FROM: The President GHANA - TRADE GATEWAY AND INVESTMENT PROJECT (CREDIT 3114-GH) PROPOSED AMENDMENTS TO THE DEVELOPMENT CREDIT AGREEMENT

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized FROM: The President GHANA - TRADE GATEWAY AND INVESTMENT PROJECT (CREDIT 3114-GH) PROPOSED AMENDMENTS TO THE DEVELOPMENT CREDIT AGREEMENT 1. The Government of Ghana has requested that the Development Credit Agreement (DCA) for the Trade Gateway and Investment Project be amended. This memorandum sets out the justification for the proposed amendments, and seeks the Executive Directors approval of the amendments. I. Background The Trade Gateway and Investment Project (the Project) was approved by the Board on July 9, 1998 and became effective on January 13, The project is due to close on December 31, As of September 27, 2005, percent of the Credit (SDR 22,641, equivalent) has been disbursed, and percent (SDR 14,958, equivalent) is undisbursed. See Table 1 in Annex I. 3. Project Objectives. The original objectives of the project as stated in the DCA were to implement measures designed to attract a critical mass of export-oriented firms and facilitate trade in the territory of the Borrower to accelerate growth through: (a) the development of off-site infrastructure for a privately financed Export Processing Zone; and (b) the improvement of the quality and standards of services delivered to investors and to exporters by the Borrower s institutions and agencies responsible for trade and investment. The project consists of two components described in Schedule 2 to the DCA: Part A, Trade Facilitation, and Part B, Development of Export Processing Zone. The description of the development objectives of the project are proposed to be amended to read as follows: The obiectives of the proiect are: (a) the development of a multi-purpose industrial park (MPIP); and (b) the improvement of the quality and standards of services delivered to investors and to exporters bv the Borrower s institutions and agencies responsible for trade and investment aiming to attract a critical mass of export-oriented firms and facilitate trade in the territory of the Borrower for accelerated mowth.. As explained in paragraph 6 below, this is a paradigm change which will lead to the amendment of the Free Zone Act governing the settlement of enterprises in the enclave, as well as the fiscal regime of MPIP enterprises. This philosophical shift equally qualifies the government and the private sector for site development. It also qualifies on-site infrastructure for funding through the Credit, which was excluded in the original project design. This paradigm change entails changes in terms of implementation methodology; it will create the conditions to leverage the investment already effected in off-site infrastructure and financed under the credit as well as enable the design and implementation of new investment promotion products which will attract more enterprises in the multi-purpose

2 industrial park. The creation of the MPIP along with its minimum infrastructure platform and direct services to enterprises will also support the pursuit of the development objectives of the forthcoming IDNIFC MSME project. The Market Access, Trade Facilitation and Entrepreneurship Development component of the proposed MSME project will pilot an ICT park as well as comrnon service centers (CSS) in several areas such as furniture and textiles in the MPIP. This will help the World Bank Group deliver an integrated package of services in response to the Government of Ghana s private sector and trade development agenda as envisaged in the Country Assistance Strategy (CAS) under its Growth and Employment pillar. 11. Project Implementation Experience 4. Implementation Progress. Overall, the project is being implemented with mixed results. Part A, of the Project (Trade Facilitation component) is being relatively satisfactorily implemented, with the exception of Subcomponent A(3) (Ghana Port and Harbor Authority activities), which has encountered delays in disbursement, and Subcomponent A(4) (Ghana Civil Aviation Authority activities), which has not been implemented at all. Also, activities under Subcomponent A(2) (Investment promotion and implementation of a well targeted plan for investment promotion by the Ghana Investment Promotion Council (GIPC) and Free Zones Board (FZB)) have not been coordinated and are not achieving their development objectives. Part B of the Project (Development of Export Processing Zone) has been implemented as follows: 0 Subcomponent B( 1) (Construction and equipment for container devanning area). Most of the Credit funds originally allocated for this component have been unused to date. The Credit financed consultancy services to develop the detailed structural and functional designs for the devanning terminal and the design of a roadway which provides access to the new container value park. However, the actual construction and related equipment for the container devanning area have been financed with private capital under the terms of two public-private partnerships. Thus, the Credit funds allocated for civil works for the container devanning area were not and will not be utilized. However, it has become necessary to finance the reconstruction of a bridge and approximately 4 km of arterial roads to provide improved access to the privately developed devanning areas and other cargo marshalling facilities outside the inner security perimeter of the port of Tema. 0 Subcomponent B(2) (Construction of off-site infrastructure facilities for the Export Processing Zone). Implementation of the physical components, Le. civil works at the export processing zone, is now progressing relatively satisfactorily, though delayed. Roads and water service contracts have been completed. 0 The implementation of Subcomponent B(3) (Environmental assessment, and preparation and implementation of an environmental management plan is satisfactorily implemented. The government and IDA agreed to suspend (provisionally) the installation of a cleaner production until assurance is given that firms will settle in the Tema site. 2

3 The International Development Association (IDA) and the Government of Ghana have agreed that, within the original structure and design of the project, even completing all activities under Subcomponent B(2) to be financed through the Credit will not guarantee the attainment of the project s development objectives. In effect, the creation of the conditions for populating the Export Processing Zone should have progressed at the same pace as the construction of the off-site infrastructure. Originally two private developers were involved: ILDC Ghana and Business Focus Group of Malaysia who controlled 60 percent of the site. However, a dispute arose between the Government of Ghana and the Malaysian developer about contract performance which is still unresolved. The govemment has informed IDA of the decision of Ghana Free Zones Board to re-enter the portion of the Tema Free Zone originally assigned to the developer in its assets base. The Ghanaian private developer is progressing at a slow pace in building the required on-site infrastructure in a limited portion of the site, as well as in building its factory shells. The high cost of on-site infrastructure to new tenants, in the absence of the advanced provision of basic infrastructure either by the Malaysian developer and current concession holder or by the government, may contribute to making operations within the site unattractive to prospective settlers. Moreover, Ghana s 1995 Export Processing Zone regime itself has become outdated in light of changes which have taken place within the international and regional trading environment, and which require a corresponding evolution in the free zone concept (which are now typically multi-use and emphasize linkages with the domestic economy, as well as inboundoutbound trade logistics and warehousing, and do not have onerous export requirements such as the 70 percent requirement found in Ghana s current regime) As a result, the Tema zone s development and investment promotion strategies should be updated with regard to the needs to rationalize activities under Subcomponent A (2) (Investment promotion and implementation of a well targeted plan for investment promotion of the Ghana Investment Promotion Council (GIPC) and Free Zones Board (FZB)). As of now, only one company has settled in the enclave thanks to the private developer. This is not a new investment; the company has moved from Accra to the site. Government proactive catalytic interventions have, through the Presidential Special Initiatives (PSIS) helped five textile companies to settle in the site. These shortcomings delayed disbursements for activities related to the export processing zone, During supervision the approach was revisited and solutions were discussed and agreed between IDA and the Government of Ghana Rationale and Potential Benefits of Proposed Amendments 5. The first major amendment to the DCA relates to the need to change the nature of the Tema enclave from an Export Processing Zone (EPZ) to a Multi-Purpose Industrial Park (MPIP) - which may still retain certain free zone characteristics - and to include the provision of Credit funds for the construction of on-site infrastructure under Subcomponent B (2) in addition to the original off-site infrastructure as a means of attracting new developers and enterprises to facilitate and accelerate the commercial development of the zone. It should be noted that at the time the project was designed, IDA was not very keen to finance EPZs; the final decision to finance the Tema EPZ was 3

4 made on the grounds that the zone development would be privately financed. Within the original design of the project, developers contracted by the government were supposed to invest in on-site infrastructure, and rent out premises/facilities to end-users. The experience has revealed that the cost of infrastructure development may be too high to be borne by foreign private developers who are not fully informed of Ghana s economic prospects. In this particular context, the change which occurred during the last 10 years in Ghana s trading environment, including with respect to the peculiar interpretation and enforcement of rules of origin on EPZ goods within the Economic Community of West African States (ECOWAS), has quickly outmoded the Ghana s traditional EPZ concept, whose remaining incentives in terms of tax holidays and other fiscal exemptions became an ineffective strategy to attract zone users. This partly explains why only one enterprise relocated in the enclave thanks to the private developer. As a result, not only did the Tema EPZ not promote growth in the country but, paradoxically, its successful implementation would have shifted considerable financial resources away from the government s budget. 6. However, certified free zone companies in Ghana have been successful in other sites. Ghana s free zone regime offers a flexible labor regime, a constructive export regime under which sales of domestic suppliers and vendors to certified free zone enterprises are deemed to be exports (a policy feature which encourages linkages between the domestic economy and Ghana s EPZs and single factory free zones), a visa waiver program for investors from numerous countries, and other investment climate incentives going well beyond the fiscal incentives on offer. Ghanaian free zone certifications have drawn investment in apparel, textiles, printing, agro-processing, wood manufacturing, metal works, petroleum, pharmaceutical manufacturing, packing, IT & telecom, fiberglass manufacturing, energy, offshore financial services, health services, transportation services, from countries including France, Malaysia, USA, Lebanon, South Africa, China, UAE, UK, Austria, Italy, and Germany. As a result, 21 percent of Ghana s exports and 47 percent of its FDI in 2003 were linked to firms operating under these free zone regimes. Significantly, certified free zone enterprises have also created 14,000 jobs. Ghana s free zone program is, on the whole, one of the more successful ones in Africa, along with Kenya, Madagascar, and Mauritius. 7. Therefore, the Government of Ghana and IDA have agreed to shift to the concept of a MPIP, amending the Free Zone Act No. 504 (1995) and the traditional EPZ concept as regards the Tema zone, which would not only preserve (and possibly enhance) the investment climate free zone policies for free zone enterprises and create incentives for prospective settlers through sustainable provision of infrastructure and value added park support services to enterprises (including physical common service centers), but also will create resources for the government through regular tax collection. To pilot the concept, the government considers it prudent to develop a portion of the zone land (179 acres out of the total of 1,200 acres) by providing full on-site infrastructure to be managed by the Ghana Free Zones Board (GFZB) for renting enterprises. This is consistent with the shift from the EPZ concept to the MPIP concept. This shift has been BEARINGPOINT, FREE ZONES: PERFORMANCE, LESSONS LEARNED AND IMPLICATIONS FOR ZONE DEVELOPMENT, DISCUSSION PAPER PREPARED FOR FIAS (OCTOBER 2004) 4

5 discussed and agreed with government during the last implementation support missions and subsequent consultations on the project retrofitting exercise. 8. There is a substantial difference between the EPZ concept and the MPIP one. In the case of the current EPZ framework, only enterprises planning on exporting 70 percent of their output qualify for settling in the enclave. Such examples of the traditional EPZ concept have not worked well in the majority of cases in Africa and tend now to be abandoned (as is, for instance, the case in Senegal). The Tema EPZ will become an MPIP at completion of the project restructuring. In the case of the MPIP, government creates the conditions to attract enterprises to the site (the use of the term enclave not being applicable to the concept being proposed) through investment promotion schemes based on the sustainable provision of services, which manufacturing enterprises need but cannot provide on their own, as well as on certain business-enabling investment climate policies, but without tax related incentives. This i s the case for the creation, within the Tema MPIP of common service centers (CSCs) and for the development of business support clusters through the forthcoming IDNIFC Micro, Small and Medium Enterprises (MSME) project as described below. It should be noted that the aforesaid activities had initially been expected to be funded by a supplemental credit to the Trade Gateway and Investment Project before the Government of Ghana and IDA agreed to fund these activities under the collateral MSME project. 9. In effect, the small-scale nature of MSMEs prohibits individual firms from investing in high-cost facilities such as equipment and machinery and, storage and in the acquisition and development of new technologies etc. It is envisioned that in line with sector development strategies, common service centers (CSCs) would be established for industry clusters and vertical enterprise linkages attuned to the needs of specific sectors. These may be developed using Public Private Partnership (PPP) schemes with a clearly defined investment exit mechanism for the government. Thus far, a need has been assessed for the following CSC provided activities to be co-located in the future Tema MPIP: development of a Furniture City, an ICT Park and textiles development center. Other CSC s will be developed to support additional selected priority sectors based on valuehpply chains analyses. 10. Example of Common Service Facilities and Infrastructure Support to Furniture City in the MPIP. The Government of Ghana and IDA have agreed to utilize the proposed MSME project to contribute to finance the establishment of a Furniture City Common Service Center in the future MPIP in Tema, on a pilot and demonstration basis. The objective is to develop a wood furniture city to resettle small scale furniture producers and provide them with common facilities.2 Activities to be financed include the following: development of the relevant infrastructure for wood /hrniture city; construction of 300 workshop units for small scale carpenters, furniture makers, wood workers and joiners; construction of a common show room; construction of an administrative building; installation of common facilities/equipment, Le., wood kiln Forestry and wood products account for 6 percent o f GDP and are the 3rd largest export, representing 11 percent of totals. 5

6 dryers, laminators, mould fabrication plant etc.; relevant capacity building; establishment of a Wood Technology and Design Centre; creation of a Website for E-Commerce; integration to the overall market access and trade facilitation infrastructure of the proposed MSME project. Tailored wood sector investment climate and policy elements could also be utilized to augment the impact of the project. IDA would however need to make sure that the project is developed so as to be synergistic with the planned Wood Estates Complex in Kumasi and the Wood Industries Training Centre. 11. Example of Common Service Facilities and Infrastructure Support - ICT Park. In order to stimulate the start-up and growth of technology intensive, knowledge-based businesses in Ghana, the proposed MSME project will support the government s initiative to establish a technology park within the future MPIP, in the site portion to benefit from on-site infrastructure. The ICT park will provide infrastructure and business support services designed to assist export-oriented small and medium ICT businesses and to maximize their potential for growth. It is expected that the ICT park will be established as a public-private partnership, in which the implementation would be private-sector driven, enabled by government support. World Bank Group assistance in establishing the ICT Park would include a comprehensive feasibility study to identify required infrastructure and ancillary services, targeted industries and companies, legislative and regulatory issues, financial projections, and proposed financing structure. Based on the results of this study, World Bank funding would support site planning, a marketing strategy, purchase and installation of telecommunications equipment, construction of a business center and administrative center, and administrative costs. The ICT park could be accompanied by the development of a targeted set of regulatory policies and incentives to enhance its impact, as in an increasing number of ICT Park and Technopark free zones around the world In order to support the above described approach, the government intends to reparcel the site s land repossessed from the Malaysian private developers and to tender it to internationally renowned developers to acquire and develop a part of the MPIP. Technical assistance funds under the restructured project could be utilized to support this critical objective. These funds would further leverage recent World Bank Group experience gained through the organization of developer tendering processes, as evidenced by the current Panama Pacific0 Special Economic Area privatization which IFC s Advisory Services team led, with assistance provided by FIAS and MIGA. To get to a point where such transactions are viable to developers, however, it would be necessary first to make extensions of on-site infrastructure to the existing primary infrastructure grid and in some cases, put in additional common user facilities such as sewage pumping stations in low lying areas that would be allocated to prospective park developers. Also, funding the construction of a security fence wall will be necessary, as well as of an administration block. 13. By bearing the cost of on-site infrastructure development (with Credit funds) and by developing CSCs in the MPP, the government will create the conditions for Such as the Dubai Media City and Dubai Internet City Free Zones. 6

7 making the site more attractive to private enterprises through a more holistic approach to investment promotion. This is why, in order to leverage the on-site infrastructure, the proposed project restructuring will be complemented by the proposed MSME project, which will provide assistance for the development of CSCs to support the development of enterprises in the zone and targeted capacity building for developers. The objective is to build local capacity (know-how and physical structures) for the provision to enterprises located in the proposed park (and elsewhere) with the functions they need to perform, but cannot access by themselves, because of their limitation in size and resources. This touches upon product development, active sales and marketing, common infrastructure for production (packaging, kiln drying, labeling etc.), company restructuring, etc. These functions will be delivered by privately owned and operated CSCs or public-private consortiums. As mentioned above, this will be supported by the Access to Markets, Trade Facilitation and Entrepreneurship Development component of the proposed MSME project. 14. By amending the EPZ Act regulating the settlement of enterprises in the Tema zone, the government will allow all categories of enterprises to locate in the zone, including certified free zone companies and non exporters. All settlers could thus access all of the enabling investment climate aspects of the MPIP. This new situation will limit tax evasion and create revenues for the government and make the proposed MPIP self-sustainable. 15. Summary of findings of the economic analvsis relative to the transformation of the EPZ into a MPIP. Estimates (based on FIAS, ILO, and Bearing Point cross-country data ) are that: 0 The zone can, by world standards for its size, adjusted based on Ghanaian experience, be expected to create anywhere between 1 (worst case) and 13 (best case) investments over the 2-year project timeframe; 0 By worldwide zone standards, each zone enterprise should generate US$241,569 per year in private end-user investment revenue for the zone (based on 2003 data). Thus, the zone should generate anywhere from US$241,569 to US$6,280,784 in private end-user investments by the end of the project; and 0 By Ghanaian standards, jobs should be created per zone enterprise. It is thus fair to assume that the zone should generate anywhere between 120 and 1,564 jobs over the project. The long-tern prospects should, of course, be much more impressive, multiplying investment and job results by a factor of 3-5. The reason is that worldwide experience shows that investment in zones typically doesn t pick up until after the fifth year. 7

8 The implications of this are as follows: 2-year Horizon, 179 acres Direct End-User private Investment Direct Employment Indirect Employment Total Employment 2-year Horizon, 1,200 acres Direct End-User private Investment Direct Employment Indirect Employment Total Employment 1 0-year Horizon, 179 acres Direct End-User private Investment (in Year 10) Direct Employment Indirect Employment Total Employment 1 0-year Horizon, 1,200 acres Direct End-User private Investment (in Year 10) Direct Employment Indirect Employment Total Employment Worst Case US$241, US$1,618, ,206 US$3 62, US$2,427,772 2,410 1,205 3,615 Median Case US$2,65 1, ,680 US$17,761,700 3,216 3,2 16 6,432 US$5,302,000 3,360 3,360 6,720 US$3 5,523,400 22, ,024 Best Case US$6,280,784 1,564 3,128 4,692 US$42,081,253 10,479 20, ,437 US$14,701,710 52, , ,185 US$98,501, ,047" 702,093" 1,053,140" These do not take into account what the upper limit is on the local labor market and potential for growth of Tema as a municipality. the numbers were with respect to the 179 acres. If the fbll 1,200 acres were used, the total impact (over the life of the Park) would be multiplied by a factor of 6.7 The numbers given for investment were for a 2-year time series. The employment figures do not take into account "indirect effects" of the zone through linkages to the outside economy, which can add anywhere from 50 percent to 200 percent more jobs to the totals. 16. The second major amendment to the DCA relates to the reconstruction of a bridge and approximately 4 km of access roads outside the port of Tema under Subcomponent B (l), as mentioned in paragraph 4 above. It is proposed to use the Credit proceeds allocated for civil works under Subcomponent B( 1) (the original allocation of 8

9 US$3.25 million equivalent plus an additional allocation of US$2.75 million equivalent) for this additional activity. 17. The third major amendment will regularize funding of the Ghana Investment Advisory Council (GIAC) under a new Subcomponent A(6). The activities of the GIAC are core private sector development and investment climatehrade reforms. The GIAC is a consultative group composed of private sector CEOs that act as a watch dog custodians and providers of feedback on implementation of government trade facilitation and investment climate reforms, as well as best practices in institutional reforms from a private sector perspective. The task team had already approved the hnding of GIAC activities, which however the recent audit report by IAD considers ineligible without an amendment of the DCA. At the time of approval, the team felt that this was consistent with and in support of the project development objectives. Based on the recommendations of the audit, the Government of Ghana has requested IDA to make GIAC eligible for support under the restructured project, and this is to be reflected in the amended DCA. 18. The fourth major amendment relates to the proposed transition to the new World Bank Procurement and Consultant Guidelines adopted in May The revised guidelines aim at streamlining the procurement function. In addition, the Gateway Secretariat will have also oversight responsibility for procurement under the proposed MSME project, which will use the new guidelines. An 18-month Procurement Plan has been prepared by the Borrower as required under the May 2004 guidelines (attachment 2). 19. In addition, Limited International Bidding (LIB) and Selection under Fixed Budget (FBS) are proposed to be added as additional procurement methods to enhance options open to the Borrower for efficient procurement. Lastly, certain procurement method and prior review thresholds for works and goods are proposed to be increased (see paragraph 27(d)) in order to overcome the constraints encountered during project implementation and to speed up the procurement process. The proposed revisions are also based on a re-assessment of the procurement capacity of the Borrower s implementing agency. 20. The fifth major amendment relates to the revision of the key performance indicators for the restructured project, to be specified in a new Schedule to the DCA. Success in a project of this magnitude can only be evaluated over the medium-term. Over time, the success of the restructured project must be judged on the following criteria: (i) whether the Tema MPIP project vision, concept, basic investments, and regulatory framework were compelling enough to attract a quality developer (or developers) to complete development of the site after IDA-hnded basic infrastructure (also considering other economic and political factors impact); (ii) the degree to which, in two years time, investment and job creation projections for the project are met (following worst, median and best case scenarios); and (iii) the degree to which, in the two years, MPIP linkages with the rest of the economy are sufficiently robust to be able to describe the Zone as integrated into the national economy as opposed to as an enclave. 9

10 IV. Potential Risks of Proposed Amendments 21. Risks related to complexity and potential lack of government capacity.this is a complex project that will entail work on eminent domain expropriation, development concession(s), infrastructure development, FDI policy, FDI promotion, and (potentially) environmental and social issues. It will also require interaction with several governmental bodies. Due to its multi-disciplinary nature, unexpected difficulties and concerns may arise. One of the risks will be working closely to keep the government on track on all these various issues. 22. Risk related to non-diversification of activities. It should be noted that the onsite infrastructure will, in the first place, only be concentrated on a limited portion of the site where the MPIP will be piloted (less than 200 out of the total 1,200 acres). Therefore, to minimize the risk of non-responsiveness by the private sector and/or change in the competitiveness position of the country in a given sectoribranch (for instance, textile within the global value chain), it would be important to diversify the type of activities to be hosted in that land portion. It is worth noting that even though it took time, the Ghanaian developer has funded limited on-site infrastructure. But a risk may reside in the government s inability to respond to the need of fbnding on-site infrastructure in all other parts of the site, especially as it has been decided to locate an ICT park at the site. 23. Risk related to the non dispute resolution. A risk is posed by a potential nonresolution of the dispute between the Government of Ghana and the Malaysian developer over a significant portion of the land. Even though the Credit hnds as proposed to be utilized in this amendment are not intended to be invested in the disputed land portion, it would be important for the attainment of the overall developmental objectives to extend the MPIP approach to the entire site in order to increase the critical mass of export oriented enterprises as stipulated in the project s development objectives. 24. Risk related to private sector non-responsiveness. Another risk relates to private sector non-responsiveness to the above-described incentives. The proposed amendments should preserve flexibility for adjusting the type of activities to be hosted in land portions where on site infrastructure is developed, since the logic of extending the infrastructure base of the country is not in question. 25. Risk related to non complementarity with other projects. There is a risk of non-complementarity with the planned Wood Estates Complex in Kumasi and the Wood Industries Training Centre, which must be fblly considered, so as to develop the concept synergistically. 26. Risks related to the mismanagement of the public-private partnerships (PPPs). There is also a risk that the public-private partnerships proposed as part of the implementation framework be structured in a manner which over-plays the role of the public sector and, unintentionally, distorts the level playing field for private sector development. Careful negotiation with government stakeholders will be required to 10

11 ensure that infant industry and cluster gap-closing strategies are properly calibrated in this respect. 27. Risks related to GFZB capacity. On the policy front, there is a risk that the foreign technical precepts of the proposed restructuring of the free zone regime exceed Ghana Free Zone Board (GFZB) regulatory and technical capacity -a risk which can only be properly mitigated by capacity-building efforts. 28. Risks related to the delayed amendment of the Free Zone Act. Though government has defacto enabled the settlement of non free zone certified companies in the Tema site, there is a need to amend the Free Zone Act in order to change the nature of the Tema site. Delays in amending the Free Zone Act may create confusion and perception of distortions and discrimination within the investment promotion regime, thus reducing the private sector response. This risk can be mitigated by maintaining a close dialogue with the government to ensure that it follows through on its commitment to amend the Free Zone Act. SUMMARY OF PROPOSED AMENDMENTS 29. The proposed amendments to the DCA are summarized below: a) Section 2.03, Closing Date 0 Extension of the Closing Date for the first time from December 31, 2005 to June 30, 2007, to allow for the completion of the ongoing and additional project activities and the achievement of the development objectives of the restructured project. b) Schedule 1, Withdrawal of the Proceeds of the Credit 0 Reallocation of funds to category l(a) to finance works related to Subcomponent B(l) (The funds currently allocated to category l(b) are sufficient to finance the proposed on-site infrastructure building activities for the MPIP under component B(2)). 0 Reallocation of funds to category 2 to acquire limited number of vehicles for the Gateway Secretariat and implementing agencies. c) Schedule 2, Project Description (See Attachment 1, Annex 11: Project Description I) 0 Modification of the description of development objectives of the project which, afier amendment, should read as follows (with the changes highlighted in bold): The objectives of the Project are: (a) the development of a multipurpose industrial park; and (b) the improvement of the quality and standards of services delivered to investors and to exporters by the Borrower s institutions and agencies responsible for trade and investment aiming to attract a critical mass of export-oriented firms and facilitate trade in the territory of 11

12 the Borrower for accelerated growth.. As explained in paragraph 6 above, this is a paradigm change which will lead to the amendment of the Free Zone Act governing the settlement in the enclave, as well as the fiscal regime of MPIP enterprises. This philosophical shift equally qualifies the government and the private sector for site development. It also qualifies on-site infrastructure for hnding through the Credit, which was excluded in the original project design. Modification of the title of Part A, which becomes Trade Facilitation and Investment Promotion. Creation of a new Subcomponent A(6) to support the Ghana Investment Advisory Council (GIAC) in the carrying out of investment promotion and policy advocacy activities, as explained in paragraph 16 above. Modification of the title of Part B, which becomes Development of Multi- Purpose Industrial Park. Modification of Subcomponent B(l) (currently related to construction of a container devanning area and acquisition of related equipment) by (i) limiting the activity to the provision of technical advisory services rather than actual construction; and (ii) adding as a new activity the reconstruction of a bridge and around 4 km of access roads at the port of Tema. Revision of Subcomponent B(2) to replace the EPZ with MPIP and provide for financing of on-site infrastructure. d) Section 3.02 and Schedule 3, Procurement 0 Revision of Section 3.02 and inclusion of a new Schedule 3 related to the transition to the new May 2004 procurement and consultant guidelines, including the preparation by the Borrower of a formal procurement plan, and a revision of procurement method and prior review thresholds for works and goods as follows: 0 Procurement method thresholds: Works - NCB for contracts less than US$2,000,000 and Shopping for contracts less than 50,000; Goods - NCB currently from contracts less than US$lOO,OOO to contracts less than US$250,000 per contract. 0 Prior review thresholds: Works - from contracts more than US$lOO,OOO to contracts more than US$500,000; Goods - &om contracts more than US$lOO,OOO to contracts more than US$250,000. e) Schedule 4, Implementation Program 0 The only change in Schedule 4 concerns the addition of the Ghana Investors Advisory Council as an implementing agency for the new Subcomponent 46). 12

13 f) Revised Project Performance Indicators 0 a revised schedule of performance indicators has been developed in a new Schedule to the DCA to reflect the restructuring of project activities and development objectives. Table 2 (Annex 11) presents the revised key performance indicators. V. Recommendation 30. I am satisfied that the proposed amendments to the Development Credit Agreement for Credit 3114-GH comply with the Articles of Agreement of the International Development Association, and recommend that the Executive Directors approve amending the Development Credit Agreement in accordance with paragraph 29 of this memorandum. The amendments to the Development Credit Agreement will then be forwarded to the Government of the Republic of Ghana for signing. Paul D. Wolfowitz President by Shengman Zhang Washington D.C. Vice President: Country Director: Sector Manager: Task Team Leader: Gobind Nankani, AFR Mats Karlsson, AFC10 Demba Bay AFTPS Papa Demba Thiam, AFTPS 13

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15 Annex I Table 1 : Summary of New Disbursement Profile DESCRIPTION DISBURSED rounded to the ALLOCATION ALLOCATION I TOTAL 29,181 I 37,600 I 37,600 14

16 TRADE GATEWAY AND INVESTMENT PROJECT Revised Results Framework Annex 2 Outcome Indicators Use of Outcome Information CAS Objective A market-responsive private sector is identified as the single most important source of growth and productive new jobs. The strategic support by the Bank Group is therefore aimed at assisting the Government of Ghana to continue remove the constraints to private sector investment, and harness potential sources of growth. Improved industrial performance and sustainable growth Show how the retrofitted project is aligned with a key CAS pillar I PDo To accelerate growth, trade and sustainable job creation through the development of off-site and on-site infrastructure for a multipurpose industrial park (MPIP) and provision of services to investors and exporters. Outcome: Fully functional multi purpose industrial Park (MPIP) contributing to increased industrial and trade activities and job creation Improved and integrated investment promotion and trade facilitation resulting in better access to markets by Ghanaian firms. Key Development of off-site and on-site infrastructure for a multipurpose industrial park (MPIP) Create a platform of hardware externalities in the MPIP which will trigger entrepreneurship. Improved industrial output, exports and sustainable job creation in the long term. Creation of new economic opportunities for entrepreneurship. % of companies benefiting from improved trade corridor and market access services. ResultdOutcome Indicators for completed and the MPIP is filly finctional in the intervention area % of prospective MPIP settlers that are notivated by the new MPIP regime Show how the creation of a platform of hardware externalities in the MPIPs along with integrated investment promotion and trade facilitation initiatives can trigger entrepreneurship, increased industrial performance, enhanced exports and job creation. Demonstrate that MPIP is a viable alternative to the free zone concept Demonstrate that provision of targeted services in the area of trade facilitation and market access can significantly improve business performance Demonstrate how key companies could take advantage o f the MPIP Show how the target industries can make use of the services at the MPIP 15

17 J Overall Objective/Outcome Draft amendments to the EPZ Act utc ators Free zone Act amended and adopted by Parliament Implementing regulations implemented % of companieslinvestors that express satisfaction with the revamped EPZ Act Use of Outcome Information Monitor how the specific MPIP enclaves (s) are contributing to improved industrial performance and job creation. Strengthen Public Policy Dialogue Improved capacity of the Ghana Investment Council (GIAC) to provide strategic advice to the GOG on investment opportunities and policy initiatives Provide information on how support to the GIAC has made it strategically relevant to the GOG private sector agenda I % of actual and/or prospective MPIP settlers expressing satisfaction with the quality of services available to them Improved trade and investment activities that are directly linked to the quality of services provided to investors through the project. Evidence that simplification of customs and immigration procedures has resulted in improved trade and investment flows generally % of companies satisfied with the simplification of customs and immigration procedures Evidence of improved business activity, increased volume of exports and improved export revenue as a result of the construction of physical infrastructure to ease container storage and transit Monitor the extent to which the creation of common service centers for industry clusters and development of business support services have resulted in improved industrial performance and job creation Show how simplification of customs and immigration procedures have resulted in improved performance of companies Post project intervention data shows a marked improvement in exports and imports at the Tema port and the KIA as a result of improvement in physical infrastructure. Monitor how simplification of procedures and provision of key infrastructure have led to increased xonomic activity at the Tema port and at the KIA 16

18 roj ResultdOutcome Indicators for Each Activity % of companies satisfied with simplification and streamlining of customs procedures % of companies satisfied with liberalize stevedoring policy Evidence of improved exports that can be directly attributed to improved destination inspection capacity 17