Discussions with road contractors in Ghana about the inner workings of their industry always highlight one fundamental problem, that of cash flow.
This constraint means that many road projects are not completed on schedule.

The main solicitor of road projects, the government, often owes contractors millions of dollars as a result of austere measures and limited resources. Debts to road contractors are usually passed on from one government administration to the next. Unless there is a concerted effort by the current government to reduce these arrears, while paying its debts by the end of its term, it will be very difficult to see significant improvement in Ghana's road networks.

Currently, more than 50% of infrastructure investment in Ghana is financed by the government. But budgetary constraints mean that financing is often significantly delayed, leading contractors to resort to borrowing at high interest rates from commercial banks.

Those who are reluctant to borrow commercially, usually drag on or abandon the project until the government remits its payments. Meanwhile, the uncertainty of payments in the transportation sector prompts retail banks to lend at such high rates, in order to cover these risks plus overheads.

But times may be changing. In February this year, the government announced it will release GH¢221.8 million to settle arrears to 137 road contractors.  To achieve this, the government issued a three-year bond to raise the requisite funds.

The February settlement relates to unpaid invoices and certificates for various works executed under the Kufour-led NPP administration. This amount covers 70% of the outstanding debts to the sector.

There are hints that the government may issue additional medium-term bonds to augment the shortfall in expected grants and pledges from donors, which would have been used to pay off contractors and settle other financial commitments. Ghana has a total road network of 67,000 km.  

A statement from the Ministry of Roads and Highways two months ago estimated that income from the road and bridge tolls would be about GH¢19.5 million in 2010.

The payment to road contractors benefited 18 foreign and 119 local contractors. According to media outlets reporting on the issue, Ghana's Minister of Finance and Economic Planning, Kwabena Duffuor explained that the release of the funds was to improve cash flow for the contractors, and help them to reduce their indebtedness to the private banking sector. Critics would have wished that all the arrears were cleared.

According to Sydney Casely-Hayford, a financial consultant, interest rates could have been significantly impacted if the government had settled more than the announced 70% reduction of the debt stock.

However, the finance minister said the government would continue to clear such arrears in line with its commitment to efficiently manage domestic debt, adding that the settlement of overhanging debts should positively impact on all aspects of the economy. According to Ghana's deputy finance minister, "when the contractors pay what is due to the banks, you expect the banks to strengthen their balance sheet and financial position and their exposure to government will be reduced, then they will be able to lend more to the private sector and government business."

Road infrastructure's contribution to poverty reduction cannot be overemphasised, as expert studies have shown. A 2000 study by Kwon on the Indonesian environment showed that poverty is reduced by as much as 0.33% with every 1% increase in road investment. Research published by the World Bank in 2002 shows that road density has a significant positive effect on the consumption expenditure of rural farm households in poor countries.  
A policy brief on Vietnam conducted by the Asian Development Bank reveals that "poor households living in rural communities with paved roads have a 67% higher probability of escaping poverty, than those in communities without paved roads".

It is widely accepted that extensive rural and urban road networks result in substantial benefits to a country, with the poor capturing an appreciable share. However, the poor's share is often not large enough to significantly reduce income inequality, as the benefits from road extensions also significantly increase the leverage of the rich.  According to a January 2011 report by Oxford Analytica on the infrastructure deficit in sub-Saharan Africa, the competitiveness of African economies is highly affected by the fact that transportation costs are twice that of the BRICs (Brazil, Russia, India and China).

The report specifically states that: "The AICD found that governments frequently awarded procurement contracts to the lowest bidder, many of which do not have the funds to maintain (the roads). Poor supervision of the trucking industry - particularly widespread overloading - exacts a heavy toll on road network integrity".

Faced by these facts, the government's imperative after it pays off its creditors, should be to improve the regulatory environment, including due diligence, to ensure that the citizens of Ghana receive what they pay for.