1.
Eminent Panel Conference, Accra, August 7th - 9th,
2020
Cost-Benefit Analysis of Two Policies Linked
to Ghana’s Industrialization
Godfred A. Bokpin,
Economist and Professor of Finance, University of Ghana Business
School
Brad Wong, Copenhagen Consensus

2.
Introduction and Motivation
•Expenditure rigidities amidst dwarfed revenue in the face
of rising infrastructural deficit imposes on the country’s
growth drivers
•Crowding out of priority spending
•Economy has transformed (in structure) but with limited
advantages of job creation
•Growth peaked in 2011 with oil and has since declined

3.
Government’s Total Revenue and Grants
Table 17: Total Revenue and Grants
N
o
Item
2019 2020 (Ghs
mn)
Prov. y/y
growt
h
2020
Budge
t
Revised
Budget
Deviation
GH¢mn %
y-on-y
(%)
1 Total Revenue &
Grants
53,380 12.1 67,071 53,667 -13,405 -20.0 0.5
% of GDP 15.3 16.9 13.9 -3.5
2 Tax Revenue (non-oil) 43,067 20.2 44,986 40,717 -4,269 -9.5 -5.5
% of GDP 12.3 11.3 10.6 -1.1
3 Non-Tax Revenue
(non-oil)
4,857 22.0 8,464 4,523 -3,941 -46.6 -6.9
% of GDP 1.4 2.1 1.2 -1.0
4 Oil Revenue 4,888 8.8 8,932 3,827 -5,105 -57.2 -21.7
% of GDP 1.4 2.2 1.0 -1.3
5 Other Revenues 2,051 12.9 2,876 2,780 -97 -3.4 35.5
% of GDP 0.6 0.7 0.7 0.0
6 Grants 986 -13.1 1,240 1,223 -17 -1.3 24.1
% of GDP 0.3 0.3 0.3 0.0
Source: MoF

4.
Government’s Total Expenditure
Table 18: Total Expenditures and Arrears Clearance
No Item
2019 2020 (Ghs mn)
Prov.
y/y
growth
2020
Budget
Revised
Budget
Deviation
GH¢mn %
y-on-y (%)
1 Total Expenditures 70,271 18.5 85,952 97,740 11,788 13.7 39.1
% of GDP 20.1 21.6 25.4 3.1
2 Compensation 22,219 13.3 26,565 27,062 497 1.9 21.8
% of GDP 6.4 6.7 7.0 0.1
3 Goods & Services 6,170 20.3 8,331 7,744 -587 -7.0 25.5
% of GDP 1.8 2.1 2.0 -0.2
4 Capital Expenditure 6,152 29.8 9,260 9,327 67 0.7 51.6
% of GDP 1.8 2.3 2.4 0.0
5 Interest Payments 19,769 24.9 21,691 26,268 4,577 21.1 32.9
% of GDP 5.7 5.4 6.8 1.2
6 Grants to Other Govt Units 11,424 5.9 15,635 11,805 -3,830 -24.5 3.3
% of GDP 3.3 3.9 3.1 -1.0
7 Other Expenditures 2,123 0.7 3,026 14,092 11,065 365.7 563.8
o/w ESLA 1,898.0 -10.0 2,646.8 2,550.3 -96.5 -3.6 34
o/w Covid-19 Related - - - 11,162.0 11,162
8 Arrears Clearance -730 -15.0 -1,443 -1,443 0 0.0 97.7
% of GDP -0.2 -0.4 -0.4 0.0
Source: MoF

5.
Government Intervention
•Government from 2017 set the Ghana Integrated Aluminum
Development Corporation (GIADEC):
•To promote and develop the integrated aluminum industry
•A USD 2 billion Master Project Support Agreement (MPSA)
with Sinohydro Corporation Limited the year after
•Besides scientific basis for the development of the bauxite
•Several concerns of costs and benefits argument have arisen
since

6.
Description of the solution
• The paper analyzed the entire value of the industry:
• Mining of bauxite
• Refinery of bauxite into alumina
• Smelting of alumina into aluminium
• The methodology is cost-benefit analysis
• Due to uncertainties in data, a range of production volumes, cost and benefit values
were calculated
• Note due to data limitations potential environmental impacts are not included
-> results should be interpreted with this in mind

7.
Costs: Bauxite – Alumina - Aluminium
• Ghana has large deposits of Bauxite – 540 million tonnes (Kesse, 1985), 780
million tones (Agbolosoo, 1991), GIADC to confirm official position soon
• Annual total costs ranged between $1 billion and $3.2 billion for the entire value
• Bauxite costs (average case) range from $122 million to $524 million at various
levels of production.
• Alumina production costs (average case) range between $540 million and $1.6
billion.
• Aluminium production costs (average case) are between $360 million and $1.1
billion at various levels of production
• These costs are inclusive of investment costs which are annualized over a 50-
year lifetime.

8.
Potential annual benefits of the entire value chain
•Total benefits ranged between $934 million and $3.6 billion,
with a median value of $2.3 billion.
•The average benefits for bauxite production range between
$35.5 million and $284 million under different production levels
•Benefits in alumina production range between $320 million
which can increase to $1.8 billion
•Benefits of aluminium production lies between $583 million
and $1.6 billion given their production volumes

9.
Net Benefits to Costs
•The net benefit for the entire IAI ranges between -
•$365 million to $560 million, with an average benefit of $140
million,
•Representing an average benefit-cost ratio of 1.1 (to 1 decimal
place) which is about 0.24 percent of Ghana's GDP
• Small BCR but very large absolute benefits
•Important considerations:
Flow-on effects such as direct and indirect employment, and
technological transfers, social, economic and environmental
costs not captured

10.
Intervention 2: Special Economic Zones
• No formal benefit-cost analysis due to data limitations, unpredictable
costs and large uncertainty over benefits
• Emerging evidence internationally and from Ghana suggests it is
better to focus resources on economy wide reforms rather than
geographically delimited areas
• BCR of future SEZs is likely less than 1
• Tax and infrastructure incentives of SEZs are insufficient to attract FDI.
Labor, skills, non-economic infrastructure such as schools are key e.g.
see concentration of business in Accra and Tema

11.
SUMMARY BCR TABLE
Interventions Benefit per year Cost per year BCR
Mining, processing,and
transformation ofbauxite into
alumina and aluminium
2287m USD per
year
2136m USD per
year
1.07
Special Economic Zones NA NA <1