Franklin Cudjoe, President of IMANI Africa, has highlighted that Ghana is facing a significant infrastructure financing deficit, which is exacerbated by the country’s ongoing macroeconomic difficulties.
He emphasized that, given these challenges, it is essential for the government to reconsider its approach to capital expenditure, especially in areas where resources are limited.
Cudjoe identified high budget rigidity as one of the primary factors hindering effective infrastructure financing, noting that the country’s rigid financial planning makes it difficult to reallocate resources to priority projects or adapt to changing economic conditions.
“For instance, the share of statutory funds as a percentage of total revenues has exceeded 20% since 2010.
“Within this period, compensation has also increased considerably, occupying more than half of tax revenues except in 2023. In 2022, capital expenditure as a share of GDP was about 3.9%, which declined to 3.3% after the first IMF review, an expected outturn in 2023 was 2.5%”.
Franklin Cudjoe
He further explained that similarly, goods and services expenditure is expected to decrease by 1%, down from 2% in 2022.
He asserted that these are the only two expenditure categories where the private sector can step in to help.
According to Cudjoe, the goal behind this adjustment is to shift about 3% of GDP in expenditure to be covered by the private sector, effectively alleviating the rigidity in the national budget.
He indicated that at present, capital expenditure is estimated at US$1.87 billion, yet Ghana’s actual infrastructure financing needs range between US$4-5 billion annually from 2021 to 2030, according to the Global Infrastructure Hub.
Franklin Cudjoe asserted that this gap underscores the urgent need for innovative funding solutions and increased private-sector involvement to bridge the shortfall in infrastructure financing.
Cudjoe Cautions on NPP’s Private Sector Infrastructure Financing Plan
Franklin Cudjoe noted that the NPP’s plan to cut 3% of GDP (GH₵30 billion) from government spending and shift it to the private sector relies on the assumption that businesses will be willing to finance public infrastructure and services.
This approach relies heavily on the belief that private investors and businesses will not only have the capacity to invest in critical public infrastructure but also the willingness to take on such a significant financial responsibility.
However, Cudjoe cautioned that this strategy might face challenges, especially considering the risk profiles of such large-scale infrastructure projects and the current economic climate.
“The World Bank’s Private Participation in Infrastructure indicates that Ghana has received only 18 projects worth 7 billion between 2010 and 2023, and South Africa with 110 projects estimated at US$23 billion.
“Comparatively, electricity is the dominant sector for all three countries. This shows that private sector investment is not competitive in Ghana compared to peers given that most of our capital expenditures are foreign-financed”.
Franklin Cudjoe
He explained that this means it is not guaranteed that the private sector can mobilize the necessary financing, as private investors may be hesitant to commit such large amounts without a clear and secure return on investment.
Moreover, Franklin Cudjoe highlighted the significant risks involved in public procurement, particularly due to excessive political interference, which often undermines the transparency, efficiency, and fairness of the process.
This, he implied, could deter private sector involvement, as the potential for corruption and mismanagement in such projects creates an unstable environment for investment. “The government would need transparent measures to minimize the risk of contract over-pricing and value-for-money”.
He emphasized that, in addition, there must be robust and effective monitoring systems in place to track all cost items being rationalized and removed from the budget as part of this intervention.
Cudjoe noted that these systems would ensure transparency and accountability, enabling the government to assess the impact of the cuts and prevent mismanagement.
Moreover, he indicated that such mechanisms would help ensure that the resources saved are effectively redirected toward more efficient public service delivery. “This would not affect public finance accounting”.
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