High growth momentum, fuelled by an increase in the price and production of cocoa, gold, and oil has consistently placed Ghana among Africa’s 10 fastest-growing economies and transformed the West African country, according to the World Bank: “In 30 years, real GDP growth has quadrupled, extreme poverty dropped by half, and Ghana has moved to a Lower Middle-Income Country status.”
Infrastructure is crucial to economic growth and quality of life for citizens, since better roads allow more people to participate in the economy and reduce congestion and pollution. Ghana’s Ministry of Roads has initiated several road upgrade projects, two of which are financed by EKN and The Swedish Export Credit Corporation (SEK): “Streets of Accra” and “Streets of Tamale”, which entail surfacing of local roads and construction of drainage systems, with QGMI Group as chief EPC contractor.
“Roads fulfil a crucial function in modern society by providing increased mobility for people, goods and services. They also play a key role in the determination of social progress and economic growth of a country,” says Marco Meloncelli, Business Director Structured Export Finance at Intesa Sanpaolo IMI Corporate & Investment Banking (ISP), coordinator and lead arranger in the Accra project.
The two projects are budgeted at a total of 103 million euros, 85 percent of which is financed by EKN and SEK over 10 years. The construction period is 2 years, but the outbreak of Covid-19 early 2020 threatened to severely delay the start, recalls Cristiano Becker Hees, Managing Director at QGMI UK, and responsible for the financial structuring of infrastructure projects in Latin America and Africa.
“The immediate effect of Covid was that many banks and institutions reneged on previous commitments or delayed the closing. Without the support from EKN and SEK we would probably not have been able to close the deal when we did.”
Sustainable lending is paramount
Sustainable lending – in the sense of lending on conditions that a borrower can honour – is paramount to QGMI, Becker Hees adds: “Given the limitations of countries under surveillance by the IMF and the World Bank, the involvement of ECA’s has become necessary to secure sustainable lending to government to ensure that new borrowing does not jeopardize the country’s ability to meet existing obligations given the level of indebtedness.”
In Ghana’s case, a pure commercial loan would not have offered the same terms and conditions, he adds: “The triple-A funding of EKN and SEK underpins more favourable loan conditions.”
At ISP, Meloncelli adds: “We believe that the Swedish export credit system is extremely important and well-structured to support Swedish exports. Moreover, it lets non-Swedish financial institutions with ratings below AAA and higher cost of funding than SEK offer their structuring and arranging capabilities in the service of Swedish exporters.”
As a result, 120 kilometres of what was once sandy and potholed roads suffering from lack of upkeep and frequent rainstorms, will be transformed into asphalt arteries that bring increased road safety and improved public health. Hinterland dwellers can participate in the urban economy by selling their produce or commute to work in the city.
Much of the construction equipment will be delivered by Swedish suppliers like Volvo Construction Equipment, Atlas Copco, Dynapac, Husqvarna and others, which paves the way for support from the Swedish export credit system.
In order to facilitate local sourcing, QGMI has set up a Swedish subsidiary, says Becker Hees: “It is part of our strategy to establish bases in selected countries to get closer to the supply chains we require for our projects and establish active partnerships. We have worked with Swedish suppliers in other projects and found that using them makes us more competitive.”
Sustainability in international infrastructure projects means securing maximum competitiveness when sourcing and minimising the risk of corruption. To ensure that these goals are met, the Ghana road projects are subject to external audits, explains Maria Mattsson, senior underwriter at EKN:
“There are conditions in place that prevent loan pay-outs until the project has passed a value-for-money test safeguarding the effective, efficient and proper use of public funds.”
The benefits of improving local roads go far beyond, Meloncelli concludes: “Once finalised, the project will facilitate the free movement of people and transportation of goods, in particular between the hinterland neighbourhoods of the capital. It will facilitate the overall connectivity to the Kotoka Airport and the Port of Tema, increasing competitiveness and offering a stimulus for the entire economy.”