Evolving Lending Regimes and the Political Economy of Dam Financing in Ghana

Abstract

In the 21st century Ghana has seen the revival and construction of dam projects which had previously been stalled for decades as a result of financing constraints and socio-environmental concerns. What has enabled Ghana’s contemporary dam-building revival? What are the risks and benefits? This paper examines Ghana’s constructed dams across time through the lens of changing modalities and sources of finance. It charts the country’s shift from traditional Bretton Woods mixed concessional/non-concessional bi- and multilateral lending in the 1960s in its early post-independence period to the introduction of bilateral resource-collateralised loans from China from the 1990s to the present, as well as its more recent reliance on the use of parallel offshore commercial financing in the form of Eurobonds. These changes in the scale, availability and varying modalities of external financing in the 21st century have presented a host of new challenges for Ghana, particularly in the area of public accounting and economic management. New opportunities for dam financing in the country carry with them significant short- and long-term risks and consequences. The study situates Ghana within a wider universe of comparative cases involving resource-backed loan arrangements with China for infrastructure. A closer look at the Ghanaian case highlights the ways in which the country’s use of commodity-collateralised or commodity-barter export arrangements with China differ from hydrocarbon-for-loan-type cases in other parts of Africa and Latin America. Pro-cyclical spending at disadvantageous terms, driven by high-stakes electoral competition, willing external partners and a global commodity boom has enabled contemporary Ghana to construct new dam projects at the risk of significant negative fiscal, social and environmental effects. Its overwhelming debt, tied to US and EU bond repayment, in addition to resource-collateralised bilateral lending with China, uniquely distinguishes Ghana from other African resources-for-infrastructure borrower cases. Ghana is at the forefront of the African Eurobond market and of a twin OECD- and Chinese-externally financed spending spree.

Keywords: Eurobonds, Dams, Commoditisation, Akosombo, Bui, Volta

JEL Classification: G32, O16, P16