(The Weekend Agenda.) -- The Government of President John Kufuor is losing sleep over what to do with Ghana Airways. The hawks within the Government machinery are asking for liquidation or the privatization of the airline in order to save it from its perennial cash flow problems as well its Heavily Indebted Poor Airline (HIPA) status.

But the pragmatists are warning that prescriptions would leave the Government with an egg on its face. Liquidating or selling it off, they argue, would be largely seen as a huge public relations boost to the opponents of the New Patriotic Party in the next elections.

Before a decision is finally taken, the Government has commissioned a forensic audit report into the operations of the airline. A confidential report prepared for study by the President and his advisers and sighted by Public Agenda blames a number of factors for the poor economic performance of ‘the Star in the Sky.”

Ghana Airways indebted to its creditors is to the tune of $150m and still counting. The report blames the general poor condition of the airline business throughout the world. But it is descends heavily on political interference over the years worsened by the 20 odd years rule of Flt-Lt Jerry John Rawlings and his PNDC/NDC administration.

The report identified a number of what it called negative organizational culture for the poor state of the airline’s finances. These include rampant pilfering and corrupt practices, uncontrolled authorization of discounted tickets, over ambitious expansion of route network, frequent abuse of official/staff privilege in carriage of baggage, unwieldy organizational structure, lack of cost consciousness, death of professionalism/discipline and paucity of customer orientation.

The reporter also identified the unattractive nature of aircraft in the fleet as one of the major reasons for which it has been losing customers. Under this category, the report listed unappealing interior d?cor, obsolete in-flight entertainment system, poor customer service, uncaring, unfriendly frontline staff, limited maintenance facilities for aircraft and poor operational reliability and punctuality.

“The consequences of this poor performance has been the accumulation of substantial debt, as cash flow generated from operations could not meet the financial obligations of the company. Additionally, 1998 - 2000 was the period in which the company contracted several loans with very unfavourable terms, ostensibly to finance an ill-advised expansion programme it embarked upon. In the first quarter of 2001, average monthly net losses have been to the tune of about US$ 3.5 million, with serious implications for the debt position of the Company.”

The report said Ghana Airways was earning about $500,000 in 1994 before it was taken over by Speeding, a subsidiary of British Airways under Rex Lezard as Managing Director, and contracted by Edward Saliah as Minister of Transport and Communications to run the national airline.

The report descended heavily on the agreement under which African Grounds Operations (AFGO) owned by a close friend of ex-President Jerry Rawlings, was given the right to be solely in charge of aircraft under-wing handling. “GH (Ghana Airways) pays AFGO approximately $150,000 a month for aircraft under-wing handling. Also, GH owes AFGO ?2.0 billion and over $2.4 million. All these would not have happened but for the forcible takeover of GH’s assets.

Public Agenda can confirm that among several topics to be investigated by the audit team is a list of what one official described as “questionable transactions entered into by the past administration.”- Weekend Agenda

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Budget is realistic - Economist

Accra (Greater Accra) 01 March 2002 - The Institute of Economic Affairs (IEA) has described the government’s macro-economic targets as realistic and indeed reasonable, taking into account past economic problems.

“Economic targets must be realistic and achievable. It is better to have a conservative target and exceed it than to have an ambitious target that you cannot meet,” says a senior economist and research fellow of the Institute, Prof Bartholomew Annah.

Prof Annah explained that since 1995, the average GDP has been around 4.3 per cent. He pointed out that inconsistent indicators have since characterized the economy. “Today inflation could be a single digit and by tomorrow it will jump to about 40 per cent.”

He said although Ghana has experienced some stability since the beginning of 2001, it takes time to build confidence in investors who have to be convinced that the economy is stable and will remain the same for a long time before they borrow money to invest for growth to occur.

Again, he maintains that when inflation goes down, it takes time for interest rates to also go down. “Even if investors borrow money from the banks to invest this year, the impact will not be felt now. It will take a year or two so if one is making projections one should take into account all these things,” Prof Armah said.

The Minority Spokesman on Finance and former Deputy Finance Minister, Moses Asaga has however, described the Budget as a ‘Kwashiokor’ Budget, which lacks focus. He said the government achieved economic targets for the past year because it is not spending money.” But the economist said if the government controls its expenditure mechanism, it can exceed its targets for 2002, baring any dramatic externals shocks.

He said the 2002 economic targets make some room for drought, which affects food security, as well as some aspects of unforeseen shocks. On addition, Armah said if investments in agriculture are well-thought out and it pays off it will have a booming impact on the growth of the economy and eventually poverty will decline.

According to the Ghana Living Standards Survey (GLSS) 60 per cent of food crop farmers live below the poverty line of ?900,000 per annum. On the 60 per cent rise in cocoa price, the economist described it as a progressive move but said smuggling of cocoa from the country to Ivory Coast will continue so long as there is a gap between Ghana’s producer price and that of its neighbours. In the short term, the policy should march the differences in what Ivory Coast pays for cocoa, he added.

On the divestiture of the National Investment Bank (NIB), Ghana Commercial Bank (GCB) and the Cocoa Processing Company (CPC), Prof Armah thinks government should play as minimal role as possible in the productive sector.

He said government’s role in such areas should be indirect such as giving tax incentives to banks, which invest in development projects in specific areas of the country’s economy. “The problem with government getting into such areas have been one of cronyism and practices that are inconsistent with sound banking rules,” he said stressing “this has led to the collapse of some banks in the country.”

Armah also cited the case of Ghana Airways, which he alleged is almost bankrupt due to bad management practices, as well as, the Tema Oil Refinery, which was operating at a huge loss to the state largely due to political interference. “NIB has been recapitalised in the past, however, one cannot bail out a system without thinking of preventing a re-occurrence,” he said.

However, Prof Armah was cautious when it comes to water and electricity. “Government needs to set regulations on those two basic services to protect the poor. Here, there should be a good database to determine who is poor and cannot pay.”

Prof Armah said tariffs are unsustainable but if government sets its targets right and gives a contract that has clauses to protect the poor, those who are rich could pay to inject efficiency in the water distribution system.

Pointing out that unless house-numbering system improves with poor people giving reasons why they cannot pay the full cost of utilities, the nation will still be subsidising those who do not deserve to be subsidised.