Ghana: How Affordable is the STX-Ghana Affordable Housing Project?

Reading time 8 min.

If comments by the outgoing Minister for Water Resources, Works & Housing are anything to go by the centrepiece of government of Ghana’s affordable housing policy is now the recent STX-Government of Ghana (GoG) public-private partnership (PPP) agreement that should supposedly lead to the building of 200,000 housing units throughout Ghana between April of this year and April 2015.

The $10 billion initiative if successful is supposed to make a substantial dent in Ghana’s housing deficit, which the government believes stands at 1 million. If that figure was correct, then using the average household size typically employed in “standard of living” surveys in Ghana would suggest that 6 million Ghanaians are currently without adequate shelter, where “adequate shelter” is perhaps defined by reference to an authoritative set of criteria such as those endorsed by Habitat for Humanity.

The curious thing about this “6 million people” statistic is that it does not correspond well with the figures for general poverty in Ghana. If Ghana’s population is estimated at 22.5 million, then the number of those living in extreme poverty (earning less than $1.08 1993 dollars a day) is, per the most recent Ghana Living Standards Survey, about 6.5 million. One suspects that Ghana’s population is closer to 23.5 million and that nearly all those living below the above-noted poverty line lack adequate shelter. In fact one strongly suspects that many more people supposedly living above the said poverty line – earning above $32.4 (45 Ghana Cedis, January 2010) per month – lack adequate shelter, taking due account of regional variations where they may exist.

It is entirely possible that the housing deficit is twice the official, government-acknowledged, figure. But be that as it may, the STX-GoG arrangement, if successful, should make a giant contribution to reducing the housing deficit. Assuming an additional growth in the housing stock correspondent to stable population growth, the project should represent a 10% to 20% reduction in the housing deficit by 2015.

We are also inclined to be very positive, nay bullish, about the use of such international PPP mechanisms to inject such significant quantities of resources into Ghana’s social economy. We won’t be shy about our unabashed support for most efforts that succeed in drawing in substantial investment into Ghana. Nor have we relented in our view that the various IMF/World Bank facilities and so-called development finance programs initiated in partnership with so-called development partners shall never lead to the release of resources substantial enough to sustain the growth agenda.

Government can, furthermore, increase revenue mobilisation performance by only so much. Without a change in the very structure of the tax system, any “improvement” in tax collection may risk imposing a disproportionate burden on the formal sector. In a country that still officially promotes peasant farming and other anti-tax ventures as part of its national employment strategy this is what is bound to happen. We would, naturally, be much happier if the same zeal used in attracting foreign direct investment through creative partnerships was made more evident in our domestic economic situation. But, that notwithstanding, the principle behind the STX-GoG deal is a very sound one and fully in line with the kind of thinking that should lead to increased policy/fiscal space for any gains in macroeconomic performance to translate into increased productivity.

Our praise for the deal is of course limited to the extent that there are significant questions still remaining to be answered. There appears to have developed a spontaneous conspiracy of some sort between the media, Parliament of Ghana, and GoG to keep the details of this massive undertaking outside public debate. This is a very worrying situation.

The STX-GoG deal is the biggest transformation of affordable housing policy this country has seen since the mid-60s. The recent IFC-MiGA (International Finance Corporation – Multilateral Investment Guarantee Agency) initiative to support banks like Fidelity improve upon their mortgage activity; the Netherlands Development Finance Company (FMO) – Ghana Home Loans facility; and the 2006 OPIC (Overseas Private Investment Corporation) – sponsored initiative in the same direction all pale to insignificance besides the STX-GoG deal. Surely, everyone ought to be deeply interested in how exactly the project is expected to pan out.

As far as we are concerned, here are the most critical questions Government and all those in the know, whether in parliament or the media, should answer for the benefit of the rest of us.

It has been confirmed that Government of Ghana is required under the terms of the agreement to buy 90,000 of the housing units in advance. Firstly, have there been any discussions to ensure that the costs of these specific units are significantly below the average cost of a unit in the entire portfolio? This is very significant considering that the average unit cost in the portfolio is $50,000. In fact, accounting for the cost of land – which is to be made freely available to developers under the scheme – brings the average cost to between $55,000 and $60,000.

The cost to government in a scenario where no special concessions have been made could easily be in the region of $5.4 billion. This would of course require Parliamentary oversight, but only if Parliament sees the matter in this comprehensive, medium-term, light rather than in the light of government’s annual obligations (remember that the deal is spread over 5 years). The severe impact on the country’s public debt stock might lead to scuffles with the IMF/World Bank, though no one expect GoG to play soft in a deal of such magnitude. What will be hard to ignore would be impact on the fiscal deficit in the event that the short-term components of financing are significant.

More importantly, a $60,000 dollar housing unit would not qualify for affordable housing status under present government policy, which considers $10,000 as closer to the mark. If the Government component of the portfolio was priced significantly below the average price, say at $30,000 per structure, the effect would be to tilt the bulk of the cost ($7.3 billion thereabouts) to the STX side, raising the average cost per unit of those 110,000 units to close to $70,000, even less affordable. But there is an even bigger stumbling block than what such a bargaining strategy on GoG side might represent in the negotiations.

Because what is even more curious in this whole saga about average cost per unit is the way that STX has portrayed the deal. The shipping and commodities trading conglomerate has been very consistent in indicating that it does not expect to spend a dime on the project. In actual fact, STX has a huge debt overhang from its aggressive expansion binge of recent years amounting to about $6.6 billion – more than double its asset base. And in explaining the deal to its stakeholders it was quick to point out how it would contribute to reducing the company’s debt burden.

STX has further suggested that concessionary mortgage arrangements through Ghana’s Home Finance Company (HFC) would take care of the 110,000 units that GoG is not required to buy upfront. That is simply to say that HFC shall provide loans to ordinary Ghanaians to purchase those units. The issue of course is that HFC as a listed company is required to make submissions to the Securities and Exchanges Commission if it intends to raise that kind of money within this financial year, or indeed if a development in its operating environment would have a substantial effect on its financial situation. Its balance sheet is transparent to any analyst interested in the matter. And there is no doubt in housing finance circles that the respected company has no heft in its present state to handle a $5.5 billion (or indeed a $7.3 billion) deal, ignoring transaction costs (as at 2008 HFC’s operating income was less than $15 million per annum).

Prior to the Korean conference (at which both Government and Opposition officials were present) where the STX-GoG deal was sealed, the GoG position was that the Republic of Korea will provide a development financing package of $10 billion to the Republic of Ghana in exchange for unspecified rights to Ghana’s natural resources as well as in fulfilment of Korea’s donor-commitments to Ghana’s development. Surely, such a development-finance package would ordinarily be a complex one requiring lengthy negotiations and other such manoeuvres of the international diplomacy type.

With the project due to start in two months, we are not aware of any such $10 billion deal before the Parliament of Ghana. And one expects that when a transaction such as this one does appear before the appropriate select committee questions about local content would be asked, and that the answers shall be detailed and precise. True also that the appointment of Alban Bagbin as the new Minister of the housing sector suggests government’s intent to take affordable housing seriously, but as we all know good intents do not always good results become.

There is no doubt that South Korea is interested in helping its major shipping firms in their ongoing restructuring process, partly in the context of its post- global financial crisis stimulus policymaking, and so could easily see the STX-GoG deal as an acceptable route to achieving some policy goals, but that can obviously not be interpreted as altruism.

After all nobody ever heard of a $10 billion grant. Somehow, one way or the other, Ghana shall be paying back the Korean Government, and the more benefits we can derive, particularly for our local construction companies, the better.

Questions, questions, questions, and more questions. And yet so few answers.

Courtesy of IMANI Center for Policy Education & African Liberty

The Other Afrik  The Other Afrik is an alternative and multi-faceted information source from Afrik-News' panel of experts. Contributions include : opinions, reviews, essays, satires, research, culture and entertainment news, interviews, news, information, info, opinion, africa, african-american, europe, united states, international, caribbean, america, middle east, black, France, U.K.
Franklin Cudjoe
Franklin Cudjoe is head of Ghanaian think tank, IMANI, a non-profit, non-government organization dedicated to fostering public awareness of important policy issues concerning business, government and civil society. He is also editor of The Foreign Policy Magazine named IMANI, the fifth most influential think tank in Africa in 2010. Franklin was named Young Global Leader 2010 by the World Economic Forum.
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