefree or subsidized inputs, thus undermining the price structure and making advance planning of importsand up-country distribution close to impossible. Firm actions in support of private sector entry in bothcocoa and input marketing are required to achieve the goal of increased competition in these fields.

35. In light of the above, the outcome of the project has to be considered satisfactory. Although theproject has basically achieved all the objectives listed in the President's Report, it cannot be classified ashighly satisfactory, as the private sector has not yet responded to the liberalization at the anticipated leveldue to the constraints mentioned above.

H. FUTURE OPERATIONS

36. From discussions with GOG it is clear that there is a strong commitment to continue theliberalization process and further improve intra-sectoral coordination among ministries and agencies. In-depth assessments of remaining regulatory impediments to the growth of private input marketing (seeds,fertilizers, agro-chemicals, livestock pharmaceuticals, etc.) have been carried out, and recommendationsto address these issues, developed at a recent national workshop, are now under review by MOFA andother concerned ministries. COCOBOD has been placed under the supervision of the Ministry ofFinance and Economic Planning. Its farm extension service is about to be merged with that of MOFA,and its cocoa processing facilities have been privatized. Government is endeavoring to decrease theshare of PBC in domestic cocoa marketing to 50 percent by the year 2000 and to increase the farmers'share in the fob price to at least 60 percent within a year or two (which would bring cocoa growers'revenues closer to the levels of 80 percent and more currently obtained by growers in Nigeria, Cameroonand South Asian cocoa producing countries).7 Discussions are ongoing with the Bank concerningpossible reforms in cocoa export marketing. Direct support for implementing specific measures in theseareas will, if needed, be provided by the Bank in the context of future policy-based and/or sectorinvestmnent lending operations; ongoing collaborative work on developing a medium-term agriculturaland rural development strategy for Ghana will be instrumental in identifying actions needed and supportrequired -- including support for stimulating more vigorous private sector involvement in marketing,processing, exporting and agro-industrial ventures. The critical problem of expanding, upgrading andmaintaining rural transport and marketing infrastructure is receiving increased attention, including underthe ongoing Agriculture Sector Investment Project (Cr. 2555-GH, FY93) and the recently negotiatedVillage Infrastructure Project (FY97).

L LESSONS LEARNED

37. Among the major lessons to be drawn from the implementation and outcome of this operationare the following:

At present, only Cote d'Ivoire pays lower producer prices to cocoa far.ners than Ghana.

-1 1-

(a) The intensive collaboration between the Borrower and the Bank in formulating a medium-term sectoral development strategy, which preceded the preparation of this sectoraladjustmetnt operation, resulted in a high degree of consensus on sectoral policy andinstitutionial reforms needed; this was instrumental in ensuring that the reforms specified inthe adjustment program were implemented effectively and with a high degree ofcommitment.

(b) Programs which involve divestiture of paraslatals and market liberalization in order toprovide the enabling environment for more efficient farm production and marketingthrough increased competition need to be accompanied from the beginning by measuresthat actively support private sector entry; otherwise, there is thle risk that the governmentmight come under pressure to step back in and satisfy unmet demand for marketingservices, thus reverting to the original status.

(c) When the sale of Government assets to the private sector is a conditionality, clearguidelines for these sales have to be established and options defined in case no suitableprivate buyer can be found.

(d) Lack of precision in project documents can lead to disagreements between the Bank andthe Borrower concerning the interpretation of terms of conditionalities and to delays inimplementation and tranche releases.

(e) If eligible imports are defined thirough a "negative list," items not eligible for financinghave to be clearly defined to avoid subsequent disputes over eligibility of claims thatresult in time-consuming exchanges of documentation between the Borrower and theBank.

PART H: STATISTICAL ANNEXES

Table 1: Summary of Assessments

A. Achievement of Objectives Substantia Partial Negligible Not apicable

(/) (e' (e) (e)

Macro Policies E E Ol

Sector Policies i: El El

Financial Objectives El E ElInstitutional Development [I E ElPhysical Objectives E E ElPoverty Reduction E E ElGender Issues El E ElOther Social Objectives [ E ElEnviromnental Objectives E E ElPublic Sector Management E E ElPrivate Sector Development [ El I]Other (specify) C E E E

B. Project Sustainability Unlikely Uncertain(/) (/) (1)

-13-

(Continued)

C. Bank erformance satisfactory Satisfactoy Deficient(/) (/) (/)

Identification Ia

Preparation Assistance [)

Appraisal a 0

Supervision i 03

D. Borrower Performance satisfact Sisfactry DefLcie

(e) (e) (/)

Preparation a Ea

Implementation I 0 E

Covenant Compliance Ea 0 E3

Operation (if applicable) El a I

Higlhly HigyE. Assessment Qf Outcome satisf Sats Unsatisfacto unsatisfacto

E (e (E) (e (

-14-

Table 2: Related Bank Loans/lDA Credits

Loan/Credit Table Purpose Year of Approval StatusPreceeding OperationsI . 1777-GI- Structural Adjustment 1 1987 Completed2. 1801-GH Agricultural Services Rehabilitation 1987 Completed3. 1854-GH Cocoa Rehabilitation 1988 Completed4. 1976-GH Forest Resource Management 1989 Ongoing5. 1996-GH Private SME Development 1989 Completed6. 2005-GH Structural Adjustmeit 11 1989 Completed7. 2040-GH Rural Finance 1989 Completed8. 2180-GH Agricultural Diversification 1991 Ongoing9. 2236-GH Private Investment Promotion 1991 Completed10. 2247-GH National Agricultural Research 1991 Ongoing11. 2319-GH National Feeder Roads 1991 Ongoing

Following Operations1. 2346-GH National Agricultural Extension 1992 Ongoing2. 2426-GH Environmental Resource 1993 Ongoing

Management3. 2441-GH National Livestock Services 1993 Ongoing4. 2502-GH Enterprise Development 1993 Ongoing5. 2555-GH Agricultural Sector Investment 1994 Ongoing6. 2665-GH Private Sector Development 1995 Ongoing7. 2713-GH Fisheries Subsector Capacity 1995 Ongoing

Building8. 2718-GH Private Sector Adjustment 1995 Ongoing

Table 3: Project Timetable

Steps in Project Cycle Date Planned Date ActuallLatest Estimate

Identification (Executive Project Summary) April 1990Preparation April 1990-Nov. 1991Appraisal January 1991 February 1991Negotiations April 1991 February 1992Board Presentation May 1991 March 26, 1992Signing April 22, 1992Effectiveness April 1992 June 3, 1992First tranche release April 1992 June 3, 1992Second tranche release June 1993 April 15, 1994Third tranche release June 1994 September 7, 1995Project Completion Dec. 31, 1994 Dec. 31, 1995Loan Closing Dec. 31, 1995 January 12, 1996

-15-

Table 4: Credit Disbursements: Cumulative Estimated and Actual(US$ thousands)

FY92 FY93 FY94 FY95 FY96

Appraisal Estimate la -- 30.0 60.0 80.0 80.0

Actual 14.9 30.7 60.8 67.1 93.9

Actual a % of Estimate 102.3% 101.3% 83.9% 117.4%

Date of Final Disbursement January 23, 1996

La IDA Credit 2345-GH only.L Including Supplemental IDA Credits 2345 I-GH (disbursed in FY95) and 23452-GH (disbursed in FY96).

Table 5: Key Indicators for Project Implementation

The President's Report listed no indicators for implementation beyond indicating that the credit would bedisbursed in three tranches (US$30 million equivalent upon effectiveness, US$30 million equivalent inJune 1993, and US$20 million equivalent in June 1994).

Table 6: Key Indicators for Project Operation

Not Applicable

Table 7: Studies Included in Project

Purpose as DefinedStudy at Appraisal/Redefined Status Impact of Study

1. Profile and incidence Basis for Action Plan. Underof poverty in rural Implementationsector

2. Impact of agricultural Ways of incorporating the poverty Underpolicy on poverty dimension in the planning process at Implementation

the national, regional and districtlevels.

-16-

Table 8A: Project Costs

Appraisal Estimate (US$M) Actual/Latest Estimate(US$M)

Local Foreign Local ForeignItem Costs Costs Total Costs Costs Total

Foreign Exchange Costs - 108.8 108.8 - 127.0 127.0

TOTAL COST - 108.8 108.8 - 127.0 127.01

Table 8B: Project Financing

Appraisal Estimate (US$M) Actual/Latest Estimate(US$M)

Local Foreign Total Local Foreign TotalSource Costs Costs Costs Costs

IDA - 80.0 80.0 93.9 93.92

Netherlands - 10.8 10.8 - 17.1 17.13

Kreditanstalt fir - 18.0 18.0 - 16.0 16.04Wiederaufbau (KfW)

Domestic Contributions - - - - -

TOTAL - 108.8 108.8 - 127.0 127.0

Table 9: Economic Costs and Benefits

Not Applicable

1 Increases due mainly to the provision of SDR 7.7 million from IDA reflow resources and an additional grant of DFI 10 millionfrom the Dutch govemment.

2 Includes additional SDR 7.7 million from IDA reflow resources.

3 Includes additional DFI 10 million grant.

4 Reduction due to depreciation of the DM against the US$.

-17-

Table 10: Status of Legal Covenants

Covenant Present Description ofAgreement Section type status covenant Comments

Credit 2345 GH 3.01 (a) 11 C Agricultural sector budget Agreement reachedallocation 1993

3.01 (b) 12 C New regulations goveming the Fulfilleddomestic cocoa marketing

3.01 (c) 12 C Minimum producer price for cocoa Fulfilled

3.01 (d) 12 CP Divestiture of rice mills Two mills sold as scrap,remaining three shut down

3.01 (e) 12 CD Restructuring of Ghana Cotton FulfilledCompany

3.01 (f) 12 CD Divestiture of FASCOMs Fulfilled

3.01 (g) 12 C End of govemment's commercial Fulfilledinvolvement in the provision ofinputs and sale of assets

3.01 (h) 12 C Setting environmental and quality Fulfilledguidelines of agricultural chemicals

3.02 (a) 11 C Agricultural sector budget Fulfilledallocation 1994

3.02 (b) 12 C Apply regulations of3.01 (b) Fulfilled

3.02 (c) 12 CD Offer shares of Ghana Cotton FulfilledCompany for sale

3.02 (d) 12 CD Complete divestiture of FASCOMs Fulfilled

3.02 (e) 12 C Enforce regulations of 3.01 (h) Fulfilled

Covenant ClassI Accounts/audit2 Financial performance/generate revenue from beneficiaries3 Flow and utilization of Project funds4 Counterpart funding5 Management aspects of the Project or of its executing agency6 Environmental covenants7 Involuntary resettlement8 Indigenous people9 Monitoring, review and reporting10 Implementation11 Sectoral or cross-sectoral budgetary or other resource allocation12 Sectoral or cross-sectoral regulatory/institutional action13 Other

C Complied withCD Compliance after delayNC Not complied withSOON Compliance expected in reasonably short timeCP Complied with partiallyNYD Not yet due

-18-

Table 11: Compliance with Operational Manual Statements

No Case of Non-Compliance Observed

Table 12: Bank Resources: Staff Inputs

Stage of ActualProject Cycle A

Weeks US$

Through Appraisal 99.5 269.5

Appraisal 54.2 159.6

Negotiations through 7.6 23.0Board Approval l

Supervision 49.1 167.2

Completion La 3.0 10.5

TOTAL 213.4 629.8

/a = Not including FAO/CP.

Table 13: Bank Resources: Missions

Perfornance RatingNumnber Specialized

Stage of MontlV of Days in Staff SkIlls Implementation Development Types ofProject Cycle Year Persons Field Represented Status Objectives Problems

Through 3/90 2 7 AE,E E _Appraisal

Appraisal 6/90 4 18 AE, E, FAthrough

Board Approval11/90 4 17 FA, E, AE _ _ _

Board Approval 3/91 7 21 AE, FA, E, SS, |through FE, ISEffectiveness

Supervision

1/92 1 5 AE I 1

6/92 4 22 AE, FA, O 2 1 Legal Cove.

7/93 1 11 AE 2 1 _

Completion 5/96 2 13 AE, FA _ . .

AE = Agricultural Economist, E = Economist, FA = Financial Analyst, SS = Social Scientist, FE = Fiscal Economist,IS = Institutional Specialist, 0 = Operations Officer.

APPENDIX 1

GHANAAGRICULTURAL SECTOR ADJUSTMENT CREDIT

FAO/CP Implementation Completion MissionAide Memoire

CONTENTS

A. INTRODUCTION ........................................................ 20

B. THE PROJECT ........................................................ 20Background ........................................................ 20Program Objectives ........................................................ 20Implementation Experience and Results . ....................................................... 21Summary of Findings, Future Operations and Key Lessons Learned ............. ............... 22

C. FOLLOW UP ........................................................ 23

GHANAAGRICULTURAL SECTOR ADJUSTMENT CREDIT

FAO/CP Implementation Completion MissionAide Memoire

A. INTRODUCTION

1. This is the Aide Memoire of a FAO/World Bank Cooperative Program (FAO/CP) missionwhich visited Ghana from 13 to 23 May 1996 to assist with the preparation of the ImplementationCompletion Report (ICR) for the above project. The mission's findings are based on the review ofdocuments provided by the Bank and the Borrower, and discussions with management and staff of bothparties as well as representatives from the private sector. The mission is most grateful to the Ministry ofFinance for the assistance provided in arranging the program of meetings.

B. THE PROJECT

Background

2. In 1990, the Government has developed, in collaboration with the Bank, a Medium TermAgricultural Development Strategy (MTADS) which defined a program of policy and institutionalreforms, and complementary set of investments needed to enhance the agricultural growth rate. Thestrategy which emerged from this process formed the basis of the Agricultural Sector AdjustmentProgram (AGSAP). The underlying policy reforms were subsequently supported by the AgriculturalSector Adjustment Credit (AGSAC) of which the implementation experience is reviewed below.

Program Objectives

3. The credit was to support a program of liberalization of agricultural pricing, marketing and inputsupply, and the strengthening of agricultural sector coordination and management. The AGSAC was tovirtually eliminate the public sector role in input and produce price determination; allow competitivetrading for all agricultural inputs and outputs; remove external trade restrictions for all agriculturalcommodities except cocoa; and thereby create conditions for increased private investment in storage,input and output marketing, and processing. It was also to provide for a more efficient allocation ofpublic resources and increase the focus of the public sector on poverty alleviation and natural resourcesmanagement.

4. The Credit, with an original amount of SDR 57 million became effective on 3 June 1992 and wasto be disbursed in three tranches. Supplemental IDA credits of SDR 4.13 million and SDR 3.6 millionwere made available from reflow resources bringing total IDA funds to SDR 64.3 million (approx. US$93 million). The Dutch government provided co-financing grants totalling DFL 30 million (approx. US$17.5 million) which were administered by the Bank, and the German government provided parallelfinancing through the Kreditanstalt fur Wiederaufbau amounting to DM 25.6 million (approx. US$ 16.5million) bringing the total assistance package to about USM 127 million as disbursed.

H. Trupke (Mission Leader) and G. Bodeker (EconomistlFinancial Analyst)

Implementation Experience and Results

5. Overall, the program has been successful in underpinning the overall objectives of the AGSAP,but private sector response to liberalization measures fell somewhat short of expectations. In respect ofpricing and marketing liberalization for produce, the main focus was on cocoa, grain, cotton and palmoil. By the time of Board presentation, GOG had already met the conditions regarding palm oil and hadpartially fulfilled the requirements for the divestiture from grain marketing. The sale of five state or para-statal owned rice mills was a conditionality to be fulfilled prior to the release of the second tranche.This, however, caused some problems as no suitable buyer could be found. After protractednegotiations, the Bank accepted the sales advertisement as fulfilment in the spirit of the covenant. Bynow, two of these mills have been sold as scrap and the remaining once are standing idle.

6. Conditionalities such as divestiture of input distribution to cocoa growers, of cocoa processingfacilities and plantations as well as staff retrenchment and the abolishing of subsidies on inputs, werealready met prior to the release of the first tranche. Also, the conditions for the second and third trancherelease including the opening up of the internal cocoa trade to the private sector, were successfully met.However, by now only 25% of internal cocoa marketing are in the hands of the private trade against anappraised estimate of 40%. The remaining 75% are still marketed by the Produce Buying Company(PBC) a COCOBOD subsidiary. The reason for this limited private sector participation can be explainedby its lack of facilities (trucks, scales, bags) due to high cost of capital and cumbersome creditprocedures.

7. Prior to Board presentation, GOG has already withdrawn from the fixing of producer prices forcotton and has eliminated restraints on cotton lint exports. To further advance the liberalization processthe Government was to offer for sale all of its shares of the Ghana Cotton Company (GCC) to interestedinvestors including cotton producers. A firm was commissioned to manage the sale of 36,000 ordinaryshares representing the remaining 30% shareholding of GOB in the company. After a first, ratherunsuccessful internal offer, the subsequent public offer (at higher prices) resulted in an over- subscriptionin which the Agricultural Development Bank (ADB) bought 50% of the shares. It became a point ofdiscussion with the Bank lawyers, whether this part of the sale constituted a privatization or not sinceADB is considered a parastatal organization. Finally, consensus was reached that the conditionality hadbeen fulfilled as ADB's total share holding amounted to only 15%, considerably less than the largestprivate shareholder (Juapon Textiles). The long drawn out process, however, contributed to the delay inthe release of the second tranche by over half a year.

8. The marketing of agricultural inputs was dominated by the then existing Farmer ServicesCompanies (FASCOMs) in the Upper and Volta Regions, crowding out private sector commercialactivities and contributing to price distortions. In adhering to conditionalities, GOB had alreadyprivatized seed production, decontrolled fertilizer prices and has issued invitations to consulting firms toprepare FASCOM divestiture prior to Board presentation. The divestiture process, however, proved tobe extremely difficult as the FASCOMs were highly indebted and inefficient. Even after GOG hadagreed to write off all debts, no suitable buyer could be found as potential private inputwholesalers/retailers did either not have the required capital to take over stocks and facilities or were notprepared to take the high business risk associated with prevailing bank lending rates of about 30% andthe seasonality of the trade. Finally the FASCOMs were transferred to the Ghana National Associationof Fishermen and Farmers (GNAFF) on I July 1995. These rather difficult and politically sensitiveprocedures resulted in delays of complying with the conditionalities for the second and third trancherelease.

9. Also, progress towards strengthening agricultural sector coordination and management has beensatisfactory, particularly in streamlining the budget formulation and review process for the agriculturalsector as a whole. The Agricultural Policy Coordinating Committee (APCC), serviced by a full-timetechnical secretariat in the Ministry of Finance and Economic Planning, has been empowered tocoordinate sector-wide policies and to review and approve the budgets of all agricultural sector agencies.Budget allocations for all major public sector agencies operating in the agriculture sector (the Ministry ofFood and Agriculture, the Ministry of Lands and Forestry, COCOBOD, the Department of Feeder Roads,the Agricultural Research Institutes) are now reviewed together so as to rationalize sector-wideallocations of public financial resources and, in particular, to redress imbalances in the allocation ofresources across sub-sectors and agencies and between staff emoluments and other expenditures withinagencies.

10. The budget's focus on poverty reducing programs has increased. The importance ofenvironmental issues is highlighted in the new system of land resources management and theestablishment of the Environmental Protection Agency with far reaching authority. In addition and incompliance with conditions for the third tranche release G.O.G. is in the process to ratify an Act ofParliament on the use of agro-chemicals.

11. Generally, both the Bank and the Borrower performed satisfactory throughout the program cycle.Although second and third tranche releases suffered from delays requiring an extension of the closingdate twice by six month to December 1995, the program outcome has to be rated as satisfactory as allmajor objectives have been achieved.

12. The proceeds of the credit were to be used to finance the foreign exchange cost of eligibleimports through the foreign exchange auction of the Bank of Ghana. Except for military equipment,luxury goods and environmentally hazardous products, any imports were eligible for financing.However, these definitions were rather broad and items which were considered by GOG not to fall in theluxury goods category (such as television set) or environmentally hazardous products, were rejected bythe Bank. Frequently, time consuming negotiations and exchange of documentation was required,delaying the disbursement process. Nevertheless, the credit was fully disbursed by January 23, 1996.

Summary of Findings, Future Operations and Key Lessons Learned

13. The most important finding is that programs which promote divestiture and liberalization inorder to provide the enabling enviromnent for more efficient farm production and marketing throughincreased competition, would need to be accompanied by measures in support of private sector entry.The opportunities created by government's withdrawal from the domestic cocoa marketing as well asinput marketing were not or not sufficiently taken up by the private sector due to lack of capital,facilities, logistics and training/experience. As a result, there is the risk that government would have tostep in to fill the vacuum thus reverting the entire process to its original status.

14. From discussions with GOG it becomes clear that there is a strong commitment to continue theliberalization process. COCOBOD is endeavoring to increase the share of Licensed Buying Agents(LBAs) in intemal cocoa marketing by improving payment procedures. GCC is experimenting with newapproaches to input distribution and sales to eventually pave the way for supply through the private inputtrade. The new directives for quality and environmental standards for agricultural chemicals are to beused by all importers and distributors and are inter alia expected to enhance services provided to thefarmer. The process of strengthening intra-sectoral coordination and sectoral budget formulation is bynow well integrated in the overall procedures but will need further refinement in future.

15. The major lessons to be drawn from program implementation experiences are that: (a) lack ofconsensus between the Bank and the Borrower on the interpretation of the legal terms pertaining to someconditionalities let to delays and would have required more precise definitions in the legal documents;(b) in case of "negative lists" items not eligible for financing have to be clearly defined to avoid disputesover eligibility of claims resulting in time consuming exchanges of documentation between the Borrowerand the Bank; (c) where the sales of assets to the private sector are a conditionality, clear guidelines forthese sales have to be established and options defined in case no suitable private buyer can be found.

C. FOLLOW UP

16. Upon return to Rome, the mission will prepare the ICR including the required statistical tablesfor submission to the Bank and the Borrowers by early June. The Borrower has been advised by themission on the need to prepare its own assessment to form an integral part of the final report.

IBRD 265533 BURKI NA FAS0 2

1-

. T u m u* ' * *No v r o n g o O B O n > z O e s i } G H A N A

( fPPER EAST73 CITIES AND TOWNS; / _/ \ , / BOLGATA~~~~~NGA \;

Lawro>t J P P E R {Sneo(

O rapa O Y ago - PRIMARY ROADS

\ S W E STr L < \ \ W C DIS'RICT CAPITALS> Ndwi, , iv REG ON CAPITALSNodowli ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~'1 *NATO NAL[CAPTAL

D -- STRiCT ROUNSAR ESr REGION BOUNDARIES

-INTERNATIONAL10, | WA B) / t EOUNDAR)E5 10

. l \ V ~~~~~~~~~~ ~~~~~~~~Gushieguc 10 15 ~\ -

> ( \ ~~~~~~~~~~~~~~~~~SoboboOJ{ > \ ~~~~~~~ ~ ~ ~ ~ ~~~~~SavelugC 8

. Tolono YenKenas p Q.hs.

) _ R '' >~~~~~~~ffdus

f ~~~~N O R T H E R N \ zuu

Damongooogo

.1_ okle/ r \ \ / ~~~~~~~~~~~~~~~~~~~~~~~~Binnbl 11 W

C 6 T E TOGO KraTOD 'I VO I RE Soog \ \ | Nw Nt

4/ f ~~BRONG-AHAFO 2{i E epntompoo / S

/~~~~~~~~~~~~~~~ ~~~ /Kome Donso Koroch,

'Drobo WenchiO n Atebubu d ' 0 /dJ

/ robA A AC A C C R A

0 Techim Nkora.z b,~~~~~ 1 2 3 4 5 6

jDO-SUNYAN 7 ASHANTI .j

{ Ahenkro Thee dare, c d n a a o7e i > v ) Goup,ny DonsoO of

KenyasiOffins Effidm or a c s Kpond a

AiM Ankrons a A oMomponteng F G

, < C ~~~~~~~~~~Nkowie KUMS tmsj9resO r 1 H s \ I ~~~~~~~~~~~~~~Kunienn,seHO 'I),~>

\, > f'0 O |O Juns2rf-\ Beorra,S TA

NkwantoI Juobeso tv, J t New 12 p\

\ W'owsg (> 1 Obu.si,g HAbirem Odumosi tAtimpeku ' \,

6- \ < > -| ~~~~~ ~ ~~ ~~~~~NOew / ° uhua KOFf:)RIDUA og /ope 6

Dun w-(_ Edasel O Akro'pon J0, ; ~~~~~~~~~~on Offin Ak,m Odo N2amPG2dW .Keto

I o o k X XC E ~~~~~~~N T RAL As2m2nkese / W/O

_WE ST E RN ifu Prso Asikmo ACCRA

Abur ACCRA ACCR¢ T2rkw2 >\4~~~~~~~,Lnk w p Wnnb 0 10 20 30 40 50 60

{_ ,5) ~~~~~~~~Doabooe O Sa ltpond The boun dories, colors, denominations and any other i nformation

'f Assini g ] Elmine CAPE CoAST show~~~Gou , ny judgmesnto ton the lepgaol statuse of ony territorY, or any

> SsEKoNDl~NOI- endoprsement or acceptance of such boundories.

Axim ~CooTAKORADI GULF OF GUINEA

DECEMBER 1 994

IMAGING A Fft 3

Report No,; 16502Type: ICR