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20.09.2004 General News

Gov't is Hot!

By Public Agenda

...eyes SSNIT's money to clear mess in road sector "Politicians do not believe what they preach and are therefore surprised to see people internalizing their messages as if they ( the messages) were part of the Sermon on the mountain" - Vincent Assiseh

One issue that continues to bedevil the roads and transport sector, and by extension the infrastructure sector, since the return to constitutional rule in 1992, is the perennial indebtedness of government to contractors, consultants and suppliers for works/services.

One is not, by any stretch of imagination, suggesting that indebtedness to government suppliers, contractors and consultants is the preserve of multi party system of governance. Records might be hard to come by but it is almost certain that the problem of payment arrears to providers of services and works to governments has been with us since the days of yore. What has however caught the attention of keen observers in the roads and transport sector is the frightening levels to which this phenomenon has assumed since 1992.

Students of the political economy of governance in a paternalistic, rent-seeking, infrastructure-deprived and patronage infested climate as ours would be quick to conclude that government and political office holders, in their attempt to address legitimate demands from their constituents have always been in haste to sacrifice economic prudence on the altar of political expediency. Were this not the case how can one explain the situation in which persons who, when in opposition, preached on the consequences of domestic debt on national economic only to abandon stance, in a few years time, to supervise, directly or indirectly, the enthronement of the very things they campaigned against.

Payment of Arrears

The phenomenon of payment arrears to road contractors was one issue that the NPP, then in opposition, bandied about in careless abandon in their quest for political power. To the NPP, the chronic indebtedness empitomised the recklessness and mismanagement posture of the NDC government. Indeed the sermon on financial prudence from NPP stalwarts, such as Apraku, Osafo Marfo (or is Omarfo Safo, apologies Kofi Wayo), were so strident and heavy as to have persuaded the Pope to contract the gentlemen to re-paint the ceiling of the Sistine Chapel (Holy of Holies) in the Vatican.

To the Aprakus and Marfos, it was simply crass incompetence and a deviation from the common sense dictum of "cutting your coat according to your size" for a government, and its agencies, to award development projects (incur debt for the government) far in excess of the available budgetary allocation to that sector. The NPP, then in opposition, could not fathom how a government of otherwise respected persons such as the Avokas, Salias, Asagas, Pepras, etc, could be so irresponsible as to burden the state with arrears, the levels of which had never been encountered since the birth of modern state Ghana.

The sermon did resonate with well meaning stakeholders in the construction industry. Did it make economic and political sense for a government to contract projects, such as was the case of the Kintampo - Tamale - Makango, and allow the project to take its own life to a point at which a whole national budget became hostage to the resolution of arrears on the project? Did it make economic sense to contract projects, especially those awarded to foreign contractors, delay payments on interim certificates and then get surcharged with "interest on interest on delayed payments"? Did it not amount to "killing of local businesses" if the government, while paying interest on delayed payments to foreign contractors created conditions in which only the most senile local contractor could surmount the temerity to make claims for interest on delayed payments? Was it not political expediency and cronyism of the highest order for the then NDC government to award "inflated" and dubious projects to contractors some of whom, had not even wheelbarrows and who could hardly distinguish between a shovel and trowel?

At the dawn of the NPP's ascension to power, stakeholders in the road construction industry, especially the donor community, which had been breathing hard on the NDC on its profligate construction programme, heaved a sigh of relief that the new government will instill sanity into the industry so as to reduce, if not eliminate, the contribution of the road sector to the sprawling overall domestic debt. The donors reasoned, and rightly so, that there was no compelling need for the indecent haste with which road projects were being awarded far in excess of budgetary ceilings. They further argued that whilst some statutory obligations, such as personnel emolument, releases to the District Assemblies, necessarily compelled governments to borrow from the open market, the domestic debt component from the road sector was largely unwarranted and self-inflicted. The debilitating consequences of debt, whether domestic or foreign, on the achievement of macro and micro economic stability has been so flogged during the current HIPC debate that it is not worth repeating.

One does not have to be a rocket scientist or sorcerer to decipher the plethora of causes that have precipitated the huge payment arrears in the road construction industry. As intimated elsewhere in this piece the act of governance necessarily implies that political office holders often strive to satisfy the innumerable demands from their constituents. These demands include road construction, telecommunication services, educational and health facilities and a host of others. One just has to see a chief mount the stage during a presidential visit to appreciate the enormity of demands and pressures that are brought to bear on our politicians. At times one wonders whether such chiefs should not be given the keys to the vaults at the Bank of Ghana.

Wrong choices

Political office holders all over the world are faced with the difficult choice of attempting to satisfy constituent demands, whether legitimate or illegitimate, against the dictates of financial and economic prudence. This delicate exercise is the sum total of the art of political economy, enunciated by Adam Smith and Keynes several decades ago.

These observations are however trite knowledge to the economic and legal brains that abound in the NPP. It does not therefore lie in our mouth to attempt to rationalize the perceived failures or shortcomings of the current crop of politicians in the NPP government. As someone has suggested a government is elected to solve problems and not to explain or rationalise them.

The concern of stakeholders in the roads sector is how payment arrears, especially to local road contractors, has suddenly assumed frightening proportions under a government that went through, and is still going through, difficult moments redeeming debts left behind by the immediate NDC government.

Without doubt one person who has contributed directly or indirectly to the pile up of arrears in the road and transport sector is the current sector minister, Dr. Richard Anane. Before the very aegis of the minister, budgets of the three road agencies have been allowed (or is it encouraged?) to take a life of their own.

At the last check the annual budgets of the road agencies had been committed by about 300%, implying that, were the agencies not to award new contracts for the next two years, road contractors could still be engaged!!! The Road Fund arrears are also over five (5) months. What has indirectly saved the road construction industry from imminent collapse under the load of payment arrears is the non-performance of local road contractors. Statistics might be hard to come by, but it is being suggested that were 40% of local contractors to complete their projects within contract periods, the level of indebtedness could precipitate an unprecedented payment crisis in the road sector.

Checks at the road agencies show a disproportionate chunk of the agencies budget being devoted towards a particular region. Some political appointees such as Isaac Edumadze of Central Region, S. K. Boafo of Ashanti Region and Mahami Salifu of Upper East are also contributing in no small way to the ballooning payment arrears by turning the President's "zero-tolerance for corruption" slogan into a "tolerance for impunity, ineptitude, cronyism, bribery, graft and plain extortion". Projects are being bartered and bought by the highest bidder.

Another group that has contributed greatly to the present depressing situation in the road sector and who incidentally are the ultimate recipients of the ill effects of payment arrears is road contractors. Because a significant proportion, especially the latter-day politically guided ones, have been lured into a profession in which their knowledge parallels our Kayayees' understanding of the intricacies of nuclear physics, all manner of inequities are being visited upon them without any complaints whatsoever.

How does one explain a situation in which bank loans contracted at "shylock" rates are used to execute projects only for payment to be delayed for donkey months without claims being made for delayed payments.

Contractors inaction

In a classical case of the famed prisoner's dilemma, local contractors are relishing the moment a member of the association or profession will surmount the temerity to present claims for interest on delayed payments to their principal employer, the government. Because they have become willing and culpable partners in the inordinate desires by politicians to use public procurement as a means to replenish and stash campaign coffers, contractors have entered into unholy alliances with politicians and are lobbying to be awarded projects without due regard to the availability to funds to effect payment for works done.

Notwithstanding the Ministry of Roads and Transport's (MRT) belated attempts to put breaks on the bourgeoning road sector budget, the exigencies of the impending elections have clouded the MRT's directives and worsened an already chaotic situation.

In what amounts to closing the stable gate after the horse had left the stable, road agencies have been notified to freeze the award of new projects. In spite of this directive, road agencies continue to receive directives to package contracts for award.

In the midst of the payment crisis in the roads sector, and because elections are around the corner and politicians need cash to fund their campaigns a host of measures are being contemplated to ameliorate the situation. One measure that is gaining currency and which ought to raise the alert levels of organized labour is the recourse to workers pension contributions with the Social Security and National Insurance Trust (SSNIT).

The reasoning is that SSNIT funds which are lying dormant could earn virtually risk-free returns were they to be loaned to government to bail it out of its reckless and profligate road sector programme. Workers would readily recollect that when the former NDC government fell on their SSNIT contributions to fund ill-conceived and politically tainted projects and could not repay the loans, repayment was hurriedly effected before the 2001 handover through dubious debt for equity swaps in companies that had virtually cease to exist as viable entities.

Favourable development

Just before going to Press with this piece, we read in the newspapers a story attributed to a former road contractor and current Vice President, His Excellency Alhaji Aliu Mahama that the government was about to settle arrears of road and building contractors.

This obviously is good radiance; but it is our hope that the government has not coerced the SSNIT board to part with worker's contribution without the necessary due diligence.

Organised labour, which incidentally sits on the SSNIT Board, should not play ostrich, as it did in the NDC days, and allow workers contribution to be dissipated through imprudent investment dealings.

When contractors conclude that their payments will get delayed without adequate compensation, they indirectly factor such compensations into their bid sums and construction methodologies.

The costs of projects therefore become more expensive and these indirectly reduce the capacity of government to execute more projects, from which it could appropriate additional political allegiances.

Work quality and specifications are also sacrificed to make savings in lieu of the non-payment of interest on delayed payments. No wonder a drive through our cities and countryside presents a litany of shoddy and uncompleted jobs.

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