the republic of ghana agri-based rural enterprises … · reports on gog surveys on: employment...

AFRICAN DEVELOPMENT FUND

GHA/PSHH/2002/01Language : EnglishOriginal : English

THE REPUBLIC OF GHANA

AGRI-BASED RURAL ENTERPRISES PROJECT

APPRAISAL REPORT

AGRICULTURAL & RURALDEVELOPMENT DEPARTMENT (OCAR) NOVEMBER 2002

TABLE OF CONTENTS

PROJECT INFORMATION SHEET, CURRENCY AND MEASURES, LIST OF TABLES,LIST OF ANNEXES, LIST OF ABBREVIATIONS, BASIC DATA SHEET, PROJECTLOGICAL FRAMEWORK, EXECUTIVE SUMMARY, MATRIX.

1. ORIGIN AND HISTORY OF THE PROJECT.............................................................. 1

2. THE AGRICULTURE AND RURAL SECTOR ............................................................ 3

2.1 SALIENT FEATURES .............................................................................................................. 32.2 SOCIO-CULTURAL ASPECTS.................................................................................................. 32.3 POLICY FRAMEWORK ........................................................................................................... 4

3. RURAL SMALL SCALE ENTERPRISES ..................................................................... 5

3.1 THE CHARACTERISTICS OF SMALL-SCALE ENTERPRISES ..................................................... 53.2 CONSTRAINTS TO SMALL-SCALE ENTERPRISES DEVELOPMENT ........................................... 63.3 POLICIES FOR PROMOTING SMALL-SCALE ENTERPRISES...................................................... 63.4 INSTITUTIONAL FRAMEWORK............................................................................................... 73.5 INTERVENTION OF OTHER FINANCIERS ................................................................................ 9

4. THE PROJECT................................................................................................................ 11

4.1 PROJECT CONCEPT AND RATIONALE .................................................................................. 114.2 PROJECT AREA AND BENEFICIARIES................................................................................... 124.3 STRATEGIC CONTEXT ......................................................................................................... 144.4 PROJECT OBJECTIVE........................................................................................................... 154.5 PROJECT DESCRIPTION ....................................................................................................... 154.6 PRODUCTION, MARKETS AND PRICES................................................................................. 194.7 ENVIRONMENTAL IMPACT .................................................................................................. 204.8 SOCIAL IMPACT .................................................................................................................. 214.9 PROJECT COSTS .................................................................................................................. 214.10 SOURCES OF FINANCING AND EXPENDITURE SCHEDULE .................................................... 23

5. PROJECT IMPLEMENTATION.................................................................................. 25

5.1 EXECUTING AGENCY.......................................................................................................... 255.2 INSTITUTIONAL ARRANGEMENTS ....................................................................................... 255.3 PROCUREMENT ARRANGEMENTS ....................................................................................... 275.4 DISBURSEMENT ARRANGEMENTS....................................................................................... 295.5 MONITORING AND EVALUATION ........................................................................................ 305.6 FINANCIAL REPORTING AND AUDITING.............................................................................. 305.7 AID CO-ORDINATION.......................................................................................................... 30

6. PROJECT SUSTAINABILITY AND RISKS ............................................................... 31

6.1 RECURRENT COSTS ............................................................................................................ 316.2 PROJECT SUSTAINABILITY.................................................................................................. 316.3 CRITICAL RISKS/ASSUMPTIONS AND MITIGATION MEASURES ........................................... 33

7. PROJECT BENEFITS .................................................................................................... 33

7.1 FINANCIAL ANALYSIS ........................................................................................................ 337.2 ECONOMIC ANALYSIS ........................................................................................................ 347.3 SOCIAL IMPACT ANALYSIS ................................................................................................. 347.4 SENSITIVITY ANALYSIS ...................................................................................................... 35

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8. CONCLUSIONS AND RECOMMENDATIONS......................................................... 36

8.1 CONCLUSIONS .................................................................................................................... 368.2 RECOMMENDATIONS AND CONDITIONS FOR LOAN APPROVAL........................................... 36

List of Tables: No. PagesTABLE 4.1 SUMMARY OF PROJECT COSTS BY COMPONENT ........................................................ 22TABLE 4.2 SUMMARY OF PROJECT COSTS BY CATEGORY OF EXPENDITURE ............................... 23TABLE 4.3 SOURCES OF FINANCING ............................................................................................ 23TABLE 4.4 COMPONENTS BY FINANCIER .................................................................................... 24TABLE 4.5 ADF AND GOG PROPORTIONATELY FINANCED COMPONENTS ....................................... 24TABLE 4.6 SUMMARY OF EXPENDITURE CATEGORY BY FINANCIERS.......................................... 24TABLE 5.0 IMPLEMENTATION SCHEDULE ................................................................................... 27TABLE 5.1 PROCUREMENT ARRANGEMENTS .............................................................................. 28TABLE 5.2 EXPENDITURE SCHEDULE BY COMPONENT ............................................................... 29TABLE 5.3 EXPENDITURE SCHEDULE BY SOURCE OF FINANCE ................................................... 30TABLE 6.1 RECURRENT COST SCHEDULE BY SOURCE OF FINANCE ............................................ 31

Annexes: No. PagesANNEX 1: MAP OF GHANA AND PROJECT AREA ........................................................................... 1ANNEX 2: PROJECT ORGANIZATION CHART ................................................................................. 1ANNEX 3: IMPLEMENTATION SCHEDULE ...................................................................................... 1ANNEX 4: PROVISIONAL LIST OF GOODS AND SERVICES .............................................................. 1ANNEX 5: REP I ACHIEVEMENT INDICATORS ............................................................................... 1ANNEX 6: SUMMARY FINANCIAL AND ECONOMIC BENEFITS ......................................................... 1ANNEX 7: SUMMARY OF ENTERPRISE MODELS ............................................................................. 1ANNEX 8: SUMMARY OF BANK GROUP OPEATIONS IN GHANA ..................................................... 1ANNEX 9: STATUS OF POTENTIAL RURAL FINANCIAL INSTITUTIONS ............................................. 1ANNEX 10: LIST OF ITEMS IN PROJECT IMPLEMENTATION DOCUMENT ......................................... 1

This report was prepared by Ms. Esther Kasalu-Coffin, Senior Agricultural Economist, Mr.Harouna Dosso, Senior Agronomist, all of OCAR.2. Input was also provided from Mr. MosesBasalirwa, Senior Financial Analyst, and Mrs. Frøydis Dybdahl, Assistant, all of OCAR.2.Inquiries should be addressed to Mr. Sami Zaki Moussa, Division Manager, OCAR.2, ext. 4051 orMr. C. R. Spencer, Director, OCAR, ext. 4152.

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AFRICAN DEVELOPMENT FUND01 BP V 1387, ABIDJAN 01, COTE D’IVOIRETEL: (225) 20 20 44 44 FAX: (225) 20 20 44 90

PROJECT INFORMATION SHEET

The information given hereunder is intended to provide some guidance to prospective suppliers,contractors, consultants and all persons interested in the procurement of goods and services for projectsapproved by the Boards of Directors of the Bank Group. More detailed information and guidanceshould be obtained from the Executing Agency of the Borrower.

1. COUNTRY : Republic of Ghana

2. NAME OF PROJECT : Agri-Based Rural Enterprises Project

3. LOCATION : 53 districts in the ten regions of Ghana. The districts willbe eligible based on criteria.

4. BENEFICIARIES : Most vulnerable poor rural population. Rural poorentrepreneurs, who have business potential to benefit from improved skills and access to resources.Focus will be on women, unemployed and underemployed youth.

5. EXECUTING AGENCY : Ministry of Environment and Science (MES)Accra- GhanaTel: (233) 21 – 673336E-mail: [email protected]

6. PROJECT DESCRIPTION : The project has the following components: (i) technologytransfer and skills development (ii) rural finance access, (iii) rural enterprise institutions and(iv) project co-ordination.

7. TOTAL COST : UA 22.96 million (of which UA9.45 foreign exchange andUA13.51 million, local cost)

8. ADF LOAN : UA 7.50 million

9. OTHER SOURCES OF FINANCEIFAD : UA 8.82 millionGov’t of Ghana & Beneficiaries : UA 6.61 millionParticipating Financial Institutions: UA 0.03 million

10. DATE OF APPROVAL : December 2002

11. ESTIMATED DATE & DURATION: March 2003, 8 Years (IFAD Project) and 6 years ADF

12. ENVIRONMENTAL CATEGORIZATION: Level III

13. CONSULTANCY SERVICES REQUIRED: Consultancy services will be required for designand supervision of civil works for RTFs, training of BAS staff as well as small-scale entrepreneurs. Allprocurement of goods, works and services financed by the ADF resources will be in conformity withBank Group Rules of Procedure.

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CURRENCY EQUIVALENTS (June 2002)

Currency Unit = Ghanaian Cedi (GHC)UA 1 = GHC 9,201.70UA 1 = USD 1.33046

USD 1 = GHC 7,258.52

Fiscal Year1 January - 31 December

Weights and MeasuresMetric systems

ACRONYMS AND ABBREVIATIONSACHD - African Centre for Human DevelopmentARB - Association of Rural BanksBAC - Business Advisory CentreCIDA - Canadian International Development AgencyDA - District AssemblyDfID - Department for International DevelopmentDIC - District Implementation CommitteeDfID - Department for International DevelopmentGHC - Ghanaian CediGOG - Government of GhanaGPRS - Ghana’s Poverty Reduction StrategyGRATIS - Ghana Regional Appropriate Technology Industrial ServiceGTZ - Deutsche Gesellschaft für Technische ZusammenarbeitITTU - Intermediate Technology Transfer UnitKfW - Kreditanstalt für WiederaufbauMLGRD - Ministry of Local Government and Rural DevelopmentMoFA - Ministry of Food and AgricultureMoTI - Ministry of Trade and IndustryNBSSI - National Board for Small-Scale IndustriesNDPC - National Development Planning CommissionNGO - non-governmental organizationNVTI - National Vocational Training InstitutePCMU - Project Coordination and Management UnitPFI - participating financial intermediaryPY - Project YearREDF - Rural Enterprise Development FundREP - Rural Enterprise ProjectRFSP - Rural Financial Services ProjectRTF - Rural Technology FacilityRTSC - Rural Technology Service CentreRTTC - Regional Technology Transfer CentreRZO - REP Zonal OfficeSSE - Small Scale EnterprisesTAp - Traditional ApprenticeUNIDO - United Nations Industrial Development OrganizationUNOPS - United Nations Operations SupportVIP - Village Infrastructure Project

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MPDE Matrix - Agri-based Rural Enterprise Project

NARRATIVE SUMMARY VERIFIABLE INDICATORS MEANS OF VERIFICATION ASSUMPTIONS/RISKS

SECTOR GOALContribute to poverty reduction in rural areas andreduce rural/urban disparity.

1.1 Contribution to National Gross Domestic Productincreased by 5%; and poverty reduced from 60% to50% at the end of the project.

Reports on GoG surveys on: Employment National HH income Industry Poverty Project baseline vs. monitoring reports

PROJECT OBJECTIVEDevelop thriving and profitable rural enterprises inparticipating districts.

1.1 Incremental profit to beneficiaries in PY8 rangingfrom Cedis 46,200 – 17,291,724 per year perenterprise.

Baseline studies reports Quarterly Progress reports Supervision mission reports Mid –Term Review report

National economic regression Services provided sustainable.Mitigation: Gradual introduction of fees forall services provided.

OUTPUTS1. Technology Transferred and Skills Developed 1.1. 64 (53new+11carry over) Business advisory centres

set up and operating and financially independent byend of PY8;

1.2. 18 Rural Technology Facilities set up and operatingby PY5;

1.3. 70,000 clients trained in community-based Small-Scale Enterprise skills, business management andmarketing by PY8

1.4. 40,000 entrepreneurs establish profitable businesses,among which 28,000 (70%) run by women by PY8.

1.5. About 90,000 wage jobs created by PY81.6. 6,000 apprentices and 5,000 rural Master craft

persons trained and installed by PY8.1.7. Trade linkages to larger commercial operations and

enterprises established for 25% of the SSE productsby PY8

BAC records Quarterly Progress reports NBSSI supervision reports Supervision mission reports Mid –Term Review report

Lack of qualified and experienced BACstaff.

Mitigation: Staff training built in project.

Beneficiaries fail to follow through withtheir expressed interest to participate inproject activities.

Mitigation: information flow to potentialclients in sensitization fora. Reduced number of profitable

enterprises.Mitigation: Marketing Specialist at BACresponsible for facilitating the identificationof markets for Small-Scale Enterpriseproducts/services.

2. Rural Finance Access Improved 2.1 Rural Enterprise Development Fund (REDF)established and operational by PY1

2.2 3 to 4 Participating Financial Institutions in eachdistrict strengthened by Y8

2.3 106 staff of Participating FIs trained;2.4 106 PFIs functional in project districts by PY8.2.5 30 000 loans distributed to promoters through the

REDF by PY8.

Baseline studies reports BAC records Bi-annual Progress Reports Supervision mission reports Mid –Term Review report

PFIs' capacities are insufficient tohandle a portfolio of small loans.

Mitigation: Promotion of group-securedloans, close collaboration with RFSPinvolved in institution building of FI.

3. Rural Enterprise Institutions Strengthened 3.1 Policy and strategy revised and sanctioned byregulatory / legislative bodies by PY4.

3.2 Institutions attain their objectives with greaterefficiencies and less cost.

3.3 30% increase in satisfied clients by Y8.

Supervision missions Quarterly Progress Reports Policy Report Reports from Surveys

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ACTIVITIES

1. Technology Transfer & Skills Development1.1. Establish business centres (BACs)1.2. Establish 18 RTFs1.3. Conduct opportunity identification surveys1.4. Training in technical skills and enterprise

management1.5. Establish a computer operated database1.6. Establish trading linkages with rural Small-

scale enterprises and marketing outlets1.7. Follow-up business advisory services

Resources (UA' million)

1. FinancesSource AmountADF loan UA 7.50 millionIFAD loan UA 8.82 millionGOG & Beneficiaries UA 6.61 millionParticipating Fin. Institutions UA 0.03 millionTotal UA 22.96 million

1. Loan Agreement effective

2. Contract Agreement with implementingInstitutions Signed

Co-financing arrangements agreed Government and other financiers makes

their respective contribution to theproject as agreed

2. Rural Financial Access Improvement2.1 RFSP harmonize implementation schedule

with that of RFSP2.2 Coordinate with BOG & Financial

Institutions.

2. Budget AmountComponent (UA’ million)

1. Tech. Transfer & Skill Dev’t = 16.812. Rural Finance Access = 0.973. Rural Enterprise Institutions = 1.794. Project Coordination = 3.40TOTAL 22.96

3. Rural Enterprise Instutions3.1 Recruit consultants.3.2 Present policy recommendation for

ratification.

4. Project Management Unit

4.1 Recruit staff for PCMU & zone offices4.2 Conduct baseline surveys4.3 Carry out procurement4.4 Co-ordinate implementation of activities4.5 Prepare Mid Term Review4.6 Prepare Final Evaluation

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EXECUTIVE SUMMARY

1. Origin and History of the Project

1.1 Economic reforms and development investments in agricultural production have hadsome positive effect on agriculture and rural development in Ghana. Nonetheless, rural areas arestill home to more than 60 percent of the country’s poor. Average real per capita incomes, inurban areas are about threefold compared to those in rural areas, where formal unemploymenthas reached unprecedented high levels. As urban-rural disparities persist, Government efforts tobridge the equity gap between urban and rural populations are being undermined by thecontinued depth of poverty in rural areas.

1.2 Development of the agriculture and rural sector is central to economic development ofthe country as a whole. The Government Poverty Reduction Strategy Paper puts emphasis ondeveloping the agriculture and rural sector and on the need to adopt improved technology in thesector, if the country is to substantially reduce rural poverty. It is recognized that focusing onagricultural production activities alone cannot attain this. The potential for Small ScaleEnterprises (SSEs) has been demonstrated from the results of the Rural Enterprises Project(REP-I), financed by the International Fund for Agricultural Development (IFAD) and theGovernment of Ghana. The findings of the Bank financed Agro Industries Study (2001/02) havealso confirmed the substantial opportunities to increase incomes in rural areas by investing insmall scale agriculture processing and adding value to primary products. It is in this regard thatthe Government requested the Bank Group in April 2002 to co-finance with IFAD a follow-upproject to replicate the activities in more rural districts.

2. The Project

2.1 The Agri-based Rural Enterprises Project (AB-REP), will provide a strategiccombination of relevant services accompanied by local institutional capacity building, forsustainable SSE development, using a client demand-driven and cost-sharing approach. Theapproach involves, full participation of entrepreneurs in the selection and implementation ofproven practices; provision of market-driven business development services, buildinginstitutional capacity at district level and lower, as well as formulating an appropriate nationalpolicy to guide the development path for sustainable rural SSEs in the country. The manner ofproviding these services takes into consideration the lessons learnt during implementation ofREP-I. To this end, the project will replicate or, where necessary, modify the REP-I supportmechanisms that have proved effective, in 53 districts. During implementation, the project, willcomplement its activities to those of on-going Bank and IFAD financed projects, to provide fora holistic approach to rural development and to build synergy in agriculture and rural sector.

2.2 Project Objective: The sector goal is to contribute to poverty reduction in rural areas andreduce rural/urban disparity by increasing rural production, employment and incomes. Theproject objective is to contribute to the development of thriving rural enterprises in participatingdistricts.

2.3 Project Description: The project will be implemented over eight years in a district-by-district phased manner. The African Development Fund will only participate in projectimplementation for a six-year period, from year 2 to year 7. Each participating district willaccess project services over a four-year period. The project has four components, namely i)Technology transfer and skills development, ii) Rural Finance Services, iii) Rural Enterprise

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Institutions, and iv) Project Coordination. Project activities comprise: training of clients insimple technical skills, entrepreneurship development, and business management, which will beprovided on demand; follow-up of skills training by business counselling, information andreferral services; technology adaptation and dissemination through small rural engineeringworkshops, under direct management contract to GRATIS and through support to master craftspersons, in a cost-effective manner; improvement of rural financial services to SSEs, in closecoordination with those of other on-going Bank and IFAD financed projects; formulating of anSSE Policy to ensure holistic support to SSE development.

2.4 The expected outputs from the project are: 70,000 clients trained in SSEs community-based skills, business management and marketing; 6,000 apprentices and 5,000 rural master craftpersons trained in engineering technical skills to promote and disseminate technology; tradelinkages to larger commercial operations and enterprises established for SSE products; linkagesbetween entrepreneurs and district based financial service providers are developed; and a ruralSSE development policy and strategy formulated and approved.

2.5 The target group are the rural poor, with special attention for the most vulnerableincluding: unemployed, interested in self-employment but lacking skills, technologies and initialcapital, those with some basic skills who need skills upgrading, entrepreneurship developmenttraining and initial capital to set up their businesses, and existing owners of SSEs who want tobe assisted through skills or technology upgrading to improve and/or expand their business.

2.6 Project Costs: The total cost of the project, including physical and price contingencies, isUA 22.96 million, equivalent to GHC 211.3 billion. The foreign exchange portion is UA 9.45million equivalent to 41 percent of the total project cost, while the local cost is UA 13.51million.

2.7 The project will be financed by the African Development Fund (ADF), IFAD, theGovernment of Ghana (with resources directly from central budget as well as from DistrictAdministrative budgets, ARB Apex Bank, and NBSSI), and by the private sector comprising(Project Clients, and Participating Financial Institutions). The total ADF financing will beUA7.50 million, equivalent to 33.0 percent of the total project costs. The ADF resources willfinance 67.9 percent of the foreign exchange costs of the project estimated at UA9.45 million,and UA 1.08 million of the local cost.

2.8 Sustainability: The entrepreneur demand-driven and participatory approach whereby theclients and their representative institutions (District Assemblies) will request for project servicesand participate in their design and implementation will ensure client ownership duringimplementation. The favourable profits of enterprises, hence the increased additional incomerealised will provide the necessary incentive and motivation for the entrepreneurs to continue toengage in the enterprises. Client entrepreneurs will therefore increasingly value and rely on theservices to improve the profitability of their businesses such that they will be willing to pay forthe full cost of their provision. Increasing profitability will help the client enterprises grow anddiversify, thereby also creating more employment opportunities for the communities in whichthey are located. Client enterprises will pay an ever-increasing proportion of the costs until theend of the project when they are paying full cost. This design approach has proven successfulunder REP-I, as entrepreneurs have continued their operations after project exit in the districts.During project implementation, coordination of the various support services at district level willbe done by the BAC offices falling under the jurisdiction of District Assemblies, and it isexpected to sustainably continue after the four years of project intervention.

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2.9 Continued funding of services that will be initiated by the project, would be through costsharing arrangements between implementing agencies and clients on a cost recoveryarrangement. There would therefore be gradual to full cost-recovery of services, whereby clientswould pay market rates for services received. NBSSI and GRATIS Foundation will continue tobear running cost items such as staff salaries and allowances and a portion of training costoffered by BACs and RTFs. This is in line with the mandate of the two institutions, under whichthey were established. Each District Assembly will also continue to shoulder the cost of BACoffice accommodation and associated running costs, and the salary of the Business DevelopmentOfficer.

3. Project Benefits

The project will generate additional incomes through new jobs, strengthen existing ones anddiversify present income-generating activities so as to increase income for an estimated 90 000wage jobs and 40 000 SSE operations (self employed). Other project benefits include enhancedSSE productivity and product quality, and broader product range and diversification into newproducts and markets. Increased opportunities in the rural areas will reduce the rural-urbanmigration. Institutionally, the project will provide a strong impetus for the District Assemblies toenter into the field of business development at district level

4. Conclusions and Recommendations

4.1 The potential for small-scale enterprises to reducing poverty in rural areas has beendemonstrated under the first phase of the rural enterprise project (REP-I). The project willtherefore contribute to the reduction of rural poverty by focusing its support on small-scale ruralentrepreneurs. This will broaden the production and income base for the rural poor and with itthe stimulation of agriculture crop production. It is envisaged that the project will lead to animprovement in rural living conditions due to increased incomes of the rural population.

4.2 The project is socially desirable, technically feasible, financially viable andenvironmentally friendly. Furthermore, it is accorded high priority in the Ghana PovertyStrategy by the Government of Ghana and it is consistent with the Bank Group Vision statementas well as the Bank strategy for Ghana. At the national level, the project is expected to generaterural employment and enhance rural incomes. It is therefore recommended that the Board ofDirectors approve the co-financing of the proposed Rural Enterprise Project proceed to appraisethe project to further verify the parameters used in the project document.

1. ORIGIN AND HISTORY OF THE PROJECT

1.1 Twenty years of economic reforms and development investments in agriculturalproduction have had some positive effect on agriculture and rural development in Ghana.Nonetheless, rural areas are still home to more than 60 percent of the country’s poor. In theperiod 1991/92 to 1998/99 the incidence of poverty, measured as percentage of population hasdecreased from 27.5% to 22.8% in urban areas, while for rural areas it has decreased from62.4% to 51.6%. Further, a review of the social sector indicates that although progress has beenmade over the past ten years, urban-rural disparities also persist. Government efforts to bridgethe equity gap between urban and rural populations have been undermined by the continueddepth of poverty in rural areas.

1.2 Development of the agriculture and rural sector is central to economic development ofthe country as a whole as reflected in the Poverty Reduction Strategy Paper (PRSP). The broadaim of Ghana’s PRS is to ensure that poverty in the country, especially in the rural areas, isreduced substantially within the shortest possible time frame. To this end, the Government hasinitiated a number of programmes to promote rural small-scale enterprises. These includeprogrammes, which seek to increase rural production, employment generation and incomelevels. The GOG is cognisant of the fact that targets cannot be attained by agriculturalproduction activities alone. All economic activities and operators in the rural space need to playa significant role. Furthermore, the GOG has recognized the need to use science and technologyas the basis for attaining sustainable development efforts. Technology accompanied by skillsdevelopment is critical for obtaining the desired improvement in the socio-economic status ofthe rural population, especially in the development of rural small-scale enterprises.

1.3 Small-scale enterprises, prevalent in rural areas, have the potential to contributesignificantly to the transformation of the rural economy in Ghana. Support to small-scaleenterprises in Ghana has demonstrated a very rapid payback period, which can help the poor togenerate income and bring about improved livelihoods. This has been demonstrated followingthe implementation of the Rural Enterprises Project (REP-I) and is supported by the findings ofthe Bank financed Agro Industries Study (2001) which indicated that there are substantialopportunities to increase incomes in rural areas from investing in small scale agricultureprocessing and adding value to primary products. Therefore the proposed project seeks tosupport the rapid and sustainable promotion of rural small-scale enterprises, which is critical tostimulate growth and reduce poverty in the rural areas. The implementation of the proposedproject is timely because REP-I has created an awareness of the potential for high incomegeneration over a short period of time, as a result of the services provided by the project.Political leaders and clients, through their district assemblies, have requested that the sameservices be provided in their districts. Therefore, there is currently an expressed demand in manyrural districts, that this project cannot afford to miss out, by delaying the investment.

1.4 Experience of the Rural Enterprise Project: REP-I was implemented with financialsupport from the International Fund for Agricultural Development (IFAD), from 1995 and isscheduled to end in December 2002. It covered 13 districts in the Ashanti and Brong AhafoRegions. Originally the project was to last for seven years and scheduled to end in March 2002,but it was extended until December 2002. The total cost of the project was USD 9.3 million.REP-I was designed to build upon GoG’s economic reforms by encouraging private productiveactivities in the rural areas to take advantage of the opportunities created by the opening up anddevelopment of the economy. Therefore, the objective of the project was to increase ruralproductivity, employment and income so as to reduce poverty through the increased output of

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small-scale non-agricultural activities, rather than from increased agricultural production itself.This was to be accomplished by (i) facilitating access to skills, new technologies and businessadvice, (ii) promoting easier access to financial services, (iii) improving the efficiency ofexisting small rural enterprises and supporting new initiatives and (iv) removing communicationconstraints through feeder road rehabilitation.

1.5 The project has three components: Support for the Promotion of Rural Small ScaleEnterprise, involving construction of Rural Technology Service Centres (RTSCs) and theestablishment of Business Advisory Centres (BACs). The BACs are to stimulate thedevelopment of business skills through training and counselling, and also organize low leveltechnology skills training. The RTSCs develop and transfer appropriate technology. Theyoversee a master artisan-apprenticeship-training scheme, and provide technology advice andtraining to small-scale entrepreneurs. Rural Financial Services Support: to provide access to theformal financial sector for small, rural entrepreneurs who previously had not been able to, byproviding a line of credit to eligible participating banks for on lending, and training ofbeneficiaries in managing and operating credit and depository facilities. Additionally, supportwas given to the network of rural banks by establishing an inspectorate under the Association ofRural Banks, and by providing training to selected rural bank staff. Infrastructure Support: toimprove mobility and access to markets through the improvement of feeder roads.

1.6 The project targeted people living in poverty, by developing and upgrading theirentrepreneurial skills and promoting the use of appropriate technologies in their enterprises. Outof the 150,538 people who were targeted to benefit from project activities, 140,000 hadbenefited from the project, one year before the end of implementation (a 93% achievement). Outof these, the project had targeted 16,000 female heads of households to benefit from the project.The actual number of female heads of households that benefited was 23,100 (a 144%achievement) by the end of 2000. One year to project completion, the project was also able toestablish 2,710 (80%) profitable businesses out of the 3,388 targeted. In addition, the projectenvisaged training 5,448 people who were already part of small to medium businesses, of which7,192 (132%) of the target was achieved. A summary list of achievement indicators is includedin Annex 8. During REP-I, the project rehabilitated 87 km of feeder roads and attained 87% ofthe target a year before the end of project implementation. The impact of this road improvementshows that traffic increased from a range of 24% to 400% with actual numbers of vehiclesvarying from an effective 10 vehicles to more than 160. Furthermore, the project resulted inincremental profit incomes for entrepreneurs. Profit increases ranged from an average of USD180 to USD 2,564 per year for cassava and corn flour bread making, to a lower incrementalprofit range of USD159 to USD165 per year for mushroom farming.

1.7 The Ministry of Environment and Science (MES) is the responsible governmentministry, and the Project is implemented through the Project Coordination and Monitoring Unit(PMCU), which is based in Kumasi. The project adopted a gradual expansion approach of theimplementation of project activities into districts. Initially, activities started in two districtsduring the period 1995-1997, expanded to six additional districts in 1998 and five incrementaldistricts in 1999. This strategy has enabled the PCMU to adopt a flexible approach, testingvarious ideas in the initial districts, and then replicating the successful ones as the projectexpanded. The flexibility has been considered as one of the strong points of the project.

1.8 Though the successes of REP-I, which are documented in the 1998 Mid-Term Reviewand the 2000 Interim Evaluation Report, as well as in the finding of the ADF funded Agro-Industry Study, there is still a lot to be done to consolidate and extend the gains of the previous

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project. There is also the need to learn from and extend the experience of the first phase. Theseare what prompted the Government to request the Bank Group in April 2002, to co-finance withthe International Fund for Agricultural development (IFAD) a second phase of the project. PhaseII would consolidate activities under REP-I, in districts within the Ashanti and Brong AhafoRegions, expand and replicate REP-I activities in districts that were not covered by the previousproject. The proposed project would also provide financial support to the Government of Ghana(GOG) to develop a policy framework for rural SSE development, which will enable it toaddress rural SSE development as well as the challenge of rural poverty reduction in a holisticand coordinated manner. In designing a second phase to the project, it has been realized thatalthough rehabilitation and construction of feeder roads was useful under the current project, itcould be better managed as part of other national initiatives.

1.9 In response to the Government request, the Bank Group undertook a joint mission withIFAD to prepare the project in April/May 2002, which was later appraised in August 2002. Thisdocument is a result of information collected during the preparation mission and verified duringthe appraisal mission. The IFAD Board of Directors approved the project on September 5th,2002. The project is expected to be effective by January 2003.

2. THE AGRICULTURE AND RURAL SECTOR

2.1 Salient features

2.1.1 Ghana covers an area of 239,000 sq km, of which 13 million hectares are suitable forcrop production. Agricultural activities are predominantly rain fed and the main crops producedare: rubber, oil palm, coconut, cocoa and coffee plantain, maize, rice, yam, cassava andvegetables (peri-urban areas) in the forest zone; sorghum, pulses and millet in the transitionaland savannah zones. Non-traditional crops include fruits, pineapple, mango, and cashew nuts.

2.1.2 The population is estimated at 19.7 million, with an annual growth rate of 2.7 %. Theeconomic active population (15-64 years) represents 56 %. The female population (15-49 years)is estimated at 23% of the total population. More than two-thirds of the Ghanaian populationlives in rural areas where poverty is most widespread. The main economic activity is agriculture.Agriculture accounts for approximately 40% of GDP, employs about 60% of the national labourforce. Trading and manufacturing account for 14.5% and 10.8% respectively. The sectorprovides over 90% of the food needs of the country .Its average annual growth was less than 2%during the past decade. Within the agriculture sector, crop and livestock sub-sectors are thelargest contributors to GDP. Cocoa sub-sector recorded a growth rate of 6.2% in 2000, butdeclined to 5.2% in 2001. Forestry and Logging Sub-Sector, which grew by 6.8% in 1999 andsoared to 11.1% in 2000, experienced a sharp decline to 4.8% in 2001. Besides some goodachievements for non-traditional agricultural exports (e.g. pineapple) agricultural output increasewas unsatisfactory. This low growth is mainly attributed to low levels of investment andagricultural technology, in particular in the crop and livestock sub-sectors. This can be explainedby the cumulative effect of poor terms of trade, arising from sharp falls in the world marketprices of the country’s two major exports (gold and cocoa).

2.2 Socio-cultural Aspects

2.2.1 According to the 2000 Household Expenditure Survey, the overall trend in poverty inGhana during the 1990s has been generally favorable. Taking the upper poverty line of USD250, the percentage of the population defined as poor decreased from 51.7% in 1991-1992 to

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39.5% in 1998-1999. The incidence of extreme poverty remains very high, with more than onequarter of the population being unable to meet their basic nutrition needs.

2.2.2 The same surveys show that poverty reduction is concentrated in Accra and in the forestlocalities. In the remaining localities poverty decreased only very modestly and extreme povertyrose in the savannah. Also, poverty is substantially higher in rural areas than urban areas. 84% ofthose below the upper poverty line are concentrated in rural areas. Geographically, patterns inshow that poverty is lowest in Greater Accra and highest in the north (notably the Northern,Upper East and Upper West regions). In these northern rural savannah regions the extent anddepth of poverty increased, from 63% to 69% and from 42% (1992) to 46% (1999), respectively.The most significant reductions in poverty at the national level have been concentrated in fiveregions (Western; Brong-Ahafo; Greater Accra; Volta; Ashanti). The surveys also show thatexport farmers and wage employees in private employment enjoyed the greatest gains in theirstandard of living, while food crop farmers experienced the least gains.

2.2.3. Rural poverty in Ghana exhibits a gender dimension. Although women play a significantrole in the economy, they share a higher burden of rural poverty, mainly because of theirvulnerable social position, and poor access to education, health, credit, technology, andextension services. According to the Ghana Living Standards Survey of 1998/99, about 70% ofthe rural workers are engaged in agricultural activities, of which 50% are rural women and theincome constitutes a vital source of household income.

2.2.4 Land Tenure Most of the agricultural land in Ghana is under communal ownership.Lineage or clan groups control communal land and allocate it to individuals or families onusufructuary basis. In 1999, the Government established the National Land Policy, whichprovided a framework for free access of all land to the people of Ghana. All traditional sourcesof land tenure and rights are recognised as legitimate and protected by law. To some extent,because of this, not much has changed to traditional practices of land allocation, particularly inthe rural areas. In most parts of the country, particularly in the northern regions, women havedifficulty in accessing land except with a male guarantor, or where there is group ownership ofland. It is to be noted nonetheless, that it is not always easy for some socio-economic categoriesof men to access land, especially with non-indigenous people. The amount of land required formost rural enterprises is small, if at all. The activities are often carried out within the vicinity ofthe homestead which does not need acquisition of land.

2.3 Policy Framework

2.3.1 Government development priorities for the year 2002 in the medium term are focus on:(i) infrastructure development; (ii) modernizing agriculture, centred on rural development,reform of land tenure system, feeder roads in food production areas, extension services tofarmers, irrigation and practical support to farmers, etc.; (iii) enhanced social services withemphasis on education and health; (iv) Good governance; and (v) promote private sectordevelopment, to remove bottlenecks that add to the cost of doing business in Ghana.

2.3.2 The long-term goal for agriculture and rural sector is to increase the level of incomes in therural areas, thus reducing disparities in standards of living between the rural and urbanpopulations. Government has focused on restructuring the rural environment, by intensifying thedecentralization of its public institutions. The Accelerated Agricultural Growth andDevelopment Strategy was designed to assist in attaining this goal through, among other factors,(i) promoting the use of modern farming methods and marketing practices, (ii) developing

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indigenous entrepreneurial class through better access to training, financial services, anddomestic/foreign markets, and (iii) improving rural infrastructure.

2.3.3 In 2001, the Government developed the Food and Agricultural Sector DevelopmentPolicy (FASDEP), which serves as the policy framework for comprehensive agriculture andrural development, and under which new strategies and action programme for specific sub-sectors in the agriculture and rural sector are currently being developed.

3. RURAL SMALL SCALE ENTERPRISES

3.1 The Characteristics of Small-Scale Enterprises

3.1.1 SSEs play a dynamic role for attaining economic growth objectives. It is estimated thatSSEs employ 22% of the adult population in Ghana and about 15.5% of the labour force. Thesub-sector has experienced higher employment growth rate than large-scale enterprises and itsoutputs, as a percentage of GDP, accounted for 6% of GDP in 1998.

3.1.2 There is no, universal definition of small-scale enterprises. The most commonly used isthe number of employees of the enterprise, which is the criterion used in Ghana. The GhanaStatistical Service (GSS) considers firms with less than 10 employees as small-scale enterprisesand those with more than 10 employees as medium and large-sized enterprises. The NationalBoard of Small Scale Industries (NBSSI), on the other hand, uses a criterion based on both the“fixed assets and number of employees”, to define small and medium enterprises. Under theproposed project, an SSE is defined as one with not more than 9 workers, has plant andmachinery (excluding land, buildings and vehicles) not exceeding the equivalent of USD 10,000.

3.1.3 SSEs mobilize little capital, constitute seedbed for indigenous entrepreneurship, arelabour intensive and employ more labour per unit of capital than large enterprises. They serve asa promotion medium for indigenous technology; they are competitive, use mainly localresources, thus have less foreign exchange requirements. They cater for the needs of the poorand they are easily adapted to customer requirements due to their flexible nature, which enablesthem to withstand adverse economic conditions.

3.1.4 SSEs in Ghana can be further categorized into urban and rural enterprises.Approximately 1.9 million households or 49% of all households in Ghana operate a non-farmenterprise. Women form 70% of those involved in SSEs activities. Urban enterprises can be sub-divided into “organized” and “unorganised” enterprises. The organized ones tend to have paidemployees with a registered office whereas the unorganised ones are mainly made up of artisanswho work in open spaces, temporary wooden structures, or at home and employ little or in somecases no salaried workers. They rely on family members or apprentices. As a result, ruralenterprises are largely made up of family groups, individual artisans, women engaged in foodproduction from local crops.

3.1.5 Most of the rural SSEs are linked to agriculture, as farming provide the raw materials forfood processing activities. Agricultural-related SSEs can be categorized into: (i) Agro andgeneral food processing to transform primary produce into (semi)-finished products such as:cassava processing into chips, dough, gari, flour, and starch; maize shelling and milling;groundnut shelling; rice milling; pepper milling; palm fruit oil extraction; palm kernel oilextraction; shea butter production; grain drying and storage; beer (pito) brewing; dried fruits andvegetables; tomato paste; and honey and wax production; (ii) Primary fabrication and repair of

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farm implements and tools, agro-processing equipment, storage bins and cribs, as well as repairservices for farm machinery (such as tractors) and transport vehicles; (iii) Service enterprisesproviding support to production, processing and marketing of agricultural produce and localindustrial goods, including trade in agricultural produce, and in local industrial goods,agricultural input supply, dressmaking, leather works, transportation facilities, and the rentingout of tools and equipment; and (v) Traditional crafts, which refer to household-based activitiesincluding textile weaving and dying, woodcarving, pottery, basket and mat weaving, knitting,and glass bead manufacturing.

3.1.6 Research in Ghana have shown that capital productivity is often higher in SSEs than islarge scale enterprises because SSEs are labour intensive with very small amount of capitalinvestments. Thus, they tend to experience high returns to capital. Consequently, promoting SSEsector will create more employment opportunities, lead to a more equitable distribution ofincome and will ensure increased productivity. Currently, small-scale enterprises rely on theinformal sector for credit. The spread of commercial/rural banks is uneven and inadequatebetween northern and southern Ghana, and between rural and urban areas. Studies have revealedthat in addition, there are limited linkages between the formal and informal financial entities,further stifling credit delivery systems in Ghana. The informal financial service providers,although playing a major role in rural financial intermediation, are largely not organised andtheir scope of activities has not been well documented.

3.2 Constraints to Small-Scale Enterprises Development

Despite the wide-ranging economic reforms instituted in the sub-sector, SSEs face a number ofconstraints. This is due to the difficulty of absorbing large fixed costs, the absence of economiesof scale, accessing key factors of production, and the higher unit costs of providing services tosmaller firms. Specifically, the identified constraints are: (i) Input Constraints: include poormarket channels and high costs associated with obtaining them; (ii) Finance: limited access tocapital markets in part because of the perception of higher risk, inadequate information medium;(iii) Equipment and Technology: Limited access to appropriate technologies and informationabout such technologies. This limits innovation and SSE competitiveness, and restrictsinnovation; (iv) Undeveloped Market Channels: where distribution channels are not wellestablished; (vi) International Markets: Limited experience in international marketing, poorquality control and product standardisation, impede expansion into international markets; (vii)Managerial Constraints, lack of entrepreneurial and business management skills; (viii)Institutional Constraints: lack of cohesiveness and the varying small-scale enterprises interestslimits their capacity to defend their collective interests and their effective participation in localpolicy-making process and; (ix) Limited well-structured Enterprise Associations: to provide avoice for the SSEs in the policy-making process is limited. Additionally, the potential benefitsfor economies of scale from collaborative arrangements in production and sales among SSEshave not been adequately explored.

3.3 Policies for Promoting Small-Scale Enterprises

3.3.1 Rising inflation and falling real wages have forced many formal sector employees intosecondary self-employment in an attempt to earn a decent income. As the economy declined,large-scale manufacturing employment stagnated. It was in the light of the above that theGovernment reviewed the rationale for promoting Small-Scale Enterprises. Small-ScaleEnterprises are viewed as the mechanism through which a transition from state-led economy to aprivate oriented developmental strategy could be achieved. Thus the role of the sub-sector has

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been redefined to include: (i) assisting the state in reducing its involvement in direct production;(ii) absorbing labour from the state sector, given the relatively labour intensive nature of smallscale enterprises, and; (iii) developing indigenous entrepreneurial and managerial skills neededfor sustained industrialisation. To this end the Government embarked on supporting programmesaimed at skills training.

3.3.2 The Economic Recovery Programme instituted in 1983 has broadened the institutionalsupport for Small-Scale Enterprises. The National Board for Small Scale Industries (NBSSI)was established within the Ministry of Industry, Science and Technology to address the needs ofsmall businesses. The NBSSI established an Entrepreneurial Development Programme, intendedto conduct training in various entrepreneurial skills. In 1987, the Ghana Regional AppropriateTechnology Industrial Service (GRATIS) began its operations to supervise the operations ofIntermediate Technology Transfer Units (ITTUs) in the country and to address small scale andinformal industrial concerns through transfer of appropriate technology at the grass root level.

3.3.3 Financial Assistance. Although Community and Rural Banks, Ghana CommercialBank, and Agricultural Development Bank are present in the rural areas, access to credit remainsa major bottleneck to SSE development, due to lack of collateral. To address this issue, in 2000,the Central Bank of Ghana established a US$28 million Fund for Medium and Small EnterprisesDevelopment (FUMSED), which is still in operation.

3.3.4 The Government is developing a national policy and strategy for the development ofSmall-Scale Enterprises, which would, among others, take cognizance of past efforts andconsolidate them into new and innovative ways of assistance. As a start, a concept paper on“Technology-Led Intervention for Rural Small-scale Enterprise Development in Ghana” by theMinistry of Environment and Science (MES) has been prepared. The present project is in linewith the objectives and strategy as contained in the concept paper.

3.4 Institutional Framework

3.4.1 The Ministry of Environment and Science (MES), is responsible for national scientificand technological base for accelerated sustainable development. MES executes its mandate incollaboration with other national (such as NBSSI and GRATIS) and international agencies, andthrough development and promotion of: (a) cost-effective use of appropriate technologiesparticularly under small-scale enterprises; (b) safe and sound environmental practices; and (c)efficient human settlement development. As structured, with a small number of specializedmanpower at the head office, the ministry has the capacity to coordinate its activities in theregions and districts through the agencies mandated to carry out tasks in promoting technologyand skills for rural enterprises. Its capacity to coordinate was appropriately demonstrated duringthe implementation of REP-I.

3.4.2 The National Board for Small-Scale Industries (NBSSI) was established in 1981. It ismandated, to contribute to the creation of an enabling environment for small scale enterprisesdevelopment. In order to operationalize this mandate, its principal tasks include establishingrelevant infrastructure in all regions and districts in the country and establishing businessadvisory centres throughout the country in order to promote the use of best practices in business,through easy access to consultancy, technology adoption and training. Under the guidance of an8-member Board of Directors and three sub-committees (Finance, Technical and HumanResource), NBSSI operates through its head office in Accra, in ten regional and 41 districtoffices. The day-to-day operations of the NBSSI are carried out by an Executive Director, who

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is assisted by a Management Committee (Executive Director and two Deputy ExecutiveDirectors for Finance and Administration, and Operations). The Board has four divisions,namely, the Internal Administration; Policy Planning, Monitoring and EvaluationEntrepreneurship Development Department; Investment and Credit Department. Under thesedivision is a 224 highly specialised manpower distributed in its regional and district offices.

3.4.3 Through its regional and district offices, NBSSI provides training, advisory and financialservices to Small-Scale Enterprises. It also promotes the creation of business and tradeassociations. In order to cover areas where it has no offices, NBSSI provides its services throughmobile teams. Financing for its operations is from fees charged to trainees and for advisoryservices. In addition, the Government provides the financing gap considering the developmentnature of the activities of the NBSSI.

3.4.4 The Ghana Regional Appropriate Technology Industrial Service (GRATIS) wasestablished in 1987, under MES, and mandated to promote small-scale enterprises andindustrialization by developing and disseminating appropriate and marketable technologies toindustry particularly, micro, small and medium scale enterprises. To operationalize its mandate,it established Intermediate Technology Transfer Units now called Regional Technology TransferCentres (RTTCs), in nine of the ten regional capitals. The target in Ghana, is to establish smallersuch centres in rural districts, and eventually to become a self-sustaining and leading technologydevelopment and transfer organization in Africa. Even though GRATIS has the structural andhuman resource capacity to expand its operations to district levels it has been constrained by itslimited resources to meet the initial investment requirements for setting up district workshops.

3.4.5 Training in technical and entrepreneurial skills is the core business of the establishment.This training is classified into engineering (to produce Master Craftsmen/technicians) and non-engineering (targeted at rural women and includes agro-process technology, entrepreneurial andbasic management). It also involves extension services to support the development of ruralindustries, especially those employing women in food and agro-processing. GRATIS alsomanufactures and supplies machine tools, plant and equipment, as a source of revenue. Theprincipal products and services of the GRATIS Foundation are: (i) technology development, (ii)long- and short-term technical training for master crafts persons and apprentices, (iii) technicalsupport services to Small-Scale Enterprises, in wood and metal works through manufacture andrepair of farm implements and tools, and (iv) provision of financial services. At the moment,GRATIS is providing all management and technical staff in the Rural Technology ServiceCentres (RTSC) established during Phase-I of the Rural Enterprise Development project.

3.4.6 GRATIS generates 70% of its operational budget and the Government covers thefinancing gap. In addition, International Financing Organizations (The European Union,Canadian International Development Agency, the Canadian University Services Overseas,British Voluntary Service Overseas, British Department for International Development, theGerman Agency for Technical Cooperation, the German Development Services, and theNetherlands Development Organization) have provided investment funding and technicalassistance for specific programmes. This external support has included provision of scholarshipsto trainees of the RTTCs, which has enabled GRATIS to offer its training services at marketrates. Other sources of finance are from undertaking contracts to manufacture equipment, totrain and to provide other Technical Assistant services in Ghana and other countries in Africa. In1999, GRATIS was incorporated into a non-profit making organization limited by guaranteecalled GRATIS Foundation. The Government and other stakeholders provide guarantees and setup policies for the running of the Foundation through the Executive Council. At the end of 2002,

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GRATIS Foundation will be partially privatised, so that it will generate its own resources tocover 100% of RTTCs operating costs.

3.4.7 Under the public service decentralization structure of the Government, the 110Administrative Districts are the units for economic planning and development in the country.They are managed by District Assemblies. The Assemblies plan and monitor the implementationof development policies and programs. Each District Assembly prepares a District DevelopmentPlan and has a District Assembly Common Fund to which the central government allocates aportion of the national revenue according to need, population, program of activities, and equitycriteria. In the Northern Region a typical district receives about USD 325,000 a year. MostDistrict Assemblies are still building their capacity in planning and in human resourcesdevelopment. Decentralisation of activities under the various line ministries including MES isstill progressing.

3.4.8 Non-Governmental Organisations (NGOs). Ghana has a large number of activeinternational, national and local NGOs. A substantial number of these are involved in enterpriseskills training, agricultural development, community organising and development, and in micro-credit. While some of their services promote small-scale activities, only few of them are directlyinvolved in actual business development. Results of a study carried out in 2001 to review theobjectives and activities of 44 NGOs, indicated that only five of them were engaged in theprovision of business development services coupled with technology development and transferand they include: The Centre for the Development of People (CEDEP) in Kumasi; TechnoServe,an international, USA-based NGO; and Sasakawa-Global 2000 (SG 2000); The InternationalInstitute of Tropical Agriculture, with its head office in Ibadan, Nigeria; EMPRETEC; and theAfrican Centre for Human Development (ACHD).

3.5 Intervention of Other Financiers

3.5.1 There are a number of donor support projects and programmes for Small-ScaleEnterprises in Ghana, most of which focus on providing micro finance, training, technologytransfer and improving business practices. They target both the rural and urban poor, in groups,who are mainly the youth and women. Provision of finance is often accompanied by training infinance and business management. There is also substantial support in skills trainingaccompanied by transfer of technology and bookkeeping and entrepreneurial training oftenlinked to financial assistance. In SSE, women groups are the sole clients in almost 60% of donoragencies’ support and in about 35% of NGO initiatives.

3.5.2 The financing agencies of SSE include GTZ, German Development Service (DED),Netherlands Development organisation (SNV), the British Department for InternationalDevelopment (DFID), the Canadian International Development Agency (CIDA), and the WorldBank. GTZ, in collaboration with DED, is supporting NBSSI to promote small-scale enterprisesamong returnees who are being reintegrated in urban areas of Greater Accra and Ashantiregions. The project area does not overlap with that of the AB-REP, which will be in ruraldistricts. Nevertheless, the support given to NBSSI, a key implementing partner in AB-REP, willgive valuable experience particularly in business counselling services for NBSSI to undertakeactivities under the proposed AB-REP.

3.5.3 DFID is currently developing a programme on rural livelihoods, under the theme“developing an enabling environment for pro-poor business development” in Brong AhafoRegion. Under this programme, DFID is considering establishing a Business Development

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Linkage Fund, to develop business linkages between enterprises within Ghana and with otherinternational partners. This programme will complement the activities under AB-REP project indistricts located in Brong Ahafo since it will assist entrepreneurs to develop exposure beyondthe district boundaries as well as explore potential export markets for SSE products. Also, theFood Security programme covering the three northern regions, and supported by CIDA, providesassistance to agro-processing, agribusiness, and marketing. In addition, the United NationsIndustrial Development Organisation (UNIDO) is implementing a project on ‘multipurposevillage workshops’ to build capacity in rural enterprises.

3.4.9 Further, other programmes have been implemented by international NGOs. Key NGOsinvolved in income-generating activities, particularly through micro-credit schemes are: TheCentre for the Development of People (CEDEP) based in Kumasi; TechnoServe, aninternational, USA-based and financed NGO active in Ghana since the 1970s; and Sasakawa-Global 2000 (SG 2000), active in Ghana since the 1990s to promote, among others,dissemination of agro-processing and other technologies developed by the post-harvestengineering unit of the International Institute of Tropical Agriculture, in Ibadan, Nigeria. TheAfrican Centre for Human Development promotes rural business entrepreneurship development.

3.5.5 There are also a number of programs and projects that have an indirect bearing on SSEdevelopment in Ghana. The World Bank, IFAD and the German Credit Funds (KfW) are co-financing the Village Infrastructure Project (VIP). The project is developing post-harvestinfrastructure, supporting rural water supplies, rural transport, and building capacity inmanagement of District Assemblies (DAs). Under this project, NBSSI is providing trainingservices to NGOs and Community-Based Organizations (CBOs) in small business management.Another similar project is the World Bank funded Agricultural Services Subsector InvestmentProject (ASSIP). ASSIP is promoting, among others, the generation and diffusion of agriculturetechnology on a cost-sharing basis. It is also involved in strengthening the capacity of FarmerBased organizations (FBOs) and District Assembly Administrations, so that the institutionscould be effective in the planning and implementation of development activities at the grassrootslevel. The EU has also initiated a nation-wide micro-projects program through DistrictAssemblies which covers social infrastructure. The institutional capacity building of DistrictAssemblies, NGOs, CBOs, and FBOs, under the above mentioned projects will complementactivities under AB-REP, which requires the services of these local institutions to train its clientsand to play a key role in the planning and implementation of project activities.

3.5.6 The Rural Financial Services Project (RFSP), funded by the Bank Group, World Bank,and IFAD, will broaden and deepen financial intermediation in the rural areas by strengtheningthe operational links between informal and semi-formal micro-credit institutions and the formalnetwork of rural and community banks. The project will also build capacity of existing rural andcommunity banks and set up an apex structure for them. This project has direct bearing on theactivities of the AB-REP. Therefore, the PCMU will closely collaborate with the projectmanagement unit of RFDP in the preparation of detailed implementation plan, to maximise theeffectiveness of the support from the two projects in the participating districts.

3.5.7 In line with the strategic concept of the project, PCMU staff will work closely with allthe financiers to complement their interventions. While the above-mentioned projects andprogrammes are contributing to rural SSE development, the scale of support is limited relative tothe needs. As conceived, AB-REP will create partnership with the co-financier, IFAD, and withother fanciers in the on-going projects and programmes, such as the ones mentioned above. Thiswill create synergy so that the planned support services (skills training, access to finance, and

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institutional linkages) complemented by the support that is already on the ground, will culminateinto holistic support for the rural poor, and to rural development.

4. THE PROJECT

4.1 Project Concept and Rationale

4.1.1 During preparation and appraisal missions, the project team met with the keystakeholders to discuss the project design and implementation modalities. The design of theproject therefore had extensive input from the stakeholders who comprised small scaleentrepreneurs under REP-I and potential clients of the project; Government officials at national,regional and district levels; representatives of donors involved in rural enterprises in Ghana(CIDA, GTZ, WB, UNIDO, DFID); as well as IFAD, with whom joint missions wereundertaken. In all the discussions, the project received support and valuable recommendationsfor effective implementation.

4.1.2 The project, will provide a strategic combination of relevant services (in business skillsdevelopment, technology promotion and finance), accompanied by local institutional capacitybuilding, for sustainable rural SSE development, using a client demand-driven and cost-sharingapproach (which was introduced and succeeded under REP-I). The approach involves, fullparticipation of entrepreneurs and investment partners in the analysis of their constraints andopportunities, and the selection and implementation of proven and recommended practices;provision of market-driven business development services; and building institutional capacity atdistrict level.

4.1.3 The project design has in-built flexibility. This includes, training fees, which will bedetermined on a district-by-district basis jointly by clients, District representatives and projectofficials from the BACs and RTFs. The basis for selecting the composition and determining thenature of relevant services for the project to support is the REP-I design, and lessons learntduring its implementation. To this end, the project will replicate or, where necessary, modify theREP-I support mechanisms that have proved effective, in 53 districts.

4.1.4 The conceptual framework of the project complements proposed activities to those of on-going Bank Group and IFAD financed projects. This provides for a holistic approach to ruraldevelopment and for building synergy in the agriculture and rural sector. The projects includeBank-financed 4th Line of Credit and Rural finance Services, Food Crops Development, CashewDevelopment projects, IFAD-financed LACROSREP and Root and Tuber Improvementprojects, as well as other related ongoing projects financed by other donors.

4.1.5 Based on experience from REP-I, project services will be provided on a market-baseddelivery system. This implies: i) services to be provided will be selected based on analysis of therural economy, demand, need and scope for skills and opportunities for wage or self-employment in the project area; ii) hiring private sector expertise to provide services to Small-Scale Enterprises; and iii) addressing marketing of rural SSEs products, by training members oftrade associations and building capacity in BACs to develop their marketing systems.

4.1.6 The rationale of the Agri-based Rural Enterprises Project (AB-REP) is the recognizedneed to support a wide spectrum of economic activities and operators in the rural space, in orderto attain significant impact on rural poverty. Given that substantial amount of economic

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activities in rural areas are small-scale enterprises, SSE are a valuable strategic entry point in therural economy to tackle rural poverty.

4.1.7 This technology-led rural small scale enterprise development intervention will promoteand assist agri-based non-farm rural enterprises with improved, market driven and appropriatetechnologies which will result in increased productivity, employment and income. Improved andadapted technologies will assist small scale rural operators to diversify their activities, therebygain access to previously unexploited market niches. They will also boost the volume ofproduction; improve the quality, consistency and reliability of production; and increase the shelflife and marketability of products. It will also open up opportunities to develop new products orfinding new uses for by-products currently discarded, and would also lead to increased income.

4.1.8 The rationale for the key elements of the project are: (i) The high demand of skillstraining and the high rate of application of these skills, as experienced under REP-I, validates thecontinuation of training of clients in simple technical skills, entrepreneurship development, andbusiness management, on demand, and based on sound analysis of the local economy; (ii)Follow-up of skills training by business counselling, information and referral services, provedrelevant to clients under REP-I. Therefore, the design includes scheduled post-trainingcounselling, refresher and skills upgrading courses, and support for market informationdevelopment. All of which will encourage clients to adopt a wide range of enterprises and notgravitate towards a particular enterprise due to inadequate information, as was the case underREP-I; (iii) Technology promotion and adaptation will be implemented under a directmanagement contract with GRATIS, a Government established institution for rural technologypromotion, and would operate in a cost-effective manner by supporting the dissemination ofrelevant intermediate technologies that are already available. Three other alternative methods ofpromoting technology were considered. These methods have been tried by GRATIS and havebeen found to be ineffective in Ghana. They are: technology transfer through technical training,production and dissemination of prototypes, demonstration sessions and technologicalinformation; (iv) Improvement of rural financial services to small-scale enterprises is necessary,to increase the coordination and mobilization of available credit resources in rural areas, whichwould contribute to increased accessibility to finance for operators of small scale enterprises.

4.1.9 As designed, the project will contribute to the broad GOG goals of improving livingstandards of the rural population. The project is therefore consistent with the Government ofGhana Poverty Reduction Strategy, which emphasizes technology promotion in rural areas, ruralemployment generation and support for women economic activities in the agriculture and ruralsector as the country strives to rapidly and substantially reduce rural poverty. The projectapproach is also in line with Government policy to stimulate private sector entrepreneurial andmanagerial talent, as well as create wealth and savings at the local level that would be re-invested in other productive enterprises such as farming. The project is also in line with theBank Group’s strategy for agricultural and rural sector in Ghana, which lays emphasis onstrengthening the foundations for sustainable development through creation of an enablingenvironment for the agro-industry and private sector growth, while emphasising the cross-cutting issue of gender, among others.

4.2 Project Area and Beneficiaries

4.2.1 The project will cover 53 rural districts plus 11 of the thirteen districts under REP-I,located in the ten administrative regions of Ghana. The 11 districts are: in the Ashanti Region,Sekyere East, Afigya Sekyere, Sekyere West, Ejura-Sekyedumase and Offinso; and in the Brong

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Ahafo Regio, Tano, Berekum, Jaman, Techiman, Nkoranza, Wenchi, Kintampo and Atebubu.The eleven districts to be carried over from the REP-I project, are those that joined the firstphase of the project only in 1998 and 1999, and still require one and two years, respectively, ofproject support. The 53 districts will be identified at project start-up in a participatory mannerand based on pre-determined criteria. While almost all rural communities in the country can betermed disadvantaged and poor, some are demonstrably worse than others. Therefore, criteria forselecting participating districts will include the poorest districts, which also have great potential.

4.2.2 In coordination with the PCMU the Ministry of Environment and Science will select,based on district poverty profiles of Ghana ranking, 20% of the poorest rural districts in eachregion (about one to three districts in each region) to be eligible for project services. Thereafterin order for a district to qualify for project funding, it must meet the criteria which will include:(i) a request from the district assembly of a district categorized as poor and which hasexperienced increasing level of poverty; (ii) predominantly of rural character; (iii) has potentialfor small business development as defined by the Ministry of Environment and Science; (iv)readiness of the District Assembly to contribute office accommodation, and staff towards theproject. Additionally, the qualifying District Assembly must express its willingness andpreparedness to take over the running of the RTF and the BAC once funding from the project inthe district ceases. Such willingness must be established to the satisfaction of the Bank Groupand IFAD.

4.2.3 Population and Resources: 43.5 percent of Ghana’s rural population is under the age of15 years. Women head about 36 percent of the households. The spatial distribution of thepopulation is uneven, ranging from high density in the forest areas, to moderate in thetransitional zone, and low in the savannah regions except for the Upper East region.

4.2.4 As in most rural districts in Ghana, the economy is overwhelmingly informal,characterized by self-employment and low capitalization. Non-agricultural, off-farm,employment and income generation form a vital part of the economic system. Agriculture is themain productive activity employing over 65% of the population. Commerce accounts for 18%and manufacturing for about 11%. Most food production is by subsistence. Cash crops grown inthe forest areas are mainly cocoa and maize. Tobacco and maize are assuming increasingimportance in the transitional zone, as cash crops, whereas in the savannah areas cash crops areprimarily rice, groundnuts, cotton, pepper, tomatoes, beans, yams and Bambara beans. Dryseason staple crops such as rice, tomatoes, onions and vegetables are grown for both subsistenceand cash income. In rural savannah regions, livestock and poultry production is also a majoroccupation, and accounts for about 60% of the national output of cattle, sheep and goats.

4.2.5 At national level, only 56% of the population, most of whom are in rural areas, hadaccess to safe drinking water in 1998. Also, only 21% of the rural population has access to toiletand sanitation facilities compared to 57% in the urban areas. In education, the national adultilliteracy rate was 29.8% in 1999, while in rural areas, 5 out of the 10 regions recorded muchhigher rates with the 3 northern regions registering more than 30% above the national average.

4.2.6 Poverty in rural Ghana has a gender dimension. Women account for about 70% of foodproduction, 50% of subsistence agricultural production, and provide 48% of the rural familylabour force. Women bear a disproportionate share of the burden of poverty. They spend a greatdeal of time performing various economic activities, as well as carrying out reproductive andhousehold activities. There are gender disparities in the project area particularly with respect toaccess to and control of land, credit, education, health and legal rights and protection, and

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participation in decision making. According to the most recent Ghana Living Standards Surveyof 1998/99, the time burden for women is 15-30% higher than for men. These constrainingfactors have an adverse impact on women’s entrepreneurial and income-generating capabilitiesand the ability of communities to address rural poverty in a sustainable manner.

4.2.7 Target Groups: The project target group are people in rural areas living in poverty, withspecial attention to the most vulnerable. Project clients would include: (i) rural unemployed poorinterested in self-employment but lacking skills, technologies and initial capital, (ii) those withsome basic skills who need skills upgrading, entrepreneurship development training and initialcapital to set up their businesses, and (iii) existing self-employed and owners of SSEs who wantto be assisted through skills or technology upgrading to improve and/or expand their businesses.The project would focus especially on socially disadvantaged women, and unemployed youth,and those who already have been apprenticed to a trade but lack the capital and/or acumen tostart a business. An estimated 70% of the owners of SSEs are women, therefore, just as many ofthe project clients are expected to be women. The major eligibility criteria will be those involvedin enterprises, which are agri-based or provide support to agricultural development activities.

4.2.8 Opportunities and Constraints: Rural small-scale enterprises are weak (withinadequate management skills) and low returns to labour, in comparison to their urbancounterparts. Most of them are limited by the nature of technologies available to them, leadingto low productivity and production levels. They often have limited and strongly differentiatedaccess to finance, markets and information. Lack of diversity in employment opportunities andinformation has led to overcrowding of entrepreneurs in a few enterprises. Support to theseenterprises has been less effective due to the inadequate coordination among the variousstakeholders engaged in rural enterprise development, which has been exacerbated by theabsence of national and district level policies to promote rural enterprises development.

4.2.9 Despite the constraints mentioned above, small-scale enterprises have the potential tostimulate backward and forward economic linkages, and provide excellent opportunity toincrease rural incomes. In districts where small-scale enterprises are widespread, there exists atradition of apprenticeship training. Formation of enterprise associations, especially of non-farmtrades, is very common. It is also common to find, in these areas, women established small-scaleeconomic activities to supplement their incomes from farming. These economic activitiesusually comprise petty trading and several forms of household-based processing, depending onwhat they perceive as their comparative advantage. Food processing is the most popularenterprise, particularly palm oil and palm kernel oil extraction, and cassava processing into gari.

4.2.10 Blacksmithing (metalworking) is prevalent in rural districts, albeit with the use ofrudimentary technology. Blacksmiths produce and repair equipment and tools used in variouskinds of small-scale enterprises, farming and in agro-processing. The development of metalworkhas been constrained by lack of skills and investment capital to respond to the needs of the ruralenterprises.

4.3 Strategic Context

4.3.1 Past Government efforts to address the persistent high levels of rural poverty in aneffective manner, by supporting mainstream agricultural production have had marginal resultson reducing poverty. Development of the entire agriculture and rural sector remains the key tosignificant reduction in poverty and to economic development of the country as a whole. TheGhana Poverty Reduction Strategy emphasizes a holistic approach to agriculture and rural sector

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development. Support to the Small-Scale Enterprises fits into Government strategy to ensure thateconomic activities and operators in the rural space play a significant role. A substantial amountof economic activities in rural areas are small-scale enterprises. Therefore support to small-scaleenterprises provides a valuable strategic entry point to stimulating the rural economy andincreasing incomes of the rural population.

4.3.2 The Agri-based Rural Enterprises Project will therefore directly contribute to the Small-Scale Enterprises sector goal of poverty reduction. At operational level, the strategic approach asarticulated in the Ghana Poverty Reduction Strategy Paper (GPRS), in addition to the above,places particular emphasis on improving skills, promoting the use of improved appropriatetechnology, improving access to capital investment resources for the rural entrepreneurs, andbuilding capacity in the processing of agriculture produce. The strategy envisions increasingrural production and employment through inter alia, the establishment of agro-businesses, byproviding spatial facilities, and support services for rural small-scale enterprises. In addition, theproject strategy is to address other factors that constrain the development of the rural small-scaleenterprises namely: i) limited services in metal and woodworks, to produce agriculturalimplements and food-processing equipment; ii) limited technical skills of beneficiaries; iii) lowproductivity of rural small-scale enterprises, and iv) poor quality of products.

4.3.3 The project is therefore in line with the Government development strategy expounded inthe GPRS and with the general sector-wide approach to development of rural areas. It is alsoconsistent with the Bank Group strategy for the agriculture and rural sector in Ghana, asstipulated in the Country Strategy Paper for Ghana, which is to focus on poverty reduction andfood security.

4.4 Project Objective

The Government of Ghana Small Scale Enterprise sub-sector goal is to contribute to povertyreduction in rural areas and to reduce rural/urban disparity. The project objective is to developthriving and profitable rural enterprises in participating districts.

4.5 Project Description

4.5.1 The project will be implemented over eight years in a district-by-district phased manner.The ADB support will only be for six years starting from PY2 to PY7. Each participating districtwill access project services over a four-year period and thereby develop capacity to continueproject activities thereafter. The project will have four components, namely i) TechnologyTransfer and Skills Development, ii) Rural Finance Services, iii) Rural Enterprise Institutions,and iv) Project Coordination. The project will be financed jointly by ADF and IFAD for allactivities and components of the project, with the exception of the Rural Finance Accesscomponent, vehicles and salaries of staff in the Project Coordination and Management Unit andZonal offices, which will be financed by IFAD and the Government alone.

4.5.2 The expected outputs from the project are: 70,000 people trained in Small-ScaleEnterprises community-based skills and in business management and marketing; 6,000apprentices and 5,000 rural Master craft persons trained in engineering technical skills topromote and disseminate technology; trade linkages to larger commercial operations andenterprises established for SSE products; linkages between entrepreneurs and district basedfinancial service providers developed; and a rural SSE development policy and strategyformulated and approved.

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(A) Technology Transfer and Skills Development

4.5.3 Under this component entrepreneurs and apprentices will be trained in small-scaleenterprises community-based skills, business management, marketing, and in basic engineeringtechnical skills. In addition, trade linkages to larger commercial operations and enterprises, forSSE products in the participating districts will be established.

4.5.4 Training of Entrepreneurs in Small-Scale Enterprises Community-Based Skills, BusinessManagement, and Marketing: will be coordinated through Business Advisory Centres (BACs),which will be set up in each district. District Assemblies (DAs) will provide office space in theAssembly premises for the BACs and will either second or recruit a Business DevelopmentOfficer for the Centre.

4.5.5 Each Business Advisory Centre under the direction of the PCMU and/or the Zonal officewill conduct rapid business opportunity identification surveys to identify needs and scope forSSE support, after which about 10 business sensitization seminars will be organized per year,lasting 2 to 3 days each. The BAC will also coordinate a total of 25 training courses in businessmanagement; basic accounting; marketing, loan engagement (basic understanding of bankingprinciples, interest rates, etc.), and business plan development. The duration of these courseswill range from 2 to 10 days depending on the nature of the trade. Each district will also offerliteracy and numeracy training with existing literacy programmes, of which budget provision hasbeen made for one, six months course, with 20 to 30 participants.

4.5.6 To foster ownership, the planning and implementation of training activities will becoordinated with local trade associations, beneficiaries, traditional leaders, and other keystakeholders. Technical skills training will be in groups of 20 to 25 participants. They willinclude processing of palm oil for soap or pomade; processing of palm fruits and kernel intorespective oils; milling of corn and cassava flour for bread making; bee-keeping, snail andmushroom farming; processing of cassava into gari; processing various grains into localalcoholic beverage; processing of cashew fruits into a beverage; carpentry and blacksmithing foron farm structures and farming tools. At the end of the training course, participants will developbusiness plans for their chosen enterprise, and complete their loan application form to besubmitted to a participating financial institution.

4.5.7 Beneficiaries will access project services on a cost-sharing basis. District ImplementationCommittees (DIC) in coordination with PCMU/Zonal Offices and clients will determine fees forthe various types of services, as was the case under REP-I, at the Annual District BeneficiaryFora. Contents of training programme will be based on information collected from clients duringOpportunity Identification Surveys, and will include potential trades in a particular district,marketing channels, markets and prices for SSE products and services. The Marketing Specialistin the BACs will develop a live database on existing market linkages and information betweensmall-scale entrepreneurs and input suppliers and product buyers, which will be updatedperiodically to keep clients up to date with trends in markets and prices.

4.5.8 Once clients hyave been trained, follow up business advisory visits will be made, once amonth over a period of 3 months, by trainers, to monitor and guide the application of theknowledge acquired. Thereafter, continuous business advisory and referral services will bemade available on demand through BACs for business counselling, referral services andmarketing information. All the support services will be based on identified opportunities for SSE

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development. The project will hire specialized consultants to conduct the training (financinginstitutions, NGOs, and other private and public business operators of which Ghana has a lot).

4.5.9 Technology Promotion: The project will set up small engineering workshops (RuralTechnology Facilities (RTFs)) to cover a cluster of 3 or 4 districts. The districts will provide astructure for a workshop, where they exist, and the project will make the necessary renovations.The location of the workshop will be subject to relative distances from existing GRATIS/IITCor REP-I centers for strategic distribution. The project will purchase equipment for theworkshop, and staff will be provided by GRATIS under a subsidiary agreement with the project.The staff will comprise a workshop manager, who will have an engineering background. TheManager will be supported by two technical staff, a Workshop Supervisor, and aTrainer/Technician. A General Duty Clerk will also be recruited to carry out secretariat, storesand accounts tasks, one secretary and one driver. GRATIS will also provide backstoppingservices to the RTFs, considering it was established and tasked to set up and manage ruralengineering workshops, throughout the country. Due to investment resource constraints,GRATIS has only been able to set up RTFs in 9 regional capitals. With the Rep-I and now theAgri-based Rural Enterprise Project providing resources for equipment, and support forinstitutional capacity building, GRATIS will, during the implementation of the project, be ableto undertake its task of setting up rural workshops to train apprentices.

4.5.10 In the workshops, apprentices will be trained in technical skills for improvedtechnologies to rural Small-Scale Enterprises, as well as in carpentry and metal works(manufacturing, maintenance and repair). They will capitalize on existing appropriatetechnologies at national (GRATIS and CSIR) and/or international (IITA in Nigeria) levels.Follow-up advisory services will also be available at a fee. In addition to training, RTFs willserve as ordinary rural workshops, for repair of equipment, production of spare parts, and theprovision of advisory services to clients. The project will meet the cost of the initial course.Thereafter, trainees will be expected to contribute to the cost of follow-up training. Women willbe encouraged to request for this training during sensitization seminars and it is estimated thatabout 25% of course participants will be women. The project has made provision to fundgraduate starter kits to assist them set up their own rural workshops in their communities.

(B) Rural Financial Services

4.5.11 Activities under the Rural Finance Services component will be entirely financed byIFAD, Participating Financial Institutions and the Apex Bank. The PCMU will recruitconsultants to train staff of selected rural finance institutions, establish appropriateadministrative systems, and an effective system to collect performance-monitoring information,in each PFI, on a cost-sharing basis (minimum contribution from PFI is 10%). Interested RuralFinancial Institutions which express interest in participating in the delivery of financial servicesto SSE under the project will be selected by the Bank of Ghana, the Credit Union Association(CUA), or the Ghana Micro finance Network (GHAMFIN) as appropriate, using the minimumqualifying indicators for the following criteria: (i) For Banking Institutions including RuralBanks, Capital Adequacy Ratio (CAR); Loans per Staff; Operational Self-sufficiency;Operational Cost as a percentage of Average Annual Portfolio; Return on Assets; Return onEquity; Current Ratio; Reliability of MIS; Availability of independent Audit report. (ii) ForCooperative Credit Unions and other non-bank financial institutions, NGOs, Size of loanportfolio over the previous two years; Availability of independent Audit report, and Portfolioquality. Interested Rural Financial Institutions would contribute from own account, 20% of totalamount requested by clients and will take full responsibility for credit recovery.

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4.5.12 The institutional support is expected to improve asset management, particularly withrespect to lending portfolios. Staff training will be organized for PFIs located within a cluster ofdistricts. All the capacity building activities will be complemented and be coordinated withthose of the ongoing Rural Financial Services Project (RFSP), which is co-financed with ADF,IFAD and the World Bank. The two projects will exchange information on implementationplanning and monitoring, to coordinate their support. This collaborative support to PFIs isexpected to build synergies with the RFSP-supported activities and strengthen the systems forprudential supervision and regulation of rural banks. Each BAC will ensure that both the PFIsand clients participate in the sensitization seminars, to build effective linkages betweenentrepreneurs and district based financial service providers.

4.5.13 The project has allocated UA 262 000 additional resources to the Rural EnterpriseDevelopment Fund (REDF) which was established under REP-I. The fund will continue to bemanaged by the Development and Rural Finance Department of the Bank of Ghana, as was doneduring the implementation of REP-I. Resources under the REDF will be on-lent to PFIs. Owingto the delays in disbursement of the funds to PFIs that were experienced during theimplementation of REP-I, technical assistance will be procured to improve the management ofthe funds. In addition, other credit resources from on-going projects of Bank Group financedprojects (Cashew, Food Crops, 4th Line of Credit) and IFAD-financed projects (LACROSREP),as well as by other financing agencies will be mobilized through coordination of activities ofsuch projects within common project areas.

4.5.14 The Agri-based Rural Enterprises Project, will also fund the operations and salaries of atwo-person Efficiency Monitoring Unit (EMU) in the ARB Apex Bank. The Unit will offerspecialized training to staff of rural banks; follow-up services; analyse and compile informationsubmitted by rural banks; and regularly share its findings with the rural banking community.With this support it is envisaged that rural banks will improve the monitoring of their operations.IFAD will finance the institutional support to Rural Banks during the first four years. After PY4,the ARB Apex Bank will finance 50% of the salaries, operations and maintenance, while theparticipating PFI will finance the other 50%.

(C) Rural Enterprise Institutions

4.5.15 The component will upgrade the institutional capacity of rural enterprise associations,which act as catalyst for socio-economic development among low income earning operators inrural areas. These include the Bakers Associations of Ghana, and numerous forms of Susugroups, which are voluntary savings and credit groups. The project will hire consultants to trainmembers in managing associations (governance, accounting, legal issues, etc.); organizing jointservices (such as ‘clean-up’ activities); communication skills; networking; advocacy andnegotiation techniques; as well as leadership skills for selected members. The consultants willalso facilitate the formation of partnerships among various associations, as well as betweenenterprise associations and District Assemblies.

4.5.16 The training programmes will also cover: policy and legal framework of the SSEs;regulations; licensing and taxation of the SSEs; the role of the public and private sectors inbusiness development; types of public-private partnerships and method of engagement; strategicplanning and creation of informal alliances; participatory land use planning and the organizationof light industrial areas; occupational safety and health (including HIV/Aids and malaria);environmental management; decentralization and civic rights. Special training will be provided

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for metal workers’ associations interested to operate RTF, after project implementation, focusingon management of RTFs and the modalities of public-private partnerships.

4.5.17 Training offered by the BACs, will give the necessary skills to trainees, on how toeffectively operate associations. The project will hire consultants and meet the logistics costs togive opportunity to members of local enterprise associations to meet and network towardsdistrict-wide and regional coalitions. After the training, it is envisaged that associations willexplore opportunities to form partnerships among themselves and expand their membership. Theproject will also pay for National (and West African) exchange visits for association members toshare experiences in the areas mentioned above.

4.5.18 The project will recruit technical assistants to assist MES in the formulation of a nationalMES policy and strategy. The technical assistants will work very closely with the WorkingGroup on Small-scale Enterprise Development (WG-ME) that was established during theimplementation of REP-I. Consultations with major donors in similar projects will be carried outas well as with a wide range of stakeholders including small-scale entrepreneurs and members ofenterprise associations. This process will involve organizing workshops. Further, to ensure thatthere is continuous participation in decision making at the local level, members of enterpriseassociations and other private sector operators will be represented on District ImplementationCommittees and on other district level fora.

(D) Project Co-ordination Unit

4.5.19 The project will provide funding to assist MES to recruit the following PCMU staff: aCoordinator, a Senior M&E Officer, a Technical Training/Promotion Officer, a BusinessDevelopment/Marketing Officer, Policy/Rural Finance/Gender Officer, and a ProjectAccountant. In addition, under a cost sharing arrangement between the GOG and IFAD, thefollowing staff will be recruited: one Accounts Assistant, one Monitoring Assistant, oneAdministrative Assistant, two each of Secretaries, Drivers, Messenger/cleaner, and SecurityGuards. Institutional arrangements are presented in detail in Chapter 5.

4.5.20 The PCMU will, in addition to supervising the activities of the RZOs, also continue todirectly coordinate activities in districts located in the Ashanti, Brong Ahafo and WesternRegions. Given that the PCMU under REP-I carried out procurement activities in a satisfactorymanner, the Unit will also be responsible for procurement of all project goods, works andservices of the financing organizations. The Co-ordinator and the procurement personnel willensure that procurement using the ADF and IFAD loans are carried out on time and in line withthe procurement procedures of the Bank Group and IFAD, respectively. The PCMU will also beresponsible for coordinating the implementation of studies.

4.5.21 In order to effectively coordinate the project activities in the project area that encompassthe ten regions of the country and to implement the activities mentioned above, the project willrequire mobility. Provision has therefore been made for vehicles under the IFAD financing, andmotorcycles under the ADF and IFAD loan funds.

4.6 Production, Markets and Prices

4.6.1 At the end of project implementation, it is estimated that 76% (53,200) of the totalnumber of trainees (70,000) will effectively undertake an income generating activity. Small-

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scale enterprises have a wide spectrum of activities, quality of products and productivity. Ingeneral, the enterprises include soap making, pomade production, batik and tie & dye, breadmaking, bee keeping, snail farming, mushroom farming, gari preparation, palm fruit and kerneloil production, carpentry workshop, and roadside tailoring. SSEs are highly dependent oninformal arrangements for marketing their products. An estimated 84% of the informal sectorentrepreneurs sell their goods and services directly to the final consumers on market days. Onthe other hand entrepreneurs depend on informal arrangements for selling and buying with longperiods of credit delivery, ranging from 30 days to 90 days and are often based on personalacquaintance. Subcontracting is uncommon.

4.6.3 Due to the informal nature of the production and marketing systems, detailedquantitative data for demand of the goods and services produced by rural SSEs is not available.Nevertheless, based on experience from REP-I, demand for these goods and services issubstantial. It is envisaged that in the short to medium term, entrepreneurs will face a largemarket within their districts and in adjacent ones. The increasing number of people, in both ruraland urban communities, that purchase locally produced products and services, indicates that themarket is far from being saturated. Nonetheless, the informal sector entrepreneurs also facecompetition at three levels: from local manufacturers in the formal and informal sectors, as wellas from similar imported products. The project will ensure that adequate demand exists forproducts and services promoted by the project, through regular market studies as well as onassessing prospects for accessing the export market.

4.6.4 The national population is estimated at 19.7 million of which 13.1 million live in therural area, where poverty is at least 50% on average. The estimate for per Capita annual foodrequirement for Ghana as given by FAO (2000), for high consumption food, is as follows:Wheat product: 14.8 kg; maize product: 39.8 kg; cassava: 250 kg; Palm oil and Palm kernel oil:3.7 kg. The total rural consumptions of these foods is therefore, respectively: 192,400MT(wheat); 517,400MT (maize); 3,250,000MT (cassava); and 48,100MT (Palm oil and palm kerneloil). It is estimated that, as the result of the project, there will be: 8,000 Gari producers, 6,000soap making producers, 6,000 bread bakers and 2,500 palm kernel oil producers. The accruedincremental annual production will therefore be: 1) Soap: 52,200,000 soap bars (10,440MT),which require 17. 4 million liters of palm oil (17, 000MT); 2) Bread: 95,040,000 loaves of bread(33,264MT), which require 43,200 MT of flour (wheat, maize and cassava); 3) Gari: 336,00090kg-bag (30,240MT), which require 69,120 MT of fresh cassava; and 4) Palm oil and kerneloil: 2,812,500 l (2,812MT). Based on these data, the total production of the most popular ruralenterprises is significantly below the demand among the rural population. Therefore, productionresulting from project implementation is not likely to affect the market or the price.

4.7 Environmental Impact

4.7.1 The AB-REP has been classified in environmental category III. The project therefore, isnot expected to have adverse physical effects on the environment nor is it expected to bedetrimental to women, the poor, vulnerable groups or less organized segments of society. Projectactivities are not expected to result in significant negative environmental effects, for which anenvironmental assessment would be necessary. Most of the rural enterprise project activitiescomprise food processing and craft works, which are small scale and are widely spread over theproject area. Nevertheless, to ensure that there will not be adverse effects resulting fromcumulative impact, the project will screen and review the planned activities. Any environmentalconcerns during the implementation of the project will be included into the project design andmitigated. In order to intensify its efforts towards environmental management the project will

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build awareness, by incorporating environmental issues in all training programmes. As part ofthe technology development and transfer activities, attention will be paid to the adoption of newenvironmentally friendly technologies, such as manufacturing of energy-efficient stoves.

4.7.2 During project implementation, the PCMU, a the project coordinating body, will workclosely with the Environmental Protection Agency (EPA) to ensure that activities under theproject strictly adhere to Ghana Environmental Protection regulations and that where necessarymitigation measures will be incorporated in the activities of the project and effectivelyimplemented. The PCMU will also collaborate with the EPA in screening and reviewing ofproject activities, as well as in the training of environmental awareness.

4.8 Social Impact

4.8.1 Through the BACs the project would provide simple skills and management training toabout 70,000 rural poor, the majority of whom would be women. Through the RTFs the projectwould provide technical skills upgrading of rural master-craftsmen, and supplementary skillstraining to about 11 000 traditional apprentices. This training effort, supported by about 30, 000working and investment capital loans from the Enterprise Development Fund, would generate atotal of about 90 000 wage jobs and 40 000 SSE owner managed operations in the participatingdistricts. The creation of jobs in the rural areas will lead to less migration to urban areas whichincreases the burden on Government development efforts for infrastructure in urban areas. Moreinformation on social impact is presented in Section 7.3.

4.8.2 Other expected social impacts include: increased knowledge and access to financialservices, which increases client status in the household and community; economicempowerment of women and youth, which in turn increase their access to resources, andincreased income for women resulting in improved nutrition and education for children, andimproved living standard for the entire family.

4.8.3 Gender: The first phase of REP has been successful in mainstreaming gender issues inproject activities. Given that most women in rural areas are engaged in small scale enterpriseoperations in addition to on-farm activities, their participation in REP-I activities far exceededthe project target level. For example, the project targeted 16,000 female heads of households tobenefit from the project, and the actual number of female heads of households that benefited was23,100 (a 144% achievement) one year to project completion. The focus to mainstream genderissues in project activities will continue under the Agri-based Rural Enterprise Project. As partof the technology development and transfer activities, extra attention would be paid to improvetechnology for women producers. The business training programmes would be gender-sensitive(such as holding training courses in the communities for women ease access) and pay specialattention to the suitability of the management practices for women entrepreneurs, seeking tocreatively enhance the diversification and productivity of women-owned SSEs.

4.9 Project Costs

4.9.1 The total cost of the project, including physical and price contingencies, is UA 22.96million, equivalent to GHC 211.3 billion. The foreign exchange portion is UA 9.45 millionequivalent to 41 percent of the total project cost, while the local cost is UA 13.51 million. Asummary of the costs by component is shown in Table 4.1 and by category of expenditure andcomponent in Table 4.2.

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Table 4.1: Summary of Project Cost Estimates by Component

(GHC billion) (UA '000)

COMPONENTS Local Foreign Total Local Foreign Total%

FE

A. Tech. Transfer and Skills Dev’t 72.85 65.74 138.59 7,917 7,144 15,061 47%

B. Rural Finance Services 7.2 1.15 8.34 782 124 906 14%

C. Rural Enterprise Institutions 5.01 10.08 15.1 545 1,096 1,641 67%

D. Project Co-ordination 26.74 1.8 28.54 2,906 196 3,102 6%

Total Base Costs 111.8 78.77 190.57 12,150 8,560 20,710 41%

Physical Contingencies 3.26 3.38 6.63 354 367 721 --

Price Contingencies 9.27 4.78 14.07 1008 520 1,528 --

Total Project Costs 124.33 86.93 211.27 13,512 9,447 22,959 41%

Table 4.2: Summary of Project Cost by Category of Expenditure

(GHC billion) (UA '000)

CATEGORY Local Foreign Total Local Foreign Total % FE

A. Goods

1. Equipment & Material 2.53 12.37 14.90 275 1,344 1,619

2. Vehicles 1.48 8.41 9.89 161 914 1,075

2. Motorcycles 0.50 3.05 3.55 54 332 386

3. Workshop Kits 1.85 10.46 12.31 201 1,137 1,338

Sub-total 6.36 34.29 40.65 691 3,726 4,418 84%

B. Works

1. Civil Works 2.25 2.76 5.01 245 300 545

Sub-total 2.25 2.76 5.01 245 300 545 55%

C. Services

1. Technical Assistance 17.13 4.48 21.60 1,861 486 2,348

2. Studies 1.84 4.86 6.70 200 528 728

3. Training & Workshops 46.83 20.80 67.63 5,089 2,261 7,350

4. Credit 2.41 0.00 2.41 262 0 262

Sub-total 68.21 30.14 98.34 7,412 3,275 10,687 31%

E. Other Costs

1. Oper. and Maintenance 2.92 7.34 10.25 317 797 1,114

2. Salaries 17.94 0.00 17.94 1,950 0 1,950

3. Travel allowances 7.35 1.90 9.25 799 206 1,005

4. Other Operating Costs 6.77 2.35 9.12 736 255 991

Sub-total 34.98 11.58 46.56 3,801 1,258 5,060 25%

Total Baseline Costs 111.80 78.77 190.56 12,150 8,560 20,710

Physical Contingencies 3.26 3.38 6.63 354 367 721

Price Contingencies 9.27 4.78 14.07 1008 520 1,528

TOTAL PROJECT COSTS 124.33 86.93 211.26 13,512 9,447 22,959 41%

4.9.2 Unit rates for locally procured goods and services were derived from the prevailing June2002 costs in Ghana. Physical contingencies are estimated at 5 percent, and have been appliedon all costs except for: Services pertaining to NBSSI supervision of the BACs, GRATISsupervision of RTFs and curricula development; specialized services; salaries of local staff;studies; overseas training; policy consultation technical assistance and meetings; businessopportunity identification survey to be carried out by BAC staff; credit resources; funds for

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dissemination of technology and graduate apprenticeship support; costs associated with officeaccommodation and certification procedures. A compounded price contingency of two percenthas been applied to all costs. This is the most recent estimate of the projected increase in worldcommodity prices as reflected by the MUV.

4.10 Sources of Financing and Expenditure Schedule

4.10.1 The project will be financed by the African Development Fund (ADF), IFAD, theGovernment of Ghana (with resources directly from central budget as well as from DistrictAdministrative budgets, ARB Apex Bank, and NBSSI), and by the private sector comprising(Project Clients, and Participating Financial Institutions). The total ADF financing will beUA7.50 million, equivalent to 33.0 percent of the total project costs. The ADF resources willfinance 67.9 percent of the foreign exchange costs of the project estimated at UA9.45 million,and UA 1.08 million of the local cost associated with training, civil works, small officeequipment and furniture, and operation and maintenance. A breakdown of sources of financingby foreign and local resources is given in Table 4.3 below. Further, the contribution to theproject of other financiers by component and by expenditure category is shown in Tables 4.4 to4.5. Table 4.3 shows a UA 591,000 contribution from the Government in foreign exchange.This is an indirect foreign contribution of the Government in those categories that they willjointly co-finance with IFAD.

Table 4.3: Sources of Finance (UA '000)

Source Foreign Local Total % of Total

ADF 6,421 1,080 7,501 33

IFAD 2,435 6,381 8,816 38

GOG 591 3,790 4,381 19

PFIs 0 29 29 00

Clients 0 2,232 2,232 10

Total UA 9,447 13,512 22,959 100

Table 4.4: Components by Financier (UA '000)

COMPONENT ADF IFAD PFIs Clients GOG TOTALS %

A. Tech. Transfer & Skills Develop. 6,798 4,863 - 2,232 2,912 16,805 73

B. Rural Finance Services - 800 29 - 136 965 4

C. Rural Enterprise Institutions 373 1,183 - - 232 1,788 8

D. Project Co-ordination 330 1,970 - - 1,101 3,401 15

Total 7,501 8,816 29 2,232 4,381 22,959 100

Table 4.5: ADF & GOG Proportionately Financed Components excl. taxes (UA ‘000)

ADFGOG Proportionate

funding to ADF TOTAL

COMPONENT Amount % Amount % Amount

A. Tech. Transfer & Skills Development 6,798 0.85 1,178 0.15 7,977

B. Rural Enterprise Institutions 373 0.88 49 0.12 422

C. Project Co-ordination 330 0.76 107 0.24 437

Total 7,501 0.84 1,432 0.16 8,935

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Table 4.6: Summary of Expenditure Category by Financiers (UA’000)

CATEGORY ADF IFAD PFIs CLIENTS GOG TOTAL

A. Goods

1. Equipment & Material 1192 384 225 1801

2. Vehicles 1046 149 1195

2. Motorcycles 217 157 53 427

3. Workshop Kits 1338 1338

Sub-total 2747 1587 0 0 427 4761

B. Works

1. Civil Works 434 142 30 606

Sub-total 434 142 0 0 30 606

C. Services

1. Technical Assistance 425 1822 289 2536

2. Studies 369 399 768

3. Training & Workshops 2892 3227 29 2232 8380

4. Credit 262 262

Sub-total 3686 5710 29 2232 289 11946

E. Other Costs

1. Operation & Maintenance 246 413 608 1267

2. Salaries 392 1725 2117

3. Travel allowances 182 426 534 1142

4. Other Operating Costs 206 146 768 1120

Sub-total 634 1377 0 0 3635 5646

TOTAL PROJECT COSTS 7501 8816 29 2232 4381 22959

Justification for ADF financing of Local Costs

4.10.2 During the last 18 months, the Government of Ghana has made substantial effortstowards improving fiscal performance, especially control of domestic borrowing. These effortshave resulted in stabilization of inflation, which has also led to market lending rates falling. TheGovernment has also made major strides in improving tax administration, implementing theMedium Term Expenditure Framework that has streamlined expenditure; adoption of revenuecollection measures that include the tightening of procedures relating to revenue collection, andstrengthening the audit program; and availing itself to HIPCs resources. It is expected that overtime these measures will improve GOG finances, enabling it to eventually fund the local costs ofthe project activities from its own resources.

4.10.3 The ADF is financing part of the local currency costs, amounting to 12% of the totalproject costs, considering the GOG would not be able to bear the entire burden of costs relatedto operation and maintenance and beneficiaries group formation and training. This is because thecountry faces a growing financing gap and is under pressure to include more donors in its reformprogramme to meet its growing external financing requirements. Total resources available forfinancing the 2002 programme from development partners is expected to amount to US$784million, with concessional loans projected to account for about 53% of total disbursements, thusleaving a post-HIPC financing gap estimated at US$334 million. Further, shortfalls inanticipated donor receipts have put the Government budget under pressure, and the fiscal deficitis projected at 6.9% of GDP in 2002. The substantial local cost component of the project is

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based on the nature of works, goods, and services to be procured under the project, most ofwhich can be sourced locally.

5. PROJECT IMPLEMENTATION

5.1 Executing Agency

The executing agency of the project will be the Ministry of Environment and Science (MES).MES is the Government ministry mandated to play the leading role in the promotion of ruralsmall-scale enterprises in the country, through technology-led interventions, and under whichthe activities of the proposed project fall. The Chief Director of the Ministry of Environment andScience (MES) would have overall responsibility for the management of the project.

5.2 Institutional Arrangements

5.2.1 A Project Steering Committee (PSC), chaired by the Chief Director of MES, will providepolicy guidance to the project and oversee the implementation of project activities. Thefollowing additional members will be added to the existing PSC of the first phase of the RuralEnterprises Project: one representative each from NDPC, MOTI, MOFA, MOF, MLGRD andMOWAC, the NBSSI, GRATIS Foundation, Bank of Ghana, a Local Trade Association, theAssociation of Ghana Industries, and one District Chief Executive representing the districts inwhich operations started during REP-I and three District Chief Executive representing newdistricts that will be selected under the project.

5.2.2 The Project Steering Committee shall meet quarterly to (i) review and approve theannual work programmes and budgets submitted by the PCMU; (ii) to discuss and resolve issuesrelated to Small Scale Enterprises development as it relates to the project; (iii) address any inter-agency constraints and facilitate project implementation; (iv) review the project progress reports,including Monitoring and Evaluation reports, from the PCMU. The findings, conclusions andrecommendations of the PSC would be forwarded to the Minister of MES for appropriate action.

5.2.3 At district level, District Implementation Committees (DICs), will be established tooversee the implementation of project activities. The District Chief Executive will chair the DIC.Other members will include the District Co-ordinating Director and other relevant districtofficers (representing the Ministry of Planning, the Ministry of Agriculture, the Ministry ofFinance), two Area Council representatives, the head of the BAC, the RTF Manager, tworepresentatives of project clients, representatives of PFIs, and other relevant stakeholders. DICswill meet every quarter.

Project Co-ordinating Management Unit

5.2.4 The existing Project Co-ordinating Management Unit (PCMU) for REP-I, which is setup under MES and is located in Kumasi will be responsible for co-ordinating theimplementation of all project activities. It will be assisted by two zonal offices that will be set upin Tamale and Koforidua. The two zonal offices will co-ordinate the day-to-day implementationof project activities in districts located in the respective zones. PCMU staff will consist of aNational Project Co-ordinator, a Financial Controller, a Monitoring and Evaluation Officer, aBusiness Development Officer, and support staff. Each zonal office will consist of a ZonalCoordinator, a Monitoring and Evaluation Officer, two Business Development Coordinators,and support staff (secretary/accounts assistant, driver, security guard).

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5.2.5 An Annual review workshop for the project, attended by the Executing Agency, PCMUand zonal offices staff, representatives of participating District Assemblies, Heads of BAC andRTFs in the project areas, will be carried out not later than end of September each year, todiscuss experiences gained in the implementation of project activities with a view to reviewingprogress and identifying constraints and adjustments necessary for the following year. Therecommendations of the workshop will be used for making decisions on key project issues.These would be reflected in the subsequent year’s Annual Work Programme and Budget.

Co-ordination of Training Activities and Contract Services

5.2.6 A Business Advisory Centre (BAC) will be set up in each district, to coordinate trainingfor SSE entrepreneurs, by identifying the needs for training and other SSE support services,screening them against market opportunities for the SSEs concerned, and organizing the trainingcourses to be conducted by consultants. The BACs will also ensure that consultants undertakethe follow-up advisory visits to the clients. The primary role of BACs is to coordinate and in theprocess develop linkages between SSE entrepreneurs and services providers. Rural TechnologyFacilities (RTFs), which are small rural engineering workshops, will be set up and they willoffer technical training and improved technologies to rural SSEs, as well as day-to-day servicesin carpentry and metal works (manufacturing, maintenance and repair). One such RTF will serve3-4 districts. In all its planning and implementation of project activities, the project will involveassociations of local enterprises, as was done under the first phase of the project.

5.2.7 The Working Group on Small-scale Enterprise Development (WG-ME) is a forum forcoordinating SSE support to the rural sector in Ghana. Members include donors (USAID, CIDA,WB, GTZ, UNIDO, DFID, IFAD, and now AfDB). The working group will continue tocoordinate donor support to rural small-scale enterprises, and will play an active role in policyformulation. The project will provide funding to the process of consultations for policyformulation, and will ensure that membership of the working group includes representatives ofenterprise associations, women entrepreneurs, NGOs, grassroots organizations and other privatesector stakeholders.

Supervision and Implementation Schedule

5.2.8 Supervision Schedule: Internal supervision of project activities will be done by staff ofthe PCMU with assistance from zonal offices. The activities to supervise will include allactivities to be undertaken by contractors, consultants, and other SSE operators. The PCMU willalso be responsible for the preparation of annual work plan and budget which will be submitted,three months before the beginning of each year, to ADF and IFAD, for review and approval. ThePCMU will report, quarterly, to the Project Steering Committee on all aspects of the projectincluding financial aspects, and progress of project activities based on reports received fromMonitoring and Evaluation officers. The Project Steering Committee will therefore ensure thatwork plans and procurement schedules are implemented as scheduled. At the end of projectimplementation, the PCMU will prepare a project completion report capturing all aspects of theproject including achievements, constraints, problems and lessons learnt.

5.2.9 The Bank Group will be responsible for supervising the project. The project will besupervised two times during the first two years of implementation and at least once a yearthereafter, to evaluate project implementation progress and discuss with PCMU, MES,beneficiaries, other officials and clients on activities, achievements, constraints, and to consider

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any modifications. A mid-term joint review mission will take place in the fourth year of projectimplementation, and a final evaluation mission for ADF will be carried out at the end of PY6.The final post implementation evaluation for ADF will be in PY8.

5.2.10 Implementation Schedule: The project will be implemented over eight-year for IFAD andsix years for ADF financing. It is envisaged that implementation will commence in April 2003.In PY1, the main activities will be: a) setting up the PCMU and zonal offices, and appointingmembers to the Project Steering Committee; b) carrying out the baseline survey; c) preparingimplementation plan, budget and training schedules. During the third quarter of PY1, the PCMUwill prepare tender documents for procurement of goods and services. There will be no newdistricts added to the project in the last 4 years, to allow adequate time (4 years) forimplementing activities in the last batch of districts. Table 5.1 below shows a summary of theimplementation schedule and a detailed table is presented in Annex 3.

Table 5.1: Implementation Schedule

ACTIVITY/ACTION RESPONSIBILITY STARTING DURATION

Board approvalLoan Agreement signedPCMU staff Orient. on Proc. and Disburs.Loan effective

ADFADF/GOGADF/PCMUADF/GOG

Dec. 2002January 2003January 2003May 2003

PCMU & Zonal offices staff recruited PCMU/ADF/IFAD Jan 2003 4 monthsWork-plan, budget prepared & approved PCMU/ADF/IFAD June 2003 3 months/yrProject launching workshop PCMU/ADF/IFAD May 2003 1 weekTechnical assistance recruited PCMU/ADF/IFAD Sept 2003 3 monthsCivil works PCMU/ADF/IFAD Sept 2003 3 month/yr, 1st 3 yrsStaff training PCMU/CONSULTANT Jan 2004 3 monthsTraining of clients PCMU/CONSULTANT Mar 2004 4 months/yrRural Finance Inst. identified PCMU/ADF/IFAD Aug 2003 Every yr. 1st 4 yrsCredit funds disbursed PCMU/ADF/IFAD Sept 2003 Every yearAudit PCMU/CONSULTANT Dec 2003 1 month every yearMid term Review PCMU/CONSULTANT Nov 2006 4 monthsFinal project evaluation PCMU/CONSULTANT Nov 2009 4 monthsCompletion report PCMU June 2010

Detailed implementation schedule is given in Annex 3.

5.3 Procurement Arrangements

5.3.1 Procurement arrangements are summarized in Table 5.2 below. All procurement of goods,works and acquisition of consulting services financed by the Bank will be in accordance with theBank's Rules of Procedure for Procurement of Goods and Works or, as appropriate, Rules ofProcedure for the Use of Consultants, using the relevant Bank Standard Bidding Documents.

5.3.2 Civil works: Procurement of civil works will all be below UA100,000 per contract and willbe carried out under National Competitive Bidding (NCB) procedures. An estimated 20 suchcontracts will be awarded for rehabilitation/construction of two Zonal offices in Tamale (NorthernRegion) and Koforidua (Eastern Region) and for 18 workshop structures for Rural TechnologyFacility Centres. The total value of the civil works shall be UA434,000. Due to the scattered natureof the construction sites in the project area, the contracts are not likely to attract the participationof international contractors, hence the use of National Competitive Bidding. The remainder ofthe civil works will be financed by IFAD.

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Table 5.2: Procurement Arrangements

CATEGORIES ICB NCB OTHERS S. L. N.B.F TOTAL

1. Civil Works

1.1 Civil works 457 [434] 149 606 [434]

2. Goods

2.1 Equipment and Materials 1,339[1,172] 23 [20] 439 1,801 [1,192]

2.1 Workshop Kits 1,338 [1,338] 1,338 [1,338]

2.3 Vehicles 1,195 1,195

2.4 Motorcycles 248 [217] 179 427 [217]

3. Consulting Services

3.1 Technical Assistance 482 [435] 392 [359] 2,293 3,168 [794]

3.2 Training 1,353 [1,353] 1,539[1539] 5,624 8,516 [2,892]

4. Services

4.1 Credit 262 262

5. Miscellaneous

5.1 Salaries 1,316 801 2,117

5.2 Travel Allowances 361 [182] 781 1,142 [182]

5.2 Oper. & Maintenance 997 [452] 1,390 2,387 [452]

TOTAL 1,588 [1,391] 457 [434] 5,870 [3,780] 1,931 [1,898] 13,116 22,959 [7,501]

Note: Figures in parenthesis are the respective amounts financed by African Development Fund

5.3.3 Goods: Contracts for goods valued at more than UA 100,000 each will be awardedunder ICB procedures. Not more than two such contracts will be awarded, for motorcycles,valued at UA 217,000. Similarly, not more than four contracts for office equipment andmaterials valued in total at UA 1.17 million, will be awarded, under ICB. Workshop kits (oftotal value of UA 1.34 million for about 20 RTFs of an estimated 6,000 potential graduates) andother miscellaneous goods, such as small office equipment, estimated to cost less than UA 1,000per contract and not more than UA 20,000 in aggregate, will be procured through nationalshopping because these are off-the shelf small value items, which will be procured as and whenrequired. All the vehicles will be financed by IFAD. Other motorcycles, and equipment andmaterials will also be financed by IFAD and the Government.

5.3.4 Consulting Services and Training: Procurement of consulting and training services, asdetailed in Table 5.2 above, will be undertaken in accordance with the Bank's "Rules ofProcedure for the Use of Consultants". ADF will finance regional level short-term consultancyservices for training entrepreneurs and staff in various fields of enterprise specialization. Theseservices, valued at UA 1.54 million (Consultancy Training) and UA 359 000 (TechnicalAssistance) will be procured using short-listing method, and the selection procedure ofcombined technical quality with price considerations. Backstopping Technical Assistanceservices to be provided by GRATIS and NBSSI will be by Direct Contracting and they arevalued at UA 435 000. GRATIS and NBSSI are Government institutions mandated to supervisetechnology promotion RTFs and Business Advisory Centres, respectively, in the Government ofGhana structure. Other training costs valued at UA 1.35 million will be procured using localshopping and they involve costs directly associated with organizing courses and workshops such

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as accommodation facilities. Other technical assistance and training costs valued at UA 2.3million and UA 5.6 million, respectively will be financed by IFAD, and the clients.

5.3.5 Miscellaneous and Credit: ADF resources valued at UA 182,000 will be used to meetthe cost of allowances. Other costs to be funded by ADF are the operating and maintenancecosts, valued at UA 452,000. Salaries for additional staff in the PCMU and Zonal Offices willbe financed by IFAD and the Government of Ghana. All costs associated to Credit will be paidfor by IFAD.

5.3.6 The PCMU, as did under phase I of REP, will be responsible for the procurement ofgoods/works/consulting services/training services. The resources, capacity, expertise andexperience of the PCMU are adequate to carry out the procurement. The PCMU will consolidatea procurement plan at the start of the project incorporating the contracts, value, and procurementmethod and time schedule for all procurement activities. Financial units of the implementingpartners (BACs, RTFs, Participating Financial Institutions and MES) would be responsible fortheir operational expenditures and the funds managed by them, as well as receiving andrecording all goods procured by the PCMU.

5.3.7 General Procurement Notice (GPN) and Documents Review Procedures: A GPN will beissued for publication in the United Nations Development Business Periodical, upon approval bythe Board of Directors of the loan proposal. The following documents are subject to review andapproval by the Fund before promulgation i) specific procurement notices, ii) tender documentsor requests for proposals from consultants iii) tender evaluation reports or reports on evaluationof consultants proposals, and iv) draft contracts.

5.4 Disbursement Arrangements

5.4.1 The expenditure schedule by component and by source of finance are shown in Tables 5.3and 5.4 respectively. The GOG will open a foreign exchange denominated account with a bankacceptable to the ADF in the name of the Rural Enterprise Development Project. The accountwill be used solely for purposes of the ADF loan and will not be mixed with counterpart fundsnor with any other funds. No overdrafts will be authorised on the account. The funds paid intothe special account will be held in an interest-bearing account, and the income earned could beused by the borrower to meet financial charges accruing from the operation of the account. Theaccount will be operated by the PCMU in line with ADF procedures. The ADF funds will bedisbursed according to an annual work programme, through a special account, which will beapproved beforehand by the Government and the two external financiers (ADF and IFAD). Aspecial account would be opened with reputable Bank which be replenished once 50% of eachadvance is justified. The replenishments would cover a budget of four months.

Table 5.3: Expenditure Schedule by Component

Totals Including Contingencies (UA ‘000)

COMPONENT 2003 2004 2005 2006 2007 2008 2009 2010 Total

A. Tech. Transfer & Skills Develop 661 1,830 2,537 3,227 3,575 2,543 2,178 255 16,805

B. Rural Finance Access 262 310 102 100 99 30 31 31 965

C. Rural Enterprise Institutional 292 460 166 255 202 228 111 73 1,788

D. Project Co-ordination 394 414 409 417 490 442 420 415 3,401

Total PROJECT COSTS 1,609 3,014 3,214 3,999 4,366 3,243 2,740 774 22,959

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Table 5.4: Expenditure Schedule by Source of Finance

Source of finance 2003 2004 2005 2006 2007 2008 2009 2010 TOTAL

ADF 0 1,034 1,190 1,428 1,596 1,178 1,075 0 7,501

IFAD 1,318 1,311 1,231 1,457 1,463 922 665 449 8,816

PFIs 4 6 6 6 7 0 0 0 29

Clients 59 162 230 392 473 474 408 34 2,232

GOG 228 501 557 716 827 669 592 291 4,381

TOTAL 1,609 3,014 3,214 3,999 4,366 3,243 2,740 774 22,959

5.5 Monitoring and Evaluation

5.5.1 The collection of monitoring information, processing and administration will be carriedout by the PCMU and the Zonal offices for the Bank supervision missions to analyse.Monitoring information will also be instrumental in preparing the Annual Work Plans andBudgets. A Project Management Information System will be designed by the Monitoring andEvaluation Officer and an international consultant contracted. Aspects to be monitored includethe following: the indicators that have been presented in the MPDE Matrix, disaggregated bygender where applicable.

5.5.2 Monitoring data will be used by the PCMU to manage implementation actively,including: analysing problem areas in implementation and subsequent planning of remedialaction, supporting decisions on the allocation of technical assistance funds, and reporting to theCooperating Institution.

5.6 Financial Reporting and Auditing

The project will keep financial records in accordance with international accounting practices andwill ensure that an independent auditor acceptable to the GOG, the ADF and IFAD annuallyaudits all project accounts. The corresponding reports will be submitted quarterly to the ADFand IFAD for review. The PCMU will be responsible for timely submission of annual financialstatements. Fully audited certified financial statements shall be submitted to ADF and IFAD nolater than 6 months after the closing of the financial year.

5.7 Aid Co-ordination

The Ministry of Environment and Science has established a working group in small scaleenterprises where major stakeholders in small-scale enterprises are represented. Members of theworking group meet to exchange information on interventions in small-scale enterprises in thecountry so as to ensure coordination. Through this working group, the various financiers ofactivities in the small scale enterprises have arrived at broad based and coordinated strategy forrural small scale enterprises development in Ghana. The donor consultative meetings are heldunder the auspices of MES on a quarterly basis, or as and when deemed necessary. The ADFand IFAD will, apart from the regular contacts between Task Managers, review progress everysix months in the standard bi-annual meetings.

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6. PROJECT SUSTAINABILITY AND RISKS

6.1 Recurrent Costs

6.1.1 Total recurrent costs under the project are UA5.6 million, out of which ADF will financeUA 1.0 million, equivalent to 18% of the recurrent cost or 4% of the total project cost. IFADwill finance 50% of the recurrent costs while the Government would finance the remaining 32%in salaries and allowances, cost of office space for the PCMU, Zonal offices and BACs, andoffice operating costs of the BAC offices. Recurrent costs will be borne by the variousparticipating institutions, based on their respective mandates. The cost items under ADFfinancing comprise operation and maintenance of vehicles and motorcycles, travel allowancesand office operating expenses, under the components: Technology Transfer and SkillsDevelopment, Rural Enterprise Institutions and Project Coordination. The year by year recurrentexpenditure by financier are shown in Table 6.1 below and they exhibit a general decreasingtrend over the project implementation period. Recurrent costs by ADF and IFAD will rise duringthe first four years as more districts join the project. Subsequently, during the last three years,they decrease as districts exit from the project and the Government assume the financialresponsibility. Government recurrent costs will also follow the same trend but at a reduced rate.

Table 6.1: Recurrent Schedule by Source of Finance

Totals Including Contingencies (UA '000)

Source 2003 2004 2005 2006 2007 2008 2009 2010 Total

ADF - 47 120 197 254 219 185 - 1,023

IFAD 256 374 362 438 457 383 318 215 2,803

GOG 29 226 218 308 363 315 291 71 1,820

Total Cost 285 647 700 943 1,074 917 794 286 5,646

6.1.2 The project has been designed to minimise incremental recurrent costs to theGovernment. The incremental recurrent cost after PY8 will be those associated with salaries andoperating costs of the BACs and RTFs. It is estimated that the annual cost of maintaining BACservices for all the 53 new districts and the 11 districts carried on from REP-I is UA 9 000 perannum, which is equivalent to UA 140,000 per district per year. Out of this the office rental andassociated office operating and maintenance costs for the BAC office is already part of thecurrent budget for the districts. The salaries of the three staff who will continue to operate theBAC are incremental costs and will be the responsibility of the NBSSI, who is mandated toprovide this service in accordance with Act 434 under which it was established. To ensuresustainability, the project has built in cost sharing mechanisms for the services provided by theBAC so that costs will be recovered on an increasing trend. In addition, the expected increase ineconomic activities in the districts due to the project interventions would contribute to theoverall resource base of districts.

6.2 Project Sustainability

6.2.1 The entrepreneur demand-driven and participatory approach whereby the clients andtheir representative institutions (District Assemblies) will request for project services andparticipate in their design and implementation will ensure client ownership duringimplementation. The favourable profits of enterprises, hence the increased additional incomerealised will provide the necessary incentive and motivation for the entrepreneurs to continue to

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engage in the enterprises. Client entrepreneurs will therefore increasingly value and rely on theservices to improve the profitability of their businesses such that they will be willing to pay forthe full cost of their provision. Increasing profitability will help the client enterprises grow anddiversify, thereby also creating more employment opportunities for the communities in whichthey are located. Client enterprises will pay an ever increasing proportion of the costs until theend of the project when they are paying full cost. This design approach has proven successfulunder REP-I, as entrepreneurs have continued their operations after project exit in the districts.During project implementation, coordination of the various support services at district level willbe done by the BAC offices falling under the jurisdiction of District Assemblies, and it isexpected to sustainably continue after the four years of project intervention.

6.2.2 Continued funding of services that will be initiated by the project, would be through costsharing arrangements between implementing agencies and clients on a cost recoveryarrangement. There would therefore be gradual to full cost-recovery of services, whereby clientswould pay market rates for services received. NBSSI and GRATIS Foundation will continue tobear running cost items such as staff salaries and allowances and a portion of training costoffered by BACs and RTFs. This is in line with the mandate of the two institutions, under whichthey were established. Each District Assembly will also continue to shoulder the cost of BACoffice accommodation and associated running costs, and the salary of the Business DevelopmentOfficer. It is envisaged that the Participating Financial Institutions will continue to offer andprovide credit and savings services to rural enterprises, as they would have established stronglinkages with the clients.

6.2.3 District Assemblies (DAs) will continue to be the focal point for coordinating all otherstakeholders at the district level, in the design, planning, implementation and monitoring ofsupport services for small scale rural enterprises. The DAs will incorporate and mainstreamproject activities into their respective development programmes, by making budgetary provisionto finance training programmes and overheads of the BACs and RTFs.

6.2.4 Rural Technology Facility Centres will continue to spearhead the adaptation anddissemination of simple and appropriate technologies to local artisans, agro processors and thecommunity at large. The RTF will continue to offer training services, at increasing fees up tomarket rates. DA and the RTFs would consider subsidizing the cost of the training forApprentices, given that these are development services to the communities. On the commercialside, the RTFs would continue to produce agro-processing equipment for sale and also providerepair services for artisans, agro-processors and other clients. The GRATIS Foundation willcontinue to supervise the management of the RTFs and provide technical backstopping. In orderto generate own resources, RTFs would increase their commercial operations (withoutcompromising developmental objectives) so as to generate resources to be self sustaining.

6.2.5 Business Advisory Centres: The Business Advisory Centres (BACs) would also continueto offer and provide training and business counselling services. As indicated above, the DAs andNBSSI would share the operating costs for the BACs shortly after the four years of projectintervention. These costs would be recovered from the client fees as clients increasingly paymarket fees. The Audit/Inspectorate Unit of the Apex Bank will continue to monitor the ruralbanks in the project area and beyond, under which jurisdiction this task falls. The RuralEnterprises Development Fund, administered by the Bank of Ghana, being a revolving fund isexpected to continue to provide supplementary credit resources at commercial market rates, torural small-scale enterprise operators.

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6.3 Critical Risks/Assumptions and Mitigation Measures

6.3.1 There are a number of factors and conditions that could affect the achievement of thesector goal, the project objective and outputs. Some of these risks are project-specific risks,which cannot be completely removed, but for which mitigation measures can be put in place.Others are external risks that cannot be affected by project management.

(i) Serious economic reversal.(ii) Services provided by the project will be sustainable. Mitigation: A gradual introduction

of fees for all services provided.(iii) Lack of qualified and experienced BAC staff. Mitigation: Staff training built in project.(iv) Beneficiaries fail to follow through with their expressed interest to participate in project

activities. Mitigation: information flow to potential clients in sensitisation fora(v) Reduced number of profitable enterprises. Mitigation: Marketing Specialist at BAC

responsible for facilitating the identification of markets for Small-scale enterpriseproducts and services.

(vi) Capacities of Participating Financial Institutions are insufficient to handle a portfolio ofsmall loans. Mitigation: Promotion of group-secured loans, close relations with RuralFinancial Services Project involved in institution building of Financial Institutions.

7. PROJECT BENEFITS

7.1 Financial Analysis

7.1.1 Seventeen models were developed, representing the predominant enterprises in the ruralareas of the country. The models are in Volume II of the report. Annex 7, is a summary ofselected agri-based enterprises that the project will focus on, and the expected financial benefitsfrom the respective enterprise models. The list of models is not exhaustive as a wealth of smallbusinesses exists in the rural sector in Ghana. The models were prepared subsequent to andbuilding on detailed consultation with REP-I clients and other small-scale entrepreneurs in theproject area during preparation of the project.

7.1.2 The with-project cash flow portrays the actual situation of the clients’ enterprises duringpreparation of the project, in terms of cost of production, prices, and output levels. Theprofitability of the enterprises are derived from the difference of this cash flow stream againstthe assumed previous situation, and are thus representative of the actual viability of enterprisesof REP-I beneficiaries. It is assumed that the profitability of enterprises with-project will besimilar to that of the enterprises that received support during the implementation of REP-I. Otherspecific parameters (assumptions) underlying the analysis are: real prices are used in the models,that is, the figures are corrected for inflation, prevailing at 32% per year at the time of datacollection. Correspondingly, real interest rates have also been used for the loan repaymentcalculations; services provided by other rural enterprises have been indicated as such in themodels. This shows the close linkages within the rural economy, and indicates the extent towhich the turnover of the enterprise examined supports other businesses that offer services suchas dough kneading for bakers, repairs for operators of cassava graters and palm kernel cracking.The supporting services offer additional income-generating opportunities to the operations of theenterprises that are undertaken by clients, through the purchase of inputs and the sale to retailers.

7.1.3 Management practices for enterprises in the without-project are very poor, hence there ishigh potential for improvements. Assuming entrepreneurs adopt the recommended practices

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(70% post-training adoption rate, based on REP-I), improvements will be brought about byimproved efficiency due to a mix of training and business counselling services offered by theBACs, which would include awareness/business training skills and where applicable, creditmanagement, technical training followed by a series of counselling visits to/by the trainers.

7.1.4 All enterprises to be supported by the project are potentially profitable except formushroom production, where the FIRR and the NPV are below the cost of capital. The profit perperson for the various enterprises shows that bread baking is the most profitable enterprise. Themost important viability indicator for small-scale entrepreneurs is the eventual return to labour,which for all models lies above the opportunity cost of rural labour assumed to be GHC 5 500per person-day. The only exception is the gari preparation group (GHC 3 800 per person-day),the members of which derive their chief benefit from the access to the jointly owned machinesand who are therefore not dependent upon high returns to labour from their collective activities.Carpentry has a high return to labour, at more than Cedis 28,000. Snail farming also has a highreturn to labour of about Cedis 22,500. It requires relatively little labour, but is a risky business,as there are large price fluctuations, and the produce is only sold after 2 years.

7.1.6 The Financial Internal Rate of Return (FIRR) of five enterprises is extremely high at morethan 200%, a figure that needs to be taken with caution as in 3 cases the improvements involvepractically no incremental capital and the investment includes training of the entrepreneurs.However, the REP-I supported investments in soap making and bread baking producedconsiderable returns to capital. For improvements that need little working capital, the NetPresent Value (NPV) is a better measure than the FIRR to assess the benefit derived from theproject-induced changes as it depicts the discounted value of the incremental cash flow beforefinancing. Annex 6a, is a summary of the aggregate financial analysis over a 20 year period andreturns a 20.3% rate of return at 12 percent opportunity cost of capital.

7.2 Economic Analysis

7.2.1 All investment and incremental recurrent costs, including physical and pricecontingencies of the project have been included in the analysis. A standard conversion factor of1.0 on all prices, has been applied to reflect the free market environment of the presenteconomy. The economic benefits were calculated for a 20-year period. Benefits from activitiessupported by the BACs and RTFs were used. The analysis is therefore based on cautious andconservative parameters. The benefits taken into account are the following: (i) business(enterprise) start-ups; (ii) quality improvements of products; (iii) increases in the SSEs' output.

7.2.2 The detailed incremental costs and benefits by year together with the disaggregatedincremental net benefits for the main BACs and RTF activities were discounted at anopportunity cost of 12 percent. The economic analysis justifies the project investments in that itshows that the project has the capacity to generate an economic rate of return (ERR) of18 percent assuming that the project will continue to accrue benefits over a 20-year period.

7.3 Social Impact Analysis

7.3.1 The main project impact will be the generation of additional incomes through new jobs,the strengthening of existing ones and the diversification of present income-generating activities.Through the BACs, the project would train an estimated 40 000 people in community-basedskills, small business management and marketing, of which an estimated 30 000 people wouldbecome traders. About 6 000 apprentices and 5 000 mastercraft persons would also be trained

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through the RTFS. An additional 19,000 clients, who would not have established new business,would be trained through business orientation seminars. It is therefore estimated that 70 000people will benefit from training.

7.3.2 The provision for an estimated 30 000 working and investment capital loans would assistwith the establishment and strengthening of SSEs, each of which is expected to employ aboutthree people. Also, the Apprentice Graduate support Fund would provide about 6 000 matchinggrants to apprentices, in the form of start-up kits. Taking into consideration multiplier effects, itis estimated that the project will result in increased incomes for a minimum of 245 000 SSEdirect and indirect beneficiaries (assuming an average household size of 3.5).

7.3.3 The creation of new jobs and the income they would generate would make a significantimpact on poverty in the project area. About 70% of the trainees are expected to be women. Theservices provided through the project will be especially important for poor female entrepreneurs.Through training, financial and other support measures, they will be in a position to improve anddiversify their present activities. As a result of the project, women and the landless poor in ruralareas will have the opportunity to obtain income and/or increase their incomes withoutnecessarily owning or have usufructual land

7.3.4 Within the scope of their new skills, the small producers will be able to increase theirproduct range and diversify into new products and markets. Increased supply of products wouldalso improve their accessibility to the rural population. REP-II will also have an impact on thewider rural economy. The manufacturing and repair of farm implements and agro-processingequipment will provide a stimulus for agriculture and especially smallholder farming. Increasedjob opportunities in the rural area would possibly act as counterweight for the strong push andpull factors currently driven rural-urban migration.

7.3.5 At the institutional level the project will provide a strong impetus for the DistrictAssemblies to initiate or intensify business development at district level. The BACs will providethem with an innovative mechanism to link up with the local business sector, identify their needsand to indirectly provide them with relevant support services. Most importantly the project willcontribute towards a thriving and profitable small-scale enterprise environment. Also,institutional capacity and structural improvements at national level will be achieved with theformulation of relevant policies for the development of the SSEs. In the long run, theestablishment of well-run trade associations to serve the cause of the SSE sector are the bestguarantee for sustained development.

7.4 Sensitivity Analysis

7.4.1 A number of scenarios were tested to establish the economic viability of the project in theevent of adverse factors. The ERR is relatively stable, yet indicates the risk that extended delaysmight threaten the viability of the investment. A 10 percent increase in costs or a 10 percentdecrease in benefits would reduce the rate of return by less than four percentage points, while adelay in the benefit stream by one year will result in only 3 percent points. The ERR would thusstill be above the alternative cost of funds on the international financial market. However, a 2-year lag in project benefits would reduce the ERR significantly to 12.1 percent the opportunitycosts of capital would be slight above the returns to the investment. This is a very unlikelysituation considering that the returns to most of the enterprises are on short-term basis. A strongreduction of the assumed benefits after PY10, which can be seen as a test for the reliance of theproject viability, on its sustainability, shows that the ERR only falls to 14.5%.

36

8. CONCLUSIONS AND RECOMMENDATIONS

8.1 Conclusions

8.1.1 The potential for small scale enterprises to reducing poverty in rural areas has beendemonstrated under the first phase of the Rural Enterprise Project (REP-I). Incomes areexpected to increase from GHC 1.32m without project to GHC 1.40m with project for palm oilprocessing into pomade, which is at the lower end of the spectrum. At the higher end of thespectrum, incomes are expected to increase from GHC 1.32m without project to GHC 18.61mwith project for use of corn and cassava into bread making. At project level, an estimated 90,000SSE wage employment would be created and another 40 000 SSE operations (self employment)would be created after training more than 70,000 people. The project is therefore expected tocontribute to the reduction of rural poverty especially among small-scale rural entrepreneurs.This will broaden the production and income base for the rural people and with it the stimulationof agriculture crop production. It is envisaged that the project will lead to an improvement inrural living conditions as incomes of the rural population increase.

8.1.2 The project is socially desirable, technically feasible, financially viable andenvironmentally friendly. Furthermore, it is accorded high priority in the Ghana PovertyStrategy by the Government of Ghana and it is consistent with the Bank Group Vision statementas well as the Bank strategy for Ghana. At the national level, the project is expected to generaterural employment and enhance rural incomes.

8.2 Recommendations and Conditions for Loan Approval

8.2.1 It is recommended that the Board of Directors approve the co-financing of the RuralEnterprise Project with the International Fund for Agriculture Development.

A. Conditions Precedent to Entry into Force8.2.2 It shall be a condition precedent to entry into force of the Agreement that the Borrowershall have fulfilled the conditions of section 5.01 of the General Conditions of the FundApplicable to Loan Agreements and Guarantee Agreements.

B. Conditions Prior to First Disbursement8.2.3 Prior to first disbursement, the Borrower shall:

(i) Provide evidence that the existing REP-I Project Coordination Management Unit inKumasi, will continue to provide services to the Agri-based Rural Enterprises Project (para.5.2.4).

(ii) Provide evidence that a Project Coordinator, a Senior Monitoring and Evaluation Officer, aTechnical Training/Promotion Officer, a Business Development/Marketing Officer, Policy/RuralFinance/Gender Officer, and an Accountant, all of whose qualifications and experience shall beacceptable to the Fund, have been recruited to serve on the PCMU (paragraph 5.2.4);

(iii) Provide evidence of having established Project Steering Committee, chaired by the ChiefDirector of MES, to provide policy guidance to the project and oversee the implementation ofproject activities (paragraph 5.2.1).

37

(iv) Provide evidence of the appointment of relevant stakeholders to serve on the ProjectSteering Committee for the duration of the Project, including the following: one representativeeach of, the National Development Planning Commission, Ministry of Trade and Industry,Ministry of Food and Agriculture, Ministry of Finance, Ministry of Local Government and RuralDevelopment and MOWAC, the National Board for Small-Scale Industries, Ghana RegionalAppropriate Technology Industrial Service Foundation, Bank of Ghana, a Local TradeAssociation, the Association of Ghana Industries, and one District Chief Executive representingthe districts established under the “Rural Enterprises Project”, and one District Chief Executiverepresenting the additional districts under “Agri-Based Rural Enterprises Project” (para. 5.2.1);

(v) Provide evidence of opening a) a Special Account in a Bank acceptable to the Fund,where disbursements from the Loan will be deposited, and b) a Special Account with a bankacceptable to the Fund, where the Borrower shall deposit Government of Ghana counterpartfunds (para. 5.4.1);

(vi) Provide evidence that Phase two of the Rural Enterprises Development Project to befinanced by the International Fund for Agriculture Development, is effective;

C. Other Conditions

8.2.4 During the implementation of the project, the Borrower shall:i) During the first year of project implementation, select the first 20% of the poorest ruraldistricts in each region (one to three districts in each region depending on the number of ruraldistricts in the region), based on the district poverty profiles of Ghana, to be eligible for projectservices. Thereafter select the remaining districts based on the project selection criteria, whichshall be acceptable to the Fund.

ii) No later than the second year of project implementation, provide evidence of havingestablished District Implementation Committees (DIC), to be chaired by respective DistrictChief Executives that will oversee the implementation of project activities at district level. Andto appoint members to the DIC including the District Co-ordinating Director and other relevantdistrict officers (representing the Ministry of Planning, the Ministry of Agriculture, the Ministryof Finance), two Area Council representatives, the BAC Manager, the RTF Manager, tworepresentatives of project, representatives of PFIs, all of which shall be acceptable to the Fund.(para. 5.2.3).

ANNEX 1

GHANA

Rural Enterprise Project - II

DISTRICT MAP

This map has been prepared by the African Development Bank Group exclusively for the use of the readers of the report to which it is attached.The names used and the borders shown do not imply on the part of the Bank and its members any judgement concerning the legal status of aterritory nor any approval or acceptance of these borders.

R.O. TAMALE

R.O. KUMASI

R.O. KOFORIDUA

ANNEX 2Organisation and Management Structure

NSC

PCMU

2 Zonal Offices

ProjectExecution(National level)

ImplementationDirection(Project Level)

DICs

ImplementationSupervision/Co-ordination(District Level)

BACs (one perdistrict)

RTF (One per 3districts)

Trade Associations / Groups / Individual clients

Developmentof skills anddisseminationof technology/ skills

MES

DAs

ANNEX 3Implementation Schedule

ACTIVITY/ACTIONS Responsibility Start EndingBoard approvalLoan Agreement signedLoan effective

ADF

Dec 2002Jan 2002May 2003

Dec 2002Jan 2002May 2003

Civil Works, Equip. & Motorbikes for Office/RTFs Tender documents prepared & approved Bids invited Bids received and evaluated (Continuous) Evaluation reports approved (Continuous) Tenders awarded (continuous) Goods/work supplied (continuous)

ADF / PCMU(BACs in southernzone and all RTFs)

IFAD / PCMU(Other Zones)

Sep.2003Nov 2003Dec 2003Jan 2004Feb 2004Jul 2004

Nov 2006Nov 2006Dec 2006Feb 2007Feb 2007Jul 2008

Procurement of vehicles Tender documents prepared & approved Bids invited Bids received and evaluated Evaluation reports approved Tenders awarded Goods/work supplied

IFAD / PCMU

June 2003Nov 2003Dec 2003Jan 2004Feb 2004Jul 2004

Oct 2006Nov 2006Dec 2006Feb 2007Feb 2007Jul 2008

Technical Assistance and Studies Tender documents prepared & approved Proposals invited Proposals received and evaluated Evaluation reports approved Contract awarded Services supplied


IFAD / PCMU(Other zones)

Sept2003Nov 2003Dec 2003Jan 2004Feb 2004Jul 2004

Nov 2006Nov 2006Dec 2006Feb 2007Feb 2007Jul 2008

Training and workshops Activities Course material prepared Business advisory tours reserved and carried out Trade linkages established with marketing outlets Entrepreneurs training carried out (Continuous)


IFAD / PCMU(Other zones)

Jan 2004Dec 2004Jan 2005

Mar 2004

Jan 2010Jan 2010Jan 2010Feb 2010

On-lending funds RFIs identified, selected and trained On-lending agreements signed with RFIs Coordination with Bank of Ghana and RFIs established

IFAD / PCMU Aug 2003Aug 2003Sep 2003

Dec 2006Dec 2006Jan 2010

Technology promotion & apprentice support ADF / PCUM Jan 200 Jan 2009

Project Management PCMU and Zonal offices allocated & furnished BACs and RTFs established and equipped Members of Project Steering Committee assigned Staff recruited & staff orientation carried out Ist Work-plan and budget prepared and approved Organize rural trade show National SSE policy & Strategy developed External Auditors approved & contracted Mid term Review carried out Final evaluation/ project completion report

ADF / IFAD /PCMU

Feb 2003Jun 2003Apr 2003Jan 2003Jun 2003Dec 2003Jan 2004

Dec 2003Nov 2006Jun 2010

Jun 2003Jun 2006

Sep 2003Jun 2010Dec 2005Jun 2010

Mar 20076Dec 2010

ANNEX 4

PROVISIONAL LIST OF GOODS AND SERVICES

ADF ---------------Co-financiers UA '000----------

Category UA '000 GHC m IFAD PFIs Clients GOG Totals

1. Goods

1.1 Vehicles - - 1,046 - - 149 11951.2 Motorcycles 217 2,000 157 - - 53 4271.3 Equipment & Material 1,192 10,972 384 - - 225 18011.4 Tech. Promotion Kits 1,338 12,311 - - - - 1338

2. Works

2.1 Civil Works 434 3,993 142 - - 30 606

3. Consultancy Services

3.1 Contracted staff 232 2,133 1,458 - - 289 19793.2 Specialist services 193 1,779 364 - - - 5573.3 Studies 369 3,395 399 - - 768

4. Operating Costs

4.1 Salaries - - 392 - - 1,725 2,1174.2 Operating & Maintenance 246 2,267 413 - - 608 12674.3 Travel allowances 182 1,675 426 - - 534 11424.4 Other Operating Costs 206 1,898 146 - - 768 1120

5. Miscellaneous

5.1 Staff Training 53 489 514 29 - - 5965.2 Client Training 2,774 25,526 2,595 - 2,232 - 76015.3 Workshops 65 598 118 - - - 1835.4 On-lending Funds - - 262 - - - 262

Total Cost 7501 69,036 8,816 29 2,232 4,381 22,959

ANNEX 5

REP-I Achievement Indicators as at end of 2001

IndicatorTargets atAppraisal

Actual Nosat end 2001

% of RevisedGoal1 achieved

Master Craftsman and Artisans Trained 557 981 176 %Artisans Supported by Training/ Production 476 338 71 %Apprentices trained at RTSCs 473 298 63 %Apprentices being trained by Mastercraftsmen 340 296 87 %Beneficiaries Receiving RTSC/BAC Advice 2,301 2 186 95 %New Technologies Introduced 50 48 96 %Existing firms trained in business skills 5 448 7 192 132 %Profitable Businesses Established 3 388 2 710 80 %Female HH heads benefited from project 16 042 23 100 144 %Total No. of people benefited from project 150 538 140 000 93 %Disbursements to Participating Banks GHC 6.07 b GHC 4.65 b 76.6 %

Source: Based on REP internal reports

1 These goals were established after the Mid-Term Review, which was conducted in March 1998.

ANNEX 6aAGRI-BASED RURAL ENTERPRISE PROJECT

Appraisal Report

Calculation of Aggregate Financial Benefits (FIRR)

Incremental Beneficiaries (number of people participating in project)

PY1 PY2 PY3 PY4 PY5 PY6 PY7 PY8 PY9 Y10-20

successful BAC clients /1 2 100 2 250 3 075 5 025 6 075 5 850 3 900 1 950 - -

successful RTF clients: mastercraftsmen /2 80 120 280 480 560 560 320 160 - -

apprentices 100 150 350 600 700 700 400 200 - -

Total 2 280 2 520 3 705 6 105 7 335 7 110 4 620 2 310 - -

Incremental Benefits/3


successful BAC clients (USD)/4 - 1 776 268 1 903 145 2 600 964 4 250 356 5 138 491 4 948 176 3 298 784 2 474 088 1 649 392

successful RTF clients: mastercraftsmen (USD)/5 - 32 089 48 134 112 313 192 537 224 626 224 626 128 358 96 268 64,178.90

apprentices (USD)/6 - 20 056 30 084 70 196 120 335 140 391 140 391 80 224 60 168 40,111.81

Total (UA) - 1 440 790 1 561 314 2 193 377 3 595 824 4 336 764 4 186 797 2 763 804 2 072 853 1 381 902

Incremental Costs


Financial Costs less taxes and studies (UA) 1,160,023 2,465,153 2,531,110 3,499,512 3,804,953 2,859,497 2,591,156 691,541 - 33 221 - 33 221

Financial Analysis Results


Incremental Net Benefits (UA) -1 160 023 -1 024 363 - 969 796 -1 306 135 - 209 128 1 477 267 1 595 640 2 072 263 2 106 074 1 415 123

Financial Rate

of Return (FIRR)

20.3%

\1 50% of the clients trained (community-based skills training and small business management) by the BACs operational with project support, includes both business start-ups and improvements.

\2 50% of the mastercraftsmen trained by the RTFs (both at the TF and in situ) with project support.

\3 After PY8 the ongoing benefits would be sustained by the BACs and RTFs at 75% in PY 9 of the benefits during project implementation, and 50% in PYs 10-20.

\4 Based on the average net present value of the business start-ups and improvements supported through the BACs.

\5 Based on the estimated number of successful mastercraftsmen trained by the RTFs and the average net present value of the business improvements resulting from the support.

\6 Based on 50% of the average net present value of the RTF-supported business improvements as a result of lower productivity and job creation through apprentices.

ANNEX 6b

AGRI-BASED RURAL ENTERPRISES PROJECT

Appraisal Report

Estimate of Beneficiaries, Benefits and ERR

Incremental Beneficiaries (number of Clients partcipating in project activities successfully)

Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10-20

Successful BAC clients /1 2 100 2 250 3 075 5 025 6 075 5 850 3 900 1 950 - -

Successful RTF clients: mastercraftsmen /2 80 120 280 480 560 560 320 160 - -

apprentices 100 150 350 600 700 700 400 200 - -

Total 2 280 2 520 3 705 6 105 7 335 7 110 4 620 2 310 - -

Incremental Economic Benefits/3


Successful BAC clients (USD)/4 - 1 776 268 1 903 145 2 600 964 4 250 356 5 138 491 4 948 176 3 298 784 2 474 088 1 649 392

Successful RTF clients: mastercraftsmen (USD)/5 - 32 089 48 134 112 313 192 537 224 626 224 626 128 358 96 268 64,178.90

apprentices (USD)/6 - 20 056 30 084 70 196 120 335 140 391 140 391 80 224 60 168 40,111.81

Total (UA) - 1 440 790 1 561 314 2 193 377 3 595 824 4 336 764 4 186 797 2 763 804 2 072 853 1 381 902

Incremental Economic Costs (UA)


1,240,762 2,204,019 2,264,162 2,739,855 2,915,606 2,067,320 1,716,780 386,638258,039 568,417 611,068 810,430 905,698 756,090 631,288 229,128

Total Economic Costs/7 1,381,549 2,628,125 2,875,229 3,550,284 3,821,304 2,823,410 2,348,069 615,765

on-lending funds (used by IFAD) 268,044 317,211 98,866 94,961 92,058 25,343 25,343 25,343 25,343 25,343on-lending funds (used) 117,253 144,311 - - - - - -

Economic Results


Incremental Net Benefits (UA) - 268 044 1 123 579 1 462 448 2 098 416 3 503 767 4 311 421 4 161 453 2 738 461 2 047 510 1 356 559

Economic Rate ERR Sensitivity Analysis

of Return (ERR) Benefits -10% Costs + 10% Benefits lagged by 1 year Benefits lagged by 2 years Benefits decrease 20% p.a. after PY10

18.0% 13.7% 14.1% 15.1% 12.1% 14.5%

\1 50% of the clients trained (community-based skills training and small business management) by the BACs operational with project support, includes both business start-ups and improvements.

\2 50% of the mastercraftsmen trained by the RTFs (both at the TF and in situ) with project support.

\3 After PY8 the ongoing benefits would be sustained by the BACs and RTFs at 75% in PY 9 of the benefits during project implementation, and 50% in PYs 10-20.

\4 Based on the average net present value of the business start-ups and improvements suppoorted through the BACs.

\5 Based on the estimated number of successful mastercraftsmen trained by the RTFs and the average net present value of the business improvements resulting from the support.

\6 Based on 50% of the average net present value of the RTF-supported business improvements as a result of lower productivity and job creation through apprentices.

ANNEX 7

Summary of Enterprise Models Showing Profitability of Agri-Based Enterprises

EnterpriseExpected No ofentrepreneurs1

Profit Year12

Profit Year73

Incremental profit due toproject/person

Per familymem/day 4

Return tolabour 5

FIRRp.a.

NPV (withloan)

Direct Incrementalfinancial benefit

Soap making 6,000 1,320,000 4,329,312 3,009,312 1897.78 22,218 276% 10,744,203 18,055,872,000

Pomade Production 4,000 1,320,000 1,389,408 69,408 609.06 6,177 66% 166,201 277,632,000

Bread making 5,000 1,320,000 18,611,724 17,291,724 8158.56 41,637 381% 23.5 mill 86,458,620,000

Bee-keeping 3,500 1,155,000 1,879,233 724,233 823.77 34,469 41% 659,369 2,534,815,500

Snail farming 750 1,155,000 2,208,200 1,053,200 967.98 22,487 32% 740,994 789,900,000

Mushroom (local) 750 1,155,000 1,201,200 46,200 526.55 7,207 9% -62,396 34,650,000

Mushroom (exotic) 500 1,155,000 1,604,800 449,800 703.47 5,706 6% -311,589 224,900,000

Gari Preparation (individ.) 5,000 1,080,600 3,442,230 2,361,630 1943.42 6,927 57% 400,623 11,808,150,000

Gari Preparation (group) 2,000 12,205,200 20,196,219 7,991,019 659.91 3,802 60% 14,110,215 15,982,038,000

Palm kernel Oil (group) 2,500 6,762,600 27,050,400 20,287,800 741.11 9,017 113% 17.2 mill 50,719,500,000

Pito Brewing 4,000 3,648,000 6,456,000 2,808,000 2830.03 14,725 530% 1,955,615 11,232,000,000

Carpentry 3,000 5,475,900 6,797,100 1,321,200 2979.55 28,119 57% 2,866,604 3,963,600,000

Welding Shop 3,000 2,726,796 3,552,396 825,600 1557.21 14,802 266% 5,303,743 2,476,800,000

TOTAL 40,000 Cedis 204,558,477,500

UA6

22,230,509

Notes: 1 Based on entry into 53 districts

2 Annual profit in cedis per enterprise before project

3 Annual profit in cedis per enterprise after project loan has been repaid

4 Based 6.25 family members per family + 365 days per year

5 Minimum wage in Ghana = cedis 5 500 6. Based on 1UA=9 201.7

ANNEX 8GHANA: SUMMARY OF BANK GROUP ON-GOING OPERATIONS (in UA million)

As at 30 June 2002

Finance Date Date Effective Deadline last for AmountSECTOR /PROJECT TITLE Source Approved Signed Date Disbursement Approved

AGRIICULTURE / RURAL FINANCE1 Kpong Irrigation Project ADF 17/09/1990 14/08/1991 11/03/1994 31/12/02 23.242 Kpong Irrigation Project ADF 17/09/1990 14/08/1991 11/03/1994 31/12/02 2.083 Small Scale Irrigation Development Project ADF 04/12/1997 29/05/1998 25/08/2000 30/06/04 15.004 Foods Crops Development ADF 09/09/1998 29/05/1998 13/06/2000 30/06/04 10.005 Agro-Industrial sub-sector study TAF 09/09/1998 09/02/1999 26/04/1999 30/11/01 0.706 Line of Credit IV to Agriculture Development. Bank ADF 14/07/1999 10/09/1999 13/06/2000 30/06/03 15.007 Afraim Plains Study TAF 03/05/2000 28/12/2000 Nye 30/06/02 0.628 Special Food security Programme TAF 17/05/2000 28/12/2000 17/07/2001 31/12/03 0.719 Cashew Development ADF 31/10/2000 08/03/2001 24/12/2001 30/06/08 9.89

10 Inst. Support to Rural Banks ADF 11/10/2000 08/03/2001 27/03/2002 31/12/03 3.5811 Inland Valley Rice Development Project ADF 03/01/2001 23/05/2001 06/06/2002 31/12/06 15.0012 Livestock Development Project ADF 10/10/2001 02/08/2002 nye 19.58

Sub-total I 115.40

PUBLIC UTILITIES1 Accra Sanitation Study TAF 30/05/2000 28/12/2000 30/08/01 31/12/2001 0.95

Sub-Total II 0.95

TRANSPORT1 Anyinam-Kumassi Road Rehabilitation ADF 22/11/1985 20/12/1985 22/07/1986 31/12/1995 23.672 Achimota-Anyinam Road Rehabilitation ADF 15/12/1997 29/05/1998 15/09/1998 31/12/2003 10.003 Three Roads Study TAF 20/10/1999 17/02/2000 15/12/2000 31/12/2002 1.164 Tetteh-Quarshie Circle Road ADF 11/12/2000 08/03/2001 24/09/2001 31/12/2005 25.005 Tema-Aflao Road Rehabilitation Project ADF 17/04/2002 02/08/2002 15/12/2001 31/12/2006 14.70

Sub-Total III 74.53

SOCIAL1 Primary Education Rehabilitation Project ADF 10/12/1997 29/05/98 23/09/1999 31/12/2001 12.002 Poverty Alleviation Project ADF 10/12/1997 29/05/98 04/05/1999 30/04/2003 11.00

Sub-Total IV 23.00

MULTI-SECTOR1 Institutional Support to Two Ministries TAF 28/10/1998 13/01/1999 10/12/1999 31/10/2002 2.002 Economic Reform Support Loan II ADF 29/03/2001 23/05/2001 17/072001 30/09/2002 39.003 Institutional Support for Governance and Poverty reduction TAF 14/11/2001 07/02/2002 17/07/2002 31/12/2004 3.00

4 Sub-Total V 44.00TOTAL 257.88

ANNEX 9Financial Status of Potential Rural Financial Institutions

Capital Adequacyratio (%)

Number of Clients Target group & loan procedures Loan Portfolio(GHC billion)

Savings(GHC billion)

Portfolio at Risk30 days (%)

Loan RecRate (%)

Rural Banks

Atwima 49 14,270 out of which 90% arewomen, especially those dealingin trade.

Individuals, susus and solidarity groups especially consisting of womenfarmers and small-scale traders. Loans are made to groups of five but incycles. Two clients first and the others also given the loan following thescheduled repayment of the first group members. The average loan size forthis rural bank is cedis 1 million.

3.25with loan cycles of 3,6, 9, and 12 months

7.10both voluntary and

involuntary

2 97

Nwabiagya 45 11,350 out of which 80% arewomen.

Lends mostly to farmer groups and cooperatives with limited emphasis onindividuals. Also conducts clients training. The average loan size is cedis0.8 million.

2.21with loan cycles of 6

and 12 months


involuntary

11 88

Sekyere 32 10,300 with 90% of the clients -women.

Individuals and clients solidarity groups of minimum 25 persons. Conductstraining in group responsibilities before giving the loan. The smaller groupsof 5 people, two clients are given the loan first and then the rest are alsogiven basing on the repayment of the first to receive.

2.33with loan cycles of 4,

6, and 12 months


involuntary

8 91

Nsoatreman 26 12,240 out of which 70% arewomen mostly traders

Individuals, groups and cooperarives. Has moved mostly to group lendingsince 1999 hence the improvement in its recovery rate. Conducts clienttraining before giving the loan. The evarage loan size is cedis 0.7 million.



involuntary

6 95

Wamfie 11 9,380 with 50% the clientswomen.

Individuals, susus and solidarity groups but with much emphasis onindividuals. Loans are given after the clients saves 20% of the loan amount. 1.76

with loan cycles of 3,6, 9, and 12 mths


involuntary

8 90

Kitampo 61 11,400 and 70% of the clientsare women

Individuals, groups and susus. Preference is given to group lending giventhe low default rate under that lending mechanism. Lends to standardgroups of five people. Provides extensive training to its clients in areas ofgroup formation and business planning. In the process of creating a micro-leasing scheme for micro amd small-scale entrepreneurs. The average loansize is cedis 1 million.


2.81mostly voluntary

12 85

NGOs

Sinapi Aba Trust N/A32,000 out of which 92% arewomen

Solidarity groups and individuals but with much emphasis on groups.Individual loans above cedis 2 million have to be secured by some form ofcollateral. Training is usually provided to clients but is also done onrequest. The average loan size is cedis 0.9 million.

5.61with loan cycles of 3

months to 1 year.8.23

both voluntary andinvoluntary

2 98

Bawku EastWomen’sDevelopmentAssociation(BEWDA)

N/A 8,567 all of whom are womencomprising of farmers andsmall-scale traders.

Solidarity groups only. Lends to nucleus groups of five people who thenjoin the solidarity group of up to 25 people. Groups are responsible for theappraisal of projects for the group members. They are also responsible forthe collection of the loans due through their respective group chairpersonswho then deposit the funds to the NGO accounts in the respectivecommercial banks. The NGO provides training to its clients and also helpsin identifying markets for their products.

2.41Typical loan cyclesare:1st Loan: 2-3 mths2nd Loan: 4-6 mths3rd Loan: 6-12 mths18 months for equip.

4.02Comprising of both

voluntary andinvoluntary savings

N/A 98

Commercial BanksAgriculturalDevelopment Bank N/A N/A

AgDB basically uses the individual lending methodology. However, due tothe need to address poverty in the rural areas it has started to apply thegroup lending methodology especially in the micro and small scaleenterprise development.

The typical loancycles under thismethodology rangebetween 12 – 18months

700 10 82

Note:1. The capital adequacy ratio requirement by the Bank of Ghana is 6%2. Interest rates charged by the rural banks range between 28 – 30% p.a.

ANNEX 10List of Items in Project Implementation Document

1. Detailed Project Cost Tables2. Enterprise Models and Business Advisory Centre Model3. Financial and Economic Analysis Tables4. Terms of Reference for Project Manager5. Terms of Reference for Project Administrative Assistant6. Terms of Reference for Project Steering Committee7. Status of Intermediary Financial Institutions8. Job Descriptions for BAC Staff9. Job Descriptions for Marketing Officer10. Exit Strategy from a District